UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: December 8, 2000 (Date of earliest event reported) EXELIXIS, INC. (Exact name of registrant as specified in its charter) Delaware 0-30235 04-3257395 (State or other jurisdiction of (Commission File Number) (I.R.S. Employer incorporation or organization) Identification Number) 170 Harbor Way P.O. Box 511 South San Francisco, CA 94083 (Address of principal executive offices, including zip code) (650) 837-7000 (Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS (a) Effective December 8, 2000, Athens Acquisition Corp., a Delaware corporation ("Merger Sub") and a wholly-owned subsidiary of Exelixis, Inc., a Delaware corporation ("Exelixis" or the "Company"), was merged with and into (the "Merger") Agritope, Inc., a Delaware corporation ("Agritope"). The Merger was accomplished pursuant to an Agreement and Plan of Merger and Reorganization, dated as of September 7, 2000, among Exelixis, Agritope and Merger Sub (the "Merger Agreement"). The Merger occurred following the approval of the Merger Agreement by the stockholders of Agritope at a special meeting of stockholders held on December 8, 2000 and satisfaction of certain other closing conditions. Pursuant to the Merger Agreement, each then-outstanding share of Agritope capital stock was converted into the right to receive 0.35 of a share of Exelixis common stock (the "Exchange Ratio"), with Agritope surviving as a wholly-owned subsidiary of Exelixis and renamed Exelixis Plant Sciences, Inc. Approximately 2.6 million shares of Exelixis common stock will be issued to former Agritope stockholders and holders of rights exercisable for shares of stock of Agritope in exchange for the acquisition by Exelixis of all outstanding Agritope capital stock. Holders of outstanding Agritope common stock and Series A preferred stock will receive approximately 1.7 million shares of Exelixis common stock. Unexpired and unexercised options and warrants to purchase shares of Agritope capital stock will be assumed by Exelixis pursuant to the Merger and converted into fully vested options and warrants to purchase approximately 890,000 shares of Exelixis common stock. Pursuant to the Merger Agreement, the Exchange Ratio was calculated by dividing $14.00 by the average closing price of Exelixis common stock for the 20 trading days ending on, and including, the fifth trading day prior to the closing of the Merger, subject to the issuance of a minimum of 0.28 of a share and a maximum of 0.35 of a share of Exelixis common stock for each outstanding share of Agritope capital stock. The Exchange Ratio was determined in arms' length negotiations and took account of several factors concerning the relative valuations of Agritope and Exelixis. The Agritope board of directors received an opinion from its financial advisor that the merger consideration to be received by holders of Agritope common stock pursuant to the Merger Agreement was fair to the holders of Agritope common stock from a financial point of view. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and will be accounted for using the purchase method of accounting. The shares issued to Agritope stockholders were registered pursuant to a Registration Statement on Form S-4 (No. 333-47710), as amended, pursuant to the Securities Act of 1933, as amended, which was declared effective by the Securities Exchange Commission ("SEC") on October 31, 2000 (the "Form S-4"). The description contained in this Item 2 of the transactions consummated pursuant to the terms and conditions of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached as Appendix A to the Form S-4. The press release issued by the Registrant on December 8, 2000 concerning the closing of this acquisition was filed with the SEC on December 8, 2000 on Form 425 and is incorporated herein by reference. For a more detailed description of the Merger and the Merger Agreement, reference is made to the Form S-4. (b) Agritope is an agricultural biotechnology company that develops improved plant products and provides technology to the agricultural industry. Agritope is comprised of two business segments: Agritope Research and Development and a majority-owned subsidiary, Vinifera, Inc., which propagates and markets grapevines to the U.S. premium wine grape production industry. 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AGRITOPE, INC. AND SUBSIDIARIES Reports of Independent Accountants........................................................................... 3 Consolidated Balance Sheets.................................................................................. 4 Consolidated Statements of Operations........................................................................ 5 Consolidated Statements of Changes in Stockholders' Equity................................................... 6 Consolidated Statements of Cash Flows........................................................................ 7 Notes to Consolidated Financial Statements.................................................................... 8 AGRITOPE, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Agritope, Inc. We have audited the accompanying consolidated balance sheets of Agritope, Inc. (a Delaware corporation) and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of Agritope, Inc. and subsidiaries as of September 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2000 in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Portland, Oregon December 19, 2000 3
AGRITOPE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 1999 ASSETS Current assets Cash and cash equivalents....................................... $1,373,333 $4,203,937 Trade accounts receivable, net.................................. 713,001 355,187 Other accounts receivable....................................... 151,599 165,480 Due from affiliate.............................................. -- 119,088 Inventories..................................................... 4,439,836 5,053,888 Prepaid expenses................................................ 111,138 73,440 ----------- ----------- Total current assets............................................ 6,788,907 9,971,020 Property and equipment, net..................................... 2,881,909 3,511,824 Patents and proprietary technology, net......................... 2,051,041 1,945,586 Other assets and deposits ...................................... 42,752 42,752 ----------- ----------- $11,764,609 $15,471,182 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................................ $807,837 $642,178 Due to affiliate, net........................................... 123,860 -- Revolving line of credit........................................ 1,484,000 1,463,000 Advances from minority shareholders of subsidiary............... 868,062 180,616 Current portion of installment notes payable.................... 4,576 4,576 Current portion of lease liability.............................. 3,000 140,935 Deposits on customer orders..................................... 554,295 1,173,303 Salaries, benefits and other accrued liabilities................ 1,542,091 580,028 ----------- ----------- Total current liabilities....................................... 5,387,721 4,184,636 Long-term portion of installment notes payable.................. 1,378 5,465 Minority interest............................................... 1,534,361 1,958,538 Commitments and contingencies Stockholders' equity Preferred stock, par value $.01 10,000,000 shares authorized; 714,285 shares issued and outstanding........................................ 7,143 7,143 Common stock, par value $.01 30,000,000 shares authorized; 4,151,999 shares and 4,070,612 issued and outstanding........................................ 41,520 40,706 Additional paid-in capital...................................... 60,930,554 60,369,181 Accumulated deficit............................................. (56,138,068) (51,094,487) ----------- ----------- 4,841,149 9,322,543 $11,764,609 $15,471,182 The accompanying notes are an integral part of these statements. 4
AGRITOPE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2000 1999 1998 Revenues Product sales .................................. $ 4,250,268 $ 2,503,377 $ 2,574,976 Government research grants ..................... 423,254 313,876 224,688 Research projects with strategic partners ...... 360,323 497,800 -- Research projects with affiliate ............... 2,305,754 236,416 -- ------------ ------------ ------------ 7,339,599 3,551,469 2,799,664 Costs and expenses Product costs .................................. 4,498,832 2,333,673 3,414,293 Research and development expenses .............. 4,397,649 3,105,183 2,471,374 Selling, general and administrative expenses ... 3,735,319 3,685,291 3,138,437 ------------ ------------ ------------ 12,631,800 9,124,147 9,024,104 Loss from operations ........................... (5,292,201) (5,572,678) (6,224,440) Other income (expense), net Interest income ................................ 120,994 102,742 224,350 Interest expense ............................... (205,561) (21,446) (1,248) Gain on sale of stock of subsidiary ............ -- 289,603 -- Gain on sale of investment in affiliated company 124,670 -- -- Merger related costs ........................... (503,488) -- -- Other, net ..................................... 42,611 166,365 (125,052) ------------ ------------ ------------ (420,774) 537,264 98,050 Minority interest in subsidiary net loss ....... 669,394 360,008 882,423 ------------ ------------ ------------ Net loss ....................................... $ (5,043,581) $ (4,675,406) $ (5,243,967) Net loss per share (basic and diluted) ......... $ (1.23) $ (1.15) $ (1.42) Weighted number of shares outstanding used in net loss per share ....................... 4,115,916 4,061,474 3,705,490 The accompanying notes are an integral part of these statements. 5
AGRITOPE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY PREFERRED COMMON ADDITIONAL ACCUMULATED STOCK STOCK PAID-IN CAPITAL DEFICIT Balances at September 30, 1997 ............. $ -- $ 26,908 $ 45,910,932 $(41,175,114) Compensation expense for Stock option grants ....................... -- -- 390,420 -- Common stock issued as compensation- 15,670 shares ............................ -- 157 40,345 -- Common stock issued in private placement- 1,343,704 shares ......................... -- 13,437 10,322,333 -- Preferred stock issued in private placement- 214,285 shares ........................... 2,143 -- 1,497,852 -- Equity issuance costs ...................... -- -- (2,023,347) -- Cash contribution from Epitope, Inc. ....... -- -- 1,248,140 -- Net loss for the year ...................... -- -- -- (5,243,967) ------------ ------------ ------------ ------------ Balances at September 30, 1998 ............. 2,143 40,502 57,386,675 (46,419,081) Compensation expense for Stock option grants ...................... -- -- 457,861 -- Common stock issued as compensation- 20,462 shares ............................ -- 204 40,953 -- Preferred stock issued in private placement- 500,000 shares ........................... 5,000 -- 2,615,000 -- Equity issuance costs ...................... -- -- (131,308) -- Net loss for the year ...................... -- -- -- (4,675,406) ------------ ------------ ------------ ------------ Balances at September 30, 1999 ............. 7,143 40,706 60,369,181 (51,094,487) Common stock issued as compensation - 71,242 shares ............................. -- 713 119,731 -- Compensation expense for stock option grants -- -- 420,378 -- Common stock issued upon exercise of stock Options - 10,145 shares ................... -- 101 31,564 -- Equity issuance costs ...................... -- -- (10,300) -- Net loss for the year ...................... -- -- -- (5,043,581) ------------ ------------ ------------ ------------ Balances at September 30, 2000 ............. $ 7,143 $ 41,520 $ 60,930,554 $(56,138,068) The accompanying notes are an integral part of these statements. 6
AGRITOPE, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net loss............................................................. $(5,043,581) $(4,675,406) $(5,243,967) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ....................................... 1,329,086 1,307,937 951,209 Loss on sale of property............................................. -- 3,637 54 Gain on sale of equity in subsidiary................................. -- (289,603) -- Gain on sale of investment in affiliated company..................... (124,670) -- -- Compensation expense for stock awards................................ 120,444 41,157 40,502 Compensation expense for stock option grants of subsidiary........... 47,717 119,103 -- Compensation expense for stock option grants......................... 420,378 457,861 390,420 Minority interest in subsidiary net loss............................. (669,394) (360,008) (882,423) Imputed interest expense on minority shareholders' advances.......... 60,000 -- -- (Increase) decrease in accounts receivable and other receivables..... (343,933) 637,883 (535,637) (Increase) in due from/to affiliate.................................. 242,948 (119,088) -- (Increase) decrease in inventories................................... 614,052 (1,764,716) (1,207,877) (Increase) decrease in prepaid expenses.............................. (37,698) 98,756 104,028 (Increase) decrease in other assets and deposits..................... -- (14,233) (1,722) Increase in accounts payable and accrued liabilities................. 1,127,722 545,955 86,966 Increase (decrease) in deposits on customer orders................... (619,008) 573,359 210,013 Other................................................................ -- -- 162,647 ------------ ----------------- ----------- Net cash used in operating activities................................ (2,875,937) (3,437,406) (5,925,787) CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment.................................. (374,567) (446,730) (2,126,906) Proceeds from sale of property....................................... -- 900 11,033 Proceeds from sale of equity of subsidiary........................... 137,500 873,836 -- Proceeds from sale of investment in affiliated company............... 124,670 -- -- Investment in affiliated companies................................... -- -- 70,000 Expenditures for patents and proprietary technology.................. (430,059) (485,352) (646,712) ------------ ----------------- ----------- Net cash used in investing activities................................ (542,456) (57,346) (2,692,585) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt................................. (4,087) (4,452) (4,331) Payments on long-term lease liability................................ (137,935) (333,254) (317,920) Net proceeds from revolving line-of-credit........................... 21,000 1,463,000 -- Advances from minority shareholders of subsidiary.................... 687,446 180,616 -- Proceeds from issuance of stock, net................................. 21,365 2,488,692 9,812,418 Minority interest investment in subsidiary........................... -- -- 1,779,768 Cash from Epitope, Inc............................................... -- -- 1,248,140 ------------ ----------------- ----------- Net cash provided by financing activities............................ 587,789 3,794,602 12,518,075 Net (decrease) increase in cash and cash equivalents................. (2,830,604) 299,850 3,899,703 Cash and cash equivalents at beginning of period..................... 4,203,937 3,904,087 4,384 ------------ ----------------- ----------- Cash and cash equivalents at end of period........................... $1,373,333 $4,203,937 $3,904,087 The accompanying notes are an integral part of these statements. 7
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 THE COMPANY Agritope, Inc. (the "Company" or "Agritope") is an Oregon-based agricultural biotechnology company that develops improved plant products and provides technology to the agricultural industry. Its 57% owned subsidiary, Vinifera, Inc. ("Vinifera"), offers superior grapevine plants to the premium wine industry together with disease testing and elimination services. Agrinomics LLC ("Agrinomics") is a 50% owned subsidiary that conducts a gene discovery program. Superior Tomato Associates, LLC ("Superior Tomato") is a 66-2/3% owned subsidiary formed to develop and market longer-lasting tomatoes. Prior to December 30, 1997, Agritope was a wholly-owned subsidiary of Epitope, Inc. ("Epitope"), an Oregon corporation engaged in the development and marketing of medical diagnostic products. On September 7, 2000, the Company entered into an agreement under which the Company would merge with and into a subsidiary of Exelixis, Inc. On December 8, 2000, the stockholders of the Company approved the transaction, and the Company became a wholly-owned subsidiary of Exelixis, Inc., renamed Exelixis Plant Sciences, Inc. Stockholders of the Company will receive 0.35 of a share of common stock of Exelixis, Inc. for each share of capital stock of the Company held on December 8, 2000. In connection with the merger, the Company incurred prior to September 30, 2000, $503,488 of merger related costs which were expensed and included in "Other income (expense), net" in the accompanying statements of operations. BASIS OF PRESENTATION. The accompanying consolidated financial statements include the assets, liabilities, revenues and expenses of Agritope and its majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The Agrinomics subsidiary is accounted for using the equity method. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS. For purposes of the consolidated balance sheets and statements of cash flows, all highly liquid investments with maturities at time of purchase of three months or less are considered to be cash equivalents. INVENTORIES. Inventories, consisting principally of growing grapevine plants at Vinifera, are recorded at the lower of average cost or market. Average cost includes all direct and indirect costs attributable to the growing grapevine plants. Inventory is summarized as follows: SEPTEMBER 30 2000 1999 Operating supplies ....................................... $185,657 $ 143,757 Work-in-process .......................................... 3,052,009 1,437,617 Finished goods ........................................... 1,202,170 3,472,514 --------- --------- $4,439,836 $ 5,053,888 DEPRECIATION AND CAPITALIZATION POLICIES. Property and equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to operating expense as incurred. Expenditures for renewals and betterments are capitalized. Depreciation and amortization of property and equipment are calculated primarily under the straight-line method over the estimated useful lives of the related assets (three to seven years). Leasehold improvements are amortized over the shorter of estimated useful lives or the terms of the related leases. When assets are sold or otherwise disposed of, cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is included in results of operations. 8
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED ACCOUNTING FOR LONG-LIVED ASSETS. The Company reviews its long-lived assets for impairment periodically or as events or circumstances indicate that the carrying amount of long-lived assets may not be recoverable. If the estimated net cash flows are less than the carrying amount of the long-lived assets, the Company recognizes an impairment loss in an amount necessary to write down long-lived assets to fair value as determined from expected discounted future cash flows. This accounting policy is consistent with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." PATENTS AND PROPRIETARY TECHNOLOGY. Direct costs associated with patent submissions and acquired technology are capitalized and amortized over their minimum estimated economic useful lives, generally five years. Amortization and accumulated amortization are summarized as follows: 2000 1999 1998 Amortization for the year............... $324,604 $276,764 $ 186,406 Accumulated amortization................ 1,020,796 696,192 419,428 FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts for cash equivalents, accounts receivable, accounts payable and revolving line of credit approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount for installment notes payable approximates fair value because the related interest rates are comparable to rates currently available to the Company for debt with similar terms and maturities. The Company does not have any derivative financial instruments. REVENUE RECOGNITION. Product sales are recognized when the related products are shipped and title passes. Grant and contract revenues include funds received under research and development agreements with various entities. These grants and contracts generally provide for progress payments as expenses are incurred and certain research milestones are achieved. Revenue related to such grants and contracts is recognized as research milestones are achieved. Accounts receivable are stated net of an allowance for doubtful accounts of $25,105 as of September 30, 2000 and $24,054 as of September 30, 1999. MAJOR CUSTOMER. No single customer accounted for more than 5% of revenue during the years ended September 30, 2000 and 1999. For the year ended September 30, 1998, one customer purchased $829,578 of grapevine plants from Vinifera, representing 32.2% of Vinifera's revenue. See also Note 8 for revenues with strategic partners and an affiliate. RESEARCH AND DEVELOPMENT. Research and development expenditures are comprised of those costs associated with Agritope's ongoing research and development activities to develop superior new plants. Expenditures for research and development also include costs incurred under contracts to develop certain products, including those contracts resulting in grant and contract revenues. All research and development costs are expensed as incurred. INCOME TAXES. The Company accounts for certain revenue and expense items differently for income tax purposes than for financial reporting purposes. These differences arise principally from methods used in accounting for stock options and depreciation rates. Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to reverse. 9
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED STOCK-BASED COMPENSATION. In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies which have stock-based compensation arrangements with employees to adopt a fair-value basis of accounting for stock options and other equity instruments or to continue to apply the existing accounting rules under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), but with additional financial statement disclosure. The Company has elected to apply the existing accounting rules under APB 25 to its stock-based compensation plans. See Note 6. NET LOSS PER SHARE. Basic earnings per share ("EPS") and diluted EPS are computed using the methods prescribed by Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Basic EPS is calculated using the weighted-average number of common shares outstanding for the period and diluted EPS is computed using the weighted-average number of common shares and dilutive common equivalent shares outstanding. Basic and diluted EPS are the same for all periods presented since the Company was in a loss position in all periods. The following potentially dilutive securities are excluded from net loss per share calculations as their effect would have been antidilutive: YEAR ENDED SEPTEMBER 30 2000 1999 1998 Options to purchase common stock........ 1,837,843 1,708,103 1,255,264 Warrants to purchase common stock....... 708,333 708,333 583,333 Preferred stock convertible into common stock... 714,285 714,285 214,285 ---------- --------- --------- 3,260,461 3,130,721 2,052,882 SUPPLEMENTAL CASH FLOW INFORMATION. YEAR ENDED SEPTEMBER 30 2000 1999 1998 Cash paid for interest ............. $145,561 $ 21,446 $ 1,248 Non-cash financing activity: Fair value of warrants issued in connection with private placements -- 120,000 929,842 MANAGEMENT ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates relating to assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. RECLASSIFICATIONS. Reclassifications have been made to prior year amounts to conform to current year presentation. NOTE 3 INVESTMENT IN AFFILIATED COMPANIES In June 2000, Agritope received $124,670 from the sale of its interest in UAF, LP, resulting in a gain of $124,670 which is included under the caption "Other income (expense), net" in the accompanying consolidated statements of operations for 2000. In June 1998, Vinifera accepted an offer to sell its minority interest in Vinifera Sudamericana, S.A. to the majority shareholder for $70,000. The resultant non-cash loss on disposition of $130,000 is included in "Other, net" under the caption "Other income (expense), net" in the accompanying consolidated statements of operations for 1998. 10
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 PROPERTY AND EQUIPMENT Property and equipment are summarized as follows: SEPTEMBER 30 2000 1999 Land........................................................ $ 30,020 $ 30,020 Grapevine propagation blocks................................ 1,800,491 1,723,317 Production equipment........................................ 121,400 120,031 Buildings and improvements.................................. 2,486,994 2,483,556 Research and development laboratory equipment............... 896,271 840,259 Office furniture and equipment.............................. 918,644 795,553 Leasehold improvements...................................... 285,165 317,016 Construction in progress.................................... 275,318 136,589 ----------- ---------- 6,814,303 6,446,341 Less accumulated depreciation and amortization.............. (3,932,394) (2,934,517) ----------- ---------- $2,881,909 $ 3,511,824 NOTE 5 BORROWING ARRANGEMENTS ADVANCES TO VINIFERA FROM MINORITY SHAREHOLDERS. In September 1999, certain minority shareholders of Vinifera agreed to advance $519,000, interest-free, to Vinifera. The amounts to be advanced are equal to the second installment payable by the shareholders to Agritope under certain stock purchase agreements. They are to be repaid to the shareholders on or before the due date for the second installment, which Agritope has agreed to extend to February 1, 2001. The advances are included in current liabilities in the accompanying financial statements. The first advances, totaling $180,616 were made in 1999. The remaining advances were made in October 1999 of fiscal year 2000. See Note 6 for further details with respect to the stock purchase agreements. In 2000, two minority shareholders, including the chief executive officer of Vinifera, agreed to advance up to $600,000, interest-free, to Vinifera, to be repaid from proceeds of any future equity financing. As of September 30, 2000, $349,062 has been advanced related to these agreements. As of September 30, 2000, $868,062 of advances from minority shareholders were outstanding and are reflected as current liabilities in the accompanying balance sheet. During 2000, the Company recorded imputed interest expense of $60,000 related to advances from minority shareholders. REVOLVING LINE OF CREDIT. In June 1999, Vinifera borrowed $1.1 million from a commercial bank under a revolving line of credit. The proceeds were used to finance inventory production and repay a $1 million line of credit advanced by Agritope. The line provides for borrowings of up to $1.5 million, of which $1,484,000 and $1,463,000 was outstanding as of September 30, 2000 and 1999, respectively. It is secured by Vinifera's inventories and accounts receivable and is guaranteed by one of Vinifera's minority shareholders. The line bears interest at the prime rate (9.5% as of September 30, 2000). It expires on February 1, 2001. 11
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 STOCKHOLDERS' EQUITY VINIFERA COMMON STOCK. In January 2000, Vinifera entered into a stock purchase agreement with a certain minority shareholder. Under the terms of the agreement, 50,000 shares of Vinifera stock were issued and sold to the purchaser for $137,500. The transaction did not materially change Agritope's percentage ownership of 57%. In June 1999, Agritope entered into stock purchase agreements with certain minority shareholders of Vinifera pursuant to which minority ownership of Vinifera will increase from 36% to approximately 50% over a three-year period. In a related transaction, also in June 1999, Vinifera repaid the $1 million balance on its working capital line of credit to Agritope and replaced the line with a $1.5 million revolving bank line of credit that is guaranteed by a minority shareholder. In July 1999, the minority shareholders made the first purchases under the stock purchase agreements. Agritope received proceeds totaling $873,836 and its ownership interest in Vinifera was reduced from 64% to 57%. The gain on the first purchases amounted to $289,603 and is included in Other income (expense). In June 1998, Vinifera sold 898,269 shares of common stock to certain minority shareholders for $1.8 million. In connection with the terms of the related stock purchase agreements, Agritope canceled $4 million of working capital loans to Vinifera in exchange for 2 million shares of common stock of Vinifera. The transactions increased Agritope's percentage ownership from 61% to 64%. WARRANTS TO PURCHASE COMMON STOCK. As of September 30, 2000, the following warrants to purchase common stock were outstanding: DATE OF ISSUANCE SHARES EXERCISE PRICE EXPIRATION DATE September 24, 1999......... 125,000 $ 7.00 September 30, 2004 April 30, 1998............. 83,333 $ 7.34 December 30, 2000 December 30, 1997.......... 500,000 $ 7.00 December 30, 2000 ------- 708,333 SERIES A PREFERRED STOCK. Agritope's board of directors has designated 1 million shares of Agritope preferred stock, par value $.01 per share, as Series A Preferred Stock ("Series A Preferred"). The Series A Preferred has preemptive rights and the right to elect a director, but otherwise has rights substantially equivalent to Agritope common stock and is convertible at any time into shares of Agritope common stock on a share-for-share basis, subject to adjustment upon the occurrence of certain events. In connection with a research agreement, Vilmorin Clause & Cie ("Vilmorin") purchased 214,285 shares of Series A Preferred in 1998 at a price of $7 per share. See Note 8. In September 1999, the Company completed a $2.5 million private placement of 500,000 shares of Series A Preferred Stock at a price of $5 per share. Vilmorin purchased the shares. For every four shares of Series A Stock purchased in the private placement, Vilmorin also received a warrant to purchase one additional share of Series A Stock at a price of $7 per share at any time over the next five years. The fair value of such warrants, $120,000, is included in "Preferred stock issued in private placement" with a corresponding charge to "Equity issuance costs" in the accompanying statement of stockholders equity. Each share of Series A Stock is convertible into one share of Agritope Common Stock. Vilmorin subsequently sold 150,000 shares of Series A Stock together with the related warrants to an Israeli seed company, Hazera Quality Seeds Ltd.("Hazera"), for $750,000. After completion of the sales, Vilmorin owned 564,285 shares of Series A Stock, or 11.8% of the outstanding capital stock of Agritope. Hazera's holdings amounted to 3.1% of Agritope's outstanding capital stock. 12
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 STOCKHOLDERS' EQUITY, CONTINUED STOCK AWARD PLAN. In November 1997, the Agritope, Inc. 1997 Stock Award Plan (the "Award Plan") was adopted by Agritope's board of directors and approved by Epitope as Agritope's sole stockholder. The Award Plan provides for stock-based awards to employees, outside directors, members of scientific advisory boards and consultants. Awards that may be granted under the Award Plan include incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. The Award Plan provides for the issuance of a total of up to 2,000,000 shares of Agritope common stock, subject to adjustment for changes in capitalization. Options for 162,157 shares were available for future grants under the Award Plan as of September 30, 2000. The following tables summarizes Award Plan activity (shares and weighted average prices): 2000 1999 1998 SHARES PRICE SHARES PRICE SHARES PRICE Outstanding, beginning of period ... 1,708,103 $4.70 1,255,264 $ 5.54 -- $ -- Granted ............................ 250,525 4.64 509,439 2.80 1,422,664 5.51 Exercised .......................... (10,145) 3.12 -- -- -- -- Canceled ........................... (110,640) 5.18 (56,600) 5.91 (167,400) 5.31 ---------- ---------- ---------- Outstanding, end of period ......... 1,837,843 4.67 1,708,103 4.70 1,255,264 5.54 Exercisable......................... 738,302 5.06 369,445 5.38 65,000 5.07 Weighted average fair value of options granted................... 1.78 0.90 3.68 The amounts granted above include options granted to consultants in 1999 and 1998 covering 10,000 and 65,000 shares, respectively, at average exercise prices of $2.00 and $5.07, respectively. In accordance with SFAS 123, Agritope recognized compensation expense for these awards in 1999 and 1998 totaling $7,500 and $81,000, respectively, based on the fair value of the options as determined using the Black-Scholes method of valuation. With respect to options granted in 1999 and 1998 to participants other than consultants, Agritope will recognize compensation expense of $22,500 and $1,902,065, respectively, representing discounts from market prices on date of grant, which will be amortized over the vesting period of the options, in accordance with APB 25. No options granted in 2000 were granted below fair market value at the date of the grant. Amortization in 2000, 1999 and 1998 amounted to $420,378, $450,361 and $309,420, respectively. The following table summarizes information about stock options outstanding as of September 30, 2000: REMAINING WEIGHTED WEIGHTED SHARES CONTRACT LIFE AVERAGE SHARES AVERAGE EXERCISE PRICE OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE $2.00 to $3.23.... 457,079 8.34 $ 2.16 81,589 $ 2.03 $5.00 to $5.70.... 1,159,164 7.00 5.24 580,234 5.23 $6.58 to $7.00.... 221,600 8.15 6.88 76,479 7.00 ---------- -------- 1,837,843 7.47 4.67 738,302 5.06 EMPLOYEE STOCK PURCHASE PLAN. Also in November 1997, Agritope's board of directors and Epitope, as Agritope's sole stockholder, approved the Agritope, Inc. 1997 Employee Stock Purchase Plan (the "Purchase Plan"), covering up to 250,000 shares of Agritope common stock which Agritope employees may subscribe to purchase during offering periods to be established from time to time. The Compensation Committee of Agritope's board of directors was granted authority to determine the number of offering periods, the number of shares offered and the length of each period. No more than three offering periods (other than Special Offering Subscriptions as defined in the Purchase Plan) may be set during each fiscal year. The purchase price for stock purchased under the Purchase Plan is the lesser of 85% of the fair market value of a share on the last trading day before the offering date established for the offering period and 85% of the fair market value of a share on the date the purchase period ends (or any earlier purchase 13
date provided for in the Purchase Plan). As of September 30, 1999, employees had subscribed to purchase 43,053 shares over a 24-month period at an initial price of $0.93 per share. During the year ended September 30, 1999, 754 shares, with a weighted-average fair market value of $2.93 per share, were issued at a price of $0.93 per share. No offerings were made in the year ended September 30, 2000. As of September 30, 2000, employees had subscribed to purchase 27,586 shares over a 24-month period at an initial price of $0.93 per share. During the year ended September 30, 2000, 11,107 shares, with a weighted-average fair market value of $7.12 per share, were issued at a price of $0.93 per share and subscriptions equal to 4,360 shares were cancelled due to employee terminations. VINIFERA STOCK AWARD PLAN. In 1993, Vinifera adopted a stock award plan, which was approved by Agritope as the sole shareholder of Vinifera. The plan provided for issuance of options to purchase up to 2,000,000 shares of Vinifera common stock. In 1993, Vinifera granted options to purchase 100,000 shares for $1.00 per share, a price equal to the market value as determined by Vinifera's board of directors. No options were granted from 1994 until 1999. In 1999, Vinifera granted options to purchase 525,000 shares for $1.50 per share, representing a discount of $0.50 from the market price as determined by the board of directors. In 2000, Vinifera granted options to purchase 50,000 shares for $1.53 per share, representing a discount of $0.53 from the market price as determined by the board of directors. Also during 2000, Vinifera granted options to purchase 50,000 shares for $2.00 per share, which was deemed to be the fair market value at the date of grant. During 2000, 162,500 options, at a weighted average price of $1.50, were cancelled due to employee terminations. As of September 30, 2000, options were outstanding to purchase 562,500 shares at a weighted average exercise price of $1.46, for which options on 302,500 shares were exercisable, at a weighted-average price of $1.34. In accordance with APB 25, Vinifera will recognize compensation expense of $281,000 over a four-year period. Amortization of such expense was $47,717, $119,103 and $0, in 2000, 1999 and 1998 respectively. As required by SFAS 123, the Company has computed, for pro forma disclosure purposes, the value of options granted and amortized over the vesting periods using the Black-Scholes option pricing model. The assumptions used for stock option grants were as follows: FOR THE YEAR ENDED SEPTEMBER 30 2000 1999 1998 Risk-free interest rate................. 6% 5% 5% Expected dividend yield................. - - - Expected life (years)................... 4 4 4 Expected volatility..................... 123% 80% 55% The assumptions used for rights granted under the employee stock purchase plan in 1999 were a risk-free interest rate of 5%, an expected dividend yield of zero, an expected volatility of 80% and an expected life of two years. No rights were granted during fiscal year 2000. If the Company had accounted for its stock-based compensation plans in accordance with SFAS 123, the Company's net loss and net loss per share would have increased as follows: FOR THE YEAR ENDED SEPTEMBER 30 2000 1999 1998 Net loss: As reported............................. $ (5,043,581) $ (4,675,406) $ (5,243,967) Pro forma............................... $ (6,325,957) $ (5,937,886) $ (6,165,274) Net loss per share: As reported............................. $ (1.23) $ (1.15) $ (1.42) Pro forma............................... $ (1.54) $ (1.46) $ (1.66) 14
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 INCOME TAXES As of September 30, 2000, Agritope had net operating loss carryforwards of approximately $45.7 million and $32.9 million to offset federal and Oregon state taxable income, respectively. These net operating loss carryforwards will expire if not used by Agritope, as follows: YEAR OF EXPIRATION FEDERAL OREGON 2004................................................. $ 111,000 $ 111,000 2005................................................. 317,000 317,000 2006................................................. 941,000 941,000 2007................................................. 2,620,000 2,620,000 2008................................................. 6,733,000 4,847,000 2009................................................. 8,327,000 2,179,000 2010................................................. 8,477,000 3,765,000 2011................................................. 2,249,000 2,168,000 2012................................................. 4,279,000 4,284,000 2018................................................. 2,609,000 2,609,000 2019................................................. 4,319,000 4,319,000 2020................................................. 4,758,000 4,758,000 ----------- ---------- Total................................................ $45,740,000 $32,918,000 Significant components of Agritope's deferred tax assets were as follows: SEPTEMBER 30 2000 1999 Net operating loss carryforwards..................... $17,687,000 $ 16,158,000 Deferred compensation................................ -- 784,000 Research and experimentation credit carryforwards.... 659,000 542,000 Capital loss carryforward............................ 219,000 -- Accrued expenses..................................... 194,000 162,000 Other................................................ (833,000) 667,000 ------------ ------------ Gross deferred tax assets............................ 17,926,000 18,313,000 Valuation allowance.................................. (17,926,000) (18,313,000) ------------ ------------ Net deferred tax asset............................... $ -- $ -- No benefit for Agritope's deferred tax assets has been recognized in the accompanying financial statements as they do not satisfy the recognition criteria set forth in Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS 109"). The valuation allowance decreased by $0.4 million in 2000. The research and experimentation tax credit carryforwards will generally expire from 2004 through 2020 if not used by Agritope. The issuance of voting stock may result in a change of ownership under federal tax rules and regulations. Upon occurrence of such a change in ownership, utilization of existing tax loss and tax credit carryforwards would be subject to cumulative annual limitations. The consolidated financial statements include the financial results of Vinifera, a 57% owned subsidiary (see Note 1). However, the tax disclosures above do not include the deferred tax assets and related valuation allowance for Vinifera's carryforwards since Vinifera is not included in the consolidated group for tax purposes. Vinifera files its tax return separately on a stand-alone basis. 15
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS REVENUES. Revenues from research and development arrangements are included in the accompanying consolidated statements of operations. Expenses related to projects conducted under such arrangements are included under the caption "Research and development expenses." The activity related to these arrangements is summarized as follows: YEAR ENDED SEPTEMBER 30 2000 1999 1998 Government research grants................ $ 423,254 $ 313,876 $ 224,688 Research projects with strategic partners. 360,323 497,800 -- Research projects with affiliate.......... 2,305,754 236,416 -- ---------- ---------- ---------- $3,089,331 $1,048,092 $ 224,688 Project related expenses.................. $3,493,514 $1,331,356 $ 371,184 NATIONAL INSTITUTES OF STANDARDS AND TECHNOLOGY. In October 1997, Agritope was awarded a U.S. Department of Commerce matching grant totaling $990,022 through the Advanced Technology Program of the National Institute of Standards and Technology (NIST) and covering a three-year period. Agritope was awarded the grant for use in the application of its proprietary ripening control technology to certain tree fruits and bananas. Under terms of the grant, the NIST reimburses Agritope for 49% of direct costs incurred for the projects. As of September 30, 2000, $ 98,835 was available for future reimbursement under the grant. VILMORIN. On December 5, 1997, Agritope and Vilmorin entered into a research and development agreement covering certain vegetable and flower crops. Under the terms of the research agreement, Vilmorin will provide certain proprietary seed varieties and germplasm for use by Agritope in research and development projects to be funded by Vilmorin, in which Agritope technology, and possibly Vilmorin technology, will be applied to the various covered crops. The specific research projects to be conducted will be determined by agreement of the parties. Unless otherwise agreed, Vilmorin will pay, on a quarterly basis, all of Agritope's out-of-pocket expenses, including employee salaries and overhead, for each selected research project. Agritope and Vilmorin have agreed to negotiate in good faith the terms of future commercialization agreements applicable to any commercial-stage products that arise out of Vilmorin-funded research. If the parties are unable to agree, commercialization terms will be determined by binding arbitration. Vilmorin also agreed to provide additional funding totaling $1 million through the financing of research and development projects over a three-year period. As of September 30, 2000, Vilmorin had committed $160,000 to fund specified projects which are planned to be completed by June 2001. Agritope earned revenues of $360,323 and $497,800 for work completed for the Vilmorin projects in 2000 and 1999, respectively. No revenues were earned in 1998 with respect to such projects. 16
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 RESEARCH AND DEVELOPMENT ARRANGEMENTS, CONTINUED AGRINOMICS LLC. In July 1999, Agritope and Aventis CropScience S.A. ("Aventis CropScience") formed Agrinomics LLC ("Agrinomics") to conduct a research, development and commercialization program in the field of agricultural functional genomics. Agritope owns a 50% interest in Agrinomics and Aventis CropScience owns the remaining 50% interest. Aventis CropScience has agreed to make capital contributions in cash totaling $20 million over a five-year period, of which $4 million and $5 million were contributed in 2000 and 1999, respectively. Agritope contributed certain technology and a collection of seed generated using such technology. Agritope and Aventis CropScience will also perform research work at their respective facilities. In 2000 and 1999, Agritope earned revenues of $2.3 million and $236,416, respectively, for work performed for Agrinomics. The technology contributed to Agrinomics by Agritope had a zero basis for financial reporting purposes. Accordingly, Agritope has recorded its investment in Agrinomics as zero and will not include in its consolidated financial statements its proportionate share of the losses of Agrinomics until such time that Agritope makes capital contributions to Agrinomics, if ever. There is no requirement for Agritope to make additional capital contributions. Summarized financial information for Agrinomics is as follows: FINANCIAL POSITION 9/30/00 9/30/99 ASSETS Current assets Cash and marketable securities............................ $4,104,356 $4,784,798 Other accounts receivable................................. 36,696 16,404 Due from Agritope......................................... 123,860 -- Prepaid expenses.......................................... 10,000 -- ----------- --------------- 4,274,912 4,801,202 Property, plant and equipment, net........................ 2,686,384 142,940 Patents and proprietary technology, net................... 60,200 -- ----------- --------------- Total assets............................................ $7,021,496 $4,944,142 LIABILITIES AND MEMBERS' EQUITY Current liabilities Accounts payable.......................................... $ 208,823 $ 61,594 Due to Agritope........................................... -- 119,088 Deferred revenue.......................................... 375,000 -- ----------- --------------- 583,823 180,682 Members' equity 6,437,673 4,763,460 ----------- --------------- Total liabilities and members' equity $7,021,496 $4,944,142 OPERATING RESULTS YEAR ENDED INCEPTION TO 9/30/00 9/30/99 Research contract revenues................................ $ 1,125,000 $ -- Operating expenses Research and development.................................. 3,440,639 242,369 Administration............................................ 263,165 17,037 ----------- --------------- 3,703,804 259,406 Interest earned........................................... 253,017 22,866 ----------- --------------- Net loss ................................................. $ (2,325,787) $ (236,540) 17
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 COMMITMENTS AND CONTINGENCIES Agritope leases office space and Vinifera leases office and greenhouse facilities under operating lease agreements, which require minimum annual payments as follows: YEAR ENDING SEPTEMBER 30 2001 ................................................................ $544,936 2002 ................................................................ 560,048 2003 ................................................................ 326,140 2004 ................................................................ 90,500 2005 ................................................................ 25,500 Rent expense was $602,551, $514,762, and $556,717, for 2000, 1999, and 1998, respectively. NOTE 10 PROFIT SHARING AND SAVINGS PLANS EMPLOYEE STOCK OWNERSHIP PLAN. Agritope's board of directors adopted the Agritope, Inc. Employee Stock Ownership Plan ("ESOP") in November 1997. All employees, except excluded classes, of Agritope and those of its affiliates that elect to participate, are eligible to participate in the ESOP. The employers' contribution to the ESOP each year, if any, will be determined by the Agritope board of directors, and may be made either in Agritope common stock or in cash. Contributions will be allocated to participants in proportion to their compensation. Contributions vest based on years of service over the first six years of employment, or upon the participant's earlier death, disability, or attainment of age 65. In 2000, the Company made a contribution of $57,583 to the ESOP. No contributions were made in 1999 or 1998. The ESOP holds 47,271 shares of Agritope common stock as of September 30, 2000. 401(K) PROFIT SHARING PLAN. Agritope established the Agritope, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan") in November 1997. All employees (including officers), other than excluded classes, are eligible to participate. Participants may contribute up to 17% of their cash compensation on a before-tax basis, subject to an annual maximum amount that is adjusted for the cost of living ($10,500 for 2000). The first 5% of a participant's compensation is eligible for a discretionary, pro-rata employer matching contribution which will be invested in Agritope common stock. Matching contributions vest based on years of service over the first six years of employment, or upon the participant's earlier death, disability, or attainment of age 65. In 2000, 1999 and 1998, Agritope made contributions of $52,531, $40,456 and $40,502, respectively, to the 401(k) Plan. The 401(k) plan holds 59,548 shares of Agritope common stock as of September 30, 2000. 18
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 SEGMENT INFORMATION In 1999, Agritope adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). Under SFAS 131, segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Agritope's chief operating decision-maker is the chief executive officer. Agritope is organized into two segments: The Research and Development segment develops improved plant products and provides technology to the agricultural industry. The Grapevine Propagation segment, operated by Vinifera, propagates, grows and distributes grapevine plants to the premium wine industry. It also provides disease testing and elimination services. The accounting policies of the segments are the same as those described in Note 2, Summary of Significant Accounting Policies. The Company has no revenues outside the United States. For information as to major customers, see Note 2 "Major Customer". Selected segment information is presented in the tables below: RESEARCH AND GRAPEVINE DEVELOPMENT PROPAGATION TOTAL YEAR ENDED SEPTEMBER 30, 2000 Revenues from external sources.......... $3,089,331 $4,250,268 $7,339,599 Intersegment revenues................... -- -- -- Operating loss.......................... (3,937,198) (1,355,003) (5,292,201) Intersegment interest income (expense).. -- -- Interest income......................... 117,696 3,298 120,994 Interest expense........................ -- (205,561) (205,561) Other income (expense).................. -- 535 535 Segment loss............................ (3,819,502) (1,556,731) (5,376,233) Depreciation and amortization........... 662,917 666,169 1,329,086 Expenditures for long-lived assets...... 634,522 170,104 804,626 Segment assets.......................... 4,714,662 7,049,947 11,764,609 RESEARCH AND GRAPEVINE DEVELOPMENT PROPAGATION TOTAL YEAR ENDED SEPTEMBER 30, 1999 Revenues from external sources.......... $ 1,048,092 $ 2,503,377 $ 3,551,469 Intersegment revenues................... 180,296 (180,296) -- Operating loss.......................... (4,517,213) (1,055,465) (5,572,678) Intersegment interest income (expense).. 40,288 (40,288) -- Interest income......................... 102,543 199 102,742 Interest expense........................ (27) (21,419) (21,446) Other income (expense).................. -- 166,365 166,365 Segment loss............................ (4,374,409) (950,608) (5,325,017) Depreciation and amortization........... 669,672 638,265 1,307,937 Expenditures for long-lived assets...... 600,416 331,666 932,082 Segment assets.......................... 7,529,966 7,941,216 15,471,182 19
AGRITOPE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 SEGMENT INFORMATION, CONTINUED RESEARCH AND GRAPEVINE DEVELOPMENT PROPAGATION TOTAL YEAR ENDED SEPTEMBER 30, 1998 Revenues from external sources.......... $ 224,688 $ 2,574,976 $ 2,799,664 Intersegment revenues................... 70,869 (70,869) -- Operating loss.......................... (4,271,627) (1,952,813) (6,224,440) Intersegment interest income (expense).. 271,612 (271,612) -- Interest income......................... 224,350 -- 224,350 Interest expense........................ -- (1,248) (1,248) Other income (expense).................. 6,450 (131,502) (125,052) Segment loss............................ (3,769,215) (2,357,175) (6,126,390) Depreciation and amortization........... 442,826 508,383 951,209 Expenditures for long-lived assets...... 1,903,973 869,645 2,773,618 Segment assets.......................... 7,395,950 6,994,376 14,390,326 RECONCILIATION OF LOSSES. The following table reconciles segment losses to consolidated net loss: YEAR ENDED SEPTEMBER 30 2000 1999 1998 Segment losses ..................... $(5,376,233) $(5,325,017) $(6,126,390) Gain on sale of stock of Vinifera .. -- 289,603 -- Minority interest in Vinifera losses 669,394 360,008 882,423 Merger related costs ............... (503,488) -- -- Gain on sale of investment in affiliated company ............... 124,670 -- -- OTHER, NET ......................... 42,076 -- -- ----------- ----------- ----------- Net loss ........................... $(5,043,581) $(4,675,406) $(5,243,967) 20
(b) Pro Forma Financial Information The following unaudited pro forma condensed combined financial statements give effect to the Merger of Exelixis and Agritope, and the 1999 acquisition by Exelixis of substantially all of the assets of MetaXen, LLC ("MetaXen"), applying the purchase method of accounting. The unaudited pro forma condensed combined balance sheet gives effect to the Merger of Exelixis and Agritope as if it had occurred on September 30, 2000. The acquisition of substantially all of the assets of MetaXen occurred on July 11, 1999; accordingly, the unaudited balance sheet of Exelixis at September 30, 2000 reflects the acquisition of the MetaXen assets. The unaudited pro forma condensed combined statements of operations give effect to the Merger of Exelixis and Agritope and the 1999 acquisition of the MetaXen assets as if they had both occurred on January 1, 1999. For pro forma purposes, (i) Exelixis' unaudited balance sheet as of September 30, 2000 has been combined with Agritope's audited consolidated balance sheet as of September 30, 2000 as if the Merger had occurred on September 30, 2000, (ii) Exelixis' audited statement of operations for the year ended December 31, 1999, which includes the results of MetaXen subsequent to the acquisition date of July 11, 1999, has been combined with MetaXen's unaudited statement of operations from the period from January 1, 1999 to July 11, 1999 and (iii) the Exelixis/MetaXen unaudited pro forma condensed combined statement of operations for the year ended December 31, 1999, and the Exelixis unaudited statement of operations for the nine months ended September 30, 2000, have been combined with Agritope's audited consolidated statement of operations for the year ended September 30, 1999 and the unaudited consolidated statement of operations for the nine months ended September 30, 2000, respectively, as if the Merger had occurred on January 1, 1999. Agritope's revenues and net loss for the quarter ended December 31, 1999, which have been excluded from the pro forma statements of operations, were $600,934 and $(1,321,057), respectively. The unaudited pro forma condensed combined financial information has been prepared on the basis of assumptions described in the notes thereto and includes assumptions relating to the allocation of the consideration paid for the assets and liabilities of Agritope based on management's preliminary estimates of their fair value. Under the purchase method of accounting, the aggregate consideration paid is allocated to the tangible and identifiable intangible assets acquired, and liabilities assumed, on the basis of their respective fair values on the transaction date. The final allocation of such consideration may differ from that reflected in the unaudited pro forma condensed combined financial information after the completion of an independent valuation and other procedures to be performed after the closing of the Merger. Exelixis does not expect that the final allocation of the aggregate purchase price for the Merger will differ materially from the preliminary allocations. In the opinion of Exelixis, all adjustments necessary to present fairly such unaudited pro forma condensed combined financial information have been made based on the terms and structure of the Merger. The unaudited pro forma information has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and is presented for illustrative purposes only. Such information is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been consummated on January 1, 1999 or September 30, 2000, respectively, nor is it necessarily indicative of future operating results or financial position. These pro forma condensed combined financial statements are qualified in their entirety by reference to, and should be read in conjunction with, the historical financial statements and the related notes thereto, "Exelixis Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Agritope Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Form S-4. 21
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET SEPTEMBER 30, 2000 (IN THOUSANDS) PRO FORMA REFERENCE PRO FORMA EXELIXIS AGRITOPE ADJUSTMENTS (NOTE 2) COMBINED ----------- ----------- -------------- ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 39,317 $ 1,373 $ 40,690 Short-term investments 79,601 -- 79,601 Trade accounts receivable, net -- 713 713 Other receivables 2,299 152 2,451 Inventories -- 4,440 4,440 Other current assets 2,048 111 2,159 ----------- ----------- ------------ Total current assets 123,265 6,789 130,054 Property and equipment, net 19,441 2,882 22,323 Related party receivables 393 -- 393 Goodwill and other intangible assets -- 2,051 $55,057 (A) 57,108 Other assets 1,284 43 1,327 ----------- ----------- -------------- ------------ Total assets $144,383 $ 11,765 $55,057 $ 211,205 =========== =========== ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 4,718 $ 2,473 $5,900 (B) $ 13,091 Current portion of capital lease obligations 2,466 3 2,469 Current portion of notes payable 1,634 5 1,639 Revolving line of credit -- 1,484 1,484 Advances from minority shareholders of subsidiary -- 868 868 Deferred revenue 5,061 555 5,616 ----------- ----------- -------------- ------------ Total current liabilities 13,879 5,388 5,900 25,167 Capital lease obligations 3,882 -- 3,882 Notes payable 2,091 1 2,092 Other long-term liability 104 -- 104 Deferred revenue 9,184 -- 9,184 Minority interest -- 1,534 1,534 ----------- ----------- -------------- ------------ Total liabilities 29,140 6,923 5,900 41,963 ----------- ----------- -------------- ------------ Stockholders' equity: Convertible preferred stock -- 7 (7) (C) -- Common stock 45 42 (39) (C), (D) 48 Additional paid-in-capital 212,038 60,931 31,183 (C), (D) 304,152 Notes receivable from stockholders (2,057) -- (2,057) Deferred stock compensation (13,020) -- (13,020) Accumulated other comprehensive income 223 -- 223 Accumulated deficit (81,986) (56,138) 18,020 (C), (E) (120,104) ----------- ----------- -------------- ------------ Total stockholders' equity 115,243 4,842 49,157 169,242 ----------- ----------- -------------- ------------ Total liabilities and stockholders' equity $144,383 $ 11,765 $ 55,057 $ 211,205 =========== =========== ============== ============ See notes to unaudited pro forma condensed combined financial statements. 22
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA) EXELIXIS/ METAXEN PRO FORMA PRO FORMA PRO FORMA EXELIXIS METAXEN COMBINED AGRITOPE ADJUSTMENTS REFERENCE COMBINED ------------ ----------- ------------- ----------- -------------- ---------- ------------ Revenues: Product sales $ -- $ -- $ -- $ 2,503 $ 2,503 License 1,046 -- 1,046 -- 1,046 Contract and government grants 9,464 2,297 11,761 812 12,573 Research projects with affiliate -- -- -- 236 236 ------------ ----------- ------------- ----------- ------------ Total revenues 10,510 2,297 12,807 3,551 16,358 ------------ ----------- ------------- ----------- ------------ Costs and expenses: Product costs -- -- -- 2,334 2,334 Research and development 21,653 3,328 24,981 3,105 28,086 Selling, general and administrative 7,624 513 8,137 3,685 11,822 Amortization of purchased intangibles -- -- -- -- $ 4,123 Note 3 4,123 ------------ ----------- ------------- ----------- -------------- ------------ Total operating expenses 29,277 3,841 33,118 9,124 4,123 46,365 ------------ ----------- ------------- ----------- -------------- ------------ Loss from operations (18,767) (1,544) (20,311) (5,573) (4,123) (30,007) Other income (expense), net: Interest income 571 9 580 103 683 Interest expense (525) (72) (597) (21) (618) Other, net -- -- -- 455 455 ------------ ----------- ------------- ----------- ------------ 46 (63) (17) 537 520 ------------ ----------- ------------- ----------- ------------ Minority interest in subsidiary net loss -- -- -- 360 360 ------------ ----------- ------------- ----------- -------------- ------------ Net loss $ (18,721) $ (1,607) $ (20,328) $(4,676) $ (4,123) $(29,127) ============ =========== ============= =========== ============== ============ Net loss per share, basic and diluted $ (4.60) $ (5.00) $ (1.03) ============ ============= ============ Shares used in computing net loss per share, basic and diluted 4,068 4,068 Note 5 28,388 ============ ============= ============ See notes to unaudited pro forma condensed combined financial statements. 23
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA PRO FORMA EXELIXIS AGRITOPE ADJUSTMENTS REFERENCE COMBINED ----------- ------------ ----------------- ------------ -------------- Revenues: Product sales $ -- $ 4,205 $ 4,205 License 2,771 -- 2,771 Contract and government grants 14,914 592 15,506 Research projects with affiliate -- 1,942 1,942 ----------- ------------ -------------- Total revenues 17,685 6,739 24,424 ----------- ------------ -------------- Costs and expenses: Product costs -- 4,459 4,459 Research and development 34,937 3,369 38,306 Selling, general and administrative 13,685 2,761 16,446 Amortization of purchased -- -- $ 3,093 Note 3 3,093 intangibles ----------- ------------ ----------------- -------------- Total operating expenses 48,622 10,589 3,093 62,304 ----------- ------------ ----------------- -------------- Loss from operations (30,937) (3,850) (3,093) (37,880) Other income (expense), net: Interest income 4,166 75 4,241 Interest expense (488) (164) (652) Other, net -- (335) (335) ----------- ------------ -------------- 3,678 (424) 3,254 ----------- ------------ -------------- Minority interest in subsidiary net loss -- 552 552 ----------- ------------ ----------------- -------------- Net loss $ (27,259) $ (3,722) $ (3,093) $ (34,074) =========== ============ ================= ============== Net loss per share, basic and diluted $ (1.00) $ (0.90) =========== ============== Shares used in computing net loss per share, basic and diluted 27,235 Note 5 37,746 =========== ============== See notes to unaudited pro forma condensed combined financial statements. 24
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION On December 8, 2000, Exelixis acquired all of the outstanding shares of Agritope. Pursuant to the terms of the Merger, the unaudited pro forma condensed combined financial information reflects the issuance of approximately 1.7 million shares of Exelixis common stock in exchange for all of the outstanding shares of Agritope Series A preferred and common stock. The number of shares of Exelixis common stock to be issued is based on Agritope's capitalization at November 30, 2000 and reflects an exchange ratio of 0.35, which was determined pursuant to a formula set forth in the Merger Agreement. Certain options and warrants to purchase approximately 2.6 million shares of Agritope Series A preferred and common stock will be assumed by Exelixis pursuant to the Merger and converted into fully vested options and warrants to purchase approximately 890,000 shares of Exelixis common stock. The total estimated consideration for the Merger is approximately $93.4 million, which consists of Exelixis common stock, options and warrants valued at $92.1 million and estimated Exelixis transaction costs of $1.3 million. Exelixis transaction costs include financial advisory, legal, accounting and other fees. Based upon an independent valuation of the tangible and intangible assets acquired, Exelixis management has allocated the total cost of the merger to the assets acquired and liabilities assumed at September 30, 2000 as follows (in thousands): Tangible assets acquired.................................... $9,696 In-process research and development......................... 38,117 Developed technology........................................ 456 Patents/core technology..................................... 3,697 Assembled workforce......................................... 958 Goodwill.................................................... 51,997 Liabilities assumed......................................... (11,506) --------------- $93,415 =============== The valuation of the purchased in-process research and development of $38.1 million was based upon the results of an independent valuation using the income approach for each of the ten projects in-process. The in-process projects relate primarily to the development of disease and insect resistant fruits and vegetables and are expected to be completed over approximately the next three to six years. The income approach estimates the value of each acquired project in-process based on its expected future cash flows. The valuation analysis considered the contribution of the core technology as well as the percent complete of each in-process research and development project. The expected present value of the cash flows associated with the in-process research and development projects was computed using a risk adjusted rate of return of 35% which is considered commensurate with the overall risk and percent complete of the in-process projects. The purchased technology was not considered to have reached technological feasibility, and it has no alternative future use, accordingly, it has been charged to the pro forma combined accumulated deficit and has not been reflected in the pro forma condensed combined statements of operations. The revenues, expenses, cash flows and other assumptions underlying the estimated value of the purchased in-process research and development involve significant risks and uncertainties. The risks and uncertainties associated with completing the acquired in-process projects include obtaining the necessary regulatory approvals in a timely manner and being able to successfully and profitably produce, distribute and sell products. The unaudited pro forma information presented is not necessarily indicative of future results of operations of Exelixis or the combined results of operations which would have resulted had the Merger of Exelixis and Agritope 25
and the 1999 acquisition of the MetaXen assets taken place during the periods presented. The unaudited pro forma statements reflect the effects of the Merger of Exelixis and Agritope, and the 1999 acquisition by Exelixis of substantially all of the assets of MetaXen, applying the purchase method of accounting, assuming the Merger occurred as of September 30, 2000 for the purposes of the unaudited pro forma condensed combined balance sheet and as of January 1, 1999 for the purposes of the unaudited pro forma condensed combined statements of operations. There were no material differences in the accounting policies of Exelixis, MetaXen or Agritope for the periods presented. NOTE 2. UNAUDITED PRO FORMA BALANCE SHEET The unaudited pro forma condensed combined balance sheet includes the adjustments necessary to give effect to the Merger of Exelixis and Agritope as if it had occurred on September 30, 2000 and to reflect the allocation of purchase price to the fair value of tangible and intangible assets acquired as noted above, including the charge to accumulated deficit for acquired in-process research and development and the elimination of the Agritope stockholders' equity accounts. Adjustments included in the pro forma condensed combined balance sheet are summarized as follows: (A) Record goodwill and other intangible assets of $57.1 million and elimination of intangible assets on the balance sheet of Agritope as of the acquisition date; (B) Accrual of transaction related costs of approximately $1.3 million for Exelixis and $4.6 million for Agritope; (C) Elimination of the Agritope stockholder equity accounts; (D) Issuance of Exelixis common stock, $0.001 par value, and options and warrants to purchase common stock, as discussed above. The value of the Exelixis common stock is equal to the product of 1,712,290 shares multiplied by approximately $39.04 per share, while the options and warrants have been assigned a value of approximately $25.3 million; and (E) Charge to operations for in-process research and development of approximately $38.1 million. NOTE 3. UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS The audited pro forma condensed combined statements of operations include the adjustments necessary to give effect to the Merger as if it had occurred on January 1, 1999. Adjustments consist of the amortization of acquired intangible assets using the following estimated useful lives: Developed technology............................................ 5 years Patents/core technology......................................... 15 years Assembled workforce............................................. 3 years Goodwill........................................................ 15 years NOTE 4. METAXEN ACQUISITION On July 11, 1999, Exelixis acquired substantially all the assets of MetaXen. In addition to paying cash consideration of $870,000, the Company assumed a note payable relating to certain acquired assets with a principle balance due of $1.1 million. The Company also assumed responsibility for a facility sub-lease relating to the office and laboratory space occupied by MetaXen. This transaction was recorded using the purchase method of accounting. The allocation of the aggregate purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed in connection with this acquisition was based on estimated fair values as determined by management. The purchase price allocation is summarized below (in thousands): Laboratory and computer equipment............................... $1,645 Leasehold improvements.......................................... 175 Other tangible assets........................................... 155 Note payable.................................................... (1,105) -------------- $ 870 ============== 26
This transaction is already reflected in the historical balance sheet of Exelixis at December 31, 1999. Pro forma adjustments relating to interest income and interest expense were not material to the unaudited pro forma combined financial statement. NOTE 5. PRO FORMA NET LOSS PER SHARE Pro forma net loss per share, basic and diluted, are computed as follows: Nine Months Ended Year Ended September 30, 2000 December 31, 1999 -------------------- ------------------- (In thousands, except per share amounts) Net loss $(34,074) $(29,127) ==================== =================== Shares used in computing net loss per share, basic and diluted 27,235 4,068 Pro forma adjustments: Weighted effect of assumed conversion of convertible preferred stock 8,799 22,608 Effect of common stock issued in Agritope Merger 1,712 1,712 -------------------- ------------------- Shares used in computing net loss per share, basic and diluted 37,746 28,388 ==================== =================== Pro forma net loss per share, basic and diluted $ (0.90) $ (1.03) ==================== =================== Shares of common stock issuable upon the exercise of Exelixis stock options and warrants, and shares issuable upon the conversion of preferred stock and notes payable have been excluded from the computation of basic and diluted net loss per share as their effect would be antidilutive. Further, options and warrants to purchase Agritope Series A preferred stock and Agritope common stock, which have been assumed by Exelixis pursuant to the Merger and converted into options and warrants to purchase approximately 890,000 shares of Exelixis common stock, have also been excluded from the computation basic and diluted net loss per share as their effect would be antidilutive. ------------------------------------------------------- (c) Exhibits 2.1 Agreement and Plan of Merger and Reorganization, dated as of September 7, 2000, by and among Exelixis, Inc., Athens Acquisition Corp. and Agritope, Inc. (Incorporated by reference to Annex A of Exelixis' Registration Statement on Form S-4 (No. 333-47710), as amended). 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants. 27
SIGNATURE 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. Date: December 20, 2000 EXELIXIS, INC. /S/ Glen Y. Sato ------------------ Glen Y. Sato Chief Financial Officer, Vice President of Legal Affairs and Secretary (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 28
INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 2.1 Agreement and Plan of Merger and Reorganization, dated as of September 7, 2000, by and among Exelixis, Athens Acquisition Corp. and Agritope, Inc. (Incorporated by reference to Annex A of Exelixis' Registration Statement on Form S-4 (No. 333-47710), as amended). 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 8-K of our report dated December 19, 2000, included in the Exelixis, Inc. Form S-8 relating to the "Options Assumed by Exelixis, Inc. Originally Granted Under the Agritope, Inc. 1997 Stock Award Plan" and the previously filed Form S-8 Registration Statement File No. 333-35862. /s/ Arthur Andersen LLP Portland, Oregon December 19, 2000