<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 30, 1996
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Commission File number 1-9579
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Ecogen Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2487948
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2005 Cabot Boulevard West, Langhorne, Pennsylvania 19047
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (2l5) 757-l590
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Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5 (d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes X No .
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at June 1, l996
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<S> <C>
Common Stock, $.01 par value 7,657,019
</TABLE>
<PAGE> 2
ECOGEN INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Unaudited Consolidated Condensed Balance Sheets as of
April 30, l996 and October 3l, l995 . . . . . . . . . 1
Unaudited Consolidated Condensed Statements of Operations
for the three months and six months ended
April 30, l996 and l995 . . . . . . . . . . . . . . . 2
Unaudited Consolidated Condensed Statement of Stockholders'
Equity for the six months ended April 30, l996 . . . . 3
Unaudited Consolidated Condensed Statements of Cash Flows
for the three months and six months ended
April 30, l996 and l995 . . . . . . . . . . . . . . . 4
Notes to Unaudited Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . . . 11
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6(a) - Exhibits . . . . . . . . . . . . . . . . . . 15
Item 6(b) - Reports on Form 8-K . . . . . . . . . . . . 15
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
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Assets April 30, October 31,
1996 1995
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<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $13,831,977 $ 1,775,213
Inventory.............................................................................. 6,531,480 6,345,452
Contract and trade receivables......................................................... 2,855,537 733,146
Prepaid expenses and other current assets.............................................. 385,128 145,770
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Total current assets 23,604,122 8,999,581
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Plant and equipment, net.................................................................. 3,977,950 2,768,318
Intangible and other assets, net.......................................................... 397,267 603,600
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$27,979,339 $12,371,499
===============================================================================================================================
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable and accrued expenses.................................................. $ 2,414,140 $ 4,077,095
Deferred contract revenue.............................................................. 2,482,287 43,550
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Total current liabilities 4,896,427 4,120,645
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Long-term debt............................................................................ 1,700,837 619,978
Other long-term obligations............................................................... 2,178,353 2,123,489
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 7,500,000 shares
Series B convertible preferred stock - 350,000 shares authorized;
5,834 and 35,000 shares issued and outstanding in 1996 and 1995,
respectively (liquidation value $20 per share).................................. 58 350
Series C convertible preferred stock - 122,000 shares authorized;
28,000 shares and none issued and outstanding in 1996 and 1995,
respectively (liquidation value $25 per share).................................. 280 -
Common stock, par value $.01 per share; authorized 42,000,000 shares;
issued 7,644,933 and 5,978,542 shares in 1996 and 1995, respectively............. 76,449 59,785
Additional paid-in capital............................................................. 117,665,902 105,343,444
Accumulated deficit................................................................... (97,357,782) (98,878,279)
Foreign currency translation adjustment................................................ 122,595 270,867
Treasury stock, at cost ( 39,156 and 36,156 shares in 1996 and 1995,
respectively)....................................................................... (1,303,780) (1,288,780)
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Total stockholders' equity 19,203,722 5,507,387
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$27,979,339 $12,371,499
===============================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated Condensed Financial Statements.
1
<PAGE> 4
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED C0NDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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Three Months Ended Six Months Ended
April 30, April 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Product sales, net.............................. $ 3,213,031 $ 2,759,102 $ 3,920,064 $ 4,612,512
Research contract revenue....................... 618,104 389,143 691,971 2,007,263
License fees and other income................... 200,000 - 5,013,049 -
Interest........................................ 246,923 52,366 278,810 151,595
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Total revenues 4,278,058 3,200,611 9,903,894 6,771,370
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Costs and expenses:
Cost of products sold........................... 1,858,863 1,552,544 2,315,622 2,759,414
Research and development:
Funded by third parties....................... 305,859 617,150 379,726 1,372,288
Self funded................................... 955,781 1,655,524 1,903,339 3,187,479
Selling, general and administrative............. 1,976,423 2,558,358 3,681,582 4,885,115
Special charges................................. - 395,945 - 9,543,194
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Total costs and expenses 5,096,926 6,779,521 8,280,269 21,747,490
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Net income (loss) ($818,868) ($3,578,910) $1,623,625 ($14,976,120)
==================================================================================================================================
Net income (loss) per common share............... ($0.12) ($0.68) $0.23 ($3.06)
==================================================================================================================================
Weighted average number of
common shares outstanding....................... 7,148,000 5,244,000 6,594,000 4,888,000
==================================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated Condensed Financial Statements.
2
<PAGE> 5
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended April 30, 1996
<TABLE>
<CAPTION>
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Convertible Additional
Preferred Common Paid-in
Stock Stock Capital
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<S> <C> <C> <C>
Balance November 1, 1995 $350 $59,785 $105,343,444
Issuance of 122,000 shares of Series C convertible
preferred stock in connection with a private placement, net..... 1,220 - 2,792,723
Issuance of 943,397 shares of common stock, net...................... - 9,434 9,460,865
Conversion of 29,166 shares on Series B convertible
preferred stock to 122,313 shares of common stock............... (292) 1,223 (931)
Conversion of 94,000 shares on Series C convertible
preferred stock to 582,060 shares of common stock............... (940) 5,821 (4,881)
Dividends on preferred stock......................................... - 186 74,682
Purchase of 3,000 shares of common stock............................. - - -
Foreign currency translation......................................... - - -
Net income........................................................... - - -
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Balance April 30, 1996 $338 $76,449 $117,665,902
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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Treasury
Foreign Stock
Accumulated Currency at
Deficit Translation Cost Total
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<S> <C> <C> <C> <C>
Balance November 1, 1995 ($98,878,279) $270,867 ($1,288,780) $5,507,387
Issuance of 122,000 shares of Series C convertible
preferred stock in connection with a private placement, net ... - - - $2,793,943
Issuance of 943,397 shares of common stock, net...................... - - - 9,470,299
Conversion of 29,166 shares on Series B convertible
preferred stock to 122,313 shares of common stock............... - - - -
Conversion of 94,000 shares on Series C convertible
preferred stock to 582,060 shares of common stock............... - - - -
Dividends on preferred stock......................................... (103,128) - - (28,260)
Purchase of 3,000 shares of common stock............................. - - (15,000) (15,000)
Foreign currency translation......................................... - (148,272) - (148,272)
Net income........................................................... 1,623,625 - - 1,623,625
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Balance April 30, 1996 ($97,357,782) $122,595 ($1,303,780) $19,203,722
================================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated Condensed Financial Statements.
3
<PAGE> 6
ECOGEN INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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Six months ended
April 30,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................... $ 1,623,625 ($14,976,120)
Adjustments to reconcile net income (loss) to net
cash provided by ( used in ) operating activities:
Depreciation and amortization expense............................. 221,967 326,246
Unrealized foreign currency transaction gain..................... 2,716 19,913
Non cash portion of special charges............................... - 8,878,806
Loss on sale of plant and equipment............................... - 125,431
Changes in assets and liabilities, net................................. (1,781,230) (5,177,006)
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Net cash provided by (used in) operating activities 67,078 (10,802,730)
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Cash flows from investing activities:
Proceeds from maturities of temporary investments....................... - 734,285
Proceeds from sale of plant and equipment............................... - 43,823
Purchase of plant and equipment......................................... (258,613) (134,978)
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Net cash (used in) provided by investing activities (258,613) 643,130
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Cash flows from financing activities:
Cash received from ETech investors...................................... - 3,555,736
Net proceeds from issuance of Series C preferred stock.................. 2,793,943 -
Net proceeds from issuance of common stock.............................. 9,470,299 5,317,274
Purchase of Treasury stock.............................................. (15,000) -
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Net cash provided by financing activities 12,249,242 8,873,010
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Effect of foreign exchange rate changes on cash (943) (399,065)
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Net increase (decrease) in cash and cash equivalents....................... 12,056,764 (1,685,655)
Cash and cash equivalents, beginning of period............................. 1,775,213 8,094,075
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $13,831,977 $6,408,420
==================================================================================================================
</TABLE>
(Continued)
4
<PAGE> 7
ECOGEN INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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Six months ended
April 30,
- ------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities: 1996 1995
<S> <C> <C>
Increase in prepaid expenses and
other current assets................................................ ($239,358) ($275,548)
Increase in inventory.................................................. (186,028) (725,251)
Increase in receivables................................................ (2,122,391) (2,605,931)
(Increase) decrease in other assets.................................... 206,333 (572,578)
Decrease in accounts payable
and accrued expenses................................................ (1,837,387) (15,286)
Increase (decrease) in other long-term liabilities..................... (41,136) 670,328
Increase (decrease) in deferred contract revenue....................... 2,438,737 (1,652,740)
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Changes in assets and liabilities, net ($1,781,230) ($5,177,006)
==================================================================================================================
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Noncash investing and financing activities:
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</TABLE>
In the first six months of 1996, debt totalling approximately $1,178,000 was
incurred by the Company for the acquisition of production equipment.
In the first six months of 1996, the Company issued 18,621 shares of common
stock as a dividend on the Company's preferred stock.
See Accompanying Notes To Unaudited Consolidated Condensed Financial Statements.
5
<PAGE> 8
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND BASIS OF PRESENTATION:
The consolidated condensed financial statements include the accounts of
Ecogen Inc. ("Ecogen" or the "Company") and its wholly-owned and
majority-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying consolidated condensed financial statements include all
adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the
consolidated results of operations and financial position for the interim
periods presented. The consolidated condensed financial statements have
been prepared in accordance with the requirements for Form l0-Q and,
therefore, do not include all disclosures of financial information
required by generally accepted accounting principles. These consolidated
condensed financial statements should be read in conjunction with the
Company's October 3l, l995 consolidated financial statements and notes
thereto.
The results of operations for the interim period ended April 30, l996 are
not necessarily indicative of the operating results for the full year.
OPERATIONS:
The Company is a biotechnology company specializing in the development
and marketing of environmentally compatible products for the control of
pests in agricultural and related markets. The Company has not yet
achieved profitable operations and there is no assurance that profitable
operations, if achieved could be sustained on a continuing basis.
Further, the Company's future operations are dependent on the success of
the Company's commercialization efforts and market acceptance of the
Company's products.
(Continued)
6
<PAGE> 9
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS, CONTINUED
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share adjusted for preferred stock dividends
of $103,128 and $50,153, respectively, in the six months and three months
ended April 30, 1996, is computed using the weighted average number of
shares outstanding during the period. Common stock equivalents are not
included in the computation of weighted average shares outstanding since
the effect would be anti-dilutive for both primary and fully diluted
earnings per share using the modified treasury stock method.
(2) INVENTORY
At April 30, l996, inventory consists of raw materials of $2,008,296,
work-in-progress of $2,185,062 and finished products of $2,338,122.
(3) MONSANTO TRANSACTION
In January 1996, the Company entered into an agreement with Monsanto
Company (Monsanto) for an equity investment, purchase of technology and
joint research and development arrangement relating to the Company's
proprietary Bacillus thuringiensis (Bt) technology for in-plant
applications (collectively, the "Monsanto Transaction"). The transaction
included (i) the acquisition by Monsanto of certain rights in the
Company's Bt technology for an aggregate purchase price of $5.0 million
in cash which was recorded as license and other income in the first
quarter of 1996; (ii) the sale by the Company to Monsanto of 943,397
shares of Common Stock at $10.60 per share for an aggregate purchase
price of $10.0 million in cash during the first quarter; and (iii) a
four-year research and development collaboration arrangement with
Monsanto for the further development of the Company's Bt gene library for
a minimum of $10.0 million, of which $3.0 million was received in the
first quarter of 1996 and was recorded as deferred contract revenue.
Such contract revenue will be recorded as earned under the terms of the
agreement. In the second quarter of 1996 the Company recognized
approximately $.5 million in contract revenue under this agreement.
(Continued)
7
<PAGE> 10
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
(CONTINUED)
(3) MONSANTO TRANSACTION, (CONTINUED)
As part of the agreement, Monsanto has agreed to maintain its ownership
position during the term of the research and development agreement and
Monsanto is prohibited, during the first three years following the
closing, from acquiring more than 25% of the Company's voting stock
without the Company's consent, except in certain circumstances primarily
related to a change of control of the Company. Monsanto was granted
certain demand and piggyback registration rights with respect to its
shares. In addition, Monsanto has a right of first refusal to purchase
securities of the Company so as to maintain its ownership percentage in
the Company except in certain circumstances defined in the applicable
agreement.
(4) LONG-TERM DEBT
The Company has obtained a $2.0 million line of credit to be used for the
leasing of production equipment. At April 30, 1996, the Company has
borrowed approximately $1,553,000 under the line of credit. The Company
is required to pay interest only until the equipment is delivered at
which time the notes are converted to a capital lease obligation. The
lease facility requires a 15% security deposit which has been made.
In May 1996 the Company signed a letter of intent with a commercial bank
to enter into a working capital line of credit agreement for up to
$5,000,000.
(5) STOCKHOLDERS' EQUITY
PREFERRED STOCK
In November 1995, the Company raised $2.8 million, net of expenses, from
institutional investors from the private placement of 122,000 shares of
8% Series C Convertible Preferred Stock (the "Series C Preferred Stock").
Dividends are payable annually or at the time of redemption or conversion
in cash, shares of the Company's common stock or shares of Series C
Preferred Stock at the discretion of the Company. The Series C Preferred
holders have certain limited voting rights. At the election of the
holders, the Series C Preferred Stock may be converted to shares of the
Company's
(Continued)
8
<PAGE> 11
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
CONTINUED
STOCKHOLDERS' EQUITY, (CONTINUED)
common stock, subject to adjustments for stock splits and other
adjustments, at predetermined discounts from the average market price per
share on the date of conversion. At any time after June 1, 1997, the
Company may elect to convert the shares to common stock. At any time
after June 1, 1997, the Company may redeem the Series C Preferred Stock
at a predetermined premium to the original issuance price. In the event
of liquidation, the holders of the Series C Preferred Stock have the
right to $25.00 per share plus all accrued and unpaid dividends.
During the first six months of 1996 the Company issued 704,373 shares of
its common stock in exchange for 29,166 and 94,000 shares of the
Company's Series B and Series C Convertible Preferred Stock respectively.
Also 18,621 shares of the Company's common stock were issued in payment
of cumulative dividends at the time of conversion.
COMMON STOCK
In January 1996 the shareholders approved an amendment to the Company's
Restated Certificate of Incorporation (the "Amendment") which effected a
one-for-five reverse stock split (the "Reverse Split") of the Company's
outstanding shares of common stock. All references to numbers of shares,
weighted average shares and loss per share amounts except shares
authorized, have been retroactively restated to give effect to the stock
split.
In April 1996 the Company's Board of Directors authorized a program to
purchase up to 350,000 shares of the Company's common stock over a two
year period. As of April 30, 1996 3,000 shares have been purchased in
the open market pursuant to this program.
(6) SPECIAL CHARGES
During 1995, the Company acquired approximately 70% of the outstanding
stock of Ecogen Technologies I Incorporated ("ETech") pursuant to which
the Company issued 822,240 shares of its common stock having a market
value of approximately $11.3 million. The acquisition of approximately
70% of ETech was accounted for under the purchase method of accounting
and
(Continued)
9
<PAGE> 12
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS,
CONTINUED
(6) SPECIAL CHARGES, (CONTINUED)
in fiscal 1995 the Company recorded approximately $9.2 million as a
special charge to operations for the value of in-process research and
development acquired from ETech. Market feasibility and acceptance had
not yet been established with respect to the ETech research programs and
there was no assurance that the Company would be successful in its
commercialization efforts.
As a result of the acquisition, effective January 1995, ETech's
consolidated financial statements are consolidated with those of the
Company resulting in the Company recording 100% of the research and
development expenses of ETech programs and reflecting any payments from
ETech investors, subsequent to the Exchange Offer, as a long-term
obligation.
The special charges recorded in the second quarter of 1995 also included
approximately $.3 million relating to the shutdown of Ecogen Australia
representing principally severance costs, loss on disposal of equipment
and facilities costs after shutdown of operations, and other cost
containment programs.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS AND SIX MONTHS ENDED APRIL 30, 1996 AND 1995
OVERVIEW
In the first six months of 1996, total revenues increased 46% to $9.9 million
from $6.8 million in the same six month period of 1995. For the six months
ended April 30, 1996, the Company reported net income of $1.6 million compared
to a net loss of ($15.0) million in 1995. The net loss per common share
improved to net income of $.23 per share in 1996 from a net loss of ($3.06) per
share in 1995. The 1995 first six months included special charges of $9.5
million (or $1.95 per share) relating to purchased technology from ETech and
the shutdown of Ecogen Australia. The favorable results in the first six months
of 1996 were due principally to income associated with the Monsanto Transaction
and a 37% reduction in operating expenses.
SIX MONTHS ENDED APRIL 30, 1996 AND 1995
REVENUES
Total revenues increased 46% in the six months ended April 30, 1996 to $9.9
million from $6.8 million the same six months ended April 30, 1995. Net
product sales decreased $.7 million or 15% principally due to decreases in
volume in the six month period as a result of a trend in the industry away from
early order programs to selling product closer to the growing season. Bt
product sales decreased 29% as a result of the lack of an early order program
in the first quarter, pheromone products increased 7% and biofungicide products
increased 100% as a result of initial sales of the Company's first two
biofungicide products AQ10(R) and Aspire(TM). Research contract revenue
decreased $1.3 million in the current six month period, due primarily to the
divestiture of Ecogen Europe. License fees and other income increased $5.0
million principally as a result of the acquisition by Monsanto of certain
rights to the Company's Bt technology for transgenic plants. Interest
increased approximately $.1 million in 1996 as a result of the increase in
funds available for investment.
COSTS AND EXPENSES
Cost of products sold decreased 16% due principally to the decrease in product
sales. Gross margins improved to 41% in 1996 from 40% in 1995. Research and
development costs decreased $2.3 million or 50% and selling, general and
administration expenses decreased $1.2 million or 25% as a result of costs
savings realized from the restructuring decisions made by the Company in 1995.
11
<PAGE> 14
Net income for the first six months of 1996 was $1.6 million compared to net
loss of ($15.0 million) in the same period in 1995. The six months of 1995
included special charges of $9.5 million principally related to purchased
technology acquired from ETech. The net loss exclusive of special charges was
($5.4) million or ($1.11) per share in 1995 compared to net income of $1.6
million or $.23 per share in 1996.
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
REVENUES
Total revenues increased 34% in the three months ended April 30, 1996 to $4.3
million from $3.2 million the quarter ended April 30, 1995. Net product sales
increased $.5 million or 16% principally due to increased volume in the three
month period ended March 31, 1996. Bt product sales increased 24% while
pheromone product sales decreased 9%. During the second quarter of 1996, the
Company recorded its first biofungicide sales of both AQ10 and Aspire. Other
revenues increased $.6 million in the current period, due primarily to
increased research contract revenue recognized under the Monsanto agreement and
higher interest income.
COSTS AND EXPENSES
Cost of products sold increased 20% due principally to the increase in product
sales. The slight decrease in gross margins of 42% in 1996 compared to 44% in
1995 resulted from product mix. Research and development costs decreased $1.0
million or 44% and selling, general and administration expenses decreased $.6
million or (23%) as a result of costs savings realized from the restructuring
decisions made by the Company in 1995.
Net loss for the three months ended April 30, 1996 was ($.8 million) compared
to ($3.6 million) in the same period in 1995. The three months of 1995
included special charges of $.4 million principally related to restructuring
charges. The net loss exclusive of special charges was ($3.2) million or
($.61) per share in 1995 compared to ($.8) million or ($.12) per share in 1996.
SEASONALITY OF BUSINESS
The bulk of the Company's current products are presently marketed for
agricultural applications in the northern hemisphere, where the growing season
generally runs from spring until fall. Commercial introduction of the
Company's new products is contingent on, among other factors, completion of
field testing and receipt of required regulatory approvals. Unusual weather
conditions during field tests or failure to receive regulatory approvals prior
to the growing season may require additional
12
<PAGE> 15
SEASONALITY OF BUSINESS, (CONTINUED)
field tests in subsequent growing seasons, with resulting delays in product
development and commercialization. In addition, because of the seasonal nature
of its business, the Company's product revenues are likely to be concentrated
in the fiscal quarters prior to and during a particular growing season which
may result in substantial variations in quarter-to-quarter financial results.
Product sales from year-to-year are also affected by unusual weather
conditions, such as droughts or floods, and the level of insect pressure in
grower areas.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its working capital needs primarily through private
and public offerings of equity securities, research contracts, license fees and
product sales.
In January 1996, the Company completed the $ 25 million Monsanto
Transaction,which included $10 million from the sale of 943,397 shares of the
Company's common stock at $10.60 per share. Further, the Company sold 122,000
shares of Series C preferred stock at $25 per share in a private placement to
institutional investors for aggregate net proceeds of $2.8 million. In
connection with the private placement, the Company issued warrants to purchase
77,877 shares of the Company's common stock at $7.30 per share exercisable for
five years.
Prior to fiscal 1996, the Company did not generate positive cash flow from
operations. During the first six months of fiscal 1996, the Company generated
$.2 million in cash from operations. The Company believes that its existing
working capital should be sufficient to meet its capital and liquidity
requirements for the immediate future. However, the Company's working capital
and working capital requirements are affected by numerous factors and there is
no assurance that such factors will not have a negative impact on the Company's
liquidity. Principal among these are the success of its product
commercialization and marketing efforts and the efforts of its strategic
partners in commercializing and selling products based on the Company's
technology, the technological advantages and pricing of the Company's products,
economic and environmental considerations which impact agricultural crop
production and the agricultural pest control market, and access to capital
markets that can provide the Company with the resources necessary to fund its
strategic priorities.
At April 30, 1996, the Company had cash and liquid investments of $13.8
million, a net increase of $12.1 million from October 31, 1995. The increase
was due principally to net cash of $9.5 million received from the Monsanto
Transaction and $2.8 million from the series C preferred stock offering. Cash
flows from
13
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES, (CONTINUED)
operations during the six months ended April 30, 1996 of $.2 million
principally funded cash used for purchase of plant and equipment. The Company
obtained a $2.0 million line of credit to be used for the leasing of production
equipment. To date, approximately $1.8 million has been borrowed under the
line of credit.
ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
The increase of $.2 million in inventory during the first six months of 1996
resulted from seasonal increases in inventory in preparation for the growing
season in North America. The increase in contract and trade receivables of
$2.1 million is the result of product sales during the second quarter. The
decrease of $1.7 million in accounts payable and accrued expenses is due to
timing of payments to vendors. The increase in deferred contract revenue of
$2.4 million is due to advance payments received from Monsanto for research to
be done during fiscal 1996 and 1997 on certain Bt technology.
The discussion set forth in this document contains forward looking statements
that involve a number of risks and uncertainties that could cause actual
results to differ materially from expected results. These include: (i) the
market acceptance of the Company's current and newly introduced products; (ii)
the efficacy, pricing and ease of use of the Company's products; (iii) the
successful development, registration, commercialization and marketing of
technologically advanced new products; (iv) the successful scale-up of the
Company's manufacturing processes; (v) economic and environmental
considerations which impact agricultural crop production and agricultural crop
protection including weather conditions and the level of insect and disease
infestation on target crops, and (vi) the ability of the Company to fund its
strategic priorities through operations or access to capital markets.
14
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of the Stockholders on April 24, 1996, at
which time three matters were submitted to a vote of the stockholders and were
approved:
I. Election of Patrick Owen Burns, John E. Davies, Jack D. Early, Esteban A.
Ferrer, Lowell N. Lewis, Mary E. Paetzold, James P. Reilly, Jr. and John
R. Sutley to serve on the Board of Directors of the Company until the next
annual meeting.
II. Amendment to the Company's Stock Option Plan to (1) increase the number of
shares of Common Stock issuable under options automatically granted to
Outside Directors upon election to the Board on the first of each year as
it pertains to Outside Directors, (2) increase the number of shares of
Common Stock issuable under options automatically granted to Outside
Directors on the first of each year and (3) delete the limit on total
shares issuable under the annual grants..
III. Ratification of the appointment of KPMG Peat Marwick as independent
auditors to audit the Company's books and accounts for the year 1996.
ITEM 6(a): Exhibits
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
ITEM 6(b): Reports on Form 8-K
A Current Report on Form 8-K was filed on April 22, 1996 with respect to the
authorization by the Company's Board of Directors for the Company to purchase
up to 350,000 shares, approximately 5%, of the Company's outstanding common
stock over a two year period.
15
<PAGE> 18
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.
ECOGEN INC.
Date: June 14, 1996 By: /s/ JAMES P. REILLY
-------------------
James P. Reilly, Jr.
Chairman and
Chief Executive Officer
By: /s/ MARY E. PAETZOLD
--------------------
Mary E. Paetzold
Vice President and
Chief Financial Officer
16
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<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1996
<CASH> 13,831,977
<SECURITIES> 0
<RECEIVABLES> 2,935,537
<ALLOWANCES> 80,000
<INVENTORY> 6,531,480
<CURRENT-ASSETS> 23,604,122
<PP&E> 9,352,087
<DEPRECIATION> 5,374,137
<TOTAL-ASSETS> 27,979,339
<CURRENT-LIABILITIES> 4,896,427
<BONDS> 0
0
338
<COMMON> 76,449
<OTHER-SE> 19,126,935
<TOTAL-LIABILITY-AND-EQUITY> 27,979,339
<SALES> 3,920,064
<TOTAL-REVENUES> 9,903,894
<CGS> 2,315,622
<TOTAL-COSTS> 8,280,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,623,625
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,623,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,623,625
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