<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 January 31, 1999
Commission File Number 1-9579
Ecogen Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2487948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2005 Cabot Boulevard West, Langhorne, Pennsylvania 19047
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (2l5) 757-l590
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at February 28, 1999
Common Stock, $.01 par value 9,117,320
<PAGE> 2
ECOGEN INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
<S> <C>
Unaudited Consolidated Condensed Balance Sheets as of
January 31, 1999 and October 31, 1998.........................................1
Unaudited Consolidated Condensed Statements of Operations
for the three months ended January 31, 1999 and 1998 .........................2
Unaudited Consolidated Condensed Statement of Stockholders'
Equity for the three months ended January 31, 1999............................3
Unaudited Consolidated Condensed Statements of Cash Flows
for the three months ended January 31, 1999 and 1998..........................4
Notes to Unaudited Consolidated Condensed Financial
Statements....................................................................6
Item 2 - Management's Discussion and Analysis of Results of Operations and
Financial Condition......................................................9
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders ....................13
Item 6(a) - Exhibits................................................................13
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Assets JANUARY 31, OCTOBER 31,
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents............... $424,048 $2,009,437
Temporary investments................... -- 813,150
Trade receivables, net.................. 3,676,384 3,338,897
Inventory, net.......................... 4,309,888 4,298,374
Prepaid expenses and other current
assets................................ 661,579 624,072
- ---------------------------------------------------------------------------------
Total current assets 9,071,899 11,083,930
- ---------------------------------------------------------------------------------
Plant and equipment, net.................. 2,697,472 2,771,255
Intangible and other assets, net.......... 836,518 821,316
- ---------------------------------------------------------------------------------
$12,605,889 $14,676,501
=================================================================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses... $3,035,456 $3,102,319
Deferred contract revenue............... 38,000 485,853
- ---------------------------------------------------------------------------------
Total current liabilities 3,073,456 3,588,172
- ---------------------------------------------------------------------------------
Long-term debt............................ 1,477,632 1,327,875
Other long-term obligations............... 2,863,868 2,835,187
Stockholders' equity:
Preferred stock, par value $.01 per
share; authorized 7,500,000 shares:
Series 1998 A convertible preferred
stock - 35,000 shares authorized;
11,000 and 19,500 shares issued and
outstanding in 1999 and 1998,
respectively (liquidation value
$1,100,000 and $1,950,000 in 1999 and
1998, respectively) 110 195
Series 1998 C convertible preferred
shares: 50,000 shares authorized
32,354 shares issued and outstanding
in 1999 and 1998 (liquidation value
$3,235,400 in 1999 and 1998) 324 324
Common stock, par value $.01 per share;
authorized 42,000,000 shares; issued
8,852,700 and 8,242,600 shares in
1999 and 1998, respectively........... 88,527 82,426
Additional paid-in capital.............. 122,163,501 122,162,964
Accumulated deficit.....................(116,444,813) (114,665,164)
Other................................... (616,716) (655,478)
- ---------------------------------------------------------------------------------
Total stockholders' equity 5,190,933 6,925,267
- ---------------------------------------------------------------------------------
$12,605,889 $14,676,501
=================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated
Condensed Financial Statements.
1
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ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Product sales, net .................................. $ 1,741,565 $1,715,937
Contract research ................................... 515,891 3,219,844
- ------------------------------------------------------------------------------------------
Total revenues $ 2,257,456 $4,935,781
- ------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold ................................ 1,575,159 1,406,584
Research and development:
Funded by third parties ............................ 224,676 224,920
Self funded ........................................ 481,294 737,848
Selling, general and administrative .................. 1,550,877 1,680,821
- ------------------------------------------------------------------------------------------
Total costs and expenses 3,832,006 4,050,173
- ------------------------------------------------------------------------------------------
Operating income (loss) (1,574,550) 885,608
Other income (expense):
Interest expense, net .............................. (111,192) (131,741)
Other income ....................................... 8,306 --
- ------------------------------------------------------------------------------------------
Total other income, net (102,886) (131,741)
- ------------------------------------------------------------------------------------------
Net income (loss) (1,677,436) 753,867
Dividends on preferred stock 102,213 --
- ------------------------------------------------------------------------------------------
Net income (loss) available to common stockholders ($1,779,649) $ 753,867
==========================================================================================
Basic and diluted net income (loss) per common share ($0.21) $0.09
==========================================================================================
Weighted average number of common shares outstanding 8,384,000 8,032,000
==========================================================================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
2
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ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended January 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE ADDITIONAL OTHER
PREFERRED COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT EQUITY TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance November 1, 1998 $519 $82,426 $122,162,964 ($114,665,164) ($655,478) $6,925,267
Transfer of 2,968 shares of Treasury stock for
employee benefits ............................... - - (34,402) - 36,762 4,360
Dividends on preferred stock ...................... - 276 34,939 (102,213) - (66,998)
Conversion of 8,500 shares of Series B
convertible preferred stock to 582,479
shares of common stock .......................... (85) 5,825 - - - 5,740
Net loss .......................................... - - - (1,677,436) - (1,677,436)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1999 $434 $68,527 $122,163,501 ($116,444,813) ($616,716) %5,190,933
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
3
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ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...........................................................($1,677,436) $ 753,867
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense ................................. 170,600 201,373
Noncash interest and compensation expense ............................. 110,943 --
Changes in assets and liabilities, net ................................ (973,324) 1,631,773
- -------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities .......................... (2,369,217) 2,587,013
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of temporary investments ........................... 813,150 --
Purchase of plant and equipment ............................................. (6,060) (58,756)
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Net cash provided by (used in) investing activities ............................ 807,090 (58,756)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities -
repayment of capital lease obligation ....................................... (23,262) (70,316)
- -------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents ........................... (1,585,389) 2,457,941
Cash and cash equivalents, beginning of period ................................. 2,009,437 2,373,945
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period .......................................$ 424,048 $ 4,831,886
===================================================================================================================
</TABLE>
(Continued)
4
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ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Changes in assets and liabilities:
(Increase) decrease in receivables ........................................($ 337,487) $ 401,093
Increase in inventory ..................................................... (11,514) (315,076)
Increase in prepaid expenses and other current assets ..................... (37,507) (91,473)
Increase in other assets .................................................. (15,202) --
(Decrease) increase in accounts payable and accrued expenses .............. (123,761) 615,579
Increase (decrease) in deferred contract revenue .......................... (447,853) 1,086,539
Decrease in other long-term liabilities ................................... -- (64,889)
- --------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities, net ............................($ 973,324) $ 1,631,773
====================================================================================================================
- --------------------------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
During the first quarter of fiscal 1999, the Company issued 27,621 shares of
common stock as dividends on the Company's preferred stock and 582,479 shares
of its common stock upon conversion of the Company's convertible preferred
stock.
During the first quarter of fiscal 1999 and 1998, the Company transferred
2,968 and 3,629 shares of treasury stock, respectively, to outstanding shares
pursuant to certain employee benefit plans.
===============================================================================
See Accompanying Notes to Unaudited Consolidated
Condensed Financial Statements.
5
<PAGE> 8
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
(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 10-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 31, 1998 consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K.
The results of operations for the interim period ended January 31, 1999
are not necessarily indicative of the operating results for the full
year.
Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of SFAS 130 had no
impact on the Company's results of operations for the three months ended
January 31, 1999 and an immaterial impact for the three months ended
January 31, 1998. The net loss is substantially equal to the
comprehensive loss for the periods.
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 for any of its fiscal years 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, among other things, on the success of the Company's
commercialization efforts and market acceptance of the Company's
products.
(Continued)
6
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ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONT.
NET INCOME (LOSS) PER COMMON SHARE:
Basic income (loss) per share is based on net income (loss) for the
relevant period, divided by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per share is based
on net income (loss) for the relevant period divided by common shares
outstanding and other potential common shares if they are dilutive.
The conversion of the convertible preferred stock in fiscal 1999 and the
convertible note in fiscal 1998 into common shares and adding back the
dividends and interest expense incurred during the three-month periods
ended January 31, 1999 and 1998, was not included in the net income
(loss) per share calculation since the effect was anti-dilutive. Stock
options and warrants were not considered because they were anti-dilutive.
RECLASSIFICATIONS:
Certain reclassifications have been made to the reported amounts in the
1998 financial statements to conform to the 1999 classifications.
(2) INVENTORY
At January 31, 1999, inventory consisted of raw materials of $518,256,
work-in-progress of $1,118,129 and finished products of $2,673,503.
(3) MONSANTO TRANSACTION
In January 1996, the Company entered into agreements 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"). In January 1998,
the Company amended its research and development agreement with Monsanto.
In connection therewith, the Company received approximately $4.8 million
in cash payments during the first quarter of fiscal 1998, of which an
aggregate of $2.5 million was earned and recorded as research contract
revenue during the first quarter of fiscal 1998 since the Company had no
continuing obligations with respect to such amounts. Further, $.5 million
and $.7 million was recorded as research contract revenue principally
relating to the Monsanto R&D contract during the three months ended
January 31, 1999 and 1998, respectively. The amended R&D Contract ended
January 1999.
(4) LOAN AGREEMENT
In August 1998, the Company obtained a secured, revolving working capital
line of credit for up to $5.0 million with a financial institution. Up to
$1.0 million of the line may be used for letters of credit. The working
capital line of
(Continued)
7
<PAGE> 10
ECOGEN INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS, CONTINUED
(4) LOAN AGREEMENT, CONT.
credit is for a minimum of two years (subject to termination on certain
events of default), bears interest at prime plus 1.25% and is fully
collateralized by the Company's assets, other than its intellectual
property rights. The lending formula is based on eligible receivables and
finished goods inventory. At January 31, 1999, the balance outstanding
under the line was $1.1 million. Further, at January 31, 1999 a $.7
million letter of credit was outstanding under the line (see note 7 of
notes to the consolidated financial statements.) The loan agreement
contains certain financial covenants which the Company is in compliance
with at January 31, 1999.
(5) SALE OF PHEROMONE PRODUCT LINE
In April 1998, the Company sold substantially all of the assets
(excluding trade accounts receivable) associated with the pheromone
product line to Scentry Biologicals, Inc. ("Scentry") for total
consideration of approximately $2.4 million. Scentry is a newly formed
company, the principals of which are the former manager of the Company's
pheromone production facility and a principal of one of the Company's
distributors in Central and South America. Unaudited pro forma
consolidated results of operations for the three month period ended
January 31, 1998, as if the product line was sold on November 1, 1997,
are as follows:
<TABLE>
<CAPTION>
Three Months Ended January 31, 1998
($ in thousands, except per share data)
<S> <C>
Total revenues $3,966
Net income 666
Basic and diluted net
income per share .08
</TABLE>
The unaudited pro forma information is not necessarily indicative of the
results that would have been obtained had the disposition of the
pheromone product line actually occurred on the date indicated nor is it
necessarily indicative of the Company's future consolidated results of
operations.
(6) STOCKHOLDERS' EQUITY
During the first quarter of fiscal 1999, the Company issued 582,479
shares of its common stock in exchange for 8,500 shares of the Company's
Series 1998-A 8% convertible preferred stock issued in June 1998. The
Company also issued 27,621 shares of its common stock in payment of
cumulative dividends at the time of conversion.
(7) COMMITMENTS AND CONTINGENCIES
At January 31, 1999 the Company had outstanding a $.7 million letter of
credit under the Company's line of credit as described in note 4 above.
8
<PAGE> 11
ECOGEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
OVERVIEW
For the first three months of fiscal 1999, total revenues decreased from $4.9
million in fiscal 1998 to $2.3 million in fiscal 1999. The decrease was due
primarily to an amendment to the research and development agreement with
Monsanto Company ("Monsanto") which resulted in $2.5 million (or $.31 per basic
and diluted common share) of non-recurring revenues in the first quarter of
fiscal 1998. Net product sales were $1.7 million in the first quarter of fiscal
1999, substantially consistent with the same period in fiscal 1998. However, the
1998 period included approximately $1.0 million in sales of pheromone products,
a product line that was sold in the second quarter of fiscal 1998. On a pro
forma basis, assuming the pheromone product line had been sold at the beginning
of fiscal 1998, continuing product sales increased 126% from $.7 million to $1.7
million for the three months ended January 31, 1998 and 1999, respectively. The
first quarter of the Company's fiscal year is typically the lowest in product
sales due to seasonality in the agricultural market.
During the first quarter of fiscal 1999, the Company realized a reduction in
operating expenses of 15% from $2.6 million in the year-ago period to $2.3
million in the first quarter of fiscal 1999. Pro forma operating loss, adjusted
for the sale of the pheromone product line and exclusive of the non-recurring
revenue from Monsanto, improved 8%. For the first quarter of fiscal 1999, the
Company reported a net loss available to common stockholders of ($1.8 million)
or ($.21) per basic and diluted common share compared to net income of $.8
million or $.09 per basic and diluted common share in the first quarter of
fiscal 1998 on weighted average shares of 8.4 million and 8.0 million in the
first quarter of fiscal 1999 and 1998, respectively.
THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
REVENUES
On a pro forma basis assuming the sale of the pheromone product line had taken
place at the beginning of fiscal 1998, product sales increased 126% in the first
quarter of fiscal 1999. Sales for the Bt product line, representing 95% of
product sales, increased $1.0 million in fiscal 1999 to $1.7 million from $.7
million in fiscal 1998. The more than doubling of Bt product sales resulted
primarily from an increase in sales of Lepinox WDG, a Bt bioinsecticide for
control of caterpillars in sweet corn, turf and other row crops and bollworm and
budworm in cotton and non-agricultural markets. Biofungicide product sales,
which represented 5% of product sales in fiscal 1999, increased $.1 million or
290% from fiscal 1998 due to an increase in sales of AQ10 in the first quarter
of fiscal 1999.
Research contract revenues decreased $2.7 million in the current three-month
period, due primarily to the payments from Monsanto during the first quarter of
fiscal 1998 described above as a result of an amendment to the Company's
research and development contract which expired in January 1999. As a result of
the expiration of the research and development contract, it is anticipated that
revenue from Monsanto will be substantially lower in fiscal 1999.
9
<PAGE> 12
COSTS AND EXPENSES
Cost of continuing products sold increased 123% in the first three months of
fiscal 1999 compared to the comparable period in fiscal 1998 due primarily to
increased sales. Gross margins on continuing product sales increased to 10% in
the first three months of fiscal 1999 compared to 5% in fiscal 1998. The higher
gross margins on continuing product sales in fiscal 1999 were due principally to
product mix as a result of higher domestic sales in fiscal 1999 which are higher
margin products than international sales.
Total operating expenses were $2.3 million in the first quarter of fiscal 1999,
compared to $2.6 million in 1998, a decrease of 15%. Research and development
costs decreased $.3 million or 27% due principally to lower personnel costs. The
Company's commitment to provide research services to Monsanto has expired and
the Company's technology continues to approach commercialization, therefore
requiring less activity in basic research and process development. Selling,
general and administrative expenses were $1.6 million in the first quarter of
fiscal 1999 compared to $1.7 million in 1998 representing a decrease of $.1
million primarily in the area of general and administrative expenses. Selling
and marketing remained about the same as last year due to higher costs
associated with the more than doubling of Bt product sales offsetting the
reduction in costs as a result of the sale of the pheromone product line. Pro
forma operating expenses, assuming the sale of the pheromone product line had
taken place at the beginning of fiscal 1998, decreased 8%.
Pro forma operating loss, adjusted for the sale of the pheromone product line
and exclusive of the non-recurring revenue from Monsanto, improved 8%.
Net interest expense was $.1 million during the three months ended January 31,
1999 and 1998.
Net loss available to common shareholders for the three months ended January 31,
1999 was ($1.8) million, compared to a net income of $.8 million for the same
period in fiscal 1998. Basic and diluted net loss per share for the three months
ended January 31, 1999 was ($.21), compared to net income per share of $.09 in
the first quarter of fiscal 1998 on weighted average shares outstanding of 8.3
million and 8.0 million in the first three months of fiscal 1999 and 1998,
respectively. The non-recurring revenue from Monsanto of $2.5 million or $.31
per share in the first quarter of fiscal 1998 was the principal factor
contributing to the decrease in net income. Further, the 1999 period included
preferred stock dividends of $102,000.
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 through fall. 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. In
addition, 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 field tests in subsequent growing seasons, with resulting delays in
product development and commercialization.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company had cash and liquid investments of $.4 million,
a decrease of $2.4 million from October 31, 1998. The decrease in cash resulted
primarily from $2.4 million of cash used in operations. In August 1998, the
Company obtained a secured working capital line of credit for up to $5.0 million
from a financial institution, of which $1.5 million was outstanding at February
28, 1999. Also outstanding under the line of credit was a $.7 million letter of
credit. At February 28, 1999, the Company had $1.3 million of availability under
the line of credit.
To date, the Company has not generated positive cash flow from operations. The
Company believes that its existing working capital and amounts available under
its working capital line of credit should be sufficient to meet its capital and
liquidity requirements through fiscal year 1999 based on reduced spending
levels, if necessary. 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
sector generally, competitive conditions in the agricultural pest control
market, and access to capital markets that can provide the Company with the
resources when necessary to fund its strategic priorities. There is no assurance
that access to capital markets will be available on terms acceptable to the
Company or at all. Over the long term, the Company's liquidity is dependent on
market acceptance of its products and technology.
YEAR 2000
The Company has completed its Year 2000 assessment and believes that it is Year
2000 compliant on internal hardware and software. The Company is still in the
process of contacting major customers and vendors to assess their status as to
Year 2000 compliance. The Company expects that this process will be completed in
the first half of fiscal 1999. Once this process is completed, however, there is
no assurance that service interruptions will not occur from vendors, suppliers
or service providers, including financial institutions or governments. The
Company believes that alternative suppliers exist and, therefore, if services
are interrupted from suppliers, the situation should be temporary.
FORWARD-LOOKING STATEMENTS
The discussion set forth by the Company in this document contains
forward-looking statements. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than historical
facts. Although the Company believes that its expectations are based on
reasonable assumptions, the Company operates in a high technology, emerging
market environment that involves a number of risks and uncertainties that could
cause actual results to differ materially from expected results. The Company
intends to market and sell a number of new and recently introduced products.
Some of these products utilize new formulations which have not to date been
produced on a commercial scale or produced on a commercial scale that has been
replicated. Certain of the manufacturing processes for such products include
newly developed equipment and techniques which are being incorporated into
commercial scale manufacturing processes. Risks and uncertainties associated
with the successful
11
<PAGE> 14
commercialization of the products include: (i) the successful scale-up of the
Company's manufacturing process in time to meet targeted sales opportunities;
(ii) the market acceptance of the Company's current and newly introduced
products; (iii) the efficacy, pricing, ease of use and performance of the
Company's products; (iv) the successful development, registration,
commercialization and marketing of technologically advanced new products; (v)
the continued and uninterrupted supply of the Company's products from
third-party toll manufacturers and the continued financial viability of such
manufacturers; (vi) economic and environmental considerations which impact
agricultural crop production and agricultural crop protection, including the
number of acres of target crops planted, the cost and efficacy of competitive
products, weather conditions and the level of insect and disease infestation on
target crops, and (vii) the ability of the Company to fund its strategic
priorities through operations or access to capital markets, and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. The Company does not undertake to update the results
discussed herein as a result of changes in risks or operating results.
12
<PAGE> 15
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on March 11, 1999,
at which time the following matters were submitted to a vote of the stockholders
and were approved: (i) the election of Esteban A. Ferrer, Philippe D. Katz,
Lowell N. Lewis, James P. Reilly, Jr. and John R. Sutley to serve on the Board
of Directors of the Company until the next annual meeting; (ii) the approval of
the Company's 1999 Stock Option Plan; and (iii) the ratification of the
appointment of KPMG LLP as independent auditors to audit the Company's books and
accounts for fiscal year 1999. A total of 7.7 million votes were cast in favor
of each nominee for director and less than ninety thousand votes were cast
against any such nominee. A total of 4.2 million votes were cast in favor of
approval of the Company's 1999 Stock Option Plan, less than three hundred ninety
thousand votes were cast against approval, less than forty-five thousand
abstentions were recorded and less than 3.2 million broker non-votes were
recorded. A total of 7.7 million votes were cast in favor of the ratification of
the appointment of KPMG LLP as independent auditors of the Company and less than
eighty thousand votes were cast against such ratification.
Item 6(a) Exhibits
Exhibit No. Description
3.1 Restated Certificate of Incorporation of Ecogen Inc. (Form
10-Q for fiscal quarter ended January 31, 1996)*
3.2 By-laws of Ecogen Inc., as amended (Form S-1 Registration
Statement, File No. 33-14119)*
3.3 Certificate of Designations, Preferences and Rights of
Series 1998-A Convertible Preferred Stock (Form 10-Q for
fiscal quarter ended April 30, 1998)*
3.4 Certificate of Designations, Preferences and Rights of
Series 1998-C Convertible Preferred Stock (Form 8-K, dated
September 2, 1998)*
27 Financial Data Schedule
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated and are made part of this report.
13
<PAGE> 16
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.
Date: March 17, 1999
ECOGEN INC.
By: /s/ JAMES P. REILLY, JR.
----------------------------
James P. Reilly, Jr.
Chairman and Chief Executive
Officer
By: /s/ MARY E. PAETZOLD
----------------------------
Mary E. Paetzold
Vice President and Chief Financial Officer
14
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