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As filed with the Securities and Exchange Commission on November 29, 2000
Registration No. 333-48196
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO.1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ECOGEN INC.
(Exact name of registrant as specified in its charter)
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Delaware 2870 22-2487948
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification)
of incorporation or organization) Classification Code Number) Number)
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2000 Cabot Boulevard West, Suite 170, Langhorne, Pennsylvania 19047,
(215) 757-1590
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
James P. Reilly, Jr.
Chairman and Chief Executive Officer
Ecogen Inc.
2000 Cabot Boulevard West, Suite 170
Langhorne, Pennsylvania 19047
(215) 757-1590
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _____________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
_____________________
CALCULATION OF REGISTRATION FEE
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============================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of registration
securities to be registered Registered offering price per aggregate offering fee
share/(1)/ price/(1)/
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Common Stock, $.01 par value 14,000,000/(2)/ $0.4844 $6,781,600 $1,885.28
----------------------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee. Such estimate has been calculated in accordance with
Rule 457(g) under the Securities Act of 1933, as amended (the "Securities
Act"). This fee was paid with the initial filing on October 19, 2000.
(2) Pursuant to Rule 416 under the Securities Act, there are also being
registered such indeterminate number of additional shares of Common Stock
as may be issuable to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
_____________________
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that the registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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PROSPECTUS
Ecogen Inc.
14,000,000 Shares of Common Stock
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission becomes effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The Selling Stockholders of Ecogen Inc. listed on page 8 under the
caption "Selling Stockholders" may offer and resell up to an aggregate of
14,000,000 shares of our common stock under this prospectus, for each of their
own accounts. The number of shares that the Selling Stockholders may sell
includes shares of common stock that they may receive if they convert their
shares of 7% Series 2000-A Preferred Stock and 8% Series 1998-C Convertible
Preferred Stock.
The shares may be offered for sale from time to time by the Selling
Stockholders in brokerage transactions at prevailing market prices, in
transactions at negotiated prices or otherwise. No representation is made that
any shares will or will not be offered for sale. We will not receive any
proceeds from the sale of the shares. All costs, expenses and fees incurred in
connection with the registration of these shares, estimated to be approximately
$51,385, are being borne by us, but all selling and other expenses incurred by
the Selling Stockholders will be borne by such Selling Stockholders.
The Selling Stockholders, and the brokers who sell our shares, may be
"underwriters" within the meaning of Section 2(1) of the Securities Act of 1933,
as amended. In addition, any profits realized by the Selling Stockholders or
such brokers on the sale of any shares may constitute underwriting commissions.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"EECN." On November 24, 2000 the closing price per share of our common stock
as reported by the OTC Bulletin Board was $0.3438/
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE
SEE "RISK FACTORS" BEGINNING ON PAGE 2.
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved
of these securities or passed upon the adequacy
or accuracy of this prospectus. Any
representation to the contrary
is a criminal offense.
Prospectus dated November 30, 2000
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Table of Contents
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SUMMARY................................................................................ 1
RISK FACTORS........................................................................... 2
FORWARD LOOKING STATEMENTS............................................................. 7
USE OF PROCEEDS........................................................................ 7
SELLING STOCKHOLDERS................................................................... 8
PLAN OF DISTRIBUTION................................................................... 9
DESCRIPTION OF SECURITIES.............................................................. 10
EXPERTS................................................................................ 11
BUSINESS............................................................................... 11
SELECTED FINANCIAL DATA................................................................ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.. 24
MANAGEMENT............................................................................. 30
PRINCIPAL STOCKHOLDERS................................................................. 34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................................. F-1
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Summary
-------
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING
IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY," "WE," "OUR" AND "US" REFER TO ECOGEN INC., A
DELAWARE CORPORATION.
We are a biotechnology company that specializes in the development and
marketing of environmentally compatible products for the control of pests in
agricultural and related markets. We were incorporated in Delaware in 1983.
Our product revenues are generated principally by sales of biological
insecticides derived from the bacterial microorganism Bacillus thuringiensis
("Bt") and biological fungicide products for the control of powdery mildew and
post-harvest rot disease. In addition, we are developing, for introduction into
certain niche markets, nematodes which are microscopic roundworm products for
the control of insect pests. We were the first company to sell genetically
enhanced biological pesticide products that are registered with the U.S.
Environmental Protection Agency for commercial sale. In addition, we are the
only Company to have received EPA approvals to sell Bt insecticides
incorporating a recombinant Bt strain.
We are a Delaware corporation quoted on the OTC Bulletin Board. Our
principal executive offices are located at 2000 Cabot Boulevard West, Suite 170,
Langhorne, Pennsylvania 19047. Our telephone number is (215) 757-1590.
The Offering
Common stock offered by Ecogen Inc. Zero shares
Common stock offered by the Selling 14,000,000 shares
Stockholders
Common stock to be outstanding after the 27,492,520 shares
offering
Use of proceeds We will not receive any
of the proceeds from the
sale of shares by the
Selling Stockholders.
OTC Bulletin Board symbol EECN.OB
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RISK FACTORS
An investment in our common stock offered involves a high degree of
risk and should not be made if you cannot afford the loss of your entire
investment. In evaluating us and our business, you should carefully consider
the following risk factors in addition to the other information we have
included.
Strategic Risk Factor
---------------------
WE NEED TO ENTER INTO TRANSACTIONS TO RAISE CAPITAL AND SELL ASSETS IN THE
FUTURE TO GENERATE CASH AND THESE TRANSACTIONS MAY NOT OCCUR.
We have not yet generated positive cash flow from operations. Since
our inception, we have financed our working capital needs primarily through
sales of equity securities, revenues from research and development agreements
and product sales. We have no cash or temporary investments, and have secured
borrowings under a working capital line of credit, which expires on November 30,
2000, and a long-term note which is due in June 2001.
We are currently not in compliance with the covenants of our working
capital line of credit. As a result of the Company's non-compliance with such
covenants, the working capital lender, at its option, may discontinue making
loans and liquidate the collateral. Additionally, due to our current inability
to make a principal payment of $0.5 million on our long-term note, the lender
extended the due date of such principal repayment, originally due June 23, 2000,
to December 3, 2000. If we are unable to make the principal payment or obtain
an additional extension, we will be in default of the terms of the long-term
note which will also put us in default on our working capital line of credit. In
that case, both lenders may liquidate the collateral in accordance with the
terms of our agreements.
Additionally, on September 11, 2000, our common stock was delisted
from the Nasdaq National Market ("NNM") as a result of our failure to meet the
NNM's net tangible assets listing requirement. As a result, dividends on our
preferred stock are payable in cash. The Company no longer has the option to
pay such dividends in stock.
A change in our strategic direction is necessary as a result of the
facts described above. We have engaged Janney Montgomery Scott LLC to assist us
with our strategic initiatives including the sale of certain assets. We are
implementing cost saving measures to conserve cash until the closing of any such
transaction. These strategic initiatives may require stockholder approval and
there can be no assurances that we will be able to receive such stockholder
approval on a timely basis or at all. We are unable to predict whether we will
be successful in these efforts. If we are not successful, we may be unable to
continue in existence.
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Operational Risk Factors
------------------------
WE ARE NOT PROFITABLE; WE MUST INCREASE SALES OF OUR PRODUCTS TO BE PROFITABLE.
We have incurred net losses since our inception. To date, we have not
generated profits or positive cash flow from operations. There can be no
assurance that we will achieve operating profits or generate a positive cash
flow. Our ability to become profitable will depend, in part, on an increase in
the sales volumes and margins of our line of biological insect control products
and biofungicide products and realization of commercialization fees. No
assurance exists that we will be able to market these products at prices and in
quantities that will enable us to achieve profitability.
WE ARE NOT ABLE TO PREDICT FUTURE COMMERCIAL ACCEPTANCE.
Currently, our primary products include a line of biological insect
control products and products based on naturally occurring organisms such as
fungi and yeast that can control harmful fungi that reduce crop yields or infect
crops after harvesting, also known as biofungicide products. There can be no
assurance that our existing or future products will be commercially accepted.
Additionally, two genes, that are products of our collaboration with the
Monsanto Company ("Monsanto") are being utilized by Monsanto as an active
ingredient in two of their products. Upon government approval and
commercialization by Monsanto, revenue generated by Monsanto from these products
using the genes would be subject to commercialization fees due to us under an
agreement between the two companies. There can be no assurance that any of these
products will be approved or commercialized by Monsanto or commercially
accepted.
WE COMPETE AGAINST LARGER, MORE ESTABLISHED ENTITIES.
The markets in which we operate are highly competitive. Our
competition is based principally on price and efficacy, but safety and ease of
application are also factors. Our competitors include:
1. manufacturers and marketers of synthetic chemical pesticides and
biopesticides including large chemical companies, such as Valent,
Novartis and Dow AgroSciences;
2. specialized biotechnology firms;
3. universities and public and private research organizations; and
4. in the case of our biological insecticide products, certain genetically
altered, also known as "transgenic", seed and plant products that have
insecticidal capabilities.
Many of these organizations have considerably greater financial and
marketing resources. The agricultural pesticide industry is undergoing, and is
expected to continue to undergo, rapid and significant technological change. We
expect competition to intensify as technical advances in the field are made and
become more widely known. As a result, there can be no assurances that such
competitive pressures and technological advances will not result in a reduction
in prices of our products which could adversely affect our profitability or
render our products or technology obsolete or noncompetitive.
WE RELY UPON THIRD PARTIES TO MANUFACTURE OUR PRODUCTS; WE MUST BE ABLE TO HAVE
NEW PRODUCTS MASS PRODUCED.
A key to achieving our product sales objectives is our ability to have
our products mass produced in a timely and cost-effective manner. In order for
our product sales to be profitable, we must be able to increase production of
our products to meet anticipated needs. There can be no assurance that we will
be able to scale-up production of new products on commercially reasonable terms
or at all. Our production plans rely upon third parties for most of our product
manufacturing, formulation and packaging requirements. Although we believe that
such third parties have sufficient operating capacity, the failure of any such
party to provide products under our product manufacturing arrangements could
have a material and adverse effect on our ability to become profitable.
WE DEPEND ON KEY MEMBERS OF OUR STAFF AND MUST RETAIN AND RECRUIT QUALIFIED
INDIVIDUALS IF WE ARE TO BE COMPETITIVE.
Our future success is dependent upon the efforts and abilities of our
employees. We have assembled a highly qualified technical staff, many of whom
have considerable prior experience with bioinsecticides. The loss of certain
key employees could materially and adversely affect our business and impede the
achievement of our business objectives. Our success will depend on our ability
to retain key employees and to replace them, if any depart, with personnel of
comparable scientific and management capability.
WE RELY ON PROPRIETARY TECHNOLOGY AND TRADE SECRETS, THE LOSS OF ANY OF WHICH
WOULD NEGATIVELY AFFECT OUR BUSINESS.
Although we have issued and pending patents with respect to certain of
our technologies, there can be no assurance that any additional patents will be
issued or that any issued patents will provide adequate protection for our
products or processes. Although we pursue a policy of seeking patent
protection, in the United States and abroad, for our novel compositions of
matter and processes, the issuance of a patent is not conclusive as to its
validity or enforceability, nor does it provide the patent holder with freedom
to operate
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without infringing the patent rights of others. A patent could be challenged by
litigation and, if the outcome of such litigation were adverse to the patent
holder, competitors could be free to use the subject matter covered by the
patent, or the patent holder could be required to license the technology to
others.
Because of the uncertainty concerning patent protection, we also rely
upon unpatented proprietary technology and trade secrets. All of our employees
and consultants sign confidentiality agreements under which they agree not to
use or disclose our confidential information as long as that information remains
proprietary or, in some cases, for fixed time periods. There can be no
assurance that others have not developed or will not independently develop such
proprietary technology or substantially equivalent information and techniques or
that secrecy will not be breached. Our ability to compete will depend, in part,
on maintaining the proprietary nature of our technology.
We are aware that substantial research efforts in biotechnology are
taking place at universities, government laboratories and public corporations
around the world and that numerous patent applications have been filed, and that
patents have been issued, relating to fundamental technologies and to specific
biological pesticide products and processes. The costs associated with the
enforcement of our patents and with obtaining licenses, if required, under
patents held by third parties can be significant and thus could materially and
adversely affect our business. There can be no assurance that we could obtain
licenses with respect to such patents on favorable terms, if at all.
OUR PRODUCT USE AND DEVELOPMENT IS SEASONAL.
The bulk of our products are marketed for agricultural applications in
the northern hemisphere, where the growing season generally runs from spring
until fall. Because of the seasonal nature of our business, product revenues
are likely to be concentrated in the fiscal quarters prior to and during a
particular growing season and may result in substantial variations in quarter-
to-quarter financial results. Droughts, floods, other unusual weather
conditions and the level of insect infestation in grower areas will also affect
product sales from year-to-year. In addition, commercial introduction of our
new products is contingent on, among other factors, completion of field testing
and receipt of required regulatory approvals. Field testing, regulatory
approval and commercial introduction of our products that are not yet registered
with the EPA must occur at certain times before or during the growing season.
Unusual weather conditions during field tests or the failure to receive
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regulatory approval prior to the growing season may require additional field
tests to be conducted in subsequent growing seasons, with resulting delays in
new product development and commercialization.
WE MUST COMPLY WITH STRICT GOVERNMENTAL REGULATION.
Pesticides are subject to rigorous testing and approval processes by
the EPA and similar regulatory authorities in certain states and in other
countries. The process of obtaining these approvals can be time-consuming and
costly. There can be no assurance that such approvals will be granted on a
timely basis, if at all. Delays in obtaining necessary product registrations
could have a significant impact upon our revenues and competitive position by
delaying product sales and causing lost market opportunities. Additionally,
while the EPA has in place a registration procedure for biopesticides that is
less burdensome in comparison to the registration procedures for synthetic
chemical pesticides, there can be no assurance that additional requirements will
not be added by the EPA which could make the procedure more time-consuming and
costly. Additionally, there is no assurance that a particular product developed
in the future will qualify for registration as a biopesticide. Furthermore,
there is no assurance that any registrations that have been granted will not be
revoked or that, if we apply for any additional registrations or approvals, they
will be issued.
WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND WE MAY NOT HAVE SUFFICIENT
PRODUCT LIABILITY INSURANCE.
Our business exposes us to potential product liability claims based
upon our technology or products. We currently maintain product liability
insurance in an amount we believe is adequate for our needs, taking into account
the risks involved and the cost of coverage. There can be no assurance that our
insurance coverage is sufficient to cover potential liabilities, or that we will
have sufficient resources to satisfy any product liability claims. A successful
product liability claim in excess of our insurance coverage could have a
material adverse effect on our financial condition.
OUR STOCK PRICE IS HIGHLY VOLATILE AND INVESTING IN OUR STOCK INVOLVES A HIGH
DEGREE OF RISK.
The market price for shares of our common stock, like the price of
common stock and other securities of biotechnology companies generally,
fluctuates and may be extremely volatile in the future. Factors that may effect
the market price of our common stock include:
1. fluctuation in our operating results;
2. announcements of technical innovations and new commercial products by us
or potential competitors;
3. adverse results in our field tests or product sales;
4. adverse litigation, including actions by creditors and investors;
5. adverse legislation;
6. developments or disputes concerning patent or our other proprietary
rights;
7. general market conditions; and
8. our ability to continue our existence.
In addition, the future sale of a substantial number of shares of
common stock by existing stockholders or by us may have an adverse impact on the
market price of the shares of common stock offered hereby. There can be no
assurance that the price of our common stock will remain at or near its current
level.
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Because our stock price is so volatile, investing in our common stock is
highly risky and a potential investor must be able to withstand the loss of his
entire investment in our common stock.
OPTIONS AND CONVERTIBLE SECURITIES WE HAVE PREVIOUSLY ISSUED OR MAY ISSUE IN THE
FUTURE MAY DILUTE OUR COMMON STOCK.
We have granted options to purchase common stock under employee
benefit plans and agreements with our management and directors. Warrants,
options, convertible securities (including shares of our 7% Series 2000-A
Preferred Stock and 8% Series 1998-C Preferred Stock) and other rights to
purchase common stock are also outstanding under financing arrangements and
other transactions and may convert into common stock at a discount to the then -
prevailing market price of our common stock. We may examine opportunities to
expand our technology base and product line, through means such as licenses and
joint ventures, and may issue securities in connection with such transactions.
We may issue additional stock, warrants and/or options or other convertible
securities in order to raise funds or for other purposes in the future and may
also issue additional securities in connection with our employee benefit plans.
During the terms of any such options, warrants and other convertible securities
(including shares of our 7% Series 2000-A Preferred Stock and 8% Series 1998-C
Preferred Stock), the holders thereof have an opportunity to profit from a
future rise, if any, in the market price of the common stock.
The exercise of any outstanding options, warrants and other
convertible securities or issuance of further shares will dilute our common
stock and may lower the price of our common stock. If you invest in our common
stock, your interest will be diluted to the extent of the differences between
the price per share you pay for the common stock and the pro forma as adjusted
net tangible book value per share of our common stock at the time of sale. We
calculate net tangible book value per share by calculating the total assets less
intangible assets and total liabilities, and dividing it by the number of
outstanding shares of common stock.
WE DO NOT PAY DIVIDENDS.
We have never paid a dividend on our common stock and do not
anticipate paying dividends on our common stock in the foreseeable future. We
currently intend to retain earnings, if any, for use in our business. There can
be no assurance that we will ever pay dividends on our common stock.
NASDAQ DELISTING; REGULATION AS A PENNY STOCK.
We have been notified by The Nasdaq Stock Market that our Common Stock
was delisted from The Nasdaq National Market effective with the opening of
business on September 11, 2000. The delisting was as a result of the Company's
failure to meet Nasdaq's net tangible asset requirement for continued listing.
The Company does not plan to further appeal the delisting on The Nasdaq National
Market and is not currently eligible for listing on The Nasdaq SmallCap Market,
The New York Stock Exchange or the American Stock Exchange.
Trading in our common stock is being conducted on the National
Association of Securities Dealers' OTC Bulletin Board and could also be subject
to additional restrictions. As a consequence of such delisting, it is expected
that our stockholders will find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the common stock. In addition,
such delisting will make our common stock substantially less attractive as
collateral for margin and purpose loans, for investment by financial
institutions under their internal policies or state legal investment laws, or as
consideration in future capital raising transactions.
Our common stock may become subject to regulation as a "penny stock."
The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any equity security that has a market price or
exercise price less than $5.00 per share, subject to certain exceptions,
including listing on the Nasdaq National Market. If our common stock is not
listed on the Nasdaq National Market and no other
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exception applies, our common stock may be subject to the SEC's Penny Stock
Rules, Rules 15g-1 through Rule 15g-9 under the Exchange Act. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the SEC relating to the penny stock market. The broker-
dealer must also disclose the commission payable to both the broker-dealer and
the registered representative, current quotations for the securities and, if the
broker-dealer is the sole market maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
Consequently, the penny stock rules may restrict the ability of broker-dealers
to sell our securities and may affect the ability of holders to sell our
securities in the secondary market and the price at which such holders can sell
any such securities. Rule 15g-9 under the Exchange Act imposes additional sales
practice requirements on broker-dealers who sell such securities except in
transactions exempted from such rule. Such exempt transactions include those
meeting the requirements of Rule 505 or 506 of Regulation D promulgated under
the Securities Act and transactions in which the purchaser is an institutional
accredited investor or an established customer of the broker-dealer.
FORWARD LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements, or those of our
industry, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include those set forth in this Prospectus, including under the caption
"Risk Factors." Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. We disclaim any
obligation to update any such statements or to publicly announce any updates or
revisions to any of the forward-looking statements contained in this Prospectus
to reflect any change in our expectations with regard thereto or any change in
events, conditions, circumstances or assumptions underlying such statements.
DILUTION
The issuance of further shares for resale will dilute our common stock
and may lower the price of our common stock. If you invest in our common stock,
your interest will be diluted to the extent of the difference between the price
per share you pay for the common stock and the pro forma as adjusted net
tangible book value per share of our common stock at the time of sale.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by any
of the Selling Stockholders and will not receive any proceeds upon conversion
of the 7% Series 2000-A Preferred Stock into common stock.
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SELLING STOCKHOLDERS
The following table sets forth as of November 1, 2000, and upon
completion of the offering described in this Prospectus, information regarding
the beneficial ownership of our common stock by the Selling Stockholders. The
Selling Stockholders may not have a present intention of selling their shares
and may offer less than the number of shares indicated.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Before Shares Shares Beneficially
Name and Address Offering to be Offered/(4)/ Owned After Offering/(1)/
----------------- -------- ----------------- --------------------
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Amro International, S.A./(2)/ 810,480/(3)/ 1,100,00/(3)/ 0
c/o Ultra Finance, Ltd.
Grossmuenster Platz 6, P.O.
Box 4401
Zurich, Switzerland, CH 8022
Aspen International, Ltd./(5)/ 1,658,198/(6)/ 2,400,000/(6)/ 0
Charlotte House, Charlotte St.
Nassau Bahamas
Markham Holdings Limited/(7)/ 466,068/(8)/ 500,000/(8)/ 0
Suite 7B and 8B
50 Town Range
Gibraltar
United Equities 10,189,391/(9)/ 10,000,000/(10)/ 734,833
(Commodities) Company
160 Broadway
New York, NY 10038
</TABLE>
/(1)/Assumes resale of all shares of common stock offered hereby.
/(2)/Amro International, S.A. is a Panama corporation. Messrs. Hans V. Bachofen
and Michael Klee, Zurich, Switzerland, the directors of AMRO, share voting and
dispositive power over the securities.
/(3)/Includes shares of our common stock issuable, not previously registered,
upon conversion of 2,000 shares of 7% Series 2000-A Preferred Stock and the
payment of dividends thereon at an assumed conversion price of $0.2969 per share
and shares of common stock issuable upon exercise of the warrant to purchase an
aggregate of 106,667 shares of common stock.
/(4)/Pursuant to the Certificate of Designations, Preferences and Rights of
Series 2000-A Convertible Preferred Stock, no holder may convert Series 2000-A
Preferred Stock or receive shares of our common stock as payment of dividends
thereon to the extent that the number of shares of our common stock held by it
and its affiliates after such conversion or receipt of dividends would exceed
4.999% of the then issued and outstanding shares of common stock following such
conversion or receipt of dividends. Because the number of shares of our common
stock issuable upon conversion of the 7% Series 2000-A Preferred Stock and as
payment of dividends thereon is dependent in part upon the market price of our
common stock prior to a conversion, the actual number of shares of common stock
that will be issued in respect of such conversions or dividend payments and,
consequently, offered for sale under this Registration Statement, cannot be
determined at this time. In order to provide for a cushion for such
fluctuations, the number of shares of common stock registered hereunder is in
excess of the shares of our common stock which shall be available for issuance
upon an assumed conversion of the 7% Series 2000-A Preferred Stock and payment
of dividends thereon and exercise of the warrant on November 1, 2000.
/(5)/Aspen International Ltd. is Bahamian corporation. Mr. Anthony L.M. Inder-
Rieden, Director, has sole voting and dispositive power over the securities.
/(6)/Includes shares of our common stock issuable, not previously registered,
upon conversion of 4,620 shares of 7% Series 2000-A Preferred Stock and the
payment of dividends thereon at an assumed conversion price of $0.2969 per share
and shares of common stock issuable upon exercise of the warrant to purchase an
aggregate of 66,667 shares of common stock.
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/(7)/ Markham Holdings Limited is a Gibraltar corporation. Mr. J. David Hassan,
Director, has sole voting and dispositive power over the securities.
/(8)/ Includes shares of our common stock issuable, not previously registered,
upon conversion of 1,000 shares of 7% Series 2000-A Preferred Stock and the
payment of dividends thereon at an assumed conversion price of $0.2969 per share
and shares of common stock issuable upon exercise of the warrant to purchase an
aggregate of 26,666 shares of common stock.
/(9)/ Philippe Katz, a holder of a 0.5% equity interest in United Equities
(Commodities) Company, is one of our directors.
/(10)/Includes shares of our common stock issuable upon conversion of 32,354
shares of Series 1998-C Preferred Stock and the payment of dividends thereon at
an assumed conversion price of $0.40 per share. Because the number of shares of
common stock issuable upon conversion of the Series 1998-C Preferred Stock and
as payment of dividends thereon is dependent in part upon the market price of
our common stock prior to a conversion, the actual number of shares of common
stock that will be issued in respect of such conversions or dividend payments
and, consequently, offered for sale under this Registration Statement, cannot be
determined at this time. In order to provide for a cushion for such
fluctuations, the number of shares of common stock registered hereunder is in
excess of the shares of our common stock issuable upon an assumed conversion of
the Series 1998-C Preferred Stock and payment of dividends thereon. For purposes
of this table, all of the shares of our common stock offered hereby, including
any excess shares, are considered beneficially owned by United Equities
(Commodities) Company before the offering.
PLAN OF DISTRIBUTION
On February 14, 2000, we sold an aggregate of 15,000 shares of our 7%
Series 2000-A Preferred Stock and issued five-year warrants to purchase an
aggregate of 200,000 shares of our common stock at $2.66 per share to Amro
International, S.A., Aspen International, Ltd. and Markham Holdings Limited in a
private transaction. Pursuant to the terms of the Certificate of Designations,
Preferences and Rights of the 7% Series 2000-A Preferred Stock, we may, from
time to time, issue additional shares of our 7% Series 2000-A Preferred Stock to
holders in payment of dividends. The holders may elect to convert the 7% Series
2000-A Preferred Stock at the lesser of (a) 120% of the average of the closing
bid price per share of our common stock for the ten trading days prior to the
original issue date ($2.73), and (b) 95% of the average of the three lowest
closing bid prices per share of our common stock during the twenty consecutive
trading days prior to the applicable conversion date.
The shares being offered hereby by the Selling Stockholders may be
acquired by the Selling Stockholders from time to time, upon conversion of our
preferred stock. The shares include approximately 14,000,000 shares of our
common stock which may be issuable upon conversion of the preferred stock. The
actual number of shares of our common stock issued or issuable upon conversion
of the preferred stock is subject to adjustment depending on factors which
cannot be predicted by us at this time, including the future market prices of
our common stock and the payment of dividends on the preferred stock in
additional shares of preferred stock.
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of the common stock on any stock exchange market or trading facility on which
our shares are traded or in private transactions. These sales may be at fixed
or negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
. ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
. block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as principal
to facilitate the transaction;
. purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
. an exchange distribution in accordance with the rules of the applicable
exchange;
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. privately negotiated transactions;
. short sales;
. broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
. a combination of any such methods of sale; and
. any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
The Selling Stockholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a Selling Stockholder defaults on
a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements (not to exceed
$5,000) of counsel to the Selling Stockholders. We have agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
The transfer agent and registrar for our common stock is American Stock Transfer
& Trust Company, 40 Wall Street, New York, NY 10005.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 42,000,000
shares of common stock, $.01 par value per share and 7,500,000 shares of
preferred stock, $.01 par value per share. There are 13,492,520 shares of common
stock outstanding and 32,354 shares of Series 1998-C Convertible Preferred Stock
and 7,620 shares of Series 2000 A Convertible Preferred Stock outstanding on
November 1, 2000. All of the shares being sold by the Selling Stockholders
offered hereby are common stock.
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Common Stock
------------
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. Subject
to the rights of holders of any preferred stock which may at the time be
outstanding, holders of common stock are entitled to such dividends as the Board
of Directors may declare out of funds legally available therefor. Subject to
the prior rights of creditors and holders of any preferred stock which at the
time may be outstanding, holders of common stock are entitled, in the event of
our liquidation, dissolution or winding up, to share pro rata in the
distribution of all remaining assets. The common stock is not liable for any
calls or assessments and is not convertible into any other securities. In
addition, there are no redemption or sinking fund provisions applicable to the
common stock. We have never declared or paid cash dividends on our common
stock. We do not expect to pay any cash dividends on our common stock in the
foreseeable future.
EXPERTS
The consolidated financial statements and schedule of Ecogen Inc. and
subsidiaries as of October 31, 1999 and 1998, and for each of the years in the
three-year period ended October 31, 1999, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing. The financial statements of
the BT Biopesticides Business of Mycogen Corporation included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
BUSINESS
Introduction
------------
Ecogen Inc. ("Ecogen" or the "Company"), a Delaware corporation
incorporated in 1983, is a biotechnology company specializing in the development
and marketing of environmentally compatible products for the control of pests in
agricultural and related markets. Ecogen's product revenues are generated
substantially by sales of biological insecticides derived from the bacterial
microorganism Bacillus thuringiensis ("Bt") and biological fungicide products
for the control of powdery mildew and post-harvest rot disease. The Company also
distributes products for others including soil amendments. In addition, Ecogen
is developing for introduction into certain niche markets insecticidal nematode-
based products for the control of insect pests. Ecogen was the first company to
sell genetically enhanced biological pesticide products which are registered
with the United States Environmental Protection Agency (the "U.S. EPA") for
commercial sale. In addition, Ecogen is the only company to have received U.S.
EPA approvals to sell Bt insecticides incorporating a recombinant Bt strain.
The Company's fiscal year begins on November 1 and ends on October 31. Unless
the context otherwise requires, all references in this document to a particular
year shall mean the Company's fiscal year.
In February 2000, the Company completed its acquisition of certain
assets of the sprayable Bt biopesticide business of Mycogen Corporation, an
affiliate of Dow AgroSciences LLC. The transaction included the purchase of
Mycogen's Bt bioinsecticides, trademarks, product inventories and a license to
certain proprietary genes and strains for use in sprayable bioinsecticides. The
Company issued 1.4 million shares of common stock valued at $3.0 million upon
the closing of the transaction. Prior to the closing, the Company acquired
approximately $.4 million of Mycogen's inventory of sprayable Bt products under
a distribution agreement beginning January 1, 2000, pending the signing of final
agreements. Principal products acquired
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include: MVP for control of lepidopteran pests in vines and vegetables, MVPII
for control of lepidopteran pests in trees, nuts, vines and row crops and Mattch
for control of lepidopteran pests in vegetables. (See Management's Discussion
and Analysis and note 18 of notes to the accompanying consolidated financial
statements.)
Technology
----------
Many naturally-occurring organisms are either antagonistic to or
produce substances toxic to agricultural pests. These include a variety of
microorganisms such as bacteria, yeast, fungi, viruses and protozoans that
either directly kill or produce compounds that interfere with certain insects,
fungal pathogens or plant disease organisms. In addition, more complex
organisms such as insecticidal nematodes (microscopic round worms) that attack
insect pests have been long recognized as a potential source of pest control.
All of these natural agents when isolated and formulated as commercially useful
products are commonly called "biopesticides." A glossary of certain terms used
in this section is set forth at the end of this section.
Bacillus thuringiensis ("Bt")
Bt is a bacterium found in soil. The insecticidal activity of Bt
derives from production of spores and specific proteins in the form of crystals
found within the Bt bacteria. These insecticidal agents are produced by the
bacterial cells during a fermentation production process. They are then
formulated into products that are applied to plants by conventional ground and
aircraft spray equipment. When susceptible insects feed on plant foliage
sprayed with Bt-based products, the crystals are ingested and generate soluble
proteins that attack and destroy the insect's intestinal tract. The proteins
produced by various strains of Bt are highly active against specific, targeted
insect pests. Many insects are also susceptible to bacterial spores. Bt has no
adverse activity against non-target insects, fish, birds or mammals (including
humans). The genes for the insecticidal proteins reside on specific non-
essential DNA molecules termed plasmids. Bt bacteria in nature generally
contain several different genes that endow different insecticidal activities.
Plasmids can either be removed ("cured") from cells that harbor them or they can
be transferred between different strains by a natural mating process called
conjugal transfer that occurs in nature between Bt strains and can be replicated
in the laboratory.
Ecogen has developed, through genetic modification techniques, novel
Bt bioinsecticide products that have higher levels of effectiveness and that can
act against a broader array of significant insect pests than Bt products
previously in use. Ecogen has developed and characterized approximately 10,000
Bt strains and maintains one of the world's largest collections of Bt strains.
The Company uses strains from this collection to screen and test for
insecticidal activities. The characterization of the diversity of Bt
insecticidal proteins found in Ecogen's strain collection, coupled with the
ability to transfer or cure plasmids that contain the genetic code for those
proteins, was the basis for Ecogen's early-stage development of new Bt
bioinsecticides. Potent insecticidal crystal proteins produced by new Bt
strains containing novel and desirable combinations, which are obtained by
plasmid curing and conjugal transfer techniques, have been the active
ingredients in Ecogen's Bt bioinsecticides.
These natural genetic approaches to Bt bioinsecticide development can
be applied, however, only to those plasmids that can be transferred or cured.
Certain insecticidal proteins are encoded by plasmids that are not transferable,
and some plasmid combinations are unstable or yield undesired insecticidal
activities. Under these circumstances, the development of genetically
manipulated strains of Bt having novel activities against specific insects is
greatly facilitated by the application of recombinant DNA technology. Ecogen
has developed a proprietary Bt-based cloning vector system, its SSR System(TM),
that utilizes recombinant DNA technology to develop new Bt strains having either
increased potency or activity on a broader array of insect species through
protein engineering. Ecogen believes that the use of Bt (as opposed to other
microorganisms) as the host microorganism in which new Bt insecticidal gene
combinations are constructed facilitates regulatory review in obtaining field
trial permission and subsequent registrations for recombinant-derived products.
For example, Ecogen has received a generic approval from the U.S. EPA to field
test recombinant Bt insecticides using this approach. The Company has received
U.S. EPA approval to commercialize CRYMAX(R)
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Bioinsecticide and Lepinox(R) Bioinsecticide, each of which is a recombinant Bt
product based on a Bt strain into which protein genes from different Bt strains
were combined. Ecogen's genetically enhanced bioinsecticides contain multiple
insecticidal genes and have complex modes of action and therefore, Ecogen
believes that pest populations will have difficulty developing resistance to
them.
In January 1996, Ecogen and Monsanto Company ("Monsanto") undertook a
joint research and development program for the purpose of identifying, enhancing
and testing Bt technology for use by Monsanto in transgenic plants. This joint
Research and Development Program, which ended in January 1999, has resulted in a
number of new Bt genes that are now being considered by Monsanto for
incorporation into Monsanto's future transgenic plant products. Monsanto has
utilized Ecogen's Cry3Bb Bt toxin gene as the active ingredient for corn
rootworm control in Monsanto's Bt corn that was filed for registration with the
U.S. EPA in 1999 and Cry2Ab Bt toxin gene as an active ingredient for Monsanto's
new insect resistant cotton that was filed with the US EPA in 2000. Ecogen will
receive commercialization success fees from Monsanto for any revenue received by
Monsanto from products incorporating technology developed under this program.
Biofungicide Technologies
Biofungicide technologies are based on naturally occurring organisms
such as fungi or yeast that can control harmful fungi that reduce crop yields or
infect crops after harvesting. Ecogen focuses biofungicide research and
development efforts on two biofungicide technologies: hyperparasitic fungi
which kill other fungi, such as powdery mildews that infect plant leaves,
flowers and fruit; and a yeast formulation which protects stored fruit from
post-harvest rot pathogens.
A fungal hyperparasite, Ampelomyces quisqualis, has been identified
that infects most, if not all, types of powdery mildews harmful to agricultural
products. Ecogen has obtained an exclusive license to this hyperparasite.
Powdery mildew is a significant fungal disease affecting many crops. Special
structures of the mildew penetrate the plant epidermal cells and feed on
cellular tissue, causing dwarfing of the plant and fruit and cosmetic damage
which is particularly undesirable on fresh produce. Plants severely infected
with these pathogens have reduced yields. Historically, chemical fungicides
have been used for the control of these fungal pathogens, but these pathogens
can develop resistance to chemical fungicides over time. In response to this
market need, the Company developed its AQ10(R) Biofungicide, which is based on
the fungal hyperparasite Ampelomyces quisqualis, for use in an integrated pest
management system with other fungicide products to control powdery mildew. AQ10
was the first biofungicide registered by the U.S. EPA to protect crops from
powdery mildew. Ecogen's distribution partner in Italy, Intrachem Bio Italia
Srl, has been granted approval for the use of Ecogen's AQ10 biofungicide on
grapes. Ecogen began selling AQ10 to Intrachem Bio Italia in fiscal 2000. AQ10
is the first powdery mildew biofungicide to be approved according to the new
E.U. directives (91/414).
Several non-antibiotic producing strains of yeast have been found to
control a number of post-harvest rot pathogens of citrus, pome fruits, grapes
and other fruits and vegetables. The Company has incorporated a selection of
these strains into its Aspire(TM) Biofungicide. Aspire, which may be applied by
processors and packers in a manner consistent with the method of application of
standard chemicals, provides control of post-harvest rot pathogens.
Insecticidal Nematodes
Insecticidal or entomopathogenic nematodes are microscopic roundworms
that attack insect pests in the soil or in plant stems. Insecticidal nematodes
are not directly responsible for insect mortality, but rather harbor bacteria
that are released into and cause an infection of the insect after nematode entry
into the pest. Normally, the insect dies within 48 hours after infection. The
natural characteristics of insecticidal nematodes give nematode-based
insecticides certain advantages over other insecticides. For example, nematodes
attack insect pests in the soil where approximately 90% of insect pests spend at
least a portion of their life cycle. In addition, insecticides using nematodes,
which cause no adverse effects to humans, animals
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or plants, are currently exempt from U.S. EPA pesticide regulations and, unlike
other insecticides, including other bioinsecticides, are subject to
significantly lower levels of regulation or are exempt from registration by
state agencies.
Nematode product development is dependent on the implementation of
production technology developed at a pilot scale, particularly to obtain higher
yields at larger commercial scale production and to reduce the costs of
production. In addition, current shelf life of the insecticidal nematode
products being developed by Ecogen is insufficient for widespread
commercialization. Ecogen is exploring methods of formulating and preserving
the nematodes to further increase shelf life while maintaining the nematodes'
insecticidal capabilities, including the development of formulations that would
be stable at various temperatures.
Glossary
The following glossary of terms may be helpful in understanding the
technology described in this document.
Ampelomyces quisqualis - A parasitic fungus with a host range
that includes numerous powdery mildew
species.
Bacillus thuringiensis - Spore-forming bacteria that produces
insecticidal crystal proteins during
sporulation. Many different varieties of
Bt exist in nature producing crystal
proteins with a wide range of
insecticidal activity.
Conjugal transfer - Natural genetic transfer system
operating in bacteria that involves the
exchange of plasmid DNA.
Gene - Smallest unit of inheritance occupying a
specific site on a DNA molecule
(chromosome).
Hyperparasite - A parasite of a parasitic organism,
e.g., a fungus that lives off of a plant
parasitic fungus.
Insecticidal crystal protein - Proteins produced by sporulating Bt
bacteria that form crystalline
inclusions within the cell.
Insecticidal nematodes - Microscopic round worms that penetrate,
infect and kill insect pests.
Plasmid - Small, usually circular, DNA molecule
that is separate from the bacterial
chromosome and is not absolutely
required for cell viability.
Protein - Molecules composed of chains of amino
acids. Examples of proteins are enzymes,
hormones, and antibodies.
Protein engineering - Technology of altering specific
properties of protein by introducing
structural changes in the protein
molecule. Changes are introduced by
making changes in the DNA encoding the
protein using recombinant DNA
technology.
Recombinant DNA - May also be referred to as genetic
engineering and involves the in vitro
cutting and splicing of DNA molecules.
DNA encoding the desired trait is joined
to a DNA molecule that is subsequently
introduced into the host organism.
SSR System - Ecogen's proprietary site-specific
recombination system for the
construction of recombinant Bt strains
lacking foreign DNA.
Soil Amendments - Products that, among other things,
negate the influence of salt on plant
growth and enhance the growth of
permanent crops .
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Transconjugant - Bacterial cell that is produced as a
result of the conjugation process.
Vector - A genetic construct that can transfer
genetic material from one host to
another.
Ecogen Technologies I Incorporated
----------------------------------
The Company maintains over a 70% ownership interest in Ecogen
Technologies I Incorporated ("ETech"). ETech was formed to initiate or
accelerate research and development of certain products using technology
exclusively licensed or sublicensed by Ecogen to the subsidiaries of ETech. The
licensed rights include the right to develop and commercialize pesticide
products based on technology for: (i) the control of powdery mildew disease
(AQ10 Biofungicide); (ii) the control of post-harvest rot disease on
agricultural crops (Aspire Biofungicide); (iii) the control of the European corn
borer insect, which affects corn production (Condor(R) G Bioinsecticide); (iv)
the control of black vine weevil, citrus weevil, wireworm and black cutworm
utilizing insecticidal nematodes (Cruiser(R) Bioinsecticide); (v) the control of
corn rootworm; and (vi) the control of certain insects which cause damage to
turf. Ecogen has agreed to commercialize and market products on behalf of ETech
pursuant to various Marketing Agreements that provide for Ecogen to receive a
fee from ETech based on product sales for Ecogen's commercialization and
marketing activities. Ecogen is currently marketing AQ10 and Aspire and is
continuing work on the development of Cruiser. The other ETech projects have
been suspended.
Products
--------
The following are Ecogen's current principal products:
CRYMAX Bioinsecticide - CRYMAX Bioinsecticide is a U.S. EPA registered
product that was developed by Ecogen using recombinant DNA and protein
engineering techniques. CRYMAX is marketed for the control of caterpillar pests
primarily on vegetable crops.
Lepinox Bioinsecticide - Lepinox Bioinsecticide is a U.S. EPA
registered product that was developed by Ecogen using recombinant DNA and
protein engineering techniques for the control of fall armyworm on sweet corn
crops.
MVP and MVP II Bioinsecticides - MVP and MVP II are U.S. EPA
registered products that utilize the CellCap(R) production system in a liquid
formulation. CellCap refers to the expression of Bt insecticidal proteins
within a Pseudomonas bacteria which is killed during formulation to form a
protective biocapsule. MVP and MVP II are marketed for the control of
caterpillar pests primarily on vegetable, tree and vine crops. MVP is sold
primarily in international markets. MVP II is sold in international and U.S.
markets.
Mattch Bioinsecticide - Mattch Bioinsecticide is a U.S. EPA registered
product that utilizes the CellCap production system to combine two distinctly
different Bt insecticidal proteins in a liquid formulation. Mattch is marketed
in the U.S. for control of caterpillar pests on vegetables.
Condor Bioinsecticide - Condor Bioinsecticide is a U.S. EPA registered
genetically enhanced Bt product developed by Ecogen for the control of
caterpillar pests in cotton, soybean, corn and other row crops, tree and nut
crops, and forestry applications.
Cutlass(R) Bioinsecticide - Cutlass Bioinsecticide is a U.S. EPA
registered genetically enhanced Bt product developed by Ecogen for the control
of caterpillar pests that damage vegetable, tree, nut and vine crops. Cutlass
is sold primarily in international markets.
AQ10 Biofungicide - AQ10 Biofungicide is the first biofungicide
registered by the U.S. EPA to protect crops from powdery mildew. Ecogen markets
AQ10 in California and other areas of the western
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United States for control of powdery mildew on grapes and other crops. AQ10 also
is marketed in Italy for use on grapes.
Aspire Biofungicide - Aspire Biofungicide is the first biofungicide
registered by the U.S. EPA to protect crops from post-harvest rot pathogens.
Aspire is marketed for use by fruit packinghouses in the United States.
Cruiser Insecticide - Cruiser Insecticide contains the Heterorhabditis
bacteriophora nematode and is being developed for the control of a variety of
insect pests.
During the nine months ended July 31, 2000 and in fiscal 1999, the
foregoing products represented approximately 88% and 94% respectively, of
Ecogen's net product sales. Net product sales represented approximately 99%%
and 91%, respectively of the Company's total revenues in the nine-month period
ended July 31, 2000 and in fiscal 1999. Bt products and biofungicide products
represented approximately 87% and 9% and 90% and 4%, respectively, of Ecogen's
total net product sales in the nine months ended July 31, 2000 and in fiscal
1999.
Marketing
---------
Agricultural pesticides and related products are sold in the United
States primarily through traditional agricultural chemical distribution channels
consisting of large wholesale distributors and dealers that serve extensive farm
areas. Ecogen makes use of these traditional channels for the domestic
distribution of its current products. To coordinate these distribution
activities and generate grower interest in its products, the Company employs a
marketing staff including several domestic sales representatives who are located
in key agricultural chemical distribution locations, primarily in the southern
and western areas of the United States. The Company also has distribution
agreements for certain of its products in the United States. In January 1999,
FMC Corporation agreed to distribute Lepinox for the Company in the United
States. Also in January 1999, Plant Health Care Inc. agreed to distribute
certain of the Company's products into non-agricultural markets in the United
States.
Ecogen's domestic product sales for the nine-month period ended July
31, 2000 and in fiscal 1999, 1998 and 1997 totaled $3.9 million, $4.5 million,
$7.0 million and $7.2 million, respectively.
For international distribution of its products, Ecogen has entered
into several collaborations with companies that have a significant presence in
the markets covered by their respective agreements. In 1991, the Company and
Hoechst Schering AgrEvo, S.A. ("AgrEvo") entered into a distribution and product
supply agreement that grants to AgrEvo exclusive distribution rights to certain
of the Company's Bt products in Europe (except Germany, which is excluded, and
Spain, Portugal and Italy, where rights are co-exclusive), Africa, the People's
Republic of China, Australia, the Middle East and Latin America (except Mexico).
In addition to its agreement with AgrEvo, Ecogen has international distribution
agreements for certain of its products with a number of other companies
including: Zeneca (for Mexico), Nissan Chemical (for Japan), Intrachem
(International) S.A. (for Italy, Spain and Portugal), Jia Non Enterprises (for
Taiwan) and Incitec Ltd. (for Australia and New Zealand). In September 1998, FMC
Corporation agreed to distribute Lepinox in Mexico and Central and South
America. In March 1999, Lances Link S.A. agreed to distribute certain of the
Company's products in parts of Western Europe, all of Eastern Europe, Egypt,
Turkey and all Arab speaking countries of the Near East. In February 2000, the
Company agreed to grant Dow AgroSciences exclusive distribution rights for
certain products in Mexico, New Zealand and Australia, subject to negotiation of
final agreements. International product sales totaled $1.4 million in the nine
months ended July 31, 2000, $2.1 million for fiscal 1999, $3.5 million for
fiscal 1998, and $1.6 million for fiscal 1997.
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Production
----------
The manufacturing process for Ecogen's Bt-based bioinsecticide and
biofungicide products involves fermentation of the desired microorganism. Upon
completion of this fermentation process, the pesticidal agent is recovered using
standard techniques, such as centrifugation, and is formulated into commercial
products. Ecogen operates a fermentation and formulation pilot plant to support
some product requirements for field trials and to facilitate the transition of
products from laboratory to large-scale manufacturing. For commercial
production of its products, Ecogen generally engages third-party contract
manufacturers to perform one or more steps in the manufacturing process for the
Company's products. Ecogen believes that adequate fermentation, formulation and
other services are available from a number of third-party contract
manufacturers, but the engagement of contract manufacturers other than the
Company's current contract manufacturers may cause at least short-term
disruptions of the Company's manufacturing operations.
The most important raw materials needed by Ecogen to conduct its
product manufacturing and research and development activities include (1)
fermentation media components and formulation chemicals, which are readily
available from a variety of independent sources, and (2) microbial strains that
are either proprietary to Ecogen or are licensed from outside parties. Ecogen
does not anticipate any shortages of these or other raw materials that would
materially affect product availability or cost.
Research and Product Development
--------------------------------
The Company's operating expenses to date have included costs
associated with the research and development of products for future
commercialization. Costs incurred by Ecogen under third-party funded research
and development programs aggregated approximately $.3 million for fiscal 1999,
$.7 million for fiscal 1998, and $1.2 million for fiscal 1997. There were no
significant third party programs in fiscal 2000. Costs incurred under Ecogen-
funded research and development programs aggregated approximately $1.3 million,
$2.3 million, $2.9 million and $3.8 million the nine-month period ended July 31,
2000, for fiscal 1999, 1998 and 1997, respectively.
During fiscal 1999, the Company derived approximately 9% of its
revenues from research and development contracts. This contrasts with
approximately 33% in 1998 and 25% in 1997, as a result of the wind-down of the
Monsanto research program.
Bacillus thuringiensis Products
The Company is working on improving, through recombinant DNA and other
technologies, the efficacy of its bioinsecticides already in the market,
adapting such products for application to additional uses, and developing new
bioinsecticides. In addition, Ecogen is attempting to improve its fermentation
and formulation processes in order to increase product yield and reduce the
costs of product manufacturing.
Biofungicide
The Company is continuing to develop processes for the commercial
production by fermentation of AQ10 and Aspire Biofungicides. The Company is
also continuing to develop stable and efficacious formulations for these
products. With respect to Aspire Biofungicide, the Company is working to
develop formulations that provide Aspire with increased shelf life at room
temperatures.
Insecticidal Nematodes
The Company is working to implement at a commercial scale production
technology developed at a pilot scale so as to obtain higher yields and reduce
the costs of production. The Company is also investigating methods for
increasing the shelf life of nematode products (particularly at ambient
temperatures). In addition, the Company is continuing the development of
formulations that are designed to make the Company's products easier to use and
to increase product shelf life.
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Geographic Segment Data
-----------------------
Information regarding geographic segment data is provided in note 12
to notes to consolidated financial statements.
Patent and Trade Secrets
------------------------
Ecogen pursues a policy of seeking patent protection, both in the
United States and abroad, to protect its novel technologies, compositions of
matter and processes and has obtained patents covering certain of its
technologies. In addition, with respect to the Company's two biofungicide
products, AQ10 Biofungicide and Aspire Biofungicide, and with respect to certain
of its Bt technology, the Company holds licenses to patents covering the base
technologies.
There can be no assurance that patents or license rights under patents
for all of the Company's products and processes will be obtained, or that issued
patents will provide substantial protection or be of commercial benefit to the
Company. The issuance of a patent is not conclusive as to its validity or
enforceability, nor does it provide the patent holder with freedom to operate
without infringing the patent rights of others. A patent could be challenged by
litigation and, if the outcome of such litigation were adverse to the patent
holder, competitors could be free to use the subject matter covered by the
patent or the patent holder could be required to license the technology to
others.
Because of the uncertainty concerning patent protection, the Company
relies, in certain cases, upon trade secret protection and continuing
technological innovation to maintain its competitive position. All Ecogen
employees and consultants sign confidentiality agreements under which they agree
not to use or disclose the Company's confidential information as long as that
information remains proprietary or, in other cases, for fixed time periods.
There can be no assurance, however, that such proprietary technology will not be
independently developed or that secrecy will not be breached. The Company's
research, development and commercialization partners, as well as its
biopesticide production subcontractors, are provided access to know-how under
confidentiality agreements. To the extent that such entities use this
technological information, disputes may arise as to the proprietary and patent
rights to such technological information and related developments.
The Company is aware that substantial research efforts in
biotechnology are taking place at universities, government laboratories and
other corporations around the world and that numerous patent applications have
been filed, and patents have been issued, relating to fundamental technologies
and to specific biological pesticide products and processes. The Company may
have to obtain licenses under certain of these patents. No assurance can be
given concerning the terms on which such licenses would be available, if at all.
Governmental Regulation
-----------------------
Regulation by governmental authorities in the United States and other
countries is a significant factor affecting the success of products resulting
from biotechnological research.
The pesticide industry is heavily regulated in the United States. The
U.S. EPA regulates pesticide products under the Federal Insecticide, Fungicide
and Rodenticide Act ("FIFRA"). Pesticides also are regulated by various state
agencies. Some states, such as California, Florida and New York have their own
extensive registration requirements. To develop and commercialize a pesticide
product, detailed and complex procedures must be followed and federal approvals
must be obtained under FIFRA. Small-scale field testing usually may be
conducted prior to product registration to evaluate product efficacy. To
conduct large-scale tests, a company must obtain an Experimental Use Permit
("EUP"), which generally requires satisfactory completion of certain toxicology
and environmental studies. Synthetic chemical pesticides require additional
extensive toxicology and environmental testing that typically is not required of
biopesticides to substantiate product safety prior to obtaining a product
registration. Commercial sale of a pesticide requires a
18
<PAGE>
registration for each pest and crop for which the product is used. Registration
requirements include submission and U.S. EPA approval of the text of a label
which must be included on every pesticide product.
The United States Congress has mandated under the Food Quality
Protection Act of 1996 that all U.S. EPA tolerances be reassessed using new
standards within 10 years. All tolerances will now be based on a "reasonable
certainty of no harm" and there will be a specific determination of risk to
infants and children.
The U.S. EPA has recognized that biochemical and microbial pesticides
are distinguished from standard chemical pesticides and has established
different data requirements as part of its registration regulations. These data
requirements are set out in Subdivision M of the U.S. EPA's Pesticide Assessment
Guidelines. Biopesticides currently are subject to a three-tier toxicology
testing procedure and a four-tier environmental testing procedure. A
biopesticide product which satisfactorily completes both the Tier I toxicology
and environmental tests is not required to go through the tests specified in
subsequent tiers. This has been the case for product registration applications
filed by the Company to date. However, should questions arise during any tier
of testing, additional tests may be required. For a biopesticide product
required to complete only Tier I testing, approximately one year of laboratory
testing is required. Subsequent U.S. EPA registration generally takes
approximately 12-18 months. Although the process for obtaining regulatory
approval to test and market biopesticides that are genetically modified is
designed to be less complex and time-consuming than the regulatory approval
process for synthetic chemical pesticides, there can be no assurance that
approvals will be granted on a timely basis, if at all.
Certain of Ecogen's products under development utilize recombinant DNA
technology. The Federal government regulates certain recombinant DNA research
activity through the National Institute of Health's Guidelines for Research
Involving Recombinant DNA Molecules ("NIH Guidelines"). The NIH Guidelines,
among other things, set laboratory procedures and establish levels of biological
and physical containment and other standards for recombinant DNA molecules that
must be met for various types of research. Ecogen believes that it is in
compliance with the NIH Guidelines. In August 1992, Ecogen received blanket
permission from the U.S. EPA to conduct small-scale field trials of its
recombinant Bt strains without prior notice (generally required for small-scale
field testing of microbial pesticides).
Insecticidal nematodes are currently exempt from registration under
U.S. EPA pesticide regulations and, unlike other insecticides, including other
bioinsecticides, are subject to significantly lower levels of regulation or are
exempt from registration by state agencies.
Ecogen's activities, including operation of its laboratories and
pilot-scale manufacturing facilities, are, or may be, subject to regulation (i)
under various other state and federal laws and regulations, including the
Occupational Safety and Health Act, the Toxic Substances Control Act, the
Federal Food, Drug and Cosmetic Act, the Solid Waste Disposal Act, the Resource
Conservation and Recovery Act, the Emergency Planning and Community Right-to-
Know Act, the Clean Air Act, the Clean Water Act, and other state and federal
laws regulating environmental quality, and the implementation of regulations for
all such laws; and (ii) by other state and federal agencies, including the U.S.
Department of Agriculture and the U.S. Food and Drug Administration. In
addition, the actions of federal agencies in reviewing applications by Ecogen or
issuing permits or other authorizations may be subject to the National
Environmental Policy Act, and state or local agencies may be required to comply
with similar state laws. Historically, the cost of compliance with such laws
and regulations has not had a material impact on Ecogen's business.
From time to time, governmental authorities review the need for
additional laws and regulations for biotechnology products and for pesticide
products that could, if adopted, apply to the business of Ecogen. Ecogen is
unable to predict whether any such new regulations will be adopted or whether,
if adopted, such regulations will adversely affect its business.
Historically, the cost to Ecogen of compliance with federal, state and
local provisions enacted for the protection of the environment has not been
material. Toxicology testing, field development trials and
19
<PAGE>
related costs for U.S. EPA registrations incurred to date by Ecogen have
averaged under $500,000 for each product registration, while state registration
and related costs per product have been nominal. This does not mean that such
costs are unlikely to increase in the future, particularly if more restrictive
approval requirements are adopted by federal, state or local authorities. Also,
delays in obtaining necessary product registrations can have a significant
impact upon Ecogen's revenues and competitive position in the way of delayed
product sales and lost market opportunities.
The regulation of field development and testing, as well as the
commercial sale, of Ecogen's biopesticides varies widely outside of the United
States. Some countries permit the field development testing and sale of
biopesticide products registered for commercial sale in the United States upon
the filing of certain notifications or other non-extensive documentation. In
other countries the regulation of biopesticides is not as well defined as in the
United States and in such countries, biopesticides are regulated like chemical
pesticides. These countries require significantly more toxicity and ecotoxicity
studies than are required in the United States for biopesticides, as well as a
minimum of two years of field efficacy studies, for registration for commercial
sales. Due to the variety of regulatory structures in countries other than the
United States and the evolving nature of such regulatory schemes, the impact of
government regulation of biopesticides on Ecogen's international business cannot
be assessed at this time.
Competition
-----------
Competition in the pesticide market is intense. Competition is based
principally on price and efficacy, but safety and ease of application are also
factors. Competitors of Ecogen include manufacturers and marketers of synthetic
chemical pesticides and biopesticides, including large chemical companies such
as Novartis and Dow AgroSciences, as well as specialized biotechnology firms.
Many of these companies have considerably greater financial and marketing
resources than has Ecogen. Competitors with respect to research and development
activities also include universities and public and private research
organizations. In addition, Ecogen's bioinsecticide products compete with
certain transgenic seed and plant products that have insecticidal capabilities.
Ecogen believes that its ability to compete in the pesticide market
may be enhanced by heightened concerns about the effects of chemical pesticides
upon the environment and, in some cases, by the increasing resistance of plant
pests to synthetic pesticides. However, Ecogen expects competition in the
agricultural pesticide industry to intensify as technical advances in the fields
of pesticides and pest-resistant plants are made. There can be no assurance
that developments by others will not render the Company's products or technology
obsolete or noncompetitive.
Seasonality
-----------
The bulk of the Company's current products are 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 upon, 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. 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 and 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 infestation in grower areas.
20
<PAGE>
Employees
---------
As of November 1, 2000, Ecogen and its subsidiaries have 19 full-time
employees, of whom 4 hold Ph.D. degrees. Degrees held by employees of Ecogen
encompass the areas of entomology, microbiology, molecular genetics, plant
physiology and plant pathology.
Employees of the Company are required to enter into confidentiality
agreements with Ecogen. Pursuant to these agreements, the employees have agreed
not to disclose Ecogen's proprietary information and to assign to Ecogen all
rights to any inventions made during their employment or relating to Ecogen's
activities, and not to engage in activities similar to their activities at
Ecogen for any other person or entity during the term of their employment and
for one year thereafter.
Properties
----------
Ecogen currently occupies approximately 21,000 square feet of space
for its administrative offices and research and development operations in a
building located in the Bucks County Business Park, Langhorne, Pennsylvania. The
lease for this facility expires in March 2005. Approximately 15,000 square
feet of this space is devoted to research and development facilities, including
laboratories, an insectary and a fermentation and formulation pilot plant.
Legal Proceedings
-----------------
The Company is not involved in any material legal proceedings.
Market for Common Equity and Related Stockholder Matters
--------------------------------------------------------
Until September 8, 2000, the Common Stock of the Company was traded on
the NASDAQ National Market under the symbol "EECN." On September 11, 2000, the
Common Stock of the Company commenced trading in the over-the-counter market and
was quoted on the OTC Bulletin Board under the symbol "EECN." Set forth below
are the high and low closing prices, as reported by the National Quotation
Bureau, for each full quarterly period during fiscal years 1998 and 1999 as well
as the interim periods through September 8, 2000, and the high and low bid
quotations for the period from September 11, 2000 through October 31, 2000 as
reported by the OTC Bulletin Board. Bid quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. No dividends have ever been declared by the
Company on the Common Stock. As of October 31, there were approximately 700
record holders of the Company's Common Stock.
<TABLE>
<CAPTION>
High Low
---------------- ---------------------
<S> <C> <C> <C>
2000 First Quarter $2.44 $1.13
Second Quarter 5.03 1.63
Third Quarter 2.50 0.95
Fourth Quarter (through 9/8/00) 1.06 0.47
Fourth Quarter (9/11/00 through 10/31/00) 0.88 0.31
1999 First Quarter $2.25 $1.18
Second Quarter 3.31 1.75
Third Quarter 3.50 2.50
Fourth Quarter 3.12 1.50
1998 First Quarter $2.75 $1.53
Second Quarter 3.12 1.44
Third Quarter 3.44 1.88
Fourth Quarter 1.88 1.00
</TABLE>
The closing bid price per share of our common stock on October 31, 2000, as
reported by the OTC Bulletin Board was $0.3125.
21
<PAGE>
SELECTED FINANCIAL DATA
The consolidated statements of operations data for Ecogen Inc. and
subsidiaries the years ended October 31, 1999, 1998 and 1997 and the
consolidated balance sheet data as of October 31, 1999 and 1998 have been
derived from our consolidated financial statements included elsewhere in this
prospectus which have been audited by KPMG LLP, independent certified public
accountants. The consolidated statement of operations data for the year ended
October 31 1997 and 1996 and the consolidated balance sheet data as of October
31, 1997, 1996 and 1995 have been derived from our audited financial statements
not included in this prospectus, which have also been audited by KPMG LLP. The
selected data below for the nine months ended July 31, 2000 and 1999, and as of
July 31, 2000, are derived from the unaudited consolidated financial statements
of the company included elsewhere in this Prospectus. The results of operations
for the nine months ended July 31, 2000 are not necessarily indicative of the
results of operations to be expected for the fiscal year ended October 31, 2000.
Our historical results are not necessarily indicative of results to be expected
for any future period. The data presented below should be read with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this prospectus.
Nine Months Ended July 31, 2000 and 1999 and Years ended October 31,
1999, 1998, 1997, 1996 and 1995
(all amounts in thousands, except per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Nine Months
ended July 31 Years ended October 31
---------------- -----------------------------------------------------
Historical 2000(/1)/ 1999 1999 1998/(2)/ 1997 1996 1995/(3)/
----------- --------- ------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales $ 5,284 $ 5,641 $ 6,566 $ 10,472 $ 8,783 $ 8,600 $ 9,135
Other revenues 50 626 676 5,266 2,939 7,825 2,856
Gross margins 760 1,091 590 1,871 2,492 2,901 3,628
Expenses:
Research & development 1,322 1,982 2,637 3,616 5,042 4,922 8,951
Selling, general &
Administrative 4,193 5,057 6,833 6,824 8,662 8,547 10,672
Special charges:
- Purchased technology - - - - - - 9,143
- Restructuring - - - - 1,626 - 1,042
Net loss (5,404) (5,638) (8,611) (2,997) (9,810) (2,743) (23,324)
Dividends on preferred
stock, including
incremental yield 891 666 1,142 116 2 - -
Net loss allocable to
common Stockholders ($6,296) ($6,304) ($9,753) ($3,113) ($9,812) ($2,743) ($23,324)
Basic and diluted net
loss per common share ($0.55) ($0.70) ($1.05) ($0.39) ($1.23) ($0.40) ($4.34)
Weighted average
common shares outstanding 11,508 9,001 9,248 8,059 7,958 7,178 5,373
Pro-forma
---------
Pro-forma basic and
diluted net loss per
common share ($0.54) - ($0.91) - - - -
Pro-forma weighted
average common
shares outstanding 11,902 - 10,599 - - - -
</TABLE>
No cash dividends have ever been paid on the Company's common stock, and the
Company does not intend to pay cash dividends on its common stock in the
foreseeable future. The Company is precluded from paying cash dividends on its
common stock under its loan agreements.
/(1)/ In February 2000, the Company acquired certain sprayable Bt biopesticides
from Mycogen Corporation, an affiliate of Dow AgroSciences Inc. (See note
18 of notes to consolidated financial statements.)
/(2)/ During fiscal 1998, the Company disposed of its pheromone product line
(See note 17 of notes to consolidated financial statements.)
/(3)/ During fiscal 1995, the Company acquired a controlling interest in ETech,
which was accounted for as a purchase with the operations of ETech
consolidated from the date of acquisition. As a result of the acquisition,
a special charge to operations was recorded in 1995 for purchased
technology and the Company no longer recorded research contract revenue
from ETech in its consolidated financial statements.
22
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
July 31 October 31
--------------- --------------------------------------------------------------------------------
2000/(1)/ 1999 1998/(2)/ 1997 1996 1995/(3)/
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents
and temporary
investments - - $ 2,823 $ 2,374 $ 9,611 $ 1,775
Total assets 10,814 10,462 14,677 17,558 23,861 12,371
Long-term debt 67 250 1,328 3,916 1,297 620
Stockholders' equity 117 1,023 6,925 4,870 14,403 5,507
</TABLE>
/(1)/ In February 2000, the Company acquired certain sprayable Bt biopesticides
from Mycogen Corporation, an affiliate of Dow AgroSciences Inc. (See note
18 of notes to consolidated financial statements.)
/(2)/ During fiscal 1998, the Company disposed of its pheromone product line
(See note 17 of notes to consolidated financial statements.)
/(3)/ During fiscal 1995, the Company acquired a controlling interest in ETech,
which was accounted for as a purchase with the operations of ETech
consolidated from the date of acquisition. As a result of the acquisition,
a special charge to operations was recorded in 1995 for purchased
technology and the Company no longer recorded research contract revenue
from ETech in its consolidated financial statements.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Company is an agricultural biotechnology company specializing in
the development and marketing of quality biorational products for the control of
pests in agricultural and related markets.
Overview
--------
In April 1998, the Company sold its pheromone product line to a newly-
formed company for aggregate net proceeds of $2.4 million and recognized a gain
on sale of approximately $.5 million. On an unaudited pro forma basis, assuming
that the sale of the pheromone product line had taken place at the start of
fiscal 1997 and excluding the $.5 million gain on the sale, the Company's net
loss allocable to common stockholders for fiscal 1998 would have been $3.9
million, or $.48 per basic and diluted share, compared with $9.9 million, or
$1.25 per basic and diluted share for the year-ago period.
During the second quarter of fiscal 2000, the Company acquired certain
assets of the sprayable Bt bioinsecticide business of Mycogen Corporation for
approximately $3.4 million including cash and $3.0 million of the Company's
common stock.
Results of Operations - Nine-Month Period Ended July 31, 2000 Compared to Nine-
------------------------------------------------------------------------------
Month Period Ended July 31, 1999
--------------------------------
Revenues
--------
Net product sales decreased 6% during the nine months ended July 31,
2000, principally due to volume. Sales of the Company's Bt product line,
representing 87% of total sales, decreased 9% due principally to lower volume of
sales. Included in the Company's Bt sales for the nine months ended July 31,2000
are $1.9 million of acquired Mycogen products principally Mattch and MVP for
caterpillar control. Sales of Ecogen's Bt products exclusive of the acquired
Mycogen products decreased $2.4 million for the nine months ended July 31, 2000.
The decrease was primarily due to lower sales of Lepinox and Condor, two of the
Company's Bt bioinsecticides for control of caterpillars. Biofungicide sales,
representing 9% of total sales, increased 76% due to initial sales of AQ10 in
Europe. Other product sales represented 5% of total sales in the first nine
months of both fiscal 2000 and 1999.
Contract research revenues decreased $.6 million in the current nine-
month period, due to the expiration in January 1999 of the Monsanto research and
development contract that had contributed more than $10 million in contract
research revenue over its three-year term.
Costs and Expenses
------------------
Cost of products sold was $4.5 million in both the first nine months
of fiscal 2000 and 1999. Gross margins on product sales decreased to 14% in the
first nine months of fiscal 2000 compared to 19% in fiscal 1999. The decrease
in gross margins on product sales was due to lower margins on biofungicide sales
in fiscal 2000 resulting from initial sales of AQ10 to the Company's distributor
at reduced prices to support the commercialization of this product in Europe.
Total operating expenses were $5.6 million in the first nine months of
fiscal 2000 compared to $7.0 million in 1999, a decrease of $1.4 million or
20%. Research and development costs decreased $.7 million or 33% due
principally to lower personnel costs. The Company's commitment to provide
research services to Monsanto expired in January 1999 and the Company's
technology continues to approach commercialization, therefore requiring less
activity in basic research and development. Selling, general and administrative
expenses were $4.2 million in the first nine months of fiscal 2000 compared to
$5.1 million in
24
<PAGE>
1999, representing a decrease of $.9 million or 17%. As a result of lower
general and administrative expenses and other costs containment efforts
implemented in fiscal 2000. Amortization expense of $.1 million was recorded in
fiscal 2000 related to the amortization of intangible assets associated with the
acquired Mycogen products. The Company did not incur any significant incremental
costs to integrate the acquired Mycogen products into the Company's portfolio.
Other expense, net, increased $.3 million in the first nine months of
fiscal 2000 compared to the same period in fiscal 1999 principally as a result
of higher interest expense.
Net loss allocable to common stockholders for the nine months ended
July 31, 2000 was $6.3 million, which was approximately the same for the
comparable period in fiscal 1999. Basic and diluted net loss per share for the
nine months ended July 31, 2000 was ($0.55), compared to a net loss per share of
($0.70) on weighted average shares outstanding of 11.5 million and 9.0 million
in the first nine months of 2000 and 1999, respectively. Dividends on preferred
stock including an assumed incremental yield were $.9 million and $.7 million in
the nine month period ended July 31, 2000 and 1999, respectively.
Results of Operations - Year Ended October 31, 1999 Compared to Year Ended
--------------------------------------------------------------------------
October 31, 1998
----------------
Revenues
Total revenues decreased $8.5 million or 54% in fiscal 1999 to $7.2
million from $15.7 million in fiscal 1998. Net product sales decreased $3.9
million or 37% principally due to volume. On a pro forma basis, assuming the
sale of the pheromone product line took place at the beginning of fiscal 1998,
continuing product sales decreased $1.9 million or 22% from fiscal 1998 to
fiscal 1999. Other revenue decreased $4.6 million or 87% due primarily to the
expiration in January 1999 of the research and development contract with
Monsanto. Sales of the Company's Bt product line, representing 91% of Company
product sales, decreased 19% in fiscal 1999. The decrease was principally due to
decreased sales of CRYMAX, the Company's Bt bioinsecticide for control of
caterpillars in the vegetable, tree, nut and vine markets, partially offset by
an increase in sales of Lepinox, the Company's bioinsecticide for control of
diamondback moth and a variety of armyworms in vegetables and row crops that was
introduced in the fourth quarter of fiscal 1998. Biofungicide product sales,
which represented 4% of product sales in fiscal 1998, decreased $.3 million or
52% from the year-ago period, principally due to lower sales of Aspire, the
Company's biofungicide for control of post harvest rot disease and lower sales
of AQ10, the Company's biofungicide for control of powdery mildew. Continuing
pheromone product sales, representing 1% of total sales, decreased 66% in fiscal
1999. Discontinued pheromone product sales were $2.0 million in fiscal 1998.
In fiscal 1999, the Company recognized the first sales of its soil amendment
product line, representing 4% of total sales in fiscal 1999.
Contract research revenues decreased $4.6 million or 87% in fiscal
1999 due to the expiration in January 1999 of the research and development
agreement with Monsanto that had contributed more than $10 million in contract
research revenue over its three-year term. Other income decreased $.5 million
in fiscal 1999 over the year-ago period, principally as a result of the $.5
million gain on the sale of the pheromone product line recognized in fiscal
1998.
Costs and Expenses
Gross margins decreased to 9% in fiscal 1999 from 18% in fiscal 1998,
primarily as a result of lower absorption of fixed overhead due to lower sales
during fiscal 1999 and higher reserve for obsolescence and rework.
Total operating expenses, consisting of research and development
expenses and selling, general and administrative expenses, decreased $1.0
million or 9%. Research and development costs decreased $1.0 million or 27% in
fiscal 1999 compared to the year-ago period, as a result of lower personnel and
related costs, due to the wind-down of the Monsanto Research Program and lower
basic research. Selling, general and
25
<PAGE>
administrative expenses were constant at $6.8 million in fiscal 1998 and 1999.
General and administrative expenses decreased 6%. The decrease was offset by an
increase in selling and marketing expenses due to staff increases and
promotional programs to support the Company's distributors' efforts in
introducing the Company's novel biopesticides.
Net interest expense was $.5 million in fiscal 1999 compared to $.4
million in fiscal 1998. The higher interest expense was due primarily to lower
interest income as a result of lower cash and temporary investments in fiscal
1999.
Net loss allocable to common stockholders for fiscal 1999 was ($9.8)
million, or ($1.05) per basic and diluted share, compared with a net loss of
($3.1) million or ($.39) per basic and diluted share in the same period in
fiscal 1998. The 1999 fiscal year included assumed incremental yield on
preferred stock issue during the year of $.8 million. Weighted average shares
were 9.2 million in fiscal 1999 compared to 8.1 million in fiscal 1998.
Results of Operations - Year Ended October 31, 1998 Compared to Year Ended
October 31, 1997
Revenues
Total revenues increased $4.0 million or 34% in fiscal 1998 to $15.7
million from $11.7 million in fiscal 1997. Net product sales increased $1.7
million or 19% and other revenue increased $2.3 million or 79%. Sales of the
Company's Bt product line, representing 72% of Company product sales, increased
95% in fiscal 1998 principally due to increased sales of CRYMAX, the Company's
Bt bioinsecticide for control of caterpillars in the vegetable, tree, nut and
vine markets, which was introduced in fiscal 1997, and the introduction of
Lepinox, the Company's bioinsecticide for control of diamondback moth and a
variety of armyworms in vegetables and row crops. Biofungicide product sales,
which represented 5% of product sales in fiscal 1998, decreased $1.3 million or
71% from the year-ago period, principally due to lower sales of Aspire, the
Company's biofungicide for control of post harvest rot disease. Sales of Aspire
decreased in fiscal 1998 as a result of carryover inventory at the Company's
sole distributor for this product. The Company is currently expanding its
distribution for Aspire. Pheromone product sales, representing 23% of total
sales, decreased 24% due to the sale of the Company's pheromone product line in
the second quarter of fiscal 1998. On an unaudited pro forma basis, assuming
the sale of the pheromone product line had taken place at the beginning of
fiscal 1997, continuing product sales increased 42% in fiscal 1998.
Research contract revenues increased $2.3 million or 79% in fiscal
1998 due to payments received under an amendment to the Monsanto research and
development contract. Under the amendment, the research program was accelerated
to terminate one year earlier (January 1999) with the Company receiving the full
$10.0 million in revenue provided for under the original four-year research
program with Monsanto. Other income increased $.7 million in fiscal 1998 over
the year-ago period, principally as a result of the $.5 million gain on the sale
of the pheromone product line.
Costs and Expenses
Gross margins decreased to 18% in fiscal 1998 from 28% in fiscal 1997,
primarily as a result of a change in product mix caused by lower high-margin
biofungicide sales and lower domestic sales as a result of a depressed market in
the U.S. due to severe weather conditions early in the Company's fiscal year
combined with higher low-margin international sales. Another factor impacting
margins was a reduction in the price charged to distributors for certain
products as a result of the elimination of certain promotional programs with
distributors.
Total operating expenses, consisting of research and development
expenses and selling, general and administrative expenses, exclusive of special
charges in fiscal 1997, decreased $3.3 million or 24% to $10.4 million in fiscal
1998 compared to $13.7 million in 1997. Research and development costs
decreased $1.4
26
<PAGE>
million or 28% in fiscal 1998 compared to the year-ago period, as a result of
lower process development and start-up costs and lower personnel and related
costs, due to the wind-down of the Monsanto Research Program and lower basic
research. Selling, general and administrative expenses decreased $1.8 million or
21% in fiscal 1998, principally as a result of a reduction in personnel, other
cost saving measures and a decrease in selling and promotional expenses, due in
part to the sale of the pheromone product line and as a result of higher
expenses in fiscal 1997 due to the introduction of new products.
Net interest expense was $.4 million in fiscal 1998 compared to net
interest income of $.1 million in fiscal 1997. The higher interest expense was
due primarily to interest on the Company's convertible note in fiscal 1998 and
lower average investments. The note was converted to preferred stock in the
fourth quarter of fiscal 1998.
Net loss allocable to common stockholders for fiscal 1998 was ($3.1)
million, or ($.39) per basic and diluted share, compared with a net loss of
($9.8) million or ($1.23) per basic and diluted share in the same period in
fiscal 1997. The 1997 fiscal year included special charges of $1.6 million
principally due to the shutdown of the Company's research facility in Israel and
the realignment of the Company's manufacturing process. Weighted average shares
were 8.1 million in fiscal 1998 compared to 8.0 million in fiscal 1997.
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 upon, 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. In
addition, because of the seasonal nature of the Company's business, product
revenues are likely to be concentrated in the fiscal quarters prior to and
during a particular growing season and 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, and the level of
insect infestation in grower areas.
Inflation
---------
To date and for the foreseeable future, inflation has not had, nor is
it anticipated to have, a significant impact on revenues or costs and expenses
of the Company.
Liquidity and Capital Resources
--------------------------------
At July 31, 2000, and October 31, 1999, the Company has no cash or
temporary investments, and net borrowings under long-term debt facilities were
$1.3 million and $2.2 million, respectively. During the nine-month period ended
July 31, 2000, and for the fiscal year ended October 31, 1999, the Company used
cash of $1.5 million and $6.4 million, respectively, for operations. During the
nine months ended July 31, 2000, the Company used $1.1 million of cash in
repayment of debt and $.3 million for an acquisition. The Company funded these
cash outlays from financing and available cash balances of $2.8 million in
fiscal 1999. During the nine months ended July 31, 2000 and the year ended
October 31, 1999, the Company's raised net proceeds of $1.4 million and $2.9
million, respectively, from equity financing and $1.5 million and $1.1 million
from borrowings under debt agreements.
In May 1999, the Company sold 15,000 shares of Series 1999 A 7%
convertible preferred stock to an institutional investor for net proceeds of
$1.4 million. In connection with the sale of preferred stock, the holder of the
preferred stock was issued five-year warrants to purchase 120,000 shares of
common stock at $3.98 per share. In July 1999, the Company sold 500,000 shares
of common stock to an institutional investor in a private placement for net
proceeds of $1.5 million.
27
<PAGE>
During the first quarter of fiscal 2000, the Company obtained a $1.5
million variable rate secured loan. Principal on this loan is required to be
repaid in 2000 and 2001.
In February 2000, the Company raised net proceeds of $1.4 million
pursuant to a private placement of 7% convertible preferred stock to
institutional investors. In accordance with the terms of the preferred stock,
the Company is required to recognize a non-cash, assumed incremental yield of
approximately $.6 million, calculated at the date of issuance based on 95% of
the average conversion feature, as defined in the agreement. The terms of the
preferred stock are disclosed in note 6 of the notes to the unaudited
consolidated condensed financial statements for the nine-month period ended July
31, 2000.
On September 11, 2000, the Company's common stock was delisted from
the Nasdaq National Market ("NNM") as a result of the Company's failure to meet
the NNM's net tangible assets listing requirement. As a result, dividends on
the Company's Series 2000-A and Series 1998-C Convertible Preferred Stock are
payable in cash, effective with the quarterly dividend payment date of September
30, 2000 and the semiannual dividend payment date of December 31, 2000,
respectively. The Company no longer has the option to pay such dividends in
stock.
During the first six months of fiscal 2000, the Company issued 984,732
shares of its common stock in exchange for the 15,000 shares of the Company's
Series 1999-A 7% convertible preferred stock issued in May 1999. The Company
also issued 52,356 shares of its common stock in payment of cumulative dividends
at the time of conversion.
On February 15, 2000, the Company completed its acquisition of certain
sprayable Bt biopesticides from Mycogen Corporation, an affiliate of Dow
AgroSciences Inc. (the "Mycogen Transaction") for aggregate consideration,
including out-of-pocket expenses, $3.4 million including shares of common stock
with a market value of $3.0 million. (See note 6 of the notes to the unaudited
consolidated condensed financial statements for the nine month period ended July
31, 2000.)
To date, the Company has not generated positive cash flow from
operations. The Company believes that amounts available under its working
capital line of credit should be sufficient to meet its capital and liquidity
requirements through fiscal year 2000 based on reduced spending levels. 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 factors 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. The Company's access to capital markets may be
limited as a result of the Company's delisting from NNM
We have secured borrowings under a working capital line of credit and
a long-term note which is due in 2001. We are currently not in compliance with
the covenants of our $5.0 million working capital line of credit. This line of
credit expires on November 30, 2000 and has a balance of $0.9 million as of July
31, 2000. As a result of the Company's non-compliance with such covenants, the
working capital lender, at its option, may discontinue making loans and
liquidate the collateral. Additionally, due to our current inability to make a
principal payment of $0.5 million on our $1.5 million long-term note, the lender
extended the due date of such principal repayment, originally due June 23, 2000,
to December 3, 2000. If we are unable to make the principal payment or obtain
an additional extension, we will be in default of the terms of the long-term
note which will also put us in default on our working capital line of credit. In
that case, both lenders may liquidate the collateral in accordance with the
terms of our agreements. The Company continues to pursue the raising of
additional funds and other strategic initiatives to improve its working capital
position and its capital structure. Also, the Company will need to refinance its
working capital line of credit. There is no assurance that access to financings
will be available on terms acceptable to the Company or at all. If the Company
is not successful in refinancing its working capital line of credit, the Company
would take a number of steps to conserve cash until the Company is able to sell
assets to provide the necessary resources to repay the outstanding balances
under its line of credit and fund operations. Janney Montgomery Scott LLC has
been engaged to assist the Company with its strategic initiatives including the
sale of certain assets. The Company is also implementing cost saving measure to
conserve cash until the closing of any transaction for the sale of assets. At
this time the Company is unable to predict whether it will be successful in its
efforts. If the Company is not successful in obtaining additional funding, the
Company may not be able to continue in existence. Over the long-term, the
Company's liquidity is dependent on market acceptance of its products and
technology.
28
<PAGE>
to conserve cash until the closing of any transaction for the sale of assets.
At this time the Company is unable to predict whether it will be successful in
its efforts. If the Company is not successful in obtaining additional funding,
the Company may not be able to continue in existence. Over the long-term, the
Company's liquidity is dependent on market acceptance of its products and
technology.
At September 30, 2000, the Company had no material commitments for
capital expenditures.
Through October 31, 1999, the Company had available Federal net
operating loss carryforwards of approximately $83.3 million which expire at
various times from 2000 through 2014. In addition, the Company had research and
experimentation tax credits of approximately $2.4 million, which credits expire
at various times from 2000 through 2012.
As a result of certain equity transactions, the Company experienced
ownership changes as defined by rules enacted with the Tax Reform Act of 1986
(the "Act"). Accordingly, the Company's ability to use its net operating loss
and research and experimentation credit carryforwards is subject to certain
limitations as defined by the Act. The Company believes that such limitations
should not have a significant impact in 2000 or 2001 since anticipated taxable
profits, if any, will not exceed the amount of the limitation. In addition, to
the extent that the Company recognizes gains, if any, on the disposition of
assets held on the date of the ownership change, the annual limitation is
increased by the amount of the "built-in" gains attributable to those assets.
The built-in gain on a particular asset is the excess of its fair market value
over its cost basis on the date of the ownership change.
Other Assets, Liabilities and Stockholders' Equity
---------------------------------------------------
Net of the effects of an acquisition, inventory decreased $2.6 million
in the first nine months of fiscal 2000 as a result a curtailment in production
to conserve cash and due to carryover of inventory from 1999. Accounts
receivable increased $.3 million compared to the balance at October 31, 1999 due
to seasonality of the Company's sales. Accounts payable increased $.6 million
due to the timing of payments.
Inventory increased $1.1 million at October 31, 1999 when compared to
October 31, 1998 primarily due to lower then expected sales in fiscal 1999.
Accounts receivable at October 31, 1999 decreased $1.7 million as a result of
lower sales in the fourth quarter of fiscal 1999. Accounts payable and accrued
expenses increased $.3 million in fiscal 1999 as a result of the timing of
payments to vendors. Deferred contract revenue at October 31, 1999 decreased
$.5 million as a result of revenue earned under the Monsanto contract in fiscal
1999. Debt under the working capital line of credit increased $1.4 million in
fiscal 1999 as a result of borrowings to fund operations.
Recently Issued Accounting Standards
------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instrument and Hedging Activities which becomes effective for our
financial statements beginning November 1, 2000. SFAS No. 133 requires a
company to recognize all derivative instruments as assets and liabilities in its
balance sheet and measure them at fair value. We do not expect adoption of this
standard to have a material impact on our financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101). SAB 101 summarizes certain of the staff's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 requires the Company to follow its guidance no
later than its fiscal year beginning November 1, 2000 through a cumulative
effect of a change in accounting principle. We do not expect adoption of this
standard to have a material impact on our financial statements.
29
<PAGE>
MANAGEMENT
Mr. James P. Reilly, Jr., 53, has served as Chairman of the Board of
Directors of the Company since November 1, 1995 and as a director of the Company
since June, 1992. Since January, 1994, Mr. Reilly has been the Chief Executive
Officer of the Company and since June, 1992, he has been the Company's
President. From June, 1992 to January, 1994, Mr. Reilly served as Chief
Operating Officer of the Company. From 1976 until he joined the Company, Mr.
Reilly was employed in various management capacities at Rhone-Poulenc, Inc.,
most recently, from April, 1991 to May, 1992, as Vice President and General
Manager of the Fine Chemicals Division.
Timothy B. Johnson, Vice President, Sales and Marketing, 43, has
served as Vice President, Sales and Marketing since October 1998. From 1985 to
October 1998, Dr. Johnson served Ecogen in various positions including Business
Director. Dr. Johnson received a B.S. in Entomology from Iowa State University
and a Ph.D. in Entomology from Purdue University.
EXECUTIVE COMPENSATION
Compensation
The following table sets forth the compensation for services rendered
to the Company during the last three fiscal years by the Chief Executive Officer
and each other executive officer of the Company whose aggregate annual salary
exceeded $100,000 during the fiscal year ended October 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation (Awards/Payouts)
-------------------- --------------------------------------------
Restricted All Other
Name and Salary Options Stock Awards Compensation(1)
Principal Position Year ($) (#) ($) ($)
------- ----------- -------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
James P. Reilly, Jr., 1999 300,000 -0- -0- 149,945 (2)
Chairman and Chief 1998 300,000 400,000 $125,000 (3) 8,704
Executive Officer 1997 300,000 75,000 -0- 7,125
Timothy B. Johnson 1999 125,000 -0- -0- 7,500
Vice President 1998 124,167 125,000 -0- 7,983
Sales and Marketing 1997 117,667 10,000 -0- 4,997
</TABLE>
(1) Reflects the Company's contribution on behalf of such executive officer to
the Company's 401(k) Profit Sharing Plan.
(2) Includes $139,871 reimbursed to Mr. Reilly for the payment of income taxes
in connection with the accelerated vesting of a stock award granted to Mr.
Reilly in 1998.
(3) Mr. Reilly was granted a stock award of 100,000 shares of Common Stock.
The Company does not have a defined benefit or actuarial pension plan
and the Company does not have a long-term incentive plan.
The Company maintains a severance compensation agreement with Mr.
Reilly that provides that in the event Mr. Reilly's employment with the Company
is terminated (as defined in the agreement) under certain circumstances the
Company is obligated to continue to pay Mr. Reilly his salary and benefits for a
period of two years.
30
<PAGE>
OPTION GRANTS FOR LAST FISCAL YEAR
There were no options granted to the executive officers of the Company in
the 1999 fiscal year.
OPTION EXERCISE AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Full Year-End Option Value
------------------------------------------------------------------------------
Shares Value Number of Unexercised Value of Unexercised
Acquired on Realized Options at Fiscal In-the-Money Options at
Name Exercise (#) ($) Year-End (#) Fiscal Year End($)(1)
----------------------- ------------ --------- -------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr. None N/A 311,333 296,667 57,133 114,267
T.B. Johnson None N/A 57,348 89,672 18,229 36,458
</TABLE>
(1) The dollar values have been calculated based on the difference between the
fair market value of the securities underlying the options at fiscal year end
and the exercise prices of the options. For purpose of determining the fair
market value of the in-the-money options at October 31, 1999, the fair market
value of the Common Stock was $1.6875.
PERFORMANCE GRAPH
The following is a line graph comparison of the Company's yearly
percentage change in cumulative total shareholder return with that of the NASDAQ
Composite Index and the Zacks Agricultural Operations Index, for the period
beginning with October 31, 1994 and ending October 31, 1999.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ECOGEN INC., NASDAQ COMPOSITE INDEX,
AND ZACKS AGRICULTURAL OPERATIONS INDEX*
<TABLE>
<CAPTION>
DESCRIPTION 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
ECOGEN INC ($) $100.00 $ 30.63 $ 17.42 $ 14.19 $ 6.61 $ 8.71
ZACKS INDEX ($) $100.00 $126.44 $156.90 $207.29 $252.88 $317.79
NASDAQ ($) $100.00 $141.33 $173.89 $213.07 $300.24 $542.41
</TABLE>
* Assumes an initial investment of $100. Total return assumes reinvestment of
dividends. Included in the Zacks Index are AG Services of America Inc., Chai Na
Ta Corporation, DeKalb Genetics Corp., Delta & Pine Land Co., Embrex, Inc.,
Neogen Corp., Northland Cranberries Inc., Pioneer Hi-Bred International and U.S.
Home & Garden Inc. Values are as of October 31 thereafter.
31
<PAGE>
DIRECTORS
Esteban A. Ferrer, 49, has served as a director of the Company since January,
1996. From 1983 until 1995, he served as Secretary of the Company. Since
September, 1990, Mr. Ferrer has been a partner at the law firm of Paul,
Hastings, Janofsky & Walker LLP. Mr. Ferrer holds a Juris Doctor degree from
Columbia University School of Law and is admitted to practice in the states of
Connecticut and New York. Mr. Ferrer is a member of the Nominating Committee and
the Compensation Committee.
Philippe D. Katz, 38, has served as a director of the Company since February,
1998. Since 1996, Mr. Katz has been a partner at the investment firm of United
Equities(Commodities) Company. From 1992 to 1996, Mr. Katz was associated with
United Equities(Commodities) Company. From 1989 to 1992, Mr. Katz was
associated with the law firm of Weil, Gotshal & Manges. Mr. Katz is a member of
the Audit Committee and the Nominating Committee.
Dr. Lowell N. Lewis, 68, has served as a director of the Company since February,
1989. Since February, 1992, Dr. Lewis has been an International Research
Management Consultant. From January, 1988 through his retirement from the
University of California in April, 1991, Dr. Lewis was employed at the
University of California as Associate Vice President for Programs, Agriculture
and Natural Resources; Associate Director of the California Agricultural
Experiment Station; and Associate Director of Cooperative Extension. Dr. Lewis
is a member of the Audit Committee and the Compensation Committee.
James P. Reilly, Jr., 53, has served as Chairman of the Board of Directors of
the Company since November 1, 1995 and as a director of the Company since June,
1992. Since January, 1994, Mr. Reilly has been the Chief Executive Officer of
the Company and since June, 1992, he has been the Company's President. From
June, 1992 to January, 1994, Mr. Reilly served as Chief Operating Officer of the
Company. From 1976 until he joined the Company, Mr. Reilly was employed in
various management capacities at Rhone-Poulenc, Inc., most recently, from April,
1991 to May, 1992, as Vice President and General Manager of the Fine Chemicals
Division. Mr. Reilly is a member of the Nominating Committee.
John R. Sutley, 57, has served as a director of the Company since March, 1996.
From 1994 to 1999, he was President and Chief Executive Officer of Nalco/Exxon
Energy Chemicals, L.P., a specialty chemicals company. From 1968 to 1994, Mr.
Sutley was employed in various management capacities at Nalco Chemical Co., most
recently, from 1991 to 1994, as Group Vice President of Nalco Chemical Co. and
President of Nalco Europe. Mr. Sutley is a member of the Audit Committee and the
Compensation Committee.
COMPENSATION COMMITTEE REPORT
Responsibility for recommending compensation of the Company's
executive officers for services rendered during fiscal 1999 rested with the
Compensation Committee of the Company's Board of Directors. Those
recommendations were then considered and approved by the Board.
In recommending the compensation of the Company's executive officers,
the Compensation Committee has adopted the philosophy that aligning compensation
with each executive officer's contribution to Company-wide performance
objectives and encouraging stock ownership result in optimal performance by its
executive officers which, in turn, should positively affect the Company's future
performance. The major components of the Company's executive officers'
compensation are salary, cash bonuses, stock awards, and stock options.
Salaries of the Company's executive officers tend to be set at the midpoint of
industry peers, and stock option grants, stock awards, and cash bonuses are
employed to enhance the competitiveness of compensation packages within the
industry, to reward outstanding performance and to provide incentive for
reaching further performance goals.
For the Company's fiscal year 1999, the Compensation Committee
analyzed the Company's operating results and progress towards achieving its
long-term objective of becoming a leading developer and supplier of biological
pesticide products. The Compensation Committee evaluated the Company's product
sales, net loss, operating expenses and cash reserves. The Committee believed
that the preceding four factors, considered as a whole without particular
emphasis on any one factor, provided the primary criteria for quantitatively
measuring the Company's performance. Long-term goals reviewed by the
Compensation
32
<PAGE>
Committee included (1) progress in research and development programs, (2)
expansion of product line and product distribution through internal means and/or
external strategic alliances, and (3) managing the Company's current strategic
alliances.
With respect to the compensation of Mr. Reilly, the Company's Chairman
and Chief Executive Officer, Mr. Reilly was paid $300,000 as salary during
fiscal year 1998 and fiscal year 1999. While the Committee concluded that the
Company did make progress during fiscal 1999 toward achievement of a number of
its long-term objectives, the Company fell short of improving its operating
results. While the Company's operating results were in line with the results
achieved by the industry in which the Company participates, it is the
Committee's view that the Chief Executive Officer bears responsibility for both
the successes and the failures of the Company. Accordingly, the Committee did
not recommend an increase in Mr. Reilly's salary and made no recommendations in
connection with stock option grants or stock awards for Mr. Reilly in 1999.
The Company continues to pursue raising additional capital funds and
other strategic alliances to improve its working capital position and operating
results and this focus will continue in 2000. Mr. Reilly is critical to the
Company's efforts in this pursuit and the Committee recognizes the time and
effort Mr. Reilly has dedicated to this area. In light of Mr. Reilly's
importance to the Company, the Committee agreed to amend his severance
compensation agreement by (i) providing for continuation of salary and benefits
for a period of two years after his termination, as long as certain conditions
are met, and (ii) providing for reimbursement of any taxes payable by Mr. Reilly
as a result of "golden parachute" excise taxes.
With respect to executive officers' compensation generally during
fiscal 1999, the Compensation Committee primarily focused on the compensation of
management-level employees at both comparable companies and at divisions of
larger companies engaged in the same industry as the Company, and also
considered the contribution made by each individual officer to the achievement
of the Company-wide objectives outlined above.
The Company has considered the effect of Internal Revenue Code Section
162(m) and proposed regulations thereunder concerning the non-deductibility of
certain executive compensation payments in excess of $1 million and has
determined that the Company need not adopt a policy with respect thereto because
none of its executive officers currently has compensation approaching $1 million
per year, nor is it likely that any such officer will reach that level of
compensation in the near future.
It is our hope that you, the stockholders, will come to view our
decisions on executive compensation as indicators of how your directors view
both the individual contributions of each of the Company's executives and where
the Company stands along its strategic path.
Esteban A. Ferrer Lowell N. Lewis (Chairman) John R. Sutley
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Mr. Esteban A. Ferrer served as a member of the Compensation
Committee of the Board of Directors during the fiscal year ended October 31,
1999. He is a partner in the law firm of Paul, Hastings, Janofsky & Walker LLP
which has represented the Company with respect to various legal matters since
1990.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of November 1, 2000, with
respect to the beneficial ownership of the Common Stock by all persons known by
the Company to be the beneficial owners of more than 5% of its outstanding
Common Stock, by each director and nominee for director, by each named executive
officer, and by all current executive officers and directors as a group. Except
as indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
Name and Address (1) Number of Shares(2) Percentage of Class(3)
------------------------------------------------------- ------------------- --------------------------
<S> <C> <C>
United Equities (Commodities) Company 10,189,391 42%(6)
Moses Marx, Philippe D. Katz
160 Broadway
New York, NY 10038 (4)(5)
Dow AgroSciences 1,351,351 11%
9330 Zionsville Road
Indianapolis IN 46268-1045 (7)
Goldsmith & Harris 978,537 7%
Philip W. Goldsmith, Jay R. Harris
80 Pine Street
New York, New York 10005 (8)
Monsanto Company 943,397 7%
800 North Lindbergh Boulevard
St. Louis, MO 63167
Agroinvest Limited, Bioinvest Limited 940,000 7%
Farlap Asset Management Limited
Mrs. Luciana Price
22 Grenville Street
St. Helier, Jersey, Channel Islands (9)
James P. Reilly, Jr. (10) 469,727 4%
Timothy B. Johnson (11) 62,723 *
Esteban A. Ferrer (12) 5,800 *
Philippe D. Katz (13) 16,000 *
Lowell N. Lewis (14) 6,540 *
John R. Sutley (15) 12,040 *
All current executive officers and directors
as a group (six persons)
(4), (5), (10), (11), (12), (13), (14), (15) and (16) 10,762,221 46% (6)
</TABLE>
* Indicates amount is less than 1%.
(1) The addresses of all officers and directors of the Company listed above are
in care of the Company. The Company's corporate headquarters are located at
2000 Cabot Boulevard West, Langhorne, Pennsylvania 19047. For purposes of
calculating beneficial ownership, the Company relied upon reports filed with
the Securities and Exchange Commission and upon its actual knowledge.
34
<PAGE>
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within sixty (60) days are
deemed outstanding for purposes of computing the percentage ownership of
the person holding such securities, but are not deemed outstanding for
computing the ownership percentage of any other person. Except as indicated
and subject to community property laws where applicable, the persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
(3) The "Percentage Owned" calculations are based on the outstanding shares of
Common Stock as of November 1, 2000.
(4) Includes a five-year warrant to purchase up to 200,000 shares of Common
Stock at $1.25 per share granted to the Momar Corporation. Mr. Marx is the
President and a control person of Momar Corporation.
(5) Pursuant to Amendment No. 4 to Schedule 13D filed by Moses Marx and United
Equities (Commodities) Company ("United Equities") on June 21, 1999,
securities reported as being beneficially owned by United Equities include
534,833 shares of Common Stock. Includes 9,382,660 shares which United
Equities has the right to acquire upon conversion of the Comapany's 8%
Series 1998-C convertible Preferred Stock. Moses Marx has a 99% equity
interest in United Equities, and has sole investment and voting power over,
and is deemed to beneficially own the shares of Common Stock held by United
Equities. Philippe Katz has a 0.5% equity interest in United Equities and
may be deemed to beneficially own the shares of Common Stock held by United
Equities.
(6) Includes outstanding shares of Common Stock as of November 1, 2000, shares
which United Equities has the right to acquire upon conversion of the
Company's 8% Series 1998-C convertible Preferred Stock and shares which
Momar Corporation has the right to acquire upon conversion of a
warrant.
(7) Under the terms of the agreement, Dow AgroSciences has agreed to hold the
shares for a three-year period, except in the event of certain change in
control transactions. Dow AgroSciences also has been granted certain market
price protection at the time that Mycogen sells the Shares.
(8) Pursuant to Schedule 13G filed by Goldsmith & Harris Incorporated ("G&H")
on February 16, 2000, securities reported as being beneficially owned by
G&H include 978,537 shares of Common Stock as of December 31, 1999.
Included in the 958,137 shares are 20,000 shares owned by Philip W.
Goldsmith and 214,300 shares owned by Jay R. Harris and members of his
family. Mr. Goldsmith and Mr. Harris are control persons of G&H.
(9) Pursuant to Amendment No. 2 to Schedule 13D filed by Agroinvest Limited,
Bioinvest Limited, Farlap Asset Management Limited and Mrs. Luciana Price
("Agroinvest Group") on November 18, 1999, securities reported as being
beneficially owned by United Equities include 940,000 shares of Common
Stock on November 1, 1999. Bioinvest Limited owns all of the outstanding
stock of Agroinvest Limited. Farlap Asset Management Limited owns all of
the outstanding stock of Bioinvest Limited. Mrs. Luciana Price owns all of
the outstanding stock of Farlap Asset Management Limited. Bioinvest Limited
currently is the record holder of 500,000 shares of Common Stock and
currently holds 440,000 shares of Common Stock through a nominee.
(10) Includes 311,133 shares which Mr. Reilly has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 31, 2000. Does not include 296,667 shares which Mr.
Reilly has the right to acquire upon exercise of stock options which are
not currently exercisable and not exercisable within 60 days following
January 31, 2000.
(11) Includes 57,348 shares which Dr. Johnson has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 31, 2000 Does not include 89,672 shares which Dr. Johnson
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
31, 2000.
(12) Includes 4,800 shares which Mr. Ferrer has the right to acquire upon the
exercise of stock options which are exercisable on or within 60 days
following January 31, 2000. Does not include 11,000 shares which Mr. Ferrer
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
31, 2000.
35
<PAGE>
(13) Includes 1,000 shares which Mr. Katz has the right to acquire upon the
exercise of stock options which are exercisable on or within 60 days
following January 31, 2000. Does not include 11,000 shares which Mr. Katz
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
31, 2000. Does not include shares owned by United Equities of which Mr.
Katz has a .5% equity interest. See Footnote 2 above.
(14) Includes 5,400 shares which Dr. Lewis has the right to acquire upon the
exercise of stock options which are exercisable on or within 60 days
following January 31, 2000. Does not include 11,000 shares which Dr. Lewis
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
31, 2000.
(15) Includes 12,000 shares which Mr. Sutley has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 31, 2000. Does not include 11,000 which Mr. Sutley has
the right to acquire upon the exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
31, 1999.
(16) Gives full effect to stock options and warrants, which are presently
exercisable, held by current executive officers and directors.
CERTAIN TRANSACTIONS
On January 24, 1996, the Company closed a transaction with Monsanto
Company ("Monsanto") for, among other things, development of the Company's
proprietary Bt technology. Under the terms of the agreement, Monsanto purchased
943,397 shares of Common Stock for $10.60 per share for an aggregate purchase
price of $10 million. Monsanto has certain registration rights with respect to
the shares of Common Stock. In addition, Monsanto has a right of first refusal
to purchase securities from the Company in order to maintain its percentage
ownership interest in the Company upon the occurrence of certain events
involving the issuance of additional securities by the Company. In addition, on
January 24, 1996, Monsanto acquired for $5 million certain rights to Ecogen's
existing Bt strain library and insecticidal crystal protein gene library, and
the intellectual property rights associated with such libraries including
certain patents and patent applications (the "Bt Technology"). The Company
maintains rights to the Bt Technology for applications other than in-plant uses.
Monsanto did not acquire any rights to the Company's fermentation and
formulation technology, insectary technology or technology related to the
movement of Bt genes from Bt and back into Bt without foreign DNA. Monsanto and
the Company are also parties to a Research and Development Agreement involving
Bt Technology (the "R&D Program"). The R&D Program which terminated in January,
1999, provided Ecogen with $10 million of research funding. The results of the
R&D Program are owned by Monsanto and licensed to Ecogen for use outside of in-
plant applications. Under the terms of the agreement with Monsanto, Ecogen will
share in the commercialization success of transgenic plants incorporating the Bt
Technology. Monsanto shall pay a commercialization success fee based on sales
revenue and license fees received by Monsanto from products which incorporate
the Bt Technology or the results from the R&D Program.
In December, 1999, the Company borrowed $1.5 million from The
Berkshire Bank ("Berkshire"), a subsidiary of Berkshire Bancorp Inc. The loan
was guaranteed by Momar Corporation in exchange for a five-year warrant to
purchase up to 200,000 shares of Common Stock at $1.25 per share. Mr. Marx, a
general partner in United Equities Company and United Equities (Commodities)
Company, is a director of the Berkshire Bank and President of Momar Corporation.
Due to the Company's current inability to make a principal payment of $0.5
million on our long-term note, Berkshire extended the due date of such principal
repayment, originally due June 23, 2000, to December 3, 2000. If we are unable
to make the principal payment or obtain an additional extension, we will be in
default of the terms of the long-term note which will also put us in default on
our working capital line of credit. In that case, Berkshire and our working
capital lender may liquidate the collateral in accordance with the terms of our
agreements.
In February 2000, the Company completed its acquisition of certain
assets of the sprayable Bt biopesticide business of Mycogen Corporation, an
affiliate of Dow AgroSciences LLC. The transaction included the purchase of
Mycogen's Bt bioinsecticides, trademarks, product inventories and a license to
certain proprietary genes and strains for use in sprayable bioinsecticides. The
Company issued 1.4 million shares of common stock valued at $3.0 million upon
the closing of the transaction. Prior to the closing, the Company acquired
approximately $.4 million of Mycogen's inventory of sprayable Bt products under
a distribution agreement beginning January 1, 2000, pending the signing of final
agreements. Principal products acquired
36
<PAGE>
include: MVP for control of lepidopteran pests in vines and vegetables, MVPII
for control of lepidopteran pests in trees, nuts, vines and row crops and Mattch
for control of lepidopteran pests in vegetables.
Esteban A. Ferrer, a director of the Company since January, 1996, is a
partner in the law firm of Paul, Hastings, Janofsky & Walker LLP which has
represented the Company with respect to various legal matters since 1990.
The Company believes that all of the foregoing transactions were
entered into upon terms comparable to those which could have been obtained at
that time from a third party in an arms' length transaction and furthermore have
significantly contributed to the Company.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Copies of such reports, proxy statements and
other information may be read and copied at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You may request copies of such
documents by writing to the SEC and paying a fee for the copying costs. You may
also call the SEC at 1-800-SEC-0330 for further information on the operation of
the Public Reference Room. Our SEC filings are also available to the public from
the SEC's web site at http://www.sec.gov. Our common stock is quoted on the OTC
Bulletin Board. You may also read and copy documents we file with the SEC at the
offices of the National Association of Securities Dealers, Inc., located at 1735
K Street, N.W., Washington, D.C. 20006.
We will provide any person to whom a copy of this prospectus is
delivered, on written or oral request, a copy of any or all of the documents
incorporated by reference, other than exhibits to such documents unless
specifically incorporated by reference. You should direct any requests for
documents to the following:
Ecogen Inc.
2000 Cabot Boulevard West, Suite 170
Langhorne, Pennsylvania 19047
Attention: James P. Reilly, Jr., President and Chief Executive Officer.
(215) 757-1590
37
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
October 31, 1999 Audited Consolidated Financial Statements Page
---------------------------------------------------------- ----
<S> <C>
Independent Auditors' Report...................................................................... F-2
Consolidated Balance Sheets-October 31, 1999 and 1998............................................. F-3
Consolidated Statements of Operations-Years Ended October 31, 1999, 1998 and 1997................. F-4
Consolidated Statements of Stockholders' Equity- Years Ended October 31, 1999, 1998 and
1997............................................................................................. F-5
Consolidated Statements of Cash Flows- Years Ended October 31, 1999, 1998 and 1997................ F-6
Notes to Consolidated Financial Statements- October 31, 1999, 1998 and 1997....................... F-8
Financial Statement Schedule-Valuation and Qualifying Accounts.................................... F-22
July 31, 2000 Unaudited Consolidated Condensed Financial Statements
-------------------------------------------------------------------
Unaudited Consolidated Condensed Balance Sheet-July 31, 2000 and October 31, 1999................. F.23
Unaudited Consolidated Condensed Statements of Operations-Three Months and Nine Months ended
July 31, 2000..................................................................................... F-24
Unaudited Consolidated Condensed Statements of Stockholders Equity-Nine Months Ended
July 31, 2000..................................................................................... F-25
Unaudited Consolidated Condensed Statements of Cash Flows-Nine Months Ended July 31, 2000
and 1999.......................................................................................... F-26
Notes to Unaudited Consolidated Condensed Financial Statements.................................... F-28
Unaudited Pro Forma Consolidated Financial Statements
-----------------------------------------------------
Introduction...................................................................................... F-33
Unaudited Pro Forma Consolidated Statement of Operations-Year Ended October 31, 199 .............. F-34
Unaudited Pro Forma Consolidated Statement of Operations-Nine Months Ended
July 31, 2000..................................................................................... F-35
Audited Financial Statements of the Acquired Bt Biopesticide Business of Mycogen Corporation
--------------------------------------------------------------------------------------------
Independent Auditors' Report...................................................................... F-36
Statement of Assets Sold as of December 31, 1999.................................................. F-37
Statement of Direct Revenue and Direct Expenses for the Year Ended December 31, 1999.............. F-38
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Ecogen Inc.:
We have audited the consolidated financial statements of Ecogen Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Ecogen
Inc. and subsidiaries as of October 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 1999 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Short Hills, New Jersey
December 16, 1999, except
as to note 18 which is as of
February 15, 2000
F-2
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
------ October 31,
1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 2,009,437
Temporary investments - 813,150
Trade receivables, less allowances of $129,023
and $80,000 in 1999 and in 1998, respectively 1,685,950 3,338,897
Inventory, net 5,358,017 4,298,374
Prepaid expenses and other current assets 387,043 624,072
------------- -------------
Total current assets 7,431,010 11,083,930
Plant and equipment, net 2,374,462 2,771,255
Other assets, net 656,800 818,559
Intangible assets, net - 2,717
------------- -------------
$ 10,462,272 $ 14,676,501
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Line of credit due within one year 2,193,145 26,019
Accounts payable and accrued expenses 4,010,120 3,076,300
Deferred revenue - 485,853
------------- -------------
Total current liabilities 6,203,265 3,588,172
Long-term debt 250,186 1,327,875
Long-term deferred revenue 1,451,928 1,301,333
Minority interest in subsidiaries 1,533,854 1,533,854
------------- -------------
Total liabilities 9,435,948 7,751,234
------------- -------------
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized 7,500,000 shares:
Series 1999 A convertible preferred stock 30,000 authorized;
15,000 shares outstanding in 1999
(liquidation value $1,500,000) 150 -
Series 1998 A convertible preferred stock - 35,000 shares authorized;
19,500 shares issued and outstanding in 1998 (liquidation value
$1,950,000) - 195
Series 1998 C convertible preferred shares: 50,000 shares authorized;
32,354 shares issued and outstanding in1999 and 1998, respectively
(liquidation value $3,235,400) 324 324
Common stock, par value $.01 per share; authorized 42,000,000
shares; 9,985,860 and 8,246,035 shares issued in 1999 and 1998, respectively 99,859 82,426
Additional paid-in capital 124,554,877 122,162,964
Accumulated deficit (123,632,171) (114,665,164)
Net unrealized gain on securities - 3,912
Treasury stock, at cost (none and 51,960 shares in 1999
and 1998, respectively) - (659,390)
------------- -------------
Total stockholders' equity 1,023,039 6,925,267
------------- -------------
Commitments
$ 10,462,272 $ 14,676,501
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Year Ended October 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product sales, net $ 6,566,022 $ 10,471,945 $ 8,783,461
Research contract revenue 676,277 5,265,952 2,938,790
------------ ------------ ------------
Total revenues 7,242,299 15,737,897 11,722,251
------------ ------------ ------------
Costs and expenses, including related party
amounts of $155,879, $436,142, and $837,841
in 1999, 1998 and 1997, respectively:
Cost of products sold 5,975,954 8,600,903 6,291,928
Research and development:
Funded by third parties 318,559 725,169 1,218,107
Self funded 2,318,334 2,890,454 3,823,503
Selling, general and administrative 6,832,761 6,823,931 8,661,750
Special charges - - 1,625,892
------------ ------------ ------------
Total costs and expenses 15,445,608 19,040,457 21,621,180
------------ ------------ ------------
Operating loss (8,203,309) (3,302,560) (9,898,929)
Other income (expense)
Net interest (expense) income (522,894) (354,785) 88,837
Other income, net 114,932 660,239 -
------------ ------------ ------------
Total other income (expense), net (407,962) 305,454 88,837
------------ ------------ ------------
Net loss (8,611,271) (2,997,106) (9,810,092)
Dividends on preferred stock, including assumed
incremental yield of $786,444 for 1999 1,142,180 116,020 1,815
------------ ------------ ------------
Net loss allocable to common stockholders ($9,753,451) ($3,113,126) ($9,811,907)
============ ============ ============
Basic and diluted net loss per common share ($1.05) ($0.39) ($1.23)
============ ============ ============
Weighted average common shares
outstanding 9,248,000 8,059,000 7,958,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Convertible Common Additional Accumulated
Preferred Stock Stock Paid-in Capital Deficit
--------------- ----- --------------- -------
<S> <C> <C> <C> <C>
Balance, October 31, 1996 $58 $79,282 $117,548,065 ($101,741,946)
Issuance of 5,793 shares of common stock for
employee benefits - 58 (84,639) -
Issuance of 136,000 shares of common stock
in settlement of a royalty obligation - 1,360 386,240 -
Conversion of 5,834 shares of Series B convertible
preferred stock to 44,030 shares of common stock (58) 440 (382) -
Dividends on preferred stock - 46 12,088 -
Foreign currency translation - - - -
Net reduction in unrealized gain on securities - - - -
Net loss - - - (9,810,092)
----------- ------------ ------------- -------------
Balance, October 31, 1997 - 81,186 117,861,372 (111,552,038)
Issuance of 115,273 shares of common stock to employees - 1,000 (41,263) -
Private placement of 20,000 shares of convertible preferred
stock, net of issuance costs, including 24,000 shares
of common stock 200 240 1,794,549 -
Conversion of convertible note for 32,354 shares of
Series 1998 A convertible preferred stock 324 - 3,219,922 -
Conversion of 500 shares of Series 1998 B convertible
preferred stock to 50,000 shares of common stock (5) - (652,995) -
Dividends on preferred stock - - (18,621) (116,020)
Net reduction in unrealized gain on securities - - - -
Net loss - - - (2,997,106)
----------- ------------ ------------- -------------
Balance, October 31, 1998 519 82,426 122,162,964 (114,665,164)
Issuance of 1,738 shares of common stock and transfer of
5,037 shares of treasury stock for employee benefits - 17 (52,527) -
Private placement of 500,000 shares of common stock,
net of issuance costs - 5,000 1,530,208 -
Private placement of 15,000 shares of convertible preferred
stock, net of issuance costs, including 20,000 shares
of common stock 150 200 1,356,650 -
Conversion of 19,500 shares of Series 1999 A convertible
preferred stock to 1,155,975 shares of common stock
including the transfer of 15,175 shares out of treasury
stock (195) 11,408 (600,908) -
Issuance of 17,221 shares of common stock in
connection with consulting agreement - 172 49,828 -
Dividends on preferred stock 636 108,662 (355,736)
Net reduction in unrealized gain on securities - - - -
Net loss - - - (8,611,271)
----------- ------------ ------------- --------------
Balance, October 31, 1999 $ 474 $ 99,859 $124,554,877 ($123,632,171)
=========== ============ ============= ==============
<CAPTION>
Equity Treasury
Adjustments Stock at Cost Total
----------- ------------- -----
<S> <C> <C> <C>
Balance, October 31, 1996 $ 171,278 ($1,653,497) $14,403,240
Issuance of 5,793 shares of common stock for
employee benefits - 125,389 40,808
Issuance of 136,000 shares of common stock
in settlement of a royalty obligation - - 387,600
Conversion of 5,834 shares of Series B convertible
preferred stock to 44,030 shares of common stock - - -
Dividends on preferred stock - - 12,134
Foreign currency translation (161,536) - (161,536)
Net reduction in unrealized gain on securities (2,503) - (2,503)
Net loss - - (9,810,092)
----------- ------------- ------------
Balance, October 31, 1997 7,239 (1,528,108) 4,869,651
Issuance of 115,273 shares of common stock to employees - 195,553 155,290
Private placement of 20,000 shares of convertible preferred
stock, net of issuance costs, including 24,000 shares
of common stock - - 1,794,989
Conversion of convertible note for 32,354 shares of
Series 1998 A convertible preferred stock - - 3,220,246
Conversion of 500 shares of Series 1998 B convertible
preferred stock to 50,000 shares of common stock - 653,000 -
Dividends on preferred stock - 20,165 (114,476)
Net reduction in unrealized gain on securities (3,327) - (3,327)
Net loss - - (2,997,106)
----------- ------------- ------------
Balance, October 31, 1998 3,912 (659,390) 6,925,267
Issuance of 1,738 shares of common stock and transfer of
5,037 shares of treasury stock for employee benefits - 69,695 17,185
Private placement of 500,000 shares of common stock,
net of issuance costs - - 1,535,208
Private placement of 15,000 shares of convertible preferred
stock, net of issuance costs, including 20,000 shares
of common stock - - 1,357,000
Conversion of 19,500 shares of Series 1999 A convertible
preferred stock to 1,155,975 shares of common stock
including the transfer of 15,175 shares out of treasury
stock - 589,695 -
Issuance of 17,221 shares of common stock in
connection with consulting agreement - - 50,000
Dividends on preferred stock (246,438)
Net reduction in unrealized gain on securities (3,912) - (3,912)
Net loss - - (8,611,271)
----------- ------------- ------------
Balance, October 31, 1999 $ - $ - $1,023,039
=========== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended October 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($8,611,271) ($2,997,106) ($9,810,092)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss (gain) on sale or disposition of assets 101,000 (542,268) -
Depreciation and amortization expense 702,399 762,149 1,355,310
Noncash interest and other expense 351,861 336,933 -
Changes in operating assets and liabilities,
net of effects from acquisitions/dispositions:
(Increase) decrease in inventory (1,059,643) 2,352,999 (1,502,295)
Decrease (increase) in trade receivables, net 1,652,947 (1,569,383) 4,091
Decrease (increase) in prepaid expenses
and other current assets 237,028 (52,844) (77,708)
Increase (decrease) in accounts payable and
accrued expenses 619,053 (1,650,833) (105,868)
(Decrease) increase in deferred revenue (485,853) (471,941) 856,427
(Decrease) increase in other long-term obligations - 297,071 (116,530)
Other 90,404 47,937 137,795
----------- ----------- -----------
Net cash used in operating activities (6,402,075) (3,487,286) (9,248,870)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturities of temporary
investments 813,150 1,263,000 3,441,068
Purchase of temporary investments - (1,530,135) -
Purchase of plant and equipment (101,796) (351,886) (520,144)
Net proceeds from sale of pheromone
product line - 1,659,410 -
----------- ----------- -----------
Net cash provided by investing activities 711,354 1,040,389 2,920,924
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from sale of common
and convertible preferred stock, net of
issuance costs 2,892,208 1,794,989 -
Net proceeds from issuance of common
shares under stock option plan 4,449 10,565 9,752
Repayment of capital lease obligation (297,304) (223,823) (476,089)
Net proceeds from line of credit 1,081,931 1,050,000 -
Proceeds from issuance of convertible note - - 3,000,000
----------- ----------- -----------
Net cash provided by financing activities 3,681,284 2,631,731 2,533,663
----------- ----------- -----------
(Continued)
</TABLE>
F-6
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Year Ended October 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Effect of foreign exchange rate changes on cash - - (1,815)
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (2,009,437) 184,834 (3,796,098)
Cash and cash equivalents, beginning of year 2,009,437 1,824,603 5,620,701
---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR - $2,009,437 $ 1,824,603
=========== ========== ===========
----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 211,226 $ 171,136 $ 142,489
Income taxes - - -
----------------------------------------------------------------------------------------------
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1998, the Company issued 32,354 shares of Series 1998 C convertible
preferred stock in exchange for an 8% convertible secured note in the amount
of $3,235,400, including accrued interest.
In 1998, the Company issued 24,000 shares of common stock as a fee in
connection with a private placement. In 1997, the Company issued 136,000
shares of common stock in satisfaction of future royalty obligations.
In 1999 and 1997, debt totaling approximately $304,810 and $262,000,
respectively, was incurred by the Company for the acquisition of equipment.
In 1999 and 1998, holders of the Company's Series 1998 A convertible preferred
stock converted 19,500 and 500 shares, respectively, of preferred stock to
1,155,975 and 50,000 shares of common stock. In 1997, holders of the Company's
Series B convertible preferred stock converted 5,834 shares of preferred stock
to 44,030 shares of common stock. Noncash dividends on preferred shares
settled through the issuance of common stock amounted to $109,298, $116,020
and $1,815 in fiscal 1999, 1998 and 1997, respectively.
In 1999, 1998 and 1997, the Company transferred 5,037, 15,273 and 9,755
shares, respectively, of treasury stock to outstanding shares pursuant to
certain employee benefit plans. Also in 1999, the Company issued 1,738 shares
of common stock pursuant to certain employee benefit plans.
In 1999, the Company issued 17,221 shares of common stock pursuant to a
consulting agreement.
________________________________________________________________________________
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation and Summary of Significant Accounting Policies
Organization, business activities and liquidity:
The consolidated 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. Included in other long-term obligations is
approximately $1.5 million which represents cash received from the
minority stockholders of the Company's research and development
subsidiary. Such amounts were recorded as other long-term obligations in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
68, "Research and Development Arrangements."
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, among other
things, the success of the Company's commercialization efforts and market
acceptance of the Company's products.
Since its inception in 1983, the Company's source of funds has been
primarily dependent on private and public offerings of equity securities,
revenues from research and development alliances, and product sales. In
1998, the Company obtained a two-year working capital line of credit;
such credit facility expires in August 2000 and approximately 1.6 million
is outstanding under that credit facility as of February 15, 2000. 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 2000 based on reduced
spending levels, if necessary. However, the Company's working capital
line of credit will need to be renewed or refinanced in August 2000. (See
note 18 of the notes to the consolidated financial statements.) The
Company continues to evaluate various programs to raise additional funds,
pursue strategic initiatives and refinance its working capital facility.
At this time the Company is unable to predict whether it will be
successful in its efforts. If the Company is not successful refinancing
its working capital line of credit or in raising additional funding, the
Company would take a number of steps to conserve cash, including reducing
expenditures.
Effective November 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. The
adoption of SFAS No. 130 had no impact on the Company's results of
operations for the fiscal year ended October 31, 1999 and an immaterial
impact for the fiscal years ended October 31, 1998 and 1997. The net loss
is substantially equal to the comprehensive loss for the periods.
Cash and cash equivalents:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid temporary investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of U.S. Government obligations, commercial
paper and foreign money market accounts and are carried at cost which
approximates market value.
F-8
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1)Basis of Presentation and Summary of Significant Accounting Policies, cont.
Temporary investments:
At October 31, 1999, the Company held no temporary investments. Temporary
investments had consisted of certificates of deposit, U.S. Government
obligations and corporate debt securities with original maturities
greater than three months. The Company's temporary investments were
available for sale to fund operations. Securities for which there is not
the positive intent and ability to hold to maturity were classified as
available for sale and are carried at fair value.
At October 31, 1998 the Company held a corporate debt security and a
certificate of deposit with contractual maturities of greater than three
months but less than one year, with costs of $513,000 and $296,238,
respectively and fair values of $513,000 and $300,150, respectively.
Unrealized holding gains and losses on securities classified as available
for sale are carried as a separate component of stockholders' equity.
Pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," a $3,912 unrealized holding gain had been recorded in
a separate component of stockholders' equity as of October 31, 1998.
Fair value of financial instruments:
The fair value of the long-term debt approximates its carrying value due
to the fact that the interest rate approximates current market rates. For
all other financial instruments, their carrying value approximates fair
value due to the short maturity of those instruments.
Inventory:
Inventory is stated at the lower of cost, as determined by the average
cost method, or net realizable value.
Plant and equipment:
Plant and equipment are recorded at cost. Depreciation is computed by
utilizing an accelerated method over the estimated useful lives of the
related assets, which range from three to ten years. Amortization of
leasehold improvements is computed using the straight-line method over
the lesser of the estimated useful lives of the improvements or the
remaining lease term.
Research and development:
All research and development costs are charged to operations as incurred.
Revenue recognition:
Revenue from research and development contracts is recognized in
accordance with the terms of the respective contracts. Revenue from time
and materials contracts is recognized in the period in which the related
services have been rendered and costs have been incurred by the Company.
Revenue from achievement of milestone events is recognized when all
parties concur that the scientific results and/or milestones stipulated
in the agreement have been met. Revenue from other contracts is
recognized on a pro rata basis over the life of the contract. Contract
costs of such contracts are generally incurred ratably over the contract
term. Revenue recognized in the accompanying consolidated statements of
operations under these contracts is not subject to repayment. Revenue
received that is related to future performance under such contracts is
deferred and recognized as revenue when earned.
F-9
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1)Basis of Presentation and Summary of Significant Accounting Policies, cont.
Revenues from product sales are recognized upon shipment and passage of
title to the customer.
Concentration of credit risk:
The Company's product sales are made primarily to distributors of
agricultural products. The Company does not generally require collateral
or other security to ensure collection of trade receivables, except for
certain international sales, where letters of credit are obtained.
Other assets:
Other long-term assets include prepaid royalties that are charged to
expense in relation to sales.
Net 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.
Because the Company reported a net loss per share, there is no difference
between the Company's historic net loss per share calculation and basic
and diluted net loss as calculated, since all potential common shares
were anti-dilutive. The conversion of the convertible preferred stock
into common shares and adding back dividends and interest expense
incurred during the year was not included in the net loss per share
calculation since the effect was anti-dilutive. Stock options and
warrants were not considered because they were anti-dilutive.
Income Taxes:
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and the benefits arising from the realization of
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or
settled. A valuation allowance is provided when it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date of the tax rate change.
Reclassification:
Certain amounts contained in the 1998 and 1997 consolidated financial
statements have been reclassified to conform to the 1999 presentation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-10
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Basis of Presentation and Summary of Significant Accounting Policies, cont.
Stock-Based Compensation:
SFAS No. 123, "Accounting for Stock-Based Compensation," presents
companies with the alternative of retaining the current accounting for
stock-based compensation or adopting a new accounting method based on the
estimated fair value of equity instruments granted to employees during
the year. The Company elected to adopt the disclosure provisions as
required by SFAS No. 123 (see note 11).
Long-Lived Assets:
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," the Company
reviews long-lived assets for impairment whenever events or changes in
business circumstances occur that indicate that the carrying amount of
the assets may not be recoverable. The Company assesses the
recoverability of long-lived assets held and to be used and assets to be
sold based on fair value.
(2) Inventory
Inventory consists of the following components as of October 31, 1999 and
1998:
1999 1998
---- ----
Raw materials and packaging supplies $ 530,739 $ 526,914
Work in process 588,889 827,573
Finished goods 4,238,389 2,943,887
----------- -----------
$ 5,358,017 $ 4,298,374
=========== ===========
(3) Plant and Equipment
Plant and equipment consist of the following components as of October
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Manufacturing and laboratory equipment $ 3,524,898 $ 4,468,802
Office furniture and sales equipment 810,103 785,128
Leasehold improvements 2,949,089 3,161,850
------------- -------------
7,284,090 8,415,780
Less accumulated depreciation and amortization (4,909,628) (5,644,525)
------------- -------------
$ 2,374,462 $ 2,771,255
============= =============
</TABLE>
Included in plant and equipment is $108,000 of capitalized interest as of
October 31, 1999 and 1998.
(4) Accrued Expenses
Included in accounts payable and accrued expenses on the accompanying
balance sheet are accrued expenses that consist of the following
components as of October 31, 1999 and 1998:
1999 1998
---- ----
Current portion of capital lease obligations $ 360,851 $ 402,886
Dividends 362,339 115,900
Payroll costs 104,637 100,342
Other 825,110 604,077
---------- ----------
$1,652,937 $1,223,205
========== ==========
F-11
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Long-term Debt
During 1997, the Company sold, in a private placement, a $3.0 million 8%
convertible secured note (the "Note") to an institutional shareholder of
the Company. In 1998, the Note plus accrued interest was exchanged for
32,354 shares of Series 1998 A 8% convertible preferred stock (see note
8).
During 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 credit expires in August 2000 (subject to earlier
termination on certain events of default), bears interest at prime plus
1.25% (prime + 3.25 % on certain events of default) and is fully
collateralized by the Company's assets other than certain of its
intellectual property rights. The lending formula is based on eligible
receivables and finished goods inventory. At October 31, 1999, the
balance outstanding under the line was $2.2 million. The loan agreement
contains certain financial covenants and has certain restrictions on the
Company's ability to pay dividends on its common stock. At January 31,
2000, the Company was not in compliance with such covenants; however,
such noncompliance has been waived by the lender.
(6) Commitments
Leases:
The Company leases its facilities and certain equipment and automobiles
under various noncancelable operating and capital leases. Rental expense
charged to operations aggregated approximately $304,000, $325,000 and
$574,000 for fiscal 1999, 1998 and 1997, respectively. Minimum lease
payments under noncancelable long-term leases for the years subsequent to
October 31, 1999 are as follows:
Capital Operating
Leases Leases
------ ------
2000 379,631 255,876
2001 213,779 236,743
2002 48,376 220,903
2003 - 206,662
2004 - 84,680
-------- ----------
Total minimum lease payments $641,037 $1,004,864
==========
Less: Interest and fees 30,749
--------
Present value of net minimum
lease payments. 611,037
Less: Current portion of capital
lease obligations (included in
accounts payable and accrued
expenses) 360,851
--------
Long-term capital obligations
(included in long-term debt) $250,186
========
F-12
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Research, Development and License Agreements
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 to the
Company's Bt technology for an aggregate nonrefundable purchase price of
$5.0 million in cash, which was recorded as license and other income in
the first quarter of fiscal 1996, (ii) the sale by the Company to
Monsanto of common stock for an aggregate purchase price of $10.0
million, and (iii) a research and development ("R&D") collaboration
arrangement with Monsanto, which, by amendment, expired in January 1999,
for the further development of the Company's Bt gene library for a
minimum of $10.0 million. Under this agreement, the Company recognized as
research contract revenue approximately $.5, $5.0 million and $2.9
million in fiscal 1999, 1998 and 1997, respectively. During fiscal 1997
and 1998, Monsanto advanced a total of $1.2 million of commercialization
success fees. These payments, plus related interest, are recorded as
deferred revenue in other long-term liabilities and will be recognized as
revenue when earned as Monsanto commercializes products with technology
developed by Ecogen.
(8) Preferred Stock
Series 1998 A Convertible Preferred Stock:
In June 1998, the Company sold 20,000 shares of Series 1998 A 8% convertible
preferred stock, stated value $100 per share, to an institutional investor
for net proceeds of $1.8 million. The holder of the preferred stock was also
issued five-year warrants to purchase 180,000 shares of common stock at
$3.525 per share. Included in the fee paid to the placement agent in
connection with the transaction were 24,000 shares of the Company's common
stock. During fiscal 1998, 500 shares of Series 1998 A convertible preferred
stock were converted into 50,000 shares of the Company's common stock in
accordance with its terms. During fiscal 1999, the Company issued 1,155,975
shares of its common stock in exchange for 19,500 shares of the Company's
Series 1998A convertible preferred stock. The Company also issued 63,506
shares of its common stock in payment of cumulative dividends at the time of
conversion.
Series 1998 B Convertible Preferred Stock:
During 1998, the Board of Directors authorized 10,000 shares of 8% Series
1998 B convertible preferred stock, par value $.01 per share. No shares
of Series 1998 B have been issued. The preferred stock shall have
respective rights, preferences and privileges identical to the Series
1998 A preferred stock and ranks pari passu with the 1998 Series A
preferred stock, except that the conversion price shall be determined by
the Company's Board of Directors when issued.
Series 1998 C Convertible Preferred Stock:
In August 1998, the Company exchanged an 8% convertible secured note due
in October 2002 in the amount of $3.2 million for 32,354 shares of newly
issued 8% Series 1998 C convertible preferred stock with a stated value
of $100 per share. The holder of the Note is a principal stockholder of
the Company. Dividends on the preferred stock are payable semi-annually
in cash or shares of preferred stock at the option of the Company. The
preferred stock has no voting rights except with respect to certain
matters affecting the preferred
F-13
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Preferred Stock, cont.
Series 1998 C Convertible Preferred Stock, cont.:
stock. At the election of the holder, the preferred stock may be
converted into common stock of the Company at any time and from time-to-
time beginning in August 1999 at a conversion price equal to the lesser
of $2.125 per share (subject to adjustment under certain circumstances)
and the average market price, as defined in the agreement, over a five-
day period at the time of conversion. The Company, at its option, may
require conversion of the preferred stock if the average market value of
the Company's common stock is greater than $4.00 per share over a ten-day
period. The Company, at its option, may redeem the preferred stock at
125% of the stated value. Furthermore, in certain circumstances, all of
which are in the control of the Company, the Company may be required to
redeem the preferred stock at various premiums over stated value. If the
Company is unable to issue sufficient shares of common stock within a
specified period of time after the holder has requested conversion, or
the common stock has a market value of less than $1.00 per share for 30
consecutive days, the dividend rate may increase and the Company could be
required to pay such dividends in cash. In such event and if the unpaid
dividends exceed $37,500 for a period of 30 days, the Company may be
required to appoint two designees of the holders of a majority of the
outstanding preferred stock to the Company's Board of Directors.
Series 1999 A Convertible Preferred Stock:
In May 1999, the Company sold 15,000 shares of Series 1999A 7%
convertible preferred stock, stated value $100 per share, to an
institutional investor for net proceeds of $1.4 million. The holder of
the preferred stock was issued five-year warrants to purchase 120,000
shares of common stock at $3.98 per share. Dividends are payable semi-
annually in cash or stock at the option of the Company. The preferred
stock has no voting rights except with respect to certain matters
affecting the Company's preferred stock. At the election of the holder,
the preferred stock may be converted at various dates to shares of the
Company's common stock at the lesser of $3.69 per share or 95% of the
average market price, as defined in the agreement, over a twenty-day
period at the time of conversion. The Company, at its option, may redeem
the preferred stock at 125% of the stated value. If the Company is unable
to issue sufficient shares of common stock within a specified period of
time after the holder has requested conversion, the dividend rate may
increase and the Company may be required to issue additional warrants.
Further, in certain circumstances, all of which are in the control of the
Company, the Company may be required to redeem the shares at various
premiums over stated value. The holder of the preferred stock has certain
registration rights with respect to the shares of common stock underlying
the warrants and the convertible preferred stock Included in the fee paid
to the placement agent in connection with the transaction were 20,000
shares of the Company's common stock. In accordance with the terms of the
Series 1999A preferred stock the Company is required to recognize an
assumed incremental yield of $.8 million (calculated at the date of
issuance based on the conversion formula in the agreement). Such amounts
are being amortized as preferred stock dividends over a seven-month
period beginning with the date of issuance. Subsequent to October 31,
1999, the holder of the preferred converted 5,500 shares of preferred
stock into 498,747 shares of the Company's common stock.
F-14
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Common Stock
In July 1999, the Company sold 500,000 shares of common stock to an
institutional investor in a private placement for $3.09 per share for net
proceeds of $1.5 million.
Certain shareholders have been granted demand and piggyback registration
rights with respect to its shares, and have the right of first refusal to
purchase securities of the Company so as to maintain its ownership
percentage in the Company.
(10) Warrants and Other Options
As of October 31, 1999, the Company had the following warrants and
options outstanding and exercisable into shares of the Company's common
stock (excluding stock options issued under the Company's stock option
plan - see note 11) as follows:
Shares of Price Range Per Expiration
Common Stock Share/Unit Dates
------------ ---------- -----
Warrants 377,877 $ 3.53 - 7.31 2000 - 2004
Other Options 51,244 $11.70 - 63.00 2001 - 2003
Subsequent to October 31, 1999, the Company issued 200,000 five-year
warrants priced at $1.25 in connection with a guarantee of a loan
agreement. (See note 18 of notes to consolidated financial statements.)
The estimated value of such warrants, $183,556, will be capitalized and
amortized as additional interest expense over the term of the loan.
(11) Stock Option Plan and Other Matters
During 1999 the Company's stockholders approved the 1999 stock option
plan ("1999 Option Plan") under which 1,500,000 shares of common stock
may be issued. The Option Plan permits the granting of both incentive
stock options and non-statutory stock options. The option price of the
shares for incentive stock options may not be less than the fair market
value of such stock at the grant date as determined under the 1999 Option
Plan. Options are exercisable over a period determined by the Board of
Directors, but not longer than ten years after grant date.
During 1998, the Company's Board of Directors approved the 1998 Stock
Option Plan (the "Plan"), under which 1,500,000 shares of common stock
may be issued. The Plan permits the granting of nonstatutory stock
options. The option price may not be less than the fair market value of
the common stock at the grant date as determined under the Plan. Options
are exercisable over a period determined by the Board of Directors, but
not longer than ten years after the grant date. Upon the approval of the
1999 Option Plan, 825,000 options available for grant under the 1998
Stock Option Plan were cancelled.
Effective November 1, 1996, Ecogen adopted SFAS No. 123. As permitted by
the standard, the Company has elected to continue following the guidance
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," for measurement and recognition of stock-
based transactions with employees. In accordance with APB No. 25, no
compensation cost has been recognized for the Company's option plans. Had
the determination of compensation cost for these plans been based on fair
value
F-15
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Stock Option Plan and Other Matters, cont.
at the grant dates for awards under these plans, consistent with the
method under SFAS No. 123, the Company's net loss available to common
stockholders and basic and diluted net loss per share would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Loss Available to Common Stockholders:
As Reported ($9,753,451) ($3,113,126) ($9,811,907)
Pro Forma ($10,088,417) ($3,268,710) ($9,994,255)
Basic and Diluted Net Loss Per Common Share:
As Reported ($1.05) ($.39) ($1.23)
Pro Forma ($1.09) ($.41) ($1.26)
</TABLE>
The resulting compensation expense may not be representative of
compensation expense to be incurred on a pro forma basis in future years.
The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes Option Pricing Model. The per share weighted-
average fair values on the date of grant for options granted during 1999,
1998 and 1997 were $1.51, $.73 and $2.04, respectively. The following
weighted-average assumptions were used for grants in fiscal 1999, 1998
and 1997:
1999 1998 1997
---- ---- ----
Expected Dividend Yield 0% 0% 0%
Expected Volatility 85% 82% 70%
Risk-Free Interest Rate 9.5% 8% 8%
Expected Option Lives (years) 3 3 3
A summary of the status of the Option Plans as of October 31,1999, 1998 and 1997
and changes during the years then ended are as follows:
Options Outstanding
-------------------
Shares Weighted-Average Exercise Price
------ -------------------------------
Balance, October 31, 1996 604,228 $11.06
Granted 410,694 4.16
Exercised (11,096) 2.56
Canceled (305,703) 12.58
Balance, October 31, 1997 698,123 6.50
Granted 675,000 1.25
Exercised (5,761) 2.56
Canceled (216,701) 6.10
Balance, October 31, 1998 1,150,661 3.08
Granted 968,000 2.50
Exercised 1,738 2.56
Canceled (339,397) 2.68
---------
Balance, October 31, 1999 1,777,526 $ 3.16
========= ======
F-16
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Stock Option Plan and Other Matters, cont.
The following table summarizes information about fixed stock options
outstanding at October 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------- -------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise Price at 10/31/99 Contractual Life Exercise Price at 10/31/99 Exercise Price
-------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.25 - $ 3.25 1,601,326 9.13 years 2.15 391,167 2.10
$ 5.88 - $10.94 174,600 5.03 years 8.69 171,800 8.73
$ 14.38 - $53.06 1,600 3.67 years 34.45 1,600 34.45
$ 1.25 - $53.06 1,777,526 8.72 years 2.82 564,567 4.21
</TABLE>
During fiscal 1997, employees were given the right to exchange 254,392
options at exercise prices from $2.88 to $35.25 for new options at
exercise prices from $2.56 to $3.19, the fair market value at the grant
date for the exchange right. The new options are exercisable according to
a vesting schedule beginning on the new grant date, except for options
that terminate during the new vesting period, which are immediately
vested.
Accordingly, options to purchase 254,392 shares were canceled and an
equal number of new options were issued, which is reflected in the table
above.
In fiscal 1998, 100,000 shares of common stock were awarded to an officer
of the Company. The Company recorded compensation expense in connection
with the award of $5,208 and $114,583 in fiscal 1999 and 1998,
respectively.
(12) Geographic Area and Related Information
The Company's operations consist primarily of the research, development
and marketing of biopesticide and related products, which constitutes one
industry segment. Information with respect to the Company's operations by
geographic area for the fiscal years ended October 31, 1999, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States:
Unaffiliated customers $7,357,231 $16,398,136 $11,411,109
Transfers to other
geographic areas - - 413,849
---------- ----------- -----------
7,357,231 16,398,136 11,824,958
---------- ----------- -----------
Other:
Unaffiliated customers - - 399,979
Eliminations and adjustments - - (413,849)
---------- ----------- -----------
Total revenues $7,357,231 $16,398,136 $11,811,088
---------- =========== ===========
</TABLE>
F-17
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Geographic Area and Related Information, cont.
<TABLE>
<S> <C> <C> <C>
Net loss:
United States ($8,611,271) ($2,997,106) ($9,188,902)
Other - - (528,223)
Eliminations and adjustments - - (92,967)
------------ ------------ ------------
Total operating loss ($8,611,271) ($2,997,106) ($9,810,092)
============ ============ ============
Identifiable assets:
United States $ 10,422,208 $ 14,636,437 $ 17,509,332
Other 40,064 40,064 48,720
Eliminations and adjustments - - -
------------ ------------ ------------
Total identifiable assets $ 10,462,272 $ 14,676,501 $ 17,558,052
============ ============ ============
</TABLE>
Of the United States revenues from unaffiliated customers included above,
$2,072,352, $3,479,218 and $1,605,247 were export revenues in fiscal
1999, 1998 and 1997, respectively.
Sales derived from one customer aggregated 22% of total revenues in
fiscal 1999. Sales derived from another customer aggregated 13% of total
revenues in fiscal 1999. Sales derived from another customer aggregated
20% of total revenues in fiscal 1998. Sales derived from another customer
aggregated 13% of total revenues in fiscal 1997. Research contract
revenues derived from one entity aggregated 32% and 25% of total revenues
in fiscal 1998 and 1997, respectively.
(13) Income Taxes
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
October 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Purchased research, development and
investment in affiliated companies $ 9,667,000 $ 9,667,000
Net operating loss carryforwards 28,325,000 25,463,000
Research experimentation credit
carryforward 2,414,000 2,414,000
Other 1,687,000 1,638,000
----------- -----------
Total gross deferred tax assets 42,093,000 39,182,000
Less valuation allowance 41,849,000 38,935,000
----------- -----------
Net deferred tax assets 244,000 247,000
----------- -----------
Deferred tax liabilities:
Furniture, equipment, and leasehold
improvements, principally due to
differences in depreciations (244,000) (247,000)
----------- -----------
Total gross deferred tax liabilities (244,000) (247,000)
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
F-18
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) Income Taxes, cont.:
The net change in the total valuation allowance for fiscal 1999 and 1998
was an increase of approximately $3,022,000 and $1,211,000, respectively.
At October 31, 1999, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $83.3 million, expiring from
2000 through 2014, which are available to offset future Federal taxable
income, if any. The Company also has research and experimentation tax
credit carryforwards for Federal income tax purposes of approximately
$2.4 million, expiring from 2000, which are available to reduce future
Federal income taxes, if any, expiring from 2000 through 2012. The
Company's ability to use such net operating loss and research and
experimental credit carryforwards is subject to certain limitations due
to ownership changes, as defined by rules enacted with the Tax Reform Act
of 1986.
(14) Special Charges:
During the fourth quarter of fiscal 1999, the Company recorded an
addition to the reserve for inventory obsolescence and rework of
$400,000.
During the fourth quarter of fiscal 1997, the Company recorded a special
charge of $1,416,263 for the realignment of the Company's manufacturing
process involving its new water dispersible granular products, including
the write-down of plant and equipment and other costs. During the third
quarter of fiscal 1997, the Company recorded a charge of $209,629
relating to the shutdown of a research laboratory in Israel. Severance
payments included in these charges are not significant, and there are no
future payouts associated with these special charges.
(15) Profit Sharing 401(k) Plan
The Company has a 401(k) Profit Sharing Plan (the "401(k) Plan") which
covers substantially all full-time U.S. employees. All eligible employees
may elect to contribute a portion of their wages to the 401(k) Plan,
subject to certain limitations. The Company contributes 75% of the
employees' contributions for employees with under five years of service,
and 100% for employees with greater than five years of service, subject
to a maximum equal to 6% of the employees' compensation. The matching
Company contribution vests over a five-year period. Employees may elect
to have the Company matching contribution in Ecogen common stock. The
Company contributed approximately $115,000, $132,000 and $161,000 to the
401(k) Plan in fiscal 1999, 1998 and 1997, respectively.
(16) Related-party Transactions
A director, elected during fiscal 1996, is a partner of a law firm that
has acted as legal counsel to the Company. The Company recorded fees and
costs of approximately $156,000, $187,000 and $51,000 to this law firm
during fiscal 1999, 1998 and 1997, respectively.
A director elected during fiscal 1998 is a partner of an investment firm
that holds all of the Company's outstanding Series 1998 C preferred
stock. The Company recorded dividends of approximately $261,000 during
fiscal 1999 and interest and dividends of approximately $249,000 during
fiscal 1998 to this investment firm. During fiscal 1997, the Company also
recorded interest of approximately $38,000 to this investment firm.
F-19
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) 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. The consideration included
cash of $1.7 million and the assumption of $.7 million of liabilities.
The Company recognized a gain of $.5 million on the sale which is
included in license and other income in the accompanying consolidated
statements of operations. As part of the transaction, the Company entered
into a distribution agreement with Scentry for three products, BeeScent
Attractant, NoMate LRX MEC and NoMate BHF MEC, in the United States
through December 2000. 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
as if the product line had been sold on November 1, 1996 are as follows,
excluding the nonrecurring gain on the sale of $.5 million:
<TABLE>
<CAPTION>
Year Ended October 31,
1998 1997
---- ----
($ in thousands except per share data)
<S> <C> <C>
Total revenues $ 13,790 $ 8,951
Net loss available to common
stockholders ($3,867) ($9,926)
Basic and diluted net
loss per common share ($.48) ($1.25)
</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.
(18) Subsequent Events
Preferred Stock:
Series 2000-A Convertible Preferred Stock:
On February 14, 2000, the Company sold 15,000 shares of Series 2000-A 7%
convertible preferred stock, stated value $100 per share, to
institutional investors for net proceeds of $1.4 million. The holders of
the preferred stock were issued five-year warrants to purchase 200,000
shares of common stock at $2.66 per share. Dividends are payable
quarterly in cash or stock at the option of the Company. The preferred
stock has no voting rights except with respect to certain matters
affecting the Company's preferred stock. At the election of the holders,
the preferred stock may be converted at various dates to shares of the
Company's common stock at the lesser of $2.73 per share or 95% of the
average market price, as defined in the agreement, over a twenty-day
period at the time of conversion. The Company, at its option, may redeem
the preferred stock at 125% of the stated value. If the Company is unable
to issue sufficient shares of common stock within a specified period of
time after the holder has requested conversion, the dividend rate may
increase and the Company may be required to issue additional warrants.
Further, in certain
F-20
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(18) Subsequent Events, cont.
Preferred Stock, cont.:
Series 2000-A Convertible Preferred Stock, cont.:
circumstances, all of which are in the control of the Company, the
Company may be required to redeem the shares at various premiums over
stated value. The holders of the preferred stock has certain registration
rights with respect to the shares of common stock underlying the warrants
and the convertible preferred stock. Included in the fee paid to the
placement agent in connection with the transaction were 20,000 shares of
the Company's common stock. In accordance with the terms of the Series
2000-A preferred stock the Company is required to recognize an assumed
incremental yield of $592,496 (calculated at the date of issuance based
on the conversion formula in the agreement). Such amounts will be
amortized as preferred stock dividends over a seven-month period
beginning with the date of issuance.
Loan Agreement:
On December 24, 1999, the Company obtained a secured loan for $1,500,000
with a financial institution that is controlled by a principal
stockholder of the Company. The loan requires a $500,000 principal
payment in June 2000 with the balance due in June 2001. The loan bears
interest at prime plus 2% and is payable monthly. The loan is
collateralized by the Company's assets. The loan is guaranteed by a
corporation controlled by one of the Company's principal shareholders. In
connection with the guarantee, the corporation was issued a five-year
warrant to purchase 200,000 shares of the Company's common stock at $1.25
per share. Such warrants have a value of $183,556 and will be recorded as
deferred debt expense. This amount will be amortized as interest expense
over the life of the loan.
Acquisition:
On February 15, 2000, the Company completed its acquisition of certain
assets of the sprayable Bt bioinsecticide business of Mycogen
Corporation, an affiliate of Dow AgroSciences LLP. The Company issued
1,351,351 shares of the Company's common stock valued at $3,000,000 upon
the closing of the transaction. Prior to the closing, the Company
acquired approximately $391,000 of Mycogen's inventory of sprayable Bt
products, under a distribution agreement effective January 1, 2000. Under
the terms of the agreement, Mycogen has agreed to hold the shares for a
three-year period, except in the event of certain change in control
transactions. Mycogen was granted certain demand and piggyback
registration rights with respect to the shares. In addition, Mycogen has
the right of first refusal to purchase securities of the Company so as to
maintain its ownership percentage in the Company and market price
protection at the time that they sell the shares. The Company and Dow
AgroSciences LLC also entered into a five- year supply agreement and the
companies have agreed to enter into distribution agreements granting
exclusive rights to Dow AgroSciences to sell the acquired products in
Mexico, New Zealand and Australia.
The transaction will be accounted for as a purchase and, accordingly, the
total purchase price for the assets of $3,400,000 will be allocated based
upon their fair value at the date of acquisition. The assets acquired
include inventory and intangible assets including a license to certain
genes and strains and product registration rights. The agreement also
provides that the Company has no obligation for past or future royalties
under a 1998 settlement agreement with Mycogen on a patent infringement
dispute. Under purchase accounting, part of the purchase price has been
allocated to other assets for the fully paid up royalty and any amounts
previously accrued under the settlement agreement have been eliminated in
purchase accounting.
F-21
<PAGE>
Schedule II
ECOGEN INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended October 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
---------- -------------------------------------- ---------- -----------
Additions Deductions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Period
<S> <C> <C> <C> <C> <C>
1999:
Allowance for doubtful accounts $ 80,000 $ 92,928 $ $ 43,905 $ 129,023
Reserve for inventory obsolescence 401,371 900,000 600,967 700,404
============ ============ ============ ============ =============
1998:
Allowance for doubtful accounts $ 77,769 $ 115,872 $ - $ 113,641 $ 80,000
Reserve for inventory obsolescence 1,006,426 500,000 - 1,105,055 401,371
============ ============ ============ ============ =============
1997:
Allowance for doubtful accounts $ 42,769 $ 35,000 $ - $ - $ 77,769
Reserve for inventory obsolescence 675,894 500,000 - 169,468 1,006,426
============ ============ ============ ============ =============
</TABLE>
F-22
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONSENSED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Assets July 31, October 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Trade receivables, net $ 1,985,049 $ 1,685,950
Inventory, net 3,676,118 5,358,017
Prepaid expenses and other current assets 399,238 387,043
-----------------------------------------------------------------------------------------------------------------------
Total current assets 6,060,405 7,431,010
Plant and equipment, net 1,899,575 2,374,462
Intangible and other assets, net 2,853,749 656,800
-----------------------------------------------------------------------------------------------------------------------
$ 10,813,729 $ 10,462,272
=======================================================================================================================
Liabilities and Stockholders' Equity
-----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt 2,805,353 2,193,145
Accounts payable and accrued expenses 4,737,643 4,010,120
-----------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,542,996 6,203,265
-----------------------------------------------------------------------------------------------------------------------
Long-term debt 67,472 250,186
Long-term deferred revenue 1,552,426 1,451,928
Minority interest in subsidiary 1,533,854 1,533,854
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 10,696,748 9,439,233
-----------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock:
Series 2000 A 130 -
Series 1999 A - 150
Series 1998 C 324 324
Common stock 126,332 99,859
Additional paid-in capital 129,306,413 124,554,877
Accumulated deficit (129,316,218) (123,632,171)
-----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 116,981 1,023,039
-----------------------------------------------------------------------------------------------------------------------
$ 10,813,729 $ 10,462,272
=======================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated Condensed Financial
Statements.
F-23
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Product sales, net $ 5,283,781 $ 5,640,613
Contract research 50,000 626,277
-----------------------------------------------------------------------------------------------------------------------
Total revenues 5,333,781 6,266,890
-----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of products sold 4,523,463 4,549,621
Research and development:
Funded by third parties - 295,007
Self funded 1,321,900 1,686,498
Selling, general and administrative 4,192,826 5,056,915
Amortization of intangibles 104,090 -
-----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 10,142,279 11,588,041
-----------------------------------------------------------------------------------------------------------------------
Operating loss (4,808,498) (5,321,151)
Other income (expense):
Interest expense, net (639,164) (369,358)
Other income 43,427 52,387
-----------------------------------------------------------------------------------------------------------------------
Total other expense, net (595,737) (316,971)
-----------------------------------------------------------------------------------------------------------------------
Net loss (5,404,235) (5,638,122)
Dividends on preferred stock including assumed
incremental yield of $267,148 and $403,337 and
$611,622 and $403,337 in the three and nine
months of fiscal 2000 and 1999, respectively 891,434 666,094
-----------------------------------------------------------------------------------------------------------------------
Net loss allocable to common stockholders ($6,295,669) ($6,304,216)
=======================================================================================================================
Basic and diluted net loss per common share ($0.55) ($0.70)
=======================================================================================================================
Weighted average number of common shares
outstanding 11,508,000 9,001,000
=======================================================================================================================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements
F-24
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Nine months ended July 31, 2000
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Convertible Additional
Preferred Common Paid-in Accumulated
Stock Stock Capital Deficit Total
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance November 1, 1999 $ 474 $ 99,859 $124,554,877 ($123,632,171) $ 1,023,039
Dividends on preferred stock - 584 86,653 (279,812) (192,575)
Stock options granted under a consulting agreement - - 30,120 - 30,120
Conversion of 15,000 shares of Series 1999 A convertible
preferred stock to 984,732 shares of common stock (150) 9,847 (9,697) - -
Conversion of 2000 shares of Series 2000A convertible
preferred stock to 217,329 shares of common stock (20) 2,173 (2,153)
Issuance of 200,000 warrants in connection with a loan - - 183,556 - 183,556
agreement
Issuance of 15,544 shares of common stock for employee - 155 39,676 - 39,831
benefits
Issuance of 1,351,351 shares of common stock for - 13,514 3,024,231 - 3,037,745
acquisition of certain assets
Private placement of 15,000 shares of convertible
preferred stock,
net of issuance costs, including 20,000 shares of 150 200 1,399,150 - 1,399,500
common stock
Net loss - - - (5,404,235) (5,404,235)
--------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 2000 $ 454 $126,332 $129,306,413 ($129,316,218) $ 116,981
================================================================================================================================
</TABLE>
See Accompanying Notes To Unaudited Consolidated Condensed Financial Statements.
F-25
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
July 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($5,404,235) ($5,638,122)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization expense 551,917 524,026
Noncash interest and other expense 268,070 250,846
Other - 76,015
Changes in assets and liabilities, net of acquisition 3,046,023 (981,807)
------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,538,225) (5,769,042)
------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturity of temporary investments - 813,150
Purchase of plant and equipment (45,601) (50,656)
Acquisition, net (285,000) -
------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (330,601) 762,494
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from bank loan 1,500,000 -
(Repayments) proceeds of line of credit, net (887,792) 1,583,459
Repayment of capital lease obligations (182,714) (297,304)
Proceeds from sale of equity securities, net of issuance costs 1,399,500 2,892,208
Net proceeds from issuance of common shares under stock option plan 39,832 4,449
------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,868,826 4,182,812
------------------------------------------------------------------------------------------------------------------------
Net decrease in cash - (823,736)
Cash and cash equivalents, beginning of period - 2,009,437
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ 1,185,701
------------------------------------------------------------------------------------------------------------------------
(Continued)
</TABLE>
F-26
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Nine months ended
July 31,
2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Changes in assets and liabilities, net of acquisition:
(Increase) decrease in receivables ($299,099) $ 400,417
Decrease (increase) in inventory 2,604,644 (1,349,636)
(Increase) decrease in prepaid expenses and
other current assets (12,195) 102,692
Decrease (increase) in other assets 122,064 (11,441)
Increase in accounts payable
and accrued expenses 630,609 362,014
Decrease in deferred contract revenue - (485,853)
-----------------------------------------------------------------------------------------------------
Changes in assets and liabilities, net $3,046,023 ($981,807)
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Interest Paid $ 271,708 $ 144,422
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Noncash investing and financing activities:
-----------------------------------------------------------------------------------------------------
</TABLE>
In the first nine months of fiscal 2000 and 1999, the Company issued
1,202,061 and 1,155,975 shares of its common stock upon conversion of the
Company's convertible preferred stock, respectively, of which 46,924 shares
were transferred from treasury stock in fiscal 1999.
In the first nine months of fiscal 2000 and 1999, the Company issued 58,403
and 63,506 shares of common stock, respectively, as dividends on the
Company's preferred stock.
In the first nine months fiscal 1999, the Company transferred 5,037 shares
of treasury stock to outstanding shares pursuant to certain employee
benefit plans.
In the first nine months of fiscal 2000, the Company issued 15,544 common
shares pursuant to employees benefit plans.
In the first nine months of fiscal 1999, the Company purchased $195,281 of
plant and equipment under capital leases.
In February 2000, the Company issued 1,351,351 shares of its common stock
in connection with an acquisition.
In the first nine months of fiscal 2000, the Company issued 20,000 shares
of its common stock as a fee in connection with the issuance of preferred
stock and issued warrants to purchase 200,000 shares of common stock in
connection with a loan agreement.
===========================================================================
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements
F-27
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
July 31, 2000 and 1999
(1) Basis of Presentation and Summary of Significant Accounting Policies
--------------------------------------------------------------------
Organization, Liquidity, 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, 1999 consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K.
Since its inception, the Company's source of funds has been primarily
dependent on private and public offerings of equity securities, revenues
from research and development alliances, and product sales. In 1998, the
Company obtained a two-year working capital line of credit; such credit
facility expires in November 2000 and approximately $.9 million is
outstanding under that credit facility as of August 31, 2000. Presently,
the Company is not in compliance with the financial covenants of the
agreement. Accordingly, the Company's working capital line of credit needs
to be refinanced in the near term. (See Note 5 of the Notes to the
Unaudited Consolidated Condensed Financial Statements.)
The Company believes that amounts available under its working capital line
of credit should be sufficient to meet its capital and liquidity
requirements through fiscal 2000. The Company continues to evaluate various
programs to raise additional funds, pursue strategic initiatives and
refinance its working capital facility. Janney Montgomery Scott LLC has
been engaged to assist the Company with its strategic initiatives including
the sale of certain assets. The Company is also implementing cost saving
measures to conserve cash until the closing of any transaction for the sale
of assets. At this time the Company is unable to predict whether it will be
successful in its efforts. If the Company is not successful in obtaining
additional funding, the Company may not be able to continue in existence.
The results of operations for the interim period ended July 31, 2000 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 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)
F-28
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements, Continued
(1) Basis of Presentation and Summary of Significant Accounting Policies, cont.
--- --------------------------------------------------------------------------
Net Loss Per Common Share:
Basic loss per share is based on net loss allocable to common stockholders
for the relevant period, divided by the weighted average number of common
shares outstanding during the period. Diluted loss per share is based on
net loss allocable to common stockholders 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 2000 and 1999
into common shares and adding back the dividends incurred during the three-
month and nine-month periods ended July 31, 2000 and 1999, was not included
in the net loss per share calculation since the effect was anti-dilutive.
Contingent shares, stock options and warrants were not considered because
they were anti-dilutive.
(2) Inventory
---------
At July 31, 2000, inventory consisted of raw materials of $.5 million,
work-in-progress of $.7 million and finished products of $2.5 million.
(3) Intangibles and Other Assets, Net
---------------------------------
At July 31, 2000, intangible and other assets, net consisted of the
following:
Product Registrations $1,512,300
Trademarks 192,627
Prepaid Royalties 767,653
Other 380,030
----------
$2,852,610
==========
(4) 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. This amended
R&D Contract ended in January 1999. During the nine months ended July 31,
1999, $.5 million was recorded as contract research revenue principally
relating to such Monsanto R&D contract.
(Continued)
F-29
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements, Continued
(5) Loan Agreements
---------------
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 credit expires in November 2000 (subject to earlier
termination on certain events of default), bears interest at prime plus
3.25% and is fully collateralized by the Company's assets, other than
certain of its intellectual property rights. The lending formula is based
on 80% of eligible receivables and 22% of finished goods inventory. At
August 31, 2000, the balance outstanding under the line was $.9 million.
The loan agreement contains certain financial covenants and has certain
restrictions on the Company's ability to pay dividends on its common
stock. At July 31, 2000 the Company was not in compliance with such
covenants. As a result of the Company's non-compliance with such
covenants, the lender, at its option, may discontinue making loans and
liquidate the collateral.
On December 24, 1999, the Company obtained a secured loan for $1.5
million with a financial institution that is controlled by a principal
stockholder of the Company. The loan required a $.5 million principal
payment in June 2000 (which was recently extended to October 2000) with
the balance due in June 2001. The loan bears interest at prime plus 2%
and is payable monthly. The Company's assets collateralize the loan. A
corporation controlled by one of the Company's principal stockholders
guarantees the loan. In connection with the guarantee, such corporation
was issued a five-year warrant to purchase 200,000 shares of the
Company's common stock at $1.25 per share. The value of such warrants,
approximately $ .2 million has been recorded as deferred debt expense and
is being amortized as interest expense over the life of the loan.
(6) Stockholders' Equity
--------------------
On September 11, 2000, the Company's common stock was delisted from the
Nasdaq National Market ("NNM") as a result of the Company's failure to
meet the NNM's net tangible assets listing requirement. As a result,
dividends on the Company's Series 2000-A and Series 1998-C Convertible
Preferred Stock are payable in cash, effective with the quarterly
dividend payment date of September 30, 2000 and the semiannual dividend
payment date of December 31, 2000. The Company no longer has the option
to pay such dividends in stock.
During the first six months of fiscal 2000, the Company issued 984,732
shares of its common stock in exchange for 15,000 shares of the Company's
Series 1999-A 7% convertible preferred stock issued in May 1999. The
Company also issued 52,356 shares of its common stock in payment of
cumulative dividends at the time of conversion.
(Continued)
F-30
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements, Continued
(6) Stockholders' Equity, con't
---------------------------
Series 2000-A Convertible Preferred Stock:
On February 14, 2000, the Company sold 15,000 shares of Series 2000-A 7%
convertible preferred stock, stated value $100 per share, to
institutional investors for net proceeds of $1.4 million. The liquidation
value of the preferred stock is $1.5 million. The holders of the
preferred stock were issued five-year warrants to purchase up to 200,000
shares of common stock at $2.66 per share. Dividends were payable
quarterly in cash or stock at the option of the Company. As a result of
the Company's common stock being delisted from the Nasdaq National
Market, effective with the September 30, 2000 dividend payment date, such
dividends will be payable in cash. The preferred stock has no voting
rights except with respect to certain matters affecting the Company's
preferred stock. At the election of the holders, the preferred stock may
be converted at various dates to shares of the Company's common stock at
the lesser of $2.73 per share or 95% of the average market price, as
defined in the agreement, over a twenty-day period at the time of
conversion. The Company, at its option, may redeem the preferred stock at
125% of the stated value, except in certain circumstances, including when
the Company's shares are not listed on an national exchange. If the
Company is unable to issue sufficient shares of common stock within a
specified period of time after the holder has requested conversion, the
dividend rate may increase and the Company may be required to issue
additional warrants. Further, in certain circumstances, all of which are
in the control of the Company, the Company may be required to redeem the
shares at various premiums over stated value. Included in the fee paid to
the placement agent in connection with the transaction were 20,000 shares
of the Company's common stock. In accordance with the terms of the Series
2000-A preferred stock the Company is required to recognize an assumed
incremental yield of $.6 million (calculated at the date of issuance
based on the conversion formula in the agreement). Such amount is being
amortized as preferred stock dividends over a seven-month period
beginning with the date of issuance through the date the preferred stock
is first convertible. Through July 31, 2000, the Company issued 217,329
shares of its common stock in exchange for 2,000 shares of the preferred
stock. At the time of the conversion, the Company also issued 6,127
shares of common stock in payment of cumulative dividends. Subsequent to
July 31, 2000, 4,000 shares of the preferred stock were converted to
561,154 shares of the Company's common stock, including shares issued in
payment of cumulative dividends on the preferred stock.
(Continued)
F-31
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
----------------------------
Notes to Unaudited Consolidated Condensed Financial Statements, Continued
-------------------------------------------------------------------------
(7) Acquisition
------------
On February 15, 2000, the Company completed its acquisition of certain
assets of the sprayable Bt bioinsecticide business of Mycogen
Corporation, an affiliate of Dow AgroSciences LLC. The Company issued
1,351,351 shares of the Company's common stock valued at approximately
$3.0 million upon the closing of the transaction. Prior to the closing,
the Company acquired approximately $.4 million of Mycogen's inventory of
sprayable Bt products, under a distribution agreement effective January
1, 2000. Under the terms of the agreement, Mycogen has agreed to hold the
shares for a three-year period, except in the event of certain change in
control transactions. Mycogen was granted certain demand and piggyback
registration rights with respect to the shares. In addition, Mycogen has
the right of first refusal to purchase securities of the Company so as to
maintain its ownership percentage in the Company. Mycogen also has been
granted certain market price protection rights at the time that Mycogen
sells the shares, which may result in the issuance of additional shares,
which may not exceed 20% of the Company's outstanding shares, without
stockholder approval. The Company and Dow AgroSciences LLC also entered
into a five-year supply agreement and the companies have agreed to enter
into distribution agreements granting exclusive rights to Dow
AgroSciences to sell the acquired products in Mexico, New Zealand and
Australia.
The transaction was accounted for as a purchase and, accordingly, the
total purchase price for the assets of approximately $3.4 million,
including out of pocket expenses, was allocated based upon their fair
value at the date of acquisition. The assets acquired include inventory
of $.9 million and certain identifiable intangible assets of $1.8 million
including a license to certain genes and strains and product registration
and data citation rights. Included in the purchase price is inventory
acquired by the Company prior to the final closing under a distribution
agreement. The agreement also provides that the Company has no obligation
for past or future royalties under a 1998 settlement agreement with
Mycogen on a patent infringement dispute. Under purchase accounting, part
of the purchase price ($.6 million) has been allocated to other assets
for the fully, paid-up royalty and any amounts previously accrued under
the settlement agreement have been eliminated in purchase accounting.
The following unaudited pro forma information has been prepared as if the
February 2000 acquisition of the products had occurred on November 1,
1998. The unaudited pro forma information does not purport to represent
our consolidated results of operations that would have been achieved had
the transaction to which pro forma effect is given been consummated as of
the date or period indicated.
Nine Months Ended July 31,
2000 1999
---- ----
($ in thousands except per share data)
Total revenues $ 6,109 $ 8,953
Net loss (5,511) (5,477)
Net loss allocable to
common stockholders (6,402) (6,143)
Basic and diluted net
loss per share (0.54) (0.59)
(Continued)
F-32
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
----------------------------
Introduction to Pro Forma Condensed Consolidated Financial Statements
---------------------------------------------------------------------
On February 15, 2000, Ecogen Inc. (the "Company") completed its
acquisition of certain assets of the sprayable Bt bioinsecticide business of
Mycogen Corporation ("Mycogen"), an affiliate of Dow AgroSciences LLP. The
Company issued to Mycogen 1,351,351 shares (the "Shares") of its common stock
valued at $3,041,000 upon the closing of the transaction.
The transaction included the purchase of Mycogen's Bt bioinsecticides,
product registration and data citation rights, trademarks, product inventories
and a license to certain proprietary genes and strains for use in sprayable
bioinsecticides. Prior to the closing, the Company acquired approximately
$391,000 of Mycogen's inventory of sprayable Bt products, under a distribution
agreement effective January 1, 2000. The Company paid $280,000 in cash for such
inventory purchases and the balance was settled with the issuance of shares at
closing. Principal products acquired include: MVP(R) for control of lepidopteran
pests in vines and vegetables, MVP(R)II for control of lepidopteran pests in
trees, nuts, vines and row crops and Mattch(TM) for control of lepidopteran
pests in vegetables. The Company and Dow AgroSciences LLC also entered into a
five-year supply agreement and the companies have agreed to enter into
distribution agreements granting exclusive rights to Dow AgroSciences to sell
the acquired products in Mexico, New Zealand and Australia.
Under the terms of the agreement, Mycogen has agreed to hold the
Shares for a three-year period, except in the event of certain change in control
transactions. Mycogen was granted certain demand and piggyback registration
rights with respect to the Shares. In addition, to the extent the Company issues
additional securities at any time prior to February 15, 2003, Mycogen has the
right of first refusal to purchase securities of the Company so as to maintain
its ownership percentage in the Company. Mycogen also has been granted certain
market price protection rights at the time that Mycogen sells the Shares, which
may result in the issuance of additional shares, which may not exceed 20% of the
Company's outstanding shares without stockholder approval.
The transaction will be accounted for as a purchase and, accordingly,
the total purchase price for the assets of $3,426,000, including out-of-pocket
expenses, will be allocated based upon their fair value at the date of
acquisition. The assets acquired include inventory and identifiable intangible
assets including a license to certain genes and strains, product registration
rights and trademarks. The agreement also provides that the Company has no
obligation for past or future royalties under a 1998 settlement agreement with
Mycogen on a patent infringement dispute. Under purchase accounting, part of the
purchase price has been allocated to other assets for the fully paid up royalty
and any amounts previously accrued under the settlement agreement have been
eliminated in purchase accounting.
F-33
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended October 31, 1999
<TABLE>
<CAPTION>
Historical
-----------------------------------------------
Bt Biopesticide
Business of
Mycogen Pro Forma Pro Forma
Ecogen Inc. Corporation Adjustments Consolidated
------------------------------------------------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 6,566,022 $3,732,011 - $ 10,298,033
Research contract revenue 676,277 - - 676,277
------------------------------------------------------------- ------------------- ------------------ ------------------
Total revenues 7,242,299 3,732,011 - 10,974,310
------------------------------------------------------------- ------------------- ------------------ ------------------
Costs and expenses:
Cost of products sold 5,975,954 2,288,442 827,023 (1) 9,091,419
Research and development 2,636,893 - - 2,636,893
Selling, general and administrative 6,832,761 204,546 250,781 (2) 7,288,088
------------------------------------------------------------- ------------------- ------------------ ------------------
Total costs and expenses 15,445,608 2,492,988 1,077,804 19,016,400
------------------------------------------------------------- ------------------- ------------------ ------------------
Operating income (loss) (8,203,309) 1,239,023 (1,077,804) (8,042,090)
Other income (expense):
Interest expense, net (522,894) - - (522,894)
Other income 114,932 - - 114,932
------------------------------------------------------------- ------------------- ------------------ ------------------
Total other expense, net (407,962) - - (407,962)
------------------------------------------------------------- ------------------- ------------------ ------------------
Net income (loss) (8,611,271) 1,239,023 (1,077,804) (8,450,052)
Dividends on preferred stock including
assumed incremental yield of $786,444 in
1999 1,142,180 - - 1,142,180
------------------- ------------------- ------------------ ------------------
Net loss allocable to common stockholders ($9,753,451) $1,239,623 $ 1,077,804 ($9,592,232)
=================== =================== ================== ==================
Basic and diluted net loss per common
share ($1.05) - - ($0.91)
=================== =================== ================== ==================
Weighted average number of common shares 9,248,000 - 1,351,000 10,599,000
outstanding
=================== =================== ================== ==================
</TABLE>
(1) Adjustments to cost of product sold for the price Ecogen will pay for
product under the supply agreement with Dow AgroSciences LLC.
(2) Adjustments to amortization expense for the intangible assets acquired.
Intangible assets are being amortized on a straight-line basis over their
estimated useful lives which is seven to ten years.
F-34
<PAGE>
ECOGEN INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended July 31, 2000
<TABLE>
<CAPTION>
Historical
---------------------------------------------
Bt Biopesticide
Business of
Mycogen Pro Forma Pro Forma
Ecogen Inc. Corporation Adjustments Consolidated
------------------------------------------------------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Product sales, net $ 5,283,781 $774,961 - $ 6,058,742
Contract Research 50,000 - - 50,000
------------------------------------------------------------------- ------------------- ------------------ ------------------
Total revenues $ 5,333,781 774,961 - $ 6,108,742
------------------------------------------------------------------- ------------------- ------------------ ------------------
Costs and expenses:
Cost of products sold 4,523,463 642,920 $ 104,452 (1) 5,270,835
Research and development 1,321,900 - - 1,321,900
Selling, general and administrative 4,296,916 51,137 83,272 (2) 4,431,325
------------------------------------------------------------------- ------------------- ------------------ ------------------
Total costs and expenses 10,142,279 694,057 187,724 11,024,060
------------------------------------------------------------------- ------------------- ------------------ ------------------
Operating loss (4,808,498) 80,904 (187,724) (4,915,318)
Other income (expense):
Interest expense, net (639,164) - - (639,164)
Other income 43,427 - - 43,427
------------------------------------------------------------------- ------------------- ------------------ ------------------
Total other expense, net (595,737) - - (595,737)
------------------------------------------------------------------- ------------------- ------------------ ------------------
Net loss (5,404,235) 80,904 (187,147) (5,511,055)
Dividends on preferred stock including assumed 891,434 - - 891,434
incremental yield of $611622 in 2000
-------------------- ------------------- ------------------ ------------------
Net loss allocable to common stockholders ($6,295,669) $ 80,904 ($187,147) ($6,402,489)
==================== =================== ================== ==================
Basic and diluted net loss per common share ($0.55) - - ($0.54)
==================== =================== ================== ==================
Weighted average number of common shares 11,508,000 - 394,000 11,902,003
outstanding
==================== =================== ================== ==================
</TABLE>
(1) Adjustments to cost of product sold for the price Ecogen will pay for
product under the supply agreement with Dow AgroSciences LLC.
(2) Adjustments to amortization expense for the intangible assets acquired.
Intangible assets are being amortized on a straight-line basis over their
estimated useful lives which is seven to ten years.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Management of Mycogen Corporation:
We have audited the accompanying statement of assets sold as of December 31,
1999, and the related statement of direct revenues and direct expenses for the
year then ended (collectively, the "Statements") for the BT Biopesticides
Business of Mycogen Corporation (the "Business"). These Statements are the
responsibility of the Business' management. Our responsibility is to express an
opinion on these Statements based on our audits.
We conducted our audit 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 Statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the Statements.
We believe that our audit provides a reasonable basis for our opinion.
The assets and operations covered by the Statements were a part of Mycogen
Corporation and had no separate legal status. As described in Notes 1 & 2 to
the Statements, the Statements have been prepared from Dow AgroSciences LLC's
consolidated financial records and allocations of certain costs and expenses
have been made. These allocations are not necessarily indicative of the costs
and expenses that would have been incurred by the BT Biopesticides Business of
Mycogen Corporation on a stand-alone basis or if such business had been owned by
another party.
In our opinion, the Statements present fairly, in all material respects, the
assets sold as of December 31, 1999, and the direct revenues and direct expenses
of the BT Biopesticides Business of Mycogen Corporation for the year then ended,
in conformity with accounting principles generally accepted in the United
States.
Deloite & Touche LLP
Indianapolis, Indiana
January 28, 2000
F-36
<PAGE>
THE BT BIOPESTICIDES BUSINESS OF
MYCOGEN CORPORATION
STATEMENT OF ASSETS SOLD
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------------------
ASSETS
INVENTORY $ 616,774
INTANGIBLE ASSETS -
----------
TOTAL ASSETS $ 616,774
==========
See accompanying notes to financial statements.
F-37
<PAGE>
THE BT BIOPESTICIDES BUSINESS OF
MYCOGEN CORPORATION
STATEMENT OF DIRECT REVENUES AND DIRECT EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
DIRECT REVENUE - Net Trade Revenues $ 3,732,011
COST OF PRODUCTS SOLD 2,288,442
------------
GROSS MARGIN 1,443,569
DIRECT SELLING, ADMINISTRATIVE AND OTHER 204,546
------------
EXCESS OF DIRECT REVENUES OVER DIRECT EXPENSES $ 1,239,023
============
See accompanying notes to financial statements.
F-38
<PAGE>
THE BT BIOPESTICIDES BUSINESS OF
MYCOGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
On December 21, 1999, Ecogen, Inc., ("Ecogen") signed a letter of intent
(the "Agreement") to acquire the sprayable BT Biopesticides business of
Mycogen Corporation (the "Company"). Pursuant to the Agreement, the Company
will sell to Ecogen inventory, trademarks, registrations and other assets
relating to such business, and Ecogen will accept a license in certain of
the Company's proprietary BT strains and assume such rights, and
obligations for supporting the registrations and trademarks, from the
Company. The license does not include any ownership rights to the CellCap
technology or the manufacturing process utilized in the production of the
products. Also pursuant to the Agreement, both the Company and Ecogen will
enter into separate agreements under which (i) the Company will agree to
toll manufacture certain technical BT insecticides and end-use products for
Ecogen, and (ii) Ecogen will agree to supply the Company with certain BT
insecticides and end-use products for distribution in specified geographic
areas.
The Company did not account for the BT Biopesticides Business (the
"Business") as a separate entity within the corporate consolidated systems.
Accordingly, the information included in the accompanying statements has
been obtained from the Company's consolidated financial records. The
statement of direct revenues and direct expenses includes allocations of
the Company's selling, administrative, and other expenses as discussed in
Note 2. The Company's management believes the allocations are reasonable;
however, these allocated expenses are not necessarily indicative of the
costs and expenses that would have been incurred by the Business on a
stand-alone basis or if such Business had been owned by another party,
since certain administrative and other activities are provided to the
Business that are not included as costs or expenses in the accompanying
statements as discussed in Note 2.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Records - Consolidated financial records means the
combined financial records of the Company and its subsidiaries and Dow
AgroSciences LLC and its subsidiaries.
Revenue Recognition - Revenue from the sale of products is recognized at
the time products are shipped. Sales returns are recorded as an offset to
sales at the time credit is issued.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying disclosures. Although these estimates are
based on management's best knowledge of current events and actions the
Company may undertake in the future, actual results ultimately may differ
from the estimates.
Inventory - Inventory is valued at the lower of cost or market. Cost is
determined using the first -in , first - out (FIFO) method.
Intangible assets - Intangible assets sold include trademarks, records and
registrations of the business and have no recorded historical cost.
Cost of Products Sold - Cost of product sold includes allocations of
certain costs, including warehousing, utilities, insurance, and employee
costs. These costs are allocated between the Business and other products
produced by the Company based primarily on planned sales of the Business'
products versus other planned product sales of the Company.
F-39
<PAGE>
Direct Selling, Administrative, & Other - Certain direct selling and
marketing, administrative, and other direct expenses, including research
and development ("R&D"), are specifically identifiable and others are
allocated to the Business based primarily on estimates of actual time and
effort spent, net outside sales and number of employees. Such allocated
expenses represent those charges that are attributable to the Business and
primarily include the Company's related expenses such as selling, and other
general administrative expenses. Certain administrative and other expenses
are allocated to the Business by the Company that are not directly
attributable or specifically identifiable to the Business and, therefore,
are expenses excluded from direct selling, administrative, and other
expenses in the accompanying statement of direct revenues and direct
expenses. Such expenses primarily include the Company's corporate expenses
such as human resources, executive compensation, management information
systems, finance and accounting, R&D, and general corporate expenses.
F-40
<PAGE>
================================================================================
You may rely only on the information contained in this Prospectus. We have not
authorized anyone to provide information different from that contained in this
Prospectus. Neither the delivery of this Prospectus nor sale of common stock
means that information contained in this Prospectus is correct after the date of
this Prospectus. This Prospectus is not an offer to sell or solicitation of an
offer to buy these shares of common stock in any circumstances under which the
offer or solicitation is unlawful.
SUMMARY..................................................................... 1
RISK FACTORS................................................................ 2
FORWARD LOOKING STATEMENTS.................................................. 7
USE OF PROCEEDS............................................................. 7
SELLING STOCKHOLDERS........................................................ 8
PLAN OF DISTRIBUTION........................................................ 9
DESCRIPTION OF SECURITIES.................................................. 10
EXPERTS..................................................................... 11
BUSINESS.................................................................... 11
SELECTED FINANCIAL DATA..................................................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION................................................................... 24
MANAGEMENT.................................................................. 30
PRINCIPAL STOCKHOLDERS...................................................... 34
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................. F-1
14,000,000 Shares
Ecogen Inc.
Common Stock
________________
PROSPECTUS
________________
________________
November 30, 2000
================================================================================
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
-------
The following table sets forth the various expenses payable by the
Company in connection with the sale of the Shares being registered. All of the
amounts shown are estimates except the registration fee.
Registration fee $ 1,885
Legal fees and expenses 35,000
Accounting fees and expenses 12,500
Miscellaneous 2,000
--------
TOTAL $ 51,385
========
Item 14. Indemnification of Directors and Officers
-------
Article VIII of our Bylaws, as amended, provides generally for
indemnification of our officers, directors, agents and employees to the extent
authorized by the General Corporation Law of the State of Delaware. Pursuant to
Section 145 of the Delaware General Corporation Law, a corporation generally has
the power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of a
corporation, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. With respect to suits by or in the
right of a corporation, however, indemnification is not available if such person
is adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless the court determines that indemnification is
appropriate. In addition, a corporation has the power to purchase and maintain
insurance for such persons. We currently maintain such directors' and officers'
insurance. The statute also expressly provides that the power to indemnify
authorized thereby is not exclusive of any rights granted under any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise.
As permitted by Section 102 of the Delaware General Corporation Law,
our stockholders have approved and incorporated provisions into our Restated
Certificate of Incorporation eliminating a director's personal liability for
monetary damages to us and our stockholders arising from a breach of a
director's fiduciary duty, except for liability under Section 174 of the
Delaware General Corporation Law or liability for any breach of the director's
duty of loyalty to us or our stockholders, for acts or omissions not in good
faith or that involve intentional misconduct or a knowing violation of law or
for any transaction in which the director derived an improper personal benefit.
We have entered into indemnification agreements with our directors and
officers. These agreements provide broader indemnity rights than those provided
under the Delaware General Corporation Law and our Bylaws. The indemnification
agreements are not intended to deny or otherwise limit third party or derivative
suits against us or our directors or officers, but to the extent a director or
office were
II-1
<PAGE>
entitled to indemnity or contribution under the indemnification agreement, the
financial burden of a third party suit would be borne by us, and we would not
benefit from derivative recoveries against the director or officer. Such
recoveries would accrue to our benefit but would be offset by our obligations to
the director or officer under the indemnification agreement.
The above discussion of our Bylaws, Restated Certificate of
Incorporation and indemnification agreements and of Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Restated Certificate of Incorporation, indemnification
agreements and statute.
Item 15. Recent Sales of Unregistered Securities
--------
In the last three years, the Company has issued or sold the following
securities. These securities were not registered under the Securities Act of
1933 and were exempt from registration in accordance with Regulation D:
In June 1998, the Company sold 20,000 shares of Series 1998 A 8% Convertible
Preferred Stock, stated value $100 per share, to an institutional investor for
net proceeds of $1.8 million. The holder of the preferred stock was also issued
five-year warrants to purchase 180,000 shares of Common Stock at $3.525 per
share. Included in the fee paid to the placement agent in connection with the
transaction were 24,000 shares of the Company's Common Stock. All of the 1998 A
8% Convertible Preferred Stock has been converted to the Company's Common Stock.
In August 1998, the Company exchanged an 8% convertible secured note due in
October 2002 in the amount of $3.2 million for 32,354 shares of newly issued 8%
Series 1998 C Convertible Preferred Stock with a stated value of $100 per share
to an institutional investor. The holder of the Note is a principal stockholder
of the Company.
In September 1998, 100,000 shares of Common Stock were awarded to an Officer of
the Company. The Company recorded compensation expense in connection with the
award of $5,208 and $114,583 in fiscal 1999 and 1998, respectively.
In May 1999, the Company sold 15,000 shares of Series 1999 A 7% Convertible
Preferred Stock, stated value $100 per share, to an institutional investor for
net proceeds of $1.4 million. The holder of the preferred stock was issued five-
year warrants to purchase 120,000 shares of Common Stock at $3.98 per share. All
of the Series 1999 A 7% Convertible Preferred Stock has been converted to the
Company's Common Stock.
In July 1999, the Company sold 500,000 shares of Common Stock to an
institutional investor in a private placement for $3.09 per share for net
proceeds of $1.5 million.
In December, 1999, the Company borrowed $1.5 million from The Berkshire Bank, a
subsidiary of Berkshire Bancorp Inc. This loan was guaranteed by Momar
Corporation in exchange for a five-year warrant to purchase up to 200,000 shares
of Common Stock at $1.25 per share. Mr. Moses Marx is a general partner in
United Equities (Commodities) Company, which is a principal stockholder of the
Company.
In February, 2000, the Company sold 15,000 shares of Series 2000 A 7%
Convertible Preferred Stock, stated value $100 per share, to institutional
investors for net proceeds of $1.4 million. The holders of the preferred stock
were issued five-year warrants to purchase up to 200,000 shares of common stock
at $2.66 per share. Included in the fee paid to the placement agent in
connection with the transaction were 20,000 shares of the Company's Common
Stock. Through November 1, 2000, 7,380 shares of the 2000 A 7% Convertible
Preferred Stock has been converted to the Company's Common Stock.
In February, 2000, the Company completed its acquisition of certain assets of
the sprayable Bt bioinsecticide business of Mycogen Corporation, an affiliate of
Dow AgroSciences LLP. The Company issued 1,351,351 shares of the Company's
common stock valued at $3,000,000 upon the closing of the transaction. Prior to
the closing, the Company acquired approximately $391,000 of Mycogen's inventory
of sprayable Bt products, under a distribution agreement effective January 1,
2000.
II-2
<PAGE>
Item 16. Exhibits.
-------
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation of Ecogen Inc. (Form 10-K for
fiscal quarter ended January 31, 1996)*
3.2 Bylaws of Ecogen Inc., as amended (Form S-1 Registration Statement)*
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)*
3.5 Corrected Certificate of Designations, Preferences and Rights of
Series 1999-A Convertible Preferred Stock (Form 10-Q for fiscal
quarter ended April 30, 1999)*
3.6 Certificate of Designations, Preferences and Rights of Series 2000-A
Convertible Preferred Stock (Form 10-K, for fiscal year ended October
31, 1999)*
4.3 Ecogen Inc. Stock Option Plan, as amended (Form 10-K, for fiscal year
ended October 31, 1999)*
4.4 Ecogen Inc. 1998 Stock Option Plan, as amended (Form 10-K, for fiscal
year ended October 31, 1999)*
4.5 Ecogen Inc. 1999 Stock option Plan, as amended (Form 10-K, for fiscal
year ended October 31, 1999)*
5.1 Opinion of counsel as to legality of securities being registered
10.14 Form of Confidentiality Agreement between Ecogen Inc. and all Ecogen
Inc. employees (Form S-1 Registration Statement)*
10.30 Lease Agreement, dated June 4, 1985, between Linpro Bucks County II,
Limited and Ecogen Inc. (Form S-1 Registration Statement)*
10.67 Bt Gene License Agreement, dated April 11, 1991, between Ecogen Inc.
and Pioneer Hi-Bred International, Inc. (Form S-1 Registration
Statement filed on May 1, 1991, as amended)*
10.88 Form of Technology License Agreement between Ecogen-Bio Inc. and
certain Program Subsidiaries (Form 10-K for fiscal year ended December
31, 1992)*
10.89 Form of Research and Development Agreement between Ecogen Inc. and
certain Program Subsidiaries (Form 10-K for fiscal year ended December
31, 1992)*
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 1-9579, File
No. 33-14119 in the case of the Form S-1 Registration Statement and File
No. 33-40319 in the case of the Form S-1 Registration Statement filed on May 1,
1991, as amended) and are made part of this Registration Statement.
II-3
<PAGE>
10.90 Form of Marketing Option Agreement between Ecogen Inc. and certain
Program Subsidiaries (Form 10-K for fiscal year ended December 31,
1992)*
10.119 Form of Incentive Stock Option Agreement, as amended (Form 10-K for
fiscal year ended October 31, 1994)*
10.122 Investment Agreement, dated as of January 24, 1996, between the
Company and Monsanto Company (Form 10-Q for fiscal quarter ended
January 31, 1996)*
10.123 Technology Assignment Agreement, dated as of January 24, 1996, between
the Company, Ecogen-Bio Inc. and Monsanto Company (Form 10-Q for
fiscal quarter ended January 31, 1996)*
10.125 Form of Indemnification Agreement for Directors and Officers (Form 10-
Q for fiscal quarter ended January 31, 1997)*
10.127 Amendment No. 1 to Technology Assignment by and between Monsanto
Company and Ecogen Inc. dated September 15, 1997 (Form 10-K for fiscal
year ended October 31, 1997)*
10.128 Convertible Note Purchase Agreement by and among Ecogen Inc., Ecogen
Investment Inc., Ecogen-Bio Inc. and United Equities (Commodities)
Company dated October 31, 1997 (Form 10-K for fiscal year ended
October 31, 1997)*
10.129 8% Convertible Note due October 31, 2002 issued to United Equities
(Commodities) Company dated October 31, 1997 (Form 10-K for fiscal
year ended October 31, 1997)*
10.130 Security Agreement by and among Ecogen Inc., Ecogen Investment Inc.,
Ecogen-Bio Inc. and United Equities (Commodities) Company dated
October 31, 1997 (Form 10-K for fiscal year ended October 31, 1997)*
10.132 Amended and Restated Research and Development Agreement dated January
30, 1998 by and between Monsanto Company and Ecogen Inc. (Form 10-Q
for fiscal quarter ended January 31, 1998)*
10.133 Asset Purchase and Sale Agreement among Ecogen Inc., Ecogen-Bio Inc.
and Scentry Biologicals Inc. dated April 28, 1998 ( Form 10-Q for
fiscal quarter ended April 30, 1998)*
10.134 Convertible Preferred Stock Purchase Agreement between United Equities
(Commodities) Company and Ecogen Inc. dated August 20, 1998 (Form 8-K
filed on September 2, 1998)*
10.135 Registration Rights Agreement between United Equities (Commodities)
Company and Ecogen Inc., dated August 20, 1998 (Form 8-K filed on
September 2, 1998)*
10.135 Loan and Security Agreement between Congress Financial Corporation and
Ecogen Inc., dated August 20, 1998 (Form 8-K filed on September 2,
1998)*
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 1-9579, File
No. 33-14119 in the case of the Form S-1 Registration Statement and File
No. 33-40319 in the case of the Form S-1 Registration Statement filed on May 1,
1991, as amended) and are made part of this Registration Statement.
II-4
<PAGE>
10.136 Guarantee by Ecogen Investments Inc., Ecogen Technologies I
Incorporated, Ecogen-Bio Inc., Ecoresearch Mildew I Inc., Ecoresearch
Harvest Rot II Inc., Ecoresearch Corn Borer III Inc., Ecoresearch
Nematodes IV Inc., Ecoresearch Rootworm V Inc. and Ecoresearch Turf VI
Inc. to Congress Financial Corporation, dated August 20, 1998 (Form 8-
K filed on September 2, 1998)*
10.138 Pledge and Security Agreement by Ecogen Inc. in favor of Congress
Financial Corporation, dated August 20, 1998 (Form 8-K filed on
September 2, 1998)*
10.139 Pledge and Security Agreement by Ecogen Technologies I Incorporated in
favor of Congress Financial Corporation dated August 20, 1998 (Form 8-
K filed on September 2, 1998)*
10.140 Amended and Restated Convertible Preferred Stock Purchase Agreement
between Ecogen Inc. and KA Investments LDC dated as of June 5, 1998
(Form S-3 Registration Statement filed on September 14, 1998)*
10.141 Warrant Agreement between Ecogen Inc. and KA Investments LDC dated
June 5, 1998 (Form S-3 Registration Statement filed on September 14,
1998)*
10.142 Amended and Restated Registration Rights Agreement between Ecogen Inc.
and KA Investments LDC dated as of June 5, 1998 (Form S-3 Registration
Statement filed on September 14, 1998)*
10.143 Stock Award Agreement between Ecogen Inc. and James P. Reilly, Jr.
dated September 23, 1998 (Form 10-K, for fiscal year ended October 31,
1999)*
10.145 Amended and Restated Stock Award Agreement between Ecogen Inc. and
James P. Reilly, Jr. dated as of April 9, 1999 (Form 10-Q for fiscal
quarter ended April 30, 1999)*
10.146 Warrant Agreement between Ecogen Inc. and KA Investments LDC dated May
12, 1999 (Form 10-Q for fiscal quarter ended April 30, 1999)*
10.147 Convertible Preferred Stock Purchase Agreement between Ecogen Inc. and
KA Investments LDC dated May 12, 1999 (Form 10-Q for fiscal quarter
ended April 30, 1999)*
10.148 Registration Rights Agreement between Ecogen Inc. and KA Investments
LDC dated May 12, 1999 (Form 10-Q for fiscal quarter ended April 30,
1999)*
10.149 Restated Severance Compensation Agreement, dated December 9, 1999,
between Ecogen Inc, a Delaware corporation and James P. Reilly, Jr.
(Form 10-K/A for fiscal year ended October 31, 1999)*
10.150 Term Loan and Security Agreement, dated as of December 23, 1999,
between Ecogen Inc. and The Berkshire Bank (Form 10-K/A for fiscal
year ended October 31, 1999)*
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 1-9579, File
No. 33-14119 in the case of the Form S-1 Registration Statement and File
No. 33-40319 in the case of the Form S-1 Registration Statement filed on May 1,
1991, as amended) and are made part of this Registration Statement.
II-5
<PAGE>
10.151 Warrant Agreement between Ecogen Inc. and Momar Corporation dated
December 23, 1999 (Form 10-K/A for fiscal year ended
October 31, 1999)*
10.152 Amendment No. 2 to Lease Agreement, dated December 17, 1999 by and
between Brandywine Realty and Ecogen Inc. (Form 10-K/A for fiscal year
ended October 31, 1999)*
10.153 Asset Purchase and License Agreement between Ecogen Inc. and Mycogen
Corporation dated as of February 15, 2000 (Current Report on Form 8-K
dated March 1, 2000)*
10.154 Stockholders Agreement between Ecogen Inc. and Mycogen Corporation
dated February 15, 2000 (Current Report on Form 8-K dated March 1,
2000)*
10.155 Purchase and Sale Agreement between Ecogen Inc. and Dow AgroSciences
LLC dated as of February 15, 2000 (Current Report on Form 8-K dated
March 1, 2000)*
10.156 Convertible Preferred Stock Purchase Agreement between Ecogen Inc. and
Amro International, S.A., Aspen International, Ltd. and Markham
Holdings Limited dated as of February 14, 2000 (Form 10-Q for fiscal
quarter ended January 31, 2000)*
10.157 Registration Rights Agreement between Ecogen Inc. and Amro
International, S.A., Aspen International, Ltd. and Markham Holdings
Limited dated as of February 14, 2000 (Form 10-Q for fiscal quarter
ended January 31, 2000)*
10.158 Warrant Agreement between Ecogen Inc. and Amro International, S.A.
dated February 14, 2000 (Form 10-Q for fiscal quarter ended January
31, 2000)*
10.159 Warrant Agreement between Ecogen Inc. and Aspen International, Ltd.
dated February 14, 2000 (Form 10-Q for fiscal quarter ended January
31, 2000)*
10.160 Warrant Agreement between Ecogen Inc. and Markham Holdings Limited
dated as of February 14, 2000 (Form 10-Q for fiscal quarter ended
January 31, 2000)*
23.1 Consent of KPMG LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of counsel (The Consent of counsel is included in Exhibit 5.1)
24.1 Powers of Attorney executed by certain officers of the Company and
individual members of the Board of Directors authorizing certain
officers of the Company to file amendments to the Company's
Registration Statement on Form S-1 are located on the signature page
to such Registration Statement
* These items are hereby incorporated by reference from the exhibits of the
filing or report indicated (except where noted, Commission File No. 1-9579, File
No. 33-14119 in the case of the Form S-1 Registration Statement and File
No. 33-40319 in the case of the Form S-1 Registration Statement filed on May 1,
1991, as amended) and are made part of this Registration Statement.
II-6
<PAGE>
Item 17. Undertakings.
-------
1) The undersigned registrant hereby undertakes:
a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
b) to include any prospectus required by section 10(a)(3) of the
Securities Act;
c) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
d) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs A(1)(i) and (ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13(a) or Section 15(d) of the Exchange
Act that are incorporated by reference in the Registration Statement.
2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director,
II-7
<PAGE>
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President and Chief Executive
/s/ James P. Reilly, Jr. Officer and Director (Principal November 29, 2000
------------------------
James P. Reilly, Jr. Executive Officer and Financial
Officer)
* Director November 29, 2000
------------------------
Esteban A. Ferrer
* Director November 29, 2000
------------------------
Philippe D. Katz
* Director November 29, 2000
------------------------
Lowell N. Lewis
* Director November 29, 2000
------------------------
John R. Sutley
</TABLE>
*The undersigned, by signing his name hereto, does sign this document on behalf
of himself and each of Mr. Ferrer, Mr. Katz, Dr. Lewis, and Mr. Sutley.
ECOGEN INC.
/s/ James P. Reilly, Jr.
---------------------------------
James P. Reilly, Jr.
President and Chief Executive Officer
November 29, 2000