<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the quarterly period ended March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ___________ to ___________
Commission File Number: 0-21975
ECO SOIL SYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
NEBRASKA 47-0709577
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10890 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
(Address, Including Zip Code, of Principal Executive Offices)
(619) 675-1660
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.005 PAR VALUE
(Title of Class)
Check whether the Registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 4, 1998 16,505,749 shares
of the Registrant's Common Stock, $.005 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE> 2
ECO SOIL SYSTEMS, INC.
FORM 10-QSB INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 2. Changes in securities and use of proceeds
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Eco Soil Systems, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
-------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 460 $ 3,125
Short-term investments, available-for-sale -- 3,000
Accounts receivable, net 17,790 10,148
Inventories 12,775 5,587
Prepaid expenses and other current assets 978 536
-------- --------
Total current assets 32,003 22,396
Property and equipment, net 2,036 1,150
Equipment under operating leases, net 6,483 6,735
Intangible assets, net 10,723 6,515
Other assets 472 312
-------- --------
Total assets $ 51,717 $ 37,108
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,136 $ 2,492
Accrued expenses 1,652 2,151
Deferred revenue 609 --
Current portion of long-term debt 1,329 1,259
Current portion of capital lease obligations 36 --
Current portion of advances from shareholders 1,525 14
-------- --------
Total current liabilities 18,287 5,916
Long-term debt, net of current portion 2,439 1,412
Capital lease obligations, net of current portion 145 --
-------- --------
Total liabilities 20,871 7,328
Shareholders' equity:
Preferred stock
$.005 par value; 5,000,000 shares authorized; -- --
none issued and outstanding
Common stock
$.005 par value; 25,000,000 shares authorized; 82 77
16,464,733 and 15,320,923 issued and outstanding at
March 31, 1998 and December 31, 1997, respectively
Additional paid-in capital 46,527 43,708
Warrants 230 242
Note receivable from shareholder (282) (282)
Accumulated deficit (15,711) (13,965)
-------- --------
Total shareholders' equity 30,846 29,780
-------- --------
Total liabilities and shareholders' equity $ 51,717 $ 37,108
======== ========
</TABLE>
See accompanying notes.
Note: The Balance Sheet at December 31, 1997 is derived from the audited
financial statements at that date but does not include all of the disclosures
required by generally accepted accounting principles.
3
<PAGE> 4
Eco Soil Systems, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Proprietary products $ 1,497 $ 1,144
Distributed products 6,912 2,785
-------- --------
Total revenues 8,409 3,929
Cost of revenues:
Proprietary products 523 214
Distributed products 5,180 2,040
-------- --------
Total cost of revenues 5,703 2,254
Gross profit 2,706 1,675
Operating expenses:
Selling, general and administrative 3,796 2,288
Research and development 99 135
-------- --------
Loss before interest, depreciation
and amortization (1,189) (748)
Depreciation (349) (68)
Amortization of intangibles (183) (217)
-------- --------
Loss from operations (1,721) (1,033)
Interest expense (95) (167)
Interest income 74 --
-------- --------
Net loss $ (1,742) $ (1,200)
======== ========
Net loss per share, basic and diluted $ (.11) $ (.12)
-------- --------
Shares used in calculating net
loss per share, basic and diluted 15,714 9,719
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
Eco Soil Systems, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,742) $ (1,200)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 532 285
Changes in operating assets and liabilities, net of
effect of acquired businesses:
Accounts receivable (3,294) (2,206)
Inventories (4,502) (4,071)
Prepaid expenses and other assets (442) 211
Accounts payable 4,996 1,728
Accrued liabilities (85) (98)
-------- --------
Net cash used in operating activities (4,537) (5,351)
-------- --------
INVESTING ACTIVITIES
Sale of short term investments 3,000 --
Payments related to acquired businesses (2,224) (1,288)
Purchase of property and equipment (350) (238)
-------- --------
Net cash provided by (used in) investing activities 426 (1,526)
-------- --------
FINANCING ACTIVITIES
Advances from (repayments to) shareholders 95 (369)
Repayments of long-term debt (145) (5,005)
Payments on capital lease obligations (3) (15)
Net proceeds from sale of common stock 1,512 13,792
Purchase of warrants (12) --
-------- --------
Net cash provided by financing activities 1,447 8,403
-------- --------
Net increase (decrease) in cash and cash equivalents (2,664) 1,526
Cash and cash equivalents at beginning of period 3,124 150
-------- --------
Cash and cash equivalents at end of period $ 460 $ 1,676
======== ========
</TABLE>
5
<PAGE> 6
ECO SOIL SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of Eco Soil Systems, Inc. (the "Company"), all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the three-month periods ended March 31, 1998
and 1997 have been made. The results of operations for the three-month period
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full fiscal year.
The accompanying consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997.
2. NET LOSS PER SHARE
In accordance with Financial Accounting Standards Board Statement No.
128, "Earnings per share" ("SFAS128") basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the Company such as common stock
which may be issuable upon exercise of outstanding common stock options,
warrants and preferred stock. These shares are excluded when their effects are
antidilutive. As required by SFAS 128, the Company has restated the March 31,
1997 loss per share presentation.
3. INVENTORY
Inventories consist of the following, (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw Materials .......... $ -- $ --
Work in process ........ 3,850 1,072
Finished goods ......... 8,970 4,645
Reserve ................ (45) (130)
------------ ------------
$ 12,775 $ 5,587
============ ============
</TABLE>
4. COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted this statement effective January 1, 1998,
and has no components of comprehensive income to report.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Management's Discussion and Analysis
that are not related to historical results are forward looking statements.
Actual results may differ materially from those projected or implied in the
forward statements. Further, certain forward looking statements are based upon
assumptions of future events which may not prove to be accurate. These forward
looking statements involve risks and uncertainties including but not limited to
those referred to below. See "Item 5. Other Information. Factors That Could
Affect Future Performance."
This information should be read in conjunction with the financial
statements and notes thereto included in Item 1 of this report for the quarter
ended March 31, 1998. Additionally, the financial statements and notes thereto
and Management's Discussion and Analysis in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997 will provide additional information.
FIRST QUARTER ENDED MARCH 31, 1998 COMPARED TO FIRST QUARTER ENDED MARCH 31,
1997
REVENUES
For the first quarter of 1998, revenues were $8.4 million, an increase of
114% versus $3.9 million for the first quarter of 1997. The increase in revenues
reflects an increase in both distributed and proprietary revenues.
For the first quarter of 1998, distributed revenues were $6.9 million, an
increase of 148% versus $2.8 million for the first quarter of 1997. The increase
in distributed revenues reflects the Company's acquisitions of Benham Chemical
Corporation and Cannon Turf Supply Inc. in March 1998 and the opening of new
branches.
For the first quarter of 1998, proprietary revenues were $1.5 million, an
increase of 31% versus $1.1 million for the first quarter of 1997. For the first
quarter of 1998, revenues from BioJect menu items, primarily microbes, were
$256,000, an increase of 140% versus $107,000 during the first quarter of 1997.
The increase in revenues from BioJect lease and menu items was due to an
increase in the installed base of BioJect systems from 238 at March 31, 1997 to
369 at March 31, 1998.
For the first quarter of 1998, revenues from SoluJect and CalJect systems
which were introduced in the third quarter of 1997 were $228,000.
For the first quarter of 1998, revenues from CleanRack and ClearLake
systems were $330,000, an increase of 263% versus $91,000 during the first
quarter of 1997. The increase reflects results of greater marketing efforts.
For the first quarter of 1998, revenues from Aspen Consulting Service were
$295,000, a decrease of 7% versus $315,000 during the first quarter of 1997.
For the first quarter of 1998, sales of other proprietary products, which
consisted primarily of fertilizer and nutrient sales, were $216,000, a decrease
of 1% versus $218,000 during the first quarter of 1997.
7
<PAGE> 8
GROSS PROFIT
For the first quarter of 1998, the Company's gross profit was $2.7 million,
an increase of 62% versus $1.7 million for the first quarter of 1997. The
increase in gross profit was due to the increase in both distributed and
proprietary revenues. For the first quarter of 1998, the Company's gross margin
was 32% versus 43% for the first quarter of 1997. The decline in the gross
margin was due to proportionally greater sales of distributed products, which
carry a lower margin. For the first quarter of 1998, the Company's gross profit
on distributed products was $1.7 million, an increase of 132% versus $745,000
for the first quarter of 1998. The increase in the gross profit on distributed
products was due to the previously discussed acquisitions. For the first quarter
of 1998, the gross margin on distributed products was 25% compared to 27% during
the first quarter of 1997. The decline in the gross margin on distributed sales
during the first quarter of 1997 was due to a change in the distributed product
mix.
For the first quarter of 1998, the gross profit on proprietary sales was
$974,000, an increase of 5% versus $930,000 during the first quarter of 1997.
The increase in the gross profit on proprietary sales was due to an increase in
the number of installed BioJect systems. For the first quarter of 1998, the
gross margin on proprietary sales was 65% compared to 81% during the first
quarter of 1997. The decline of the proprietary gross margin reflects the
increased sales of proprietary products that carry a lower margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
For the first quarter of 1998, selling, general and administrative ("SG&A")
expense was $3.8 million, an increase of 66% versus $2.3 million during the
first quarter of 1997. The increase in SG&A expense was due to additional
overhead costs associated with the previously discussed acquisitions.
RESEARCH AND DEVELOPMENT EXPENSE
For the first quarter of 1998, research and development ("R&D") expense was
$99,000, a decrease of 27% versus $135,000 during the first quarter of 1997. The
decline in R&D expense during the first quarter of 1998 reflects the Company's
emphasis on the engineering and manufacture of the BioJect system rather than
more traditional research and development efforts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations from revenues from sales of its
products, sales of its common stock, borrowing from its principal shareholders
and bank financing. The Company's operating and investing activities used cash
of $4.1 million during the three months ended March 31, 1998.
The Company presently has $5.0 million of borrowing capability from its
existing line of credit with Imperial Bank. The Company believes that it has
sufficient resources to finance its operations and future growth for at least
the next twelve months.
8
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
On March 26, 1998, the Company issued 239,929 shares of the
Company's common stock to the shareholders of Cannon Turf Supply Inc. ("Cannon
Turf") pursuant to an Agreement and Plan of Merger dated as of March 16, 1998
(the "Cannon Merger Agreement") by and among the Company, Turf Acquisition Sub,
Inc., a wholly owned subsidiary of the Company ("Cannon Merger Sub"), Cannon
Turf and the shareholders of Cannon Turf (the "Cannon Shareholders"). Pursuant
to the Cannon Merger Agreement, the Company issued to the Cannon Shareholders an
aggregate of 239,929 shares of the Company's common stock and $1,141,235 in cash
in exchange for all of the outstanding common stock of Cannon Turf. The issuance
of the Company's common stock in connection with the Cannon Merger Agreement was
effected pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), taking into
account the nature of the offering, the number of Cannon Shareholders, the
sophistication of the Cannon Shareholders, the representations of the Cannon
Shareholders that they acquired the common stock of the Company for their own
account and the absence of general solicitation of advertising.
ITEM 5. OTHER INFORMATION
RECENT ACQUISITIONS
In March 1998, the Company consummated a merger (the "Cannon
Merger") whereby it acquired all of the outstanding capital stock of Cannon Turf
from the Cannon Shareholders pursuant to the Cannon Merger Agreement. The Cannon
Merger was structured as a forward triangular merger intended to qualify as a
tax free reorganization. Pursuant to the Cannon Merger Agreement, Cannon Turf
was merged with and into Cannon Merger Sub whereupon the separate existence of
Cannon Turf ceased and Cannon Merger Sub remained a wholly owned subsidiary of
the Company. Cannon Merger Sub will continue the operations of Cannon Turf, a
golf and turf products supplier with operations in Illinois, Indiana, Kentucky,
Michigan, Ohio and Wisconsin. Through the acquisition of the outstanding capital
stock of Cannon Turf, the Company indirectly acquired all of Cannon Turf's
assets, which include, among other things, leases with respect to warehouses
located in Illinois, Indiana, Kentucky and Ohio, and certain tangible personal
property (including equipment) and inventory used in connection with the
operation of Cannon Turf's turf supply business.
In exchange for all of the outstanding capital stock of Cannon Turf,
the Company issued to the Cannon Shareholders an aggregate of 239,929 shares of
the Company's common stock and $1,141,235 in cash. The Company used proceeds
from its December 1997 public offering for the cash portion of the consideration
paid to the Cannon Shareholders. The Company also agreed to make certain
earn-out payments in equal parts cash and the Company's common stock based on
the EBITDA of Cannon Merger Sub for the years ending December 31, 1998 and 1999.
The maximum dollar value of the 1998 and 1999 earn-out payments would be
$895,047 and $1,167,453, respectively. The Company determined the amount of
consideration to be paid based on, among other things, an internal analysis of
the historical revenues and net income of Cannon Turf and an assessment of the
compatibility of Cannon Turf's business with the Company's existing distribution
business.
In March 1998, the Company also purchased all of the outstanding
capital stock ("the Benham Purchase") of Benham Chemical Corporation ("Benham
Chemical") from the sole shareholder of Benham Chemical (the "Benham
Shareholder") pursuant to a Stock Purchase Agreement dated as of January 21,
1998 (the "Purchase Agreement") by and among the Company, Benham Chemical and
the Benham Shareholder. Pursuant to the Benham Purchase, Benham Chemical became
a wholly-owned subsidiary of the Company. Benham Chemical will continue its
operations which include the supply of golf and turf products in Michigan.
Through the purchase of the common stock of Benham Chemical, the Company
indirectly acquired all of Benham Chemical's assets, which include, among other
things, certain tangible personal property (including equipment) and inventory
used in connection with the operation of Benham Chemical's business. In exchange
for all of the outstanding capital stock of Benham Chemical, the Company
delivered to the Benham Shareholder $850,000, a portion of which is held in
escrow for a period of eighteen months from the date of the closing of the
Benham Purchase. The Company used proceeds from its December 1997 public
offering for the consideration paid to the Benham Shareholder.
On April 30, 1998, the Company consummated a merger (the
"Agricultural Supply Merger") whereby it acquired all of the outstanding capital
stock of Agricultural Supply, Inc. ("ASI") from the shareholders of ASI
(collectively, the "ASI Shareholders") pursuant to an Agreement and Plan of
Merger dated as of April 30, 1998 (the "ASI Merger Agreement") by and among the
Company, Agricultural Acquisition Sub, Inc., a wholly owned subsidiary of the
Company ("ASI Merger Sub"), ASI and the ASI Shareholders. Similar to the Cannon
Merger described above, the ASI Merger was structured as a forward triangular
merger intended to qualify as a tax free reorganization. Pursuant to the ASI
Merger Agreement, ASI was merged with and into ASI Merger Sub whereupon the
separate existence of ASI ceased and ASI Merger Sub remained a wholly owned
subsidiary of the Company. ASI Merger Sub will continue the operations of ASI,
which include the distribution and supply of irrigation equipment, spare parts
and supplies, fertilizer and control products to commercial and agricultural
growers in Southern California and Mexico. Through the acquisition of the
outstanding capital stock of ASI, the Company indirectly acquired all of ASI's
assets, which include, among other things, leases with respect to warehouses
located in southern California and Mexico, and certain tangible personal
property (including equipment) and inventory used in connection with the
operation of ASI's business.
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In exchange for all of the outstanding capital stock of ASI, the
Company delivered to the ASI Shareholders an aggregate of $456,000 in cash and
agreed to issue to the ASI Shareholders an aggregate of 225,284 shares of the
Company's common stock subject to the completion of an audit of ASI's financial
statements and subject to customary post-closing adjustments. The Company used
proceeds from its December 1997 public offering for the cash portion of the
consideration paid to the ASI Shareholders. The Company also agreed to make
certain earn-out payments in the form of the Company's common stock based on the
EBITDA of ASI Merger Sub for the years ending December 31, 1998 and 1999. The
maximum dollar value of the 1998 and 1999 earn-out payments would be $680,236
and $770,565, respectively. The Company determined the amount of consideration
to be paid based on, among other things, an internal analysis of the historical
revenues and net income of ASI, an assessment of the compatibility of ASI's
business with the Company's existing distribution business and the historical
revenues of the Company derived from agricultural markets.
FACTORS THAT COULD AFFECT FUTURE PERFORMANCE
This report contains certain forward looking statements about the
business and financial condition of the Company, including various statements
contained in "Management's Discussion and Analysis or Plan of Operation." The
actual results of the Company could differ materially from any forward looking
statements contained herein. The following information sets forth certain
factors that could cause the actual results to differ materially from those
contained in the forward looking statements. For a more detailed discussion of
the factors that could cause actual results to differ, see "Item 1: Business --
Factors That Could Affect Future Performance" in the Company's Form 10-KSB for
the fiscal year ended December 31, 1997.
At March 31, 1998 the Company had an accumulated deficit of $15.7
million. The Company has been principally engaged in organizational activities,
research and development, licensing activities, product introductions and the
establishment of a sales and marketing organization. The Company's recent losses
have resulted in part from expenditures for product development, U.S. patent
protection and sales and marketing expenses, including the costs of the
Company's recent dealer acquisitions.
In order to expand its business and achieve significant growth in
sales, the Company must continue to broaden its sales and marketing capability
and increase the size of its customer base, in part through the acquisition of
independent dealers and distributors. Although sales of certain of the Company's
products are growing, some of the Company's products and operations remain
in the early stages of market introduction and are subject to the risks inherent
in the commercialization of new product concepts. These risks include unforeseen
problems, delays, expenses and complications frequently encountered in the early
phases of research, development and commercialization of products, and expenses
associated with hiring and training additional sales, marketing and customer
service personnel.
Distribution and sales of the Company's products have historically
occurred through direct sales efforts and independent dealers and distributors.
The Company has initiated a strategy of attempting to establish a nationwide
distribution system for its products through the acquisition of various
independent dealers and distributors. Any failure to identify acquisition
candidates properly, any large expenditures on acquisitions that prove to be
unprofitable, or any inability to sell the Company's proprietary products
through the acquired distribution system could have a material adverse effect on
the Company's business, financial position and results of operations.
The Company's success will be dependent in large measure upon its
ability to obtain and enforce patent protection for its products, maintain
confidentiality of its trade secrets and know-how and operate without infringing
upon the proprietary rights of third parties. Despite precautions taken by the
Company, it may be possible for a third party to copy or otherwise obtain or use
the Company's products or technology without authorization, or to develop
similar products or technology independently.
10
<PAGE> 11
The Company plans to acquire the rights to additional microbial
products. The Company does not engage in its own research and development with
respect to microbial products. Although the Company is actively seeking to
obtain licenses for additional microbial products, there can be no assurance
that the Company will be successful in obtaining any such licenses on terms
acceptable to the Company, if at all.
The Company may be exposed to liability resulting from the commercial
use of its products. Such liability might result from claims made directly by
customers or others manufacturing such products on behalf of the Company. The
Company currently carries a product liability insurance policy with an aggregate
limit of $7,000,000. There can be no assurance, however, that such product
liability insurance will adequately protect the Company against any product
liability claim. A product liability or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business and prospects of the Company.
Some states have laws imposing liability on certain parties for the
release of fertilizers and other agents into the environment in certain manners
or concentrations. Such liability could include, among other things,
responsibility for cleaning up the damage resulting from such a release. In
addition, the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), commonly known as the "Superfund" law, and other
applicable laws impose liability on certain parties for the release into the
environment of hazardous substances, which might include fertilizers and water
treatment chemicals. The Company is also subject to certain other environmental
laws, including the Environmental Protection Act, the Toxic Substance Control
Act, the Resource Conservation and Recovery Act, the Clean Air Act and the Clean
Water Act and may be subject to other present and potential future federal,
state or local regulations. The Company does not currently maintain insurance
for any environmental claims which might result from the release of its products
into the environment in a manner or in concentrations not permitted by law.
Thus, a claim for environmental liability could have a material adverse effect
on the Company.
The Company competes for market share with a number of companies that
manufacture and market chemical compounds. In addition, a number of companies
are developing biological and organic products for turf maintenance. Many of
these competitors have substantially greater capital resources, research and
development staffs and facilities than the Company, and many of these
competitors have extensive experience in turf maintenance. The fields of
biotechnology and related technologies in which the Company is engaged have
undergone rapid and significant technological changes. The Company expects that
the technologies associated with its research and development will continue to
develop rapidly. There can be no assurance that the Company will be able to
establish itself in such fields or, if established, that it will be able to
maintain a competitive position. Further, there can be no assurance that the
development by others of new or improved processes or products will not make the
Company's products and processes less competitive or obsolete.
The Company is dependent upon the active participation of William B.
Adams, its Chairman of the Board and Chief Executive Officer, and Douglas M.
Gloff, its President and Chief Operating Officer. The loss of the services of
either of these individuals could have a material adverse effect upon the
Company's future operations. The Company's success depends in large part on its
ability to attract and retain qualified scientific, financial and management
personnel. The Company faces competition for such persons from other companies,
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in recruiting or retaining
personnel of the requisite caliber or in adequate numbers to enable it to
conduct its business as proposed.
11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits:
27.1. Financial Data Schedule
No reports on Form 8-K were filed with the SEC during the three months ended
March 31, 1998.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Eco Soil Systems, Inc.
Date: May 15, 1998 By: /s/ William B. Adams
----------------------------
William B. Adams
Chairman and Chief Executive
Officer
Date: May 15, 1998 By: /s/ L. Jean Dunn, Jr.
----------------------------
L. Jean Dunn, Jr.
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 460
<SECURITIES> 0
<RECEIVABLES> 18,106
<ALLOWANCES> 316
<INVENTORY> 12,775
<CURRENT-ASSETS> 32,003
<PP&E> 8,519
<DEPRECIATION> 349
<TOTAL-ASSETS> 51,717
<CURRENT-LIABILITIES> 18,287
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 30,764
<TOTAL-LIABILITY-AND-EQUITY> 51,717
<SALES> 8,409
<TOTAL-REVENUES> 8,409
<CGS> 5,703
<TOTAL-COSTS> 5,703
<OTHER-EXPENSES> 4,448
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> (1,742)
<INCOME-TAX> 0
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</TABLE>
