<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 1996 Commission File Number: 0-19746
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ECOSCIENCE CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction incorporation or organization)
04-2912632
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(I.R.S. Employer Identification No.)
10 ALVIN COURT, EAST BRUNSWICK, NEW JERSEY 08816
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(Address of principal executive offices, including zip code)
908-432-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 11, 1996
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Common Stock, par value $.01 per share 10,382,177
Total Number of Sequentially Numbered Pages: 18 Exhibit Index on Page: 17
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ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
PAGE
----
PART I. - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996 3
Consolidated Statements of Operations -
Three Months Ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 14
PART II. - OTHER INFORMATION 15
SIGNATURES 16
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ECOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, June 30,
1996 1996
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 358 $ 734
Short-term investments. . . . . . . . . . . . . . . . 702 700
Restricted cash, cash equivalents and short-term
investments . . . . . . . . . . . . . . . . . . . . 1,205 1,205
Accounts receivable, less reserves of $131 at
September 30, 1996 and $118 at June 30, 1996. . . . 1,702 1,552
Interest receivable . . . . . . . . . . . . . . . . . 33 32
Inventories . . . . . . . . . . . . . . . . . . . . . 2,288 2,001
Other current assets. . . . . . . . . . . . . . . . . 520 795
-------- ---------
Total current assets. . . . . . . . . . . . . . . . 6,808 7,019
-------- ---------
Property and equipment, net . . . . . . . . . . . . . . 642 998
Intangible assets, net. . . . . . . . . . . . . . . . . 1,898 1,949
Other noncurrent assets . . . . . . . . . . . . . . . . 138 145
-------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . $ 9,486 $ 10,111
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of noncurrent liabilities. . . . . $ 1,051 $ 2,441
Accounts payable. . . . . . . . . . . . . . . . . . . 2,583 2,347
Accrued restructuring costs . . . . . . . . . . . . . 674 730
Accrued expenses and other current liabilities. . . . 1,396 1,809
-------- ---------
Total current liabilities . . . . . . . . . . . . . 5,704 7,327
-------- ---------
Noncurrent liabilities:
Long-term debt and capital leases, less current
maturities. . . . . . . . . . . . . . . . . . . . . 9 11
Other long-term liabilities . . . . . . . . . . . . . 300 300
-------- ---------
Total noncurrent liabilities. . . . . . . . . . . . 309 311
-------- ---------
Commitments and contingencies . . . . . . . . . . . . . - -
Stockholders' investment:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued and outstanding . . . . . . - -
Common stock, $.01 par value, 25,000,000 shares
authorized; 10,382,177 and 9,342,177 shares issued
and outstanding at September 30, 1996 and
June 30, 1996, respectively . . . . . . . . . . . . 104 93
Additional paid-in capital. . . . . . . . . . . . . . 57,186 56,077
Accumulated deficit . . . . . . . . . . . . . . . . . (53,818) (53,697)
Unrealized gain on short-term investments . . . . . . 1 -
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Total stockholders' investment. . . . . . . . . . . 3,473 2,473
-------- ---------
Total liabilities and stockholders' investment. . . $ 9,486 $ 10,111
-------- ---------
-------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended September 30,
--------------------------------
1996 1995
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(Unaudited)
Product sales . . . . . . . . . . . . . . . . . $ 4,508 $ 4,095
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Cost of goods sold. . . . . . . . . . . . . . . 3,405 3,147
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Gross profit. . . . . . . . . . . . . . . . . . 1,103 948
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Operating expenses:
Research and development. . . . . . . . . . 128 312
Selling and marketing . . . . . . . . . . . 578 594
General and administrative. . . . . . . . . 545 505
Reversal of restructuring charge. . . . . . (77) -
Other . . . . . . . . . . . . . . . . . . . 17 (4)
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Total operating expenses. . . . . . . 1,191 1,407
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Operating loss. . . . . . . . . . . . . . . . . (88) (459)
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Other income (expense):
Research, development, licensing
fees and other income . . . . . . . . . 7 19
Investment income . . . . . . . . . . . . . 34 80
Interest and other expense. . . . . . . . . (74) (256)
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Total other expense . . . . . . . . . (33) (157)
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Net loss. . . . . . . . . . . . . . . . . . . . $ (121) $ (616)
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Net loss per common share . . . . . . . . . . . $ (0.01) $ (0.07)
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Weighted average number of common
shares outstanding . . . . . . . . . . . . 9,387 8,842
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
September 30,
-------------------------
1996 1995
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(Unaudited)
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . $ (121) $ (616)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization. . . . . . 98 166
Loss on sale of investments . . . . . . - 10
Gain on sale of property and equipment . - (1)
Reversal of restructuring charges. . . . (77) -
Foreign exchange loss (gain) . . . . . . 7 (19)
Changes in current assets and liabilities:
Accounts and interest receivable . . . (150) (763)
Inventories. . . . . . . . . . . . . . (287) (358)
Other current assets . . . . . . . . . 275 13
Accounts payable and accrued expenses. (184) 848
Accrued restructuring costs. . . . . . (56) (875)
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Net cash used for operating activities. . . (495) (1,595)
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Cash flows from investing activities:
Purchases of property and equipment . . . . (19) (49)
Proceeds from sale of short-term
investments. . . . . . . . . . . . . . . - 3,349
Decrease in other noncurrent assets . . . . 7 4
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Net cash (used for) provided by
investing activities . . . . . . . . . (12) 3,304
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Cash flows from financing activities:
Proceeds from issuance of stock . . . . . . 1,119 1
Proceeds from long-term debt. . . . . . . . - 11
Payments on long-term debt and capital leases (988) (454)
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Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . 131 (442)
Effect of exchange rate changes on cash . . . . - (4)
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(Decrease) increase in cash and cash equivalents (376) 1,263
Cash and cash equivalents at beginning of period 734 561
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Cash and cash equivalents at end of period . . $ 358 $ 1,824
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--------- ----------
Total unrestricted and restricted cash, cash
equivalents and short-term investments at
end of period . . . . . . . . . . . . . . . . $ 2,265 $ 5,791
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . $ 88 $ 241
Income taxes. . . . . . . . . . . . . . . . 11 17
Non-cash investing and financing activities:
Disposition of equipment under capital lease 308 -
Termination of capital lease obligation . . (1,248) -
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. OPERATIONS
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Dynamics, Inc. and Agro Dynamics
Canada Inc. (collectively, "AGRO") and EcoScience Produce Systems Corp.
("EPSC") are engaged in the development and commercialization of natural
pest control products, naturally derived coatings to preserve food quality
and extend the shelf life of fruits and vegetables, and the marketing and
distribution of advanced technologies, products, growing systems and
services for the intensive farming, horticulture and produce packing
industries. The Company derives a major portion of its revenues from the
sale of growing medium products to the North American intensive farming and
horticulture industries, and sorting, grading and packing equipment to the
produce packing industry, and to a lesser extent from the sale of
postharvest coating products to the fresh fruit and vegetable markets
throughout the western hemisphere.
The Company historically has devoted substantially all of its efforts
toward new product research and development, and the manufacture, marketing
and distribution of products developed, acquired or licensed.
Substantially all revenues generated by the Company prior to the
acquisition of AGRO were from collaborative research and development
arrangements and investment income. The Company introduced its first two
products, the Bio-Path-Registered Trademark- Cockroach Control Chamber and
Nature Seal-Registered Trademark-, in June 1993. In March 1995, the
Company began marketing its third product, Bio-SaveTM PostHarvest
BioProtectant. In August 1995, the Company introduced its fourth product,
Bio-BlastTM Biological Termiticide. The Company is subject to a number of
risks similar to those of other companies in similar stages of development,
including dependence on key individuals, competition from other products
and companies, the necessity to develop, register, and manufacture
commercially usable products, the ability to achieve profitable operations
and the need to raise additional funds through public or private debt or
equity financing. The Company has ceased production of the first
generation Bio-Path Cockroach Control Chamber. The Company has completed
formulation of a second generation product, which has not yet received EPA
approval, and is seeking contractors for reduced cost toll manufacturing.
The Company is currently seeking partners to market the second generation
product.
The Company believes its cash and short-term investments as of September
30, 1996, together with the proceeds from the equity offering and funds
available under its existing or potential replacement revolving line of
credit, along with revenues from product sales will be sufficient to
finance the Company's working capital needs for at least the next twelve
months. At such time, the Company may need to raise additional funds
through public or private debt or equity financing, although there can be
no assurances that such funds will be available on terms favorable to the
Company, if at all. The Company is continuing to explore potential
mergers, joint ventures, and various other strategic options, which are
aimed at enhancing stockholder value and the long-term commercial viability
of the Company.
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2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company and reflect all adjustments, consisting of only
normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of financial results for the three month
periods ended September 30, 1996 and 1995, in accordance with generally
accepted accounting principles for interim financial reporting and pursuant
to Article 10 of Regulation S-X. Certain information and footnote
disclosures normally included in the Company's annual audited consolidated
financial statements have been condensed or omitted pursuant to such rules
and regulations.
The results of operations for the three month periods ended September 30,
1996 and 1995 are not necessarily indicative of the results of operations
to be expected for a full fiscal year. These interim consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements for the fiscal year ended June 30, 1996, which are
included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
The accompanying interim consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, AGRO and EPSC.
All material intercompany transactions and balances have been eliminated in
consolidation. The financial statements for the three months ended
September 30, 1996 contain certain reclassifications to conform with the
current year basis of presentation.
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 disclosures of
contingent assets and liabilities as of the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
3. INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market and consist of the following:
September 30, June 30,
1996 1996
--------- ---------
(IN THOUSANDS)
Raw materials. . . . . . . . . . . . . . $ 324 $ 226
Work in process. . . . . . . . . . . . . - -
Finished goods . . . . . . . . . . . . . 1,964 1,775
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$ 2,288 $ 2,001
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-------- --------
Work in process and finished goods include material, labor and
manufacturing overhead.
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4. DEBT AND LEASES
On June 30, 1994, the Company sold certain manufacturing equipment and
leasehold improvements with an original cost of approximately $3,800,000 to
a financing company. The Company, in turn, leased the equipment and
improvements back from the financing company. The lease was accounted for
as a capital lease obligation. The lease bore interest at an effective
rate of approximately 14% and had been payable in monthly installments of
principal and interest of approximately $88,000 over 50 months. In October
1995, the Company made an advance payment of approximately $1,135,000,
which satisfied the total amount of the obligation outstanding under rental
schedule No. 2 to the lease. The Company continued to make the remaining
monthly payments of approximately $55,000 under rental schedule No. 1 to
the lease, until the remaining obligation was fully satisfied on September
27, 1996, with the proceeds from an equity offering described in Note 5.
Pursuant to a lease settlement agreement dated August 8, 1996, between the
Company and the financing company, the Company paid $880,000 to satisfy the
remaining capital lease obligation under rental schedule No. 1 of
approximately $1,248,000 of principal and $17,000 of accrued interest, and
returned certain leased equipment with a net book value of $308,000 to the
financing company on September 27, 1996, which resulted in a reversal of
restructuring charge of $77,000. The Company reclassified $880,000 from
"long-term debt and capital leases" to "current maturities of noncurrent
liabilities" in the consolidated balance sheet to reflect the impact of
this agreement as of June 30, 1996.
On October 28, 1994, the Company and AGRO entered into a revolving line of
credit with a bank, under which AGRO may borrow up to the lesser of
$1,500,000 or the sum of 75% of eligible accounts receivable and 25% of
eligible inventories up to a maximum of $250,000 on a revolving basis for
working capital needs. Funds borrowed under the revolving line of credit
have borne interest at a rate of prime (8.25% at September 30, 1996) plus
1.5% and are secured by all assets of AGRO and all the outstanding common
stock of AGRO owned by the Company. Interest on funds borrowed under the
revolving line of credit is payable monthly in arrears and repayment of
principal was originally due on January 5, 1996. On October 5, 1995, the
Company and the bank entered into an amendment to the revolving line of
credit agreement pursuant to which the bank, among other modifications,
extended the expiration date of the credit agreement from January 5, 1996
to July 5, 1996, and any principal amounts outstanding, together with
accrued interest thereon, were due on such date.
On July 5, 1996, September 5, 1996 and October 5, 1996, the Company and the
bank entered into three amendments to the revolving line of credit
agreement pursuant to which the bank extended the expiration date of the
credit agreement from July 5, 1996 to December 15, 1996 on the same terms,
and any principal amounts outstanding, together with accrued interest
thereon, are due on December 15, 1996. The Company is currently
negotiating with the bank certain modifications to the terms of the
revolving line of credit which include, but are not limited to, an increase
in the borrowing capacity, elimination of the cash collateral coverage
requirement, financial covenants and extension of the repayment and
expiration dates of the credit agreement. In addition, the Company has
received term sheets from financial institutions to replace the existing
revolving line of credit with a proposed credit facility structure that
meets the Company's requirements for the foreseeable future. The Company
believes that it will obtain either a modification and extension to the
existing revolving line of credit agreement or secure another financing
arrangement which has terms no less favorable than those contained in the
current revolving line of credit agreement in fiscal 1997.
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5. STOCKHOLDERS' INVESTMENT
On September 27, 1996, the Company sold 1,040,000 unregistered shares of
common stock in a Regulation D offering. Net proceeds realized from the
equity offering totaled $1,119,000 after placement agent fees and expenses
and Company expenses totaling $181,000. In connection with the offering,
the Company also issued a warrant to purchase 156,000 shares of its common
stock at $2.00 per share to the placement agent. The Company agreed to
register the shares of the offering and the warrant within nine months of
the offering date under the Securities Act of 1933.
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ECOSCIENCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a marketing, sales and product development company servicing the
needs of the agricultural specialties markets and professional pest control
operators ("PCO"). The Company provides (i) sophisticated growing systems to
greenhouse operators, (ii) technologically advanced sorting, grading and packing
equipment to produce packers, (iii) equipment, coatings and disease control
products, including all natural biologicals for protecting fruits, vegetables
and ornamentals in storage and transit to market, and (iv) unique biological
pest control products to PCO. The Company focuses on the technical marketing of
agricultural specialties products and services, and the development of
biological pest control products.
The Company serves the specialty agriculture market through its subsidiaries:
AGRO and EPSC. On November 18, 1992, EcoScience acquired all of the outstanding
capital stock of AGRO, an East Brunswick, New Jersey based company that designs
and markets products and growing systems for the North American horticulture
industry. AGRO also sells technologically advanced products and services for
intensive farming. On May 24, 1994, the Company acquired certain assets and
liabilities of American Machinery Corporation ("AMC"), an Orlando, Florida based
business that provides postharvest coating products and services to the fresh
fruit and vegetable markets throughout the United States, the Caribbean, Central
America and South America. Concurrent with the acquisition of AMC, the Company
formed EPSC to combine the AMC product line and operating unit with its existing
activities in those markets. EcoScience sells to PCO through marketing
collaborations with Terminix International Company L.P. ("Terminix") and Maruwa
Biochemical Co., Ltd. ("Maruwa Biochemical").
The Company's primary products are (i) advanced growing systems based on
Stonewool-Registered Trademark- manufactured by Grodania A/S, (ii) sophisticated
sorting, grading and packing equipment manufactured by Aweta, B.V., (iii)
computerized environmental and irrigation control systems manufactured by H.
Hoogendoorn Automation B.V., (iv) PacRite-Registered Trademark- and Indian
River Gold TM coatings manufactured by EPSC, (v) the Bio-SaveTM
PostHarvest BioProtectant line of products and (vi) the Bio-BlastTM Biological
Termiticide manufactured by EcoScience. In addition, the Company distributes a
broad array of specialty products used in greenhouses and in fruit, vegetable
and ornamental packing.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 VS.
THREE MONTHS ENDED SEPTEMBER 30, 1995
The Company's product sales increased $413,000 or 10% to $4,508,000 for the
three months ended September 30, 1996 from $4,095,000 for the same period in
1995. These increases were due to the increases in product sales by AGRO of
$231,000, EPSC of $122,000 and EcoScience of $60,000.
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The following table sets forth the Company's product sales by operating company
for the three months ended September 30, 1996 and 1995:
Three Months Ended
September 30,
----------------------------------
1996 1995 Increase
---- ---- --------
(IN THOUSANDS)
AGRO . . . . . . . . . . . . . . . . $ 3,815 $ 3,584 $ 231
EPSC . . . . . . . . . . . . . . . . 592 470 122
EcoScience . . . . . . . . . . . . . 101 41 60
------- ------- -------
Consolidated . . . . . . . . . . $ 4,508 $ 4,095 $ 413
------- ------- -------
------- ------- -------
AGRO is the exclusive distributor in the United States and Canada of the Grodan
brand of stonewool, which is an inert growing medium supplied by Grodania A/S,
a Danish Company. The sale of products under the distribution agreement with
Grodania accounted for 33% and 39% of the Company's total product sales for the
three months ended September 30, 1996 and 1995, respectively. AGRO is also the
exclusive distributor of sophisticated sorting, grading and packing equipment,
manufactured by Aweta B.V., a Netherlands based company, to the fruit, vegetable
and flower markets in the United States, Canada, Mexico and the Caribbean. The
sale of products and equipment under this distribution agreement accounted for
28% and 39% of total product sales for the three months ended September 30, 1996
and 1995, respectively. Although there are a limited number of sources of the
particular growing medium products that are sold under the Grodania distribution
agreement, and sorting, grading and packing equipment under the Aweta
distribution agreement, the Company believes that other suppliers could provide
similar products on comparable terms. A change in suppliers, however could
cause a delay in filling orders as well as a possible loss of sales, which would
adversely affect operating results. The Company believes that revenues under
these distribution agreements will each account for more than 10% of the
Company's product sales in fiscal 1997.
Cost of goods sold increased $258,000 or 8% to $3,405,000 for the three months
ended September 30, 1996 from $3,147,000 for the same period in 1995 due
primarily to the increases in AGRO's and EcoScience's cost of goods sold of
$245,000 and $17,000, respectively, offset by a $4,000 decrease in EPSC's cost
of goods sold. AGRO's and EcoScience's increases in cost of goods sold resulted
primarily from increases in sales volume.
Gross profit on product sales increased $155,000 or 16% to $1,103,000 for the
three months ended September 30, 1996 from $948,000 for the same period in 1995,
while gross profit percentage on product sales increased to 25% for the three
months ended September 30, 1996 from 23% for the same period in 1995, due
primarily to EcoScience's and EPSC's reduced product costs.
Research and development expenses decreased $184,000 or 59% to $128,000 for the
three months ended September 30, 1996 from $312,000 for the same period in 1995
due primarily to reductions in personnel and related costs at EcoScience and
EPSC. The Company has and will continue to incur ongoing research and
development expenses for its Bio-SaveTM PostHarvest BioProtectant, Bio-BlastTM
Biological Termiticide and other select programs in fiscal 1997.
Selling and marketing expenses decreased $16,000 or 3% to $578,000 for the three
months ended September 30, 1996 from $594,000 for the same period in 1995 due
primarily to a decrease in EPSC's selling and marketing expenses of $71,000 and
an increase of $53,000 at
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AGRO. The decrease in EPSC's selling and marketing expenses for the three months
ended September 30, 1996 was primarily attributable to the continued reduction
of selling and marketing department personnel and related costs. The increase
in AGRO's selling and marketing expenses was primarily due to additional
personnel and related costs to support higher product sales.
General and administrative expenses increased $40,000 or 8% to $545,000 for the
three months ended September 30, 1996 from $505,000 for the same period in 1995
due primarily to the increase in EcoScience's general and administrative
expenses of $91,000, which was partially offset by a decrease in such expenses
for AGRO and EPSC of $11,000 and $40,000, respectively. The increase in
EcoScience's general and administrative expenses in the three months ended
September 30, 1996 was primarily attributable to personnel and related costs,
and professional expenses. The decrease in EPSC's general and administrative
expenses was primarily attributable to personnel and related costs.
In August 1996, the Company and a finance company reached a lease settlement
agreement under which the Company paid $880,000 to satisfy the remaining lease
obligation of approximately $1,248,000 of principal and $17,000 of accrued
interest, and returned certain leased equipment with a net book value of
$308,000 to the financing company, which resulted in a reversal of restructuring
charge of $77,000.
Operating loss decreased $371,000 or 81% to $88,000 for the three months ended
September 30, 1996 as compared to an operating loss of $459,000 for the same
period in 1995. The reduction in operating loss resulted from a $155,000
increase in gross profit and a $216,000 reduction of total operating expenses in
the three months ended September 30, 1996 as compared to the same period in
1995.
Other income/expense decreased $124,000 or 79% to $33,000 net expense in the
three months ended September 30, 1996 as compared to $157,000 net expense for
the same period in 1995. The decrease was primarily attributable to (i) a
reduction in interest and other expenses of $182,000 or 71% to $74,000, due
primarily to the decrease in interest expense resulting from the lower average
level of long-term debt and capital lease obligations outstanding during the
three months ended September 30, 1996 as compared to the same period in 1995,
and (ii) a decrease in investment income of $46,000, resulting from a decline in
the average funds available for investment for the three months ended September
30, 1996 as compared to the same period in 1995.
The Company's net loss decreased $495,000, 80% or $0.06 per share to $121,000 or
$0.01 per share for the three months ended September 30, 1996 as compared to a
net loss of $616,000 or $0.07 per share for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception the Company's cash expenditures have exceeded its revenues. The
Company's operations have been funded through public and private placements of
its equity securities, bank loans and lease financing, revenues from product
sales, licensing, collaborative research and development arrangements, and
investment income. In conjunction with the asset valuation and restructuring
charges recorded in 1995, the Company implemented and substantially completed in
fiscal 1996 a program to reduce its operating losses and to conserve its cash
resources for use in the Company's operating businesses. This restructuring
program has significantly reduced research and development and general and
administrative costs from historical levels. In the three months ended
September 30, 1996, the Company funded $56,000 of accrued restructuring costs
that had been recorded in 1994 and 1995. The funded amount consisted of $38,000
related to employee severance benefits and $18,000 related to other contractual
liabilities. The balance of accrued restructuring costs, $974,000 (total
current and noncurrent portions), as of September 30, 1996, is expected to be
funded in 1997 and beyond. The Company expects to incur administrative,
business development and
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<PAGE>
commercialization expenditures in the future as it advances the development,
manufacturing, and marketing of Bio-Blast and Bio-Save products. In addition,
the Company expects to incur incremental costs associated with its plans to
expand product lines at AGRO. The Company may also use cash to acquire
technology, products or companies that support the strategy of the Company.
Cash and cash equivalents were $358,000 at September 30, 1996, compared to
$734,000 at June 30, 1996. Unrestricted and restricted cash, cash equivalents,
and short-term investments totaled $2,265,000, compared to $2,639,000 at June
30, 1996. Cash flows used for operating activities totaled $495,000 and are
principally represented by (i) an increase in accounts and interest receivable
of $150,000; (ii) an increase in inventory of $287,000; (iii) a decrease in
accounts payable and accrued expenses of $184,000; partially offset by a
decrease in other current assets of $275,000. Cash flows provided by financing
activities totaled $131,000 in the three months ended September 30, 1996, which
consisted principally of proceeds from issuance of common stock of $1,119,000
and payments of $988,000 on debt and capital leases. Cash flows used for
investment activities for the three months ended September 30, 1996 totaled
$12,000. The Company's working capital and current ratio were $1,104,000 and
1.2 to 1, respectively, at September 30, 1996, compared to ($308,000) and 0.9 to
1, respectively, at June 30, 1996.
On June 30, 1994, the Company sold certain manufacturing equipment and leasehold
improvements with an original cost of approximately $3,800,00 to a financing
company. The Company, in turn, leased the equipment and improvements back from
the financing company. The lease was accounted for as a capital lease
obligation. The lease bore interest at an effective rate of approximately 14%
and had been payable in monthly installments of principal and interest of
approximately $88,000 over 50 months. In October 1995, the Company made an
advance payment of approximately $1,135,000, which satisfied the total amount of
the obligation outstanding under rental schedule No. 2 to the lease. The
Company continued to make the remaining monthly payments of approximately
$55,000 under rental schedule No. 1 to the lease, until the remaining obligation
was fully satisfied on September 27, 1996, with the proceeds from an equity
offering described in Note 5. Pursuant to a lease settlement agreement dated
August 8, 1996, between the Company and the financing company, the Company paid
$880,000 to satisfy the remaining capital lease obligation under rental schedule
No. 1 of approximately $1,248,000 of principal and $17,000 of accrued interest,
and returned certain leased equipment with a net book value of $308,000 to the
financing company on September 27, 1996, which resulted in a reversal of
restructuring charge of $77,000. The Company reclassified $880,000 from
"long-term debt and capital leases" to "current maturities of noncurrent
liabilities" in the consolidated balance sheet to reflect the impact of this
agreement as of June 30, 1996.
On October 28, 1994, the Company and AGRO entered into a revolving line of
credit with a bank, under which AGRO may borrow up to the lesser of $1,500,000
or the sum of 75% of eligible accounts receivable and 25% of eligible
inventories up to a maximum of $250,000 on a revolving basis for working capital
needs. Funds borrowed under the revolving line of credit have borne interest at
a rate of prime (8.25% at September 30, 1996) plus 1.5% and are secured by all
assets of AGRO and all the outstanding common stock of AGRO owned by the
Company. Interest on funds borrowed under the revolving line of credit is
payable monthly in arrears and repayment of principal was originally due on
January 5, 1996. On October 5, 1995, the Company and the bank entered into an
amendment to the revolving line of credit agreement pursuant to which the bank,
among other modifications, extended the expiration date of the credit agreement
from January 5, 1996 to July 5, 1996, and any principal amounts outstanding,
together with accrued interest thereon, were due on such date.
On July 5, 1996, September 5, 1996 and October 5, 1996, the Company and the bank
entered into three amendments to the revolving line of credit agreement pursuant
to which the bank extended the expiration date of the credit agreement from July
5, 1996 to December 15, 1996 on the same terms, and any principal amounts
outstanding, together with accrued interest thereon, are due on December 15,
1996. The Company is currently negotiating with the bank
-13-
<PAGE>
certain modifications to the terms of the revolving line of credit which
include, but are not limited to, an increase in the borrowing capacity,
elimination of the cash collateral coverage requirement, financial covenants and
extension of the repayment and expiration dates of the credit agreement. In
addition, the Company has received term sheets from financial institutions to
replace the existing revolving line of credit with a proposed credit facility
structure that meets the Company's requirements for the foreseeable future. The
Company believes that it will obtain either a modification and extension to the
existing revolving line of credit agreement or secure another financing
arrangement which has terms no less favorable than those contained in the
current revolving line of credit agreement in fiscal 1997.
On September 27, 1996, the Company sold 1,040,000 unregistered shares of common
stock in a Regulation D offering. Net proceeds realized from the equity
offering totaled $1,119,000 after placement agent fees and expenses and Company
expenses totaling $181,000. On September 27, 1996, pursuant to a lease
settlement agreement dated August 8, 1996, between the Company and its financing
company, the Company paid $880,000 and returned certain leased equipment with a
net book value of $308,000 to the financing Company as final satisfaction of its
capital lease obligation under rental schedule No. 1, as discussed in Note 4 to
the Company's consolidated financial statements.
The Company plans to finance the cash needs discussed above principally with
existing cash reserves, represented by approximately $358,000 of unrestricted
cash and cash equivalents, $702,000 of short-term investments and $1,205,000 of
restricted cash, cash equivalents and short-term investments as of September 30,
1996. The Company believes that such cash reserves, along with revenues from
product sales, and funds available under the extended or potentially modified
revolving line of credit or replacement financing arrangement, as discussed
above, will be sufficient throughout the next 12 months to finance the Company's
working capital needs, planned capital expenditures, restructuring program
initiatives and related obligations, and to service its indebtedness. The
Company may need to raise additional funds to finance its ongoing operations
after September 30, 1997, although there can be no assurances that such funds
will be available on terms favorable to the Company, if at all. The Company is
continuing to explore potential mergers, joint ventures, and various other
strategic options, which are aimed at enhancing stockholder value and the
long-term commercial viability of the Company.
SEASONALITY
The timing of the Company's operating revenues may vary as a result of the
seasonal nature of its businesses. In addition, operating revenues may be
affected by the timing of new product launches, acquisitions, sales orders, and
other economic factors. Operating revenues may be concentrated in the Company's
second and third quarters as a result of the North American growing season.
Although the Company believes that the historical trend in quarterly revenues
for the second and third quarters of each year are generally higher than the
first and fourth quarters, there can be no assurance that this will occur in
future periods. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any other quarter or the
full fiscal year.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements that describe the Company's
business prospects. These statements involve risks and uncertainties including,
but not limited to, regulatory uncertainty, level of demand for the Company's
products and services, product acceptance, industry wide competitive factors,
seasonality factors, timing of completion of major equipment projects and
political, economic or other conditions. Furthermore, market trends are subject
to changes which could adversely affect future results.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on November
7, 1996. Three directors were elected for the class of directors
whose terms expire in 1999.
The tabulation of votes with respect to the election of the
directors is as follows:
Total Vote For Total Vote Withheld
Each Director From Each Director
------------- ------------------
Kenneth S. Boger 4,989,032 95,781
E. Andrews Grinstead III 4,986,582 98,231
Heinz K. Wehner 4,821,823 262,990
ITEM 5. OTHER INFORMATION
a. At the November 7, 1996 Board of Directors' meeting,
the Board appointed Michael A. DeGiglio, the Company's
President and Chief Executive Officer, to a Director
position on the Board, which fills a vacancy.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
(1) Exhibit 27 -- Financial Data Schedule as of and
for the Three Months Ended
September 30, 1996.
b. REPORTS ON FORM 8-K
None
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOSCIENCE CORPORATION
Date: November 13, 1996 By: /s/Michael A. Degiglio
-----------------------
Michael A. DeGiglio
President & Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1996 By: /s/Harold A. Joannidi
----------------------
Harold A. Joannidi
Treasurer & Secretary
(Principal Financial & Accounting
Officer)
-16-
<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
27 Financial Data Schedule as of and for the 18
Three Months Ended September 30, 1996
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,563
<SECURITIES> 702
<RECEIVABLES> 1,735
<ALLOWANCES> 131
<INVENTORY> 2,288
<CURRENT-ASSETS> 6,808
<PP&E> 1,027
<DEPRECIATION> 385
<TOTAL-ASSETS> 9,486
<CURRENT-LIABILITIES> 5,704
<BONDS> 9
0
0
<COMMON> 104
<OTHER-SE> 3,369
<TOTAL-LIABILITY-AND-EQUITY> 9,486
<SALES> 4,508
<TOTAL-REVENUES> 4,508
<CGS> 3,405
<TOTAL-COSTS> 3,405
<OTHER-EXPENSES> 17
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 74
<INCOME-PRETAX> (121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (88)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
