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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: December 31, 1996 Commission File Number: 0-19746
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EcoScience Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of 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 |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at February 11, 1997
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Common Stock, par value $.01 per share 10,382,177
Total Number of Sequentially Numbered Pages: 19 Exhibit Index on Page: 18
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<PAGE>
ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
Page
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Part I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 3
Consolidated Statements of Operations -
Three and Six Months Ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 15
Part II. - Other Information 16
Signatures 17
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<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, June 30,
1996 1996
------------ --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 875 $ 734
Short-term investments ................................. 25 700
Restricted cash, cash equivalents and short-term
investments .......................................... 761 1,205
Accounts receivable, less reserves of $154 at
December 31, 1996 and $118 at June 30, 1996 .......... 4,639 1,552
Interest receivable .................................... 23 32
Inventories ............................................ 1,695 2,001
Other current assets ................................... 762 795
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Total current assets ................................. 8,780 7,019
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Property and equipment, net .............................. 611 998
Intangible assets, net ................................... 1,847 1,949
Other noncurrent assets .................................. 130 145
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Total assets ......................................... $ 11,368 $ 10,111
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of noncurrent liabilities ........... $ 1,051 $ 2,441
Accounts payable ....................................... 3,784 2,347
Accrued restructuring costs ............................ 633 730
Accrued expenses and other current liabilities ......... 1,752 1,809
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Total current liabilities ............................ 7,220 7,327
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Noncurrent liabilities:
Long-term debt, less current maturities ................ 6 11
Other long-term liabilities ............................ 300 300
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Total noncurrent liabilities ......................... 306 311
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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 December 31, 1996 and June 30,
1996, respectively ................................... 104 93
Additional paid-in capital ............................. 57,185 56,077
Accumulated deficit .................................... (53,447) (53,697)
-------- --------
Total stockholders' investment ....................... 3,842 2,473
-------- --------
Total liabilities and stockholders' investment ....... $ 11,368 $ 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 Six months
ended December 31, ended December 31,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(Unaudited) (Unaudited)
Product sales ........................ $ 7,753 $ 4,262 $ 12,261 $ 8,357
Cost of goods sold ................... 6,049 2,933 9,454 6,080
-------- -------- -------- --------
Gross profit ......................... 1,704 1,329 2,807 2,277
-------- -------- -------- --------
Operating expenses:
Research and development ........... 153 274 281 586
Selling and marketing .............. 632 669 1,210 1,263
General and administrative ......... 523 622 1,085 1,123
Reversal of restructuring charge ... -- -- (77) --
-------- -------- -------- --------
Total operating expenses ......... 1,308 1,565 2,499 2,972
-------- -------- -------- --------
Operating income (loss) .............. 396 (236) 308 (695)
-------- -------- -------- --------
Other income (expense):
Research, development, licensing
fees and other income ............ -- 106 7 125
Investment income .................. 21 52 55 132
Interest and other expense ......... (46) (197) (120) (453)
-------- -------- -------- --------
Total other expense .............. (25) (39) (58) (196)
-------- -------- -------- --------
Net income (loss) .................... $ 371 $ (275) $ 250 $ (891)
======== ======== ======== ========
Net income (loss) per common share ... $ 0.04 $ (0.03) $ 0.03 $ (0.10)
======== ======== ======== ========
Weighted average number of common and
common equivalent shares outstanding 10,460 8,842 9,968 8,842
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
December 31,
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1996 1995
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(Unaudited)
Cash flows from operating activities:
Net income (loss) ..................................... $ 250 $ (891)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation and amortization ..................... 195 334
(Gain) loss on sale of investments ............... (2) 56
Gain on sale of property and equipment ............ -- (74)
Gain on settlement of accounts payable ............ -- (51)
Reversal of restructuring charge .................. (77) --
Foreign exchange loss (gain) ...................... 3 (11)
Changes in current assets and liabilities:
Accounts and interest receivable ................ (3,078) (1,087)
Inventories ..................................... 306 (393)
Other current assets ............................ 33 297
Accounts payable and accrued expenses ........... 1,376 31
Accrued restructuring costs ..................... (97) (1,117)
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Net cash used for operating activities .............. (1,091) (2,906)
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Cash flows from investing activities:
Purchases of property and equipment .................. (34) (64)
Proceeds from sale of property and equipment ......... -- 366
Effect of settlement of capital leases on
assets under capital leases ........................ -- 2,936
Proceeds from sale of short-term investments ......... 677 6,131
Proceeds from release of restricted cash ............. 444 --
Decrease in other noncurrent assets .................. 15 50
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Net cash provided by investing activities ........... 1,102 9,419
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Cash flows from financing activities:
Proceeds from issuance of stock ...................... 1,119 1
Proceeds from long-term debt ......................... -- 9
Effect of settlement of capital leases
on capital lease obligations ....................... -- (3,500)
Payments on long-term debt and capital leases ........ (990) (1,790)
------- -------
Net cash provided by (used for) financing
activities ........................................ 129 (5,280)
Effect of exchange rate changes on cash ................. 1 7
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Increase in cash and cash equivalents ................... 141 1,240
Cash and cash equivalents at beginning of period ........ 734 561
------- -------
Cash and cash equivalents at end of period .............. $ 875 $ 1,801
======= =======
Total unrestricted and restricted cash, cash
equivalents and short-term investments at
end of period ......................................... $ 1,661 $ 2,954
======= =======
Supplemental cash flow information
Cash paid for:
Interest ............................................. $ 133 $ 461
Income taxes ......................................... 11 7
Non-cash investing and financing activities:
Disposition of equipment under capital lease ......... 308 2,936
Termination of capital lease obligation .............. (1,248) (3,500)
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE>
ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 AGRO and EPSC operations
through the sale of growing medium products to the North American intensive
farming and horticulture industries, sorting, grading and packing equipment
to the produce packing industry, and postharvest coating products to the
fresh fruit and vegetable markets throughout the western hemisphere.
Prior to the acquisition of AGRO in November 1992 and EPSC in May 1994,
substantially all revenues generated by the Company were from collaborative
research and development arrangements and investment income. During this
period, the Company had devoted substantially all of its efforts toward new
product research and development, and commercialization of certain products.
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 believes its unrestricted and restricted cash, cash equivalents
and short-term investments as of December 31, 1996, 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 continues
to explore various strategic options aimed at enhancing stockholder value and
improving the long-term commercial viability of the Company.
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<PAGE>
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 and six
month periods ended December 31, 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 and six month periods ended December
31, 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 and six months ended
December 31, 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:
December 31, June 30,
1996 1996
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(In thousands)
Raw materials .......................... $ 250 $ 226
Work in process ........................ -- --
Finished goods ......................... 1,445 1,775
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$1,695 $2,001
====== ======
Work in process and finished goods include material, labor and manufacturing
overhead.
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<PAGE>
4. DEBT
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 December 31, 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, September 5, October 5 and December 15, 1996, the Company and the
bank entered into four 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 February 15, 1997 on the same terms, and any
principal amount outstanding, together with accrued interest thereon, are due
on February 15, 1997. 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, modification of
financial covenants, and extension of the repayment and expiration dates of
the credit agreement. In addition, the Company has received a non-binding
term sheet from the bank to replace the existing revolving line of credit
with a proposed credit facility structure, terms of which are favorable
regarding those the Company sought to negotiate. The Company believes this
proposed credit facility in combination with unrestricted and restricted
cash, cash equivalents and short-term investments and revenues from product
sales, will meet its operational funding requirements for at least the next
twelve months. The Company believes that in fiscal 1997 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.
5. NET INCOME (LOSS) PER COMMON SHARE
The net income per common share for the three and six months ended December
31, 1996 is computed based on the weighted average number of common and
common equivalent shares outstanding.
The net loss per common share for the three and six months ended December 31,
1995 is computed based on the weighted average number of common shares
outstanding. Common equivalent shares are not included in these per share
calculations as the effect of their inclusion would be anti-dilutive.
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<PAGE>
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 ("PCOs"). 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 PCOs. 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. In November 1992, EcoScience acquired all of the outstanding
capital stock of AGRO, an East Brunswick, New Jersey based company that designs,
markets and distributes advanced technologies, products, growing systems and
services to the North American intensive farming, horticulture and produce
packing industries. In May 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 PCOs through a marketing
collaboration with Terminix International Company L.P. ("Terminix").
Additionally, EcoScience has initiated an extensive testing, development and
marketing program with Maruwa Biochemical Co., Ltd. and Shinto Paint Co., Ltd.
for biological products in Japan.
The Company's primary products are (i) advanced growing systems based on
Stonewool(R) 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(R) and Indian River GoldTM 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 December 31, 1996 vs.
Three Months Ended December 31, 1995
The Company's product sales increased $3,491,000 or 82% to $7,753,000 for the
three months ended December 31, 1996 from $4,262,000 for the same period in
1995. These increases were due to the increases in product sales by AGRO of
$3,580,000 and EPSC of $30,000, partially offset by a decrease in product sales
by EcoScience of $119,000.
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<PAGE>
The following table sets forth the Company's product sales by operating company
for the three months ended December 31, 1996 and 1995:
Three Months Ended
December 31,
--------------------------------
Increase
1996 1995 (Decrease)
---- ---- ----------
(In thousands)
AGRO ..................... $6,899 $3,319 $3,580
EPSC ..................... 853 823 30
EcoScience ............... 1 120 (119)
------ ------ ------
Consolidated .......... $7,753 $4,262 $3,491
====== ====== ======
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. In addition, AGRO is 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 Company believes that
revenues under these distribution agreements will each account for more than 10%
of the Company's product sales in fiscal 1997.
The Company's biological product sales for the three months ended December 31,
1996 were $77,000 as compared to $123,000 for the three months ended December
31, 1995, a decrease of $46,000 due primarily to the following: (i) at
EcoScience Bio-Blast Biological Termiticide sales increased $1,000 for the three
months ended December 31, 1996 versus the same period last fiscal year, (ii) at
EcoScience Bio-Path(R) Cockroach Control Chamber sales were $120,000 for the
three months ended December 31, 1995 versus nil for the same period this fiscal
year, as the remaining balance of inventory of this product was shipped last
fiscal year, and (iii) at EPSC Bio-Save PostHarvest BioProtectant sales
increased $73,000 for the three months ended December 31, 1996 versus the same
period last fiscal year, representing broader market exposure and customer
acceptance.
Cost of goods sold increased $3,116,000 or 106% to $6,049,000 for the three
months ended December 31, 1996 from $2,933,000 for the same period in 1995 due
primarily to the increases in AGRO's cost of goods sold of $3,114,000. AGRO's
increase in cost of goods sold resulted primarily from increased sales volume.
Gross profit on product sales increased $375,000 or 28% to $1,704,000 for the
three months ended December 31, 1996 from $1,329,000 for the same period in
1995, while gross profit margin on product sales decreased to 22% for the three
months ended December 31, 1996 from 31% for the same period in 1995, due
primarily to AGRO's change in product mix, lower margin on sales to achieve
greater market penetration and competitive factors.
Research and development expenses decreased $121,000 or 44% to $153,000 for the
three months ended December 31, 1996 from $274,000 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.
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<PAGE>
Selling and marketing expenses decreased $37,000 or 6% to $632,000 for the three
months ended December 31, 1996 from $669,000 for the same period in 1995 due
primarily to a decrease in EPSC's selling and marketing expenses of $95,000 and
an increase of $56,000 at AGRO. The decrease in EPSC's selling and marketing
expenses for the three months ended December 31, 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 decreased $99,000 or 16% to $523,000 for the
three months ended December 31, 1996 from $622,000 for the same period in 1995
due primarily to a decrease in such expenses by EcoScience and EPSC of $95,000
and $37,000, respectively, partially offset by an increase in AGRO's expenses of
$33,000. The decrease in EcoScience and EPSC's general and administrative
expenses for the three months ended December 31, 1996 was primarily attributable
to reductions of personnel and related costs and professional expenses. The
increase in AGRO's general and administrative expenses was primarily
attributable to higher personnel and related costs to support increased business
activity.
Operating income increased $632,000 to $396,000 for the three months ended
December 31, 1996 as compared to an operating loss of $236,000 for the same
period in 1995. The increase in operating income resulted from a $375,000
increase in gross profit and a $257,000 reduction of total operating expenses
for the three months ended December 31, 1996 as compared to the same period in
1995.
Other income/expense decreased $14,000 or 36% to $25,000 net expense in the
three months ended December 31, 1996 as compared to $39,000 net expense for the
same period in 1995. The decrease was primarily attributable to a reduction in
interest and other expenses of $151,000 or 77% to $46,000, 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
December 31, 1996 as compared to the same period in 1995, offset by (i) a
decrease in investment income of $31,000 resulting from a decline in the average
funds available for investment for the three months ended December 31, 1996 as
compared to the same period in 1995 and (ii) a $74,000 gain on sale of property
and equipment and a $51,000 gain on settlements of accounts payable recorded in
the three months ended December 31, 1995.
The Company's net income increased $646,000 or $0.07 per share to $371,000 or
$0.04 per share for the three months ended December 31, 1996 as compared to a
net loss of ($275,000) or ($0.03) per share for the same period in 1995.
Six Months Ended December 31, 1996 vs.
Six Months Ended December 31, 1995
The Company's product sales increased $3,904,000 or 47% to $12,261,000 for the
six months ended December 31, 1996 from $8,357,000 for the same period in 1995.
These increases were due to the increases in product sales by AGRO of $3,811,000
and EPSC of $152,000, partially offset by a decrease in product sales by
EcoScience of $59,000.
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<PAGE>
The following table sets forth the Company's product sales by operating company
for the six months ended December 31, 1996 and 1995:
Six Months Ended
December 31,
--------------------------------
Increase
1996 1995 (Decrease)
---- ---- ----------
(In thousands)
AGRO ..................... $10,714 $6,903 $3,811
EPSC ..................... 1,445 1,293 152
EcoScience ............... 102 161 (59)
------- ------ ------
Consolidated .......... $12,261 $8,357 $3,904
======= ====== ======
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. In addition, AGRO is 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 Company believes that
revenues under these distribution agreements will each account for more than 10%
of the Company's product sales in fiscal 1997.
The Company's biological product sales for the six months ended December 31,
1996 were $278,000 as compared to $168,000 for the six months ended December 31,
1995, an increase of $110,000 due primarily to the following: (i) at EcoScience
Bio-Blast Biological Termiticide sales increased $63,000 for the six months
ended December 31, 1996 versus the same period last fiscal year, (ii) at
EcoScience Bio-Path Cockroach Control Chamber sales were $123,000 for the six
months ended December 31, 1995 versus nil for the same period this fiscal year,
as the remaining balance of inventory of this product was shipped last fiscal
year, and (iii) at EPSC Bio-Save PostHarvest BioProtectant sales increased
$170,000 for the six months ended December 31, 1996 versus the same period last
fiscal year, representing broader market exposure and customer acceptance.
Cost of goods sold increased $3,374,000 or 56% to $9,454,000 for the six months
ended December 31, 1996 from $6,080,000 for the same period in 1995 due
primarily to the increase in AGRO's cost of goods sold of $3,358,000. AGRO's
increase in cost of goods sold resulted primarily from increased sales volume.
Gross profit on product sales increased $530,000 or 23% to $2,807,000 for the
six months ended December 31, 1996 from $2,277,000 for the same period in 1995,
while gross profit margin on product sales decreased to 23% for the six months
ended December 31, 1996 from 27% for the same period in 1995, due primarily to
AGRO's change in product mix, lower margin on sales to achieve greater market
penetration and competitive factors.
Research and development expenses decreased $305,000 or 52% to $281,000 for the
six months ended December 31, 1996 from $586,000 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-Save PostHarvest BioProtectant, Bio-Blast Biological
Termiticide and other select programs in fiscal 1997.
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<PAGE>
Selling and marketing expenses decreased $53,000 or 4% to $1,210,000 for the six
months ended December 31, 1996 from $1,263,000 for the same period in 1995 due
primarily to a decrease in EPSC's selling and marketing expenses of $165,000 and
an increase of $109,000 at AGRO. The decrease in EPSC's selling and marketing
expenses for the six months ended December 31, 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 decreased $38,000 or 3% to $1,085,000 for
the six months ended December 31, 1996 from $1,123,000 for the same period in
1995 due primarily to the decrease in EPSC's general and administrative expenses
of $77,000, which was partially offset by an increase in such expenses at AGRO
of $43,000. The decrease in EPCS's general and administrative expenses in the
six months ended December 31, 1996 was primarily attributable to reductions in
personnel and related costs, and professional expenses. The increase in AGRO's
general and administrative expenses was primarily attributable to higher
personnel and related costs to support increased business activity.
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 income increased $1,003,000 to $308,000 for the six months ended
December 31, 1996 as compared to an operating loss of $695,000 for the same
period in 1995. The increase in operating income resulted from a $530,000
increase in gross profit and a $473,000 reduction of total operating expenses in
the six months ended December 31, 1996 as compared to the same period in 1995.
Other income/expense decreased $138,000 or 70% to $58,000 net expense in the six
months ended December 31, 1996 as compared to $196,000 net expense for the same
period in 1995. The decrease was primarily attributable to a reduction in
interest and other expenses of $333,000 or 74% to $120,000, 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 six months ended
December 31, 1996 as compared to the same period in 1995; partially offset by
(i) a decrease in investment income of $77,000 resulting from a decline in the
average funds available for investment for the six months ended December 31,
1996 as compared to the same period in 1995 and (ii) a $74,000 gain on sale of
property and equipment and a $51,000 gain on settlements of accounts payable
recorded in the six months ended December 31, 1995.
The Company's net income increased $1,141,000 or $0.13 per share to $250,000 or
$0.03 per share for the six months ended December 31, 1996 as compared to a net
loss of ($891,000) or ($0.10) 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 six months ended December
31, 1996, the Company funded $97,000 of accrued restructuring costs that had
been recorded in 1994 and 1995. The funded amount
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<PAGE>
consisted of $75,000 related to employee severance benefits and $22,000 related
to other contractual liabilities. The balance of accrued restructuring costs,
$933,000 (total current and noncurrent portions), as of December 31, 1996, is
expected to be funded in 1997 and beyond. The Company expects to incur
administrative, business development and commercialization expenditures in the
future as it advances the development, manufacturing, and marketing of Bio-Blast
and Bio-Save. 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 growth
strategy of the Company.
Cash and cash equivalents were $875,000 at December 31, 1996, compared to
$734,000 at June 30, 1996. Unrestricted and restricted cash, cash equivalents,
and short-term investments totaled $1,661,000 compared to $2,639,000 at June 30,
1996. Cash flows used for operating activities totaled $1,091,000 for the six
months ended December 31, 1996 and are principally represented by an increase in
accounts and interest receivable of $3,078,000 resulting from a $3,245,000
increase in product sales in the three months ended December 31, 1996 as
compared to the three months ended September 30, 1996 and is partially offset by
(i) an increase in accounts payable and accrued expenses of $1,376,000 due to
increased business activity, (ii) a decrease in inventory of $306,000 and (iii)
net income of $250,000. Cash flows provided by financing activities totaled
$129,000 for the six months ended December 31, 1996, which consisted principally
of proceeds from the issuance of common stock of $1,119,000 and was partially
offset by payments of $990,000 on debt and capital leases. Cash flows provided
by investment activities for the six months ended December 31, 1996 totaled
$1,102,000, principally represented by (i) proceeds from sale of short-term
investments of $677,000 and (ii) proceeds from the reduction of restricted cash
of $444,000. The Company's working capital and current ratio were $1,560,000 and
1.2 to 1, respectively, at December 31, 1996, compared to ($308,000) and 0.9 to
1, respectively, at 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 December 31, 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, September 5, October 5 and December 15, 1996, the Company and the
bank entered into four 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 February 15, 1997 on the same terms, and any principal
amount outstanding, together with accrued interest thereon, are due on February
15, 1997. 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, modification of financial covenants, and
extension of the repayment and expiration dates of the credit agreement. In
addition, the Company has received a non-binding term sheet from the bank to
replace the existing revolving line of credit with a proposed credit facility
structure, terms of which are favorable regarding those the Company sought to
negotiate. The Company believes that in fiscal 1997 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.
On December 31, 1996, a letter of credit collateralized by a $425,000
certificate of deposit expired and accordingly, the certificate of deposit which
had been classified as a restricted cash equivalent, was reclassified as an
unrestricted cash equivalent.
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<PAGE>
The Company plans to fund its operations principally with existing cash
reserves, represented by approximately $875,000 of unrestricted cash and cash
equivalents, $25,000 of short-term investments and $761,000 of restricted cash,
cash equivalents and short-term investments as of December 31, 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 to finance the Company's working capital needs for the next twelve
months. The Company may need to raise additional funds to finance its ongoing
operations after December 31, 1997, although there can be no assurances that
such funds will be available on terms favorable to the Company, if at all. The
Company continues to explore various strategic options aimed at enhancing
stockholder value and improving 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.
-15-
<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, filling a
vacancy.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
1) Exhibit 27 - Financial Data Schedule as of and for the Six
Months Ended December 31, 1996
b. Reports on Form 8-K
None
-16-
<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: February 12, 1997 By: /s/Michael A. DeGiglio
-----------------------------
Michael A. DeGiglio
President & Chief Executive Officer
(Principal Executive Officer)
Date: February 12, 1997 By: /s/Harold A. Joannidi
-----------------------------
Harold A. Joannidi
Treasurer & Secretary
(Principal Financial & Accounting Officer)
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<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page No.
- ----------- ---------------------- --------
27 Financial Data Schedule as of and for the 19
Six Months Ended December 31, 1996
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of December 31, 1996 and Consolidated Statement of
Operations for the Six Months Ended December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,636
<SECURITIES> 25
<RECEIVABLES> 4,662
<ALLOWANCES> 154
<INVENTORY> 1,695
<CURRENT-ASSETS> 8,780
<PP&E> 1,042
<DEPRECIATION> 431
<TOTAL-ASSETS> 11,368
<CURRENT-LIABILITIES> 7,220
<BONDS> 6
0
0
<COMMON> 104
<OTHER-SE> 3,738
<TOTAL-LIABILITY-AND-EQUITY> 11,368
<SALES> 12,261
<TOTAL-REVENUES> 12,261
<CGS> 9,454
<TOTAL-COSTS> 9,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 250
<INCOME-TAX> 0
<INCOME-CONTINUING> 308
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<EXTRAORDINARY> 0
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</TABLE>
