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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: September 30, 1997 Commission File Number: 0-19746
EcoScience Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-2912632
(I.R.S. Employer Identification Number)
10 Alvin Court, East Brunswick, New Jersey 08816
(Address of principal executive offices, including zip code)
732-432-8200
(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 November 12, 1997
Common Stock, par value $0.01 per share 10,451,177
Total Number of Sequentially Exhibit Index on Page: 16
Numbered Pages: 28
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<PAGE>
ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
(Unaudited)
Page
----
Part I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997................ 3
Consolidated Statements of Operations -
Three Months Ended September 30, 1997 and 1996...... 4
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1997 and 1996...... 5
Notes to Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 9
Part II. - Other Information.......................................... 14
Signatures.............................................................. 15
2
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ECOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................................. $ 660 $ 1,247
Short-term investments ................................................................ 533 528
Accounts receivable, less reserves of $163 at
September 30, 1997 and $150 at June 30, 1997 ...................................... 1,906 1,788
Inventories ........................................................................... 2,562 1,940
Other current assets .................................................................. 982 842
-------- --------
Total current assets .............................................................. 6,643 6,345
-------- --------
Property and equipment, net .............................................................. 704 562
Intangible assets, net ................................................................... 1,703 1,745
Other noncurrent assets .................................................................. 220 223
-------- --------
Total assets .................................................................. $ 9,270 $ 8,875
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings ................................................................. $ 374 $ --
Current maturities of long-term debt .................................................. 14 10
Accounts payable ...................................................................... 3,230 2,641
Accrued restructuring costs ........................................................... 290 307
Accrued expenses and other current liabilities ........................................ 1,657 1,752
-------- --------
Total current liabilities ......................................................... 5,565 4,710
-------- --------
Noncurrent liabilities:
Long-term debt, less current maturities ............................................... 11 1
Other long-term liabilities ........................................................... 150 150
-------- --------
Total noncurrent liabilities ...................................................... 161 151
-------- --------
Commitments and contingencies ............................................................
Stockholders' investment:
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
none issued and outstanding ....................................................... -- --
Common stock, $0.01 par value, 25,000,000 shares authorized;
10,401,177 shares issued and outstanding at September 30,
1997 and June 30, 1997 ............................................................ 104 104
Additional paid-in capital ............................................................ 57,222 57,222
Accumulated deficit ................................................................... (53,787) (53,312)
Unrealized gain on short-term investments ............................................. 5 --
-------- --------
Total stockholders' investment .................................................... 3,544 4,014
-------- --------
Total liabilities and stockholders' investment ................................ $ 9,270 $ 8,875
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
September 30,
------------------------
1997 1996
-------- --------
(Unaudited)
Product sales .................................. $ 3,993 $ 4,508
Cost of goods sold ............................. 3,088 3,405
-------- --------
Gross profit ................................... 905 1,103
-------- --------
Operating expenses:
Research and development ................... 100 128
Selling and marketing ...................... 731 578
General and administrative ................. 553 562
Reversal of restructuring charge ........... -- (77)
-------- --------
Total operating expenses ............. 1,384 1,191
-------- --------
Operating loss ................................. (479) (88)
-------- --------
Other income (expense):
Research, development, licensing
fees and other income .................. -- 7
Investment income .......................... 17 34
Interest and other expense ................. (13) (74)
-------- --------
Total other income (expense) ......... 4 (33)
-------- --------
Net loss ....................................... $ (475) $ (121)
======== ========
Net loss per common share ...................... $ (0.05) $ (0.01)
======== ========
Weighted average number of common
shares outstanding ........................ 10,401 9,387
======== ========
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)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................................................. $ (475) $ (121)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization ................................................. 70 98
Reversal of restructuring charge .............................................. -- (77)
Foreign exchange loss ......................................................... 4 7
Changes in current assets and liabilities:
Accounts receivable, net ................................................. (118) (149)
Inventories .............................................................. (622) (287)
Other current assets ..................................................... (140) 274
Accounts payable and accrued expenses .................................... 490 (184)
Accrued restructuring costs .............................................. (17) (56)
------- -------
Net cash used for operating activities ................................ (808) (495)
------- -------
Cash flows from investing activities:
Purchases of property and equipment ................................................... (170) (19)
Decrease in other noncurrent assets ................................................... 3 7
------- -------
Net cash used for investing activities ................................ (167) (12)
------- -------
Cash flows from financing activities:
Proceeds from issuance of stock ....................................................... -- 1,119
Proceeds from long-term debt .......................................................... 17 --
Net borrowings under line of credit ................................................... 374 --
Payments on long-term debt and capital leases ......................................... (3) (988)
------- -------
Net cash provided by financing activities ............................. 388 131
Effect of exchange rate changes on cash .................................................. -- --
------- -------
Decrease in cash and cash equivalents .................................................... (587) (376)
Cash and cash equivalents at beginning of period ......................................... 1,247 734
------- -------
Cash and cash equivalents at end of period ............................................... $ 660 $ 358
======= =======
Total unrestricted and restricted cash, cash equivalents
and short-term investments at end of period ........................................... $ 1,193 $ 2,265
======= =======
Supplemental cash flow information
Cash paid for:
Interest .......................................................................... $ 5 $ 88
Income taxes ...................................................................... 1 11
Non-cash investing and financing activities:
Disposition of equipment under capital lease ...................................... -- 308
Termination of capital lease obligations .......................................... -- (1,248)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(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 technical marketing, sales, development and commercialization of products
and services for the following major markets: (i) specialty agriculture; (ii)
postharvest fruits and vegetables; and (iii) biological insect control for
professional pest control operators ("PCOs"). The Company provides (i)
sophisticated growing systems to greenhouse operators, (ii) technologically
advanced sorting, grading and packing systems to produce packers, (iii)
equipment, coatings and disease control products, including natural biologicals
for protecting fruits, vegetables and ornamentals in storage and transit to
market, and (iv) a unique biological pest control product to PCOs.
The Company derives most its revenues from the sale of (i) growing medium
products to the North American intensive farming and horticulture industries;
(ii) sorting, grading and packing systems to the produce packing industry; and
(iii) postharvest coating products to the fresh fruit and vegetable markets
throughout the western hemisphere.
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 cash reserves of $660,000 of cash and cash equivalents
and $533,000 of short-term investments as of September 30, 1997, along with
revenues from product sales, and funds available under its revolving line of
credit will be sufficient to fund the Company's working capital needs, planned
capital expenditures, restructuring program initiatives and related obligations,
and to service its indebtedness through September 30, 1998. The Company may need
to raise additional funds to finance its ongoing operations and expected growth
after September 30, 1998, although there can be no assurances that such funds
will be available on terms favorable to the Company. The Company is continuing
to explore potential mergers, joint ventures and various other strategic
opportunities, which are aimed at enhancing stockholder value and the long-term
commercial viability of the Company.
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 months ended September 30,
1997 and 1996, in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to Article 10 of Regulation S-X.
Certain information
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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 months ended September 30, 1997 and
1996 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, 1997, 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,
(In thousands) 1997 1997
------ ------
Raw materials ............................ $ 51 $ 17
Finished goods ........................... 2,511 1,923
------ ------
$2,562 $1,940
====== ======
Finished goods include material, labor and manufacturing overhead costs.
4. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares are not included in the per share
calculations, as the effect of their inclusion would be anti-dilutive.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
makes certain changes to the manner in which earnings per share is reported.
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997 and early adoption is not
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<PAGE>
permitted. The Company will adopt this standard for the period ending December
31, 1997. The adoption of this standard will require restatement of prior years'
earnings per share.
If the Company had adopted SFAS 128 for the three months ended September
30, 1997, basic loss per share would have been ($0.05), based on 10,401,000
basic weighted average shares.
8
<PAGE>
ECOSCIENCE CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
EcoScience is engaged in the technical marketing, sales, development and
commercialization of products and services for the following major markets: (i)
specialty agriculture; (ii) postharvest fruits and vegetables; and (iii)
biological insect control for professional pest control operators ("PCOs").
Specialty Agriculture
The Company engineers, designs, markets and distributes sophisticated
growing systems and services to the greenhouse and nursery market in the United
States, Canada and Mexico. The Company's primary products for this market are:
(i) advanced growing systems based on Stonewool(R) inert growing medium,
manufactured by Grodania A/S, (ii) computerized environmental, irrigation and
fertigation control systems manufactured by H. Hoogendorn Automation B.V., and
(iii) multiple greenhouse consumable products.
The Company and Grodania A/S executed an extension of their distribution
agreement which provides for the Company's exclusive distribution of the
Grodan(R) brand of stonewool in the United States, Canada, Mexico and the
Caribbean, dated September 29, 1997, covering the period January 1, 1998 through
December 31, 2000, and which provides for automatic one year extensions, as
defined.
Postharvest Fruits and Vegetables
The fruit and vegetable production industry requires specialized services,
equipment and products for the harvesting, processing and storage of produce.
The Company provides equipment, coatings and disease control products to the
fruit, vegetable and ornamental packing markets. The Company's primary products
for this market are: (i) technologically advanced sorting, grading and packing
systems for produce packers, manufactured by Aweta, B.V., (ii) equipment,
coatings and disease control products for the protection of fruits, vegetables
and ornamentals in storage and transit to market including PacRite(R) and Indian
River Gold(TM) coatings manufactured by EPSC, and the Bio-Save(TM) PostHarvest
BioProtectant line of natural biological products.
Biological Insect Control
In the biological insect control market, the Company, with collaborative
partners, has been focused on developing and selling cost effective
bioinsecticide alternatives to synthetic chemical insecticides for use in
specific applications, including sensitive use environments such as homes,
restaurants, schools and food processing facilities. The Company's primary
product for this market is Bio-Blast(R) Biological Termiticide, a unique
biological pest control product manufactured by EcoScience.
The Company sells Bio-Blast to PCO's through a marketing collaboration with
Terminix. In fiscal 1997, the Company initiated the U.S. commercial launch of
Bio-Blast in collaboration with Terminix. Additionally, EcoScience has initiated
an extensive testing, development and marketing
9
<PAGE>
program with Maruwa BioChemical and Shinto Paint Co., Ltd. for biological
products in Japan. The Company commenced shipments of Bio-Blast to Maruwa in
fiscal 1997.
The Company's technology is used for the development and application of
natural microbial pest control agents and coatings to sustain the freshness of
fruits and vegetables. The Company's technology enables it to provide technical
support for growers and packers of specialty crops. The Company conducts
research on the use of microbial agents to control plant diseases and insect
pests, as well as on new applications for natural coatings to sustain nutrition
and overall quality in fresh fruits and vegetables. The Company expects to
conduct tests to determine the possibility of extending the range of performance
and applicability for both its Bio-Save line of products and its Bio-Blast
insect control product.
The Company derives most its revenues from the sale of (i) growing medium
products to the North American intensive farming and horticulture industries;
(ii) sorting, grading and packing systems to the produce packing industry; and
(iii) postharvest coating products to the fresh fruit and vegetable markets
throughout the western hemisphere.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 vs.
Three Months Ended September 30, 1996
The Company's product sales decreased $515,000 or 11% to $3,993,000 for the
three months ended September 30, 1997 from $4,508,000 for the same period in
1996. This decrease was primarily due to the decrease in product sales in the
Postharvest Fruits and Vegetables market of $535,000 and in the Biological
Insect Control market of $101,000, offset by an increase in the Specialty
Agriculture market of $121,000. The following table sets forth the Company's
product sales by market for the three months ended September 30, 1997 and 1996:
Three Months Ended September 30,
------------------------------
Increase
(In thousands) 1997 1996 (Decrease)
------ ------ --------
Specialty Agriculture ..................... $2,668 $2,547 $ 121
Postharvest Fruits and Vegetables ......... 1,325 1,860 (535)
Biological Insect Control ................. -- 101 (101)
------ ------ ------
Consolidated .............................. $3,993 $4,508 ($ 515)
====== ====== ======
The Company is the exclusive distributor in the United States and Canada of
the Grodan brand of stonewool, an inert growing medium supplied by Grodania A/S,
a Denmark based company. In August 1995, the Company entered into a distribution
agreement with Aweta B.V., a Netherlands based company, for the exclusive right
to sell Aweta B.V.'s sorting, grading and packing products and equipment 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 consolidated
product sales for the fiscal year ending June 30, 1998. Although there are a
limited number of sources of growing medium products, and sorting, grading and
packing equipment manufacturers in the world, the Company's management
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believes that other suppliers could provide such products and equipment on
comparable terms. A change in supplier, however could cause a delay in filling
orders as well as a possible loss of sales, which would affect operating results
adversely.
Cost of goods sold decreased $317,000 or 9% to $3,088,000 for the three
months ended September 30, 1997 from $3,405,000 for the same period in 1996
primarily due to product sales decreases.
Gross margin on product sales decreased $198,000 or 18% to $905,000 for the
three months ended September 30, 1997 from $1,103,000 for the same period in
1996, while gross margin percentage on product sales decreased to 23% for the
three months ended September 30, 1997 from 24% for the same period in 1996. The
decrease in gross margin percentage was primarily due to decreases in biological
and coatings product sales which typically have higher gross margin percentages
than Specialty Agriculture products.
Research and development expenses decreased $28,000 or 22% to $100,000 for
the three months ended September 30, 1997 from $128,000 for the same period in
1996, due primarily to reductions in personnel and related costs, partially
offset by decreases in costs allocable to production of the Company's biological
products. 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 1998.
Selling and marketing expenses increased $153,000 or 26% to $731,000 for
the three months ended September 30, 1997 from $578,000 for the same period in
1996, due primarily to additional personnel, promotional and related costs to
support efforts to increase market penetration and the marketing of expanded
product lines.
General and administrative expenses decreased $9,000 or 2% to $553,000 for
the three months ended September 30, 1997 from $562,000 for the same period in
1996, primarily due to decreases in professional fees and insurance costs,
partially offset by increases in personnel costs.
Operating loss increased $391,000 to a loss of ($479,000) for the three
months ended September 30, 1997 compared to an operating loss of ($88,000) for
the same period in 1996. The increase in operating loss resulted from a $198,000
decrease in gross profits for the three months ended September 30, 1997 compared
to the same period in 1996, and a $193,000 increase in operating expenses.
Excluding non-recurring amounts in 1996, the operating loss for the three months
ended September 30, 1997 increased $314,000 to ($479,000) from an operating loss
of ($165,000) for the same period in 1996, after exclusion of a non-recurring
reversal of accrued restructuring costs of $77,000 in 1996. Operating expenses
increased $116,000 or 9% to $1,384,000 for the three months ended September 30,
1997 compared to $1,268,000 for the same period in 1996, when the restructuring
reversal is excluded for 1996.
Other income / (expense) improved by $37,000 to $4,000 net other income for
the three months ended September 30, 1997 compared to ($33,000) net expense for
the same period in 1996. The decrease was primarily attributable to a reduction
in interest and other expenses of $61,000 or 82%, primarily due 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, 1997 compared to the same period in 1996; partially offset by (i) a decrease
in investment income of $17,000 resulting from a decline in the average funds
available for investment in the three months
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ended September 30, 1997 compared to the same period in 1996 and (ii) $7,000 in
research and development revenue recorded in 1996 compared to none in 1997.
The Company's net loss increased $354,000 or $0.04 per share to a net loss
of ($475,000) or ($0.05) per share for the three months ended September 30, 1997
compared to a net loss of ($121,000) or ($0.01) per share for the same period in
1996. Excluding non-recurring amounts, the net loss for the three months ended
September 30, 1997 was ($475,000) or ($0.05) per share, a $277,000 or $0.03 per
share increase, compared to the net loss of ($198,000) or ($0.02) per share for
the same period in 1996, when the $77,000 reversal of accrued restructuring
costs is excluded from 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been funded through revenues from product
sales, public and private placements of its equity securities, bank loans and
lease financings, licensing, collaborative research and development
arrangements, and investment income.
Cash and cash equivalents were $660,000 at September 30, 1997 compared to
$1,247,000 at June 30, 1997. Cash, cash equivalents and short-term investments
totaled $1,193,000 at September 30, 1997 compared to $1,775,000 at June 30,
1997. Cash used for operating activities totaled $808,000 for the three months
ended September 30, 1997 and was principally represented by a net loss of
($475,000) and an increase in inventory of $622,000, partially offset by an
increase in accounts payable and accrued expenses of $490,000. Cash provided by
financing activities totaled $388,000 in the three months ended September 30,
1997, which consisted principally of net borrowings under the Company's
revolving line of credit of $374,000. Cash used for investment activities for
the three months ended September 30, 1997 totaled $167,000, which consisted
principally of purchases of property and equipment of $170,000. The Company's
working capital and current ratio were $1,078,000 and 1.2 to 1, respectively, at
September 30, 1997 compared to $1,635,000 and 1.3 to 1, respectively, at June
30, 1997.
Debt increased by $388,000 to $399,000 at September 30, 1997 compared to
$11,000 at June 30, 1997. The increase was due to seasonal financing needs at
September 30, 1997. The amount available under the Company's revolving line of
credit was $1,736,000 at September 30, 1997.
In the three months ended September 30, 1997, the Company funded $17,000 of
accrued restructuring costs that had been recorded in fiscal 1994 and 1995. The
balance of accrued restructuring costs, $440,000 (total current and noncurrent
portions), as of September 30, 1997, is expected to be utilized in fiscal 1998
and thereafter.
The Company expects to incur administrative, business development and
commercialization expenditures in the future as it advances the development,
manufacturing and marketing of its Bio-Blast and Bio-Save products, and other
select development programs in its bio-technology operations. In addition, the
Company expects to incur incremental costs associated with its plans to expand
product lines offerings. The Company may also use cash to acquire technology,
products or companies that support the strategy of the Company.
The Company plans to finance its cash needs principally with existing cash
reserves, represented by approximately $660,000 of cash and cash equivalents and
$533,000 of short-term investments as of
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September 30, 1997. The Company believes that such cash reserves, along with
revenues from product sales, and funds available under its revolving line of
credit, will be sufficient to fund the Company's working capital needs, planned
capital expenditures, restructuring program initiatives and related obligations,
and to service its indebtedness through September 30, 1998. The Company may need
to raise additional funds to finance its ongoing operations and expected growth
after September 30, 1998, although there can be no assurances that such funds
will be available on terms favorable to the Company. The Company is continuing
to explore potential mergers, joint ventures and various other strategic
opportunities, 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,
sales product mix, completion of systems and equipment installations and other
economic factors. Operating revenues may be concentrated in the Company's second
and fourth quarters as a result of the North American growing and harvesting
seasons. Although the Company believes that the historical trend in quarterly
revenues for the second and fourth quarters of each year are generally higher
than the first and third 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
for 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.
13
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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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Exhibit
Number Description
------ ----------------------------------------
10.57 Agreement between Agro Dynamics, Inc.
and Grodania A/S, dated September 29,
1997, with certain confidential material
omitted.
27 Financial Data Schedule as of and for
the Three Months Ended September 30,
1997.
b. Reports on Form 8-K.
None.
14
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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 14, 1997 By: /s/ Michael A DeGiglio
------------------------
Michael A. DeGiglio
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ Harold A. Joannidi
------------------------
Harold A. Joannidi
Treasurer & Secretary
(Principal Financial & Accounting Officer)
15
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ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit Number Description of Exhibit Page Number
- -------------- ---------------------- -----------
10.57 Agreement between Agro Dynamics, Inc. 17
and Grodania A/S, dated September 29,
1997, with certain confidential material
omitted
27 Financial Data Schedule as of and for the 28
Three Months Ended September 30, 1997
16
ECOSCIENCE CORPORATION
EXHIBIT 10.57
Agreement between Agro Dynamics, Inc. and Grodania A/S, dated
September 29, 1997, with certain confidential material omitted
17
<PAGE>
THIS AGREEMENT (the "Agreement") is dated September 29, 1997 and made
BETWEEN
(a) AGRO DYNAMICS INC. (hereinafter referred to as the "Distributor"), 10 Alvin
Court, East Brunswick, New Jersey 08816, USA, duly organized and existing
under the laws of the state of Delaware a subsidiary of EcoScience
(hereinafter referred to "ECS"), 10 Alvin Court, duly organized and
existing under the laws of the state of Delaware;
(b) GRODANIA A/S, registration number A/S 104.022, Hovedgaden 501, 2640
Hedehusene, Denmark, duly organized and existing under the laws of Denmark,
(hereinafter referred to as the "Supplier").
In consideration of the mutual promises, agreements, and covenants hereinafter
set forth, it is mutually agreed as follows:
Clause 1 - Definition
Supplier is a supplier of growing substrates based on mineral wool products for
the horticultural industry/intensive greenhouse farming, sold under the
trademark GRODAN(R) (hereinafter referred to as the "Trademark") which may be
manufactured by Supplier or by other members of the Rockwool International
Group. The Agreement comprises products for growing purposes consisting of
(Confidential).
Clause 2 - Subject Matter of Agreement
2.1. Supplier hereby grants to Distributor the sole and exclusive right to sell
the Products in all of the States of the United States, including its
territories and possessions, Canada, Mexico and the Caribbean (hereinafter
referred to as the "Territory").
Distributor shall not be entitled to export the Products to areas outside
the Territory without the prior written consent from Supplier and
Distributor is obliged to make sales to a third party subject if legally
possible to export clause forbidding exports outside the Territory by such
third party.
2.2. Supplier shall not, except as provided in clause 2.3 and 2.4, export
Products into, or sell Products in the Territory except to Distributor.
Supplier will not establish any distribution in the Territory nor will it
support any distributor other than AGRO DYNAMICS INC. for sale of products
in the Territory. (Confidential).
2.3. In the event of larger projects in the Territory being handled outside the
Territory, Supplier will refer such inquiries to Distributor.
(Confidential).
2.4. (Confidential).
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<PAGE>
It is not the intention of Supplier to actively seek direct sales in the
Territory.
(Confidential).
Clause 3 - Distributor's Obligations
3.1. Distributor shall promptly disclose to Supplier all improvements and new
ways of using the Products useful in connection with the use and sale of
the Products developed by Distributor or seen in the territory during the
term of this Agreement, whether patentable or not, and Supplier shall have
the right to make use of the same royalty free. Supplier's right to make
such use shall survive the termination of the Agreement.
3.2. All information relating to GRODAN inventions and other information
furnished by Supplier to Distributor and used by the Distributor pursuant
to this Agreement shall be deemed to be the property of Supplier and to
have been disclosed in confidence and shall be held in confidence by
Distributor. Distributor shall exert all faithful and reasonable efforts to
prevent any disclosure thereof to third parties during the term of this
Agreement and for so long thereafter as such information shall not be
generally known in the trade.
Nothing in this Clause is intended, or shall be construed to prohibit
disclosures to the adviser referred to in Clause 3.7., or to customers in
connection with the use of the Products.
3.3. Distributor shall keep Supplier currently informed about market conditions
in the Territory i.e. state of competition, pricing, activities etc.
3.4. On an annual basis, in September each year, Distributor shall give to
Supplier a plan showing the activities which Distributor will carry through
in order to expand the application of the Products in the Territory. It is
imperative that the plan contains an overall picture of status, budgets and
activities, describing the USA, Canada and Mexico separately.
3.5. Each year before the end of June and December Distributor will furnish
Supplier with a report showing the development of sales in the Territory
compared to the plan and to the corresponding period for the previous year
and a high-light of current activities.
3.6. Distributor shall endeavor to maintain the best possible co-operation with
Supplier in order to maximize sales and in order to secure that present and
potential customers are given a technical, horticultural advisory service
which will enable such customers to appreciate the full benefits connected
with the proper use of the Products and secure optimal growing results.
19
<PAGE>
3.7. Distributor shall engage fully qualified horticultural, technical advisors,
consistent with market demands and performance requirements of GRODAN.
GRODANIA A/S will implement continuous training programs for said technical
advisors.
3.8. Distributor will, with regular intervals and/or upon reasonable request
disclose to Supplier a list of all customers having purchased the Products
over the previous period. The information per customer will comprise name,
address and telephone number as well as Product(s) purchased. If available,
information about crops, acreage and applications will be added as well.
3.9. Distributor is under an obligation in the Distributors' Delivery Terms to
insert provisions securing that the Supplier cannot be met with claims for
indirect loss of any kind of product liability from sales to Peat Mixers
(buyers mixing Supplier's granulates with other products and selling such
mixed products to end-users or sub-distributors). If such a limitation is
not included in the Distributor's agreement with Peat Mixers and end-users,
the Distributor may not seek reimbursement for any claims made by such Peat
Mixers and/or end-users. If, however, such limitation included in the
Distributor agreement with Peat Mixers and/or end-users is deemed
unenforceable by applicable law, the Distributor shall be entitled to seek
reimbursement from Supplier from and against any such claim from Peat
Mixers and/or end-users asserted against Distributor.
Clause 4 - Supplier's Obligations
4.1. Supplier shall give Distributor access to all information in the possession
of Supplier useful in connection with the sale and use of the Products.
Supplier shall, at his own expense, provide technical business managers in
key marketing areas as deemed necessary by the Supplier for the purpose of
rendering technical advice to Distributor and/or end-users with respect to
sale and application of the Products. All costs concerned with
Distributor's participation to be borne by Distributor. Supplier is at
liberty to pay visits to growers etc. at his own expense and without
Distributor's presence. Both parties agree that it is of great importance
to keep each other informed of customer visits. (Confidential).
4.2. Supplier shall call to the attention of Distributor any other growing
substrates for other market segments, e.g. agriculture, forestry and retail
developed by Supplier - provided they not be replacement for Products as
described under clause 1.1. - during the term of this Agreement, and
Distributor shall have the option to obtain the exclusive right to sell any
such products in the Territory during the term of this Agreement (including
any renewals hereof), provided the parties are able to agree upon terms and
conditions, including minimum purchase values which could be added to the
values as mentioned under clause 10.1., taking appropriate introduction and
evaluation times into consideration.
(Confidential).
20
<PAGE>
Clause 4.2 does not apply to Supplier's environmental diversification
projects such as Sound Absorbent Walls and Roof Greening which Supplier is
free to develop and market independently of Distributor.
If the Distributor request the Supplier to develop viable products fitting
Distributor's diversification plans, Supplier will in good faith with
active input from Distributor try to reveal whether or not such a product
can be developed. If the Supplier at the Supplier's discretion decides that
such a viable product cannot be developed, the Distributor will still be
limited in Distributor's actions according to the Agreement, of clause 11.
4.3. Supplier shall pass on to Distributor all relevant information about the
inquiries from the Territory which may reach Supplier.
4.4. Supplier warrants and represents to Distributor that this Agreement, when
executed and delivered by the parties, will under Danish law be a valid and
binding agreement, enforceable in accordance with its terms. Likewise,
Distributor warrants and represents to Supplier that this Agreement, when
executed and delivered by the parties will under U.S. law be a valid and
binding agreement enforceable in accordance with its terms.
4.5. (Confidential).
Clause 5 - Prices, Terms and Conditions
5.1. The Supplier has no obligation to supply from any specific location. The
parties have by way of the Agreement modified the clause Ex Works
(INCOTERMS) so that the risk of loss will pass from Supplier to Distributor
at the time where Products have been loaded on to the carrier at the
Supplier's premises in Denmark, Holland and Canada. This alteration of the
time where the risk of loss passes to Distributor has not in any other way
altered the application of the clause Ex Works (INCOTERMS). 90 days before
any change in prices can take effect Supplier and Distributor will enter
into discussions as to the level of such a change. The decision to make a
change in prices is the sole decision of the Supplier and the Supplier will
give (Confidential) days' notice before any change in prices is effected.
The notice shall state the specific prices regarding Products to be applied
after the elapse of the (Confidential) days' notice period.
21
<PAGE>
Clause 6 - Limitation Damages
6.1. Supplier is never to be held responsible for any loss which a defective
delivery might inflict on buyer or third party in connection with
application of the supplied goods. Responsibility for any form of loss of
profits as well as for any loss inflicted on buyer or third party in
consequence of delay or for any other reason is of no concern of
Supplier's. In the event of larger accounts in the Territory requiring
extra security with regard to deliveries Supplier agrees to negotiate
special conditions with Distributor, these negotiations to be carried out
in good faith and within reasonable time.
Supplier and Distributor shall both take out "Product Liability Insurance"
and Supplier and Distributor shall by way of a statement from either
party's insurance company state coverage (amounts per year and per
occurrence) and own risk of the insured.
Clause 7 - Patents and Protection of Designs
7.1. Distributor undertakes not in any way to attack directly or through third
parties the patents or other proprietary rights belonging to Supplier.
Apart from the above situation Supplier shall indemnify and hold
Distributor harmless from and against any and all claims, damages, losses,
and expenses (including reasonable attorney's fees) based upon or arising
out of any claim or determination (and the investigation thereof) that the
Products violate patents or other proprietary rights of third parties.
Supplier at its sole cost and expense may upon notice to Distributor assume
through counsel the defense of any litigation brought by a third party.
Should Supplier after having been presented with a claim or determination
as mentioned above decide to assume the defense or to discontinue legal
action already assumed, Supplier may terminate this Agreement with
Distributor and Supplier shall only be obliged to pay damages and losses
suffered by Distributor as provided in the first sentence of second
paragraph of this clause 7.1 and expenses to Distributor. Distributor as
provided in the first sentence on the second paragraph of this clause 7.1
shall in this case not be entitled to raise any claim for any other damages
or losses.
Should Distributor in this case wish to assume the defense of legal action
brought by third party Distributor shall be entitled to do so at its own
expense. Should Distributor win the legal action the Agreement shall remain
in full force and effect.
22
<PAGE>
Clause 8 - Trademark
8.1. Supplier has or shall endeavor to register the "Trademark" and Distributor
shall be entitled to use the Trademark during the term of this Agreement,
but shall not be entitled to register or use, either during the term of
this Agreement or at any time hereafter, any mark or name having such
similarity to the Trademark as would be likely to cause confusion.
The Trademark and any and all good-will associated with symbolized by the
Trademark shall be the property of Supplier.
Distributor may in connection with the distribution of Products use the
name "AGRO DYNAMICS INC." or a variant thereof, all of which shall remain
the sole property of Distributor. If distribution is to be made in name of
another company this is to be approved by Supplier which shall not be
unreasonably withheld.
Clause 9 - Sub-dealers
9.1. Distributor shall not be entitled to grant any right to third parties in
the Territory to sell any of the Products, without previous written consent
of the Supplier, which shall not, however, be unreasonably withheld.
Clause 10 - (Confidential).
10.1.Distributor will, during the term of this Agreement, consistent with sound
business practice and using its reasonable efforts, sell and purchase the
maximum amount of Products practicable.
Distributor shall in consultation with Supplier and on an annual basis in
the third quarter of each calendar year, evaluate project potentials, sales
and market share targets and activities for the following calendar year
per.
1. Geographical marketing area
2. Application area
3. Product group
(Confidential).
The minimum purchase comprehends only the Products and not additional
products sold by Distributor according to clause 4.2 or 4.5.
(Confidential).
23
<PAGE>
Distributor will maintain a reasonable stock of the Products in the
Territory, the quantity to be agreed upon by both parties acting reasonably
and in good faith. Supplier will maintain a reasonable level of product
quality and delivery service.(Confidential).
(Confidential).
10.2. (Confidential).
10.3.Distributor's obligation to purchase the Products shall be excused if
Distributor's or Supplier's failure to perform is due to force majeure,
war, fire, flood, severe weather, accident, strike, delay in
transportation, order of a court or governmental agency, or other causes -
including but not limited to a new or current supplier buying market share
reasonably beyond the control of the party failing to perform.
Clause 11 - Limitations
11.1.During the term of this Agreement Distributor shall not, directly or
indirectly, deal in or produce any products competing with the Products or
any other directly or indirectly competing product in any market segment
including - but not limited to - products for retail, forestry and
agriculture. Any other growing media is regarded as a competitive product,
unless otherwise is agreed to in writing which agreement shall not be
unreasonably withheld by Supplier.
Upon termination of this Agreement whatever the reason might be, both
parties are mutually committed not to pass on any confidential information
having been given by the other party.
Clause 12 - Duration and Termination
12.1.This Agreement shall commence January 1, 1998 and continue until December
31, 2000.
The Agreement substitutes a former agreement entered into between Supplier
and Distributor signed on November 12, 1992 with effect of January 1, 1993.
24
<PAGE>
This Agreement shall automatically be extended for successive one (1) year
terms unless either party by at least (Confidential) prior written notice
to the other given during the then current term elects reasonably and in
good faith to terminate this Agreement at the end of the then current term.
This Agreement may also be terminated as elsewhere in this Agreement
expressly provided. Any termination of this Agreement as provided anywhere
herein shall not effect any rights or claims of any party arising prior to
such termination.
12.2.In the event that either Supplier or Distributor determines during the
original or any extended term of this Agreement to construct or acquire and
operate in the Territory greenhouses or other facilities utilizing the
Products, it will advise the other.
12.3.Either party may terminate the Agreement if the other party fails to
perform any material obligation according to the Agreement. As an example
of a material obligation a reference can be made to clause 12.5.
If a material obligation under the Agreement is not being complied with,
the nondefaulting party can forward a demand to the defaulting party
stating that a non-compliance has occurred and the nature of such
non-compliance. The defaulting party must be given a 2 weeks' notice from
receipt of the demand in order to remedy the breach. If the defaulting
party has not remedied the breach within this time limit, the
non-defaulting party can terminate the Agreement with immediate effect.
In the event that Distributor shall become insolvent, or go bankrupt, or
shall be placed under the control of a receiver, liquidator, or committee
of creditors, or in the event of a judicial or voluntary liquidation of
Distributor, this Agreement may be terminated by the Supplier with
immediate effect.
12.4. (Confidential).
In the event that Distributor shall become insolvent, or go bankrupt, or
shall be placed under control of a receiver, liquidator, or committee of
creditors, or in the event of a judicial or voluntary liquidation of
Distributor, this Agreement may be terminated by the Supplier with
immediate effect.
12.5.(Confidential).
12.6.In the event that Supplier decides to completely abandon sales and
distribution of the Products in the Territory for financial, environmental
or other reasons, Supplier may at this sole discretion terminate this
agreement with three (3) months prior written notice.
Clause 13 - Law Applicable
13.1.This Agreement shall be deemed to have been made in Denmark, and Danish
law shall apply to all disputes about its proper interpretation and
application.
25
<PAGE>
Clause 14 - Settlement of Disputes
14.1.Any disputes arising under this Agreement shall be settled in accordance
with the "Rules of Procedure of the International Court of Arbitration" in
Copenhagen.
Clause 15 - Miscellaneous
15.1 Distributor shall pay any stamp duty imposed in the Territory whereas
Supplier shall pay the Danish stamp duty if any.
15.2.Either Party shall retain one copy of this Agreement duly signed.
15.3.If any of the provisions contained in this Agreement be or come illegal,
such provisions shall be subject to re-negotiations and the remaining
provisions of this agreement shall remain in full force and effect.
15.4.Any amendments to this Agreement shall be deemed to be invalid unless made
in writing and signed by both parties.
15.5.The Distributor will accept that the Supplier transfers all his rights and
obligations to this Agreement to an "Affiliate" of the Supplier.
15.6.ECS has by co-signing this Agreement accepted the Agreement as jointly and
severally liable for all Distributor's obligations under the Agreement.
26
<PAGE>
(the Distributor) (the Supplier)
AGRO DYNAMICS INC. GRODANIA A/S
by: /s/ Michael A. DeGiglio by: /s/ Stig Damgaard Pedersen
---------------------------------- ---------------------------
President and Chief Executive Officer Managing Director
ECOSCIENCE:
by: /s/ Michael A. DeGiglio
----------------------------------
President and Chief Executive Officer
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of September 30, 1997 and Consolidated Statement
of Operations for the Three Months Ended September 30, 1997 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-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 660
<SECURITIES> 533
<RECEIVABLES> 1,906
<ALLOWANCES> 163
<INVENTORY> 2,562
<CURRENT-ASSETS> 6,643
<PP&E> 1,097
<DEPRECIATION> 393
<TOTAL-ASSETS> 9,270
<CURRENT-LIABILITIES> 5,565
<BONDS> 11
0
0
<COMMON> 104
<OTHER-SE> 3,440
<TOTAL-LIABILITY-AND-EQUITY> 9,270
<SALES> 3,993
<TOTAL-REVENUES> 3,993
<CGS> 3,088
<TOTAL-COSTS> 3,088
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> (475)
<INCOME-TAX> 0
<INCOME-CONTINUING> (475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (475)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
