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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: December 31, 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.
Outstanding at
Class February 12, 1998
- ----- -----------------
Common Stock, par value $0.01 per share 10,487,455
Total Number of Sequentially Numbered Pages: 20 Exhibit Index on Page: 19
<PAGE>
ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
(Unaudited)
Page
Part I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets -
December 31, 1997 and June 30, 1997................... 3
Consolidated Statements of Operations -
Three and Six Months Ended December 31, 1997 and 1996. 4
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1997 and 1996.......... 5
Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
Part II. - Other Information.............................................. 17
Signatures.................................................................. 18
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 681 $ 1,247
Short-term investments ....................................... 533 528
Accounts receivable, less reserves of $203 at
December 31, 1997 and $150 at June 30, 1997 .............. 3,777 1,788
Inventories .................................................. 2,063 1,940
Other current assets ......................................... 1,472 842
-------- --------
Total current assets ..................................... 8,526 6,345
-------- --------
Property and equipment, net ..................................... 858 562
Intangible assets, net .......................................... 1,593 1,745
Other non-current assets ........................................ 96 223
-------- --------
Total assets ......................................... $ 11,073 $ 8,875
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings ........................................ $ 1,444 $ --
Current maturities of long-term debt ......................... 8 10
Accounts payable ............................................. 3,581 2,641
Accrued restructuring costs .................................. 225 307
Accrued expenses and other current liabilities ............... 1,964 1,752
-------- --------
Total current liabilities ................................ 7,222 4,710
-------- --------
Non-current liabilities:
Long-term debt, less current maturities ...................... 10 1
Other long-term liabilities .................................. 150 150
-------- --------
Total non-current liabilities ............................ 160 151
-------- --------
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;
10,487,455 and 10,401,177 shares issued and outstanding at
December 31, 1997 and June 30, 1997, respectively ........ 105 104
Additional paid-in capital ................................... 57,303 57,222
Accumulated deficit .......................................... (53,722) (53,312)
Unrealized gain on short-term investments .................... 5 --
-------- --------
Total stockholders' investment ........................... 3,691 4,014
-------- --------
Total liabilities and stockholders' investment ....... $ 11,073 $ 8,875
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Product sales ...................... $ 7,859 $ 7,753 $ 11,852 $ 12,261
Cost of goods sold ................. 6,248 6,049 9,336 9,454
-------- -------- -------- --------
Gross profit ....................... 1,611 1,704 2,516 2,807
-------- -------- -------- --------
Operating expenses:
Research and development ....... 102 153 202 281
Selling and marketing .......... 792 632 1,523 1,210
General and administrative ..... 626 523 1,179 1,085
Reversal of restructuring charge -- -- -- (77)
-------- -------- -------- --------
Total operating expenses . 1,520 1,308 2,904 2,499
-------- -------- -------- --------
Operating income (loss) ............ 91 396 (388) 308
-------- -------- -------- --------
Other income (expense):
Research, development, licensing
fees and other income ...... -- -- -- 7
Investment income .............. 13 21 30 55
Interest and other expense ..... (39) (46) (52) (120)
-------- -------- -------- --------
Total other expense ...... (26) (25) (22) (58)
-------- -------- -------- --------
Net income (loss) .................. $ 65 $ 371 $ (410) $ 250
======== ======== ======== ========
Earnings (loss) per share:
Basic
Net income (loss) per share . $ 0.01 $ 0.04 $ (0.04) $ 0.03
======== ======== ======== ========
Weighted average common shares
outstanding .............. 10,449 10,382 10,425 9,885
======== ======== ======== ========
Diluted
Net income (loss) per share . $ 0.01 $ 0.04 $ (0.04) $ 0.02
======== ======== ======== ========
Aggregate diluted shares .... 10,692 10,513 10,425 10,026
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------
1997 1996
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income .................................................. $ (410) $ 250
Adjustments to reconcile net (loss) income
to net cash used for operating activities:
Depreciation and amortization .............................. 177 195
Gain on sale of property and equipment ..................... (3) --
Gain on sale of investments ................................ -- (2)
Reversal of restructuring charge ........................... -- (77)
Foreign exchange loss ...................................... 3 3
Changes in current assets and liabilities:
Accounts receivable, net .............................. (1,989) (3,078)
Inventories ........................................... (123) 306
Other current assets .................................. (630) 33
Accounts payable and accrued expenses ................. 1,216 1,376
Accrued restructuring costs ........................... (82) (97)
------- -------
Net cash used for operating activities ............. (1,841) (1,091)
------- -------
Cash flows from investing activities:
Purchases of property and equipment ................................ (404) (34)
Proceeds from sales of property and equipment ...................... 19 --
Proceeds from sales of short-term investments ...................... -- 677
Proceeds from release of restricted cash ........................... -- 444
Decrease in other non-current assets ............................... 127 15
------- -------
Net cash (used for) provided by investing activities (258) 1,102
------- -------
Cash flows from financing activities:
Proceeds from issuance of stock .................................... 82 1,119
Proceeds from long-term debt ....................................... 17 --
Net borrowings under line of credit ................................ 1,444 --
Payments on long-term debt and capital leases ...................... (10) (990)
------- -------
Net cash provided by financing activities .......... 1,533 129
Effect of exchange rate changes on cash ............................... -- 1
------- -------
(Decrease) increase in cash and cash equivalents ...................... (566) 141
Cash and cash equivalents at beginning of period ...................... 1,247 734
------- -------
Cash and cash equivalents at end of period ............................ $ 681 $ 875
======= =======
Total unrestricted and restricted cash, cash equivalents
and short-term investments at end of period ........................ $ 1,214 $ 1,661
======= =======
Supplemental cash flow information
Cash paid for:
Interest ....................................................... $ 39 $ 133
Income taxes ................................................... 5 11
Non-cash investing and financing activities:
Disposition of equipment under capital lease ................... -- 308
Termination of capital lease obligations ....................... -- (1,248)
Reduction of goodwill for purchase price adjustment ............ 67 --
Reduction of accrued expenses and other current liabilities
for purchase price adjustment ................................ (67) --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 $681,000 of cash and cash equivalents
and $533,000 of short-term investments as of December 31, 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 December 31, 1998. The Company may need
to raise additional funds to finance its ongoing operations and expected growth
after December 31, 1998, although there can be no assurances that such funds
will be available on terms favorable to the Company. If the proposed merger, as
described in Note 2, is not completed, then the Company will continue to explore
other 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. PROPOSED MERGER
On November 20, 1997, the Company announced that it had entered into a
letter of intent to merge with Agro Power Development, Inc. ("APD"), a privately
held corporation. As currently proposed, APD will be merged with a newly formed
subsidiary of EcoScience. Pursuant to the merger, APD shareholders will receive,
in exchange for their APD shares, EcoScience common stock representing 80% of
the outstanding common stock of EcoScience on a fully diluted basis after the
merger.
6
<PAGE>
The companies are combining to form an integrated, environmentally
responsible, global agri-business to take advantage of their respective
expertise in naturally derived food technologies, intensive production of high
quality fresh produce, innovative biorational pest control technologies, and
sophisticated growing and postharvest systems. EcoScience believes APD will
provide the combined entity greater international presence, increased marketing
capability, management depth, and the operating level needed to accelerate
revenue growth and increase shareholder value.
The merger is subject to completion of final due diligence by both parties,
negotiation and execution of a definitive merger agreement, and approval by
EcoScience and APD stockholders. The letter of intent originally contemplated a
formal merger agreement would have been executed by the parties on or before
January 10, 1998; however to accommodate completion of due diligence, the
execution date has been extended to March 10, 1998. Michael A. DeGiglio,
President, Chief Executive Officer and Director of EcoScience, is a principal
stockholder, Chief Executive Officer and Director of APD.
3. 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 six months ended December 31,
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 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 six months ended December 31, 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 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.
7
<PAGE>
4. 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,
1997 1997
------ ------
(In thousands)
Raw materials ........................ $ 74 $ 17
Finished goods ....................... 1,989 1,923
------ ------
$2,063 $1,940
====== ======
Finished goods include material, labor and manufacturing overhead costs.
5. NET INCOME (LOSS) PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), which makes certain
changes to the manner in which earnings per share ("EPS") is reported. The
adoption of this standard has required restatement of prior years' earnings per
share.
Dilutive securities had no effect on net income (loss) for all periods
reported. A reconciliation of weighted average common shares outstanding used in
computing Basic EPS to aggregate diluted shares used in computing Diluted EPS
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic EPS
Weighted average common shares
outstanding .................. 10,449,000 10,382,000 10,425,000 9,885,000
Effect of dilutive securities
Warrants ..................... 29,000 -- -- --
Options ...................... 214,000 131,000 -- 141,000
---------- ---------- ---------- ----------
243,000 131,000 -- 141,000
---------- ---------- ---------- ----------
Diluted EPS
Aggregate diluted shares ..... 10,692,000 10,513,000 10,425,000 10,026,000
========== ========== ========== ==========
</TABLE>
Options to purchase 93,000 shares of common stock at prices ranging from
$1.56 to $7.00 and warrants to purchase 513,000 shares of common stock at prices
ranging from $2.00 to $9.75 were outstanding during the three months ended
December 31, 1997, but were not included in the computation of Diluted EPS,
because their exercise prices were greater than the average market price of the
common shares for the three months ended December 31, 1997.
8
<PAGE>
Options to purchase 799,000 shares of common stock at prices ranging from
$0.56 to $7.00 and warrants to purchase 662,000 shares of common stock at prices
ranging from $1.00 to $9.75 were outstanding during the six months ended
December 31, 1997, but were not included in the computation of Diluted EPS
because the effect on the Company's net loss per share would be anti-dilutive.
9
<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 plant 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.
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.; and (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
bio-insecticide 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 International Company L.P. ("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 program with Maruwa BioChemical Co., Ltd. ("Maruwa")
and Shinto Paint Co., Ltd. for biological products in Japan. The Company
commenced shipments of Bio-Blast to Maruwa in fiscal 1997.
10
<PAGE>
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.
Proposed Merger
On November 20, 1997, the Company announced that it had entered into a
letter of intent to merge with Agro Power Development, Inc. ("APD"), a privately
held corporation. As currently proposed, APD will be merged with a newly formed
subsidiary of EcoScience. Pursuant to the merger, APD shareholders will receive,
in exchange for their APD shares, EcoScience common stock representing 80% of
the outstanding common stock of EcoScience on a fully diluted basis after the
merger.
The companies are combining to form an integrated, environmentally
responsible, global agri-business to take advantage of their respective
expertise in naturally derived food technologies, intensive production of high
quality fresh produce, innovative biorational pest control technologies, and
sophisticated growing and postharvest systems. EcoScience believes APD will
provide the combined entity greater international presence, increased marketing
capability, management depth, and the operating level needed to accelerate
revenue growth and increase shareholder value.
The merger is subject to completion of final due diligence by both parties,
negotiation and execution of a definitive merger agreement, and approval by
EcoScience and APD stockholders. The letter of intent originally contemplated a
formal merger agreement would have been executed by the parties on or before
January 10, 1998; however to accommodate completion of due diligence, the
execution date has been extended to March 10, 1998. Michael A. DeGiglio,
President, Chief Executive Officer and Director of EcoScience, is a principal
stockholder, Chief Executive Officer and Director of APD.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 vs.
Three Months Ended December 31, 1996
The Company's product sales increased $106,000 or 1% to $7,859,000 for the
three months ended December 31, 1997 from $7,753,000 for the same period in
1996. This increase was primarily due to the increase in product sales in the
Specialty Agriculture market of $847,000, partially offset by a decrease in
product sales in the Postharvest Fruits and Vegetables market of $740,000.
11
<PAGE>
The following table sets forth the Company's product sales by market for the
three months ended December 31, 1997 and 1996:
Three Months Ended December 31,
---------------------------------
Increase
(In thousands) ......................... 1997 1996 (Decrease)
------ ------ ----------
Specialty Agriculture .................. $5,706 $4,859 $ 847
Postharvest Fruits and Vegetables ...... 2,153 2,893 (740)
Biological Insect Control .............. -- 1 (1)
------ ------ ------
Consolidated ........................... $7,859 $7,753 $ 106
====== ====== ======
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. Additionally, the Company exclusively sells Aweta
B.V.'s, a Netherlands based company, 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 believes if the Company ceased to operate under its current
distribution arrangements, the Company could arrange distribution agreements
with other manufacturers or suppliers of such products and equipment on
comparable terms. Any such change, however could cause the Company delays in
filling sales orders, as well as, possible loss of sales, which would adversely
affect the Company's operating results.
The Company sold products to APD, an affiliate, in the amount of $2,589,000
or 33% of product sales for the three months ended December 31, 1997 and
$1,610,000 or 21% of product sales in the same period in 1996. Management
believes that prices and fees charged to APD are reasonable. Loss of revenue
from this customer would adversely affect operations. Sales to APD are expected
to account for more than 10% of the Company's product sales for the fiscal year
ending June 30, 1998.
Cost of goods sold increased $199,000 or 3% to $6,248,000 for the three
months ended December 31, 1997 from $6,049,000 for the same period in 1996,
primarily due to product sales increases and a change in product mix.
Gross margin on product sales decreased $93,000 or 5% to $1,611,000 for the
three months ended December 31, 1997 from $1,704,000 for the same period in
1996, while gross margin percentage on product sales decreased to 20% for the
three months ended December 31, 1997 from 22% for the same period in 1996. The
decrease in gross margin percentage was primarily due to competitive pressures
and a shift in product mix towards typically lower margin product lines in the
Specialty Agriculture market, partially offset by an increase in gross margin
percentage in the Postharvest Fruits and Vegetables market.
Research and development expenses decreased $51,000 or 33% to $102,000 for
the three months ended December 31, 1997 from $153,000 for the same period in
1996, due primarily to reductions in personnel and related costs. The Company
has and will continue to incur ongoing research and
12
<PAGE>
development expenses for its Bio-Save PostHarvest BioProtectant, Bio-Blast
Biological Termiticide and other select programs in fiscal 1998.
Selling and marketing expenses increased $160,000 or 25% to $792,000 for
the three months ended December 31, 1997 from $632,000 for the same period in
1996, due primarily to additional personnel, promotional, customer site and
related costs to support efforts to increase market penetration and the
marketing of expanded product lines.
General and administrative expenses increased $103,000 or 20% to $626,000
for the three months ended December 31, 1997 from $523,000 for the same period
in 1996, primarily due to increases in personnel and related costs, and certain
credit risks on increased sales volume and expanded markets.
Operating income decreased $305,000 to $91,000 for the three months ended
December 31, 1997 compared to $396,000 for the same period in 1996. The decrease
in operating income resulted from a $93,000 decrease in gross profits for the
three months ended December 31, 1997 compared to the same period in 1996, and a
$212,000 increase in operating expenses.
Other income/(expense) increased by $1,000 to ($26,000) net expense for the
three months ended December 31, 1997 compared to ($25,000) net expense for the
same period in 1996.
The Company's net income decreased $306,000 or $0.03 per diluted share to
$65,000 or $0.01 per diluted share for the three months ended December 31, 1997
compared to $371,000 or $0.04 per diluted share for the same period in 1996.
Six Months Ended December 31, 1997 vs.
Six Months Ended December 31, 1996
The Company's product sales decreased $409,000 or 3% to $11,852,000 for the
six months ended December 31, 1997 from $12,261,000 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 $1,275,000 and in the Biological
Insect Control market of $102,000, partially offset by an increase in the
Specialty Agriculture market of $968,000. The following table sets forth the
Company's product sales by market for the six months ended December 31, 1997 and
1996:
Six Months Ended December 31,
---------------------------------
Increase
(In thousands) ......................... 1997 1996 (Decrease)
------- ------- ---------
Specialty Agriculture .................. $ 8,374 $ 7,406 $ 968
Postharvest Fruits and Vegetables ...... 3,478 4,753 (1,275)
Biological Insect Control .............. -- 102 (102)
------- ------- -------
Consolidated ........................... $11,852 $12,261 $ (409)
======= ======= =======
The Company sold products to APD in the amount of $3,184,000 or 27% of
product sales for the six months ended December 31, 1997 and $2,165,000 or 18%
of product sales for the same period in 1996.
13
<PAGE>
Cost of goods sold decreased $118,000 or 1% to $9,336,000 for the six
months ended December 31, 1997 from $9,454,000 for the same period in 1996
primarily due to product sales decreases.
Gross margin on product sales decreased $291,000 or 10% to $2,516,000 for
the six months ended December 31, 1997 from $2,807,000 for the same period in
1996, while gross margin percentage on product sales decreased to 21% for the
six months ended December 31, 1997 from 23% for the same period in 1996. The
decrease in gross margin percentage was primarily due to competitive pressures
and a shift in product mix towards typically lower margin product lines in the
Specialty Agriculture market, lack of product sales in the typically higher
margin Biological Insect Control market, and was partially offset by an increase
in gross margin percentage in the Postharvest Fruits and Vegetables market.
Research and development expenses decreased $79,000 or 28% to $202,000 for
the six months ended December 31, 1997 from $281,000 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 $313,000 or 26% to $1,523,000 for
the six months ended December 31, 1997 from $1,210,000 for the same period in
1996, due primarily to additional personnel, promotional, customer site and
related costs to support efforts to increase market penetration and the
marketing of expanded product lines.
General and administrative expenses increased $94,000 or 9% to $1,179,000
for the six months ended December 31, 1997 from $1,085,000 for the same period
in 1996, primarily due to increases in personnel and related costs, and certain
credit risks from expanded markets.
Operating income decreased $696,000 to a loss of ($388,000) for the six
months ended December 31, 1997 compared to operating income of $308,000 for the
same period in 1996. The increase in operating loss resulted from a $291,000
decrease in gross profits for the six months ended December 31, 1997 compared to
the same period in 1996, and a $405,000 increase in operating expenses.
Excluding non-recurring amounts in 1996, operating income for the six months
ended December 31, 1997 decreased $619,000 to a loss of ($388,000) from
operating income of $231,000 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 $328,000 or 13% to $2,904,000 for the six months
ended December 31, 1997 compared to $2,576,000 for the same period in 1996, when
the restructuring reversal is excluded for 1996.
Other income/(expense) decreased by $36,000 to ($22,000) net expense for
the six months ended December 31, 1997 compared to ($58,000) net expense for the
same period in 1996. The decrease was primarily attributable to a reduction in
interest expense of $68,000 or 57%, primarily due to the lower average level of
capital lease obligations outstanding during the six months ended December 31,
1997 compared to the same period in 1996; partially offset by (i) a decrease in
investment income of $25,000 resulting from a decline in the average funds
available for investment in the six months ended December 31, 1997 compared to
the same period in 1996 and (ii) a $7,000 decrease in research and development
income in the 1997 period compared to the 1996 period.
14
<PAGE>
The Company's net income decreased $660,000 or $0.06 per diluted share to a
net loss of ($410,000) or ($0.04) per diluted share for the six months ended
December 31, 1997 compared to net income of $250,000 or $0.02 per diluted share
for the same period in 1996. Excluding non-recurring amounts, the net loss for
the six months ended December 31, 1997 was ($410,000) or ($0.04) per diluted
share, a $583,000 or $0.06 per diluted share increase in loss, compared to net
income of $173,000 or $0.02 per diluted share for the same period in 1996, when
the $77,000 reversal of accrued restructuring costs is excluded from the 1996
period.
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 $681,000 at December 31, 1997 compared to
$1,247,000 at June 30, 1997. Cash, cash equivalents and short-term investments
totaled $1,214,000 at December 31, 1997 compared to $1,775,000 at June 30, 1997.
Cash used for operating activities totaled $1,841,000 for the six months ended
December 31, 1997 and principally consisted of a net loss of ($410,000) and
increases in accounts receivable of $1,989,000 and other current assets of
$630,000, partially offset by an increase in accounts payable and accrued
expenses of $1,216,000. Cash provided by financing activities totaled $1,533,000
in the six months ended December 31, 1997, which consisted principally of net
borrowings under the Company's revolving line of credit of $1,444,000. Cash used
for investment activities for the six months ended December 31, 1997 totaled
$258,000, which consisted principally of purchases of property and equipment of
$404,000, partially offset by a decrease in other non-current assets of
$127,000. The Company's working capital and current ratio were $1,304,000 and
1.2 to 1, respectively, at December 31, 1997 compared to $1,635,000 and 1.3 to
1, respectively, at June 30, 1997.
Debt increased by $1,451,000 to $1,462,000 at December 31, 1997 compared to
$11,000 at June 30, 1997. The increase was due to seasonal financing needs at
December 31, 1997. The amount available under the Company's revolving line of
credit was $1,556,000 at December 31, 1997.
In the six months ended December 31, 1997, the Company funded $82,000 of
accrued restructuring costs that had been recorded in fiscal 1994 and 1995. The
balance of accrued restructuring costs, $375,000 (total current and non-current
portions), as of December 31, 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 $681,000 of cash and cash equivalents and
$533,000 of short-term investments as of December 31, 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
15
<PAGE>
working capital needs, planned capital expenditures, restructuring program
initiatives and related obligations, and to service its indebtedness through
December 31, 1998. The Company may need to raise additional funds to finance its
ongoing operations and expected growth after December 31, 1998, although there
can be no assurances that such funds will be available on terms favorable to the
Company. If the proposed merger, as described in Note 2 to the Consolidated
Financial Statements, is not completed, then the Company will continue to
explore other 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 and those which relate to the completion of a proposed merger
and the combined entity. 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,
political, economic or other conditions, and market acceptance and corporate
position of the Company and the combined entity. Furthermore, market trends are
subject to changes, which could adversely affect future results.
16
<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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Exhibit
Number Description
------ -----------
27 Financial Data Schedule as of and for the
Six Months Ended December 31,1997.
b. Reports on Form 8-K.
Report dated, November 20, 1997, which incorporated a press
release made available to the public on November 20, 1997
and which referred to the Company entering into a Letter of
Intent whereby Agro Power Development, Inc. will be merged
with and into a newly formed subsidiary of the Company. Both
documents were attached as exhibits.
17
<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 13, 1998 By: /s/ Michael A. DeGiglio
-------------------------
Michael A. DeGiglio
President and Chief Executive Officer
(Principal Executive Officer)
Date: February 13, 1998 By: /s/ Harold A. Joannidi
------------------------
Harold A. Joannidi
Treasurer & Secretary
(Principal Financial & Accounting
Officer)
18
<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit Number Description of Exhibit Page Number
-------------- ---------------------- -----------
27 Financial Data Schedule as of and for the 20
Six Months Ended December 31, 1997
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of December 31, 1997 and Consolidated Statement of
Operations for the Six Months Ended December 31, 1997 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 681
<SECURITIES> 533
<RECEIVABLES> 3,777
<ALLOWANCES> 203
<INVENTORY> 2,063
<CURRENT-ASSETS> 8,526
<PP&E> 1,297
<DEPRECIATION> 439
<TOTAL-ASSETS> 11,073
<CURRENT-LIABILITIES> 7,222
<BONDS> 10
0
0
<COMMON> 105
<OTHER-SE> 3,586
<TOTAL-LIABILITY-AND-EQUITY> 11,073
<SALES> 11,852
<TOTAL-REVENUES> 11,852
<CGS> 9,336
<TOTAL-COSTS> 9,336
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 68
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (410)
<INCOME-TAX> 0
<INCOME-CONTINUING> (410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (410)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
