================================================================================
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: March 31, 1998 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 May 14, 1998
- ----- ---------------------------
Common Stock, par value $0.01 per share 10,488,455
Total Number of Sequentially Numbered Pages: 21 Exhibit Index on Page: 20
1
<PAGE>
ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
Unaudited
Page
----
Part I. - Financial Information
Item 1. Consolidated Financial Statements:
o Consolidated Balance Sheets:
March 31, 1998 and June 30, 1997....................... 3
o Consolidated Statements of Operations:
Three and Nine Months Ended March 31, 1998 and 1997 ... 4
o Consolidated Statements of Cash Flows:
Nine Months Ended March 31, 1998 and 1997.............. 5
o 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............................................... 18
Signatures................................................................... 19
2
<PAGE>
ECOSCIENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
In thousands, except share data
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------- --------
Unaudited
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 348 $ 1,247
Short-term investments ............................................ 529 528
Accounts receivable, less reserves of $184 at
March 31, 1998 and $150 at June 30, 1997 ...................... 2,946 1,788
Inventories ....................................................... 1,928 1,940
Other current assets .............................................. 1,402 842
-------- --------
Total current assets .......................................... 7,153 6,345
-------- --------
Property and equipment, net .......................................... 829 562
Intangible assets, net ............................................... 1,568 1,745
Other noncurrent assets .............................................. 80 223
-------- --------
Total assets .............................................. $ 9,630 $ 8,875
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings ............................................. $ 785 $ --
Current portion of long-term debt ................................. 6 10
Accounts payable .................................................. 2,435 2,641
Accrued restructuring costs ....................................... 225 307
Accrued expenses and other current liabilities .................... 2,248 1,752
-------- --------
Total current liabilities ..................................... 5,699 4,710
-------- --------
Noncurrent liabilities:
Long-term debt, less current portion .............................. 9 1
Other long-term liabilities ....................................... 150 150
-------- --------
Total noncurrent liabilities .................................. 159 151
-------- --------
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;
10,488,455 and 10,401,177 shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively ................ 105 104
Additional paid-in capital ........................................ 57,304 57,222
Accumulated deficit ............................................... (53,639) (53,312)
Unrealized gain on short-term investments ......................... 2 --
-------- --------
Total stockholders' investment ................................ 3,772 4,014
-------- --------
Total liabilities and stockholders' investment ............ $ 9,630 $ 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 Ended March 31, Nine Months Ended March 31,
---------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Unaudited Unaudited
<S> <C> <C> <C> <C>
Product sales ...................... $ 6,371 $ 3,633 $ 18,223 $ 15,894
Cost of goods sold ................. 4,949 2,608 14,285 12,062
-------- -------- -------- --------
Gross profit ....................... 1,422 1,025 3,938 3,832
-------- -------- -------- --------
Operating expenses:
Research and development ....... 105 128 307 409
Selling and marketing .......... 693 657 2,216 1,867
General and administrative ..... 512 542 1,691 1,627
Reversal of restructuring charge -- -- -- (77)
-------- -------- -------- --------
Total operating expenses . 1,310 1,327 4,214 3,826
-------- -------- -------- --------
Operating income (loss) ............ 112 (302) (276) 6
-------- -------- -------- --------
Other income (expense):
Research, development, licensing
fees and other income ...... 9 -- 9 7
Investment income .............. 19 25 49 80
Interest and other expense ..... (57) (34) (109) (154)
-------- -------- -------- --------
Total other expense ...... (29) (9) (51) (67)
-------- -------- -------- --------
Net income (loss) .................. $ 83 $ (311) $ (327) $ (61)
======== ======== ======== ========
Earnings (loss) per share:
Basic
Net income (loss) per share ... $ 0.01 $ (0.03) $ (0.03) $ (0.01)
======== ======== ======== ========
Weighted average common shares
outstanding ............... 10,488 10,386 10,446 10,049
======== ======== ======== ========
Diluted
Net income (loss) per share ... $ 0.01 $ (0.03) $ (0.03) $ (0.01)
======== ======== ======== ========
Aggregate diluted shares ...... 10,693 10,386 10,446 10,049
======== ======== ======== ========
</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>
Nine Months Ended
March 31,
---------------------
1998 1997
------- -------
Unaudited
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................... $ (327) $ (61)
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation and amortization .............................. 253 286
Gain on sale of property and equipment ..................... (3) --
Gain on sale of investments ................................ -- (2)
Reversal of restructuring charge ........................... -- (77)
Foreign exchange loss (gain) ............................... 9 (24)
Changes in current assets and liabilities:
Accounts receivable, net .............................. (1,158) (767)
Inventories ........................................... 12 (127)
Other current assets .................................. (560) (164)
Accounts payable and accrued expenses ................. 349 318
Accrued restructuring costs ........................... (82) (157)
------- -------
Net cash used for operating activities ............. (1,507) (775)
------- -------
Cash flows from investing activities:
Purchases of property and equipment ................................ (426) (62)
Proceeds from sales of property and equipment ...................... 19 --
Proceeds from sales of short-term investments ...................... -- 677
Proceeds from release of restricted cash ........................... -- 456
Decrease (increase) in other noncurrent assets ..................... 143 (75)
------- -------
Net cash (used for) provided by investing activities (264) 996
------- -------
Cash flows from financing activities:
Proceeds from issuance of stock .................................... 83 1,128
Proceeds from long-term debt ....................................... 17 --
Net borrowings under line of credit ................................ 785 --
Payments on long-term debt and capital leases ...................... (13) (993)
------- -------
Net cash provided by financing activities .......... 872 135
Effect of exchange rate changes on cash ............................... -- (1)
------- -------
(Decrease) increase in cash and cash equivalents ...................... (899) 355
Cash and cash equivalents at beginning of period ...................... 1,247 734
------- -------
Cash and cash equivalents at end of period ............................ $ 348 $ 1,089
======= =======
Total unrestricted and restricted cash, cash equivalents
and short-term investments at end of period ........................ $ 877 $ 1,863
======= =======
Supplemental cash flow information
Cash paid for:
Interest ....................................................... $ 100 $ 166
Income taxes ................................................... 5 15
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
March 31, 1998
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 and ornamentals in storage and transit to market; and (iv)
a unique biological pest control product to PCOs.
The Company derives most of 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 market
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 that its $348,000 of cash and cash equivalents and
$529,000 of short-term investments as of March 31, 1998, 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 March 31, 1999. The Company may need to raise
additional funds to finance its ongoing operations and expected growth after
March 31, 1999, 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 April 29, 1998, the Company announced that it had entered into a
definitive agreement to merge with Agro Power Development, Inc. ("APD"), a
privately held corporation. The agreement provides for APD to be merged with and
into 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.
Certain key conditions precedent to the merger, such as the issuance of
EcoScience common stock as consideration for the merger, are subject to approval
by EcoScience stockholders. On May 11, 1998, the Company filed a preliminary
Proxy Statement with the Securities and Exchange Commission regarding the merger
and certain other matters for stockholder consideration. The merger is also
subject to approval by the APD stockholders. 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 nine months ended March 31, 1998
and 1997, 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 nine months ended March 31, 1998 and 1997
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 nine months ended March 31, 1997
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:
March 31, June 30,
--------- --------
(In thousands) 1998 1997
------ ------
Raw materials ........................ $ 62 $ 17
Finished goods ....................... 1,866 1,923
------ ------
$1,928 $1,940
====== ======
Finished goods include material, labor and manufacturing overhead costs.
5. DEBT
In April 1998, the Company and its lender, Silicon Valley Bank, agreed to
extend the due date for the $3,000,000 revolving line of credit to July 28, 1998
from April 28, 1998.
6. 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 Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic EPS
Weighted average common shares
outstanding ........ 10,488,000 10,386,000 10,446,000 10,049,000
Effect of dilutive securities
Warrants ..................... 22,000 -- -- --
Options ...................... 183,000 -- -- --
---------- ---------- ---------- ----------
205,000 -- -- --
---------- ---------- ---------- ----------
Diluted EPS
Aggregate diluted shares ..... 10,693,000 10,386,000 10,446,000 10,049,000
========== ========== ========== ==========
</TABLE>
8
<PAGE>
Options to purchase 163,000 shares of common stock at prices ranging from
$1.50 to $7.00 and warrants to purchase 473,000 shares of common stock at prices
ranging from $2.00 to $9.75 were outstanding at March 31, 1998, but were not
included in the computation of Diluted EPS, because their exercise prices were
greater than the average market price of the Company's common stock for the
three months ended March 31, 1998.
Options to purchase 792,000 shares of common stock at prices ranging from
$0.56 to $7.00 and warrants to purchase 622,000 shares of common stock at prices
ranging from $1.00 to $9.75 were outstanding at March 31, 1998, 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 for the nine months ended March 31,
1998.
9
<PAGE>
ECOSCIENCE CORPORATION
MANAGEMENT'S 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 and
ornamentals in storage and transit to market including PacRite(R) and Indian
River Gold(TM) coatings manufactured by EPSC, and the Bio-Save(R) 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")
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. 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 the nutritional and overall
qualities in fresh fruit. 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 of 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 market
throughout the western hemisphere.
Proposed Merger
On April 29, 1998, the Company announced that it had entered into a
definitive agreement to merge with Agro Power Development, Inc. ("APD"), a
privately held corporation. The agreement provides for APD to be merged with and
into 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.
Certain key conditions precedent to the merger, such as the issuance of
EcoScience common stock as consideration for the merger, are subject to approval
by EcoScience stockholders. On May 11, 1998, the Company filed a preliminary
Proxy Statement with the Securities and Exchange Commission regarding the merger
and certain other matters for stockholder consideration. The merger is also
subject to approval by the APD stockholders. 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 March 31, 1998 vs.
Three Months Ended March 31, 1997
The Company's product sales increased $2,738,000 or 75% to $6,371,000 for
the three months ended March 31, 1998 from $3,633,000 for the same period in
1997. This increase was primarily due to the increases in product sales in the
PostHarvest Fruits and Vegetables market of $1,497,000 and the Specialty
Agriculture market of $1,274,000, partially offset by a decrease in product
sales in the Biological Insect Control market of $33,000.
11
<PAGE>
The following table sets forth the Company's product sales by market for the
three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------
Increase
(In thousands) 1998 1997 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Specialty Agriculture............... $3,236 $1,962 $1,274
PostHarvest Fruits and Vegetables... 3,115 1,618 1,497
Biological Insect Control........... 20 53 (33)
------ ------ ------
Consolidated........................ $6,371 $3,633 $2,738
====== ====== ======
</TABLE>
The Company is the exclusive distributor in the United States, Canada,
Mexico and the Caribbean of the Grodan brand of stonewool, an inert growing
medium supplied by Grodania A/S, a Denmark based company. Additionally, the
Company has the exclusive right to sell 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
that 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.
In April 1998, Aweta B.V. sustained fire damage to its manufacturing
facility and certain contents therein. As a result of the fire, there will be a
delay in the shipment and installation of certain sorting, grading and packing
equipment with the primary effect being a shifting of revenue and corresponding
operating profits from the quarters ending June 30, 1998 and September 30, 1998
to the quarter ending December 31, 1998 or thereafter. The Company is attempting
to balance the effects of the temporary decrease in Aweta's production capacity
and the Company's customers' installation and production requirements. The
Company, however, cannot be assured that delayed delivery and installation of
equipment to the customer will meet the customer's requirements which could
result in the possible loss of certain customer orders and corresponding loss of
revenue and operating profit. The result of the postponement of shipments caused
by the fire will be an adverse effect on the Company's operating results for the
fourth quarter of fiscal 1998; however, in those periods where delivery is
expected to be made, there will be a favorable impact on operating results.
The Company sold products to APD, an affiliate and the company with whom
EcoScience has entered into a definitive merger agreement, in the amount of
$943,000 or 15% of product sales for the three months ended March 31, 1998 and
$204,000 or 6% of product sales in the same period in 1997. Management believes
that prices and fees charged to APD were consistent with those that would be
changed in arm's length translations. Loss of revenue from this customer would
adversely
12
<PAGE>
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 $2,341,000 or 90% to $4,949,000 for the three
months ended March 31, 1998 from $2,608,000 for the same period in 1997,
primarily due to product sales increases and a change in product mix.
Gross margin on product sales increased $397,000 or 39% to $1,422,000 for
the three months ended March 31, 1998 from $1,025,000 for the same period in
1997, while gross margin percentage on product sales decreased to 22% for the
three months ended March 31, 1998 from 28% for the same period in 1997. 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 and equipment product sales in the PostHarvest
Fruits and Vegetables market.
Research and development expenses decreased $23,000 or 18% to $105,000 for
the three months ended March 31, 1998 from $128,000 for the same period in 1997,
due primarily to reductions in personnel and related costs. 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 during fiscal 1998.
Selling and marketing expenses increased $36,000 or 5% to $693,000 for the
three months ended March 31, 1998 from $657,000 for the same period in 1997, 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 in multiple markets, partially offset by the completion of the
amortization of the value of the contract with Grodania A/S in December 1997,
which value resulted from the acquisition of AGRO.
General and administrative expenses decreased $30,000 or 6% to $512,000 for
the three months ended March 31, 1998 from $542,000 for the same period in 1997,
primarily due to decreases in professional fees and insurance costs, partially
offset by increases in personnel and related costs to support increased business
activity.
Operating income increased $414,000 to $112,000 for the three months ended
March 31, 1998 compared to a ($302,000) operating loss for the same period in
1997. The increase in operating income resulted from a $397,000 increase in
gross profits for the three months ended March 31, 1998 compared to the same
period in 1997, and a $17,000 decrease in operating expenses.
Other income (expense) increased by $20,000 to ($29,000) net expense for
the three months ended March 31, 1998 compared to ($9,000) net expense for the
same period in 1997, primarily due to an increase in interest expense of $23,000
resulting from the higher level of debt outstanding during the three months
ended March 31, 1998 compared to the same period in 1997.
The Company's net income increased $394,000 or $0.04 per diluted share to
$83,000 or $0.01 per diluted share for the three months ended March 31, 1998
compared to a loss of ($311,000) or ($0.03) per diluted share for the same
period in 1997.
13
<PAGE>
Nine Months Ended March 31, 1998 vs.
Nine Months Ended March 31, 1997
The Company's product sales increased $2,329,000 or 15% to $18,223,000 for
the nine months ended March 31, 1998 from $15,894,000 for the same period in
1997. This increase was primarily due to the increase in product sales in the
Specialty Agriculture market of $2,240,000 and the PostHarvest Fruits and
Vegetables market of $224,000, partially offset by a decrease in the Biological
Insect Control market of $135,000. The following table sets forth the Company's
product sales by market for the nine months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-------------------------------------------------
Increase
(In thousands) 1998 1997 (Decrease)
------------ ------------ ----------------
<S> <C> <C> <C>
Specialty Agriculture .................... $11,609 $ 9,369 $2,240
PostHarvest Fruits and Vegetables......... 6,594 6,370 224
Biological Insect Control................. 20 155 (135)
------------ ------------ ----------------
Consolidated.............................. $18,223 $15,894 $2,329
============ ============ ================
</TABLE>
The Company sold products to APD in the amount of $4,128,000 or 23% of
product sales for the nine months ended March 31, 1998 and $2,369,000 or 15% of
product sales for the same period in 1997.
Cost of goods sold increased $2,223,000 or 18% to $14,285,000 for the nine
months ended March 31, 1998 from $12,062,000 for the same period in 1997
primarily due to product sales increases and a change in product mix.
Gross margin on product sales increased $106,000 or 3% to $3,938,000 for
the nine months ended March 31, 1998 from $3,832,000 for the same period in
1997, while gross margin percentage on product sales decreased to 22% for the
nine months ended March 31, 1998 from 24% for the same period in 1997. 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, and a decrease in product sales in the typically
higher margin Biological Insect Control market.
Research and development expenses decreased $102,000 or 25% to $307,000 for
the nine months ended March 31, 1998 from $409,000 for the same period in 1997,
due primarily to reductions in personnel and related costs, and professional
fees, 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 $349,000 or 19% to $2,216,000 for
the nine months ended March 31, 1998 from $1,867,000 for the same period in
1997, 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 in multiple markets, partially offset by the
completion of the amortization of the value of the contract with Grodania A/S in
December 1997, which value resulted from the acquisition of AGRO.
14
<PAGE>
General and administrative expenses increased $64,000 or 4% to $1,691,000
for the nine months ended March 31, 1998 from $1,627,000 for the same period in
1997, primarily due to increases in personnel and related costs, and certain
credit risks incurred from expanded and new markets, partially offset by a
reduction in insurance costs.
Operating income decreased $282,000 to a loss of ($276,000) for the nine
months ended March 31, 1998 compared to operating income of $6,000 for the same
period in 1997. The increase in operating loss resulted from a $388,000 increase
in operating expenses for the nine months ended March 31, 1998 compared to the
same period in 1997, partially offset by a $106,000 increase in gross profits.
Excluding non-recurring amounts in 1997, operating loss for the nine months
ended March 31, 1998 increased $205,000 to a loss of ($276,000) from an
operating loss of ($71,000) for the same period in 1997, after exclusion of a
non-recurring reversal of accrued restructuring costs of $77,000 in 1997.
Operating expenses increased $311,000 or 8% to $4,214,000 for the nine months
ended March 31, 1998 compared to $3,903,000 for the same period in 1997, when
the restructuring reversal is excluded for 1997.
Other income (expense) decreased by $16,000 to ($51,000) net expense for
the nine months ended March 31, 1998 compared to ($67,000) net expense for the
same period in 1997, primarily due to net interest (expense) decreasing by
$14,000, which resulted from a greater decline in the level of debt outstanding
as compared to the decline in the amount of investments during the nine months
ended March 31, 1998.
The Company's net loss increased ($266,000) or ($0.02) per diluted share to
a net loss of ($327,000) or ($0.03) per diluted share for the nine months ended
March 31, 1998 compared to a net loss of ($61,000) or ($0.01) per diluted share
for the same period in 1997. Excluding non-recurring amounts, the net loss for
the nine months ended March 31, 1998 was ($327,000) or ($0.03) per diluted
share, a ($189,000) or ($0.02) per diluted share increase in loss, compared to
net loss of ($138,000) or ($0.01) per diluted share for the same period in 1997,
when the $77,000 reversal of accrued restructuring costs is excluded from the
1997 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 $348,000 at March 31, 1998 compared to
$1,247,000 at June 30, 1997. Cash, cash equivalents and short-term investments
totaled $877,000 at March 31, 1998 compared to $1,775,000 at June 30, 1997. Cash
used for operating activities totaled $1,507,000 for the nine months ended March
31, 1998 and principally consisted of a net loss of ($327,000) and increases in
accounts receivable of $1,158,000 and other current assets of $560,000,
partially offset by an increase in accounts payable and accrued expenses of
$349,000. Cash provided by financing activities totaled $872,000 in the nine
months ended March 31, 1998, which consisted principally of net borrowings under
the Company's revolving line of credit of $785,000, and $83,000 of proceeds from
the issuance of common stock resulting from the exercise of options. Cash used
for investment activities for the nine months ended March 31, 1998 totaled
$264,000, which consisted principally of purchases of property and equipment of
$426,000, partially offset by a decrease in other non-current
15
<PAGE>
assets of $143,000. The Company's working capital and current ratio were
$1,454,000 and 1.3 to 1, respectively, at March 31, 1998 compared to $1,635,000
and 1.3 to 1, respectively, at June 30, 1997.
Debt increased by $789,000 to $800,000 at March 31, 1998 compared to
$11,000 at June 30, 1997. The increase was due to seasonal financing needs at
March 31, 1998. The amount available under the Company's revolving line of
credit was $1,986,000 at March 31, 1998. In April 1998, the Company and its
lender agreed to extend the due date for the $3,000,000 revolving line of credit
to July 28, 1998 from April 28, 1998.
In the nine months ended March 31, 1998, 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 March 31, 1998, 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 $348,000 of cash and cash equivalents and
$529,000 of short-term investments as of March 31, 1998. The Company believes
that such cash reserves, along with cash generated 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 March 31, 1999. The Company may need to raise additional funds to
finance its ongoing operations and expected growth after March 31, 1999,
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 third 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 third quarters of each year are generally higher
than the first and fourth quarters; there can be no assurance that this will
occur in future periods. Accordingly, quarterly or other interim results should
not be considered indicative of results to be expected for any other quarter or
for the full fiscal year.
16
<PAGE>
FORWARD LOOKING STATEMENTS
This report contains forward looking statements that describe the Company's
business prospects and those which relate to the completion of the 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.
17
<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 Nine Months Ended March 31,1998.
b. Reports on Form 8-K.
Report dated, April 29, 1998, which incorporated a press
release made available to the public on April 29, 1998 and
which referred to the Company entering into a definitive
merger agreement whereby Agro Power Development, Inc. will
be merged with and into a newly formed subsidiary of the
Company. The Press Release was attached as an exhibit.
18
<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: May 15, 1998 By: /s/ Michael A. DeGiglio
-------------------------
Michael A. DeGiglio
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 By: /s/ Harold A. Joannidi
------------------------
Harold A. Joannidi
Treasurer & Secretary
(Principal Financial & Accounting Officer)
19
<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit Number Description of Exhibit Page Number
- -------------- ---------------------- -----------
27 Financial Data Schedule as of and for the 21
Nine Months Ended March 31, 1998
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of March 31, 1998 and Consolidated Statement of
Operations for the Nine Months Ended March 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 348
<SECURITIES> 529
<RECEIVABLES> 2,946
<ALLOWANCES> 184
<INVENTORY> 1,928
<CURRENT-ASSETS> 7,153
<PP&E> 1,317
<DEPRECIATION> 488
<TOTAL-ASSETS> 9,630
<CURRENT-LIABILITIES> 5,699
<BONDS> 9
0
0
<COMMON> 105
<OTHER-SE> 3,667
<TOTAL-LIABILITY-AND-EQUITY> 9,630
<SALES> 18,223
<TOTAL-REVENUES> 18,223
<CGS> 14,285
<TOTAL-COSTS> 14,285
<OTHER-EXPENSES> 4,214
<LOSS-PROVISION> 74
<INTEREST-EXPENSE> 109
<INCOME-PRETAX> (327)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
