<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarter Ended March 31, 1997
Commission file number: 0-23156
CONSEP, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0874480
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
213 S.W. Columbia Street, Bend, OR 97702
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (541) 388-3688
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.
[X] Yes [ ] No
Number of shares of common stock outstanding as of
May 1, 1997:
9,447,478 shares, $.01 par value per share
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CONSEP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
three months ended March 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 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSEP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,940,974 $ 2,443,508
Short-term investments 102,667 103,167
Accounts receivable, net 8,416,702 3,601,912
Other receivables 546,664 296,358
Inventories, net (note 2) 9,745,539 7,993,706
Prepaid expenses 702,340 966,102
------------ ------------
Total current assets 21,454,886 15,404,753
Property, plant and equipment, net 4,164,117 4,020,456
Intangible assets, net 1,487,126 1,545,246
Goodwill, net 2,141,145 2,181,901
Notes receivable and other assets 259,202 258,865
------------ ------------
Total assets $ 29,506,476 $ 23,411,221
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines 3,625,000 1,170,000
Accounts payable 5,357,415 2,526,325
Current portion of notes and leases payable 369,312 347,190
Accrued liabilities 913,860 646,135
Customer deposits 184,395 282,581
------------ ------------
Total current liabilities 10,449,982 4,972,231
Notes and leases payable, excluding current maturities 1,172,501 1,171,069
Mandatory stock warrant obligation 19,500 19,500
Deferred gain on sale of property 228,183 238,075
------------ ------------
Total liabilities 11,870,166 6,400,875
Shareholders' equity:
Common stock 94,475 94,312
Additional paid-in capital 44,288,023 44,256,367
Foreign currency translation adjustment 6,622 15,267
Accumulated deficit (26,752,810) (27,355,600)
------------ ------------
Total shareholders' equity 17,636,310 17,010,346
------------ ------------
Total liabilities and shareholders' equity $ 29,506,476 $ 23,411,221
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
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CONSEP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
REVENUES
Proprietary products $ 4,787,837 $ 3,575,225
Distribution products 6,037,804 5,634,390
------------ ------------
Total revenues 10,825,641 9,209,615
------------ ------------
COST OF REVENUES
Proprietary products 2,901,431 2,071,015
Distribution products 4,793,089 4,380,831
------------ ------------
Total cost of revenues 7,694,520 6,451,846
------------ ------------
Gross margin 3,131,121 2,757,769
------------ ------------
OPERATING EXPENSES (note 3)
Research and development 309,557 278,502
Selling, general and administrative 1,341,263 1,314,566
Distribution 916,594 797,765
------------ ------------
Total operating expenses 2,567,414 2,390,833
------------ ------------
Operating income 563,707 366,936
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 24,594 42,999
Interest expense (43,671) (58,320)
Other, net 58,160 2,883
------------ ------------
Net other income (expense) 39,083 (12,438)
------------ ------------
Net income $ 602,790 $ 354,498
============ ============
Net income per common and common
equivalent share (note 4) $ 0.06 $ 0.05
============ ============
Weighted average number of common
and common equivalent shares
outstanding (note 4) 9,552,194 7,772,710
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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CONSEP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 602,790 $ 354,498
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 279,682 244,731
Provision for bad debts 56,518 (42,967)
Inventory reserve 27,001 18,309
Loss (gain) on disposal of equipment (911) 3,155
Other non-cash items 8,749 (6,274)
Changes in assets and liabilities, net of amounts acquired:
Short-term investments 500 33,144
Accounts receivable (4,898,428) (3,917,598)
Other receivables (250,307) (29,238)
Inventories (1,786,542) (876,417)
Prepaid expenses 260,842 35,502
Accounts payable 2,844,611 1,945,721
Accrued liabilities 267,661 398,283
Other assets 2,000 (6,000)
Customer deposits (98,180) (277,398)
----------- -----------
Net cash used in operating activities (2,684,014) (2,122,549)
----------- -----------
INVESTING ACTIVITIES
Acquisition of intangible assets (11,805) (144,334)
Acquisition of property, plant and equipment (237,937) (225,850)
Proceeds from sale of property, plant and equipment 0 1,000
Issuance of notes receivable, net of payments received 20,233 137,400
----------- -----------
Net cash used in investing activities (229,509) (231,784)
----------- -----------
FINANCING ACTIVITIES
Increase in bank lines 2,455,340 1,699,589
Principal payments on notes payable (76,383) (72,592)
Net proceeds from issuance of common stock 31,819 27,880
----------- -----------
Net cash provided by financing activities 2,410,776 1,654,877
----------- -----------
Effect of exchange rate changes on cash
and cash equivalents 213 (52)
----------- -----------
Net decrease in cash and cash equivalents (502,534) (699,508)
Cash and cash equivalents at beginning of period 2,443,508 2,069,595
----------- -----------
Cash and cash equivalents at end of period $ 1,940,974 $ 1,370,087
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
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CONSEP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the statements include
all adjustments necessary (which are of a normal and recurring nature) for the
fair presentation of the results of the interim periods presented. These
financial statements should be read in conjunction with the Company's audited
consolidated financial statements for the year ended December 31, 1996, as
included in the Company's 1996 Annual Report to Shareholders.
NOTE 2 - INVENTORIES
Inventories, stated at the lower of cost or market, consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials $ 2,811,181 $ 2,196,006
Work in process 47,939 44,963
Finished goods - proprietary 4,109,175 3,528,880
Finished goods - distribution 3,261,673 2,717,836
----------- -----------
10,229,968 8,487,685
Less reserve for obsolescence 484,429 493,979
----------- -----------
$ 9,745,539 $ 7,993,706
=========== ===========
</TABLE>
NOTE 3 - OPERATING EXPENSES
Research and development and selling, general and administrative expenses are
allocated to the Company's proprietary product operations. Distribution
expenses consist entirely of selling, general and administrative costs of the
Company's distribution operations.
NOTE 4 - NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
For the three months ended March 31, 1997 and 1996, net income per common and
common equivalent share is based upon the weighted average number of common
shares outstanding during each period plus, to the extent dilutive, the effect
of common shares contingently issuable from the exercise of stock options.
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NOTE 5 - SUPPLEMENTAL STATEMENTS OF CASH FLOW DISCLOSURES
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
Three Months Ended Income
March 31, Interest Taxes
---- -------- -------
<S> <C> <C>
1997 $47,024 $ 5,700
1996 $43,819 $ 5,399
</TABLE>
Following is a summary of non-cash investing and financing activities of the
Company for the three months ended March 31, 1997 and 1996:
During the three months ended March 31, 1997, the Company acquired
equipment and vehicles for $96,555 through the issuance of notes and
leases payable.
During the three months ended March 31, 1996, the Company purchased a
building for $396,055 and acquired a vehicle for $11,903 through the
issuance of notes payable. Also during the first quarter of 1996, the
Company converted $400,530 of trade accounts receivable to notes
receivable.
NOTE 6 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". SFAS No. 128 supersedes APB Opinion No. 15, "Earnings Per Share" and
specifies the computation, presentation and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. It replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted EPS. Basic EPS,
unlike primary EPS, excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then share in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS under APB No. 15. SFAS No. 128 is effective for
financial statements for both interim and annual periods ending after December
31, 1997. The Company will adopt SFAS No. 128 at December 31, 1997 for the year
then ended. All prior period EPS data presented at year end will be restated to
conform with SFAS No. 128. The Company does not expect this statement to have a
significant impact on its calculations.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Consep derives its revenues from the sale of its proprietary products to the
commercial agriculture and consumer home, lawn and garden markets and from
sales by its distribution subsidiaries of products produced by other
manufacturers, including both biorational insect control products and
conventional toxic pesticides as well as fertilizers and farm supplies. The
Company's primary focus is the development of proprietary products and
expansion of the markets for those products. A significant element of the
Company's strategy for the commercialization of its proprietary commercial
agriculture products has been to acquire distribution operations in key
agricultural regions and to introduce its proprietary products through those
operations. In addition, the Company has begun distributing for the 1997
season a line of consumer products, based on natural oils, to repel biting
insects. These insect repellent products, which are manufactured by, and are
the proprietary products of, a third party, are being marketed on an exclusive
basis in the United States under the Company's Bite Blocker label as part of
its consumer proprietary product line.
Proprietary product revenues increased 33.9% for the three months ended March
31, 1997 as compared to the corresponding period of 1996. This increase in
proprietary product revenues for the three months ended March 31, 1997 combined
with a 2.7% decrease in proprietary product margin percentage, a 7.4% increase
in operating expenses and a 7.2% increase in distribution revenues for the same
period contributed to a 70.0% increase in net income for the three months ended
March 31, 1997 as compared to the corresponding period of 1996.
Since its inception, Consep has funded its growth primarily through equity
financings. Funds from these financings have allowed the Company to build its
organization, develop and register proprietary products for both the commercial
agriculture and consumer home, lawn and garden markets, acquire distribution
operations for the introduction of its commercial agriculture products and
expand its sales efforts through both domestic and international channels of
distribution. The Company completed a follow-on public stock offering in
October 1996, which provided approximately $4.6 million in net proceeds after
deducting costs associated with the offering.
The Company has incurred annual operating losses since its inception in 1984.
The Company believes annual profitability will be dependent on continued growth
of revenues, maintaining or strengthening gross margins and controlling the
growth of operating expenses. There can be no assurance that the Company will
become profitable on an annual basis.
The Company's business is seasonal with its highest revenues historically being
recognized in the first and second quarters of each year and its lowest
revenues being recognized in the third and fourth quarters of each year. This
seasonality coincides with the commercial growing season in the Northern
Hemisphere and, to a lesser extent, the consumer home, lawn and garden buying
season. The Company anticipates this seasonal profile will continue with a
slight shift to third and fourth quarter revenues as sales to international
markets and sales of new non-seasonal products increase. In contrast to
revenues, many of the Company's operating expenses are largely independent of
the quarterly selling cycles. As a result, operating expenses will generally
represent a higher percentage of revenues in the third and fourth quarters as
compared to the first two quarters and the Company may experience a loss in the
third and fourth quarters of an otherwise profitable year.
8
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RESULTS OF OPERATIONS
REVENUES. Total revenues for the three months ended March 31, 1997 increased
17.5% to approximately $10.8 million from approximately $9.2 million in the
corresponding period of 1996. Revenues from the sale of proprietary products
increased 33.9% during the three months ended March 31, 1997 to approximately
$4.8 million from approximately $3.6 million in the corresponding period of
1996. Revenues from the Company's distribution operations increased 7.2% during
the three months ended March 31, 1997 to approximately $6.0 million from
approximately $5.6 million in the corresponding period of 1996.
The growth in proprietary product revenues for the three months ended March 31,
1997 was attributable to growth in sales of the Company's commercial
agriculture products and the introduction of Bite Blocker, the Company's new
insect repellent product line. These increases were partially offset by
decreases in revenues from the Company's SureFire consumer product line as well
as decreased sales of specialty chemicals to third parties by the Company's
Farchan subsidiary.
Revenues from the sale of commercial agriculture products increased
approximately $519,000, or 46.0%, for the three months ended March 31, 1997 as
compared to the corresponding period of 1996. The increase in revenues from
sales of commercial agriculture products was primarily attributable to (i) the
introduction of a new combination CheckMate product to control both peach twig
borer and oriental fruit moth ("CheckMate SF"), (ii) a 89.4% increase in
revenues from sales of the CheckMate product to control tomato pinworm
("CheckMate TPW") and (iii) a 209.2% increase in revenues from sales of the
CheckMate product to control peach twig borer ("CheckMate PTB"). The increase
in CheckMate TPW revenues was primarily the result of the Company's
strengthening its sales organization in Mexico in the first six months of 1996.
CheckMate PTB revenues increased primarily as a result of increased market
acceptance, allowing the Company to expand its customer base and increase sales
within its existing customer base.
Revenues from the sale of consumer products from the Company's SureFire and
Bite Blocker line of products in the United States and Chemfree products in
Canada increased by approximately $806,000, or 40.0% in the three months ended
March 31, 1997 compared to the corresponding period of 1996. This growth in
consumer product revenues was primarily attributable to the introduction of the
Company's new Bite Blocker line of insect repellent products. These Bite
Blocker product revenues were partially offset by a 34.1% decrease in revenues
from sales of the Company's SureFire line of products in the United States as
compared to the three months ended March 31, 1996. The Company believes the
decrease in SureFire revenues was the result of excess inventory at the retail
level carried over from 1996 which reduced the amount of new orders placed in
the three months ended March 31, 1997. The Company believes that this trend of
reduced orders will continue in the short term until the excess inventory at
the retail level is depleted.
Specialty chemical sales by Farchan decreased 27.4% in the three months ended
March 31, 1997 as compared to the corresponding period of 1996. The decrease
in sales by Farchan was primarily the result of the fire in October of 1996
that destroyed its primary manufacturing facility in Gainesville, Florida.
The revenue increase of 7.2% from the Company's distribution operations during
the three months ended March 31, 1997 as compared to the corresponding period
of 1996 was primarily the result of favorable weather conditions and increased
sales by the Company's Sierra Ag subsidiary as a result of the expansion of its
customer base.
9
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GROSS MARGIN. The consolidated gross margin for the Company decreased to 28.9%
in the three months ended March 31, 1997 from 29.9% in the corresponding period
of 1996. The margin decrease for the three months ended March 31, 1997, as
compared to the corresponding period of 1996, is attributable to decreases in
the gross margins on both proprietary product revenues and distribution
revenues. The gross margin on the sale of proprietary products during the three
months ended March 31, 1997 decreased to 39.4% from the 42.1% gross margin
achieved on proprietary product revenues in the corresponding period of 1996.
Distribution gross margin also decreased in the three months ended March 31,
1997 to 20.6% from 22.2% in the corresponding period of 1996.
The gross margin on agricultural proprietary product sales for the three months
ended March 31, 1997 decreased to 32.7% from 46.6% in the corresponding period
of 1996. The decrease was primarily attributable to (i) lower margins on the
Company's CheckMate product to control codling moth ("CheckMate CM") due to
flexible pricing to introduce the product into Europe and to recover lost
markets in the United States as a result of the previously reported performance
problems encountered in 1996, along with higher costs of manufacturing the new
improved CheckMate CM product and (ii) additional manufacturing costs primarily
associated with the late arrival of production equipment, overtime incurred to
meet unexpected demand and the re-work of inventory carried over from prior
years. The gross margin on agricultural proprietary products includes an
accrual of approximately $230,000 for the estimated insurance recoveries for
the additional pheromone expenses incurred in the three months ended March 31,
1997 due to the October 1996 fire that destroyed the Company's specialty
chemicals manufacturing facility. This accrual reduced cost of revenues by
approximately $230,000 and positively impacted the gross margin percentage on
agriculture proprietary product sales by 13.9%. The insurance claim is still
pending and there can be no assurance that the Company will recover its full
claim.
The gross margins on proprietary consumer product sales increased to 45.7% from
37.4%, in the three months ended March 31, 1997 as compared to the
corresponding period of 1996. The increase is primarily attributable to the
55.1% gross margin realized on sales of the new Bite Blocker product line.
Sales of specialty chemicals produced a gross margin of 17.0% in the three
months ended March 31, 1997, down from the 52.7% gross margin reported in the
corresponding period of 1996. The variance in gross margin for specialty
chemical sales was the direct result of the October 1996 fire that destroyed
Farchan's primary manufacturing facility in Gainesville, Florida, which
prevented Farchan from manufacturing higher margin specialty chemical products
during the three months ended March 31, 1997.
The gross margins from distribution revenues decreased to 20.6% from 22.2% for
the three months ended March 31, 1997 as compared to the corresponding period
of 1996. The decrease was primarily attributable to the differences in the
product sales mix for the distribution operations. Included in the results for
the first quarter was approximately $200,000 of unanticipated 1996
manufacturers' rebates which had not been accrued for in 1996. These rebates
improved the distribution gross margin percentage by approximately 3% and
accordingly, the Company does not expect the distribution gross margin to
continue at the same level for the remainder of 1997.
OPERATING EXPENSES. Operating expenses during the three months ended March 31,
1997 increased 7.4% to approximately $2.6 million from approximately $2.4
million in the corresponding period of 1996. The increased operating expenses
during the three months ended March 31, 1997, as compared to the corresponding
period of 1996, were primarily attributable to (i) selling and marketing
expenses related to the introduction of the Company's
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new Bite Blocker line of insect repellent products and (ii) a reduction in bad
debt reserves in the three months ended March 31, 1996 for the distribution
operations which did not occur in the three months ended March 31, 1997.
OTHER INCOME AND EXPENSE. During the three months ended March 31, 1997, the
Company recorded net other income of approximately $39,000 compared to net
other expense of approximately $12,000 during the corresponding period of 1996.
The increase in net other income was primarily attributable to lower interest
expense and a $70,000 estimated reimbursement from the insurance company for
the business interruption coverage relating to the Farchan fire. This increase
was partially offset by reduced interest income at the distribution operations.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has used funds generated from operations,
equity financings and bank borrowings to fund its research and development,
marketing, acquisition of capital equipment, acquisitions of other business
operations and working capital requirements. In October 1996, the Company
completed a follow-on public offering of its common stock which raised
approximately $4.6 million net of related offering costs. Since its inception,
the Company has raised approximately $44.4 million of equity. In addition to
equity financing, the Company operates under a bank line of credit with a
maximum borrowing capacity of $7.5 million to support the working capital
requirements of both its principal proprietary product and distribution
operations. This line of credit matures in September 1997 and is secured by
substantially all of the Company's current assets. At March 31, 1997 the
Company was in compliance with all covenants related to the line of credit.
At March 31, 1997, the Company had cash, cash equivalents and short-term
investments of approximately $2.0 million and working capital of approximately
$11.0 million. Borrowings under revolving lines of credit were approximately
$3.6 million. The Company believes that cash and cash equivalents at March 31,
1997, funds generated from operations and funds available from existing bank
lines of credit will be sufficient to fund the Company's operations through at
least 1997. The Company's capital needs may increase depending upon several
factors, including future acquisitions, changes to planned research and
development activities, expanded manufacturing and commercialization programs,
additional technological, regulatory and competitive developments and the
timing of regulatory approvals for new products. As a result, the Company may
need to raise additional funds. There can be no assurance that additional
financing would be available and, if available, that the terms would be
acceptable to the Company.
On October 16, 1996, one of two buildings, in Gainesville, Florida, owned by
Consep's Farchan subsidiary, was destroyed by fire. The building served as a
manufacturing facility for certain pheromones used in certain of the Company's
commercial agriculture products, as well as specialty chemicals sold to
research organizations, pharmaceutical companies and the agricultural industry.
At the direction of the U.S. Environmental Protection Agency (the "EPA"), the
Company conducted chemical analysis tests of the fire debris. Although the
chemical analysis of the fire debris resulted in findings that substantially
all of the debris contained contaminants below EPA-allowed limits, a limited
amount of ash was declared hazardous due to elevated levels of cyanide and was
disposed of accordingly. As a result of the chemical analysis of the fire
debris, and at the EPA's direction, Farchan has tested for potential soil and
groundwater contamination resulting from the fire. Initial results of the soil
and groundwater testing indicate contaminate levels below EPA-allowed limits.
Based on the results of the initial testing, the Company believes that the EPA
will lift all restrictions on the Farchan site in the
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near term. All expenses related to the cleanup, sampling and laboratory
analysis have been covered by the Company's insurance and the Company believes
that the total cleanup costs will not exceed the insurance coverage limits of
$250,000.
Although the Company believes it has adequate insurance to cover all losses
related to the Farchan fire, settlement negotiations with the insurer are still
ongoing with respect to the Company's claim for business interruption losses
and additional expenses. The Company has recorded an estimated $133,000
receivable due from the insurance company relating to the business interruption
coverage for losses from the date of the fire through March 31, 1997. The
largest portion of the Company's claim relates to additional expenses incurred
by the Company in 1996 and 1997 for the purchase of pheromones from third party
manufacturers at substantially higher costs than would have been incurred if
the pheromones had been manufactured by Farchan. The Company's claim for such
additional expenses totaling $630,000 is currently being analyzed by the
insurance company. In addition to the business interruption insurance coverage
discussed above, the Company has recorded an estimated $230,000 receivable due
from the insurance company relating to the additional expenses incurred for
pheromones purchased from third party manufacturers through March 31, 1997.
As an indirect result of the fire at the Farchan facility, the Company believes
it is not feasible to proceed with plans to finish and occupy its proposed
plant in nearby Alachua, Florida. The Company plans to remove all of its
equipment from the Alachua facility and sell the land and building. The Company
has also decided not to rebuild the manufacturing facility at its Gainesville
site. At the present time, the Company plans to build a specialty chemical
facility to produce pheromones and other specialty chemicals adjacent to its
headquarters and manufacturing facility in Bend, Oregon. The Company has
received site permit approval from the City of Bend and is in the process of
submitting plans for building permits. The Company believes the cost of the new
facility will range from $1.0 to $1.1 million. The Company has reached an
agreement in principal with the owners of the Company's headquarters and
manufacturing facility in Bend, Oregon to acquire the property and building for
a purchase price of approximately $1.5 million. The Company has also received a
loan commitment with a bank to provide approximately $2.0 million in debt
financing to help fund the purchase of the Company's headquarters and
manufacturing facility and the construction of the new specialty chemicals
manufacturing facility. The Company is exploring various alternatives for
funding the balance of the expected costs of purchasing the existing facility
and construction of the new facility. The cost of the additional equipment
needed to complete the new facility is estimated to range from $300,000 to
$500,000. The Company expects to finance at least fifty percent of the
additional equipment through bank loans and/or equipment leasing arrangements.
The Company believes the new facility can be operational by the end of
September 1997 and should be able to produce some pheromones for the 1998
season.
The Company does not expect the Farchan fire and the resulting loss of the
manufacturing facility to have a material adverse effect on the Company's
business, financial condition or results of operations, since the Company (i)
has property damage, environmental remediation, business interruption and
additional expense insurance which covers the destroyed facility, its contents,
the underlying property and the associated manufacturing operations, (ii) the
Company is proceeding with its plans to build a specialty chemical
manufacturing facility in Bend, Oregon, which it believes can be operational in
sufficient time to produce some pheromones for the 1998 season and (iii) the
Company believes it has alternative sources of supply of pheromones for the
1997 season which it would otherwise have purchased from Farchan.
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<PAGE> 13
The statements set forth above regarding expected insurance recoveries and
anticipated results of environmental cleanup efforts related to the fire at the
Company's Farchan subsidiary, as well as the statements regarding the Company's
plans for replacing the destroyed specialty chemicals manufacturing facility,
are forward-looking statements which involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking statements,
including, without limitation, delays or difficulties in receiving insurance
recoveries for business interruption losses or additional pheromone expenses,
environmental remediation expenses in excess of the Company's insurance
coverage limits and unanticipated delays or difficulties in (i) reaching a
definitive agreement with the current owners to sell the Company its
headquarters and manufacturing facility, (ii) securing the necessary financing
to fund the purchase of the Company's headquarters and manufacturing facility
and the construction of the new specialty chemical manufacturing facility or
(iii) obtaining regulatory approvals needed to construct the new manufacturing
facility. The forward-looking statements should be considered in light of these
risks and uncertainties.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 1997, the Company sold securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act") in the transactions described below. These transactions
involved the exercise of stock options pursuant to the Company's 1992 Stock
Incentive Plan and were effected in reliance on Rule 701 promulgated pursuant
to authority granted under Section 3(b) of the Securities Act.
(a) On February 24, 1997, Lonna Bramhall, an employee of the Company,
exercised a previously issued Nonqualified Stock Option to purchase
1,000 shares of Common Stock for an aggregate cash consideration of
$250.
(b) On March 14, 1997, Dennis Fish, an employee of the Company,
exercised a previously issued Nonqualified Stock Option to purchase
1,000 shares of Common Stock for an aggregate cash consideration of
$250.
(c) On March 14, 1997, Anthony Andersen, a former employee of the
Company, exercised a previously issued Nonqualified Stock Option to
purchase 2,400 shares of Common Stock for an aggregate cash
consideration of $600.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
14
<PAGE> 15
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.
CONSEP, INC.
(REGISTRANT)
DATE: May 13, 1997 By: /s/ VOLKER G. OAKEY
--------------------------------
VOLKER G. OAKEY
Chairman of the Board,
President and Chief
Executive Officer
DATE: May 13 , 1997 By: /s/ LARRY KATZ
--------------------------------
LARRY KATZ
Vice President, Finance and
Chief Financial Officer
15
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,940,974
<SECURITIES> 102,667
<RECEIVABLES> 9,331,056
<ALLOWANCES> 914,354
<INVENTORY> 9,745,539
<CURRENT-ASSETS> 21,454,886
<PP&E> 7,321,112
<DEPRECIATION> 3,156,995
<TOTAL-ASSETS> 29,506,476
<CURRENT-LIABILITIES> 10,449,982
<BONDS> 0
0
0
<COMMON> 94,475
<OTHER-SE> 17,541,835
<TOTAL-LIABILITY-AND-EQUITY> 29,506,476
<SALES> 10,825,641
<TOTAL-REVENUES> 10,825,641
<CGS> 7,694,520
<TOTAL-COSTS> 7,694,520
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<INTEREST-EXPENSE> 43,671
<INCOME-PRETAX> 602,790
<INCOME-TAX> 0
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