<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended SEPTEMBER 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-28444
EPL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
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Colorado 84-0990658
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(State of incorporation) (I.R.S. Employer Identification Number)
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2 INTERNATIONAL PLAZA, SUITE 245
PHILADELPHIA, PA 19113-1507
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(Address of principal executive offices)
(610) 521-4400
------------------
(Telephone number)
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
15,525,867 shares of $0.001 par value common stock
outstanding as of October 31, 1996.
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EPL TECHNOLOGIES, INC.
INDEX
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Page
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 1
B. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 2
C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS AND THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995 3
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 10
SIGNATURES. 11
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EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
September 30, December 31,
1996 1995
-------------- ----------------
(Unaudited) *
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ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $2,389,365 $1,522,075
Accounts receivable, net 2,717,185 1,333,353
Due from related parties 79,732 74,777
Inventory 1,514,289 561,255
Prepaid expenses/other receivables 748,658 442,814
-------- ----------
Total Current Assets 7,449,229 3,934,274
PROPERTY AND EQUIPMENT, Net 3,770,356 1,786,534
OTHER ASSETS
Patent and distribution rights, net 1,385,465 1,632,497
Goodwill 2,267,205 2,396,380
Other intangibles, net 264,124 291,512
-------- --------
TOTAL ASSETS $15,136,379 $10,041,197
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $2,836,865 $1,701,578
Accrued expenses 1,090,847 539,313
Other liabilities 357,039 288,651
Current portion of long-term debt 283,090 237,811
------- -------
Total Current Liabilities 4,567,841 2,767,353
LONG TERM DEBT 1,139,384 844,333
MINORITY INTEREST 204,057 0
DEFERRED INCOME TAXES 54,609 53,672
---------- ------
Total Liabilities 5,965,891 3,665,358
STOCKHOLDERS' EQUITY
Series A Preferred Stock 2,510,000 2,890,000
Series B Preferred Stock 5,319 0
Capital stock 15,499 13,208
Additional paid-in capital 21,300,598 14,843,992
Accumulated deficit (14,675,762) (11,362,545)
Foreign currency translation adjustment 14,831 ( 8,816)
----------- ----------
Total Stockholders' Equity 9,170,488 6,375,839
---------- ----------
TOTAL LIABILITY AND STOCKHOLDERS' EQUITY $15,136,379 $10,041,197
=========== ===========
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* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
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EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- --------------------------------
1996 1995 1996 1995
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Sales $ 7,063,578 $1,164,025 $3,520,474 $ 588,446
Cost of sales 5,828,264 841,833 2,853,835 425,673
----------- --------- ----------- ---------
Gross profit 1,235,314 322,192 666,639 162,773
Selling, general and administration 3,172,052 1,814,389 1,271,651 614,963
Research and development costs 682,597 380,376 268,496 135,793
Depreciation and amortization expense 689,428 324,769 275,621 109,753
-------- --------- --------- ---------
Net loss from operations ( 3,308,763) ( 2,197,342) (1,149,129) ( 697,736)
Interest expense (net) 12,227 265,302 ( 4,765) 110,990
-------- ----------- ---------- -------
Net loss before minority interest ( 3,320,990) ( 2,462,644) (1,144,364) ( 808,726)
Minority Interest ( 7,773) ( 7,773)
------------ ----------- ----------- ---------
Net Loss ($3,313,217) ($2,462,644) ($1,136,591) ($808,726)
Deduct:
Effect of 10% cumulative
preferred dividend 248,357 240,430 111,250 79,750
--------- -------- ---------- --------
Net loss for common stockholders ($3,561,574) ($2,703,074) ($1,247,841) ($888,476)
========== ========== ========== ========
Primary Loss Per Share ($0.24) ($0.35) ($0.08) ($0.11)
===== ===== ===== =====
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The accompanying notes are an integral part of these condensed financial
statements.
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EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($3,313,217) ($2,462,644)
Adjustments to reconcile net loss to net cash
used in operating activities 689,428 563,075
Gain/(Loss) on foreign currency translation 23,647 118
Changes in assets and liabilities ( 645,879) 50,849
------------ --------
Net cash used by operations ( 3,246,021) ( 1,848,602)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangible assets (59,488)
Purchase of fixed assets (2,207,402) ( 132,617)
Acquisition of subsidiary (net of cash acquired) ( 3,242,727)
---------- ------------
Net cash used for investments ( 2,266,890) ( 3,375,344)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable - stockholder 2,250,000
Proceeds from exercise of
warrants/options/share issue-net 6,084,213
Proceeds from net borrowings 939,000
Repayment of long term debt (643,012)
Net proceeds from sale of common stock 0 4,840,000
---------- ----------
Net cash provided by financing 6,380,201 7,090,000
---------- -----------
INCREASE IN CASH 867,290 1,866,054
CASH AT BEGINNING OF YEAR 1,522,075 68,141
---------- ---------
CASH AT END OF PERIOD $2,389,365 $1,934,195
========== ==========
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The accompanying notes are an integral part of these condensed financial
statements.
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EPL TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The financial information of EPL Technologies, Inc. and Subsidiaries
(the "Company") included herein is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair statement of
results for the interim period.
The financial information has been prepared in accordance with generally
accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly it
does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Moreover,
the results of operations for the nine months and three months ended September
30, 1996 are not necessarily indicative of the results to be expected for the
full year. At this early stage of the Company's development, month to month
and quarter to quarter anomalies in operating results are expected. This
information must also be read in connection with the Company's Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1995.
NOTE 2 - OPERATIONS
EPL Technologies, Inc. develops, manufacturers and markets complementary
proprietary technologies designed to maintain the integrity of fresh produce.
The Company's primary products are processing aids and packaging materials. In
addition, the Company offers a range of services that support and complement
its product offerings. The Company's continued ability to operate is dependent
upon its ability to maintain adequate financing and to achieve levels of
revenues necessary to support its cost structure. The nature of the processing
aid business is such that fresh cut produce processors and other third party
users supplying retail markets require extensive on-site, and, in certain
cases, independent testing prior to utilizing the Company's product in their
production. This results in an extended sales process. Management believes
that success in this process with large processors is the basis for developing
sustainable growth in revenues, which will enable the Company to achieve
profitable operations in this area of the business. The nature of the
packaging materials business is that the sales process is shorter than
processing aids, but that with new customers there is still an approval process
to be completed prior to sale.
The Company's management believes that cash flows from consolidated
operations and the availability of borrowing under its available line of credit
will provide the Company adequate financing for the next year, assuming minimal
sales budgets are met. See also Notes 6 and Item 2 below.
NOTE 3 - INVENTORIES
Inventories consisted of the following:
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September 30, 1996 December 31, 1995
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Raw Materials and Supplies $561,036 $361,252
Finished Goods 953,253 200,003
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Total Inventories $1,514,289 $561,255
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NOTE 4 - INTANGIBLE ASSETS - PATENT AND DISTRIBUTION RIGHTS AND GOODWILL
Patents are amortized over the shorter of their estimated useful
lives or the life of the patent. The net book
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value of acquired and developed patents totaled $1,098,466 as of September 30,
1996. Distribution rights are amortized over the ten year life of the
agreement. The net book value of previously acquired distribution rights
totaled $286,999 as of September 30, 1996. Amortization expense related to
patent and distribution rights totaled $247,032 for the nine months ended
September 30, 1996. Goodwill related to the acquisition of certain
subsidiaries is being amortized on a straight line basis over ten years.
Amortization expense related to goodwill totaled $212,683 for the nine months
ended September 30, 1996.
NOTE 5 - SERIES A CONVERTIBLE PREFERRED STOCK
The Series A Preferred Stock (the "A Preferred Stock"), which has
been issued up to its authorized limit of 3,250,000, was issued at a price of
$1.00 per share, with each share of Preferred Stock carrying the option to
convert into common shares at a rate of $0.75 per share. The A Preferred Stock
carries equal voting rights to the common shares, based on the underlying
number of common shares after conversion. The A Preferred Stock carries a
dividend rate of 10% per annum, payable in cash and/or common shares ($0.75 per
share) at the Company's option (dividends in arrears at September 30, 1996
total $1,038,334).
During the three months ended September 30, 1996, shareholders
holding 75,000 shares of A Preferred Stock elected to exercise their right of
conversion, leaving 2,510,000 shares of A Preferred Stock outstanding at
September 30, 1996.
In addition, 20% of the common stock into which the Preferred Stock
may be converted carries detachable warrants at an exercise price of $1.00 per
warrant. During the three months ended September 30, 1996, 4,667 of these
warrants were exercised, leaving 243,865 of these warrants unexercised at
September 30, 1996.
NOTE 6 - SERIES B CONVERTIBLE PREFERRED STOCK
At the Annual Meeting of the Company held on July 22, 1996, the
shareholders of the Company approved an amendment to the Company's Articles of
Incorporation to permit the issuance of up 2,000,000 shares of preferred stock
with such designations and preferences as the Company's Board of Directors may
determine. On July 23, 1996, the Company issued 531,915 of these shares -
designated Series B Convertible Preferred Stock - at an aggregate consideration
of $2,500,000 to two existing investors in the Company (the "B Preferred
Stock"). These shares of B Preferred Stock carry the option to convert into
shares of common stock at the rate of $4.70 per share and vote as a class,
except as otherwise provided by law, with the A Preferred Stock and the common
stock, based on the underlying number of shares of common stock after
conversion. The B Preferred Stock carries a dividend rate of 10% per annum,
payable in cash and/or shares ($4.70 per share) at the Company's option. The
Company had received the proceeds from this issue as at June 30, 1996.
NOTE 7 - ISSUANCE OF COMMON STOCK AND EXERCISE OF WARRANTS
In addition to the 100,000 shares of common stock issued upon the
conversion of 75,000 shares of A Preferred Stock and the 4,667 shares of common
stock issued upon the exercise of warrants as described in Note 5 above, 4,000
shares of common stock were issued due to the exercise of stock options during
the three month period ended September 30, 1996. This exercise of warrants and
options resulted in gross proceeds to the Company of $13,667.
NOTE 8 - NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the loss
applicable to common shareholders by the
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weighted average number of common shares and common share equivalents during
the period. Outstanding options, convertible A Preferred Stock and B Preferred
Stock and stock warrants were determined to be antidilutive for the periods
ended September 30, 1996 and 1995 and were therefore excluded from the per
share calculations.
NOTE 9 - ACQUISITIONS
In July 1996 the Company acquired, through a newly formed
wholly-owned UK subsidiary (EPL Flexible Packaging Limited ("EPL Flexible")),
some of the fixed assets located at Gainsborough, Lincolnshire, UK, of a
division of Printpack Europe (St Helens) Limited ("Printpack St Helens"). EPL
Flexible also assumed a real estate lease and offered employment to some of the
employees of Printpack St Helens. The total net consideration paid was
$1,286,500. EPL Flexible specializes in the printing of flexible packaging
films primarily serving the snack food industry. EPL Flexible operates as a
wholly-owned subsidiary of EPL Technologies (Europe) Limited. EPL Flexible's
principal customer is Pepsico and affiliated companies.
Also in July 1996, the Company formed a new wholly-owned US
subsidiary, Crystal Specialty Films, Inc.("Crystal"), to acquire the assets and
assume certain liabilities of Crystal Plastics, Inc., based in Illinois.
Crystal uses "K" resin and polystyrene resins to manufacture a range of
proprietary films for a variety of applications. After an initial payment of
approximately $400,000, a further $267,000 is payable in quarterly annual
instalments over 2 years, with a final payment based on the performance of the
business over the two year period following the acquisition. Crystal will serve
as the site for installation of proprietary gas flame perforation equipment
which the Company has had custom-built in the UK and which is planned to be the
basis for penetration of the US film perforation market. The Company is
currently serving this market, to a limited degree, from the UK.
In connection with this effort, effective August 31, 1996, Bakery
Packaging Services Limited ("BPS"), one of the U.K. subsidiaries of the
Company, executed a two-year contract with E.I. du Pont de Nemours &
Co.("DuPont") for DuPont to utilize the Company's proprietary gas-flame
perforating technology on certain DuPont manufactured "MYLAR"(R) films. Under
this two-year contract with DuPont, which is renewable for a further three
years, DuPont will purchase from the Company, on a fee basis, all of DuPont's
gas-flame perforation requirements for PET (polyethylene terephthalate), PA
(polyamide) and PEN (polyethylene naphthalate) films and will grant the Company
a non-exclusive license to sell certain DuPont film, on terms and conditions
yet to be finalized. While this agreement grants DuPont exclusive rights to
EPL's gas-flame perforation of PET, PA and PEN films, the Company retains the
rights to perforate other films manufactured by other producers. A new
majority-owned subsidiary of the Company is expected to undertake this U.S.
supply to DuPont in the next quarter. The BPS U.K. facility will continue to
perforate DuPont film for the UK and European markets, as it has been doing
over recent months for the U.S. market.
In addition, also in July 1996, the Company formed NewCorn Co LLC
("NewCorn Co"), a jointly owned Delaware limited liability company in which the
Company currently owns 51% of the equity interest. The Company's co-owner in
NewCorn Co is Underwood Ranches, the trade name of Agricultural Innovation and
Trade, Inc.("Underwood"). NewCorn Co will utilize the Company's proprietary
processing aid and packaging technologies and Underwood's existing corn
processing and distribution capabilities to pursue development of a year-round,
national, value-added market for fresh corn products.
NOTE 10 - OTHER MATTERS
At the Annual Meeting of Shareholders of the Company held on July
22, 1996, the shareholders of the Company approved an amendment to the
Company's 1994 Stock Incentive Plan (the "Plan) which (a) increases the number
of shares of Common Stock reserved for issuance under the Plan from 1,500,000
to 3,000,000 and (b) increases the number of shares of Common Stock that may be
granted to any individual under the Plan in any calendar year from 100,000 to
200,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
EPL Technologies, Inc. develops, manufactures and markets complementary
proprietary technologies designed to maintain the integrity of fresh produce.
The Company's primary products are processing aids and packaging materials,
together with a range of services that support and complement its product
offerings, which are designed and marketed to processors of fresh fruits and
vegetables, to be integrated into a customer's fresh produce production system.
The Company believes its products are safe, environmentally friendly and,
together with its services, add significant value to the business of its
customers. The Company also believes that processing aids and packaging
materials are complementary technologies and markets them as such. The
Company's goal is to become a world class provider of products and scientific
services designed to maintain the integrity of fresh produce. As consumer
awareness continues to grow, including reaction to reports regarding the
potential health concerns surrounding the use of sulfite-based preservatives,
and untreated produce or produce-derived food products, management believes
interest in the Company's products will increase. Management is continually
searching for new ways to market its products and services and expand
operations, both internally and, where appropriate, through strategic and
opportunistic acquisitions. The Company is currently engaged in discussions
regarding potential acquisitions and alliances but no new definitive agreements
have yet been reached and there can be no assurances that any such agreements
or acquisitions will in fact occur. The Company has made a conditional offer
to acquire a UK based specialist packaging business, with sales revenue of some
$25,000,000 and net assets of some $7,100,000. The offer is subject to due
diligence and agreement on definitive documentation and discussions are
continuing. If the acquisition is completed, the Company expects to file a
Report on Form 8-K to report this transaction. There can, however, be no
assurance that this transaction will in fact be consummated.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
Sales revenue for the nine months ended September 30, 1996 increased to
$7,063,578 compared with $1,164,025 recorded during the nine months ended
September 30, 1995, an increase of 507%. The revenue for the first nine months
of 1996 was comprised of $720,451 of processing aids and related activities,
$1,084,266 of US packaging materials and $5,258,861 of UK and other European
packaging materials. Sales of processing aids was up slightly over the same
period in 1995, with the main increase coming from the inclusion of the revenue
from the Company's corn activities through its majority owned company Newcorn
Co. completed on July 22, 1996. The other main increases were due to the
inclusion of Bakery Packaging Services Limited ("BPS"), which the Company
acquired in September 1995, together with initial contributions to revenue from
EPL Flexible Packaging Limited ("EPL Flexible") and Crystal Speciality Films,
Inc.("Crystal"), both acquired in July 1996.
Within the US processing aid business, the focus continued to be
towards new product introduction to larger processors. Testing continues to
develop at a number of locations, and new opportunities continue to be pursued.
Management believes that this strategy provides the best opportunity to develop
satisfactory sales growth within a reasonable time frame, while limiting the
Company's customer concentration.
The US packaging materials business grew by some 74.5% over the same
period in 1995. This reflects mainly the contribution of the Crystal business
acquired in July 1996. In both businesses, the Company continues to
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target and to expand product development activities and to seek to exploit the
synergies that exist with the processing aid business. The successful
completion of the DuPont agreement, as mentioned in Note 9 above, did not
generate any revenue in the US in the period. The new gas-flame film
perforation machine has been successfully installed, and is expected to begin
contributing to revenue, initially on a low level, in the final quarter of
1996.
The UK and European packaging materials businesses grew from
$201,125 in 1995 to $5,258,861 in 1996. This reflected a full period
contribution from BPS, acquired in September 1995, together with the first
contribution from EPL Flexible. BPS continues to develop, and the Company is
beginning to exploit the synergies between the two businesses. It is the
Company's intention to relocate all the film printing activities currently
located at BPS to the EPL Flexible site to increase capacity at BPS as well as
yielding economies of scale from having all of the printing activities in one
location. Having acquired the assets at EPL Flexible, business has been
increasing during the period principally from its main customer Pepsico, and
new customers are actively being sought to help maximize the available capacity
and further diversify the customer base. There can be no assurance, however,
that the Company will be successful in doing so.
Gross margin for the nine months ended September 30, 1996 was 17.5%
as compared to 27.7% for the same period last year. This reduction is due
principally to the inclusion in consolidation of sales of UK and European
packaging materials, as well as the US packaging materials, which generate a
lower average margin than processing aids. In addition, it also reflects the
relationship between the volume of product sold and dollar volumes, which can
be substantially affected from quarter to quarter by varying product mix,
varying processor efficiency levels and by promotional pricing of products used
for tests and evaluation.
Selling, general and administrative expenses rose to $3,172,052 from
$1,814,389, an increase of $1,357,663. A significant part of this was due to
the inclusion on consolidation of expenses from the BPS operations, as well as
some incremental expenses from the inclusion of EPL Flexible, Crystal and
Newcorn Co. The remainder was due to the continuing development of the sales
and marketing effort as well as projects to support large, prospective
customers. The Company expects that this level of additional expenditure will
continue at least in the short term. Furthermore, as interest in the Company
has grown, additional costs have been incurred in investor relations, with a
significantly increased shareholder base. Significant one time costs have also
been incurred in a number of areas, including in relation to SEC and other
legal work, notably in relation to registrations of the Company's securities
under federal and state securities laws. Research and development costs
increased from $380,376 to $682,597, an increase of $302,221. This reflects
the costs of some of the third party collaborative projects commenced during
1995, as well as additional staff to support the Company's scientific and
technical objectives in relation to the ongoing sales effort for large,
prospective customers. Again, the Company expects that these expenses will
continue to exceed the expenses incurred in 1995, although it believes the
results of these expenditures will be seen in incremental revenues in 1997 and
beyond. Depreciation and amortization expense increased by $364,659, from
$324,769 in 1995 to $689,428 in 1996. The majority of this increase was due to
increased amortization of goodwill related to the acquisition of BPS in
September 1995, with the remainder due to increased depreciation as a result of
capital expenditure and the assets acquired in the EPL Flexible, Crystal and
Newcorn Co acquisitions during 1996.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30,1995
Sales revenue for the three months ended September 30, 1996
increased to $3,520,474, compared with $588,446 recorded during the three
months ended September 30, 1995, an increase of 498%. Of the sales in the
third quarter, processing aids and related activities accounted for $525,691,
US packaging materials $640,782 and UK and other European packaging materials
$2,354,001.
Within the US processing aid business the focus in the period
continued to be towards new product introduction to larger processors, although
with sales in 1996 only slightly ahead of the same period in 1995. Testing at
numerous locations continues to develop and management believes that this
provides the best opportunity to develop satisfactory sales growth within a
reasonable time frame, while limiting the Company's customer concentration.
There can be no assurance, however, that the Company will be successful in
doing so. Pure Produce, Inc., the Company's microbiological subsidiary, and
provider of food safety services, is building its product proposition, and
subsequent to the period end saw the first results of this with the signing of
a contract with the US Apple Association, although
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<PAGE> 11
revenues thereunder are not yet material. Newcorn Co contributed some $408,460
in revenue in its first three months of operation.
The US packaging materials business grew by some 180% over the same
period in 1995, mainly due to the acquisition of the Crystal business. Respire
is in the early stages of work with some potential new customers, who if they
can be converted into actual customers could have a significant positive impact
on future revenues. The Company continues to target and to expand product
development activities and to exploit synergies that exist with the processing
aid business. There can be no assurance, however, that the Company will be
successful in doing so.
The revenue from the UK and European packaging businesses totaled
$2,354,001 in the third quarter, compared to $201,125 in the same period in
1995, a 1,070% increase. This increase reflected a full quarter of operations
of BPS, which was acquired in September 1995, together with the first quarter
contribution of revenue from EPL Flexible. The latter business is still
building its revenue base, with new customers being sought.
Gross margin for the third quarter of 1996 was 18.9% as compared to
27.7% for the third quarter of 1995. This reduction is also principally due to
the inclusion in consolidation of sales of UK and other European packaging
materials, which, as noted above, generate a lower average margin than
processing aids. However, also as mentioned above, it also reflects the
relationship between the volume of product sold and dollar volumes, which can
be substantially affected from quarter to quarter by varying product mix,
varying processor efficiency levels and by promotional pricing of products used
for tests and evaluation.
Selling, general and administrative expenses rose to $1,271,651
from $614,963, an increase of $656,688. This was due to 1) the inclusion on
consolidation of expenses from the various new operations, compared with 1995.
2) the continuing development of the sales and marketing effort as well as
projects to support large, prospective customers. The Company expects that
this level of additional expenditure will continue at least in the short term.
and 3) as interest in the Company has grown, together with a significant
increase in the number of shareholders, additional costs continue to be
incurred in investor relations. This has also included additional professional
costs (including filing fees)in connection with SEC, blue sky and other
shareholder related matters. Research and development costs increased from
$135,793 to $268,496, an increase of $132,703. This reflects the costs of some
of the third party collaborative projects commenced during 1995, as well as
additional staff to support the Company's scientific and technical objectives
in relation to the ongoing sales effort for large, prospective customers.
Again, the Company expects that these expenses will continue to exceed the
expenses in 1995. Depreciation and amortization expense increased by $165,898,
from $109,753 in 1995 to $275,621 in 1996. The majority of this increase was
due to increased amortization of goodwill related to the acquisition of BPS in
September 1995, with the remainder due to increased depreciation as a result of
capital expenditure and EPL Flexible, Crystal and Newcorn Co assets acquired as
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996 the Company had $2,389,365 in cash and short
term investments, compared with $1,522,075 at December 31, 1995, an increase of
$867,290. During the nine months ended September 30, 1996, cash has been used
to fund operating activities of $3,246,021 and to finance the purchase of fixed
tangible and intangible assets of $2,266,890. As mentioned in Note 9 above,
most of these assets were acquired as a result of the transactions involving
EPL Flexible, Crystal and Newcorn Co. Total financing activities of $6,380,201
were provided to the Company during this period, including $2,500,000 provided
from the subscription to the Series B Convertible Preferred Stock as mentioned
in Note 6 above.
The Company may seek additional financing through an equity offering
or increase in debt facility if the Company fails to meet its sales objectives
over the short term, although there can be no assurance that such capital would
be available or if available, obtainable on acceptable terms in such
circumstances. The Company's continued ability to operate is dependent upon
its ability to maintain adequate financing and to achieve levels of revenue
necessary to support its cost structure. The nature of the business is such
that fresh cut produce processors and other third-party users supplying retail
markets require extensive on site, and, in certain cases, independent testing
prior to utilizing the Company's product in their production. This results in
an extended sales process. The Company's management
-9-
<PAGE> 12
believes that this process is the basis for developing sustainable growth in
revenues which will enable the Company to achieve profitable operations. The
Company's management also believes that cash flows from operations and the
availability of borrowing under its line of credit will allow the Company to
maintain adequate financing for the next year, assuming minimal sales budgets
are met. In addition to the $798,150 remaining available to be drawn under the
Bank of Scotland facility, 398,865 warrants remained outstanding which, if
exercised, would raise gross proceeds of $553,865. At September 30, 1996,
there were no material commitments for capital expenditures.
FORWARD LOOKING STATEMENTS
The discussion above includes certain forward looking statements
regarding the Company's expectations on gross margin, expenses, market
penetration, success in obtaining large new customers, possible acquisitions,
access to capital and new product introduction. Consequently, actual results
may vary materially from such expectations. Meaningful factors that might
affect such results include : a) the length and effectiveness of the sales
process for processing aids and packaging, b) raw material availability and
pricing, c) changes in regulatory environment and d) difficulty with research
and development activities regarding new products, including extension of
necessary time periods or increase in expense for product introduction.
-10-
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit 11.0 Computation of Loss per share
b) Reports on Form 8-K
On July 9, 1996 the Company filed a report on Form 8-K under
Item 5 thereof, in connection with the commencement of
trading of the Company's shares of common stock on the Nasdaq
SmallCap market.
On July 19, 1996 the Company filed a report on Form 8-K under
Item 2 thereof, in connection with the acquisition of certain
assets and certain liabilities of Printpack Europe (St
Helens) Limited.
On September 12, 1996 the Company filed a report on Form 8-K
under Item 5 thereof, in connection with the execution by BPS
of a supply contract with DuPont.
-11-
<PAGE> 14
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.
EPL TECHNOLOGIES, INC.
Date: November 14, 1996 /s/ Paul L. Devine
------------------------------------
Paul L. Devine
Chairman and President
(Principal Executive Officer)
Date: November 14, 1996 /s/ Timothy B. Owen
------------------------------------
Timothy B. Owen
Principal Financial Officer and
Principal Accounting Officer
-12-
<PAGE> 1
EPL Technologies, Inc.
Exhibit 11.0
Computation of Earnings per Common Share and
Fully Diluted Earnings per Common Share
<PAGE> 2
EXHIBIT 11.0
EPL TECHNOLOGIES, INC.
COMPUTATION OF LOSS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Loss ($3,313,217) ($2,462,644) ($1,136,591) ($808,726)
Deduct:
Effect of 10% cumulative
preferred dividend 248,357 240,430 111,250 79,750
--------- -------- -------- ---------
Net loss for common stockholders ($3,561,574) ($2,703,074) ($1,247,841) ($888,476)
========== ========== ========== ========
Weighted average number
of common shares outstanding 14,660,958 7,796,256 15,441,561 7,910,800
========== ========= ========== =========
Primary Loss Per Share ($0.24) ($0.35) ($0.08) ($0.11)
===== ===== ===== =====
Net Loss for fully diluted loss
per share computation ($3,313,217) ($2,462,644) ($1,136,591 ) ($808,726)
============ ============ =========== ===========
Weighted average number
of common shares outstanding 14,660,958 7,796,256 15,441,561 7,910,800
Common share equivalent applicable to:
Series A convertible preferred stock 3,543,704 4,271,111 3,402,222 4,253,333
Series B convertible preferred stock 531,915 0 531,915 0
Series A warrants 252,384 329,866 248,532 329,866
Other warrants 611,666 1,374,664 150,333 1,374,664
Stock options 2,370,194 1,308,889 2,520,250 1,361,667
Weighted average number of common shares
and common share equivalents used to compute
fully diluted loss per share 21,970,821 15,080,786 22,294,813 15,230,330
========== ========== ========== ==========
Fully diluted loss per share ($0.15) ($0.16) ($0.05) ($0.05)
======= ======= ======= =======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED CONSOLIDATED BALANCE SHEET, AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 9 MONTHS ENDED SEPTEMBER
30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000945269
<NAME>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,389,365
<SECURITIES> 0
<RECEIVABLES> 2,939,415
<ALLOWANCES> 0
<INVENTORY> 1,514,289
<CURRENT-ASSETS> 7,449,229
<PP&E> 5,145,023
<DEPRECIATION> (1,374,667)
<TOTAL-ASSETS> 15,136,379
<CURRENT-LIABILITIES> 4,567,841
<BONDS> 1,139,384
0
2,515,319
<COMMON> 15,499
<OTHER-SE> 6,639,670
<TOTAL-LIABILITY-AND-EQUITY> 15,136,379
<SALES> 7,063,578
<TOTAL-REVENUES> 7,063,578
<CGS> 5,828,264
<TOTAL-COSTS> 3,172,052
<OTHER-EXPENSES> 1,371,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,227
<INCOME-PRETAX> (3,313,217)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,313,217)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,313,217)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.15)
</TABLE>
