-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LT8z9eEcP7ZgywlrNlsVjyK+dz4hIWPllkWzqHBcSbTRrO728OmIDYbY7mhI4u2V VxxOD8GSOrVDkbAQmIRLTA== 0001021408-02-007538.txt : 20020522 0001021408-02-007538.hdr.sgml : 20020522 20020522160521 ACCESSION NUMBER: 0001021408-02-007538 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECOGEN INC CENTRAL INDEX KEY: 0000814050 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 222487948 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09579 FILM NUMBER: 02659933 BUSINESS ADDRESS: STREET 1: 2000 CABOT BLVD W #170 CITY: LANGHORNE STATE: PA ZIP: 19047-1811 BUSINESS PHONE: 2157571590 MAIL ADDRESS: STREET 1: 2005 CABOT BLVD W CITY: LANGHORNE STATE: PA ZIP: 19047 10-Q 1 d10q.txt FORM 10-Q--ECOGEN INC SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended January 31, 2002 ---------------- Commission File Number 1-9579 ------ Ecogen Inc. ----------- (Exact name of registrant as specified in its charter) Delaware 22-2487948 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2000 W. Cabot Boulevard #170, Langhorne, Pennsylvania 19047 ----------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (2l5) 757-l590 -------------- Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5 (d) of the Securities Exchange Act of l934 during the preceding l2 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 16, 2002 ----- --------------------------- Common Stock, $.01 par value 41,780,095 ECOGEN INC. ----------- INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: Unaudited Consolidated Condensed Balance Sheets-Pro Forma as of January 31, 2002 and Actual as of January 31, 2002 and October 31, 2001 ..................... 1 Unaudited Consolidated Condensed Statements of Operations for the three months ended January 31, 2002 and 2001 ................................ 2 Unaudited Consolidated Condensed Statement of Stockholders' Deficit for the three months ended January 31, 2002 ................................................. 3 Unaudited Consolidated Condensed Statements of Cash Flows for the three months ended January 31, 2002 and 2001 ................................ 4 Notes to Unaudited Consolidated Condensed Financial Statements .......................................................................... 6 Item 2 - Management's Discussion and Analysis of Results of Operations and Financial Condition ........................................ 11 PART II - OTHER INFORMATION Item 6(a) - Exhibits ....................................................................... 16
ECOGEN INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------- Unaudited Assets Pro Forma Actual January 31, January 31, October 31, 2002 2002 2001 - ------------------------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 1,113,549 $ - $ $ 8,054 Trade receivables, net 78,254 78,254 311,024 Inventory, net 47,030 47,030 300,322 Prepaid expenses and other current assets 297,508 297,508 373,962 Assets held for sale - 128,954 - - ------------------------------------------------------------------------------------------------------------------------- Total current assets 1,536,341 551,746 993,362 - ------------------------------------------------------------------------------------------------------------------------- Plant and equipment, net 4,842 4,842 29,554 Intangible and other assets, net 27,232 27,232 778,093 Assets held for sale - 746,669 - - ------------------------------------------------------------------------------------------------------------------------- $ 1,568,415 $ 1,330,489 $ 1,801,009 ========================================================================================================================= Liabilities and Stockholders' Deficit - ------------------------------------------------------------------------------------------------------------------------- Current liabilities: Debt due within one year - 2,515,500 2,500,500 Accounts payable and accrued expenses 4,765,725 5,151,676 5,005,810 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 4,765,725 7,667,176 7,506,310 - ------------------------------------------------------------------------------------------------------------------------- Long-term accrued expenses 192,379 192,379 231,505 - ------------------------------------------------------------------------------------------------------------------------- Long-term deferred revenue 1,822,928 1,822,928 1,780,928 - ------------------------------------------------------------------------------------------------------------------------- Minority interest 1,533,854 1,533,854 1,533,854 - ------------------------------------------------------------------------------------------------------------------------- Stockholders' deficit: Preferred stock, par value $.01 per share; authorized 7,500,000 shares: Series 2000 A convertible preferred stock; 30,000 shares authorized; 5,963 and 6,598 shares outstanding in 2002 and 2001, respectively (liquidation value $596,000) 60 60 66 Series 1998 C convertible preferred stock ; 50,000 shares authorized; 20,854 and 32,354 shares outstanding in 2002 and 2001, respectively (liquidation value $2,085,000) 209 209 324 Common stock, par value $.01 per share; authorized 42,000,000 shares:issued and outstanding 41,423,315 shares in pro forma and actual 2002 and 14,432,807 shares in 2001 414,233 414,233 144,327 Additional paid-in capital 129,051,339 129,051,339 129,317,112 Accumulated deficit (136,212,312) (139,351,689) (138,713,417) - ------------------------------------------------------------------------------------------------------------------------- Total stockholders' deficit (6,746,471) (9,885,848) (9,251,588) - ------------------------------------------------------------------------------------------------------------------------- $ 1,568,415 $ 1,330,489 $ 1,801,009 =========================================================================================================================
See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 1 ECOGEN INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- Three Months Ended January 31, 2002 2001 - -------------------------------------------------------------------------------- Revenues: Product sales, net $ 264,215 $ 792,493 - ------------------------------------------------------------------------------- Total revenues 264,215 792,493 - ------------------------------------------------------------------------------- Costs and expenses: Cost of products sold 211,423 686,273 Research and development: - 292,182 Selling, general and administrative 489,506 827,932 - ------------------------------------------------------------------------------- Total costs and expenses 700,929 1,806,387 - ------------------------------------------------------------------------------- Operating loss (436,714) (1,013,894) - ------------------------------------------------------------------------------- Other income (expense): Interest expense, net (115,892) (122,639) Other income 12,073 31,473 - ------------------------------------------------------------------------------- Total other expense, net (103,819) (91,166) - ------------------------------------------------------------------------------- Net loss (540,533) (1,105,060) Dividends on preferred stock 97,739 $ 134,662 Net loss allocable to common stockholders ($638,272) ($1,239,722) =============================================================================== Basic and diluted net loss per common share ($0.02) ($0.09) =============================================================================== Weighted average number of common shares outstanding 35,861,368 13,492,500 =============================================================================== See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 2 ECOGEN INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' (DEFICIT) Three months ended January 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------ Convertible Additional Preferred Common Paid-in Accumulated Stock Stock Capital Deficit Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance November 1, 2001 $ 390 $144,327 $129,317,112 ($138,713,417) ($9,251,588) Dividends on preferred stock, including 116,155 shares - 1,162 2,850 (97,739) (93,727) of common stock issued in payment of dividends Conversion of 11,500 shares of Series 1998 C convertible preferred stock to 25,000,000 shares of common stock (115) 250,000 (249,885) - - Conversion of 635 shares of Series 2000 A convertible preferred stock to 1,874,353 shares of common stock (6) 18,744 (18,738) - - Net loss - - - (540,533) (540,533) - ----------------------------------------------------------------------------------------------------------------------------------- Balance January 31, 2002 $ 269 $414,233 $129,051,339 ($139,351,689) ($9,885,848) ===================================================================================================================================
See Accompanying Notes To Unaudited Consolidated Condensed Financial Statements. 3 ECOGEN INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------- Three months ended January 31, 2002 2001 - ----------------------------------------------------------------------------------------- Cash flows from operating activities: Net loss ($540,533) ($1,105,060) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 3,101 168,755 Loss on disposition of fixed assets 3,564 29,688 Noncash interest and other expense 120,084 87,065 Changes in assets and liabilities 374,099 861,264 - --------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (39,685) 41,712 - --------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale for assets 18,047 - - --------------------------------------------------------------------------------------- Net cash provided by investing activities 18,047 - - --------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from promissory notes 15,000 200,000 Payments on line of credit, net - (415,634) Repayment of capital lease obligations (1,416) (21,571) - --------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 13,584 (237,205) - --------------------------------------------------------------------------------------- Net decrease in cash (8,054) (195,493) Cash and cash equivalents, beginning of period - 215,777 - --------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ (8,054) $ 20,284 =======================================================================================
(Continued) 4 ECOGEN INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED - -------------------------------------------------------------------------------- Three months ended January 31, 2002 2001 - -------------------------------------------------------------------------------- Changes in assets and liabilities, net of acquisition: Decrease (increase) in receivables $232,770 ($3,348) Decrease in inventory 189,338 642,309 Decrease in prepaid expenses and other current assets 11,454 6,064 Decrease in other assets - 6,316 (Increase) decrease in accounts payable and accrued expenses (59,463) 209,923 - -------------------------------------------------------------------------------- Changes in assets and liabilities, net $374,099 $861,264 ================================================================================ - -------------------------------------------------------------------------------- Noncash investing and financing activities: - -------------------------------------------------------------------------------- During the first quarter of fiscal 2001, the Company transferred ownership of certain fixed assets to a contract manufacturer in exchanged for $250,000 in credits to be applied toward future costs of production at that facility. Any unused balance is payable in cash at the end of two years. During the first quarter of fiscal 2002, the Company issued 26,874,353 shares of common stock upon conversion of the Company's preferred stock. In connection with the conversion, the Company issued 116,155 shares of its common stock in payment of dividends. See Accompanying Notes to Unaudited Consolidated Condensed Financial Statements. 5 ECOGEN INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Condensed Financial Statements January 31, 2002 and 2001 (1) Basis of Presentation and Summary of Significant Accounting Policies -------------------------------------------------------------------- Organization and Basis of Presentation: The consolidated condensed financial statements include the accounts of Ecogen Inc. ("Ecogen" or the "Company") and its wholly-owned and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated condensed financial statements include all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods presented. The consolidated condensed financial statements have been prepared in accordance with the requirements for Form 10-Q and, therefore, do not include all disclosures of financial information required by generally accepted accounting principles. These consolidated condensed financial statements should be read in conjunction with the Company's October 31, 2001 consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K. The results of operations for the interim period ended January 31, 2002 are not necessarily indicative of the operating results for the full year. Operations: The Company is a biotechnology company specializing in the development and marketing of environmentally compatible products for the control of pests in agricultural and related markets. The Company has not achieved profitable operations for any of its fiscal years and there is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company's future operations are dependent, among other things, on the success of the Company's commercialization efforts and market acceptance of the Company's products. Net Loss Per Common Share: Basic loss per share is based on net loss allocable to common stockholders for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted loss per share is based on net loss allocable to common stockholders for the relevant period divided by common shares outstanding and other potential common shares if they are dilutive. Because the Company reported a net loss per share, there is no difference between the Company's basic and diluted net loss per share calculations, since all potential common shares were anti-dilutive. (Continued) 6 ECOGEN INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Condensed Financial Statements, Continued (2) Liquidity --------- The Company has reported net losses allocable to common stockholders of ($638,000) and ($1,240,000) for the three-month periods ended January 31, 2002, and 2001, respectively. The loss from inception in 1983 to January 31, 2002 amounts to ($139,352,000). Further, the Company has a working capital deficit, a stockholders' deficit and limited liquid resources. These factors raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount or classification of liabilities, which might result from the outcome of this uncertainty. The Company's continued operations will depend on its ability to raise additional funds. To date, the Company has not generated positive cash flow from operations. Since its inception, the Company financed its working capital needs primarily through private and public offerings of equity and debt securities, revenues from research and development alliances and product sales. The Company had secured borrowings under a working capital line of credit, which expired on June 29, 2001. The balance under the line of credit was repaid in fiscal 2001. The Company also secured a term loan from a bank that is controlled by a principal of the Company's majority stockholder ("Term Loan") and notes from a corporation affiliated with the majority stockholders ("Notes") that are due on June 23, 2002. Subsequent to January 31, 2002, the Company borrowed an additional $390,000 under the Notes. At the time of entering into the additional loans, the terms of the Notes were amended to include all of the Company's assets as security for the Notes. On May 6, 2002, the Company signed an Asset Purchase Agreement with Certis USA, LLC ("Certis"), an indirect subsidiary of Mitsui & Co., for the sale of certain assets relating to the Company's sprayable Bt bio-pesticide business and the Company's insecticidal nematode business including, but not limited to, the Company's CryMax , Lepinox, Condor, Condor G, Raven, Bti technicals and HB nematode product lines. The transaction excludes the Bt CellCap products acquired from Mycogen Corporation and the Company's agreements with the Monsanto Company relating to the royalty arrangements for transgenic plants. The assets to be sold include all technology and know-how related to the business, including strain libraries for bio-pesticide uses, product registration, trademarks, patents or licenses and certain inventory and fixed assets. Upon the closing of the transaction, the Company will receive net cash proceeds of $4,015,000. The closing of the transaction is subject to certain conditions including obtaining approval of the Company's stockholders. Further, as a condition to the closing of the transaction, the Company is required to pay certain of its liabilities associated with the assets to be sold including the payment of the Term Loan and the (Continued) 7 ECOGEN INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Condensed Financial Statements, Continued (2) Liquidity (con't) ----------------- Notes to remove the liens on such assets and approximately $100,000 in accounts payable and accrued expenses. At May 16, 2002, the aggregate amounts due under the Term Loan and Notes, including accrued interest were $3,260,000. After the payments of the Company's liabilities as described above, the net proceeds from the sale of approximately $655,000 will not be sufficient for the Company to pay its existing liabilities. The Company will need to continue to pursue the raising of additional funds and other strategic initiatives including the sale of all or certain other assets to improve its working capital position. The Company also has taken a number of steps to conserve cash, including significant personnel reductions and related costs and the curtailment of all manufacturing until it is able to sell assets. The Company needs to sell other assets or obtain financing to provide the necessary cash resources to repay the outstanding balances under it's accounts payable and fund operations. At the present time, the Company is not pursuing any long-term financing. Further the Company needs to continue to obtain short-term funding while it negotiates potential sales. At this time the Company is unable to predict whether it will be successful in its efforts. If the Company is not successful in obtaining additional funding or selling assets, the Company will not be able to continue as a going concern. Over the long-term, the Company's liquidity is dependent on market acceptance of its products and technology, including products, if any, commercialized by Monsanto utilizing the Company's technology. (3) Loan Agreements --------------- The Company has a secured term loan ("Term Loan") with a principal balance of $1,500,000 with a financial institution that is controlled by a principal of the Company's majority stockholder. The Term Loan including unpaid interest is due in June 2002. The loan bears interest at prime plus 2%. The Company's assets collateralize the loan. A corporation affiliated with the majority stockholder guarantees the loan. In connection with the guarantee, the corporation was issued a five-year warrant to purchase 200,000 shares of the Company's common stock at $1.25 per share. The value of such warrants of $183,556 has been recorded as deferred debt expense and was amortized as interest expense over the life of the loan. At January 31, 2002, a corporation affiliated with the Company's majority stockholder loaned the Company an aggregate of $1,015,000 pursuant to promissory notes ("Notes") that are due June 30, 2002, bear interest at 12%, and are secured by an interest in any success fees received under the Company's agreement with Monsanto Company. Subsequent to January 31, 2002, such corporation loaned the Company an additional $390,000 pursuant to promissory notes under the same terms as indicated previously. At the time of entering into the additional loans, the terms of the Notes were amended to include all of the Company's assets as security for the Notes. Under the agreement with Certis, as described in note 5, the balances due under the Term Loan and the Notes are required to be paid concurrent with the closing of the sale of assets in order to remove the lien on the assets to be sold. (Continued) 8 ECOGEN INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Condensed Financial Statements, Continued (4) Stockholders' Equity -------------------- In November 2001, 11,500 shares of the Series 1998 C Preferred Stock were converted into 25,000,000 shares of the Company's common stock in accordance with the terms of the preferred stock. As a result of the conversion, the holder of the preferred stock owns 62 % of the Company's outstanding common shares. After the conversion, 20,854 shares of the Series 1998 C Convertible Preferred Stock remain outstanding. Subsequent to January 31, 2002, the Company issued 308,960 shares of its common stock in exchange for 90 shares of the Company's Series 2000-A 7% Convertible Preferred Stock. The Company also issued 47,820 shares of its common stock in payment of cumulative dividends at the time of conversion. (5) Sale of Assets -------------- On May 6, 2002, the Company signed an Asset Purchase Agreement with Certis, an indirect subsidiary of Mitsui & Co., for the sale of certain assets relating to the Company's sprayable Bt bio-pesticide business and the Company's insecticidal nematode business including, but not limited to, the Company's CryMax , Lepinox, Condor, Condor G, Raven, Bti technicals and HB nematode product lines. The transaction excludes the Bt CellCap products acquired from Mycogen Corporation and the Company's agreements with the Monsanto Company relating to the royalty arrangements for transgenic plants. The assets to be sold include all technology and know-how related to the business, including strain libraries for bio-pesticide uses, product registration, trademarks, patents or licenses and certain inventory and fixed assets. Upon the closing of the transaction, the Company will receive net cash proceeds of $4,015,000. The closing of the transaction is subject to certain conditions including obtaining approval of the Company's stockholders. Further, as a condition to the closing of the transaction, the Company is required to pay certain of its liabilities associated with the assets to be sold including the payment of the Term Loan and the Notes to remove the liens on such assets and approximately $100,000 in accounts payable and accrued expenses. At May 16, 2002, the aggregate amounts due under the Term Loan and Notes, including accrued interest were $3,260,000. A summary of assets to be sold is as follows: Inventory $ 64,000 Other current assets 65,000 Intangibles and other assets 747,000 ---------- 876,000 Net Proceeds 4,015,000 ---------- Gain on sale of assets $3,139,000 ========== 9 ECOGEN INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Condensed Financial Statements, Continued (5) Sale of Assets, con't --------------------- The unaudited pro forma consolidated balance sheet presented is based upon the Company's historical consolidated balance sheet at January 31, 2002, after giving effect to (i) the sale of assets as described above and the receipt of $4,015,000 net proceeds from the sale, (ii) the prepayment of $1,675,000 for amounts due under the Term Loan and $1,126,000 for the amounts due under the Notes including accrued interest at January 31, 2001 as described previously in note 3 and (iii) the payment of $100,000 in accounts payable and accrued expenses. 10 ECOGEN INC. AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition Three Months Ended January 31, 2002 and 2001 THREE MONTHS ENDED JANUARY 31, 2002 AND 2001 - -------------------------------------------- Revenues - -------- Net product sales decreased $528,000 or 67% in the three month period ended January 31, 2002 when compared to the same period in fiscal 2001 principally due to volume. Sales of the Company's Bt product line represented 90% of the Company's product sales, biofungicide product sales represented 10% of product sales in the first quarter of fiscal 2002, The Company's discontinued its biofungicides business early in fiscal 2001. The sales in the first quarter of fiscal 2002 represented the sale of existing finished products. The decrease in sales was due principally to the Company's lack of financial resources including its inability to fund production and secure additional finished goods from Dow Agrosciences LLC. In January 2002, Dow terminated the Supply Agreement as a result of Ecogen's alleged failure to remedy its breaches under the agreement. As a result of the termination of the Supply Agreement, the Company currently is unable to sell any products acquired from Mycogen. Since Dow owns the manufacturing process, the Company is unable to contract with a third party for the manufacture of these products. Although the Company is in discussions with Dow to resolve the situation, there is no assurance that the Company will be successful. Due to the termination of the Dow supply agreement, the sale of assets to Certis and the Company's lack of liquidity, sales are expected to continue to decline. The Company's source of product sales is dependent upon its limited amount of inventory. Costs and Expenses - ------------------ Cost of products sold decreased 69% in the first three months of fiscal 2002 compared to the same period in fiscal 2001 due primarily to a decrease in product sales. Gross margins on product sales improved from 13% in the first quarter of fiscal 2001 to 20% in fiscal 2002. The improved margins in fiscal 2002 were due principally to lower fixed charges as a result of the curtailment of production and reduction in personnel. Total operating expenses consisting of research and development and selling, general and administrative expenses were $490,000 in the first quarter of fiscal 2002, compared to $1,120,000 in the same period in fiscal 2001, a decrease of 56% due to cost reduction measures implemented by the Company to conserve cash, including significant personnel reductions and related costs and a reduction in outside services Further cost reduction have been implemented in operating expenses subsequent to the end of the first quarter of fiscal 2002. There was no research and development activity in the first quarter of fiscal 2001 The operating loss improved from ($1,014,000) in the first quarter of fiscal 2001 to ($437,000) in the first quarter of fiscal 2002. The improvement was primarily due to the decrease in operating expenses. 11 Net Loss - -------- Net loss allocable to common stockholders for the three months ended January 31, 2002 was ($638,000), compared to a net loss allocable to common stockholders of ($1,240,000) for the same period in fiscal 2001. Basic and diluted net loss per share for the three months ended January 31, 2002 was ($0.02), compared to net loss per share of ($0.09) in the first quarter of fiscal 2001 on weighted average shares outstanding of 35.9 million and 13.5 million in the first three months of fiscal 2002 and 2001, respectively. Net loss allocable to common stockholders included preferred stock dividends of $98,000 and $135,000 in the first quarter of fiscal 2002 and 2001, respectively. Seasonality of Business - ----------------------- The bulk of the Company's current products are presently marketed for agricultural applications in the northern hemisphere, where the growing season generally runs from spring through fall. Because of the seasonal nature of its business, the Company's product revenues are likely to be concentrated in the fiscal quarters prior to and during a particular growing season, which may result in substantial variations in quarter-to-quarter financial results. Product sales from year-to-year are also affected by unusual weather conditions, such as droughts or floods, and the level of insect pressure in grower areas. In addition, commercial introduction of the Company's new products is contingent on, among other factors, completion of field testing and receipt of required regulatory approvals. Unusual weather conditions during field tests or failure to receive regulatory approvals prior to the growing season may require additional field tests in subsequent growing seasons, with resulting delays in product development and commercialization. Liquidity and Capital Resources - ------------------------------- At January 31, 2002, the Company had no cash. The Company funded its operating loss in the first quarter of fiscal 2002 primarily through decreases in inventory and accounts receivable and limited sale of assets and proceeds from the Notes. At January 31, 2002, current liabilities were $7,667,000 and current assets were $552,000, resulting in a working capital deficit of $7,115,000. Current liabilities increased $161,000 from October 31, 2001 due primarily to non-cash interest and dividends. At January 31, 2002, the Company had $3,100,000 in accounts payable. Certain of these creditors have initiated legal and other action for collection of amounts overdue. Included in current liabilities at January 31, 2002 are net borrowings under debt facilities of $2,515,000. Subsequent to January 31, 2002, 90 shares of Series 2000-A preferred stock were converted into 308,960 shares of the Company's common stock. At the time of the conversion, 47,820 shares of common stock were issued in payment of accrues dividends. During fiscal 2000, the Company obtained a $1.500,000 variable rate secured term loan with the Berkshire Bank, a financial institution controlled by a principal of United Equities (Commodities) Corporation, the Company's current majority stockholder. The maturity date of the Term Loan was extended to June 2002 for all principal, interest and penalty payments. Further, a corporation affiliated with the majority stockholder loaned the Company an aggregate of $1,015,000 through January 2002 pursuant to promissory notes ("the Notes") which are due in June 2002 and bear interest at 12%. Subsequent to January 31,2002, the Company borrowed an additional $390,000 pursuant to promissory notes that are due in June 2002. 12 On September 11, 2000, the Company's common stock was delisted from the Nasdaq National Market ("NNM") as a result of the Company's failure to meet the NNM's net tangible assets listing requirement. As a result, dividends on the Company's Series 2000-A and Series 1998-C Convertible Preferred Stock are payable in cash, beginning with the quarterly dividend payment date of September 30, 2000 and the semiannual dividend payment date of December 31, 2000, respectively. The Company no longer has the option to pay such dividends in stock. Under Delaware Law, the Company is precluded from paying cash dividends due to its deficit in stockholders' equity and therefore is in default of its preferred stock. The Company's continued operations will depend on its ability to raise additional funds. To date, the Company has not generated positive cash flow from operations. Since its inception, the Company financed its working capital needs primarily through private and public offerings of equity and debt securities, revenues from research and development alliances and product sales. The Company had secured borrowings under a working capital line of credit, which expired on June 29, 2001. The balance under the line of credit was repaid in fiscal 2001. The Company also secured a Term Loan from a bank that is controlled by a principal of the Company's majority stockholder and Notes from a corporation affiliated with the majority stockholders that are due on June 23, 2002. . Subsequent to January 31, 2002, the Company borrowed an additional $390,000 under its Notes with a corporation affiliated with the Company's majority stockholder. At May 16, 2002, the aggregate amounts due under the Term Loan and Notes, including accrued interest were $3,260,000. On May 6, 2002, Ecogen Inc. (the "Company") signed an Asset Purchase Agreement with Certis USA, LLC ("Certis"), an indirect subsidiary of Mitsui & Co., for the sale of certain assets relating to the Company's sprayable Bt bio-pesticide business and the Company's insecticidal nematode business including, but not limited to, the Company's CryMax , Lepinox, Condor, Condor G, Raven, Bti technicals and HB nematode product lines. The transaction excludes the Bt CellCap products acquired from Mycogen Corporation and the Company's agreements with the Monsanto Company relating to the royalty arrangements for transgenic plants. The assets to be sold include all technology and know-how related to the business, including strain libraries for bio-pesticide uses, product registration, trademarks, patents or licenses and certain inventory and fixed assets. Upon the closing of the transaction, the Company will receive net cash proceeds of $4,015,000. The closing of the transaction is subject to certain conditions including obtaining approval of the Company's stockholders. Further, as a condition to the closing of the transaction, the Company is required to pay certain of its liabilities associated with the assets to be sold including the payment of the Term Loan and the Notes to remove the liens on such assets and approximately $100,000 in accounts payable and accrued expenses. At May 16, 2002, the aggregate amounts due under the Term Loan and Notes, including accrued interest were $3,260,000. After the payments of the Company's liabilities as described above, the net proceeds from the sale of approximately $655,000 will not be sufficient for the Company to pay its existing liabilities. 13 The Company will need to continue to pursue the raising of additional funds and other strategic initiatives including the sale of all or certain other assets to improve its working capital position. The Company also has taken a number of steps to conserve cash, including significant personnel reductions and related costs and the curtailment of all manufacturing until it is able to sell assets. The Company needs to sell other assets or obtain financing to provide the necessary cash resources to repay the outstanding balances under it's accounts payable and fund operations. At the present time, the Company is not pursuing any long-term financing. Further the Company needs to continue to obtain short-term funding while it negotiates potential sales. At this time the Company is unable to predict whether it will be successful in its efforts. If the Company is not successful in obtaining additional funding or selling assets, the Company will not be able to continue as a going concern. Over the long-term, the Company's liquidity is dependent on market acceptance of its products and technology including products, if any, commercialized by the Monsanto Company utilizing the Company's technology. The report of our independent auditors on the Company's consolidated financial statements for the years ended October 31, 2001 and 2000 included an explanatory paragraph which stated that the recurring losses from operations, working capital deficiency, net capital deficiency and limited liquid resources raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Recently Issued Accounting Standards - ------------------------------------ In June 1998, the Financial Accounting Standard Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS 133"). FAS 133 was required to be adopted for the fiscal year beginning November 1, 2000. However, because it does not use derivatives, the adoption of FAS 133 did not effect the results of operations or the financial position of the Company. In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 required the Company to follow its guidance no later than its fiscal year beginning November 1, 2000 through a cumulative effect of a change in accounting principle. The adoption of this standard did not have a material impact on our financial statements. In April 2000, the Financial Accounting Standard Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation-An Interpretation of APB Opinion No. 25" ("FIN 44") was issued. Fin 44 clarifies the application of APB No. 25 for certain issues. Among other issues, FIN 44 clarifies the definition of employee for purposes of applying APB no. 25, the criteria for determining whether a plan qualifies as non-compensatory plan, the accounting consequences of various modifications to the term of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. Fin 44 became effective July 1, 2000. The adoption of FIN 44 did not have a significant effect on the Company's financial position or results of operations. 14 In June 2001, the Financial Accounting Standards Board issued Statement No. 141, "Accounting for Business Combinations (FAS 141) and Statement No. 142, Accounting for Goodwill and Intangible Assets (FAS 142). FAS 141 and 142 change the method of accounting for mergers and acquisitions. Under FAS 141 pooling-of-interest accounting may no longer be used. Under FAS 142 purchased goodwill will be subject to impairment reviews rather then amortizing goodwill over a specific period. The effective date for FAS 141 is for transactions entered into after June 30, 2001. FAS 142 will be effective for fiscal years beginning after December 31, 2001. Earlier application is permitted, however FAS 142 must be adopted at the beginning of a fiscal year. Adoption of FAS 142 is not expected to have a material impact on the Company's consolidated financial statements. Forward-Looking Statements - -------------------------- All statements contained in this management's discussion and analysis of financial condition and results of operations other than statements of historical information, are forward-looking statements. Forward-looking statements include statements containing plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than historical facts. Although the Company believes that its expectations are based on reasonable assumptions, the Company operates in a high technology, emerging market environment that involves significant risks and uncertainties which may cause actual results to vary from such forward-looking statements and to vary significantly from reporting period to reporting period. These risks include among others, those listed in "Factors That May Affect Future Results", in the Company's Annual Report on Form 10K for the year ended October 31, 2001, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to update the results discussed herein as a result of changes in risks or operating results. 15 PART II - OTHER INFORMATION Item 6 Exhibits and reports in Form 8-K (a) Exhibits Exhibit No. Description - ------------- ----------- 3.1 Restated Certificate of Incorporation of Ecogen Inc. (Form 10-Q for fiscal quarter ended January 31, 1996)* 3.2 By-laws of Ecogen Inc., as amended (Form S-1 Registration Statement, File No. 33-14119)* 3.3 Certificate of Designations, Preferences and Rights of Series 1998-A Convertible Preferred Stock (Form 10-Q for fiscal quarter ended April 30, 1998)* 3.4 Certificate of Designations, Preferences and Rights of Series 1998-C Convertible Preferred Stock (Form 8-K, dated September 2, 1998)* 3.5 Certificate of Designations, Preferences and Rights of Series 1999-A Convertible Preferred Stock (Form 10-Q, for fiscal quarter ended April 30, 1999)* 3.6 Certificate of Designations, Preferences and Rights of Series 2000-A Convertible Preferred Stock (Form 10-K, for fiscal year ended October 31, 1999)* 10.153 Asset Purchase and License Agreement between Ecogen Inc. and Mycogen Corporation dated as of February 15, 2000 (Current Report on Form 8-K dated March 1, 2000)* 10.154 Stockholders Agreement between Ecogen Inc. and Mycogen Corporation dated February 15, 2000 (Current Report on Form 8-K dated March 1, 2000)* 10.155 Purchase and Sale Agreement between Ecogen Inc. and Dow AgroSciences LLC dated as of February 15, 2000 (Current Report on Form 8-K dated March 1, 2000)* 10.156 Convertible Preferred Stock Purchase Agreement between Ecogen Inc. and Amro International, S.A., Aspen International, Ltd. and Markham Holdings Limited dated as of February 14, 2000 (Form 10-Q for the fiscal quarter ended January 31, 2000)* 10.157 Registration Rights Agreement between Ecogen Inc. and Amro International, S.A., Aspen International, Ltd. and Markham Holdings Limited dated as of February 14, 2000 (Form 10-Q for the fiscal quarter ended January 31, 2000)* - ------------------------ * These items are hereby incorporated by reference from the exhibits of the filing or report indicated and are made part of this Report. 16 10.158 Warrant Agreement between Ecogen Inc. and Amro International, S.A. dated February 14, 2000 (Form 10-Q for the fiscal quarter ended January 31, 2000)* 10.159 Warrant Agreement between Ecogen Inc. and Aspen International, Ltd. dated February 14, 2000 (Form 10-Q for the fiscal quarter ended January 31, 2000)* 10.160 Warrant Agreement between Ecogen Inc. and Markham Holdings Limited dated as of February 14, 2000 (Form 10-Q for the fiscal quarter ended January 31, 2000)* 10.161 Form of Demand Promissory Note to Momar Corporation (Form 10-K for the fiscal year ended October 31, 2000) * 10.162 Letter Agreement between Ecogen Inc. and Momar Corporation dated May 16, 2002 (Form 10-K for the fiscal year ended October 31, 2001)* (b) Current Reports on Form 8-K A Current Report on Form 8-K was filed on November 14, 2001 with respect to the conversion of 11,500 shares of Series 1998 C convertible preferred stock into 25,000,000 shares of the Company's common stock. A Current Report on Form 8-K was filed on January 4, 2002 with respect to the signing of a Letter of Understanding for the sale of certain assets to Certis USA, LLC. A Current Report on Form 8-K was filed on January 16, 2002 regarding the change in Company's certifying accountant. - ------------------------ * These items are hereby incorporated by reference from the exhibits of the filing or report indicated and are made part of this Report. 17 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. Date: May 22, 2002 ECOGEN INC. By: /s/ James P. Reilly, Jr -------------------------------- James P. Reilly, Jr. Chairman, Chief Executive Officer and Acting Chief Financial and Accounting Officer 18 -----END PRIVACY-ENHANCED MESSAGE-----