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 MARCH 31, 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: 33-150-D
EPL TECHNOLOGIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0990658
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(State of incorporation) (I.R.S. Employer Identification Number)
200 FOUR FALLS CORPORATE CENTER, SUITE 315
WEST CONSHOHOCKEN, PA 19428
---------------------------
(Address of principal executive offices)
(610) 834-9600
------------------
(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.
15,111,216 shares of $0.001 par value common stock
outstanding as of April 30, 1996.
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EPL TECHNOLOGIES, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995 1
B. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 2
C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 3
D. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 6
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 8
SIGNATURES. 9
3
EPL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(Unaudited) *
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 583,216 $ 1,522,075
Accounts receivable, net 1,315,213 1,333,353
Due from related parties 77,896 74,777
Inventories 650,584 561,255
Prepaid expenses and other current assets 300,438 442,814
------------ ------------
TOTAL CURRENT ASSETS 2,927,347 3,934,274
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PROPERTY AND EQUIPMENT, NET 1,766,508 1,786,534
------------ ------------
OTHER ASSETS:
Patent and distribution rights, net 1,550,152 1,632,497
Goodwill 2,334,964 2,396,380
Other intangibles, net 282,383 291,512
------------ ------------
TOTAL OTHER ASSETS 4,167,499 4,320,389
------------ ------------
TOTAL ASSETS $ 8,861,354 $ 10,041,197
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,542,327 $ 1,701,578
Accrued expenses 683,845 539,313
Other liabilities 298,528 288,651
Current portion of long-term debt 48,172 237,811
------------ ------------
TOTAL CURRENT LIABILITIES 2,572,872 2,767,353
LONG TERM DEBT 806,847 844,333
DEFERRED INCOME TAXES 53,388 53,672
------------ ------------
TOTAL LIABILITIES 3,433,107 3,665,358
STOCKHOLDERS' EQUITY:
Convertible Series A Preferred Stock 2,710,000 2,890,000
Common Stock 13,461 13,208
Additional paid-in-capital 15,034,239 14,843,992
Accumulated deficit (12,297,097) (11,362,545)
Foreign currency translation adjustment (32,356) (8,816)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,428,247 6,375,839
------------ ------------
TOTAL LIABILITIES & EQUITY $ 8,861,354 $ 10,041,197
============ ============
* 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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THREE MONTHS ENDED
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MARCH 31, MARCH 31,
1996 1995
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SALES $ 1,697,528 $ 309,492
COST OF SALES 1,407,195 217,332
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GROSS PROFIT 209,333 92,160
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 800,203 601,780
RESEARCH AND DEVELOPMENT COSTS 194,916 115,325
DEPRECIATION AND AMORTIZATION 212,996 106,641
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NET LOSS FROM OPERATIONS (917,782) (731,586)
INTEREST EXPENSE, NET 16,771 65,219
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INCOME BEFORE INCOME TAX EXPENSE (934,553) (796,805)
INCOME TAX 0 0
----------- ---------
NET LOSS $ (934,553) $(796,805)
DEDUCT EFFECT OF 10% CUMULATIVE PREFERRED DIVIDEND 71,294 80,930
----------- ---------
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS $(1,005,847) $(877,735)
=========== =========
PRIMARY LOSS PER COMMON SHARE $ (0.08) $ (0.11)
=========== =========
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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THREE MONTHS ENDED
----------------------------------
MARCH 31, MARCH 31,
1996 1995
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OPERATING ACTIVITIES:
Net loss $ (934,553) $(796,805)
Adjustments to reconcile net loss to net cash
used in operating activities: 212,996 116,111
(Loss)/Gain on foreign currency translation (23,540) 118
Changes in assets and liabilities (143,500) (216,666)
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Net cash used in operating activities (888,597) (897,242)
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INVESTING ACTIVITIES:
Purchase of fixed assets (23,276) (49,820)
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Net cash used in investing activities (23,276) (49,820)
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FINANCING ACTIVITIES:
Increase in note payable - stockholder 930,000
Proceeds from the exercise of warrants/options 10,500
Repayment of long term debt (37,486)
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Net cash (used)/provided in financing activities (26,986) 930,000
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DECREASE IN CASH AND CASH EQUIVALENTS (938,859) (17,062)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,522,075 68,141
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 583,216 $ 51,079
=========== =========
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 three months ended March 31, 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
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.
Management believes that cash flows from operations, together with
its current resources (including cash received in the recent warrant exercise
(See Note 8 below)) and the availability of financing from other sources, such
as the refinancing of existing debt of the Company's subsidiary, Bakery
Packaging Services Ltd. (BPS), or other private or public issuances of equity
which the Company believes may be obtained on acceptable terms, will allow the
Company to maintain adequate financing for the next year, assuming minimal
sales budgets are met.
NOTE 3 - INVENTORIES
Inventories consisted of the following:
March 31, 1996 December 31, 1995
-------------- -----------------
Raw Materials and Supplies $458,818 $361,252
Finished Goods 191,766 200,003
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Total Inventories $650,584 $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 value of acquired and developed
patents totaled $1,148,354 as of March 31, 1996. Distribution rights are
amortized over the ten year life of the agreement. The net book value of
previously acquired distribution rights totaled $401,798 as of March 31, 1996.
Amortization expense related to patent and distribution rights totaled $82,345
for the three months ended March 31, 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 $70,545 for the three
months ended March 31, 1996.
NOTE 5 - CONVERTIBLE SERIES A PREFERRED STOCK
The Series 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 Preferred Stock carries equal voting rights to
the common shares, based on the underlying number of common shares after
conversion. The 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 March 31, 1996 total $908,531).
During the three months ended March 31, 1996, shareholders holding
180,000 shares of Preferred Stock elected to exercise their right of conversion,
leaving 2,710,000 shares of Preferred Stock outstanding at March 31, 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 March 31, 1996, 8,000 of these warrants
were exercised, leaving 255,199 of these warrants unexercised at March 31, 1996.
NOTE 6 - ISSUANCE OF COMMON STOCK AND EXERCISE OF WARRANTS
In addition to the 240,000 shares of common stock issued upon the
conversion of 180,000 shares of Preferred Stock and the 8,000 shares of common
stock issued upon the exercise of warrants as described in Note 5 above, 5,000
shares of common stock were issued due to the exercise of stock options during
the three month period ended March 31, 1996. The exercise of warrants and
options resulted in gross proceeds to the Company of $10,500. (See Note 8 below)
NOTE 7 - NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the loss
applicable to common shareholders by the weighted average number of common
shares and common share equivalents during the period. Outstanding options,
convertible preferred stock and stock warrants were determined to be
antidilutive for the periods ended March 31, 1996 and 1995 and were therefore
excluded from the per share calculations.
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NOTE 8 - SUBSEQUENT EVENT
On April 2, 1996, warrants to purchase 1,374,664 shares of the
Company's common stock at $2.50 per share were exercised for total gross
proceeds to the Company of $3,436,660.
On April 19, 1996, the Company acquired the fixed tangible and
intangible assets of Pure Produce, a Massachusetts general partnership, through
a newly formed wholly-owned subsidiary, Pure Produce, Inc., a Massachusetts
Corporation, which the Company does not believe was a material acquisition. The
total cost of the acquisition, including professional fees, is currently
estimated at $150,000. Pure Produce is, and will continue to be, in the business
of providing companies in the food industry, especially those involved with
fresh and minimally processed produce, with analysis, protocols and plans
relating to food and quality assurance programs including microbial testing.
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, 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 add
significant value to the business of its customers. 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 of reports
regarding the potential health hazards of sulfite-based preservatives, which the
Company's products do not contain, continues to grow, management believes
interest in the Company's products will increase. Management is continually
searching for new ways to market its products 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 agreements have yet been reached
and there can be no assurances that any such agreements in fact will be reached.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Sales for the three months ended March 31, 1996 were $1,697,528, an
increase of 448% on the total revenue of $309,492 achieved during the three
months ended March 31, 1995. Revenue for the first quarter of 1996 was comprised
of $104,654 of processing aids, $202,656 of US packaging materials and
$1,390,218 of UK and other European packaging materials. Sales of processing
aids and US packaging materials were broadly in line with sales achieved in
1995, with the majority of the $1,388,036 increase in sales in 1996 due to the
inclusion of Bakery Packaging Services Ltd. (BPS) which the Company acquired on
September 19, 1995.
Within the US processing aids business, a total of 21 customers purchased
processing aids during the quarter, compared to 30 for the same period in 1995.
This reflects the lack in this quarter of occasional sales to very small
processors while efforts have been focused towards new product introduction to
larger processors. Management continues to target medium to large volume food
processors as the customer base representing the best opportunity to provide
the Company a balance of satisfactory sales growth within a reasonable time
frame, while limiting the Company's customer concentration.
The US packaging materials business for the first quarter of 1996 was
relatively flat in comparison to 1995. The Company's experience is that
customers' ordering cycles for packaging materials vary quarter to quarter based
on seasonal demands and inventory control. The Company continues to target and
to expand product development activities and to exploit the synergies that exist
with the processing aid business.
The UK and other European packaging materials business of BPS was acquired
on September 19, 1995. Sales by BPS for the first quarter historically generate
lower sales than the remaining quarters of the year.
Gross margin for the first quarter of 1996 was 17% as compared to 30% for
the first quarter of 1995. This reduction is principally due to the inclusion in
consolidation of sales of UK and other European packaging materials,
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which generate a lower average margin than processing aids. However, it also
reflects the relationship between the volume of product sold and dollar volumes,
which can be distorted 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 from $601,780 for the
three months ended March 31, 1995 to $800,203 for the same period in 1996, an
increase of 33%, due mainly to the inclusion in consolidation of $157,667 of
expenses from the BPS operations. The remainder was due to the development of
sales and marketing effort to integrate the operating units of the Company as
well as projects to support large, prospective customers. The Company expects
that these expenses will continue to exceed prior year's activity beyond the
level of expenditures related to the BPS operation as additional staff and other
resources will be utilized to expand and administer the Company's business.
Research and development costs increased from $115,325 for the first quarter of
1995 to $194,916 during the first three months of 1996, an increase of 69%. This
reflects the costs of some of the collaborative projects commenced in 1995, as
well as, additional staff to support the Company's scientific and technical
objectives including the scientific activities related to projects supporting
the sales effort for large, prospective customers. The Company expects these
expenses to continue to exceed the prior year's expenditures but estimates that
costs will remain constant on a quarter to quarter basis throughout 1996.
Depreciation and amortization rose from $106,641 for the first three months of
1995 to $212,996 for the first quarter of 1996, an increase of 100%. Of this
increase, $61,416 was due to increased amortization of goodwill related to the
acquisition of BPS in September 1995. The remainder represents increased
depreciation as a result of capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash and cash equivalents of $583,216
compared to $1,522,075 as of December 31, 1995, a decrease of $938,859. During
the three months ended March 31, 1996, $888,597 was used in operations, compared
to $897,242 for the first three months of 1995. The 1996 financial information
includes the results of BPS, which was acquired in September 1995. Net cash used
in investing activities for the purchase of fixed assets totaled $23,276 during
the first quarter of 1996, compared to $49,820 in 1995.
Net cash used in financing activities for three months ended March 31,
1996 totaled $26,986, compared to net cash provided in the same quarter of 1995
of $930,000, which was provided by an increase in a note payable from a
shareholder. In the same period of 1996, $37,486 of long term debt was repaid
while $8,000 was raised through the exercise of warrants to purchase common
shares and $2,500 was received due to the exercise of 5,000 options. (See Note 6
to the financial statements)
As of March 31, 1996, the Company had 1,784,863 warrants outstanding to
purchase common stock at exercised prices ranging between $1 and $2.50 per
share. Subsequent to the end of the quarter, outstanding warrants to purchase
1,374,664 shares of the Company's common stock at $2.50 per share were
exercised, realizing total gross proceeds to the Company of $3,436,660.
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 Company's management believes that cash flows
from operations, together with its current resources (including cash received in
the recent warrant exercise) and the availability of financing from other
sources, such as the refinancing of existing BPS debt or other private or public
issuances of equity which the Company believes may be obtained on acceptable
terms, will allow the Company to maintain adequate financing for the next year,
assuming minimal sales budgets are met.
At March 31, 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, possible acquisitions and
new product introduction. Consequently, actual results may vary materially from
such expectations. Meaningful factors that might affect such results include:
a) the length of the sales process, b) raw material availability and pricing,
c) changes in regulatory environment and d) difficulty with research and
development activities regarding new products.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On April 2, 1996, warrants to purchase 1,374,664 shares of the Company's
common stock at $2.50 per share were exercised for total gross proceeds to the
Company of $3,436,660. A pro-forma condensed balance sheet illustrating the
effects of such exercise on the Company's balance sheet as of March 31, 1996 is
as follows:
March 31, 1996 Adjustment March 31, 1996
before conversion on conversion after conversion
----------------- ------------- ----------------
Cash and cash equivalents $ 583,216 $3,436,660 $ 4,019,876
Other assets 8,278,138 -- 8,278,138
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Total assets $8,861,354 $3,436,660 $12,298,014
========== ========== ===========
Total liabilities $3,433,107 -- $ 3,433,107
Total stockholders' equity 5,428,247 $3,436,660 8,864,907
---------- ---------- -----------
Total liabilities and stockholders' equity $8,861,354 $3,436,660 $12,298,014
========== ========== ===========
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) Exhibit 10.15 - Employment agreement dated March 4,
1996 between EPL Technologies, Inc.
and Karen Penichter, Vice President-Sales.
Exhibit 11.0 - Computation of Loss per share
B) Reports on Form 8-K
On January 30, 1996, the Company filed a report on Form 8-K
under Item 5 thereof, in connection with the execution of
a letter of intent with Potandon Produce, L.L.C.
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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 May 15, 1996 /s/ Paul L. Devine
-----------------------------
Paul L. Devine
Chairman and President
(Principal Executive Officer)
Date May 15, 1996 /s/ Shawn J. Collins
-----------------------------
Shawn J. Collins
Controller, Secretary
(Principal Financial Officer
and Principal Accounting
Officer)
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