<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2000
/ / Transition report pursuant to Section 13 or 15(d) of the Exchange Act.
For the transition period from ___________ to ___________
Commission File Number: 0-21975
ECO SOIL SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
NEBRASKA 47-0709577
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10740 THORNMINT ROAD
SAN DIEGO, CALIFORNIA 92127
(Address, Including Zip Code, of Principal Executive Offices)
(858) 675-1660
(Registrant's Telephone Number, Including Area Code)
Check 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 past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 4, 2000, 18,704,535
shares of the Registrant's Common Stock, $.005 par value per share, were
outstanding.
<PAGE>
INDEX
ECO SOIL SYSTEMS, INC.
FORM 10-Q/A
The registrant hereby amends its Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 to (a) correct certain typographical and EDGAR
conversion errors in the Unaudited Consolidated Statement of Operations,
Unaudited Consolidated Statement of Cash Flows and Unaudited Pro-Forma
Consolidated Statement of Operations and (b) correct typographical errors
contained in the financial data schedule attached as Exhibit 27.1 thereto. In
accordance with the instructions for Form 10-Q, Item 1 is included herein in
its entirety and a revised financial data schedule is attached as Exhibit
27.1. No other changes have been made to the Quarterly Report on Form 10-Q
for the period ended June 30, 2000.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 5
Notes to Financial Statements 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
ECO SOIL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
2000 1999
------------------- -----------------
(UNAUDITED) (NOTE)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 447 $ 131
Accounts receivable, net of allowance for doubtful accounts of $938 and $1,546
at June 30, 2000 and December 31, 1999, respectively 4,651 5,131
Inventories 5,517 5,681
Prepaid expenses and other current assets 2,943 3,078
------------------- -----------------
Total current assets 13,558 14,021
Equipment under construction 4,908 5,042
Property and equipment, net 12,429 12,790
Intangible assets, net 13,668 14,374
Debt issuance costs 5,667 4,075
Other assets 606 537
Net non-current assets of discontinued operations 1,756 1,710
------------------- -----------------
Total assets $ 52,592 $ 52,549
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,165 $ 4,710
Accrued expenses 2,792 3,661
Current portion of long-term obligations 27,019 21,617
Net current liabilities of discontinued operations 9,099 4,704
------------------- -----------------
Total current liabilities 43,075 34,692
Long-term obligations, net of current portion 158 1,307
Deferred gain on sale/leaseback of building 494 523
Other 569 -
Shareholders' equity:
Preferred stock
$.005 par value; 5,000,000 shares authorized; none issued and outstanding - -
Common stock
$.005 par value; 50,000,000 shares authorized at June 30, 2000 and
December 31, 1999, 18,657,444 and 18,349,965 shares issued and
outstanding at June 30, 2000 and December 31, 1999, respectively 96 92
Additional paid-in capital 57,413 55,578
Warrants 3,966 2,733
Accumulated deficit (53,179) (42,376)
------------------- -----------------
Total shareholders' equity 8,296 16,027
------------------- -----------------
Total liabilities and shareholders' equity $ 52,592 $ 52,549
=================== =================
</TABLE>
See accompanying notes.
Note: The Balance Sheet at December 31, 1999 is derived from the audited
financial statements at that date, but does not include all of the disclosures
required by generally accepted accounting principles.
3
<PAGE>
ECO SOIL SYSTEMS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- ----------------------------
2000 1999 2000 1999
--------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Proprietary $ 2,138 $ 2,664 $ 3,429 $ 3,208
Distributed 5,656 5,872 10,580 11,266
------------------ --------------- --------------- ----------
Total revenues 7,794 8,536 14,009 14,474
Cost of revenues:
Proprietary 984 1,606 1,805 2,414
Distributed 4,125 3,854 7,903 7,691
------------------ --------------- --------------- ----------
Total cost of revenues 5,109 5,460 9,708 10,105
Gross profit 2,685 3,076 4,301 4,369
Operating expenses:
Selling, general and administrative 3,420 3,475 7,160 7,181
Research and development 155 159 269 252
Amortization of intangibles 149 132 291 289
Restructuring charges 1,119 - 1,119 -
Legal settlement - 198 - 198
------------------ --------------- --------------- ----------
Loss from operations (2,158) (888) (4,538) (3,551)
Interest expense 898 470 1,934 884
Interest income 58 - 86 139
Income taxes 92 - 92 -
------------------ --------------- --------------- ----------
Loss from continuing operations (3,090) (1,358) (6,478) (4,296)
Income (loss) from discontinued operations (1,495) 2,413 (4,325) 551
------------------ --------------- --------------- ----------
Net income (loss) $ (4,585) $ 1,055 $ (10,803) $ (3,745)
================== =============== =============== ==========
Loss per share of common stock, basic:
Income (loss) from continuing operations $ (0.17) $ (0.08) $ (0.35) $ (0.25)
Income (loss) from discontinued operations (0.08) 0.14 (0.23) 0.03
------------------ --------------- --------------- ----------
Net income (loss) $ (0.25) $ 0.06 $ (0.58) $ (0.22)
================== =============== =============== ==========
Loss per share of common stock, diluted:
Income (loss) from continuing operations $ (0.07)
Income (loss) from discontinued operations 0.13
---------------
Net income (loss) $ 0.06
===============
Shares used in calculating income (loss)
per share, basic: 18,623 17,341 18,579 17,262
================== =============== =============== ==========
Shares used in calculating income (loss)
per share, diluted: 18,623 19,080 18,579 17,262
================== =============== =============== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
ECO SOIL SYSTEMS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------
SIX MONTHS ENDED JUNE 30,
-----------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ (6,478) $ (4,296)
Adjustments to reconcile net cash used in operating activities:
Depreciation and amortization 2,231 1,349
Amortization of debt issuance costs and discount on long-term 1,843 185
Deferred rent (29) --
Provision for losses on accounts receivable 1,095 101
Loss/(gain) on sale of property and equipment (12) 97
Issuance of stock options/warrants for services 51 242
Gain on redemption of common stock (121) --
Write-off of debt issuance costs 64 --
Changes in operating assets and liabilities (1,582) 169
-------- --------
Net cash used in operating activities of continuing operations (2,938) (2,153)
Net cash (used) provided by operating activities of discontinued operations (3,512) 2,500
-------- --------
Net cash (used) provided by operating activities (6,450) 347
INVESTING ACTIVITIES:
Proceeds from the sale of property and equipment -- 111
Proceeds from sale of patent rights 100 --
Purchase of property and equipment (558) (2,023)
Purchase of patents and licenses (38) (16)
-------- --------
Net cash used in investing activities of continuing operations (496) (1,928)
Net cash used in investing activities of discontinued operations (43) (291)
-------- --------
Net cash used in investing activities (539) (2,219)
FINANCING ACTIVITIES:
Advances (to) from shareholders -- 11
Proceeds from short-term obligations 6,444 --
Repayments of short-term obligations (1,608) --
Proceeds from long-term obligations -- 2,643
Repayments of long-term obligations (523) (83)
Net proceeds from issuance of common stock 44 942
Debt issuance costs (607) --
-------- --------
Net cash provided by financing activities of continuing operations 3,750 3,513
Net cash provided by financing activities of discontinued operations 3,203 9
-------- --------
Net cash provided by financing activities 6,953 3,522
-------- --------
Net (decrease) increase in cash (36) 1,650
Cash and cash equivalents at beginning of period of continuing operations 131 761
-------- --------
(Increase) decrease in cash and cash equivalents of discontinued operations 352 (2,218)
Cash and cash equivalents at end of period of continuing operations $ 447 $ 193
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
ECO SOIL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Eco Soil Systems, Inc. (the "Company"), all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair statement of the results for the three-month periods ended June 30, 2000
and 1999 have been made. The results of operations for the three-month and
six-month periods ended June 30, 2000 are not necessarily indicative of the
results to be expected for the full fiscal year. For further information, refer
to the audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
2. NET LOSS PER SHARE
In accordance with Financial Accounting Standards Board Statement No.
128, "Earnings per share" ("SFAS 128"), basic earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of the
Company such as common stock which may be issuable upon exercise of
outstanding stock options and warrants. These shares are excluded when their
effects are antidilutive.
3. DISCONTINUED OPERATIONS
On July 28, 2000, the Company completed the sale of substantially all of
the assets of its Turf Partners subsidiary (the "Asset Sale") to the J.R.
Simplot Company ("Simplot"). At the closing of the Asset Sale, Simplot made a
cash payment of $23 million and assumed Turf Partners' exiting long-term debt
and vendor payables totaling $38.5 million. Simplot also assumed Turf
Partners' outstanding contracts and leases. The Asset Sale was consummated
pursuant to an Amended and Restated Asset Purchase Agreement dated April 5,
2000, as amended by a First Amendment to Amended and Restated Asset Purchase
Agreement dated June 9, 2000.
6
<PAGE>
The results of the unaudited discontinued operations (in thousands) were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------- ---------------------------------
1999 2000 1999 2000
-------------- --------------- -------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues $ 24,197 $ 32,137 $ 36,372 $ 43,451
Cost of revenues 18,443 24,040 27,313 32,709
-------------- --------------- -------------- ---------------
Gross profit 5,754 8,097 9,059 10,742
Operating expenses:
Selling, general and administrative 5,604 5,206 10,425 9,269
Amortization of intangibles 152 152 304 304
-------------- --------------- -------------- ---------------
Income (loss) from operations (2) 2,739 (1,670) 1,169
Interest expense 1,429 326 2,591 618
Income taxes 64 - 64 -
-------------- --------------- -------------- ---------------
Net income (loss) $ (1,495) $ 2,413 $ (4,325) $ 551
============== =============== ============== ===============
</TABLE>
For the periods presented, the Company borrowed funds from institutional
lenders and accredited investors to provide working capital for the parent
company and its subsidiaries. The interest expense associated with this debt
was originally recorded by the parent company, but a portion of interest
expense associate with this debt has been allocated to the discontinued
operations noted above. Interest expense allocated to the discontinued
operations totaled $730,000 and $330,000 for the three months ended June 30,
2000 and 1999, respectively, and $1.5 million and $621,000 for the six months
ended June 30, 2000 and 1999, respectively. Also, selling, general and
administrative expenses that were recorded by the parent company but were
specifically an expense of the discontinued operations have been allocated to
the discontinued operations as shown above. The amount of selling, general
and administrative expenses allocated by the parent company to the
discontinued operations totaled $728,000 and $126,000 for the three months
ended June 30, 2000 and 1999, respectively, and $1.3 million and $622,000 for
the six months ended June 30, 2000 and 1999, respectively.
The historical consolidated balance sheets reflect the assets and
liabilities of discontinued operations as current or non-current assets based on
the original classification of the accounts, except that current liabilities are
netted against current assets and non-current liabilities are netted against
non-current assets.
The following pro forma financial statements reflect the Asset Sale as
if the sale to Simplot was completed on June 30, 2000. Also, this information
should be read in conjunction with the financial statements and notes thereto
included in Item 1 of this report for the quarter ended June 30, 2000.
The following pro forma adjustments have been recorded to the historical
financial statements: (i) an adjustment of $749,000 to reflect shipments to
Turf Partners from the parent company as if they were independent companies
as of June 30, 2000, (ii) the recognition of a gain on the sale of the
discontinued operations of $17.8 million, (iii) the application of $23
million of proceeds from the Asset Sale as follows: (a) retired $14 million
of the $15 million Senior Subordinated Notes, (b) repaid the Simplot Term
Loan of $3 million received in July 2000, and (c) paid $1.1 million in
closing fees, and (iv) a $3.9 million write-off of debt issuance costs
related to the Senior Subordinated Notes.
7
<PAGE>
UNAUDITED PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------------- ---------------------------------
1999 2000 1999 2000
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Proprietary $ 2,887 $ 2,664 $ 4,179 $ 3,208
Distributed 5,656 5,872 10,579 11,266
-------------- --------------- -------------- ---------------
Total revenues 8,543 8,536 14,758 14,474
Cost of revenues:
Proprietary 984 1,606 1,805 2,414
Distributed 4,125 3,854 7,903 7,691
-------------- --------------- -------------- ---------------
Total cost of revenues 5,109 5,460 9,708 10,105
Gross profit 3,434 3,076 5,050 4,369
Operating expenses:
Selling, general and administrative 3,420 3,475 7,160 7,181
Research and development 155 159 269 252
Amortization of intangibles 149 132 291 289
Restructuring charges 1,119 - 1,119 -
Legal settlement - 198 - 198
-------------- --------------- -------------- ---------------
Loss from operations (1,409) (888) (3,789) (3,551)
Interest expense 898 470 1,934 884
Interest income 58 - 86 139
Income taxes 92 - 92 -
-------------- --------------- -------------- ---------------
Loss from continuing operations (2,341) (1,358) (5,729) (4,296)
Income (loss) from discontinued operations (1,495) 2,413 (4,325) 551
Gain on sale of discontinued operations 17,803 - 17,803 -
-------------- --------------- -------------- ---------------
Net income (loss) $ 13,967 $ 1,055 $ 7,749 $ (3,745)
============== =============== ============== ===============
Loss per share of common stock, basic:
Income (loss) from continuing operations $ (0.13) $ (0.08) $ (0.31) $ (0.25)
Income (loss) from discontinued operations (0.08) 0.14 (0.23) 0.03
Gain on sale of discontinued operations 0.96 - 0.96 -
-------------- --------------- -------------- ---------------
Net income (loss) $ 0.75 $ 0.06 $ 0.42 $ (0.22)
============== =============== ============== ===============
Loss per share of common stock, diluted:
Income (loss) from continuing operations $ (0.07)
Income (loss) from discontinued operations 0.13
Gain on sale of discontinued operations -
---------------
Net income (loss) $ 0.06
===============
Shares used in calculating income (loss)
per share, basic: 18,623 17,341 18,579 17,262
============== =============== ============== ===============
Shares used in calculating income (loss)
per share, diluted: 18,623 19,080 18,579 17,262
============== =============== ============== ===============
</TABLE>
8
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
2000
-----------------
(UNAUDITED)
<S> <C>
Current Assets:
Cash and cash equivalents $ 5,268
Accounts receivable, net of allowance for doubtful accounts of
$938 at June 30, 2000 4,651
Inventories 5,517
Prepaid expenses and other current assets 2,943
-----------------
Total current assets 18,379
Equipment under construction 4,908
Property and equipment, net 12,429
Intangible assets, net 6,324
Debt issuance costs 1,754
Other assets 368
-----------------
Total assets $ 44,162
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,165
Accrued expenses 2,590
Current portion of long-term obligations 12,848
Net current liabilities of discontinued operations -
-----------------
Total current liabilities 19,603
Long-term obligations, net of current portion 559
Deferred gain on sale/leaseback of building 494
Other 569
Shareholders' equity:
Preferred stock -
Common stock 96
Additional paid-in capital 57,413
Warrants 3,966
Accumulated deficit (38,538)
-----------------
Total shareholders' equity 22,937
-----------------
Total liabilities and shareholders' equity $ 44,162
=================
</TABLE>
9
<PAGE>
4. RESTRUCTURING CHARGES
During the second quarter, the Company incurred a restructuring charge of
$1.1 million as a result of the closure of five operating locations of the
Agricultural Supply subsidiary located in the United States and Mexico.
A total of 25 employees were terminated from these locations, with almost
all of them having left the Company as of June 30, 2000. The remaining accrued
liabilities associated with these operations are expected to be recognized
during the second half of fiscal 2000.
Details of the restructuring charge (in thousands) are as follows:
<TABLE>
<CAPTION>
CASH EXPENDED
CASH/ AMOUNT OF THROUGH JUNE 30, ACCRUED LIABILITIES
DESCRIPTION OF CHARGE: NON-CASH CHARGE 2000 AT JUNE 30, 2000
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REORGANIZATION OF AGRICULTURAL
SUPPLY OPERATING STRUCTURE:
Severance of employees............ Cash $ 247 $ 91 $ 156
Vacated lease facilities.......... Cash 63 -- 63
Write-downs of assets removed
from operations................. Non-cash 780 38 742
Professional fees................. Cash 23 -- 23
Other............................. Cash 6 2 4
-------------------------------------------------------
$ 1,119 $ 131 $ 988
=======================================================
</TABLE>
The following is a summary of revenue and net operating losses (in thousands)
for the locations that were closed:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
-------------------- ---------------------
<S> <C> <C>
REVENUES $ 212 $ 610
==================== =====================
INCOME (LOSS) FROM
OPERATIONS $ (131) $ (272)
==================== =====================
</TABLE>
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits:
10.1 (2) Amended and Restated Asset Purchase Agreement dated April 5,
2000 by and among the Company, Turf Partners, Inc. and J.R.
Simplot Company.
10.2 (3) Term Loan Agreement dated as of April 12, 2000 among Turf
Partners, Inc. and Eco Soil Systems, Inc. and J.R. Simplot
Company.
10.3 (1) Amendment No. 3 to Loan and Security Agreement, dated as of
April 14, 2000 among Turf Partners, Inc. and Coast Business
Credit.
10.4 (3) Amendment No. 4 to Loan and Security Agreement, dated as of May
4, 2000 among Turf Partners, Inc. and Coast Business Credit.
10.5 (4) First Amendment to Amended and Restated Asset Purchase Agreement
dated June 9, 2000 by and among the Company, Turf Partners, Inc.
and J.R. Simplot Company.
10.6 (1) Amendment No. 6 to Note and Warrant Purchase Agreement, dated as
of July 28, 2000 among the Company, Albion Alliance Mezzanine
Fund, L.P. and Paribas Capital Funding LLC.
10.7 (1) Amended Senior Subordinated Note due January 28, 2002, dated as
of July 28, 2000 among the Company and Paribas Capital Funding
LLC.
10.8 (1) Amended and Restated Common Stock Purchase Warrant expiring
August 25, 2005 in favor of Paribas Capital Funding LLC.
10.9 (1) Amended Senior Subordinated Note due January 28, 2002, dated as
of July 28, 2000 among the Company and Albion Alliance Mezzanine
Fund, L.P.
10.10(1) Amended and Restated Common Stock Purchase Warrant expiring
August 25, 2005 in favor of Albion Alliance Mezzanine Fund, L.P.
10.11(1) Stock Purchase Warrant, dated as of June 23, 2000, issued to the
investors listed in Schedule 1 attached thereto.
10.12(1) Stock Purchase Warrant, dated as of June 23, 2000, issued to the
investors listed in Schedule 1 attached thereto.
10.13(1) Distribution and License Agreement dated July 28, 2000 between
J.R. Simplot Company and the Company.
27.1(1) Financial Data Schedule
--------------------------------------------------------------------------------
(1) Filed herewith.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K (File
No. 001-21975) filed with the Commission on April 14, 2000.
(3) Incorporated by reference to the Company's Periodic Report on Form 10-Q
(File No. 001-21975) filed with the Commission on May 15, 2000.
(4) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 001-21975) filed with the Commission on June 19, 2000.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K (File No. 001-21975)
under Item 5 thereof on June 19, 2000, relating to the First Amendment to
Amended and Restated Asset Purchase Agreement dated as of April 5, 2000, by
and among the Company and the J.R. Simplot Company.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Eco Soil Systems, Inc.
Date: August 16, 2000 By: /s/ WILLIAM B. ADAMS
--------------------
William B. Adams
Chairman and Chief Executive
Officer
Date: August 16, 2000 By: /s/ DENNIS N. SENTZ
-------------------
Dennis N. Sentz
Chief Financial Officer
(Principal financial officer and
Principal accounting officer)
