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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended: April 4, 1999 Commission File Number: 0-19746
EcoScience Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-2912632
(I.R.S. Employer Identification Number)
10 Alvin Court, East Brunswick, New Jersey 08816
(Address of principal executive offices, including zip code)
732-432-8200
(Registrant's telephone number, including area code)
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.
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 19, 1998
- ----- ---------------------------
Common Stock, par value $0.01 per share 12,619,278
<PAGE>
ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 4, 1999
Unaudited
Page
----
Part I. - Financial Information
Item 1. Consolidated Financial Statements:
o Consolidated Balance Sheets:
April 4, 1999 and January 3, 1999................................ 3
o Consolidated Statements of Operations:
Thirteen Weeks Ended April 4, 1999 and Three Months Ended
March 31, 1998.................................................. 4
o Consolidated Statements of Cash Flows:
Thirteen Weeks Ended April 4, 1999 and Three Months Ended
March 31, 1998.................................................. 5
o Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 11
Part II. - Other Information
Item 3. Defaults Upon Senior Securities................................. 16
Item 6. Exhibits and Reports on Form 8-K............................... 16
Signatures............................................................... 17
2
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
April 4,
1999 January 3,
(Unaudited) 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................................. $ 660 $ 1,095
Short-term investments ..................................................................... -- 127
Accounts receivable, less reserves of $678
at April 4, 1999 and $551 at January 3, 1999 ............................................. 5,567 7,271
Assets held for sale ....................................................................... 1,911 1,911
Inventories ................................................................................ 9,104 9,209
Other current assets ....................................................................... 951 1,212
--------- ---------
Total current assets ..................................................................... 18,193 20,825
--------- ---------
Property and equipment, net .................................................................... 63,947 65,200
Intangible assets, net ......................................................................... 13,375 13,550
Other noncurrent assets ........................................................................ 2,278 2,289
--------- ---------
Total assets ........................................................................ $ 97,793 $ 101,864
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings ....................................................................... $ 36,749 $ 37,080
Current maturities of long-term debt ....................................................... 46,768 47,557
Current obligations under capital leases ................................................... 42 42
Accounts payable ........................................................................... 10,632 11,102
Accrued expenses and other current liabilities ............................................. 6,075 7,705
--------- ---------
Total current liabilities ................................................................ 100,266 103,486
--------- ---------
Noncurrent liabilities:
Long-term debt, less current maturities .................................................... 700 780
Obligations under capital leases ........................................................... 327 338
Other long-term liabilities ................................................................ 1,689 1,689
--------- ---------
Total noncurrent liabilities ............................................................. 2,716 2,807
--------- ---------
Minority interest in limited partnership ....................................................... 602 665
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
none issued and outstanding .............................................................. -- --
Common stock, $0.01 par value, 100,000,000 shares authorized; 12,619,278 shares
issued and outstanding at April 4, 1999 and January 3, 1999 .............................. 126 126
Additional paid-in capital ..................................................................... 55,574 55,574
Accumulated deficit ............................................................................ (61,436) (60,706)
Accumulated other comprehensive loss ........................................................... (55) (88)
--------- ---------
Total stockholders' deficit .............................................................. (5,791) (5,094)
--------- ---------
Total liabilities and stockholders' deficit ......................................... $ 97,793 $ 101,864
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Three Months
Weeks Ended Ended
April 4, March 31,
1999 1998
-------- --------
<S> <C> <C>
Net revenues ......................................... $ 18,264 $ 12,291
Cost of revenues ..................................... 12,839 7,993
-------- --------
Gross profit ......................................... 5,425 4,298
-------- --------
Operating expenses:
Selling, general and administrative ............... 3,513 2,679
Research and development .......................... 117 105
-------- --------
Total operating expenses .................... 3,630 2,784
-------- --------
Operating income ..................................... 1,795 1,514
-------- --------
Other (expense) income:
Interest, net ..................................... (2,671) (1,095)
Other, net ........................................ 87 100
-------- --------
Total other expense, net .................... (2,584) (995)
-------- --------
(Loss) income before taxes and minority interest ..... (789) 519
Provision for income taxes ........................... 3 --
-------- --------
(Loss) income before minority interest ............... (792) 519
Minority interest .................................... 62 (421)
-------- --------
Net (loss) income .................................... ($ 730) $ 98
======== ========
(Loss) earnings per share:
Basic
Net (loss) earnings per share .................. ($ 0.06) $ 0.01
======== ========
Weighted average common shares outstanding ..... 12,619 11,619
======== ========
Diluted
Net (loss) earnings per share .................. ($ 0.06) $ 0.01
======== ========
Weighted average diluted shares outstanding .... 12,619 11,660
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Months
Ended Ended
April 4, March 31,
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ................................................ ($ 730) $ 98
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization .............................. 1,598 802
Minority interest in limited partnerships .................. (62) (421)
Gain on sale of investments ................................ (2) --
Foreign exchange (gain) loss ............................... (16) 6
Changes in current assets and liabilities:
Accounts receivable, net ............................ 1,704 295
Inventories ......................................... 105 (3,978)
Other current assets ................................ 261 (302)
Accounts payable and accrued expenses ............... (2,085) 1,247
------- -------
Net cash provided by (used in) operating activities ........ 773 (2,253)
------- -------
Cash flows from investing activities:
Purchases of property and equipment .............................. (95) (861)
Proceeds from sale of assets .................................. 32 --
Proceeds from sales of short-term investments ................... 127 --
(Increase) decrease in other noncurrent assets ................... (96) 7
Decrease in noncurrent liabilities .............................. -- (968)
------- -------
Net cash used in investing activities ...................... (32) (1,822)
------- -------
Cash flows from financing activities:
Proceeds from issuance of stock .................................. -- 1
Proceeds from long-term debt ........................... -- 2,946
Net (payments) borrowings under line of credit ................... (331) 991
Payments on long-term debt and capital leases .................... (880) (587)
Debt issue costs .............................................. -- (15)
Minority interest contribution to limited partnership ......... -- 1,076
S Corp Stockholder Distributions .............................. -- (110)
------- -------
Net cash (used in) provided by financing activities ........ (1,211) 4,302
------- -------
Effects of exchange rates on cash balances .................... 35 --
(Decrease) increase in cash and cash equivalents ...................... (435) 227
Cash and cash equivalents at beginning of period ...................... 1,095 2,443
------- -------
Cash and cash equivalents at end of period ............................ $ 660 $ 2,670
======= =======
Total unrestricted and restricted cash, cash equivalents and short-term
investments at end of period .................................... $ 660 $ 3,199
======= =======
Supplemental cash flow information
Cash paid for:
Interest ..................................................... $ 2,439 $ 995
Income taxes ................................................. 3 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 4, 1999
(in thousands, except share data)
Unaudited
1. OPERATIONS
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its subsidiaries
and consolidated limited partnerships (collectively "APD"), Agro Dynamics, Inc.
and Agro Dynamics Canada Inc. (collectively, "AGRO") and EcoScience Produce
Systems Corp. ("EPSC") are primarily engaged in the production, marketing and
sale of premium grade tomatoes grown in intensive greenhouse facilities. In
addition, the Company markets, sells, develops and commercializes products for
the agricultural and biological industries.
The Company has suffered losses resulting in an accumulated deficit of $61,436
as of April 4, 1999. The Company continues to be in violation of certain
technical covenants under various debt agreements as of April 4, 1999, which has
resulted in approximately $43,651 of debt being classified as current in the
accompanying April 4, 1999 balance sheet which otherwise would have been
classified as long-term and default interest of $587. This along with the note
issued on December 30, 1998, in connection with the acquisition of certain
minority interests in consolidated limited partnerships, has resulted in
significant negative working capital; however, the Company's greenhouse
operations are now believed by management to be approaching their optimal
cropping cycles for the first time since the large 180 acreage expansion that
began in mid-1996 resulting in APD becoming the largest greenhouse producer in
the U.S. in terms of acreage controlled by a single entity. Management's plan is
focused on improving the gross profit of all greenhouse operations as a result
of greater production volumes, sizing and efficiency through a full cropping
cycle at each greenhouse facility.
On February 1, 1999, the Company's postharvest equipment division of its wholly
owned subsidiary Agro Dynamics, Inc., which was the exclusive distributor in
North America for Aweta B.V.'s sorting and grading equipment, was sold to
Autoline, Inc. Autoline Inc. and Aweta B.V. are both wholly owned subsidiaries
of FPS Food Processing Systems of Holland. Sales of this division were $3,532 in
the period ended January 3, 1999 and $3,557, $4,967 and $2,830 in the fiscal
years ended June 30, 1998, 1997 and 1996, respectively. The Company concluded
that the long term outlook of the postharvest equipment distribution business
was no longer consistent with its future strategic direction. This transaction
did not result in a material gain or loss and will not have a material impact on
the Company's financial position or results of operations.
6
<PAGE>
The Company believes that its $660 of cash and cash equivalents as of April 4,
1999, along with revenues from product sales, will be sufficient to fund the
Company's working capital needs, planned capital expenditures, current
acquisitions and to service its indebtedness through April 5, 2000, provided
that the Company can resolve its near term cash flow problems by raising
additional capital and refinance its $21,600 aggregate principal amount of
promissory notes issued on December 30, 1998 and March 15, 1999 that are due on
June 30, 1999. The Company is currently negotiating a refinancing of its $3,000
line of credit, for which the due date was April 28, 1999. The Company has
engaged a financial advisor, who is assisting in the raising of additional funds
to finance its ongoing operations during 1999 and expected growth after January
4, 2000. There can be no assurances that such efforts will be successful or that
additional debt or equity financing can be obtained to meet working capital
needs.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by the Company and reflect all adjustments, consisting of only normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of financial results for the thirteen weeks ended April 4, 1999 and
the three months ended March 31, 1998, in accordance with generally accepted
accounting principles for interim financial reporting and pursuant to Article 10
of Regulation S-X. Certain information and footnote disclosures normally
included in the Company's annual audited consolidated financial statements have
been condensed or omitted pursuant to such rules and regulations.
The results of operations for the thirteen weeks ended April 4, 1999 and the
three months ended March 31, 1998 are not necessarily indicative of the results
of operations to be expected for a full fiscal year. These interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements for the transition period ended January 3, 1999, which are
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
The consolidated financial statements give retroactive effect to the merger with
Agro Power Development, Inc. that occurred on September 30, 1998, which was
accounted for as a pooling of interests, and a one for five reverse stock split,
effective September 30, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and disclosures of contingent assets and
liabilities as of the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
7
<PAGE>
3. DEBT
The Company failed to pay $1,923 of indebtedness due under a $3,000 line of
credit which became due on April 28, 1999, the extended expiration date of the
facility. The Company is currently negotiating the terms of replacement
financing with a new lender. Although no assurance can be given, the Company
believes that it will finalize replacement financing in May 1999.
4. NET INCOME (LOSS) PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which requires presentation of both basic and diluted
earnings per share in the Consolidated Statements of Operations. Basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the period.
The following table sets forth a reconciliation of weighted average common
shares outstanding to the weighted average common shares assuming dilution:
Thirteen Three
Weeks Months
Ended Ended
April 4, March 31,
1999 1998
------ ------
Weighted average common shares outstanding ................. 12,619 11,619
Dilutive effect of common shares issuable (1) .............. -- 41
------ ------
Weighted average common shares outstanding assuming dilution 12,619 11,660
------ ------
(1) Common stock purchase warrants and stock options at April 4, 1999 and March
31, 1998 to purchase 275,511 and 127,200 shares, respectively, were not
included in the computation of earnings per share assuming dilution as
their effect would be anti-dilutive.
5. COMPREHENSIVE INCOME
Effective January 3, 1999, the Company adopted the provisions of Statement No.
130, Reporting Comprehensive Income, which modifies the financial statement
presentation of comprehensive income and its components.
8
<PAGE>
Comprehensive income, representing all changes in stockholders' equity during
the period other than changes resulting from the company's stock and dividends,
for the thirteen weeks ended April 4, 1999 and for the three months ended March
31, 1998 is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Three Months
Ended Ended
April 4, 1999 March 31, 1998
------------- --------------
<S> <C> <C>
Net (loss) income ........................................ ($730) $ 98
Other comprehensive gain (loss), net of taxes
Foreign currency translation adjustments ........... 35 --
Net unrealized loss on securities available for sale (2) (3)
----- -----
Other comprehensive gain (loss) .......................... 33 (3)
----- -----
Comprehensive (loss) income .............................. ($697) $ 95
===== =====
</TABLE>
6. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: greenhouse tomatoes and biological and
agricultural products. The greenhouse tomatoes segment operates seven greenhouse
facilities in the United States, representing approximately 190 acres of growing
capacity. Through these facilities, the Company produces, harvests, packages and
distributes premium hydroponic vine-ripened tomatoes. The tomatoes are marketed
under the Village Farms(R) and Home Choice(TM) brandnames and sold to retail
supermarket chains, dedicated wholesalers, distributors and food service clients
throughout the United States.
The biological and agricultural products segment distributes various products
under written distribution agreements and relations with specific vendors. The
Company's biological and agricultural products include (1) growing medium
products and computerized environmental and irrigational control systems; (2)
postharvest coating products and (3) biological pest control products.
The accounting policies of the segments described above are the same as those
described in the summary of significant accounting policies. The Company's
reportable segments are strategic business units that offer different products.
The Company is not dependent on any single customer for its net revenues.
9
<PAGE>
Thirteen Weeks Three Months
Ended Ended
Company data by operating segment April 4, 1999 March 31, 1998
- ----------------------------------------- ------------- --------------
Net revenues
Greenhouse tomatoes ................ $ 15,159 $ 7,375
Biological and agricultural products 3,105 4,916
-------- --------
Total .............................. $ 18,264 $ 12,291
======== ========
Operating (loss) income
Greenhouse tomatoes ................ $ 1,934 $ 1,620
Biological and agricultural products (142) (106)
-------- --------
Total .............................. $ 1,792 $ 1,514
======== ========
Company data by geographic segments
Net revenues
United States .................. $ 17,280 $ 9,995
Canada ......................... 984 2,296
-------- --------
Total .............................. $ 18,264 $ 12,291
======== ========
10
<PAGE>
ECOSCIENCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Thirteen Weeks Ended April 4, 1999 vs.
Three Months Ended March 31, 1998
The Company's two reportable segments are comprised of (i) greenhouse tomatoes
and (ii) biological and agricultural products.
The Company's net revenues increased by $5,973 or 49% to $18,264 for the
thirteen weeks ended April 4, 1999 from $12,291 for the three months ended March
31, 1998. This increase was primarily due to the increases in product sales in
the greenhouse tomato market of $7,784, partially offset by decreases in the
biological and agricultural products market of $1,811.
The following table sets forth the Company's net revenues by market for the
thirteen weeks ended April 4, 1999 and the three months ended March 31, 1998:
April 4, March 31,
1999 1998 Increase
------- ------- --------
Tomatoes ........................... $15,159 $ 7,375 $ 7,784
Biological and Agricultural Products 3,105 4,916 (1,811)
------- ------- -------
Consolidated ....................... $18,264 $12,291 $ 5,973
======= ======= =======
Net revenues increases for the greenhouse tomato market were primarily due to
increased capacity. The Company's Buffalo, New York, Virginia, Marfa, Texas and
Presidio, Texas facilities (representing 127 acres) became operational in 1998
and recorded product sales in the thirteen weeks ended April 4, 1999.
Product sale decreases for the biological and agricultural products market were
primarily due to the sale of its Postharvest equipment division on February 2,
1999. Sales of this division decreased $1,847 or 85% to $316 for the thirteen
weeks ended April 4, 1999 from $2,163 for the three months ended March 31, 1998.
Cost of revenues increased $4,846 or 61% to $12,839 for the thirteen weeks ended
April 4, 1999 from $7,993 for the three months ended March 31, 1998, primarily
due to net revenues increases.
Gross profit on net revenues increased $1,127 or 26% to $5,425 for the thirteen
weeks ended April 4, 1999 from a gross profit of $4,298 for the three months
ended March 31, 1998, primarily as a result of the increase in net revenues from
the tomato segment. Gross profit percentage on net revenues decreased to 30% for
the thirteen weeks ended April 4, 1999 from 35% for the three months ended March
31, 1998, due primarily to some remaining start-up costs and the
11
<PAGE>
abbreviated crop cycle at the Presidio facility resulting from the conversion
from peppers to tomatoes. Management decided during the thirteen weeks ended
April 4, 1999 to end the crop prematurely in April 1999 due to unfavorable
market prices.
Selling, general and administrative expenses increased $834 or 31% to $3,513 for
the thirteen weeks ended April 4, 1999 from $2,679 for the three months ended
March 31, 1998, primarily due to increased expenses attributable to the
Company's four new greenhouse facilities, and the expansion of the Company's
sales, marketing, finance and greenhouse management operations.
Research and development expenses increased $12 or 11% to $117 for the thirteen
weeks ended April 4, 1999 from $105 for the three months ended March 31, 1998,
due primarily to an increase in expenses associated with field trials.
Operating income increased $281 or 19% to $1,795 for the thirteen weeks ended
April 4, 1999 compared to $1,514 for the three months ended March 31, 1998. The
increase in operating income resulted primarily from an increase of $1,127 in
gross profit for the thirteen weeks ended April 4, 1999, attributable primarily
to the greenhouse tomato segment and partially offset by a $846 increase in
operating expenses.
Other expenses increased by $1,589 to $2,584 for the thirteen weeks ended April
4, 1999, compared to $995 for the three months ended March 31, 1998, primarily
due to increased interest expenses. Interest expense, net, increased by $1,576
for the thirteen weeks ended April 4, 1999 compared to the three months ended
March 31, 1998 due to $625 in interest incurred on the $21,600 in promissory
notes issued in connection with the Cogentrix acquisition, $587 in default
interest recorded on the CoBank facility due to certain technical defaults and
increased indebtedness incurred in connection with the development of the
greenhouse facilities added in 1998.
The Company's net income decreased $828 or $0.07 per basic and diluted share to
a net loss of $730 or $0.06 per diluted share for the thirteen weeks ended April
4, 1999 compared to net income of $98 or $0.01 per diluted share for the three
months ended March 31, 1998.
The Company's EBITDA increased $1,544 or 77% to $3,539 for the thirteen weeks
ended April 4, 1999 from $1,995 for the three months ended March 31, 1998.
EBITDA is net income (loss) excluding interest income, interest expense,
depreciation and amortization expense. While EBITDA should not be constructed as
a substitute for income (loss) from operations, net income (loss) or cash flows
from operating activities in analyzing the Company's operating performance,
financial condition or cash flows, the Company is reporting EBITDA because it is
commonly used by certain users of the Company's financial statements to analyze
and compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
12
<PAGE>
Liquidity and Capital Resources
The Company's operations have been funded through revenues from product sales,
public and private placements of its equity securities, bank loans and lease
financings, licensing, collaborative research and development arrangements, and
investment income.
The Company continues to experience a significant liquidity shortfall primarily
due to (i) the production start-up issues encountered at and crop cycle
adjustments of the approximate 127 acres of additional greenhouse production
capacity in its greenhouse tomato segment added during 1998 and (ii) the need to
refinance its $21,600 aggregate principal amount of promissory notes issued to
Cogentrix Energy, Inc.("Cogentrix") that becomes due on June 30, 1999 and its
$3,000 line of credit which became due on April 28, 1999. In addition, the
Company is in default of certain technical financial covenants with its lenders.
The Company has also delayed payments to vendors; however, the Company has
structured extended terms with certain vendors and has substantially paid most
other vendors whose payments were delayed.
As a result of the Company's non-compliance with a financial covenant contained
in its $60,000 credit facility with CoBank, ACB ("CoBank") and certain payment
defaults which were subsequently cured, CoBank has notified the Company that it
will not advance additional funds under the credit facility until all defaults
are cured. In addition, CoBank has imposed a default rate of interest which is
equal to 4% above the base rate. As of April 4 1999, $58,920 of indebtedness was
outstanding under the Company's credit facility with CoBank. Due to certain
borrowing limitations contained in the CoBank facility, no assurance can be
given that further advances will be made under the facility even if the existing
defaults are cured.
Production and sales, and correspondingly, cash flow has improved in the first
quarter of calendar 1999 and the Company expects these improvements to generally
continue through 1999. As a result, the Company has requested that CoBank
rescind the default rate of interest. In addition, the Company's management has
been in close contact with its lenders and major suppliers, and the parties are
working cooperatively together to manage this cash flow shortfall. Although the
Company's liquidity position is currently manageable, the cash shortfall will
remain until additional capital is raised. The Company is, as well, actively
seeking refinancing of its $21,600 aggregate principal amount of promissory
notes and its $3,000 revolving line of credit related to its agricultural and
biological products division that expired on April 28, 1999. As of March 31,
1999, $1,923 of indebtedness was outstanding under this line of credit. If the
Company is not successful in refinancing the notes, it will seek a further
extension of the due date or a restructuring of the terms of the notes. In
recent discussions with the Company, Cogentrix has indicated that it would
consider an extension of the due date of the notes to January 2000; however, any
such extension would be subject to the negotiation and execution of definitive
extension agreements. The Company has received a term sheet from a financial
institution in the amount of $4,000 to replace its expired revolving line of
credit. The Company believes that it will finalize the replacement financing
arrangement in May 1999. No assurance can be given that the Company will be able
to complete the refinancings, obtain an extension or restructuring of the notes
or that the Company's creditors will not attempt to enforce legal remedies
available to them.
Cash and cash equivalents were $660 at April 4, 1999 compared to $1,095 at
January 3, 1999. Cash provided by operating activities totaled $773 for the
thirteen weeks ended April 4, 1999 and principally consisted of a decrease in
accounts receivable of $1,704 and depreciation and
13
<PAGE>
amortization of $1,598, partially offset by a decrease in accounts payable and
accrued expenses of $2,085, and a net loss of $730. Cash used in financing
activities totaled $1,211 for the thirteen weeks ended April 4, 1999, which
consisted of payments of long-term debt of $880 and net payments under lines of
credit of $331. Cash used in investment activities for the thirteen weeks ended
April 4, 1999 totaled $32, which consisted principally of purchases of property
and equipment of $95, and an increase in non-current assets of $96; partially
offset by proceeds from the sale of investments of $127. The Company's current
liabilities exceeded its current assets by $82,073 (which includes $43,651 of
senior debt classified as current, which otherwise would have been classified as
long-term had the Company not had certain technical defaults under its $60,000
credit facility) and its current ratio was 0.18 to 1, at April 4, 1999 compared
to 0.20 to 1, respectively, at January 3, 1999.
Debt and capital leases decreased by $1,211 to $84,586 at April 4, 1999 compared
to $85,797 at January 3,1999. The decrease was attributable to payments under
the Company's lines of credit and construction loans.
The Company believes that its $660 of cash and cash equivalents as of April 4,
1999, along with revenues from product sales, will be sufficient to fund the
Company's working capital needs, planned capital expenditures, and to service
its indebtedness through April 5, 2000, provided that the Company can resolve
its short term cash flow shortfall by raising additional capital and refinance
its $21,600 aggregate principal amount of promissory notes due on June 30, 1999
and its $3,000 Revolving Credit Agreement that expired on April 28, 1999. The
Company has engaged a financial advisor to assist it in raising additional funds
to finance its ongoing operations in 1999, current debt obligations and expected
growth after January 4, 2000. The Company is currently attempting to raise debt
and/or equity financing. If the Company is not successful in refinancing the
$21,600 of notes, it will continue discussions with Cogentrix with respect to an
extension of the due date or a restructuring of the terms of the notes. No
assurance can be given that the Company will be able to complete the
refinancings, obtain an extension or restructuring of the notes, or that the
Company's creditors will not attempt to enforce legal remedies available to them
YEAR 2000
As disclosed in the Company's Report on Form 10-K for the transition period
ended January 3, 1999, the Company faces certain risks related to Year 2000
("Y2K") compliance, primarily as a result of its highly computerized greenhouse
facilities. The costs of non-compliant greenhouse control systems would be
considerable. As a result, the Company continues to work with vendors of control
systems to assess and correct any possible Y2K related problems. The Company
expects that the costs to the Company of such assessment and correction will be
minimal, as the Company's vendors are expected to provide any necessary
corrections at minimal cost to the Company. No material developments have
occurred with respect to the Company's Y2K assessment program since the filing
of the Company Report on Form 10-K for the transition period ended January 3,
1999.
FORWARD LOOKING STATEMENTS
This report contains "forward-looking statements" which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that
14
<PAGE>
known and unknown risks, uncertainties and other factors may cause actual
results, performance or achievements of EcoScience to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that might cause such differences
include EcoScience's risks and uncertainties related to EcoScience's future
profitability, ability to meet its capital needs, government regulation,
continued cooperation of the Company's creditors, competition, market
acceptance, year 2000 compliance and other factors described in Item 7A and
elsewhere in EcoScience's annual report on Form 10-K filed with the Securities
and Exchange Commission.
15
<PAGE>
Part II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
(i) The Company failed to pay $1,923 of indebtedness outstanding under
a $3,000 revolving line of credit that became due on April 28, 1999.
The lender has not elected to exercise remedies against the Company
which is currently negotiating the terms of replacement financing with
a new lender. No assurance can be given that the replacement financing
will be finalized
(ii) The Company's wholly owned subsidiary, Agro Power Development,
Inc. remains in default of a covenant contained in its guaranty of a
$60,000 credit facility which required it to maintain a ratio of
equity to senior debt of at least 25%. As a result of this default,
the lender has the right to accelerate the payment of all amounts
outstanding under the facility. The lender has imposed a default rate
of interest equal to 4% above the base rate and notified the Company
that no further advances will be made under the credit facility until
the default is cured.
(iii) A limited partnership owned by the Company owes a lender $804
plus accrued interest under a loan agreement entered into in
connection with the acquisition and improvement of a greenhouse
facility in Pennsylvania. The limited partnership is in default of a
net worth covenant contained in the loan agreement. As a result, the
lender has the right to accelerate the limited partnership's
obligation to repay the outstanding indebtedness, which is otherwise
required to be repaid in quarterly installments during a 15 year
period ending June 2012. With the cooperation of the lender, the
Company is currently in negotiations to sell the greenhouse (which is
currently inoperative) and plans to use a portion of the proceeds to
satisfy the loan made to the limited partnership.
Item 6. Exhibits and Reports on Form 8-K
(i) Exhibits
27. Financial Data Schedule as of and for the Three Months Ended
April 4, 1999
(ii) Reports on Form 8-K.
None.
16
<PAGE>
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.
ECOSCIENCE CORPORATION
Date: May 21, 1999 By: /s/ Michael A. DeGiglio
-------------------------
Michael A. DeGiglio
President and Chief Executive Officer
(Principal Executive Officer
Date: May 21, 1999 By: /s/ Kurt Hoffman
-------------------
Kurt Hoffman
Secretary and Corporate Controller
(Principal Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's
Consolidated Balance Sheet as of April 4, 1999 and Consolidated Statement of
Operations for the Thirteen Weeks Ended April 4, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> APR-04-1999
<CASH> 660
<SECURITIES> 0
<RECEIVABLES> 5,567
<ALLOWANCES> 678
<INVENTORY> 9,104
<CURRENT-ASSETS> 18,193
<PP&E> 71,393
<DEPRECIATION> 7,446
<TOTAL-ASSETS> 97,793
<CURRENT-LIABILITIES> 100,266
<BONDS> 1,027
0
0
<COMMON> 126
<OTHER-SE> (5,917)
<TOTAL-LIABILITY-AND-EQUITY> 97,793
<SALES> 18,264
<TOTAL-REVENUES> 18,264
<CGS> 12,839
<TOTAL-COSTS> 12,839
<OTHER-EXPENSES> 3,630
<LOSS-PROVISION> 81
<INTEREST-EXPENSE> 2,671
<INCOME-PRETAX> (789)
<INCOME-TAX> 3
<INCOME-CONTINUING> (792)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (730)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
