SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A-1
Amendment Number 1 to
Current Report Pursuant
to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
December 30, 1998 (Revised Date)
Date of Report
(January 8, 1999 - Original Date)
(Date of Earliest Event Reported)
EcoScience Corporation
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation)
0-19746 04-2912632
(Commission File Number) (I.R.S. Employer I.D. Number)
10 Alvin Court, East Brunswick, NJ 08816
(Address of Principal Executive Offices, Including Zip Code)
732-432-8200
(Registrant's Telephone Number,
Including Area Code)
Not Applicable
(Former Name or Former Address,
if Changed since Last Report)
<PAGE>
EcoScience Corporation ("EcoScience" or the "Company" or the "Registrant")
hereby amends its Current Report on Form 8-K dated December 30, 1998 (revised
and corrected date; originally dated January 8, 1999) to add the following
information:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired:
The following financial statements are incorporated by reference
herein and are set forth in Exhibit 99.1:
Combined financial statements for Village Farms of Texas, L.P.; Pocono
Village Farms, L.P.; Village Farms of Marfa, L.P. and Village Farms of
Buffalo, L.P. consisting of:
o Report of Independent Public Accountants.
o Combined Balance Sheets as of December 29, 1996, December 28,
1997 and September 27, 1998 (Unaudited)
o Combined Statements of Operations for the Period from Inception
through December 29, 1996, the 52 Weeks Ended December 28, 1997,
and the 39 Weeks Ended September 28, 1997 and September 27, 1998
(Unaudited)
o Combined Statements of Partners' Capital for the Period from
Inception through December 29, 1996, the 52 Weeks Ended December
28, 1997, and the 39 Weeks Ended September 28, 1997 and September
27, 1998 (Unaudited)
o Combined Statements of Cash Flows for the Period from Inception
through December 29, 1996, the 52 Weeks Ended December 28, 1997,
and the 39 Weeks Ended September 28, 1997 and September 27, 1998
(Unaudited)
o Notes to Combined Financial Statements.
(b) Pro Forma Financial Information:
The following Unaudited Pro Forma Condensed Consolidated Financial
Information of EcoScience is incorporated by reference herein and is
set forth in Exhibit 99.2:
Unaudited Pro Forma Condensed Consolidated Financial Information
consisting of:
(1) Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Information;
(2) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998;
(3) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended June 30, 1998;
2
<PAGE>
(4) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended September 30, 1998;
(5) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
(b) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
23 Consent of Arthur Andersen L.L.P. *
99.1 Combined Financial Statements for Village Farms of Texas, L.P.; Pocono
Village Farms, L.P.; Village Farms of Marfa, L.P.; and Village Farms
of Buffalo, L.P. as of December 29, 1996, December 28, 1997, and
September 27, 1998 (Unaudited) and for the Periods from Inception
through December 29, 1996, the 52 Weeks Ended December 28, 1997, and
the 39 Weeks Ended September 28, 1997 (Unaudited) and September 27,
1998 (Unaudited) including a Report of Independent Public
Accountants.*
99.2 Unaudited Pro Forma Condensed Consolidated Financial Information *
consisting of:
(1) Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Information;
(2) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998;
(3) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended June 30, 1998;
(4) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended September 30, 1998;
(5) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
* Filed herewith.
3
<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 hereunto duly authorized.
ECOSCIENCE CORPORATION
Date: March 15, 1999 By: /s/ Harold A. Joannidi
-----------------------
Harold A. Joannidi
Vice President of Compliance
(Chief Accounting Officer)
4
<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
23 Consent of Arthur Andersen L.L.P.
99.1 Combined Financial Statements for Village Farms of Texas, L.P.; Pocono
Village Farms, L.P.; Village Farms of Marfa, L.P.; and Village Farms
of Buffalo, L.P. as of December 29, 1996, December 28, 1997, and
September 27, 1998 (Unaudited) and for the Periods from Inception
through December 29, 1996, the 52 Weeks Ended December 28, 1997, and
the 39 Weeks Ended September 28, 1997 (Unaudited) and September 27,
1998 (Unaudited) including a Report of Independent Public Accountants.
99.2 Unaudited Pro Forma Condensed Consolidated Financial Information
consisting of:
(1) Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Information;
(2) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998;
(3) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended June 30, 1998;
(4) Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended September 30, 1998;
(5) Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information.
5
ECOSCIENCE CORPORATION
EXHIBIT 23
- --------------------------------------------------------------------------------
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 6, 1998 (except with respect to Note 12, as
to which the date is March 12, 1999) included in this Form 8-K into EcoScience
Corporation's previously filed Registration Statements, File Numbers 33-55206
and 333-25341. It should be noted that we have not audited the financial
statements of EcoScience Corporation subsequent to June 30, 1998 or performed
any audit procedures subsequent to the date of our report thereon.
/s/ Arthur Andersen LLP
Roseland, New Jersey
March 12, 1999
6
ECOSCIENCE CORPORATION
EXHIBIT 99.1
- --------------------------------------------------------------------------------
INDEX TO COMBINED FINANCIAL STATEMENTS
VILLAGE FARMS OF TEXAS, L.P., POCONO VILLAGE FARMS, L.P.,
VILLAGE FARMS OF MARFA, L.P. AND
VILLAGE FARMS OF BUFFALO, L.P.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
COMBINED BALANCE SHEETS AS OF DECEMBER 29, 1996, DECEMBER 28, 1997
AND SEPTEMBER 27, 1998 (UNAUDITED) F-3
COMBINED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION
(see note 1) THROUGH DECEMBER 29, 1996, THE 52 WEEKS ENDED
DECEMBER 28, 1997 AND THE 39 WEEKS ENDED SEPTEMBER 28, 1997 AND
SEPTEMBER 27, 1998 (UNAUDITED) F-4
COMBINED STATEMENTS OF PARTNERS' CAPITAL FOR THE PERIOD
FROM INCEPTION (SEE NOTE 1) THROUGH DECEMBER 29, 1996, THE
52 WEEKS ENDED DECEMBER 28, 1997 AND THE 39 WEEKS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 27, 1998 (UNAUDITED) F-5
COMBINED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM INCEPTION
(SEE NOTE 1) THROUGH DECEMBER 29, 1996, THE 52 WEEKS ENDED
DECEMBER 28, 1997 AND THE 39 WEEKS ENDED SEPTEMBER 28, 1997 AND
SEPTEMBER 27, 1998 (UNAUDITED) F-6
NOTES TO COMBINED FINANCIAL STATEMENTS F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Village Farms of Texas, L.P., Pocono Village Farms, L.P.,
Village Farms of Marfa, L.P. and
Village Farms of Buffalo, L.P.:
We have audited the accompanying combined balance sheets of Village Farms of
Texas, L.P., Pocono Village Farms, L.P., Village Farms of Marfa, L.P. and
Village Farms of Buffalo, L.P. (Delaware Limited Partnerships) as of December
29, 1996 and December 28, 1997, and the related combined statements of
operations, changes in partners' capital and cash flows for the period from
inception (See Note 1) through December 29, 1996 and the 52 weeks ended December
28, 1997. These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 12, the Companies are in default of certain covenants to
their debt agreements. Their parent company, Agro Power Development, Inc. and
its affiliate, Village Farms International Finance Association, are also in
default of debt agreements which are collateralized by the assets of the
Companies. In addition, EcoScience Corporation, which owns 100% of APD, has a
commitment to pay $21,600,000, plus accrued interest of approximately
$1,215,000, on June 30, 1999 in connection with its acquisition of the minority
interests of the Companies. Management's current projections indicate that cash
and cash equivalents and current available financing are not adequate to fund
the obligation. Management is currently seeking alternative debt and equity
financing through a private placement, however no firm commitments are yet in
place. However, if management is unsuccessful in its efforts to refinance its
existing debt, the Lenders could require immediate repayment of all outstanding
debts.
F-2
<PAGE>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Village Farms of Texas, L.P.,
Pocono Village Farms, L.P., Village Farms of Marfa, L.P. and Village Farms of
Buffalo, L.P. as of December 29, 1996 and December 28, 1997, and the results of
their operations and their cash flows for the period from inception (See Note 1)
through December 29, 1996 and the 52 weeks ended December 28, 1997 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Roseland, New Jersey
March 6, 1998 (except with
respect to the matters discussed
in Note 12 as to which the
date is March 12, 1999)
F-3
<PAGE>
VILLAGE FARMS OF TEXAS, L.P., POCONO VILLAGE FARMS, L.P.,
VILLAGE FARMS OF MARFA, L.P. AND
VILLAGE FARMS OF BUFFALO, L.P.
COMBINED -- BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 28, September 27,
ASSETS 1996 1997 1998
------ ----------- ----------- ------------
<S> <C> <C> <C>
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents (Note 2) $189,261 $1,227,931 $411,040
Restricted cash (Notes 7 and 12) 0 3,250,000 0
Accounts receivable 0 628,842 181,656
Inventories (Note 2) 1,789,477 3,707,108 3,602,071
Prepaid expenses and other current assets 306,249 328,528 322,377
Notes receivable due from related parties (Notes 3 and 12) 0 1,838,420 9,234,016
Assets held for sale (Note 12) 0 0 1,911,000
Due from affiliates, net (Note 10) 297,365 0 0
----------- ----------- -----------
Total current assets 2,582,352 10,980,829 15,662,160
PROPERTY, PLANT AND EQUIPMENT, net (Notes 2 and 4) 17,134,450 44,528,769 41,490,137
RESTRICTED CASH (Note 7) 2,500,000 0 0
OTHER ASSETS (Note 5) 1,164,431 2,791,501 2,405,916
----------- ----------- -----------
Total assets $23,381,233 $58,301,099 $59,558,213
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Lines of credit (Notes 7 and 12) $2,200,000 $3,550,000 $5,906,735
Current portion of long-term debt (Notes 7 and 12) 165,349 2,945,395 43,920,667
Current obligations under capital leases (Note 8) 0 25,764 24,139
Accounts payable 67,752 754,238 660,917
Accrued expenses and other current liabilities (Note 6) 477,483 463,491 1,093,265
Due to affiliates, net (Note 10) 0 1,135,653 2,850,283
----------- ----------- -----------
Total current liabilities 2,910,584 8,874,541 54,456,006
LONG-TERM DEBT (Notes 7 and 12) 14,532,376 34,144,874 66,336
OBLIGATIONS UNDER CAPITAL LEASES (Note 8) 0 406,293 387,784
NONCURRENT LIABILITIES (Note 9) 1,554,498 2,849,639 0
COMMITMENTS (Notes 7 and 11)
PARTNERS' CAPITAL (Notes 1 and 12) 4,383,775 12,025,752 4,648,087
----------- ----------- -----------
Total liabilities and partners' capital $23,381,233 $58,301,099 $59,558,213
=========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-4
<PAGE>
VILLAGE FARMS OF TEXAS, L.P., POCONO VILLAGE FARMS, L.P.,
VILLAGE FARMS OF MARFA, L.P. AND
VILLAGE FARMS OF BUFFALO, L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
Inception (See For the 52 For the 39 Weeks Ended
Note 1) through Weeks Ended ----------------------------------
December 29, December 28, September 28, September 27,
1996 1997 1997 1998
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $473,561 $12,069,508 $9,500,900 $15,256,878
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of goods sold 330,000 11,322,174 9,177,458 16,382,217
Selling, general and administrative
expenses 198,990 1,257,380 893,901 2,447,478
------------ ------------ ------------ ------------
Total costs and expenses 528,990 12,579,554 10,071,359 18,829,695
------------ ------------ ------------ ------------
Loss from operations (55,429) (510,046) (570,459) (3,572,817)
Interest EXPENSE, net 218,577 1,806,469 1,399,146 3,684,848
OTHER (INCOME) EXPENSE, net 0 (13,358) 0 120,000
------------ ------------ ------------ ------------
Net loss ($274,006) ($2,303,157) ($1,969,605) ($7,377,665)
============ ============ ============ ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-5
<PAGE>
VILLAGE FARMS OF TEXAS, L.P., POCONO VILLAGE FARMS, L.P.,
VILLAGE FARMS OF MARFA, L.P. AND
VILLAGE FARMS OF BUFFALO, L.P.
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Cogentrix Cogentrix Village
Cogentrix Cogentrix Cogentrix of Greenhouse Farms of Village Total
of Fort of Marfa, of Pocono, Buffalo, Investment, Delaware Farms, Partners'
Davis, Inc. Inc. Inc. Inc. Inc. L.L.C L.L.C. Capital
---------- ---------- --------- --------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial $93,136 $0 $0 $0 $4,563,645 $20 $980 $4,657,781
Partners'
CAPITALI-
ZATION
Net loss (5,480) 0 0 0 (268,526) 0 0 (274,006)
---------- ---------- --------- --------- ----------- --------- ---------- -----------
BALANCE, 87,656 0 0 0 4,295,119 20 980 4,383,775
December 29,
1996
Partners' 0 133,009 5,520 54,814 9,473,791 5,560 272,440 9,945,134
contribution
Net loss (26,371) (4,837) (7,353) (142) (1,896,452) (7,360) (360,642) (2,303,157)
---------- ---------- --------- --------- ----------- --------- ---------- -----------
BALANCE, 61,285 128,172 (1,833) 54,672 11,872,458 (1,780) (87,222) 12,025,752
December 28,
1997
Net loss (54,534) (32,456) (7,756) (45,019) (6,848,458) (7,790) (381,652) (7,377,665)
---------- ---------- --------- --------- ----------- --------- ---------- -----------
BALANCE $6,751 $95,716 ($9,589) $9,653 $5,024,000 ($9,570) ($468,874) $4,648,087
September 27, ========== ========== ========= ========= =========== ========= ========== ===========
1998,
(Unaudited)
</TABLE>
The accompanying notes to combined financial statements are an integral
part of these statements.
F-6
<PAGE>
VILLAGE FARMS OF TEXAS, L.P., POCONO VILLAGE FARMS, L.P.,
VILLAGE FARMS OF MARFA, L.P. AND
VILLAGE FARMS OF BUFFALO, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
From
Inception For the 52
(See Note 1) Weeks For the 39 Weeks Ended
through Ended ----------------------------
December December September 28, September 27,
29, 1996 28, 1997 1997 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($274,006) ($2,303,157) ($1,969,605) ($7,377,665)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 205,370 1,312,524 594,611 2,347,006
Amortization 21,331 136,233 116,002 103,974
Net changes in operating assets and liabilities-
Accounts receivable 0 (628,842) (259,050) 447,186
Inventories (1,789,477) (1,917,631) 500,628 105,037
Prepaid expenses and other current assets (306,249) (22,279) (35,131) 6,151
Due from affiliates, net (297,365) 297,365 297,365 0
Other assets (173,702) (146,172) (75,033) 281,611
Accounts payable 67,752 686,486 2,231,983 (93,321)
Accrued expenses and other current liabilities 477,483 (13,992) (9,963) 629,774
Due to affiliates, net 0 1,135,653 2,786,698 1,714,630
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (2,068,863) (1,463,812) 4,178,505 (1,835,617)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (17,339,820) (28,546,966) (21,923,974) (1,219,374)
Increase in noncurrent liabilities 1,554,498 1,295,141 (5,461) (2,849,639)
Proceeds from sale of property and equipment 0 291,452 291,452 0
Issuance of note receivable due from related parties 0 (1,838,420) (1,838,420) (7,395,596)
Debt service restricted cash funds (2,500,000) (750,000) (750,000) 3,250,000
------------ ------------ ------------ ------------
Net cash used in investing activities (18,285,322) (29,548,793) (24,226,403) (8,214,609)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under lines of credit, net 2,200,000 1,350,000 (2,200,000) 2,356,735
Proceeds from debt 14,697,725 22,677,224 13,578,426 10,028,176
Repayments of debt 0 (284,680) (178,279) (3,131,442)
Repayments of capital lease obligation 0 (19,272) (13,769) (20,134)
Debt issue costs (1,012,060) (1,617,131) (1,181,131) 0
Capital contributions 4,657,781 9,945,134 9,945,134 0
------------ ------------ ------------ ------------
Net cash provided by financing activities 20,543,446 32,051,275 19,950,381 9,233,335
------------ ------------ ------------ ------------
Increase in cash 189,261 1,038,670 (97,517) (816,891)
CASH AND CASH EQUIVALENTS, beginning of period 0 189,261 189,261 1,227,931
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $189,261 $1,227,931 $91,744 $411,040
============ ============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $348,172 $2,528,674 $1,488,097 2,741,629
============ ============ ============ ============
Interest capitalized $284,575 $384,198 $60,692 $0
============ ============ ============ ============
Assets acquired under capital lease obligations $0 $451,329 $131,845 $0
============ ============ ============ ============
Assets held for sale $0 $0 $0 $1,911,000
============ ============ ============ ============
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-7
<PAGE>
VILLAGE FARMS OF TEXAS, L.P., POCONO VILLAGE FARMS, L.P.,
VILLAGE FARMS OF MARFA, L.P. AND
VILLAGE FARMS OF BUFFALO, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS:
Organization-
Since February 1996, two wholly-owned subsidiaries of Agro Power
Development, Inc. ("APD"), Village Farms, L.L.C. and Village Farms of
Delaware, L.L.C. entered into four Partnership Agreements (the
"Agreement(s)") with five wholly-owned subsidiaries of Cogentrix Energy,
Inc. ("Cogentrix") for the development and operation of four greenhouses
for the purposes of producing and selling tomatoes. The tomatoes are
marketed under the trademark name "Village Farms" to customers located
throughout the United States. The four greenhouse facilities located in
Pennsylvania, Texas (2) and New York comprise a total of approximately 112
acres.
Each Agreement defined both APD and Cogentrix as fifty percent owners. APD
provides a variety of services for the four greenhouses facilities
including full management of operations and responsibility for the sale and
marketing of all products.
To fulfill the terms of the Agreements, APD and Cogentrix were required to
provide the following capital contributions-
<TABLE>
<CAPTION>
Date of
APD Cogentrix Formation
--- --------- ---------
<S> <C> <C> <C>
Village Farms of Texas, L.P. ("VFT") $1,000 $4,656,781 February 14, 1996
Pocono Village Farms, L.P. ("PVF") 276,000 276,000 March 10, 1997
Village Farms of Marfa, L.P. ("VFM") 1,000 6,650,434 June 4, 1997
Village Farms of Buffalo, L.P. ("VFB") 1,000 2,740,700 June 16, 1997
-------- -----------
$279,000 $14,323,915
======== ===========
</TABLE>
The above proceeds and debt financing (see Note 7) funded the initial
construction of the greenhouse facilities. Certain other provisions of the
Agreements govern profit and loss allocations along with partnership
distributions. Included in these provisions is the allocation of initial
losses to APD and Cogentrix based on their respective capital
contributions.
Option Agreement-
In February 1996, and as an inducement to Cogentrix to invest in the VFT
Partnership, APD granted to Cogentrix certain rights to participate in
future projects involving the development,
F-8
<PAGE>
acquisition, owning of or operating by APD of any greenhouse facility at
which fruit or vegetables are grown ("Future Projects"). Under this
agreement ("Option Agreement") with Cogentrix, APD is required to offer
Cogentrix an interest of at least fifty percent in all future projects
regardless of whether APD desires or intends to permit a third party
interest and if APD determines to sell an interest in a Future Project to a
third party, it must first offer this interest to Cogentrix. In Future
Projects in which Cogentrix provides cash equity, Cogentrix shall receive
preferential return treatment, as defined.
This option is not applicable to Future Projects in which (1) APD is a
lessee, (2) any operating greenhouse project acquired by APD without any
equity investment, (3) any greenhouse project identified and developed by a
third party in which APD is invited to participate without having to make
an equity investment and (4) nine specific greenhouse developments and
projects specifically identified in the Option Agreement.
The Option Agreement terminates at the earlier of Cogentrix investing $20
million in Future Projects or if Cogentrix declines a proposed investment
in a Future Project with certain projected rates of return and a third
party thereafter makes an equity investment at the same or less favorable
terms as were offered to Cogentrix. The additional capital contributions of
Cogentrix in VFM and VFB ($9,391,134) were made under the terms of this
Option Agreement (see Note 12).
Other Affiliates-
APD is affiliated by common ownership and management with Keystone Village
Farms, L.L.C. ("KVF"), Village Farms of Wheatfield, L.L.C. ("VFW"), Village
Farms of Virginia, Inc. ("VFV"), Village Farms of Presidio, L.P. and
Village Farms International Finance Association ("VFIFA"). See Notes 3 and
10 for transactions with affiliates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Management Estimates-
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 liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents-
Cash and cash equivalents represent all highly liquid investments with
maturities of three months or less when acquired.
F-9
<PAGE>
Inventories-
Inventories represent direct and indirect production costs incurred before
harvesting the annual tomato crop and growing crops. Growing crops are
valued at the lower of cost or estimated market.
Property, Plant and Equipment-
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided under the straight-line method based on the
following estimated useful lives (see Note 4).
Land improvements 5-20 years
Greenhouses 10-20 years
Greenhouse improvements 10-20 years
Greenhouse equipment 5-20 years
Computer and office equipment 5 years
Long-Lived Assets-
The provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets" ("SFAS 121") requires,
among other things, that an entity review its long-lived assets and certain
related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
The Partnerships do not believe that any such changes have occurred.
Income Taxes-
VFT, PVF, VFM and VFB are classified as partnerships for Federal and state
income tax purposes. Therefore, no provision for income taxes is recorded
since income or losses are allocated to their partners and are reportable
and payable by their partners for Federal and state income tax purposes.
Fair Value of Financial Instruments-
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and due to affiliates approximate fair
value due to the short-term maturity of these instruments. The carrying
amounts of notes receivable due from related parties, capital lease
obligations and long-term debt, approximate fair value.
Revenue Recognition-
Product sales revenue is recognized upon shipment.
F-10
<PAGE>
Concentration of Credit Risk
For the period from inception (See Note 1) through December 29, 1996, the
52 weeks ended December 28, 1997 and the 39 weeks ended September 28, 1997
and September 27, 1998, approximately 98%, 74%, 76% and 62% of net sales,
respectively, was derived from product sales to the Company's top ten
customers.
For the period from inception (See Note 1) to December 29, 1996 three
customers accounted for 36%, 25%, and 11%, respectively, of total net
sales.
For the 52 weeks ended December 28, 1997 three customers accounted for 16%,
10% and 10%, respectively, of total net sales.
For the 39 weeks ended September 28, 1997 three customers accounted for
36%, 25% and 11%, respectively, of total net sales.
For the 39 weeks ended September 27, 1998 two customers accounted for 13%
and 12%, respectively, of total net sales.
Fiscal Year-
The Partnerships operate on a 52 to 53 week fiscal year. Fiscal years for
the financial statements presented ended on December 29, 1996 and December
28, 1997.
Reclassifications-
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
New Accounting Pronouncements-
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131 "Disclosures About Segments of an Enterprise and Related
Information." This statement establishes standards for the way the public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for
periods beginning after December 15, 1997 and need not be applied to
interim periods in the initial year of application. Comparative information
for earlier years presented is to be restated. The Partnerships do not
expect the adoption of this statement to have a material impact on the
Partnerships' results of operations, financial position or cash flows.
In April 1998, the AICPA issued Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-up Activities." This SOP requires that all
nongovernmental entities expense costs of start-up activities (pre-opening,
pre-operating and organizational costs) as those costs are incurred and
requires the write-off of any unamortized balances upon implementation. SOP
98-5 is effective for financial statements issued for periods beginning
after December 15, 1998. Earlier application is encouraged in fiscal years
for which annual financial statements have not been
F-11
<PAGE>
issued. Adoption of the SOP is not expected to have a material impact on
1999 results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" ("SFAS 133"), which establishes accounting and
reporting standards of derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
Partnerships do not expect the adoption of this standard to have a material
effect on the Partnerships' results of combined operations, financial
position or cash flows.
Unaudited Interim
Combined Financial Statements-
The unaudited combined financial information at September 27, 1998 and for
the 39 weeks ended September 28, 1997 and September 27, 1998 are unaudited
and have been prepared in accordance with generally accepted accounting
principles for interim financial statements. In the opinion of the
Partnerships, these unaudited combined financial statements reflect all
adjustments necessary, consisting of normal recurring adjustments, for a
fair presentation of such data on a basis consistent with that of the
audited data presented herein. The combined results of operations for
interim periods are not necessarily indicative of the results expected for
a full year.
(3) NOTES RECEIVABLE DUE FROM RELATED PARTIES:
In March 1997, VFT loaned $1,838,420 to Cogentrix. The note receivable is
unsecured, bears interest at 6% per annum and principal and interest are
due on demand. See Note 12 for the subsequent event involving this note.
(4) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following-
<TABLE>
<CAPTION>
December 29, December 28, September 27,
1996 1997 1998
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Land $681,048 $1,101,729 $984,729
Land improvements 144,349 1,326,065 1,412,026
Greenhouses 13,451,166 14,680,848 34,012,788
Construction in progress 0 20,397,118 0
Greenhouse improvements 28,675 837,862 218,820
Greenhouse equipment 3,022,996 7,649,813 8,481,784
Computer and office equipment 11,586 53,228 50,890
----------- ------------ ------------
17,339,820 46,046,663 45,161,037
Less- Accumulated depreciation (205,370) (1,517,894) (3,670,900)
------------ ------------ ------------
$17,134,450 $44,528,769 $41,490,137
============ ============ ============
</TABLE>
F-12
<PAGE>
Included in the December 28, 1997 and September 27, 1998 amounts above are
$451,329 and $429,527, respectively, in equipment and land held under
capital leases.
(5) OTHER ASSETS:
Other assets consist of the following-
December 29, December 28, September 27,
1996 1997 1998
------------ ------------ -------------
(Unaudited)
Debt issue costs (A) $1,012,060 $2,629,191 $2,644,454
Organization expenses 76,988 159,228 0
Investment in VFIFA (B) 0 20,000 20,000
Other 96,714 140,646 3,000
----------- ----------- -----------
1,185,762 2,949,065 2,667,454
Less- Accumulated amortization (21,331) (157,564) (261,538)
----------- ----------- -----------
$1,164,431 $2,791,501 $2,405,916
=========== =========== ===========
(A) These amounts represent costs incurred in obtaining the debt financing
for the VFT, PVF, VFM and VFB greenhouse construction projects and
unamortized premiums paid for the purchase of interest rate cap
agreements (see Note 7). The premiums paid are being amortized to
interest expense over the terms of the cap agreements. The debt issue
costs are being amortized to interest expense over the term of the
related debt. (See Note 12.)
(B) Village Farms International Finance Association ("VFIFA") was
organized in April 1997 for the purpose of providing financing to APD
and all of its subsidiaries (collectively, the "Members"). VFIFA is
organized as a not-for-profit cooperative formed for the benefit of
the Members. VFIFA obtains financing from third party lenders and it
turn, provides funding to the Members for the purposes of developing
and construction of greenhouse facilities and working capital needs by
means of construction loans, term loans and lines of credit. As of
December 28, 1997 VFT, PVF, VFM and VFB are Members in VFIFA, all
having contributed $5,000 in capital.
F-13
<PAGE>
(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
December 29, December 28, September 27,
1996 1997 1998
------------ ------------ -------------
(Unaudited)
Payroll $45,638 $167,478 $148,427
Interest 15,871 66,043 249,255
Utilities 116,000 33,455 165,789
Property taxes 0 0 176,772
Insurance 6,000 168,491 149,165
Repairs and maintenance 129,400 0 100,000
Inventory purchases 137,000 0 48,033
Professional fees 15,000 28,024 9,000
Other 12,574 0 46,824
---------- ---------- ----------
$477,483 $463,491 $1,093,265
========== ========== ==========
(7) DEBT:
<TABLE>
<CAPTION>
December 29, December 28, September 27,
1996 1997 1998
------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Lines of credit $2,200,000 $3,550,000 $5,906,735
VFT construction and term facility 14,697,725 18,413,614 16,680,825
PVF nonrevolving line of credit 0 2,124,725 839,715
VFM construction and term loan facilities 0 11,262,124 15,457,163
VFB construction and term loan facility 0 5,223,441 10,921,689
Other loans 0 66,365 87,611
------------ ------------ ------------
16,897,725 40,640,269 49,893,738
Less- Current portion (2,365,349) (6,495,395) (49,827,402)
------------ ------------ ------------
$14,532,376 $34,144,874 $66,336
============ ============ ============
</TABLE>
In February 1996, VFT negotiated a $21,123,125 nonrecourse combined credit
facility (the "VFT Facility") with two banks, (the "Lenders"). The Lenders
are secured only by the assets and cash flow of VFT without any recourse to
APD or any of the individual partners of VFT. The combined VFT Facility
consists of a construction and term loan commitment of $18,623,125 (the
F-14
<PAGE>
"VFT Term Loan") and a $2,500,000 revolving line of credit agreement to be
used for working capital by VFT.
On March 7, 1997, VFT completed the final advance under the construction
commitment and term out of the construction loan. The VFT Term Loan is
being repaid in 40 quarterly installments which commenced on June 30, 1997.
Interest rate options are selected by VFT on all or any portion of the
borrowings at a variable prime rate, a fixed (LIBOR) rate or a treasury
loan rate as defined in the VFT Facility. Each interest rate option has an
applicable margin over such rate in determining the total interest rate
associated with each borrowing. The applicable margin for each interest
rate option is based upon the relationship between annual debt service
(principal and interest payments) and total cash flow, as defined, with
cash flow as the numerator and debt service as the denominator. As the
aforementioned relationship increases, the applicable margin for each
interest rate election decreases. At December 28, 1997, the VFT Term Loan
borrowings of $18,413,614 were at various LIBOR rate elections, which
combined with the applicable margin, resulted in interest rates between
approximately 9.4% and 10.9%. The various LIBOR rate elections are reset
periodically throughout the year.
The line of credit commitment to VFT expires on June 30, 2001. VFT is
required to reduce the line of credit balance to less than $100 and
maintain this level for 30 consecutive days during the year. A commitment
fee of 1% per annum is charged on the unused line of credit commitment. At
December 28, 1997, $500,000 was available and unused under the line of
credit commitment. Interest is payable at the variable prime rate, as
defined (9.5% at December 28, 1997). There is no quoted market price on the
line of credit and VFT Term Loan. Management estimates that the carrying
amount of debt approximates its fair value as of December 29, 1996 and
December 28, 1997. See Note 12 for the subsequent event involving the VFT
Facility.
In addition, under the terms of the VFT Facility, VFT was required to
establish a Debt Service Reserve and an Additional Debt Service Reserve in
the amounts of $1,500,000 and $1,000,000, respectively. The Debt Service
Reserve will remain in effect throughout the term of the VFT Facility and
the Additional Debt Service Reserve will be released upon the achievement
of certain debt coverage levels measured at the end of the first calendar
quarter following the first complete 12 month period of operations
subsequent to the final construction advance. These amounts have been
classified as restricted cash in the accompanying combined financial
statements. These funds are to be used to support debt service payments in
the event VFT's cash flow from operations is insufficient. VFT is subject
to other various restrictive, negative and affirmative financial and
operating covenants as defined in the VFT Facility. Substantially all of
VFT's assets have been pledged as security under the VFT Facility. See Note
12 for the subsequent event involving these restricted cash accounts.
In October 1996, VFT purchased an interest rate cap ("VFT Rate Cap") from a
bank for $307,000. The VFT Rate Cap protects VFT from increases in interest
rates above 6.5% (excluding the applicable margin) for a period of five
years on $10,000,000 of senior debt. The cost of the VFT Rate Cap is
reflected in other assets in the accompanying combined balance sheets (See
Note 5) and is being amortized to interest expense on a straight line basis
over the life of the VFT Rate Cap. The VFT Rate Cap is intended to be an
integral part of borrowing transactions and therefore, not recognized at
fair value ($70,000 as of December 28, 1997). Interest differential
relating to the VFT Rate Cap will be recognized as a component of interest
expense over the term of the VFT Rate Cap.
F-15
<PAGE>
In September 1997, PVF entered into a $500,000 revolving line of credit
facility (the "PVF Facility") with VFIFA, which is to be used for working
capital by PVF. PVF is subject to various restrictive, negative and
affirmative covenants as defined in the PVF Facility. The borrowings are
secured by eligible accounts receivable, as defined.
The line of credit commitment to PVF expires on July 31, 2010. At December
28, 1997, the full commitment under the line of credit was outstanding.
Interest is payable at the variable prime rate, as defined (9.5% at
December 28, 1997). See Note 12 for the subsequent event involving the PVF
Facility.
On March 10, 1997, PVF entered into a $2,200,000 loan agreement (the "PVF
Loan"). The proceeds of the PVF loan were used to purchase the PVF
greenhouse property and to make planned improvements to this property. As
of December 28, 1997, there were no additional borrowings available under
the loan. The loan is required to be repaid in sixty quarterly installments
of $36,670 relating to interest and principal which began on July 1, 1997,
plus a final installment of any amount necessary to pay the indebtedness in
full. The PVF loan bears interest at a variable rate, as defined (9.0% at
December 28, 1997), subject to the lender's applicable interest rate tier,
as defined. The interest rate tier may be changed at any time by the
lender. The PVF loan is secured by a real estate mortgage in the PVF
property and a first lien on all assets, excluding inventory and accounts
receivable, as defined. PVF is required to maintain certain financial
ratios relating to this loan and has agreed to certain restrictions
regarding partnership distributions, as defined. As of December 28, 1997,
the Partnership was in violation of a financial covenant of the PVF loan.
As such the entire amount outstanding under the PVF loan, $2,124,725, has
been reflected in the current portion of long-term debt in the accompanying
December 28, 1997 combined balance sheet. PVF is also required to maintain
$750,000 of cash as replacement collateral to replace the portion of the
PVF greenhouse assets sold to APD. This amount has been classified as
restricted cash in the accompanying combined financial statements. See Note
12 for the subsequent event involving the PVF Loan.
In June 1997, VFM entered into a $17,765,346 combined credit facility (the
"VFM Facility") with VFIFA. The combined VFM Facility consists of a
construction and term loan commitment of $15,515,346 (the "VFM Term Loan")
and a $2,250,000 revolving line of credit agreement to be used for working
capital by VFM. Included in the construction and term loan commitment was a
letter of credit issued to a significant contractor for work provided
during construction. The letter of credit combined with the outstanding
construction borrowings can not exceed the total construction and term loan
commitment. VFM is subject to various restrictive covenants as defined in
the VFM Facility. Substantially all of VFM's assets have been pledged as
security under the VFM Facility.
During April of 1998, VFM will complete the final advance under the
construction commitment and term out the construction loan. The VFM Term
Loan will be repaid in 40 quarterly installments commencing on June 30,
1998. Interest rate options are selected by VFM on all or any portion of
the borrowings at a base rate, a fixed (LIBOR) rate or a quoted rate, as
defined in the VFM Facility. Each interest rate option has an applicable
margin over such rate in determining the total interest rate associated
with each borrowing. The applicable margin for each interest rate option is
based upon the relationship between annual debt service (principal and
interest payments) and total cash flow, as defined, with cash flow as the
numerator and debt service as
F-16
<PAGE>
the denominator. As the aforementioned relationship increases, the
applicable margin for each interest rate election decreases. At December
28, 1997, the construction loan borrowings were at various LIBOR rate
elections, which combined with the applicable margin, resulted in interest
rates between 9.3% and 9.5%. The various LIBOR rate elections are reset
periodically throughout the year. At December 28, 1997, $11,262,124 of
borrowings were outstanding under the construction loan commitment and
$800,000 of borrowings were outstanding under the revolving line of credit
commitment. In addition, a letter of credit of $327,000 was outstanding at
December 28, 1997.
The line of credit commitment to VFM expires on July 31, 2010. At December
28, 1997, $1,450,000 was available under the line of credit commitment.
Interest is payable at the variable prime rate, as defined (9.5% at
December 28, 1997). Management estimates that the carrying amount of debt
approximates its fair value as of December 28, 1997. See Note 12 for the
subsequent event involving the VFM facility
In October 1997, VFM purchased an interest rate cap ("VFM Rate Cap") from
VFIFA for $259,000. The VFM Rate Cap protects VFM from increases in
interest rates above 6.5% (excluding the applicable margin) for a period of
five years commencing on December 31, 1997 on $15,515,346 of debt under the
VFM Facility. The cost is reflected in other assets in the accompanying
combined balance sheets (see Note 5) and will be amortized to interest
expense on a straight-line basis over the life of the VFM Rate Cap. The VFM
Rate Cap is intended to be an integral part of borrowing transactions and
therefore, not recognized at fair value ($206,000 at December 28, 1997).
Interest differential relating to the VFM Rate Cap will be recognized as a
component of interest expense over the term of the VFM Rate Cap.
In December 1997, VFM borrowed approximately $66,000 under equipment term
loans.
In June 1997, VFB entered into a $12,162,800 combined credit facility (the
"VFB Facility") with VFIFA. The combined VFB Facility consists of a
construction and term loan commitment of $10,962,800 (the "VFB Term Loan")
and a $1,200,000 revolving line of credit agreement to be used for working
capital by VFB. Included in the construction and term loan commitment was a
letter of credit issued to a significant contractor for work provided
during construction. The letter of credit combined with the outstanding
construction borrowings can not exceed the total construction and term loan
commitment. VFB is subject to various restrictive covenants as defined in
the VFB Facility. Substantially all of VFB's assets have been pledged as
security under the VFB Facility.
During April of 1998, VFB will complete the final advance under the
construction commitment and term out the construction loan. The VFB Term
Loan will be repaid in 40 quarterly installments commencing on June 30,
1998. Interest rate options are selected by VFB on all or any portion of
the borrowings at a base rate, a fixed (LIBOR) rate or a quoted rate, as
defined in the VFB Facility. Each interest rate option has an applicable
margin over such rate in determining the total interest rate associated
with each borrowing. The applicable margin for each interest rate option is
based upon the relationship between annual debt service (principal and
interest payments) and total cash flow, as defined, with cash flow as the
numerator and debt service as the denominator. As the aforementioned
relationship increases, the applicable margin for each interest rate
election decreases. At December 28, 1997, the construction loan borrowings
were at various LIBOR rate elections, which combined with the applicable
margin, resulted in interest
F-17
<PAGE>
rates between 9.3% and 9.5%. The various LIBOR rate elections are reset
periodically throughout the year. As of December 28, 1997, $5,223,441 of
borrowings were outstanding under the construction loan commitment and
$250,000 of borrowings were outstanding under the revolving line of credit
commitment. In addition, a letter of credit of $80,000 was outstanding at
December 28, 1997.
The line of credit commitment to VFB expires on July 31, 2010. At December
28, 1997, $950,000 was available under the line of credit commitment.
Interest is payable at the variable prime rate, as defined (9.5% at
December 28, 1997). Management estimates that the carrying amount of the
debt approximates its fair value as of December 28, 1997. See Note 12 for
the subsequent event involving the VFB Facility.
In October 1997, VFB purchased an interest rate cap ("VFB Rate Cap") from
VFIFA for $177,000. The VFB Rate Cap protects VFB from increases in
interest rates above 6.5% (excluding the applicable margin) for a period of
five years commencing on December 31, 1997 on $10,962,800 of debt under the
VFB Facility. The cost is reflected in other assets in the accompanying
combined balance sheet (see Note 5) and will be amortized to interest
expense on a straight-line basis over the life of the VFB Rate Cap. The VFB
Rate Cap is intended to be an integral part of borrowing transactions and
therefore, not recognized at fair value ($155,000 at December 28, 1997).
Interest differential relating to the VFB Rate Cap will be recognized as a
component of interest expense over the term of the VFB Rate Cap.
The aggregate maturities of debt as of December 28, 1997 are as follows-
1998 $6,495,395
1999 1,593,909
2000 2,405,561
2001 2,957,649
2002 3,448,621
Thereafter 23,739,134
------------
40,640,269
Less- Current maturities (6,495,395)
------------
$34,144,874
============
F-18
<PAGE>
(8) OBLIGATIONS UNDER CAPITAL LEASES:
VFT, PVF and VFB lease equipment and land under capital leases. The capital
leases bear interest at a range of approximately 6.00% to 9.00%. The
capital leases are secured by the underlying equipment and land for which
VFT, PVF and VFB entered into the leases. Future minimum lease payments are
as follows at December 28, 1997-
1998 $64,488
1999 64,488
2000 64,488
2001 64,488
2002 48,376
Thereafter 300,000
---------
Total minimum lease payments 606,328
Less- Amount representing interest (174,271)
---------
432,057
Less- Current maturities (25,764)
---------
$406,293
=========
(9) NONCURRENT LIABILITIES:
Included in noncurrent liabilities are construction cost accruals which
represent amounts due at December 29, 1996 and December 28, 1997 on certain
billings relating to the construction of the VFT greenhouse facility and
the VFM and VFB greenhouse facilities, respectively. These amounts were
paid with proceeds from the construction and term loan commitments of VFT
during 1997 and VFM and VFB during 1998, respectively, (see Note 7).
(10) TRANSACTIONS WITH AFFILIATES:
The Partnerships purchased a portion of their materials and greenhouse
equipment from Agro Dynamics, Inc. ("ADI"), amounting to approximately
$1,769,000, $2,367,000 $1,335,000 and $2,335,000 in 1996, 1997 and the 39
weeks ended September 28, 1997 and September 27, 1998, respectively. The
president of ADI is also the president of APD (see Note 12). As discussed
in Note 1, the Partnerships have entered into certain agreements with APD
whereby APD provides a variety of services including full management of
operations and the sales and marketing of all VFT, PVF, VFM and VFB
greenhouse facility products. The fees related to the agreements amounted
to $116,667, $662,500, $412,500 and $1,193,750 in 1996, 1997 and the 39
weeks ended September 28, 1997 and September 27, 1998, respectively. In
addition, APD charged the Partnerships $2,249,000 collectively, in
connection with the four greenhouse facilities' development and APD's
performance as the general contractor. Such amount is included within
property, plant and equipment in the accompanying combined balance sheets.
In connection with obtaining the VFM and VFB facilities (see Note 7), VFM
and VFB funded closing costs to VFIFA in the amount of $694,450 and
$479,070, respectively. These amounts are reflected in other assets (see
Note 5) in the accompanying combined balance sheets and will be
F-19
<PAGE>
amortized over the life of the related VFM and VFB debt as interest
expense. Net amounts due (to) from affiliated companies consisted of the
following-
December 29, December 27, September 27,
1996 1997 1998
------------ ------------ -------------
(Unaudited)
Due (to) from, net-
APD $403,711 ($554,044) ($908,488)
VFIFA 0 (69,555) (1,513,545)
ADI (101,894) (507,498) (190,240)
Others (4,452) (4,556) (238,010)
----------- ----------- -----------
Total due (to) from
affiliates, net $297,365 ($1,135,653) ($2,850,283)
=========== =========== ===========
(11) OPERATING LEASES:
In June 1997, VFM entered into a land lease agreement for a period of 25
years. The future minimum lease payments at December 28, 1997 as follows-
1998
-------
1998 $12,000
1999 12,000
2000 12,000
2001 12,000
2002 12,000
Thereafter 234,000
-------
294,000
=======
Rent expense under VFM's lease agreement totaled approximately, $9,000,
$6,000 and $9,000 in 1997, the 39 weeks ended September 28, 1997 and the 39
weeks ended September 27, 1998, respectively.
(12) SUBSEQUENT EVENTS:
PVF Line of Credit Extension-
On February 25, 1998, PVF increased its line of credit availability with
VFIFA from $500,000 to $1,000,000. All other terms and conditions under the
PVF Facility remained unchanged.
Term Out of VFM and VFB Construction Loans-
In April 1998, VFM and VFB completed the final advance under their
respective construction commitments. The Term Loans at VFM and VFB of
$15,515,346 and $10,962,800, respectively, are being repaid in 40 quarterly
installments which commenced June 30, 1998.
F-20
<PAGE>
Notes Receivable With APD-
In April 1998, VFM and VFB loaned $3,561,435 and $3,834,161 to APD,
respectively. The notes receivable are unsecured, bear interest at 6% per
annum and principal and interest are due on demand, respectively.
PVF Operations-
In June 1998, a tornado damaged approximately 10% of the PVF greenhouse
which resulted in structural damage to the greenhouse and damage to the
growing crop. The company received $425,000 in insurance proceeds for the
damage to the greenhouse. PVF did not maintain insurance for crop damage.
As a result of the event, approximately $120,000 of losses were incurred,
which is reflected in other expense, net in the accompanying unaudited
September 27, 1998 combined statement of operations. PVF management is
endeavoring to sell the greenhouse property. Estimated costs of
approximately $500,000 for maintaining the facility, to be incurred through
a possible sale date, have been accrued by PVF. The assets, totaling
$1,911,000, have been disclosed as held for sale in the accompanying
unaudited September 27, 1998 combined balance sheet. Following the tornado
event, PVF's lender demanded the $750,000 replacement collateral (See Note
7) and the $425,000 in insurance proceeds be used to pay down PVF's
outstanding debt. PVF remains in violation of a financial covenant of the
PVF loan and as such the entire outstanding loan balance of $839,715 as of
September 27, 1998 has been classified in the current portion of long-term
debt in the accompanying unaudited September 27, 1998 balance sheet.
VFT Debt Assignment-
On August 14, 1998, the outstanding debt of VFT was assigned by the Lenders
(See Note 7) to VFIFA. VFIFA repaid the full outstanding balance of the VFT
Facility utilizing availability under its term loan facility. VFIFA, an
affiliate and lender to VFT, PVF, VFM and VFB, has maintained a $60 million
credit facility with a cooperative lender since June 1997. Upon completion
of the assignment by the Lenders, all of the outstanding line of credit,
term and construction loan borrowings of VFT, VFM and VFB are held with
VFIFA (the "VFIFA Facility"). In connection with the assignment, VFT
entered into a $1,500,000 line of credit agreement with VFIFA. No other
significant modifications were made to the VFT debt.
In connection with the VFT assignment, the $1,500,000 and $1,000,000 Debt
Service Reserve and Additional Debt Service Reserve (see Note 7),
respectively, were no longer required. The $1,500,000 was utilized to pay
down a portion of the outstanding VFT term loan and the $1,000,000 was used
for working capital purposes.
Merger-
On September 30, 1998 APD completed a merger transaction with EcoScience
Corporation ("EcoScience") through which the stockholders of APD received
9,421,487 shares of EcoScience stock in exchange for all of the outstanding
shares of APD common stock. VFT, PVF, VFM and VFB have purchased materials
and greenhouse equipment from Agro Dynamics, a wholly-owed subsidiary of
EcoScience (see Note 10). After the merger, the
F-21
<PAGE>
stockholders of APD own approximately 80% of the outstanding shares of
EcoScience, on a fully diluted basis.
VFIFA Default-
On December 1, 1998, the VFIFA Facility lenders informed VFIFA and the
"Underlying Borrowers" (including VFT, PVF, VFM, VFB and APD) through
written correspondence that they were not in compliance with certain terms
and conditions of the VFIFA Facility. The events of default included (1)
VFIFA's default of certain interest payments due (2) the Underlying
Borrowers' principal and interest payment default with VFIFA and (3) APD's
default on the financial covenant contained in the guaranty to the VFIFA
Facility relating to equity to senior long-term debt. The letter of default
referred to interest defaults totaling approximately $1,000,000. Following
the receipt of the letter, further debt service payment defaults occurred
including additional interest default and principal payment default on the
December 31, 1998 VFT, VFM and VFB Term Loans. In December 1998, VFIFA
began to make debt service payments against the defaults identified in the
December 1, 1998 letter. The final installment of the series of payments,
totaling approximately $2,005,000 in the aggregate, for approximately
$460,000, was made on February 12, 1999, which brought VFIFA and the
Underlying Borrowers into full principal and interest compliance under the
VFIFA Facility. However, APD and the Underlying Borrowers still remain in
violation of certain financial covenants. The VFIFA Facility lenders
expressly stated in the December 1, 1998 letter of default that they were
not exercising their right under the VFIFA Facility to accelerate payment
of all outstanding amounts, however, they were reserving their right to do
so. As a result, the entire amount outstanding under the VFT, VFM and VFB
Term Loans (which are all a part of the VFIFA Facility), $46,319,000, has
been reflected in the current portion of long-term debt in the accompanying
unaudited September 27, 1998 combined balance sheet. The VFIFA Facility
lenders have informed VFIFA and the Underlying Borrowers that no further
advances will be made under the VFIFA Facility until the violations of the
financial covenants are cured.
APD and VFIFA are negotiating new terms to the existing VFIFA Facility that
are intended to bring VFIFA and the Underlying Borrowers into compliance
with all defaults. There can be no assurances that APD and VFIFA will be
able to renegotiate more favorable terms.
Acquisition-
On December 30, 1998, EcoScience, which owns 100% of the outstanding stock
of APD, pursuant to the merger on September 30, 1998, acquired from
Cogentrix all of the outstanding capital stock of each of Cogentrix
Greenhouse Investments, Inc., Cogentrix of Fort Davis I, Inc., Cogentrix of
Pocono, Inc., Cogentrix of Marfa, Inc. and Cogentrix of Buffalo, Inc.
(collectively the "Companies") for 1,000,000 shares of EcoScience common
stock and a $20,600,000 note bearing interest at a rate of 11.25% per annum
which was originally due and payable on March 15, 1999. On March 12, 1999,
Cogentrix agreed to extend the maturity date of the note to June 30, 1999
for $1,000,000. The notes are secured by all of the outstanding capital
stock of APD and the Companies. EcoScience is currently seeking additional
debt and equity financing to fulfill this obligation, or alternatively will
seek to renegotiate the terms of the notes. There can be no assurance that
EcoScience will be successful in these efforts. As referred to in Note 1,
the Companies own
F-22
<PAGE>
50% of VFT, PVF, VFM and VFB. Since their inception, the companies have had
no other investments or conducted any other business.
As a condition to the acquisition, EcoScience agreed to register the
1,000,000 shares of its common stock for public sale by June 15, 1999. In
the event the stock is not registered by June 15, 1999, EcoScience may be
required, at the election of Cogentrix, to repurchase the 1,000,000 shares
from Cogentrix at a price equal to the greater of $4.00 or the market price
the day prior to the sale. In addition, the Option Agreement (see Note 1)
between APD and Cogentrix was terminated. In addition, Cogentrix assigned
and contributed its note receivable of $643,197 along with its accrued
interest, due from APD to Cogentrix Greenhouse Investment, Inc. VFT
canceled its note receivable due from Cogentrix in the amount of
$1,838,420, along with accrued interest. Following the cancellation
Cogentrix Greenhouse Investment, Inc. issued a promissory note payable to
VFT in the same amount.
F-23
ECOSCIENCE CORPORATION
EXHIBIT 99.2
- --------------------------------------------------------------------------------
ECOSCIENCE CORPORATION AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
UNAUDITED
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998 and the Unaudited Pro Forma Condensed Consolidated Statements
of Operations for the Fiscal Year Ended June 30, 1998 and for the Three Months
Ended September 30, 1998, have been prepared to give effect to (i) the
acquisition by the Company from Cogentrix Delaware Holdings, Inc. ("Cogentrix")
of all of the outstanding common stock of certain corporations that are partners
with the Company in limited partnerships (the "Greenhouse Partnerships") that
operate four of the Company's greenhouse operations (the "Cogentrix
Acquisition"), (ii) the issuance to Cogentrix of 1,000,000 shares of the
Company's Common Stock and $21,600,000 promissory notes bearing interest at
11.25% per annum, (iii) the forgiveness of a note receivable of $1,838,000
bearing interest at 6% per annum, together with accrued interest thereon of
$193,000, due from an affiliate of Cogentrix to one of the Greenhouse
Partnerships, (iv) the forgiveness of a $643,000 note payable bearing interest
at 6% per annum, together with accrued interest thereon of $68,000, due to an
affiliate of Cogentrix from one of the Greenhouse Partnerships and (v)
termination of an Option Agreement with Cogentrix, in which APD granted to
Cogentrix certain rights to participate in future projects involving the
development, acquisition, owning of or operating by APD of any greenhouse
facility at which fruit or vegetables are to be grown, as defined; as if such
transactions had occurred on July 1, 1997 and 1998 for the Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the Fiscal Year Ended June
30, 1998 and for the Three Months Ended September 30, 1998, respectively, and on
September 30, 1998 for the Unaudited Pro Forma Condensed Consolidated Balance
Sheet. In addition, the following unaudited pro forma condensed consolidated
financial information has been prepared utilizing the Company's audited
historical Consolidated Financial Statements for the Fiscal Year Ended June 30,
1998 and the Company's unaudited interim Consolidated Financial Statements as of
and for the Three Months Ended September 30, 1998, all of which have been
restated to reflect the merger with APD accounted for as a pooling of interests,
as well as, to give effect to the one for five reverse split of Common Stock
which occurred on September 30, 1998.
The pro forma condensed consolidated financial information has been prepared
using the purchase method of accounting for the Cogentrix Acquisition. Under
this method of accounting, an allocation of the purchase price consideration
given plus related acquisition costs incurred by the Company in connection with
these transactions has been made based upon a preliminary estimate of the fair
value of the investment in the net assets acquired from Cogentrix. The fair
value of the 1,000,000 shares of Common Stock which was issued on December 30,
1998, has been estimated at $4.00 per share using the average of the closing
market prices for the seven trading days between November 27, 1998 and December
7, 1998, the date on which the Stock Purchase Agreement was executed and four
days prior to the announcement of these transactions to the public. The closing
market price for the Company's Common Stock was $4.25 per share on December 30,
1998. The actual purchase accounting adjustments to reflect the fair value of
the investment in the net assets
<PAGE>
acquired from Cogentrix will be based upon an independent appraisal, and
accordingly, the pro forma adjustments that have been used in the pro forma
condensed consolidated financial information are subject to change pending final
allocation of the purchase price and are based on preliminary assumptions
regarding purchase accounting adjustments.
The pro forma condensed consolidated statements of operations have been prepared
to reflect the Company's purchase of Cogentrix's minority interests in the four
Greenhouse Partnerships and consolidation of 100% of the results of operations
for these four Greenhouse Partnerships after giving effect to the pro forma
adjustments for depreciation expense, goodwill amortization expense, interest
income, and interest expense related to the transactions described above. The
pro forma condensed consolidated financial information does not purport to be
indicative of the Company's consolidated results of operations or financial
position that would have been reported had these transactions occurred on the
dates indicated above, nor which may occur in the future.
2
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
In thousands
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Historical Transaction
Company Adjustments (1) Consolidated
------- --------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................ $2,256 $2,256
Short-term investments ................................................... 385 385
Accounts receivable, net ................................................. 2,497 2,497
Inventories .............................................................. 8,230 8,230
Other current assets ..................................................... 5,433 ($2,031)(1) 3,402
-------- -------- --------
Total current assets ................................................ 18,801 (2,031) 16,770
Property, plant and equipment, net ......................................... 55,057 9,300(2) 64,357
Intangible assets including goodwill, net .................................. 1,516 13,908(3) 15,424
Other noncurrent assets .................................................... 2,145 2,145
-------- -------- --------
Total assets .................................................. $77,519 $21,177 $98,696
======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings .................................................... $11,757 $21,600(1) $33,357
Current portion of noncurrent liabilities ................................ 48,167 (643)(1) 47,524
Accounts payable ......................................................... 7,289 200(3) 7,489
Accrued expenses and other current liabilities ........................... 4,479 1,147(1)(3) 5,626
-------- -------- --------
Total current liabilities ........................................... 71,692 22,304 93,996
-------- -------- --------
Noncurrent liabilities ..................................................... 3,612 3,612
-------- --------
Minority interest in limited partnerships .................................. 6,127 (5,127)(4) 1,000
-------- -------- --------
Commitments and contingencies
Stockholders' investment:
Preferred stock .......................................................... -- --
Common stock ............................................................. 116 10(1) 126
Additional paid-in capital ............................................... 52,074 3,990(1) 56,064
Accumulated deficit ...................................................... (56,111) (56,111)
Unrealized gain on short-term investments ................................ 9 9
-------- -------- --------
Total stockholders' investment (deficit) ............................ (3,912) 4,000 88
-------- -------- --------
Total liabilities and stockholders' investment ................ $77,519 $21,177 $98,696
======== ======== ========
</TABLE>
See accompanying notes to pro forma condensed
consolidated financial information.
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
Pro Forma
------------------------------
Historical Transaction
Company Adjustments (1) Consolidated
------- --------------- ------------
<S> <C> <C> <C>
Net revenue ..................................................................... $46,177 $46,177
Cost of revenue ................................................................. 41,847 $465(5) 42,312
-------- -------- --------
Gross profit .................................................................... 4,330 (465) 3,865
-------- -------- --------
Operating expenses:
Research and development ...................................................... 465 465
Selling, general and administrative ........................................... 10,336 556(6) 10,892
-------- -------- --------
Total operating expenses ................................................. 10,801 556 11,357
-------- -------- --------
Operating loss .................................................................. (6,471) (1,021) (7,492)
-------- -------- --------
Other income (expense):
Interest, net ................................................................. (3,289) (2,501)(7) (5,790)
Other, net .................................................................... (115) (115)
-------- -------- --------
Total other expense, net ................................................. (3,404) (2,501) (5,905)
-------- -------- --------
Loss before income taxes and minority interest .................................. (9,875) (3,522) (13,397)
Provision for income taxes ...................................................... 21 --(9) 21
-------- -------- --------
Loss before minority interest ................................................... (9,896) (3,522) (13,418)
Minority interest in net loss of consolidated limited partnerships .............. 6,149 (6,149)(8) --
-------- -------- --------
Net loss ........................................................................ ($3,747) ($9,671) ($13,418)
======== ======== ========
Loss per share:
Basic
Net loss ...................................................................... ($0.32) ($1.06)
======== ========
Weighted average common shares outstanding .................................... 11,612 1,000(1) 12,612
======== ======== ========
Diluted
Net loss ...................................................................... ($0.32) ($1.06)
======== ========
Weighted average common shares outstanding - diluted .......................... 11,612 1,000(1) 12,612
======== ======== ========
</TABLE>
See accompanying notes to pro forma condensed
consolidated financial information.
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
In thousands, except per share data
<TABLE>
<CAPTION>
Pro Forma
------------------------------
Historical Transaction
Company Adjustments (1) Consolidated
------- --------------- ------------
<S> <C> <C> <C>
Net revenue ................................................................ $8,708 $8,708
Cost of revenue ............................................................ 10,032 $116(5) 10,148
-------- ------- ------
Gross loss ................................................................. (1,324) (116) (1,440)
-------- ------- ------
Operating expenses:
Research and development ................................................. 128 128
Selling, general and administrative ...................................... 3,671 139(6) 3,810
-------- ------- ------
Total operating expenses ............................................ 3,799 139 3,938
-------- ------- ------
Operating loss ............................................................. (5,123) (255) (5,378)
-------- ------- ------
Other income (expense):
Interest, net ............................................................ (946) (625)(7) (1,571)
Other, net ............................................................... 26 26
-------- ------- ------
Total other expense, net ............................................ (920) (625) (1,545)
-------- ------- ------
Loss before income taxes and minority interest ............................. (6,043) (880) (6,923)
Provision for (benefit from) income taxes .................................. -- --(9) --
-------- ------- ------
Loss before minority interest .............................................. (6,043) (880) (6,923)
Minority interest in net loss of consolidated limited partnerships ......... 2,151 (2,151)(8) --
-------- ------- ------
Net loss ................................................................... ($3,892) ($3,031) ($6,923)
======== ======== ======
Loss per share:
Basic
Net loss ................................................................. ($0.33) ($0.55)
======== ======
Weighted average common shares outstanding ............................... 11,619 1,000(1) 12,619
======== ===== ======
Diluted
Net loss ................................................................. ($0.33) ($0.55)
======== ======
Weighted average common shares outstanding - diluted ..................... 11,619 1,000(1) 12,619
======== ===== ======
</TABLE>
See accompanying notes to pro forma condensed
consolidated financial information.
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
UNAUDITED
(1) Pursuant to a Stock Purchase Agreement by and between Cogentrix and the
Company, the closing and effective date for which was December 30, 1998,
the Company issued 1,000,000 shares of its Common Stock with a par value of
$0.01 per share and a $20,600,000 promissory note bearing interest at
11.25% per annum, which was originally due and payable including accrued
interest ($476,000) on March 15, 1999, in exchange for all of the
outstanding stock of certain corporations that are partners with the
Company in limited partnerships that operate four greenhouses. On March 12,
1999, Cogentrix agreed to extend the maturity date of the note to June 30,
1999 for $1,000,000.
In addition, pursuant to the Stock Purchase Agreement, the Company has
effectively forgiven the amount due from Cogentrix of $1,838,000 under a
promissory note bearing interest at a rate of 6% per annum, together with
accrued interest thereon of $193,000, and Cogentrix has effectively
forgiven the amount due from the Company of $643,000 under a promissory
note bearing interest at a rate of 6% per annum, together with the accrued
interest thereon of $68,000.
(2) To reflect the estimated fair value of the property, plant and equipment
assets of the entities acquired. The amount of the estimated step-up in the
basis of the property, plant and equipment assets has been limited to the
portion attributable to the minority interest acquired.
(3) The estimated goodwill asset which has resulted from these transactions is
as follows:
(Amounts in thousands, except per share and percentage data)
<TABLE>
<CAPTION>
Purchase price consideration given by the Company
- -------------------------------------------------
<S> <C>
Fair value of Common Stock issued based on an average of the closing market
prices as reported between
November 27, 1998 and December 7, 1998, the date of the Stock Purchase Agreement, of $4.00 per share ........... $4,000
Issuance of 11.25% promissory notes payable to Cogentrix due on June 30, 1999 ..................................... 21,600
Interest on promissory notes payable through June 30, 1999 ......................................................... 1,215
Forgiveness of 6% promissory note due from Cogentrix ............................................................... 1,838
Forgiveness of 6% promissory note due to Cogentrix ................................................................. (643)
Forgiveness of accrued interest receivable for 6% promissory note due from Cogentrix ............................... 193
Forgiveness of accrued interest payable for 6% promissory note due to Cogentrix .................................... (68)
Estimated accrued transaction costs ................................................................................ 200
--------
Total purchase price consideration given by the Company ...................................................... 28,335
Estimated fair value of the net assets of the entities acquired from Cogentrix ..................................... (14,427)
--------
Estimated excess of purchase price over net assets acquired (Goodwill) ........................................ $13,908
========
</TABLE>
(4) Amount represents Cogentrix's minority interest in the underlying equity of
the four greenhouse partnerships at the Company's acquisition date of
Cogentrix's minority interest.
(5) To adjust depreciation expense on property and equipment using the
straight-line method, as follows:
(Amounts in thousands, except useful life and time factor data)
<TABLE>
<S> <C>
Amount of step-up in basis of property and equipment for the interests in
four greenhouses acquired to estimated fair value ................................................................. $9,300
Estimated useful life in years ........................................................................................ 20
------
Pro forma depreciation expense adjustment for fiscal year ended June 30, 1998 .................................... $465
Factor to divide annual pro forma depreciation expense to determine pro forma adjustment for interim period ........... 4
------
Pro forma depreciation expense adjustment for the three months ended September 30, 1998 .......................... $116
======
</TABLE>
(6) To reflect goodwill amortization expense which resulted from the Company's
purchase of the acquired entities using the straight-line method as
follows:
(Amounts in thousands, except useful life and time factor data)
<TABLE>
<S> <C>
Amount of goodwill asset related to the purchase of the acquired entities estimated above ............................... $13,908
Estimated useful life in years .......................................................................................... 25
-------
Pro forma goodwill amortization expense adjustment for fiscal year ended June 30, 1998 ............................. $556
Factor to divide annual pro forma goodwill amortization expense to determine pro forma adjustment for interim period .... 4
-------
Pro forma goodwill amortization expense adjustment for the three months ended September 30, 1998 ................... $139
=======
</TABLE>
<PAGE>
(7) To adjust interest income and interest expense to reflect the issuance of
the $21,600,000 promissory notes bearing interest at 11.25% per annum, the
forgiveness of the $1,838,000 promissory note bearing interest at 6% per
annum due from Cogentrix, and the forgiveness of the $643,000 promissory
note bearing interest at 6% per annum due to Cogentrix, as if such
transactions had occurred at the beginning of periods presented as follows:
(Amounts in thousands, except percentage and time factor data)
<TABLE>
<S> <C>
Record interest expense on the 11.25% $21,600 notes payable to Cogentrix .............................................. ($2,430)
Eliminate interest expense on the 6% $643 note payable to Cogentrix ................................................... 39
Eliminate interest income on the 6% $1,838 note receivable from Cogentrix ............................................. (110)
-------
Pro forma interest expense, net of interest income adjustment for the fiscal year ended June 30, 1998 ............ ($2,501)
Factor to divide annual pro forma interest expense, net to determine pro forma adjustment for interim period .......... 4
-------
Pro forma interest expense, net of interest income adjustment for the three months ended September 30, 1998 ...... ($625)
=======
</TABLE>
(8) To eliminate minority interest in net losses from the limited partnerships
for the corresponding periods presented after giving effect to the
Company's purchase of the acquired entities from Cogentrix and the
corresponding consolidation of 100% of the results of operations from the
limited partnerships.
(9) Since the Company has incurred significant historical operating losses for
both financial and income tax reporting purposes for the periods presented
and due to the uncertainty of the realization of the benefit of any related
deferred tax assets, the pro forma adjustments do not reflect any income
tax benefit.
