================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q / A-1
AMENDMENT TO
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: September 30, 1998 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 March 12, 1999
- ----- -----------------------------
Common Stock, par value $0.01 per share 12,619,264
<PAGE>
ECOSCIENCE CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q / A-1
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Unaudited
Part I. - Financial Information Page
----
Item 1. Consolidated Financial Statements:
o Consolidated Balance Sheets:
September 30, 1998 and June 30, 1998 .................... 3
o Consolidated Statements of Operations:
Three Months Ended September 30, 1998 and 1997 .......... 4
o Consolidated Statements of Cash Flows:
Three Months Ended September 30, 1998 and 1997 .......... 5
o Notes to Consolidated Financial Statements ................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 17
Item 3. Quantitative and Qualitative Disclosures
about Market Risk .................................... 31
Part II. - Other Information ............................................. 33
Signatures ............................................................... 42
2
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands, except share data
Unaudited
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------ --------
ASSETS As Restated See Note 7
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................................. $ 2,256 $ 1,189
Restricted cash ............................................................................ -- 2,500
Short-term investments ..................................................................... 385 533
Accounts receivable, less reserves of $507
at September 30, 1998 and $617 at June 30, 1998 .......................................... 2,497 6,809
Inventories ................................................................................ 8,230 5,050
Assets held for sale ....................................................................... 1,911 1,911
Note receivable ............................................................................ 1,838 1,838
Other current assets ....................................................................... 1,684 2,411
-------- --------
Total current assets ..................................................................... 18,801 22,241
-------- --------
Property, plant and equipment, net ............................................................. 55,057 53,136
Intangible assets, net ......................................................................... 1,516 1,542
Other noncurrent assets ........................................................................ 2,145 2,589
-------- --------
Total assets ........................................................................ $ 77,519 $ 79,508
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings ..................................................................... $ 11,757 $ 7,148
Current portion of long-term debt and capital leases ...................................... 48,167 5,098
Accounts payable .......................................................................... 7,289 5,080
Accrued expenses and other current liabilities ............................................ 4,479 7,118
-------- --------
Total current liabilities ................................................................ 71,692 24,444
-------- --------
Noncurrent liabilities:
Long-term debt and capital leases, less current maturities ................................. 1,304 43,028
Other long-term liabilities ................................................................ 2,308 4,387
-------- --------
Total noncurrent liabilities ............................................................. 3,612 47,415
-------- --------
Minority interest in limited partnerships ...................................................... 6,127 7,277
-------- --------
Commitments and contingencies
Stockholders' investment:
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; 11,619,264 and
11,618,164 shares issued and outstanding
at September 30, 1998 and June 30, 1998, respectively .................................... 116 116
Additional paid-in capital ..................................................................... 52,074 57,509
Accumulated deficit ............................................................................ (56,111) (57,259)
Unrealized gain on short-term investments ...................................................... 9 6
-------- --------
Total stockholders' investment (deficit) ................................................. (3,912) 372
-------- --------
Total liabilities and stockholders' investment ...................................... $ 77,519 $ 79,508
======== ========
</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>
Three Months Ended
September 30,
-----------------------------------
1998 1997
------------- -----------
As Restated See Note 7
<S> <C> <C>
Net revenue .......................................................................... $ 8,708 $ 7,321
Cost of revenue ...................................................................... 10,032 6,561
-------- --------
Gross profit (loss) .................................................................. (1,324) 760
-------- --------
Operating expenses:
Research and development .......................................................... 128 100
Selling, general and administrative ............................................... 3,671 2,211
-------- --------
Total operating expenses .................................................... 3,799 2,311
-------- --------
Operating loss ....................................................................... (5,123) (1,551)
-------- --------
Other income (expense):
Interest, net ..................................................................... (946) (458)
Other, net ........................................................................ 26 21
-------- --------
Total other expense, net .................................................... (920) (437)
-------- --------
Loss before income taxes and minority interest ....................................... (6,043) (1,988)
Provision for (benefit from) income taxes ............................................ -- (69)
-------- --------
Loss before minority interest ........................................................ (6,043) (1,919)
Minority interest in net loss of consolidated limited
partnerships ..................................................................... 2,151 1,322
-------- --------
Net loss ............................................................................. ($ 3,892) ($ 597)
======== ========
Net loss per share
Basic
Net loss ........................................................................ ($ 0.33) ($ 0.05)
======== ========
Weighted average common shares outstanding ...................................... 11,619 11,601
======== ========
Diluted
Net loss ....................................................................... ($ 0.33) ($ 0.05)
======== ========
Weighted average common shares outstanding-diluted ............................. 11,619 11,601
======== ========
</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>
Three Months Ended September 30,
--------------------------------
1998 1997
-------- --------
As Restated See Note 7
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................................. ($ 3,892) ($ 597)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................................................... 1,064 515
Minority interest in net loss of consolidated limited partnerships .................. (2,151) (1,322)
Foreign exchange loss ............................................................... 98 4
Gain on sale of investments ......................................................... (2) --
Gain on sale of property, plant and equipment ....................................... (3) --
Changes in current assets and liabilities:
Accounts receivable, net ..................................................... 4,312 761
Inventories .................................................................. (3,180) (750)
Other current assets ......................................................... 727 (1,624)
Accounts payable and accrued expenses ........................................ (528) 3,722
-------- --------
Net cash provided by (used in) operating activities ................................. (3,555) 709
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment ................................................ (2,769) (7,051)
Proceeds from sales of short-term investments ............................................ 153 --
Proceeds from release of restricted cash .................................................. 2,500 --
Decrease (increase) in other noncurrent assets ............................................ 410 (95)
Decrease in other noncurrent liabilities ................................................ (2,079) (6,961)
Proceeds from sale of property, plant and equipment ..................................... 7 --
-------- --------
Net cash used in investing activities ............................................... (1,778) (14,107)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .................................................... 5 --
Proceeds from long-term debt .............................................................. 3,297 5,846
Net borrowings under lines of credit ...................................................... 4,609 374
Payments on long-term debt and capital leases ............................................. (1,988) (3,759)
Debt issuance costs .................................................................... (123) (409)
Minority interest contributions to limited partnerships ................................ 1,000 2,975
Distributions to stockholders of APD pre-merger ........................................ (400) (110)
-------- --------
Net cash provided by financing activities ........................................... 6,400 4,917
-------- --------
Increase (decrease) in cash and cash equivalents ............................................... 1,067 (8,481)
Cash and cash equivalents at beginning of period ............................................... 1,189 9,599
-------- --------
Cash and cash equivalents at end of period ..................................................... $ 2,256 $ 1,118
======== ========
Total unrestricted and restricted cash, cash equivalents and short-term
Investments at end of period ............................................................. $ 2,641 $ 4,901
======== ========
Supplemental cash flow information
Cash paid for:
Interest ................................................................................... $ 1,146 $ 576
Income taxes ............................................................................... 3 28
Non-cash investing and financing activities:
Acquisition of equipment under capitalized leases .......................................... 36 20
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ECOSCIENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 (see Note 3 - Basis of Presentation -
General) (collectively "APD"), Agro Dynamics, Inc. and Agro Dynamics Canada Inc.
(collectively, "AGRO") and EcoScience Produce Systems Corp. ("EPSC") are engaged
in the technical marketing, sales, development and commercialization of products
and services for the following major markets: (i) intensive agriculture; (ii)
specialty agriculture; (iii) postharvest fruits and vegetables; and (iv)
biological insect control for households and industry. The Company provides (i)
greenhouse vegetables; (ii) sophisticated growing systems to commercial
intensive farming and horticulture greenhouse operators; (iii) technologically
advanced sorting, grading and packing systems to produce packers; (iv)
equipment, coatings and disease control products, including natural biologicals
for protecting fresh fruits in storage and transit to market; and (v) a unique
biological pest control product for use in households and industry.
The Company derives most of its revenues from the sale of: (i) greenhouse
grown vegetables to retail supermarkets and dedicated wholesale distribution
companies; (ii) growing medium products to the North American intensive farming,
horticulture and plant nursery industries; and (iii) postharvest coating
products to the fresh fruit market throughout the western hemisphere. Prior to
the sale of the Company's postharvest equipment division to Aweta, B.V., in
February 1999, the Company had also derived revenues from the sale of sorting,
grading and packing systems to the produce packing industry.
The Company is subject to a number of risks similar to those of other
companies in similar stages of development, including dependence on key
individuals, competition from other products and companies, the necessity to
develop, register and manufacture commercially usable products, the ability to
achieve profitable operations and the need to raise additional funds through
public or private debt or equity financing.
The Company believes that its $2,256,000 of cash and cash equivalents and
$385,000 of short-term investments as of September 30, 1998, along with revenues
from product sales, and funds available under our revolving lines of credit,
$3,322,000 as of September 30, 1998, will be sufficient to fund the Company's
working capital needs, planned capital expenditures, and to service its
indebtedness through September 30, 1999, provided that the Company can resolve
6
<PAGE>
its short term cash flow shortfall and refinance its $21,600,000 promissory
notes issued on December 30, 1998 that is due on June 30, 1999 (see Note 8 -
Subsequent Events - Acquisition) and its $3,000,000 line of credit, the due date
for which is March 31, 1999 (see Note 5 - Debt). If the Company is not
successful in refinancing the $21,600,000 notes, it will seek an extension of
the due date to the note. Additionally, the Company did not make certain
interest and principal payments due to its primary lender beginning on October
20, 1998 which constituted default, as well as being in default on financial
covenants with its lenders (see Note 5 - Debt). In February 1999, the Company
cured its payment defaults with its primary lender. The Company has also delayed
payments to vendors; however, the Company has structured extended terms with
certain vendors and in February 1999 has substantially paid most other vendors
whose payments were delayed. The Company will need to raise additional funds to
finance its ongoing operations, current debt obligations and expected growth
after September 30, 1999. No assurance can be given that the Company will be
able to complete the refinancings, obtain an extension of the notes or that the
Company's creditors will not attempt to enforce legal remedies available to
them.
2. MERGER WITH AGRO POWER DEVELOPMENT, INC.
On September 30, 1998, the Company issued 9,421,487 shares of the Company's
common stock, $0.01 par value, to the holders of the common stock of APD, a
privately held corporation, pursuant to an Agreement and Plan of Merger, in
which APD was merged with and into a newly formed, wholly owned subsidiary of
the Company (the "Merger"). The stockholders of APD received 30,619.067 shares
of the Company's common stock for each outstanding share of common stock of APD.
In addition, on September 30, 1998, the Company issued 99,000 shares of common
stock to certain shareholders of APD for their entire 50% interest in Village
Farms of Morocco, S.A., a Moroccan company, as provided for in the Agreement and
Plan of Merger. After the Merger, the stockholders of APD owned approximately
80% of the outstanding shares of the Company, on a fully diluted basis.
The Merger has been accounted for as a pooling of interests. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combination to include the combined financial
results of EcoScience and APD. Through September 30, 1998, the Company incurred
$1,190,000 or $0.10 per diluted share of merger related costs, which were
charged to operations during the three months ended September 30, 1998.
3. BASIS OF PRESENTATION
(a) General
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 three months ended September 30,
1998 and 1997, in accordance with generally accepted accounting principles for
interim financial reporting and pursuant to Article 10 of
7
<PAGE>
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 three months ended September 30, 1998 and
1997 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 fiscal year ended June 30, 1998, which are included in the Company's Annual
Report on Form 10-K, and the Company's Definitive Proxy Statement regarding the
Merger with APD filed with the Securities and Exchange Commission.
The accompanying interim consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, APD, AGRO and EPSC,
and APD's approximate 86% interest in a certain limited partnership (formed in
August 1998), and APD's 50% interests in certain limited partnerships due to the
direction of power and control exerted by APD management in the normal course of
business over the daily operations and policies of these 50% interest entities.
The remaining 50% minority interests in each of these 50% interest entities were
acquired on December 30, 1998 (see Note 8 - Subsequent Events - Acquisition).
All material intercompany transactions and balances have been eliminated in
consolidation. The financial statements for the three months ended September 30,
1997 contain certain reclassifications to conform with the current year basis of
presentation.
The consolidated financial statements give retroactive effect to the Merger
with APD, accounted for as a pooling of interests, and a one for five reverse
stock split, as if the Merger and the reverse stock split had occurred at the
beginning of the earliest period presented.
The Company has elected to change its Fiscal Year from the 12 month period
ending June 30 to a 52/53 week fiscal year. The new fiscal year end date will be
the Sunday nearest December 31 of each year. For the six month transition
period, the fiscal year end date will be January 3, 1999.
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.
(b) Restatement
On September 30, 1998, the Company acquired APD pursuant to a merger
transaction (See Note 2 - Merger). As a result of the finalization of the
accounting for the Merger as a pooling of interests and certain adjustments
identified as a result of an audit of APD as of and for the twelve months ended
June 30, 1998, the Company is restating its Consolidated Statements of
Operations for the Three Months Ended September 30, 1998, its Consolidated
Balance Sheets as of September 30, 1998 and June 30, 1998, and its Consolidated
Statements of Cash Flows for the three months ended September 30, 1998 and 1997,
as applicable.
8
<PAGE>
4. INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market and consist of the following:
September 30, June 30,
(In thousands) 1998 1998
------------- --------
Raw materials ............................ $ 54 $ 74
Crop inventory ........................... 4,690 2,724
Finished goods ........................... 3,486 2,252
------ ------
$8,230 $5,050
====== ======
Crop inventories represent direct and indirect production costs incurred
before harvesting the annual tomato and growing crops. Tomato and growing crops
are valued at the lower of cost or estimated market. Finished goods inventories
include material, labor and manufacturing overhead.
5. DEBT
(a) On April 28, 1997, the Company and a bank ("the Bank") entered into a
revolving line of credit agreement, under which the Company was able
to borrow up to the lesser of $3,000,000 or the sum of (i) 85% of
eligible account receivables, as defined, and (ii) eligible inventory
at stratified rates from 25% to 50% up to a maximum of the lesser of
$1,200,000 or 66.67% of the amount of eligible accounts receivable.
Funds borrowed under the revolving line of credit bore interest at a
rate of prime (8.25% at September 30, 1998) plus 2.0%, and are secured
by all the assets of EcoScience, AGRO and EPSC and all of the
outstanding common stock of AGRO owned by the Company. Interest on
funds borrowed under the revolving line of credit is payable monthly
in arrears and repayment of principal was originally due on April 27,
1998, and was subject to automatic renewal, as provided. In addition,
the revolving line of credit imposes a financial covenant on the
Company that requires a minimum tangible net worth of $750,000, as
defined.
On September 30, 1998, the Company no longer met the minimum tangible
net worth covenant, was therefore in default, and as a result, the
Company and the Bank entered into a forbearance agreement as of
November 12, 1998 and three extensions thereto, under which the Bank
agreed to conditionally forbear from exercising its rights and
remedies as a result of the default until March 31, 1999.
On November 24, 1998, the Bank notified the Company of its intention
to terminate the revolving line of credit on December 28, 1998. The
Company
9
<PAGE>
and the Bank have agreed to three extensions to the credit facility
which extend the maturity date to March 31, 1999.
The Company and the Bank have also agreed to the following
modifications of the credit facility pursuant to the extensions of the
maturity date and forbearance period: (i) reduction of the inventory
based borrowing limit by $40,000 each week commencing the week of
January 28, 1999 and (ii) an increase in the interest rate to prime
plus 5.0%. As of September 30, 1998, the Company had $990,000
additional borrowing availability under the revolving line of credit.
The Company has received a term sheet from a financial institution in
the amount of $4,000,000 to replace this expiring revolving line of
credit. The Company believes that it will secure another such
replacement financing arrangement in 1999. No assurance can be given
that the Company will be able to complete the refinancing.
(b) In June 1997, the Company negotiated a $60,000,000 combined credit
facility through Village Farms International Finance Association
("VFIFA"), a non-profit cooperative formed by APD (the "VFIFA
Facility"), with a bank (the "Lender"). The combined VFIFA Facility
consists of a term loan, construction loan and revolving line of
credit commitment. The proceeds from the borrowings under the VFIFA
Facility are loaned by VFIFA to its members (the "Underlying
Borrowers") which are all APD subsidiaries. APD has guaranteed all
obligations under the VFIFA Facility. Advances under the VFIFA
Facility are secured by the assets of APD, VFIFA and any Underlying
Borrower. Borrowings under the VFIFA Facility line of credit become
due on September 30, 1999; provided however, that such date will be
automatically extended for successive 12 month periods unless on or
before July 31, either the Company or the Lender elects to terminate
the agreement. The maturity date of the term loan portion of the VFIFA
Facility is July 31, 2010. Each construction loan advance under the
VFIFA Facility becomes due within 16 months of the date of the first
advance to the Underlying Borrower, subject to a 10 year extension
under certain circumstances. The facility has restrictive covenants
which limit certain distributions and impose certain financial
covenants.
On December 1, 1998, the Lender informed VFIFA and the Underlying
Borrowers that they were not in compliance with certain terms and
conditions of the VFIFA Facility. The events of default included (i)
VFIFA's default on certain interest and administrative fee payments,
(ii) the Underlying Borrowers were in principal and interest payment
default with VFIFA and (iii) APD was in default on the financial
covenant contained in the guaranty to the VFIFA Facility relating to a
ratio of equity to senior long-term debt which required a minimum
ratio of 25%. The letter of default referred to interest and fee
defaults totaling approximately $1,004,000. Following the receipt of
the letter, further debt service payment defaults occurred, including
additional interest and principal payment defaults on December 31,
1998 for term loans. In December 1998, VFIFA began to make debt
service payments to cure the defaults identified in the December 1,
1998 letter. The final installment of approximately $460,000 of these
series of payments, totaling approximately $2,005,000 in the
aggregate, was made on February 12, 1999, which brought
10
<PAGE>
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 Lender expressly stated in the December 1, 1998
letter of default that it was not exercising its right under the VFIFA
Facility to accelerate payment of all outstanding amounts, however,
they were reserving their right to do so. In addition, the Lender
indicated that no further borrowings would be permitted under the
VFIFA Facility until the defaults were cured. As a result, the entire
amount outstanding under the Term Loans, $46,319,000, has been
reflected in current portion of long-term debt and capital leases in
the accompanying September 30, 1998 Consolidated Balance Sheet.
The Company is currently seeking additional debt and equity financing
in connection with its attempt to refinance a $21.6 million promissory
notes which becomes due on June 30, 1999 (see Note 8 - Subsequent
Events - Acquisition). In addition, APD and VFIFA are negotiating new
terms to the existing VFIFA Facility that is intended to bring VFIFA
and the Underlying Borrowers into compliance with all defaults. There
can be no assurances that the Company will be able to negotiate more
favorable terms for the VFIFA Facility, raise the necessary debt and
equity for the refinancing or obtain an extension of the note.
6. NET LOSS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), which makes certain
changes to the manner in which earnings per share is reported. The adoption of
this standard has required restatement of prior years' earnings per share.
Dilutive securities had no effect on net loss per share for all periods
reported. Any outstanding options and warrants would be anti-dilutive due to the
net losses reported and, therefore, have been excluded from the computation of
net loss per share.
7. RESTATEMENT
On September 30, 1998, the Company acquired APD pursuant to a merger
transaction (see Note 2 - Merger). As a result of the finalization of the
accounting for the Merger as a pooling of interests and certain adjustments
identified as a result of an audit of APD as of and for the twelve months ended
June 30, 1998, the Company is restating its Consolidated Statements of
Operations for the Three Months Ended September 30, 1998, its Consolidated
Balance Sheets as of September 30, 1998 and June 30, 1998, and its Consolidated
Statements of Cash Flows for the Three Months Ended September 30, 1998 and 1997,
as applicable. See EFFECTS OF THE RESTATEMENT in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
11
<PAGE>
A summary of the effects of the restatement on the Company's financial
statements as of and for the Three Months Ended September 30, 1998 and 1997, and
as of June 30, 1998, as applicable follows:
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1998
---------------------------
As Previously
As Restated Reported
----------- --------------
<S> <C> <C>
Net revenue ............................................ $8,708 $8,711
Cost of revenue ........................................ 10,032 10,423
-------- --------
Gross profit (loss) .................................... (1,324) (1,712)
-------- --------
Operating expenses:
Research and development ............................ 128 128
Selling, general and administrative ................. 3,671 3,884
-------- --------
Total operating expenses ...................... 3,799 4,012
-------- --------
Operating loss ......................................... (5,123) (5,724)
-------- --------
Other income (expense):
Interest, net ....................................... (946) (1,240)
Other, net .......................................... 26 61
-------- --------
Total other expense, net ...................... (920) (1,179)
-------- --------
Loss before income taxes, and minority interest ........ (6,043) (6,903)
Provision for (benefit from) income taxes .............. -- --
-------- --------
Loss before minority interest .......................... (6,043) (6,903)
Minority interest in net loss of consolidated limited
partnerships ...................................... 2,151 2,693
-------- --------
Net loss ............................................... ($3,892) ($4,210)
======== ========
Net loss per share
Basic
Net loss .......................................... ($0.33) ($0.36)
======== ========
Weighted average common shares outstanding ........ 11,619 11,619
======== ========
Diluted
Net loss ......................................... ($0.33) ($0.36)
======== ========
Weighted average common shares outstanding
diluted ...................................... 11,619 11,619
======== ========
</TABLE>
12
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
In thousands, except share data
Unaudited
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---------------------------- --------------------------
As previously As Previously
As Restated Reported As Restated Reported
----------- ------------ ---------- -------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 2,256 $ 2,252 $ 1,189 $ 2,608
Restricted cash .................................................... -- -- 2,500 2,500
Short-term investments ............................................. 385 385 533 533
Accounts receivable .............................................. 2,497 2,546 6,809 6,949
Inventories ........................................................ 8,230 8,298 5,050 5,318
Assets held for sale ............................................... 1,911 -- 1,911 --
Note receivable .................................................... 1,838 -- 1,838 --
Other current assets ............................................... 1,684 3,548 2,411 4,594
-------- -------- -------- --------
Total current assets ............................................. 18,801 17,029 22,241 22,502
-------- -------- -------- --------
Property, plant and equipment, net ..................................... 55,057 57,024 53,136 50,568
Intangible assets, net ................................................. 1,516 1,516 1,542 1,542
Other noncurrent assets ................................................ 2,145 2,887 2,589 3,160
======== ======== ======== ========
Total assets ................................................ $ 77,519 $ 78,456 $ 79,508 $ 77,772
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Short-term borrowings ............................................... $11,757 $ 11,757 $ 7,148 $ 5,191
Current portion of long-term debt and capital leases ................ 48,167 3,548 5,098 5,486
Accounts payable .................................................... 7,289 7,289 5,080 6,895
Accrued expenses and other current liabilities ...................... 4,479 4,615 7,118 4,664
-------- -------- -------- --------
Total current liabilities ........................................ 71,692 27,209 24,444 22,236
-------- -------- -------- --------
Noncurrent liabilities:
Long-term debt and capital leases, less current maturities ......... 1,304 45,923 43,028 43,621
Other long-term liabilities ........................................ 2,308 2,668 4,387 2,964
-------- -------- -------- --------
Total noncurrent liabilities ..................................... 3,612 48,591 47,415 46,585
-------- -------- -------- --------
Minority interest in limited partnerships .............................. 6,127 6,949 7,277 8,641
Commitments and contingencies
Stockholders' investment:
Preferred stock
None issued and outstanding ...................................... -- -- -- --
Common stock
At September 30, 1998 and June 30, 1998, respectively ............ 116 116 116 116
Additional paid-in capital ............................................. 52,074 52,557 57,509 56,143
Accumulated deficit .................................................... (56,111) (56,975) (57,259) (55,955)
Unrealized gain on short-term investments .............................. 9 9 6 6
-------- -------- -------- --------
Total stockholders' investment (deficit) ......................... (3,912) (4,293) 372 310
-------- -------- -------- --------
Total liabilities and stockholders' investment .............. $ 77,519 $ 78,456 $ 79,508 $ 77,772
======== ======== ======== ========
</TABLE>
13
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
Unaudited
<TABLE>
<CAPTION>
September 30, September 30,
---------------------- -----------------------
1998 1998 1997 1997
-------- -------- -------- --------
As Previously As Previously
As Restated Reported As Restated Reported
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................................ ($3,892) ($4,210) ($597) ($597)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................................... 1,064 1,064 515 515
Minority interest in net loss of consolidated limited
partnerships .................................................... (2,151) (2,693) (1,322) (1,321)
Foreign exchange loss ............................................... 98 98 4 4
Gain on sale of investments ......................................... (2) -- -- --
Gain on sale of property, plant and equipment ....................... (3) -- -- --
Changes in current assets and liabilities:
Accounts receivable, net ....................................... 4,312 4,403 761 680
Inventories .................................................... (3,180) (2,980) (750) (750)
Other current assets ........................................... 727 1,238 (1,624) (911)
Accounts payable and accrued expenses .......................... (528) 245 3,722 3,733
-------- -------- -------- --------
Net cash provided by (used in) operating activities ................. (3,555) (2,835) 709 1,353
-------- -------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment .............................. (2,769) (7,275) (7,051) (8,371)
Proceeds from sales of short-term investments .......................... 153 151 -- --
Proceeds from release of restricted cash ................................ 2,500 2,500 -- --
Decrease (increase) in other noncurrent assets .......................... 410 11 (95) (95)
Decrease in other noncurrent liabilities ................................ (2,079) -- (6,961) --
Decrease in loan receivable ............................................. -- 12 -- --
Payments of long-term construction liabilities .......................... -- (296) -- (5,250)
Proceeds from sale of property, plant and equipment ..................... 7 -- -- --
-------- -------- -------- --------
Net cash used in investing activities ............................... (1,778) (4,897) (14,107) (13,716)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt ............................................. 3,297 3,297 5,846 8,113
Proceeds from issuance of common stock .................................. 5 5 -- --
Net borrowings (payments) under lines of credit ......................... 4,609 6,566 374 (726)
Payments on long-term debt and capital leases ........................... (1,988) (2,969) (3,759) (3,759)
Debt issuance costs ..................................................... (123) (124) (409) (856)
Minority interest contributions to limited partnerships ................. 1,000 1,001 2,975 9,391
Distributions to stockholders of APD's S Corporations ................... (400) (400) (110) (110)
-------- -------- -------- --------
Net cash provided by financing activities .......................... 6,400 7,376 4,917 12,053
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents ........................... 1,067 (356) (8,481) (310)
Cash and cash equivalents at beginning of period ........................... 1,189 2,608 9,599 2,178
======== ======== ======== ========
Cash and cash equivalents at end of period ................................. $2,256 $2,252 $1,118 $1,868
======== ======== ======== ========
Total unrestricted and restricted cash, cash equivalents and short-term
investments at end of period ............................................ $2,641 $2,637 $4,901 $5,650
======== ======== ======== ========
Supplemental cash flow information Cash paid for:
Interest ............................................................ $1,146 $821 $576 $576
Income taxes ........................................................ 3 3 28 28
Non-cash investing and financing activities:
Acquisition of equipment under capitalized leases ................. 36 36 20 20
</TABLE>
14
<PAGE>
8. SUBSEQUENT EVENTS
(a) Pocono Village Farms, L.P. Operations
In June 1998, a tornado damaged approximately 10% of the Pocono Village
Farms, L.P. ("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 and recorded in other expense, net in the Company's
Consolidated Statement of Operations for the year ended June 30, 1998. The
Company is endeavoring to sell the greenhouse property. Estimated costs of
approximately $500,000 to be incurred through the sale date have been accrued by
the Company. The assets, totaling $1,911,000, have been disclosed as held for
sale in the accompanying September 30, 1998 Consolidated Balance Sheet.
Following the tornado event, PVF's lender demanded $750,000 in replacement
collateral and demanded that the $425,000 of 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 $840,000 as of
September 30, 1998 remains classified in the current portion of long-term debt
and capital leases in the accompanying September 30, 1998 Consolidated Balance
Sheet.
(b) Acquisition
On December 30, 1998, the Company acquired from Cogentrix Delaware
Holdings, Inc. ("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 "Acquired Companies") which were 50% partners with the
Company in limited partnerships that operate four of the Company's greenhouse
operations, 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 Acquired Companies.
EcoScience is currently seeking additional debt and equity financing to fulfill
this obligation. If the Company is not successful in refinancing the $21,600,000
notes, it will seek an extension of the due date to the notes. There can be no
assurances that EcoScience will be successful in these efforts.
As a condition to the acquisition, EcoScience agreed to register the
1,000,000 shares of 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
repurchase demand, as provided.
Additional consideration given in the transaction is as follows: (i)
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; (ii)
Cogentrix assigned and contributed its note receivable of $643,000 along with
its accrued interest, due from APD to Cogentrix Greenhouse Investment, Inc. and
(iii) one of the greenhouse limited partnerships cancelled its note receivable
due from Cogentrix in the
15
<PAGE>
amount of $1,838,000, along with accrued interest. Following the cancellation
and the acquisition of the Acquired Companies by EcoScience, Cogentrix
Greenhouse Investment, Inc. issued a promissory note payable to that greenhouse
limited partnership in the same amount.
(c) Sale of PostHarvest Equipment Division
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
$4,596,000, $5,519,000 and $2,783,000 in 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 will not result in a material gain
or loss and will not have a material impact on the Company's financial position
or results or operations.
16
<PAGE>
ECOSCIENCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESTATEMENT
On September 30, 1998, the Company acquired Agro Power Development, Inc.
("APD") pursuant to a merger transaction (see below). As a result of the
finalization of the accounting for the Merger as a pooling of interests and
certain adjustments identified as a result of an audit of APD as of and for the
twelve months ended June 30, 1998, the Company is restating its Consolidated
Statements of Operations for the Three Months Ended September 30, 1998, its
Consolidated Balance Sheets as of September 30, 1998 and June 30, 1998, and its
Consolidated Statements of Cash Flows for the Three Months Ended September 30,
1998 and 1997, as applicable (see Note 7 - Restatement, and EFFECTS OF THE
RESTATEMENT, below).
General
EcoScience is engaged in the production, technical marketing, sales,
development and commercialization of products and services for the following
major markets: (i) intensive agriculture; (ii) specialty agriculture; (iii)
postharvest fruits and vegetables; and (iv) biological insect control for
households and industry.
Merger with Agro Power Development, Inc.
On September 30, 1998, the Company issued 9,421,487 shares of the Company's
common stock, $0.01 par value, to the holders of the common stock of APD, a
privately held corporation, pursuant to an Agreement and Plan of Merger, in
which APD was merged with and into a newly formed, wholly owned subsidiary of
the Company (the "Merger"). The stockholders of APD received 30,619.067 shares
of the Company's common stock for each outstanding share of common stock of APD.
In addition, on September 30, 1998, the Company issued 99,000 shares of common
stock to certain shareholders of APD for their entire 50% interest in Village
Farms of Morocco, S.A., a Moroccan company, as provided for in the Agreement and
Plan of Merger. After the Merger, the stockholders of APD owned approximately
80% of the outstanding shares of the Company, on a fully diluted basis.
The Merger has been accounted for as a pooling of interests. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combination to include the combined financial
results of EcoScience and APD. Through September 30, 1998, the Company incurred
$1,190,000 or $0.10 per diluted share of merger related costs, which were
charged to operations during the three months ended September 30, 1998.
17
<PAGE>
The companies combined to form an integrated, environmentally focused,
consumer products driven agri-business, capitalizing on its expertise in
naturally derived food technologies, intensive production and marketing of high
value, quality fresh produce, innovative bio-rational pest and disease control
technologies, and sophisticated growing and postharvest systems and products.
The Company is committed to improving the quality of its products by bridging
nature, technology and the environment, utilizing the highest standards.
EcoScience believes APD will provide the combined entity greater international
presence, increased marketing capability, management depth and the operating
level needed to accelerate revenue growth and increase shareholder value.
Acquisition
On December 30, 1998, the Company acquired from Cogentrix Delaware
Holdings, Inc. ("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 "Acquired Companies") which were 50% partners with the
Company in limited partnerships that operate four of the Company's greenhouse
operations, 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, 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 note is secured by all of the
outstanding capital stock of APD and the Acquired Companies. EcoScience is
currently seeking additional debt and equity financing to fulfill this
obligation. If the Company is not successful in refinancing the $21,600,000
note, it will seek an extension of the due date to the note. There can be no
assurances that EcoScience will be successful in these efforts.
As a condition to the acquisition, EcoScience agreed to register the
1,000,000 shares of 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
repurchase demand, as provided.
Additional consideration given in the transaction is as follows: (i)
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; (ii)
Cogentrix assigned and contributed its note receivable of $643,000 along with
its accrued interest, due from APD to Cogentrix Greenhouse Investment, Inc. and
(iii) one of the greenhouse limited partnerships cancelled its note receivable
due from Cogentrix in the amount of $1,838,000, along with accrued interest.
Following the cancellation and the acquisition of the Acquired Companies by
EcoScience, Cogentrix Greenhouse Investment, Inc. issued a promissory note
payable to that greenhouse limited partnership in the same amount.
Sale of PostHarvest Equipment Division
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.
18
<PAGE>
Sales of this division were $4,596,000, $5,519,000 and $2,783,000 in 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
will not result in a material gain or loss and will not have a material impact
on the Company's financial position or results or operations.
Election to Change Fiscal Year
The Company has elected to change its Fiscal Year from the 12 month period
ending June 30 to a 52/53 week fiscal year. The new fiscal year end date will be
the Sunday nearest December 31 of each year. For the six month transition
period, the fiscal year end date will be January 3, 1999.
Intensive agriculture
Through the Merger with Agro Power Development, Inc., and by virtue of APD
becoming a wholly owned subsidiary, EcoScience is now additionally and primarily
engaged in the production and marketing of greenhouse grown premium vegetables,
specifically beefsteak tomatoes, cluster on-the-vine tomatoes, and colored bell
peppers.
The Company is, in terms of total acreage controlled by a single entity,
the largest producer and marketer of premium quality, greenhouse grown tomatoes
in the United States. APD develops, constructs and operates highly intensive
agricultural greenhouse projects, and markets and sells the vegetable production
of these facilities, as well as, fresh vegetables produced by other greenhouse
growers under its Village Farms(R) brandname, as a consumer product, primarily
to retail supermarkets and dedicated wholesale distribution companies. In
calendar 1998, APD estimates that it sold approximately 47.8 million pounds of
tomatoes grown at APD greenhouses, and sold approximately an additional 4.3
million pounds of tomatoes under APD's Village Farms(R) and Home Choice(TM)
brand names pursuant to marketing arrangements with third party producers. The
tomato poundage sold by APD is estimated at approximately 0.95% of the fresh
tomatoes sold in the United States in calendar 1998.
APD currently operates seven greenhouse facilities in the United States,
including one facility which is currently under construction and approximately
60% complete. If the construction of the new facility is completed according to
plan, APD's greenhouse facilities will represent approximately 217 acres
(9,443,000 square feet) of growing capacity. Three of these facilities, each of
which has, and the one currently under construction which is expected to have,
approximately 41 acres of growing capacity, will all be among the largest
greenhouses in the United States. By producing, harvesting, packaging and
directly marketing all of its products, APD eliminates numerous intermediaries,
such as, repackers, brokers and wholesalers utilized by traditional field
producers of fresh vegetables. In order to develop additional sources of supply
and revenue, APD has entered into agreements to market and sell fresh vegetables
produced by three other greenhouse operations, which currently comprise a total
of approximately 66 acres. If these marketing arrangements remain in effect, and
if its new greenhouse is completed according to plan, APD will control the
marketing of approximately 283 acres (approximately 12,317,000 square feet) of
greenhouse vegetable production.
19
<PAGE>
The Company experienced significant growth during the first six months of
calendar year 1998, particularly in the Intensive Agriculture division,
represented by APD. During this period, APD completed construction and started
operations in approximately 101 additional acres of greenhouse production in
beefsteak (42 acres) and cluster on-the-vine (59 acres) tomatoes. This increase
in acreage represents an approximate 137% increase in production capacity over
the 73.5 production acres for calendar 1997. In addition, APD began construction
on an additional 41 acre greenhouse to grow and sell colored bell peppers. The
first 26 acres of this greenhouse ("Presidio Phase I Project") went into
operation in October 1998, thereby increasing production capacity by
approximately 173% for calendar 1998 as compared to calendar 1997. Increases in
sales and revenues always lag increases in production capacity, but expenses for
start-up, infrastructure and personnel occur in advance of revenues. The
operating results for the quarter ended September 30, 1998 reflect a significant
portion of these expenses in advance of anticipated revenues.
The timing of the additional 101 acres that started production in April and
May of 1998 came at a time when market prices were on the decline due to the
approaching summer production season. In addition, this crop cycle began
imposing on the readying period for the greenhouses' next and normal crop
starting cycle, and consequently, the growing cycle was abbreviated by
management to shift to a normal crop cycle. These circumstances prevented the
Company from recovering all of the up-front crop expenditures in an abbreviated
first crop production cycle and harvest period, which correspondingly, reduced
revenue generation. The crop cycle of the Virginia facility, a 42 acre start-up,
was adversely impacted by the failure of the lessor of the facility to obtain
approval of its lenders for the expansion and conversion of the facility. As a
result, the Company was not able to begin planting in the Virginia greenhouse
until late in its planned growing cycle, which delayed production beyond the
favorable winter pricing period. In addition, the Company subsequently elected
to cut short the already abbreviated growing cycle at the Virginia greenhouse
and began a new crop which it could harvest in December 1998, when the higher
winter pricing would be available. Also, the new New York greenhouse had
construction delays and was late in installing infrastructure and required
systems, all further adversely impacting the Company's operating performance.
These decisions and circumstances increased operating costs during the quarter
ended September 30, 1998 and limited revenue generation.
The Company's believes that its greenhouse operations are all currently on
the optimal production schedule for the first time in Company history, and when
compared with prior years results when three of seven operations were out of
optimal production cycle (101 of the 175 acres in operation). The Company
anticipates realization of the benefits of increased production and sales,
consistent with the addition of its production capacity during 1998, to begin in
the quarter ended January 3, 1999.
Specialty Agriculture
The Company engineers, designs, markets and distributes sophisticated
growing systems and services to the intensive farming, horticultural and plant
nursery market in the United States, Canada, Mexico and the Caribbean. The
Company's primary products for this market are: (i) advanced growing systems
based on Stonewool(R) inert growing medium, manufactured by Grodania A/S; (ii)
computerized environmental, irrigation and fertilization control systems
manufactured by H. Hoogendoorn Automation B.V.; and (iii) multiple
20
<PAGE>
greenhouse consumable products.
PostHarvest Fruits and Vegetables
The fruit and vegetable production industry requires specialized services,
equipment and products for the harvesting, processing and storage of produce.
The Company provides equipment, coatings and disease control products to the
fruit and vegetable packing markets. The Company's primary products for this
market are coatings and disease control products for the protection of fruits
and vegetables in storage and transit to market including PacRite(R) and Indian
River Gold(TM) coatings manufactured by EPSC, and the BioSave(R) PostHarvest
BioProtectant line of natural biological products.
Prior to the sale of its postharvest equipment division in February 1999,
the Company also sold sorting, grading and packing systems for produce packers
(primarily apple) manufactured by Aweta, B.V. (see Note 8 - Subsequent Events -
Sale of PostHarvest Equipment Division).
Biological Insect Control
In the biological insect control market, the Company, together with its
collaborative partners, has been focused on developing and selling cost
effective bio-insecticide alternatives to synthetic chemical insecticides for
use in specific applications, including sensitive use environments such as
homes, restaurants, schools and food processing facilities. The Company's
primary product for this market is Bio-Blast(R) Biological Termiticide
("Bio-Blast"), a unique biological pest control product manufactured by
EcoScience.
The Company sells Bio-Blast for use in household and industrial
applications through a marketing collaboration with Terminix International
Company L.P. In fiscal 1997, the Company initiated the U.S. commercial launch of
Bio-Blast in collaboration with Terminix. Additionally, EcoScience has initiated
an extensive testing, development and marketing program with Maruwa BioChemical
Co., Ltd. for biological products in Japan. The Company commenced shipments of
Bio-Blast to Maruwa in fiscal 1997.
Technology
The Company's technology is used for the development and application of
natural microbial pest control agents and coatings to sustain the freshness of
fruits. The Company's technology enables it to provide technical support for
growers and packers of specialty crops. The Company conducts research on the use
of microbial agents to control plant diseases and insect pests, as well as on
new applications for natural coatings to sustain the nutritional and overall
qualities in fresh fruit. The Company expects to conduct tests to determine the
possibility of extending the range of performance and applicability for both its
Bio-Save line of products and its Bio-Blast insect control product.
Primary Revenue Sources
The Company derives most of its revenues from the sale of: (i) greenhouse
grown vegetables to retail supermarkets and dedicated wholesale distribution
companies; (ii) growing medium products to the North American intensive farming,
horticulture and plant
21
<PAGE>
nursery industries; and (iii) postharvest coating products to the fresh fruit
market throughout the western hemisphere. Prior to the sale of the Company's
postharvest equipment division to Aweta, B.V., in February 1999, the Company had
also derived revenues from the sale of sorting, grading and packing systems to
the produce packing industry.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 vs.
Three Months Ended September 30, 1997
The Company's net revenues increased by $1,387,000 or 19% to $8,708,000 for
the three months ended September 30, 1998 from $7,321,000 for the same period in
1997. This increase was primarily due to the increases in product sales in the
Intensive Agriculture greenhouse vegetable market of $635,000, PostHarvest
Fruits and Vegetables market of $550,000 and the Specialty Agriculture market of
$202,000.
The following table sets forth the Company's net revenues by market for the
three months ended September 30, 1998 and 1997:
Three Months Ended September 30,
---------------------------------
Increase
(In thousands) 1998 1997 (Decrease)
------ ------ ----------
Intensive Agriculture ...................... $4,557 $3,922 $635
Specialty Agriculture ...................... 2,278 2,076 202
PostHarvest Fruits and Vegetables .......... 1,873 1,323 550
Biological Insect Control .................. -- -- --
------ ------ ------
Consolidated ............................... $8,708 $7,321 $1,387
====== ====== ======
In April 1998, Aweta B.V. sustained fire damage to its manufacturing
facility and certain contents therein. As a result of the fire, there was a
delay in the shipment and installation of certain sorting, grading and packing
equipment with the primary effect being a shifting of revenue and corresponding
operating profits from the quarters ended June 30, 1998 and September 30, 1998
to the quarter ended January 3, 1999. The Company has attempted to balance the
effects of the temporary decrease in Aweta's production capacity and the
Company's customers' installation and production requirements. The result of the
postponement of shipments caused by the fire had an adverse effect on the
Company's operating results for the quarter ended September 30, 1998; however,
in those periods where delivery is expected to be made, there will be a
favorable impact on operating results.
Cost of revenues increased $3,471,000 or 53% to $10,032,000 for the three
months ended September 30, 1998 from $6,561,000 for the same period in 1997,
primarily due to increases at the Intensive Agriculture division, represented by
APD, where cost of revenues increased $2,777,000 or 69% to $6,801,000 for the
three months ended September 30, 1998
22
<PAGE>
from $4,024,000 for the same period in 1997. The increase in cost of revenues at
the Intensive Agriculture division was primarily due to the significant growth
in production capacity during 1998 associated with the three new facilities in
Virginia, Texas and New York, where crop cycle adjustments initiated by the
Company and certain construction delays referred to above, combined for
substantially all of the increase in cost of goods sold. The other causes of the
increase in cost of revenues were primarily due to sales increases and changes
in product mix.
Gross profit on net revenues decreased $2,084,000 to a gross loss of
$1,324,000 for the three months ended September 30, 1998 from $760,000 in gross
profit for the same period in 1997; while gross profit percentage on product
sales decreased to a 15% gross loss for the three months ended September 30,
1998 from a 10% gross profit for the same period in 1997. The decrease in gross
profit percentage was primarily due to start-up costs in the Intensive
Agriculture division. The gross loss for the Intensive Agriculture division,
represented by APD greenhouse vegetables, increased $2,143,000 to $2,244,000 for
the three months ended September 30, 1998 from a gross loss of $101,000 for the
same period in 1997, primarily due to the start-up issues encountered at the
three new greenhouses in Virginia, Texas and New York. These facilities combined
for a total $1,873,000 of the increase in gross loss. Gross loss on the new
greenhouse facilities was higher than anticipated because of the timing of and
delays relating to construction completion, and because, production start-up did
not coincide with the optimal crop cycle (seed, plant, grow, harvest) of these
facilities during the first year of operations. Consequently, the Company
abbreviated the crop cycles at these facilities to shift them to optimal crop
cycles for future periods. Therefore, the up-front costs (the seeding, planting
and associated labor costs) were spread across lower production and sales due to
the abbreviated growing cycle and, as a result, significantly lowered gross
profits from the production from these facilities. The Company believes that all
greenhouse operations are currently on their optimal crop cycles and the Company
expects gross profits to improve, as a result of the allocations of costs of
production over greater production volumes resulting from a full crop cycle at
each facility.
In addition, the Intensive Agriculture division experienced higher cost of
revenues and lower total revenues on the crop of the 101 acre facilities, as a
result of the decision to abbreviate the crop cycle in the quarter ended
September 30, 1998. The crop cycle of the Virginia facility, a 42 acre start-up,
was also adversely impacted by the failure of the lessor of the facility to
obtain approval of its lenders for the expansion and conversion of the facility.
As a result, the Company was not able to begin planting in the Virginia
greenhouse until late in its planned growing cycle, which delayed production
beyond the favorable winter pricing period. The Company subsequently elected to
cut short the already abbreviated growing cycle at the Virginia greenhouse and
began a new crop which it could harvest in December 1998, when the higher winter
pricing would be available. Also, the new New York greenhouse had construction
delays and was late in installing infrastructure and required systems, all
further adversely impacting the Company's operating performance. These decisions
and circumstances increased operating costs during the quarter ended September
30, 1998 and limited revenue generation.
23
<PAGE>
Research and development expenses increased $28,000 or 28% to $128,000 for
the three months ended September 30, 1998 from $100,000 for the same period in
1997, primarily due to increases in personnel and related costs. The Company has
and will continue to incur ongoing research and development expenses for its
Bio-Save PostHarvest BioProtectant, Bio-Blast Biological Termiticide and other
select programs.
Selling, general and administrative expenses increased $1,460,000 or 66% to
$3,671,000 for the three months ended September 30, 1998 from $2,211,000 for the
same period in 1997, primarily due to non-recurring merger costs of $1,190,000
or $0.10 per diluted share incurred through September 30, 1998, increases in
personnel and related costs to support increased levels of business activity,
and the addition of personnel and related costs in advance of revenue generation
to support increased production capacity and corresponding future sales levels
in the Intensive Agriculture division.
Operating loss increased $3,572,000 to $5,123,000 for the three months
ended September 30, 1998 compared to a $1,551,000 operating loss for the same
period in 1997. The increase in operating loss resulted primarily from a
$2,084,000 decrease in gross profit for the three months ended September 30,
1998 compared to the same period in 1997, and a $1,488,000 increase in operating
expenses.
Other expense, net increased by $483,000 to $920,000 for the three months
ended September 30, 1998 compared to $437,000 for the same period in 1997,
primarily due to increased interest expense of $488,000, reflecting the higher
level of debt outstanding during the three months ended September 30, 1998
compared to the same period in 1997.
For the three months ended September 30, 1998, there was no benefit from
income taxes compared to a $69,000 benefit for the same period in 1997.
Minority interest in the net loss of the consolidated limited partnerships
increased by $829,000 to $2,151,000 for the three months ended September 30,
1998 compared to $1,322,000 of minority interest in the net loss of the
consolidated limited partnerships for the same period in 1997.
The Company's net loss increased $3,295,000 or $0.28 per diluted share to
$3,892,000 or $0.33 per diluted share for the three months ended September 30,
1998 compared to a loss of $597,000 or $0.05 per diluted share for the same
period in 1997.
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, minority interest holders' investments in consolidated limited
partnerships and loans, licensing, collaborative research and development
arrangements, and investment income.
Cash and cash equivalents were $2,256,000 at September 30, 1998 compared to
$1,189,000 at June 30, 1998. Unrestricted and restricted cash, cash equivalents
and short-term investments
24
<PAGE>
in consolidated limited partnerships totaled $2,641,000 at September 30, 1998
compared to $4,222,000 at June 30, 1998. Cash used in operating activities
totaled $3,555,000 for the three months ended September 30, 1998 and principally
consisted of a net loss of $3,892,000, minority interest in the net loss of the
consolidated limited partnerships of $2,151,000 and an increase in inventory of
$3,180,000; partially offset by a decrease in accounts receivable of $4,312,000,
and depreciation and amortization of $1,064,000. Cash provided by financing
activities totaled $6,400,000 for the three months ended September 30, 1998,
which consisted principally of proceeds from long term debt of $3,297,000, net
borrowings under lines of credit of $4,609,000 and minority interest
contribution to a consolidated limited partnership of $1,000,000; partially
offset by payments of long-term debt and capital leases of $1,988,000, and S
Corporation stockholder distributions of $400,000 (prior to the merger, APD was
taxed as a S Corporation, which required this distribution for payment of
related taxes by the APD shareholders). Cash used in investment activities for
the three months ended September 30, 1998 totaled $1,778,000, which consisted
principally of purchases of property and equipment of $2,769,000, associated
with the construction of an additional 26 acre greenhouse facility, and a
decrease in non-current liabilities of $2,079,000; partially offset by a release
of restricted cash of $2,500,000, which partially paid down debt in the amount
of $1,500,000. The Company's working capital and current ratio were
($52,891,000) and 0.26 to 1, respectively, at September 30, 1998 compared to
($2,203,000) and 0.91 to 1, respectively, at June 30, 1998.
The Company is experiencing a significant short term 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 Intensive Agriculture division, discussed above, and
(ii) the need to refinance its $21,600,000 promissory notes that are due on June
30, 1999 (see Note 8 - Subsequent Events - Acquisition) and its $3,000,000 line
of credit, the extended due date for which is March 31, 1999 (see Note 5 -
Debt). Additionally, the Company did not make certain interest and principal
payments due to its primary lender beginning on October 20, 1998, which
constituted default, as well as being in default on financial covenants with its
lenders (see Note 5 - Debt). In February 1999, the Company cured its payment
defaults with its primary lender. The Company has also delayed payments to
vendors; however, the Company has structured extended terms with certain vendors
and in February 1999 has substantially paid most other vendors whose payments
were delayed.
The Company expects production and sales, and correspondingly, cash flow to
improve in the first two quarters of calendar 1999. While the liquidity position
of the Company is critical, Company management has been in close contact with
major suppliers and its lenders, and the parties are working cooperatively
together to manage this short term cash flow shortfall. The Company is, as well,
actively seeking the refinancing of its $21,600,000 promissory notes and its
$3,000,000 revolving line of credit. If the Company is not successful in
refinancing the $21,600,000 notes, it will seek an extension of the due date to
the notes. The Company has received a term sheet from a financial institution in
the amount of $4,000,000 to replace its expiring revolving line of credit. The
Company believes that it will secure another such replacement financing
arrangement in 1999 for the revolving line of credit. No assurance can be given
that the Company will be able to complete the refinancings, obtain an extension
of the notes or that the Company's creditors will not attempt to enforce legal
remedies available to them.
25
<PAGE>
Debt increased by $5,954,000 to $61,228,000 at September 30, 1998 compared
to $55,274,000 at June 30, 1998. The increase was due primarily to the financing
of Village Farms of Presidio L.P., a subsidiary of APD, greenhouse project Phase
I and seasonal working capital financing needs at September 30, 1998.
The Company expects to incur administrative, business development and
commercialization expenditures in the future as it advances the development,
manufacturing and marketing of its Bio-Blast and Bio-Save products, and other
select development programs in its bio-technology operations. In addition, the
Company expects to incur incremental costs associated with its plans to expand
productive capacity and product lines offerings. The Company may also use cash
to acquire technology, products or companies that support the strategy of the
Company.
The Company believes that its $2,256,000 of cash and cash equivalents and
$385,000 of short-term investments as of September 30, 1998, along with revenues
from product sales, and funds available under our revolving lines of credit,
$3,322,000 as of September 30, 1998 (as of March 6, 1999, funds available under
our lines of credits are $107,000; due to the Company's continued financial
covenant default on debt due to the Company's primary lender, the Company is
prohibited from obtaining further advances under that credit facility until that
default is cured) will be sufficient to fund the Company's working capital
needs, planned capital expenditures, and to service its indebtedness through
September 30, 1999, provided that the Company can resolve its short term cash
flow shortfall and refinance its $21,600,000 promissory notes due on June 30,
1999 and its $3,000,000 line of credit due March 31, 1999. The Company will need
to raise additional funds to finance its ongoing operations, current debt
obligations and expected growth after September 30, 1999. The Company is
currently endeavoring to raise debt and equity financing, and is considering
restructuring its senior credit facility with its lenders. In addition, if the
Company is not successful in refinancing the $21,600,000 notes, it will seek an
extension of the due date to the notes. No assurance can be given that the
Company will be able to complete the refinancings, obtain an extension of the
notes, the Company's creditors will not attempt to enforce legal remedies
available to them or that the Company can restructure its senior credit
facility.
EFFECTS OF THE RESTATEMENT
As described above (see RESTATEMENT, and Note 7 - Restatement), the Company
has restated certain financial results, the primary effects of which are as
follows:
Effects on the Consolidated Statement of Operations for the Three Months
Ended September 30, 1998
---------------------------------------------------------------------------
Gross loss decreased $388,000 to a gross loss of $1,324,000, primarily as a
result of a reduction of cost of revenue of $391,000 to $10,032,000, which
principally resulted from adjustments which reduced the value of inventory
as of June 30, 1998 and accrual of certain inventory costs as of June 30,
1998, originally recorded in the quarter ended September 30, 1998. Gross
loss percentage decreased by approximately 4% to a 15% gross loss,
primarily as a result of these adjustments.
26
<PAGE>
Selling, general and administrative expenses decreased by $213,000 to
$3,671,000 and interest expense, net decreased by $294,000 to $946,000,
both expense reductions were primarily due to accruals of costs as of June
30, 1998, originally recorded in the quarter ended September 30, 1998.
Minority interest in the net loss of the consolidated limited partnerships
decreased by $542,000 to $2,151,000, primarily as a result of the net of
the adjustments described above. Net loss decreased by $318,000 or $0.03
per diluted share to a net loss of $3,892,000 or $0.33 per diluted share.
Effects on the September 30, 1998 Consolidated Balance Sheet
---------------------------------------------------------------------------
The Company classified $1,911,000 as assets held for sale, originally
recorded as property, plant and equipment, net, as a result of the
Company's endeavors to sell one of its greenhouse facilities (See Note 8 -
Subsequent Events - Pocono Village Farms, L.P. Operations). In addition,
the Company classified $1,838,000 as a note receivable, originally recorded
as other current assets; which was the primary cause of the reduction of
other current assets of $1,864,000 to $1,684,000. Due to the Company being
in default on its debt owed to its primary lender, the Company classified
$44,488,000 as current portion of long-term debt and capital leases,
originally recorded as long-term debt and capital leases, less current
maturities (see Note 5 - Debt).
Effects on the June 30, 1998 Consolidated Balance Sheet
---------------------------------------------------------------------------
Cash and cash equivalents decreased by $1,419,000 to $1,189,000 and
accounts payable decreased $1,815,000 to $5,080,000, primarily as a result
of the recording of disbursements at June 30, 1998. The Company classified
$1,911,000 as assets held for sale and $1,838,000 as a note receivable for
the same reason cited as of September 30, 1998, above. Other current assets
decreased by $2,183,000 to $2,411,000, primarily as a result of the
classification of $1,838,000 as a note receivable. Property, plant and
equipment, net increased $2,568,000 to $53,136,000, net of the $1,911,000
classification of assets held for sale, primarily due to construction cost
accruals identified. Short-term borrowings increased $1,957,000 to
$7,148,000, accrued expenses and other current liabilities increased
$2,454,000 to $7,118,000, other non-current liabilities increased
$1,423,000 to $4,387,000, and minority interests in limited partnerships
decreased by $1,364,000 to $7,277,000, primarily as a result of adjustments
and accruals identified. Accumulated deficit increased by $1,304,000 to a
deficit of $57,259,000 and additional paid-in capital increased by
$1,366,000 to $57,509,000, primarily as a result of the reclassification of
APD and certain APD subsidiaries to C Corporation from S Corporation
status.
27
<PAGE>
Effects on the Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1997
---------------------------------------------------------------------------
As a result of an audit of APD as of and for the twelve months ended June
30, 1998, certain adjustments were made to the Company's pooled
Consolidated Balance Sheet as of June 30, 1997, which effected the
Consolidated Statement of Cash Flows for the Three Months Ended September
30, 1997.
SEASONALITY
The timing of the Company's operating revenues may vary as a result of the
seasonal nature of our businesses. In addition, operating revenues may be
affected by the timing of new production capacity, crop cycles, crop yields, new
product launches, acquisitions, sales orders, sales product mix and other
economic factors. Operating revenues may be concentrated in the first and second
calendar quarters as a result of the Company's and the North American growing
and harvesting seasons. The Company believes that the historical trend in
revenues is such that revenues for the first and second calendar quarters of
each year are generally higher than the revenues in the third and fourth
calendar quarters; although, there can be no assurance that this will occur in
future periods. Accordingly, quarterly or other interim results should not be
considered indicative of results to be expected for any other quarter or for the
full fiscal year.
FULFILLMENT OF NASDAQ LISTING REQUIREMENTS
The National Association of Securities Dealers, Inc., has among its
continued listing requirements three criteria, fulfillment of any one of which
qualifies an issuer for continued listing on the Nasdaq SmallCap Market. An
issuer must have (i) net tangible assets of at least $2,000,000; (ii) a market
capitalization of at least $35,000,000; or (iii) net income for the last fiscal
year or for two of the last three fiscal years of at least $500,000.
Results for the period ended September 30, 1998, indicate that the Company
no longer meets the net tangible assets test. In addition, the Company does not
meet the minimum net income test. As of March 12, 1999, 12,619,264 shares of the
Company's Common Stock were outstanding. The reported closing price of the
Company's Common Stock on March 12, 1999 was $3.00, resulting in a market
capitalization of approximately $37,858,000. It is possible that the Company may
not be able to maintain the required level of market capitalization due to
possible fluctuations in the market price for its Common Stock, which may result
in Nasdaq's delisting of the Common Stock from the Nasdaq SmallCaps Market.
YEAR 2000
The Company has initiated an in-house assessment of Year 2000 ("Y2K")
issues as they relate to the Company's information technology ("IT") and non-IT
systems. The
28
<PAGE>
Company has completed its assessment of all computer hardware. The Company has
determined that 95% of the Company's hardware is free of Year 2000 problems. The
Company estimates that the replacement cost of non-compliant computer hardware
will be approximately $10,000. This amount is budgeted for the second quarter of
calendar 1999. The Company expects that all computer hardware will be fully
compliant by September 1, 1999.
The Company has identified six software applications critical to the
Company's operations. All such packages were purchased from third-party vendors.
Four software applications comprise the Company's accounting applications. The
software vendors for two of these applications have certified the packages to be
Y2K compliant. The other two applications shall be Y2K compliant by the end of
the second quarter of calendar 1999. The Company is in the process of creating
test plans for all accounting applications. The Company expects to complete such
compliance testing by July 31, 1999.
The Company's assessment of software applications relating to
communications with business partners is 50% complete. All such applications
assessed to date are Y2K compliant. The Company expects to complete its
assessment of such applications by the end of the second quarter of calendar
1999. The Company's remaining critical software applications relate to the
operations of the Company's greenhouse facilities. The Company is awaiting a Y2K
assessment and certification from the third party vendors who maintain such
software. Such assessment and the resulting certification or maintenance is
scheduled for completion by the end of the second quarter of calendar 1999.
In addition to the above referenced IT systems, the Company is currently
assessing its non-IT systems including its telecommunications and security
systems. This assessment of non-IT systems is 85% complete. To date, the Company
has discovered no Y2K problems. The Company expects that all non-IT systems
shall be Y2K compliant by the end of the second quarter of 1999.
The Company has contacted all of its critical vendors and customers, and
has provided each such vendor and customer with a questionnaire relating to its
respective Y2K compliance. To date, the Company has received completed
questionnaires relating to approximately 15% of such vendors and customers.
Vendors or customers that have not returned a completed questionnaire will be
pursued for a response. Upon its receipt of the remaining questionnaires, the
Company, with appropriate participation by each of its divisions, shall create a
Y2K contingency plan which will provide for vendor supply and customer base
adaptations necessitated by Y2K non-compliance by such parties.
To date, the only anticipated Y2K costs to the Company will relate to the
replacement of non-compliant computer hardware and upgrades of software. The
cost of upgrading current software to become Y2K compliant is expected to be
less than $10,000. The Company does not expect to incur Y2K assessment and
compliance costs, as such assessments and compliance are performed by Company
personnel.
The Company's primary risks relating to Y2K non-compliance consist of its
dependence upon computer hardware and software, its highly computerized
greenhouse facilities, and its dependence upon various transportation vendors to
move the Company's products to market. As discussed previously, the Company
believes that the risks associated
29
<PAGE>
with computer hardware and software will be minimal. The Company's potential
risks associated with its computerized greenhouse operations are extensive. The
greenhouse facilities utilize computers to control water, sunlight, carbon
dioxide and temperature. The costs of non-compliant control systems would be
considerable. The Company is currently working with the vendors of such 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 Y2K
corrections at minimal cost to the Company. Finally, the Company's trucking
contractors are among those surveyed for Y2K compliance. The Company will assess
the risks associated with noncompliance among those contractors and will provide
for the use of alternative transportation sources in its Y2K contingency plan as
necessary.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. Such forward looking statements are not historical facts but rather are
based on current expectations, estimates and projections about our industry, our
beliefs, and assumptions. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and variations of such words and
similar expressions are intended to identify such forward looking statements.
These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and other factors, some of which are beyond our
control, that are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in such forward looking
statements. Such risks and uncertainties include those described in the
Company's filings with the Securities and Exchange Commission and elsewhere in
this report and include, but are not limited to regulatory uncertainty, level of
demand for the Company's products and services, product acceptance, industry
wide competitive factors, seasonality factors, timing of completion of major
equipment projects, political, economic or other conditions, and the results of
the merger in terms of achieving effective operations, market acceptance and
corporate position. Furthermore, market trends are subject to changes which
could adversely affect future results. Readers are cautioned not to place undue
reliance on these forward looking statements, which reflect management's view
only as of the date of this report. The Company undertakes no obligation to
update such statements or publicly release the result of any revisions to these
forward looking statements that we may make to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
30
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Merger may affect the following aspects of the Company's operations:
(i) changes in the Company's debt to equity ratio; (ii) costs associated with
the transaction and restructuring changes; (iii) market risk; and (iv) credit
risk.
The Merger changed the Company's debt to equity ratio from minor to
significant, which could expose the Company to, among other things, risks
associated with interest rate fluctuations. Based on the consolidated balance
sheet as of September 30, 1998, the Company is highly leveraged as a result of
debt levels and the stockholders deficit of $3,912,000. Additional and
unanticipated expenses may be incurred relating to the integration of the
businesses of the Company and APD, including sales and marketing, and
administrative functions. Although the Company and APD expect that the
elimination of duplicative expenses, as well as other efficiencies related to
the integration of their respective businesses may offset additional expenses
over time, there can be no assurance that such net benefit will be achieved in
the near term or at all.
The Company is subject to a number of risks similar to those of other
companies in similar stages of development, including but not limited to history
of losses, requirement of additional financing, substantial debt and the default
under certain loan agreements, markets in which we compete are highly
competitive, share price of our common stock may be volatile, extensive
government regulation of our business segments, patent position is uncertain and
our success depends on our proprietary rights, manufacturing risks, dependence
on key personnel, ability to continue to meet NASDAQ Listing Requirements, Year
2000 compliance, possibility of product liability claims, no intent to pay
dividends in the foreseeable future, operating results may fluctuate
significantly, possibility of being affected by crop disease and pestilence,
perishability of goods, weather and other events could affect our crop yields
and damage our greenhouse structures, crop cycles, timing of harvesting and
bringing the crop to market, sensitivity to price increases in raw materials,
risks related to the leasing of some of our greenhouse facilities, dependence on
certain corporate relationships and concentrations in customers and suppliers,
risks related to our growth strategy, changing market trends, the necessity to
develop, register and manufacture commercially usable products, the ability to
achieve profitable operations, the impact of supply and demand on market prices
for products produced and sold, the need to raise additional funds through
public or private debt or equity financing, especially due to the substantial
amount of capital investment required for greenhouse operations, current debt
obligations, the success of the Company to achieve an effective merged entity
and the result of that entity in terms of achieving effective operations, market
acceptance and corporate position, our directors and executive officers own a
significant percentage of our capital stock, and a substantial sale of shares
may impact the market price of our common stock. All these factors could
adversely affect future results and shareholders value.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of accounts receivable and other
receivables. The Company primarily invests its available funds into United
States Government securities as well as investments with high quality financial
institutions. The Company performs ongoing evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The
31
<PAGE>
Company maintains reserves and allowances for potential credit losses; which to
date, such credit losses have been insignificant and within management's
expectations. The merged entity is subject to a higher level of risk of this
nature due to the higher level of business activity and a higher level of
customer concentration.
32
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
In connection with the Merger, on September 30, 1998 the Company
issued 9,421,487 shares of the Company's Common Stock $0.01 par value
(the "Merger Shares"), to the holders of the Class A Common Stock,
$1.00 per share, of Agro Power Development, Inc., a New York
corporation ("APD"). Pursuant to the Merger, APD merged with and into
Agro Acquisition Corporation, a wholly owned subsidiary of the
Company. Agro Acquisition Corporation subsequently changed its name to
Agro Power Development, Inc.
Also in connection with the Merger, on September 30, 1998 the Company
issued 33,000 shares of the Company's Common Stock, $0.01 par value
(the "Moroccan shares"), to each of Michael A. DeGiglio, Thomas
Montanti and Albert Vanzeyst (together the "Moroccan Shareholders") in
exchange for the Moroccan Shareholders' 50% interest in Village Farms
of Morocco, S.A., a Moroccan company. The Merger Shares and Moroccan
Shares were issued to the APD Shareholders pursuant to an exemption
under section 4(2) of the Securities Act of 1933, as such issuances
did not involve any public offering.
Item 3. Defaults Upon Senior Securities
(i) On September 30, 1998, the Company no longer met the minimum
tangible net worth covenant imposed by a revolving line of credit
from a Bank, was therefore in default, and as a result, the
Company and the Bank entered into a forbearance agreement as of
November 12, 1998 and three extensions thereto, under which the
Bank agreed to conditionally forbear from exercising its rights
and remedies as a result of the default until March 31, 1999.
On November 24, 1998, the Bank notified the Company of its
intention to terminate the revolving line of credit on December
28, 1998. The Company and the Bank have agreed to three
extensions to the credit facility which extend the maturity date
to March 31, 1999.
The Company and the Bank have also agreed to the following
modifications of the credit facility pursuant to the extensions
of the
33
<PAGE>
maturity date and forbearance period: (i) reduction the
$1,200,000 inventory based borrowing limit by $40,000 each week
commencing the week of January 28, 1999 and (ii) an increase in
the interest rate to prime plus 5.0%. See Note 5 - Debt, and
Liquidity and Capital Resources for additonal information.
(ii) On December 1, 1998, a Lender informed the Company that due to
certain events of defaults certain actions were taking place
effective immediately as provided in the Credit Facility. The
events of default included (i) the Company's default on certain
interest and administrative fee payments, (ii) the Company's
Underlying Borrowers' were in principal and interest payment
default with the Company and (iii) APD was in default on the
financial covenants contained in the guaranty of the Credit
Facility relating to a ratio of equity to senior long-term debt
which required a minimum ratio of 25%. The letter of default
referred to interest and fee defaults totaling approximately
$1,004,000. Following the receipt of the letter, further debt
service payment defaults occurred including additional interest
and principal payment defaults on December 31, 1998 for Term
Loans. In December 1998, the Company began to make debt service
payments to cure the payment defaults identified in the December
1, 1998 letter. The final installment of approximately $460,000
of these series of payments, totaling approximately $2,005,000 in
the aggregate, was made on February 12, 1999, which brought the
Company and the Underlying Borrowers into full principal and
interest compliance under the Credit Facility. However, APD and
the Underlying Borrowers still remain in violation of certain
financial covenants. The Credit Facility Lender expressly stated
in the December 1, 1998 letter of default, that it was not
exercising its right under the Credit Facility to accelerate
payment of all outstanding amounts; however, it was reserving its
right to do so. In addition, due to the Company still being in
default, the Company is prohibited from obtaining further
advances until all default events are cured. See Note 5 - Debt,
and Liquidity and Capital Resources for additonal information.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Stockholders in Lieu of the Annual Meeting of
Stockholders of the Company was held on September 10, 1998. The
stockholders elected Michael A. DeGiglio and David J. Ryan to the
class of Directors whose terms expire at the 2000 Annual Meeting. The
tabulation of votes with respect to the election of such directors is
as follows:
<TABLE>
<CAPTION>
Total Votes Withheld
Total Votes for Each Director From Each Director
----------------------------- ------------------
<S> <C> <C>
Michael A. DeGiglio 8,530,538 1,344,902
David J. Ryan 8,334,998 1,540,442
</TABLE>
The stockholders approved the issuance of 9,520,487 shares (after
giving effect to the approved reverse stock split referenced below) of
the Company's
34
<PAGE>
Common Stock to the holders of the Class A Common Stock of APD
pursuant to the Merger, with 5,576,060 shares voted in favor of the
issuance, 851,850 shares voted against the issuance and 35,630 shares
abstaining.
The stockholders approved an amendment to the Company's Certificate of
Incorporation to effect a one for five reverse stock split of the
Company's Common Stock, with 5,906,738 shares voted in favor of the
reverse split, 528,429 shares votes against the reverse split and
28,373 shares abstaining.
The Stockholders approved an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock from 25,000,000 shares to 100,000,000 shares,
and to increase the number of authorized shares of the Company's
Preferred Stock from 1,000,000 shares to 10,000,000 shares, with
5,526,405 shares voted in favor of the amendment, 890,076 shares voted
against the amendment and 47,059 shares abstaining.
The Stockholders approved and ratified an amendment to the Company's
1991 Stock Option Plan to increase the number of shares of Common
Stock which may be granted under the 1991 Stock Option Plan from
1,300,000 shares to 1,800,000 shares (without giving effect to the
reverse stock split referenced above), with 8,666,915 shares voted in
favor of the amendment, 1,138,850 shares voted against the amendment
and 69,675 shares abstaining.
The stockholders ratified the selection of Arthur Andersen, LLP as the
Company's independent public accountants for the current fiscal year,
with 9,745,420 shares voted in favor of such ratification, 104,340
shares voted against such ratification and 25,680 shares abstaining.
Item 5. Other Information
The Company has amended its By Laws to change its Fiscal Year end from
the twelve month period ended June 30 to a 52/53 week fiscal year. The
year end date of such fiscal year shall be on the Sunday nearest
December 31, of each year. For the transition period the fiscal year
end date will be January 3, 1999.
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<PAGE>
ECOSCIENCE CORPORATION
EXHIBIT INDEX
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Exhibit
Number Description
- ------- ----------------------------------------------------------------------
10.60 Agreement Regarding Future Projects between Cogentrix Energy, Inc. and
Agro Power Development, Inc., effective as of February 6, 1996. * #
10.61 Ground Lease dated September 4, 1997 between the Buffalo Enterprise
Development Corporation and Agro Power Development, Inc. #
10.62 Commercial Greenhouse Lease and Operating Agreement dated July 22,
1992 between Oxbow Power of North Tonawanda, New York, Inc. and
Village Farms of Wheatfield, Inc. * #
10.63 Operating Agreement dated as of November 14, 1997 between Greenhost,
Inc. and Village Farms of Virginia, Inc for Birchwood, Virginia
greenhouse facility. * #
10.64 Lease Agreement dated as of September 21, 1993 between Cogentrix of
Pennsylvania, Inc. and Keystone Village Farms, Inc. for Ringgold,
Pennsylvania greenhouse facility. * #
10.65 Amended Ground Lease effective March 14, 1997 between the Presidio
County Commissioners Court and Agro Power Development, Inc. #
10.66 Lease Agreement dated as of January 29, 1998 between Ripe Touch
Greenhouses, Inc., and Village Farms of Colorado, Inc. * #
10.67 Agreement of Limited Partnership of Village Farms of Texas, L.P.,
dated as of February 6, 1996. * #
10.68 Marketing and Sales Agreement between Village Farms, LLC and Village
Farms of Texas, L.P., dated February 13, 1996. #
36
<PAGE>
Exhibit Exhibit
Number Description
- ------- ----------------------------------------------------------------------
10.69 Management, Operating and Maintenance Contract between Village Farms
of Delaware LLC and Village Farms of Texas, LP dated February 13,
1996. #
10.70 Agreement of Limited Partnership of Pocono Village Farms, L.P., dated
as of March 10, 1997. #
10.71 Agreement of Limited Partnership of Village Farms of Marfa, L.P.,
dated as of June 4, 1997. * #
10.72 Management, Operating and Maintenance Contract between Village Farms
of Marfa and Village Farms of Delaware, LLC, dated June 4, 1997. #
10.73 Marketing and Sales Agreement between Village Farms of Marfa, L.P. and
Village Farms of Delaware dated June 4, 1997. #
10.74 Amended and Restated Agreement of Limited Partnership of Village Farms
of Buffalo, L.P., dated as of September 4, 1997. * #
10.75 Management, Operating and Maintenance Contract between Village Farms
of Delaware and Village Farms of Buffalo, dated September 4, 1997 and
amendment thereto dated as of April 17, 1998. #
10.76 Marketing and Sales Agreement between Village Farms of Delaware and
Village Farms of Buffalo, L.P. dated September 4, 1997. #
10.77 Management, Operation, Maintenance, Marketing and Sales Agreement
between Pocono Village Farms, L.P. and Village Farms of Delaware. #
10.78 Marketing Agreement by and between Foster Farms, Inc. and Agro Power
Development, Inc. dated January 1, 1995. * #
10.79 Credit Agreement (Line of Credit Facility) by and between CoBank, ACB,
as Agent and as a Syndication Party and Village Farms International
Financing Association dated as of June 24, 1997. #
10.80 Promissory Note (Line of Credit Facility) of Village Farms
International Financing Association dated June 24, 1997 in principal
amount of $10,000,000. #
10.81 First Amendment to Credit Agreement (Line of Credit Facility)
[Regarding EcoScience Merger] by and between Village Farms
International Finance Association and CoBank, ACB dated September 29,
1998. #
37
<PAGE>
Exhibit Exhibit
Number Description
- ------- ----------------------------------------------------------------------
10.82 Second Amendment to Credit Agreement (Line of Credit Facility) by and
between CoBank, Village Farms International Finance Association and
Agro Power Development Inc. dated September 29, 1998. #
10.83 Line of Credit Security Agreement by and between Village Farms
International Finance Association, and CoBank, ACB dated June 24, 1997
with a line of credit of $10,000,000. #
10.84 Credit Agreement (Construction Loan Funding) by and between CoBank,
ACB as Agent and Syndicated Party and Village Farms International
Financing Association dated as of June 24, 1997. #
10.85 First Amendment to Credit Agreement (Construction Loan Funding)
[Regarding EcoScience Merger] by and between Village Farms
International Finance Association and CoBank, ACB dated September 29,
1998. #
10.86 Promissory note (Construction Loan Funding) of Village Farms
International Financing Association dated June 24, 1997 in principal
amount of $30,000,000. #
10.87 Construction Loan Security Agreement by and between Village Farms
International Finance Association, and CoBank, ACB dated June 24,
1997. #
10.88 Credit Agreement (Term Loan Funding) by and between CoBank, ACB as
Agent and Syndication Party and Village Farms International Financing
Association dated as of June 24, 1997. #
10.89 Promissory Note (Term Loan Funding) of Village Farms International
Financing Association dated June 24, 1997 in principal amount of
$50,000,000. #
10.90 Guaranty of Agro Power Development, Inc. dated as of June 24, 1997 to
Construction Lenders, Term Lenders and Line of Credit Lenders. #
10.91 First Amendment to Credit Agreement (Term Loan Funding) [Regarding
EcoScience Merger] by and between Village Farms International Finance
Association and CoBank, ACB dated September 29, 1998. #
10.92 Second Amendment to Credit Agreement (Term Loan Funding) by and
between CoBank, Village Farms International Finance Association and
Agro Power Development Inc. dated September 29, 1998. #
38
<PAGE>
Exhibit Exhibit
Number Description
- ------- ----------------------------------------------------------------------
10.93 Term Loan Security Agreement by and between Village Farms
International Finance Association, and CoBank, ACB dated June 24,
1997. #
10.94 Amendment to Loan Documents by and between CoBank, Village Farms
International Finance Association and Agro Power Development, Inc.
dated September 29, 1998. #
10.95 First Amendment to Guarantor Security and Pledge Agreement [Regarding
EcoScience Merger] by and between Agro Power Development, Inc. and
CoBank, ACB dated September 29, 1998. #
10.96 First Amendment to Guaranty of Agro Power Development, Inc. [Regarding
EcoScience Merger] by and between Agro Power Development, Inc. and The
Lender Group dated September 29, 1998. #
10.97 Promissory Note dated March 7, 1997 issued to Cogentrix Energy, Inc.
in the principal amount of $643,197. #
10.98 Promissory Note dated January 31, 1997 issued to Village Farms of
Texas, L.P. in the principal amount of $1,838,420 by Cogentrix Energy,
Inc. #
10.99 Agreement of Limited Partnership of Village Farms of Presidio, L.P.
dated as of August 31, 1998. #
10.100 Commercial Greenhouse Design and Construction Contract between Agro
Power Development and Dalsem Kassenbouw B.V. dated as of August 31,
1998. #
10.101 Commercial Design and Construction Contract between Village Farms of
Presidio, L.P. and Agro Power Development, Inc. dated as of August 31,
1998. #
10.102 Commercial Packing House Design and Construction Contract dated July
10, 1998 between Agro Power Development, Inc. and NC Sturgeon, Inc. #
10.103 Marketing and Sales Agreement between Village Farms of Presidio, L.P.
and Village Farms, Inc. dated as of August 31, 1998. #
10.104 Management, Operation and Maintenance Contract dated as of August 31,
1998 among New Amsterdam Joint Venture, L.L.C. and Village Farms of
Presidio, L.P. #
39
<PAGE>
Exhibit Exhibit
Number Description
- ------- ----------------------------------------------------------------------
10.105 $1,375,000 Promissory Note and Security Agreement dated March 10, 1997
among Agro Power Development, Inc., Village Farms of Delaware LLC,
Village Farms LLC and Cogentrix Delaware Holdings, Inc. #
10.106 Loan Agreement by and between Pocono Village and First Pioneer Farm
Credit, ACA, dated March 5, 1997. #
10.107 Installment Promissory Note for $2,200,000.00 from Pocono Village to
First Pioneer Farm Credit, ACA, dated March 10, 1997. #
10.108 Construction Loan Agreement between Pocono Village and First Pioneer
Farm Credit, dated March 10, 1997. #
10.109 Security Agreement between Pocono Village and First Pioneer Farm
Credit, ACA, dated March 10, 1997. #
10.110 Agreement dated July 1, 1998 between Agro Power Development, Inc. and
The Greenery International. * #
10.111 Employment Agreement dated June 8, 1998 between Agro Power
Development, Inc. and David M. Suchniak. #
10.112 Stock Purchase Agreement (dated as of December 7, 1998), Stock Pledge
Agreement (dated December 30, 1998) and Registration Rights Agreement
(dated December 30, 1998) by and among the Registrant and Cogentrix
Delaware Holdings, Inc., and a $20,600,000 Promissory Note from the
Registrant to Cogentrix Delaware Holdings, Inc. (dated December 30,
1998), relating to an acquisition by the Registrant [incorporated by
reference to Exhibit 10.112 to the Registrant's Form 8-K dated
December 7, 1998].
10.113 Amendment to Loan Documents dated February 26, 1999, by and among the
Registrant, EcoScience Produce Systems Corp., Agro Dynamics, Inc.,
Agro Dynamics Canada, Inc. and Silicon Valley Bank. [filed herewith]
10.114 First Amendment to the Registration Rights Agreement as of March 11,
1999 by and among the Registrant and Cogentrix Delaware Holdings, Inc.
(originally filed as part of the Stock Purchase Agreement between the
parties, dated as of December 7, 1998, as Exhibit 10.112 to the
Registrant's Form 8-K dated December 7, 1998). [filed herewith]
27 Financial Data Schedule as of and for the Three Months Ended September
30, 1998. [filed herewith]
* Information has been omitted from this exhibit and is subject to
a request for confidential treatment.
# Filed with the original filing of this report.
(b) Reports on Form 8-K
(1) Report dated September 30, 1998, describing changes in control of
Registrant, as a result of the issuance of the Registrant's Common
Stock
40
<PAGE>
pursuant to the Merger with Agro Power Development, Inc. ("APD") into
Agro Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of the Registrant (the "Subsidiary"). Pursuant to the
Merger Agreement among the Registrant, APD and the Subsidiary (i) on
September 30, 1998, all outstanding shares of APD stock were converted
into the right to receive in the aggregate 9,421,487 shares of the
Registrant's Common Stock (the "Conversion Shares"); and (ii) the
Registrant issued 99,000 shares (the "Moroccan Shares") of the
Registrant's Common Stock to three APD stockholders in exchange for
their 50% interest in Village Farms of Morocco, S.A., a Moroccan
Company. Together, the Conversion Shares and the Moroccan Shares then
represent 75.9% of the Registrant's Common Stock. The report also
incorporated a press release dated October 1, 1998, that referred to
the finalization of the merger between the Registrant and Agro Power
Development, Inc.
41
<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: March 15, 1999 By: /s/ Michael A. DeGiglio
---------------------------------
Michael A. DeGiglio
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 15, 1999 By: /s/ Harold A. Joannidi
-------------------------------------
Harold A. Joannidi
Vice President of Compliance
(Principal Accounting Officer)
42
--------------------------------------------------------------
ECOSCIENCE CORPORATION
EXHIBIT 10.113
- --------------------------------------------------------------------------------
Silicon Valley Bank
Amendment to Loan Documents,
Forbearance Agreement and
Notification of Termination
Borrower: EcoScience Corporation
EcoScience Produce Systems Corp.
Agro Dynamics, Inc.
Agro Dynamics Canada Inc.
Date: February 26, 1999
THIS AMENDMENT TO LOAN DOCUMENTS, FORBEARANCE AGREEMENT AND NOTIFICATION OF
TERMINATION is entered into between SILICON VALLEY BANK ("Silicon") and the
borrower named above (jointly and severally, "Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated April 28, 1997, as amended from time to time (as amended, the "Loan
Agreement"), as follows, effective as of the date hereof. The Parties also agree
to amend the Forbearance Agreement between them dated November 28, 1998 (the
"Forbearance Agreement") "), as follows, effective as of the date hereof.
(Capitalized terms used but not defined in this Amendment, shall have the
meanings set forth in the Loan Agreement.)
1. Modification to Forbearance Period. The Forbearance Period (as defined
in the Forbearance Agreement) is hereby extended from February 28, 1999 to March
31, 1999.
2. Modification of Section 6.1. Section 6.1 of the Loan Agreement is hereby
amended in its entirety to read as follows, which amendment shall be deemed
effective as of the date hereof:
"6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"), which as of
the date hereof is March 31, 1999."
-1-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-------------------------------------------------------------------
3. Modified Maturity Date. Section 4 of the Schedule to Loan and Security
Agreement is hereby amended to read as follows:
"4. Maturity date (Section 6.1): March 31, 1999, subject to early
termination as provided in Section 6.2 above."
4. Modification to Credit Limit. The Credit Limit set forth in Section 1 of
the Schedule to Loan and Security Agreement is hereby amended to read as follows
(provided that no changes are being made to the subsections thereof entitled
"Letter of Credit Sublimit (Section 1.5)" or "Foreign Exchange Contract
Sublimit"):
"1. Credit Limit
(Section 1.1): An amount not to exceed the lesser of a total of
$3,000,000 at any one time outstanding (the
"Overall Credit Limit"), or the sum of (a) and
(b) below:
(a) 85% of the amount of Borrower's Eligible
Receivables (as defined in Section 8
above), plus
(b) an amount not to exceed the lesser of:
(1) the percentages of the value of
Borrower's Eligible Inventory (as
defined in Section 8 above) set forth
on Exhibit A hereto, calculated at the
lower of cost or market value and
determined on a first-in, first-out
basis, or
(2) 66.67% of the amount of outstanding
Loans against Borrower's Receivables;
or
(3) $1,040,000;
provided, however, such limitation amount
calculated in this clause (b) (regardless
of whether such amount is determined by
clause (b)(1), clause (b)(2) or clause
(b)(3)) shall be further reduced by an
additional $40,000 each week commencing the
week of March 1, 1999.
Loans will be made to each Borrower based on the
Eligible Receivables and Eligible Inventory of
each Borrower, subject to the Overall Credit
Limit set forth above for all Loans to all
Borrowers combined."
5. Fee. Borrower shall pay to Silicon a fee of $2,500 in connection with
this Amendment, which is in addition to all other amounts payable under the Loan
Agreement and which is not refundable.
6. Notification of Termination. This will serve as formal notification to
Borrower (and each Guarantor) that Silicon has decided to terminate the Loan
Agreement, effective on March 31, 1999 (the "Termination Date"), in accordance
with the terms of the Loan Agreement. As provided in the Loan Agreement, all of
the "Obligations" (as defined in the Loan Agreement)
-2-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-------------------------------------------------------------------
are to be paid in full on the Termination Date, and termination does not in any
way affect or impair any of Silicon's rights or remedies, nor does termination
relieve Borrower (or any Guarantor) of any Obligation to Silicon until all of
the Obligations have been paid and performed in full.
7. Representations True. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement and the
Forbearance Agreement, each as amended hereby, are true and correct.
8. General Provisions. This Amendment, the Loan Agreement, the Forbearance
Agreement, any prior written amendments to the Loan Agreement or the Forbearance
Agreement signed by Silicon and Borrower, and the other written documents and
agreements between Silicon and Borrower set forth in full all of the
representations and agreements of the parties with respect to the subject matter
hereof and supersede all prior discussions, representations, agreements and
understandings between the parties with respect to the subject hereof. Except as
herein expressly amended, all of the terms and provisions of the Loan Agreement
and the Forbearance Agreement, and all other documents and agreements between
Silicon and Borrower shall continue in full force and effect and the same are
hereby ratified and confirmed.
Borrower: Silicon:
EcoScience Corporation SILICON VALLEY BANK
By /s/ Michael A. DeGiglio By /s/ Jack DeGroat
----------------------------------- ------------------------
President or Vice President Title Senior Vice President
By
----------------------------------
Secretary or Ass't Secretary
Borrower:
EcoScience Produce Systems Corp.
By /s/ Michael A. DeGiglio
---------------------------------
President or Vice President
By
----------------------------------
Secretary or Ass't Secretary
Borrower:
Agro Dynamics, Inc.
By /s/ Michael A. DeGiglio
----------------------------------
President or Vice President
By
----------------------------------
Secretary or Ass't Secretary
-3-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-------------------------------------------------------------------
Borrower:
Agro Dynamics Canada Inc.
By /s/ Michael A. DeGiglio
----------------------------------
President or Vice President
By
----------------------------------
Secretary or Ass't Secretary
-4-
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-------------------------------------------------------------------
CONSENT
The undersigned acknowledges that his consent to the foregoing Agreement is
not required, but the undersigned nevertheless does hereby consent to the
foregoing Agreement and to the documents and agreements referred to therein and
to all future modifications and amendments thereto, and any termination thereof,
and to any and all other present and future documents and agreements between or
among the foregoing parties. Nothing herein shall in any way limit any of the
terms or provisions of the Continuing Guaranty of the undersigned, all of which
are hereby ratified and affirmed.
EcoScience Corporation EcoScience Produce Systems Corp.
By /s/ Michael A. DeGiglio By /s/ Michael A. DeGiglio
---------------------------------- -------------------------------
President or Vice President President or Vice President
By By
---------------------------------- -------------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
Agro Dynamics, Inc. Agro Dynamics Canada Inc.
By /s/ Michael A. DeGiglio By /s/ Michael A. DeGiglio
---------------------------------- -------------------------------
President or Vice President President or Vice President
By By
---------------------------------- -------------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
ECOSCIENCE CORPORATION
EXHIBIT 10.114
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
This First Amendment to Registration Rights Agreement is made and entered
into as of March 11, 1999 by and among ECOSCIENCE CORPORATION (the "Company"), a
Delaware corporation and Cogentrix Delaware Holdings, Inc., a Delaware
corporation ("CDH").
WHEREAS, the Company and CDH have entered into a Registration Rights
Agreement dated as of December 30, 1998 (the "Registration Rights Agreement");
WHEREAS, the Company and CDH wish to amend certain provisions of the
Registration Rights Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Amendment of Agreement. The references to the date "March 16, 1999"
contained in Sections 2(a), 2(c) and 2(e)(i) of the Registration Rights
Agreement are hereby deleted and replaced with the date "June 15, 1999."
2. Representation of CDH. CDH hereby represents that it is the sole owner of
the Shares (as defined in the Registration Rights Agreement) and it has not
transferred or assigned any of such Shares or its rights under the
Registration Rights Agreement to any other party.
IN WITNESS WHEREOF, the parties have executed and delivered this First
Amendment to Registration Rights Agreement as of the date first above written.
ECOSCIENCE CORPORATION
By: /s/Michael A. DeGiglio
--------------------------------------------
Name: Michael A. DeGiglio
Title: President and Chief Executive Officer
COGENTRIX DELAWARE HOLDINGS, INC.
By: /s/ Thomas F. Schwartz
--------------------------------------------
Name: Thomas F. Schwartz
Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Company's Restated
Consolidated Balance Sheet as of September 30, 1998 and Restated Consolidated
Statement of Operations for the Three Months Ended September 30, 1998 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-3-1999
<PERIOD-END> SEP-30-1998
<CASH> 2,256
<SECURITIES> 385
<RECEIVABLES> 2,497
<ALLOWANCES> 507
<INVENTORY> 8,230
<CURRENT-ASSETS> 18,801
<PP&E> 59,764
<DEPRECIATION> 4,707
<TOTAL-ASSETS> 77,519
<CURRENT-LIABILITIES> 71,692
<BONDS> 1,304
0
0
<COMMON> 116
<OTHER-SE> (4,028)
<TOTAL-LIABILITY-AND-EQUITY> 77,519
<SALES> 8,708
<TOTAL-REVENUES> 8,708
<CGS> 10,032
<TOTAL-COSTS> 10,032
<OTHER-EXPENSES> 3,799
<LOSS-PROVISION> 237
<INTEREST-EXPENSE> 946
<INCOME-PRETAX> (6,043)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,043)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ($3,892)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
