UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED
JULY 2, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM to .
--------- ----------
Commission File Number
0-19746
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ECOSCIENCE CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 04-2912632
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
17 Christopher Way, Eatontown, New Jersey 07724
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(Address of principal executive offices)
(732) 676-3000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former fiscal year,
if changed since last report)
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: As of August 15, 2000, the
issuer had outstanding 12,887,882 shares of common stock, par value $.01 per
share.
<PAGE>
PART I. FINANCIAL INFORMATION
EcoScience Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
July 2, 2000 January 2, 2000
------------ ---------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 826 $ 1,246
Accounts receivable, less reserves of $480
at July 2, 2000 and $806 at January 2, 2000, respectively 4,195 7,672
Inventories 3,465 7,317
Other current assets 610 487
------- -------
Total current assets 9,096 16,722
------- -------
Property and equipment, net 54,788 56,941
Intangible assets, net 5,167 5,314
Other noncurrent assets 1,774 2,420
------- -------
Total assets $70,825 $81,397
======= =======
Liabilities and Stockholders' Deficit
Current liabilities:
Short-term borrowings $11,288 $16,094
Current maturities of long-term debt 59,177 59,005
Current obligations under capital leases 58 49
Accounts payable 6,091 8,433
Accrued expenses and other current liabilities 13,230 9,087
------- -------
Total current liabilities 89,844 92,668
------- -------
Noncurrent liabilities:
Long-term debt, less current maturities 15,984 16,191
Obligations under capital leases 287 322
Other long-term liabilities 787 787
------- -------
Total liabilities 106,902 109,968
------- -------
Minority interest 2,892 -
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.01 par value, 10,000,000 shares authorized;
333,333 issued and outstanding at July 2, 2000 and January 2, 2000 3 3
Common stock, $0.01 par value, 100,000,000 shares authorized; 12,887,882
issued and outstanding at July 2, 2000 and January 2, 2000 129 129
Additional paid-in-capital 55,662 55,662
Accumulated deficit (94,728) (84,372)
Accumulated other comprehensive (loss) income (35) 7
------- -------
Total stockholders' deficit (38,969) (28,571)
------- -------
Total liabilities and stockholders' deficit $70,825 $81,397
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
2
<PAGE>
EcoScience Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $12,673 $14,432 $28,322 $32,696
Cost of revenues 15,962 18,518 28,938 31,357
------- ------- ------- -------
Gross (loss) profit (3,289) (4,086) (616) 1,339
------- ------- ------- -------
Operating expenses:
Selling, general and administrative 2,433 3,146 4,854 6,776
Impairment charge 0 654 0 654
------- ------- ------- -------
Total operating expenses 2,433 3,800 4,854 7,430
------- ------- ------- -------
Operating loss (5,722) (7,886) (5,470) (6,091)
------- ------- ------- -------
Other (expense) income:
Interest, net (2,570) (2,421) (5,146) (5,092)
Other, net (19) 263 90 350
------- ------- ------- -------
Total other expense, net (2,589) (2,158) (5,056) (4,742)
------- ------- ------- -------
Loss before taxes and minority interest (8,311) (10,044) (10,526) (10,833)
Provision for income taxes 10 2 25 5
------- ------- ------- -------
Loss before minority interest (8,321) (10,046) (10,551) (10,838)
Minority interest 125 90 195 152
------- ------- ------- -------
Net loss ($8,196) ($9,956) ($10,356) ($10,686)
======= ======= ======= =======
Loss per share:
Basic and Diluted:
Loss per share ($0.63) ($0.79) ($0.80) ($0.85)
======= ======= ======= =======
Weighted average basic shares outstanding 12,888 12,619 12,888 12,619
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
EcoScience Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 2, 2000 July 4, 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($10,356) ($10,686)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,260 3,172
Minority interest in limited partnerships (195) (152)
Foreign exchange gain (3) (33)
Loss on sales of assets - 7
Impairment charge - 654
Changes in current assets and liabilities:
Accounts receivable, net 3,477 2,390
Inventories 3,852 4,425
Other current assets (123) 641
Other noncurrent assets (68) (237)
Accounts payable and accrued expenses 4,889 720
Other noncurrent liabilities - (1)
-------- --------
Net cash provided by operating activities: 4,733 900
-------- --------
Cash flows from investment activities:
Purchases of property and equipment (244) (661)
Proceeds from sale of assets - 2,266
Proceeds from sale of short-term investments - 127
-------- --------
Net cash (used in) provided by investing activities (244) 1,732
-------- --------
Cash flows from financing activities:
Net payment under line of credit (4,806) (1,297)
Payments on long-term debt and capital leases (61) (1,665)
-------- --------
Net cash used in financing activities (4,867) (2,962)
-------- --------
Effects of exchange rates on cash balances (42) 76
Decrease in cash and cash equivalents (420) (254)
Cash and cash equivalents at beginning of period 1,246 1,095
-------- --------
Cash and cash equivalents at end of period $ 826 $ 841
======== ========
Supplemental cash flow information
Cash paid for:
Interest 114 3,739
Income taxes 25 5
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 2, 2000 and July 4, 1999
(In thousands, except share data)
(UNAUDITED)
1. Operations
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its consolidated
limited partnership (collectively "APD"), Agro Dynamics, Inc. and its 51% owned
subsidiary Agro-Dan, Inc. (collectively, "AGRO") and EcoScience Produce Systems
Corp. ("EPSC") are primarily engaged in the production, marketing and sale of
premium grade tomatoes grown in intensive greenhouse facilities. In addition,
the Company markets, sells, develops and commercializes products for the
agricultural and biological industries.
The Company has suffered losses resulting in an accumulated deficit of $94,728
as of July 2, 2000. As of July 2, 2000, the Company is in default under its
Consolidated, Amended and Restated Loan Agreement (the "Loan Agreement") dated
as of January 2, 2000, which has resulted in approximately $53,886 of debt being
classified as current in the accompanying July 2, 2000 balance sheet which
otherwise would have been classified as long-term. This has resulted in
significant negative working capital. Management's plan is focused on raising
additional capital and improving the gross profit of all greenhouse operations
as a result of greater production, sales volumes and efficiency at each
greenhouse facility.
The Company believes that its $826 of cash and cash equivalents as of July 2,
2000, along with borrowings and revenues from product sales, will be sufficient
to fund the Company's working capital needs, planned capital expenditures and to
service its indebtedness through July 2, 2001, provided that the Company's
senior lender extends the maturity dates of certain payments under the Company's
credit facility and the Company can raise additional capital and resolve its
near term cash flow problems. The Company has engaged a financial advisor to
assist it in raising additional funds. No assurances can be given that the
Company will be able to raise additional capital or that the Company's creditors
will not attempt to exercise their legal remedies against the Company.
As of June 23, 2000 the operating agreement between Village Farms, L.P.
("Village Farms") and Greenhost, Inc. ("Greenhost") pursuant to which the
company leased and operated its Virginia greenhouse facility terminated. Village
Farms and Greenhost are in the process of finalizing the terms of a management
services agreement where Village Farms will manage the Virginia greenhouse and
will market the tomatoes produced under the Village Farms(R) brand name for a
term of approximately one year. Village Farms will not record any revenues or
expenses related to the sale of this product and will be paid a monthly
management fee for its services.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
2. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
by the Company and reflect all adjustments, consisting of only normal recurring
adjustments, which are, in the opinion of management, necessary for a fair
presentation of financial results for the twenty-six weeks ended July 2, 2000
and July 4, 1999, in accordance with generally accepted accounting principles in
the United States for interim financial reporting and pursuant to Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included
in the Company's annual audited consolidated financial statements have been
condensed or omitted pursuant to such rules and regulations.
The results of operations for the twenty-six weeks ended July 2, 2000 and July
4, 1999 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 year ended January 2, 2000, which are included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
5
<PAGE>
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.
3. Debt
Effective January 2, 2000, the Company restructured an existing $58,900 term
facility with CoBank, ACB ("CoBank") and closed on a new $13,400 working capital
line of credit which was funded in 1999. The maturity date of the term facility
is July 31, 2001, with a two-year extension under certain conditions. The line
of credit matured July 31, 2000. The interest rate is the CoBank National
Variable Rate plus 2%. Principal under the term facility is payable quarterly in
the amount of $5,000 per year with all principal due July 31, 2001. A $5,000
principal payment on the working capital line of credit was due on March 31,
2000. Principal payments on the term loan of $1,500 and $1,000 were due March
31, 2000 and June 30, 2000 respectively. On March 31, 2000, the Company made a
$2,500 payment and on April 25, 2000 made a $500 payment on the working capital
line of credit, which did not satisfy the required principal and interest
payments due CoBank on March 31, 2000 and accordingly is in violation of the
Loan Agreement. No other interest or principal payments have been made to
CoBank. CoBank has not elected to exercise remedies against the Company. The
Company is in the process of seeking replacement financing with a new lender. No
assurance can be given that the replacement financing will be found.
4. Joint Venture
In January 2000, the Company, through Agro Dynamics, Inc. ("ADI"), entered into
a joint venture agreement (the "Joint Venture") with Grodan A/S ("Grodan"), a
wholly owned subsidiary of Rockwool International A/S, pursuant to which it
formed Agro-Dan, Inc., a Delaware corporation, in which ADI owns a 51% interest
and Grodan owns a 49% interest. In March 2000, ADI contributed substantially all
of its assets and liabilities to the Joint Venture and Grodan assigned to ADI
its right to collect approximately $3 million under the distribution agreement
with ADI and contributed approximately $83 in cash to the Joint Venture. Grodan
and the Joint Venture have entered into a new distribution agreement which has a
five year term expiring on December 31, 2004, subject to automatic five year
extensions unless either party elects to terminate the agreement upon six months
prior written notice. ADI and Grodan have entered into a stockholders agreement
which provides that each stockholder has the right to designate 50% of the Joint
Venture's Board of Directors, subject to adjustment if their respective
ownership interests in the Joint Venture change. Actions by stockholders require
the approval of 52% of the outstanding shares of the Joint Venture. If either
stockholder wishes to sell its shares in the Joint Venture, these shares must
first be offered to the other stockholder.
5. Net loss per share
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which requires presentation of both basic and diluted
earnings per share in the Consolidated Statements of Operations. Basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share gives effect to all potentially dilutive
common shares that were outstanding during the period.
The following table sets forth a reconciliation of weighted average common
shares outstanding to the weighted average common shares assuming dilution:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 12,888 12,619 12,888 12,619
Dilutive effect of common shares issuable(1) - - - -
------ ------ ------ ------
Weighted average common shares outstanding
assuming dilution 12,888 12,619 12,888 12,619
====== ====== ====== ======
</TABLE>
-----------
(1) Common stock purchase warrants and stock options at July 2, 2000 and July 4,
1999 to purchase 1,173,251 and 357,621 shares, respectively, were not included
in the computation of earnings per share assuming dilution as their effect would
be anti-dilutive.
6
<PAGE>
6. Comprehensive income
Effective January 3, 1999, the Company adopted the provisions of Statement No.
130, "Reporting Comprehensive Income", which modifies the financial statement
presentation of comprehensive income and its components.
Comprehensive income, representing all changes in stockholders' equity during
the period other than changes resulting from the Company's stock and dividends.
Comprehensive income is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss ($8,196) ($9,956) ($10,356) ($10,686)
Other comprehensive (loss) gain, net of taxes
Foreign currency translation adjustments (35) 43 (42) 76
------- ------- -------- --------
Other comprehensive (loss) gain (35) 43 (42) 76
------- ------- -------- --------
Comprehensive loss ($8,231) ($9,913) ($10,398) ($10,610)
======= ======= ======== ========
</TABLE>
7. Segment and geographic information
The Company has two reportable segments: greenhouse tomatoes and biological and
agricultural products. The greenhouse tomatoes segment operates six greenhouse
facilities in the United States, representing approximately 176 acres of growing
capacity. Through these facilities, the Company produces, harvests, packages and
distributes premium hydroponic vine-ripened tomatoes. The tomatoes are marketed
under the Village Farms(R) and Home Choice(TM) brandnames and sold to retail
supermarket chains, dedicated wholesalers, distributors and food service clients
throughout the United States.
The biological and agricultural products segment distributes various products
under written distribution agreements and relations with specific vendors. The
Company's biological and agricultural products include (1) growing medium
products and computerized environmental and irrigational control systems; (2)
postharvest coating products and (3) biological pest control products. The
Company sold its postharvest coating products business in November, 1999.
The Company's reportable segments are strategic business units that offer
different products. The Company is not dependent on any single customer for its
net revenues.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
Company data by operating segment July 2, 2000 July 4, 1999 July 2, 2000 July 4, 1999
--------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues
Greenhouse tomatoes $10,268 $11,933 $23,440 $27,092
Biological and agricultural products 2,405 2,499 4,882 5,604
------- ------- ------- -------
Total $12,673 14,432 $28,322 $32,696
======= ======= ======= =======
Operating (loss) income
Greenhouse tomatoes ($5,971) ($6,956) ($5,420) ($5,019)
Biological and agricultural products 249 (930) (50) (1,072)
------- ------- ------- -------
Total ($5,722) ($7,886) ($5,470) ($6,091)
======= ======= ======= =======
Company data by geographic segments
-----------------------------------
Net revenues
United States $11,563 $13,521 $26,004 $30,801
Canada 1,110 911 2,318 1,895
------- ------- ------- -------
Total $12,673 $14,432 $28,322 $32,696
======= ======= ======= =======
</TABLE>
7
<PAGE>
ECOSCIENCE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share data)
EcoScience Corporation ("EcoScience") and its wholly owned subsidiaries
(collectively, the "Company"), Agro Power Development, Inc. and its consolidated
limited partnership (collectively "APD"), Agro Dynamics, Inc. and its 51% owned
subsidiary Agro-Dan, Inc. (collectively, "AGRO") and EcoScience Produce Systems
Corp. ("EPSC") are primarily engaged in the production, marketing and sale of
premium grade tomatoes grown in intensive greenhouse facilities. In addition,
the Company markets, sells, develops and commercializes products for the
agricultural and biological industries.
Results of Operations for the thirteen weeks ended July 2, 2000 and July 4,
1999.
The Company's two reportable segments are comprised of (1) greenhouse tomatoes
and (2) biological and agricultural products.
The Company's net revenues decreased by $1,759 or 12% to $12,673 for the
thirteen weeks ended July 2, 2000 from $14,432 for the thirteen weeks ended July
4, 1999. This decrease was due to a decrease in product sales in the greenhouse
tomato market of $1,665 and a decrease in the biological and agricultural
products market of $94.
The following table sets forth the Company's net revenues by segment for the
thirteen weeks ended April 2, 2000 and April 4, 1999:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
July 2, 2000 July 4, 1999 Change
------------ ------------ ---------
<S> <C> <C> <C>
Greenhouse tomatoes $10,268 $11,933 ($1,665)
Biological and agricultural products 2,405 2,499 (94)
------- ------- -------
Total $12,673 $14,432 ($1,759)
======= ======= =======
</TABLE>
Net revenue decreases for the greenhouse tomato segment were primarily due to
the reduction of product sales from the closing of the Wheatfield greenhouse and
the decrease in product sales from contract growers.
Net revenue decreases for the biological and agricultural products market were
primarily due to a decrease in the Company's sales of coating products of $289
or 77% to $84 for the thirteen weeks ended July 2, 2000 from $373 for the
thirteen weeks ended July 4, 1999. The coating products division sold all its
assets except its BioSave(R) biofungicide products and technology to Pace
International LLC in November 1999. This decrease was partially offset by the
increased sales of AGRO.
Cost of revenues decreased $2,556 or 14% to $15,962 for the thirteen weeks ended
July 2, 2000 from $18,518 for the thirteen weeks ended July 4, 1999, primarily
due to the decrease of product sales in the tomato segment.
Gross loss on net revenues decreased $797 or 20% to ($3,289) for the thirteen
weeks ended July 2, 2000 from a gross loss of ($4,086) for the thirteen weeks
ended July 4, 1999. Gross profit percentage on net revenues increased 2% to
(26%) for the thirteen weeks ended July 2, 2000 from (28%) for the thirteen
weeks ended July 4, 1999. Both gross profit on net revenues and gross profit
percentage on net revenues increased primarily as a result of a decrease in the
cost of revenues.
Selling, general and administrative expenses decreased $713 or 23% to $2,433 for
the thirteen weeks ended July 2, 2000 from $3,146 for the thirteen weeks ended
July 4, 1999, primarily due to measures taken by management to contain general
and administrative expenses.
An impairment charge of $654 was recorded in the thirteen weeks ended July 4,
1999, related to the Company's sale of EPSC. The Company's long term assets,
principally property and equipment and goodwill, were written down to the sale
price.
8
<PAGE>
Operating loss decreased $2,164 or 27% to ($5,722) for the thirteen weeks ended
July 2, 2000 compared to a loss of ($7,886) for the thirteen weeks ended July 4,
1999. The decrease in operating loss resulted primarily from an decrease of $797
in gross loss, a decrease of selling, general and administrative expenses by
$713 and a decrease in impairment charge of $654 for the thirteen weeks end July
2, 2000.
Other expenses increased by $431 to $2,589 for the thirteen weeks ended July 2,
2000, compared to $2,158 the thirteen weeks ended July 4, 1999, primarily due to
a decrease in other income of $282 and an increase in interest expense of $149.
The Company's net loss decreased $1,760 or $0.16 per basic and diluted share to
a net loss of $8,196 or $0.63 per basic and diluted share for the thirteen weeks
ended July 2, 2000 compared to net loss of $9,956 or $0.79 per basic and diluted
share for the thirteen weeks ended July 4, 1999.
The Company's EBITDA increased $1,659 to ($4,306) for the thirteen weeks ended
July 2, 2000 from ($5,965) for the thirteen weeks ended July 4, 1999. EBITDA is
net income (loss) excluding interest income, interest expense, income taxes,
depreciation and amortization expense. While EBITDA should not be construed as a
substitute for income (loss) from operations, net income (loss) or cash flows
from operating activities in analyzing the Company's operating performance,
financial condition or cash flows, the Company is reporting EBITDA because it is
commonly used by certain users of the Company's financial statements to analyze
and compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
Results of Operations for the twenty-six weeks ended July 2, 2000
and July 4, 1999
The Company's net revenues decreased by $4,374 or 13% to $28,322 for the
twenty-six weeks ended July 2, 2000 from $32,696 for the twenty-six weeks ended
July 4, 1999. This decrease was primarily due to a decrease in product sales in
the greenhouse tomato market of $3,652 and a decrease in the biological and
agricultural products market of $722.
The following table sets forth the Company's net revenues by segment for the
twenty-six weeks ended July 2, 2000 and the twenty-six weeks ended July 4, 1999:
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
July 2, 2000 July 4, 1999 Change
------------ ------------ --------
<S> <C> <C> <C>
Tomatoes $23,440 $27,092 ($3,652)
Biological and Agricultural Products $4,882 5,604 (722)
------- ------- -------
Total $28,322 $32,696 ($4,374)
======= ======= =======
</TABLE>
Net revenue decreases for the greenhouse tomato segment were primarily due to
the reduction of product sales from the closing of the Wheatfield greenhouse and
the decrease in product from contract growers.
Net revenue decreases for the biological and agricultural products market were
primarily due to a decrease in the Company's sales of coating products of $733
or 82% to $166 for the twenty-six weeks ended July 2, 2000 from $899 for the
twenty-six weeks ended July 4, 1999. The Company's coating product division sold
all of its assets except its BioSave(R) biofungicide products and technology to
Pace International LLC in November 1999.
Cost of revenues decreased $2,419 or 8% to $28,938 for the twenty-six weeks
ended July 2, 2000 from $31,357 for the twenty-six weeks ended July 4, 1999,
primarily due to the decrease of product sales in the tomato segment.
Gross (loss) profit on net revenues decreased $1,955 to ($616) for the
twenty-six weeks ended July 2, 2000 from a gross profit of $1,339 for the
twenty-six weeks ended July 4, 1999, primarily as a result of the decrease in
net revenues from the tomato segment. Gross profit percentage on net revenues
decreased 6% to (2%) for the twenty-six weeks ended July 2, 2000 from 4% for the
twenty-six weeks ended July 4, 1999.
Selling, general and administrative expenses decreased $1,922 or 28% to $4,854
for the twenty-six weeks ended July 2, 2000 from $6,776 for the twenty-six weeks
ended July 4, 1999, primarily due to the cost containment of administrative
expenses.
An impairment charge of $654 was recorded in the twenty-six weeks ended July 4,
1999, related to the Company's sale of EPSC. The Company's long term assets,
principally property and equipment and goodwill, were written down to the sale
price.
9
<PAGE>
Operating loss decreased $621 or 10% to ($5,470) for the twenty-six weeks ended
July 2, 2000 compared to ($6,091) for the twenty-six weeks ended July 4, 1999.
The decrease in operating loss resulted primarily from an decrease of $2,576 in
operating expenses for the twenty-six weeks ended July 4, 1999, partially offset
by a $1,955 decrease in gross profit.
Other expenses increased by $314 to $5,056 for the twenty-six weeks ended July
2, 2000, compared to $4,742 for the twenty-six weeks ended July 4, 1999,
primarily due to decreased in other income of $260 and a increase of $54 in
interest expenses.
The Company's net loss decreased $330 or $0.05 per basic and diluted share to a
net loss of $10,356, or $0.80 per basic and diluted share for the twenty-six
weeks ended July 2, 2000 compared to net loss of $10,686 or $0.85 per basic and
diluted share for the twenty-six weeks ended July 4, 1999.
The Company's EBITDA decreased $196 to ($2,613) for the twenty-six weeks ended
July 2, 2000 from ($2,417) for the twenty-six weeks ended July 4, 1999. EBITDA
is net income (loss) excluding interest income, interest expense, income taxes,
depreciation and amortization expense. While EBITDA should not be construed as a
substitute for income (loss) from operations, net income (loss) or cash flows
from operating activities in analyzing the Company's operating performance,
financial condition or cash flows, the Company is reporting EBITDA because it is
commonly used by certain users of the Company's financial statements to analyze
and compare companies on the basis of operating performance, leverage and
liquidity and to determine a company's ability to service debt.
Liquidity and Capital Resources
The Company's operations have been funded through revenues from product sales,
public and private placements of its equity securities, bank loans and lease
financings, licensing, collaborative research and development arrangements,
investment income and the sale of certain assets.
The Company continues to experience a significant liquidity shortfall primarily
due to weak market pricing. The Company has also delayed payments to vendors;
however, the Company has structured extended terms with certain vendors and has
substantially paid most other vendors whose payments were delayed. In addition,
the Company is in default under the Consolidated, Amended and Restated Loan
Agreement dated as of January 2, 2000 with its lender CoBank, ACB ("CoBank").
The Company's management has been in close contact with major suppliers and its
lenders, and the parties are working cooperatively together to manage this cash
flow shortfall. Although the Company's liquidity position is currently
manageable, the cash shortfall will remain until additional capital is raised.
No assurance can be given that the Company will be able to raise additional
capital or that the Company's creditors will not attempt to enforce legal
remedies available to them.
Cash and cash equivalents were $826 at July 2, 2000 compared to $1,246 at
January 2, 2000. Cash provided by operating activities totaled $4,733 for the
twenty-six weeks ended July 2, 2000 and principally consisted of a decrease in
accounts receivable of $3,477 and inventory of $3,852 and an increase in
accounts payable and accrued expenses of $4,889 and depreciation and
amortization of $3,260, partially offset by a net loss of $10,356. Cash used in
financing activities totaled $4,867 for the twenty-six weeks ended July 2, 2000,
which consisted of net payments under lines of credit of $4,806 and payments of
long-term debt and capital leases of $61. Cash used in investment activities for
the thirteen weeks ended July 2, 2000 totaled $244, which consisted of the
purchase of property and equipment. The Company's net working deficit is $80,748
(which includes $53,886 of senior debt classified as current, which otherwise
would have been classified as long-term had the Company not had certain defaults
under its credit facility with CoBank) and its current ratio was 0.10 to 1, at
July 2, 2000 compared to 0.18 to 1, at January 2, 2000.
Debt and capital leases decreased by $4,867 to $86,794 at July 2, 2000 compared
to $91,661 at January 2, 2000. The decrease was attributable to payments of
$3,000 to the working capital line of credit with CoBank, $1,682 to line of
credit with Century Business Credit, $160 to notes payable and $25 on capital
leases.
The Company believes that its $826 of cash and cash equivalents as of April 2,
2000, along with borrowings and revenues from product sales, will be sufficient
to fund the Company's working capital needs, planned capital expenditures, and
to service its indebtedness through July 2, 2001, provided that CoBank extends
the maturity dates of certain payments under the Loan Agreement and the Company
can resolve its short term cash flow shortfall by raising additional capital.
The Company has engaged a financial advisor to assist it in raising additional
funds to finance its ongoing operations in 2000, current debt obligations and
expected growth after July 2, 2001. The Company is currently attempting to raise
debt and/or
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equity financing. No assurance can be given that the Company will be
able to complete the refinancing or that the Company's creditors will not
attempt to enforce legal remedies available to them. This raises substantial
doubt about the ability of the Company to continue as a going concern.
Quantitative and Qualitative Disclosure about Market Risk
There has been no material change in market risk since January 2, 2000.
Forward-looking Statements
This report contains "forward-looking statements" which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that known and unknown risks, uncertainties and other
factors may cause actual results, performance or achievements of EcoScience to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Factors that might
cause such differences include EcoScience's risks and uncertainties related to
EcoScience's future profitability, ability to meet its capital needs, government
regulation, continued cooperation of the Company's creditors, competition,
market acceptance, Year 2000 compliance and other factors described in Item 7A
and elsewhere in EcoScience's annual report on Form 10-K filed with the
Securities and Exchange Commission.
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PART II. OTHER INFORMATION
Item 1. Legal Proceeding
Smalley v. EcoScience Corporation, et al. In April 2000, a class action lawsuit
was filed in the United States District Court for the District of Massachusetts
against the Company, APD, the individuals who served on the Company's Board of
Directors at the time of the merger transaction pursuant to which the Company
acquired ADP (the "Merger") and the shareholders of APD prior to the Merger by
William F. Smalley, Jr. on his own behalf and on behalf of persons and entities
who were shareholders of the Company on July 31, 1998 and/or at the time of the
Merger. The plaintiff alleges, among other things, that the Proxy Statement
distributed by the Company in connection with the Merger omitted material
information regarding the financial performance of APD, and asserts the
defendants violated Sections 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rules 10b-5 and 14a-9 promulgated thereunder. The plaintiff,
who is seeking damages in an unspecified amount, also alleges that the Company's
Board of Directors breached its fiduciary duty to shareholders and seeks to
impose liability on the individual defendants under Section 20(a) of the
Exchange Act and, in the case of the APD shareholders, Section 20A(a) of the
Exchange Act. The Company believes that the plaintiff's allegations are without
merit and intends to vigorously contest the matter.
Joannidi v. EcoScience Corporation, et al. In April 2000, Harold A. Joannidi,
the former Vice President, Secretary and Corporate Controller of the Company,
filed an action in the Superior Court of New Jersey, Law Division, Middlesex
County against the Company and its Board of Directors in which he alleges that
the Company's President directed him to fraudulently and illegally change the
Company's Securities and Exchange Commission filings and that his employment was
terminated in violation of the New Jersey Conscientious Employee Protection Act.
Mr. Joannidi, who is seeking equitable, compensatory, punitive and liquidated
damages in unspecified amounts, as well as injunctive relief, also asserts
claims for violations of common law public policy, age discrimination, fraud,
breach of good faith and fair dealing, intentional interference with contractual
relations and/or prospective economic advantage and intentional infliction of
emotional distress. The Company believes that Mr. Joannidi's claims are without
merit and intends to vigorously defend this action.
Item 3. Defaults Upon Senior Securities
The Company's wholly owned subsidiary, Village Farms, L.P. is in default under
the Consolidated, Amended and Restated Loan Agreement as a result of its failure
to make payments of approximately $14,818 in principal and interest under the
terms of the agreement. As a result of this default, the lender has the right to
accelerate the payment of all amounts outstanding under the facility. As of July
2, 2000 principal of $69,286 was outstanding under the facility.
Item 5. Other Information
As of June 23, 2000 the operating agreement between Village Farms, L.P.
("Village Farms") and Greenhost, Inc. ("Greenhost") pursuant to which the
company leased and operated its Virginia greenhouse facility terminated. Village
Farms and Greenhost are in the process of finalizing the terms of a management
services agreement where Village Farms will manage the Virginia greenhouse and
will market the tomatoes produced under the Village Farms(R) brand name for a
term of approximately one year. Village Farms will not record any revenues or
expenses related to the sale of this product and will be paid a monthly
management fee for its services.
Item 6. Exhibits and Reports on Form 8-K
(i) Exhibits
27 Financial Data Schedule as of and for the Twenty-six Weeks Ended July 2, 2000
(ii) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ECOSCIENCE CORPORATION
Registrant
August 15, 2000 /s/ Kenneth S. Hollander
----------------------------------------
Kenneth S. Hollander
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
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ECOSCIENCE CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- --------------------
27 Financial Data Schedule as of and for the Twenty-six Weeks Ended
July 2, 2000
14
