<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997.
Commission file number 0-19352
-----------------------------
AGRIBIOTECH, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 85-0325742
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Sunset Road, Suite C-25, Las Vegas, Nevada 89120
(Address of principal executive offices)
(702) 798-1969
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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 .
------- ------
As of May 11, 1997, the Registrant had 20,296,596 shares of Common Stock,
par value $.001 per share, issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
------ -------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 644,411 2,522,309
Accounts receivable, less allowance for doubtful accounts
of $514,426 at March 31, 1997 and $104,773 at June 30, 1996 18,266,638 7,501,725
Inventories 20,092,607 7,257,795
Other 368,995 285,811
----------------- -----------------
Total current assets 39,372,651 17,567,640
Property, plant and equipment, net 12,783,273 7,916,145
Intangible assets, net of accumulated amortization 2,266,965 546,327
Investment in associated entity, at equity 783,577 --
Other assets 83,889 153,676
----------------- -----------------
Total assets $ 55,290,355 26,183,788
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
------------- ---------
<S> <C> <C>
Current liabilities:
Short-term debt $ 15,047,493 5,088,984
Current installments of long-term debt 639,436 567,353
Accounts payable 10,562,330 4,406,588
Accrued liabilities 1,267,166 1,043,746
------------- -----------
Total current liabilities 27,516,425 11,106,671
Long-term debt, excluding current installments 1,717,725 1,054,621
------------- -----------
Total liabilities 29,234,150 12,161,292
------------- -----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding 2,104 shares at March 31, 1997
(aggregate liquidation preference of $2,241,731) and 6,530
shares at June 30, 1996 (aggregate liquidation preference
of $6,667,002) 2 7
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding 19,829,835 shares at
March 31, 1997 and 8,543,757 shares at June 30, 1996 19,830 8,544
Capital in excess of par value 36,936,615 23,752,051
Accumulated (deficit) (10,900,242) (9,711,316)
------------- -----------
26,056,205 14,049,286
Deferred compensation - (26,790)
------------- -----------
Total stockholders' equity 26,056,205 14,022,496
------------- -----------
Contingency and subsequent events (notes 5 and 6)
Total liabilities and stockholders' equity $ 55,290,355 26,183,788
============= ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine-month period Three-month period
ended March 31, ended March 31,
---------------------------- ------------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $41,164,828 16,676,415 20,223,487 9,743,741
Cost of sales 31,005,534 12,381,752 14,831,018 7,142,298
----------- ----------- ----------- -----------
Gross profit 10,159,294 4,294,663 5,392,469 2,601,443
Operating expenses 10,814,219 6,001,788 3,981,431 2,661,065
----------- ----------- ----------- -----------
Earnings (loss) from operations (654,925) (1,707,125) 1,411,038 (59,622)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (1,002,773) (270,174) (381,647) (215,925)
Interest income 197,333 30,951 23,423 10,180
Other 271,439 (19,228) 232,230 9,593
----------- ----------- ----------- -----------
Total other income (expense) (534,001) (258,451) (125,994) (196,152)
----------- ----------- ----------- -----------
Net earnings (loss) $(1,188,926) (1,965,576) 1,285,044 (255,774)
=========== =========== =========== ===========
Shares of common stock used in
computing earnings (loss) per share 13,301,201 7,345,419 18,396,888 7,567,200
=========== =========== =========== ===========
Net earnings (loss) per share $ (0.09) (0.27) 0.07 (0.03)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Preferred stock Common stock
----------------------------- ---------------------------
Shares Amount Shares Amount
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 6,530 $ 7 8,543,757 $ 8,544
Issuance of preferred stock for cash 10,000 10 -- --
Common stock issued for:
Services -- -- 15,000 15
Exercise of options -- -- 2,024,374 2,024
Exercise of warrants -- -- 1,616,000 1,616
Preferred stock converted and
redeemed (14,426) (15) 6,706,676 6,707
Cancellation of options -- -- 750,000 750
Retirement of debt -- -- 148,402 148
Other -- -- 25,626 26
Expenses of stock issuances -- -- -- --
Reduction in deferred compensation -- -- -- --
Net (loss) -- -- -- --
---------- ----------- ------------ -------------
Balance at March 31, 1997 2,104 $ 2 19,829,835 $19,830
========== =========== ============ =============
<CAPTION>
Capital in
excess of Accumulated Deferred
par value (deficit) compensation Total
----------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 23,752,051 (9,711,316) (26,790) 14,022,496
Issuance of preferred stock for cash 9,999,990 -- -- 10,000,000
Common stock issued for:
Services 45,885 -- -- 45,900
Exercise of options 3,800,093 -- -- 3,802,117
Exercise of warrants 2,923,344 -- -- 2,924,960
Preferred stock converted and
redeemed (2,513,829) -- -- (2,507,137)
Cancellation of options (750) -- -- --
Retirement of debt 319,852 320,000
Other (26) -- -- --
Expenses of stock issuances (1,389,995) -- -- (1,389,995)
Reduction in deferred compensation -- -- 26,790 26,790
Net (loss) -- (1,888,926) -- (1,188,926)
---------- ----------- --------- -----------
Balance at March 31, 36,936,615 (10,900,242) -- 26,056,205
========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine-month period
ended March 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,188,926) (1,965,576)
Adjustments to reconcile net earnings (loss) to net cash
flows from operating activities:
Amortization 140,647 76,732
Depreciation 634,550 313,314
Equity in earnings of associated entity (282,937) --
Common stock for services 72,690 127,618
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable (8,773,148) (4,226,125)
Inventories (4,056,188) (3,413,510)
Other assets (18,926) 17,366
Payables 5,393,341 4,858,152
Accrued liabilities (611,580) 633,062
----------- ------------
Net cash flows from operating activities (8,690,477) (3,578,967)
----------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment (853,481) (491,145)
Additions to intangible assets (8,375) (353,314)
Distributions from associated entity 181,000 --
Acquisitions (15,997,034) (1,434,732)
------------ -----------
Net cash flows from investing activities (16,677,890) (2,279,191)
------------ -----------
Cash flows from financing activities:
Net proceeds of short-term debt 9,958,509 2,601,129
Repayments of long-term debt (272,901) (124,026)
Sale of preferred stock 10,000,000 --
Exercise of options 3,802,117 --
Exercise of warrants 2,924,960 --
Restructuring of employee stock options -- 480,000
Redemption of preferred stock (2,507,137) --
Expenses of stock issuance (1,389,995) --
Additions to long-term debt 974,916 --
Payments received on notes receivable from
sale of stock -- 1,663,630
------------ -----------
Net cash flows from financing activities 23,490,469 4,620,733
------------ -----------
Net increase (decrease) in cash and cash equivalents (1,877,898) (1,237,425)
Cash and cash equivalents at beginning of period 2,522,309 1,422,943
------------ -----------
Cash and cash equivalents at end of period $ 644,411 185,518
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine-month period
ended March 31,
-----------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 955,427 102,709
============= =============
Non cash investing and financing activities:
Accrued costs of acquisition $ 835,000 --
Common stock issued in settlement of debt 320,000 --
Debt issued in connection with acquisitions -- 1,250,000
Amount due in connection with acquisitions -- 4,871,587
Receivable from exercise of warrants -- 1,297,800
Increase in warrant exercise price -- 155,736
Reduction of notes receivable for acquisitions -- 1,853,587
Options granted for services -- 185,616
Notes receivable from sale of stock -- 161,023
Discount on notes receivable from sale of stock -- 343,777
============= =============
Summary of assets and liabilities acquired through acquisitions:
Cash $ -- 5,641
Accounts receivable 1,991,765 1,949,016
Inventories 8,778,624 4,642,531
Property, plant and equipment 4,693,197 5,289,843
Intangible assets 1,807,910 572,000
Other assets 676,111 218,390
Accounts payable and accrued expenses (762,401) (2,388,781)
Long-term and short-term debt (353,172) (1,216,870)
------------- -------------
Net assets acquired $ 16,832,034 9,071,770
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
================================================================================
(1) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
----------------------------------------------
AgriBioTech, Inc. ("ABT" or the "Company") was formed to design, develop, and
market various agricultural products intended to improve the profitability of
farming and ranching. The Company is a specialized distributor of forage (hay
crops), turf grass, corn, soybean and other seeds throughout the United States
and internationally. Since January 1, 1995, the Company has followed a business
strategy to acquire reputable, regionally based seed companies with proprietary
products and established production and distribution channels in their
respective markets in order to consolidate and vertically integrate the forage
and turf grass sector of the seed industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The unaudited financial statements have been prepared in accordance with the
rules of the Securities and Exchange Commission and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows, in conformity with generally
accepted accounting principles. The information furnished, in the opinion of
management reflects all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position, results of
operations and cash flows for the nine-month and three-month periods ended March
31, 1997 and 1996. The Company's business is subject to wide seasonal
fluctuations and, therefore, the results of operations for periods less than one
year are not necessarily indicative of results which may be expected for any
other interim period or for the year as a whole.
(2) ACQUISITIONS
------------
The Company purchased substantially all of the assets of W-L Research, Inc. and
Germain's, Inc., which were indirect subsidiaries of Berisford, plc, effective
September 1, 1996. The transaction also included the acquisition of a 50%
ownership interest in SeedBiotics, L.L.C. The transaction was recorded using
the purchase method of accounting. The net purchase price of $15,997,034
includes inventory, accounts receivable, prepaid assets, fixed assets, and
intangible assets, less accounts payable and certain assumed liabilities. The
intangible assets consist of trademark rights and proprietary rights to certain
crop varieties, as well as the genetic breeding base for the development of
additional varieties. The net purchase price was paid in cash.
During the year ended June 30, 1996, the Company consummated the acquisitions
described in Note 1 of Notes to Consolidated Financial Statements in the
Company's June 30, 1996 Form 10-KSB. Unaudited pro-forma results of operations,
assuming all acquisitions had occurred at the beginning of the period presented,
are as follows:
<TABLE>
<CAPTION>
Nine-Month Period Ended Three-Month Period Ended
----------------------- ------------------------
March 31, 1997 March 31, 1996 March 31, 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Revenue $43,688,296 38,692,219 17,517,131
Net earnings (loss) (1,257,195) (3,524,814) (142,931)
Net earnings (loss) per share (0.09) (0.46) (0.02)
</TABLE>
On April 11, 1997, the Company entered into a letter of intent to acquire
substantially all of the assets of a seed operation which markets primarily in
the midwestern United States and has annual revenues of
8
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
================================================================================
approximately $10 million. The Company anticipates it will acquire approximately
$4.3 million of assets through the assumption of an equal amount of liabilities.
(3) SHORT-TERM DEBT
---------------
At June 30, 1996, the Company had a $4.5 million line of credit with Bank of
America ("BofA"). On October 4, 1996, the Company entered into a new agreement
with BofA to increase the line of credit to $15 million under similar terms and
conditions. The new line of credit bears interest at 1.25% over the BofA
reference rate and expires November 30, 1997. On January 17, 1997, to
accommodate the seasonality of the Company's business, the line of credit was
increased to $19 million through March 31, 1997 when it reverted back to $15
million. In May 1997, the BofA increased the Company's line of credit to $22
million for working capital purposes. The BofA also agreed to provide the
Company with an additional unsecured credit facility for $4 million to be used
for acquisitions. The $4 million facility bears interest at 2% over the bank's
reference rate and is due in equal payments on July 31, 1997 and August 31,
1997.
The separate $721,000 line of credit maintained by one of the Company's
subsidiaries, which had an outstanding balance of $588,984 on June 30, 1996,
was repaid and expired on October 1, 1996.
(4) LONG-TERM DEBT
--------------
In November 1996, the Company completed an $825,000 mortgage financing on land
and buildings with a book value of approximately $1,650,000. The debt initially
bears interest at 8.75%, which rate is adjusted every six months to 3.25% above
the BofA prime rate although each adjustment cannot exceed 2%. The loan
initially requires monthly payments of $7,291 and amortizes over 20 years
although the loan may be repaid after one year without penalty.
(5) CAPITAL STOCK
-------------
Between July 1, 1996 and March 31, 1997, 5,630 shares of the Company's Series B
Convertible Preferred Stock were presented for conversion. The Company issued
2,424,463 shares of common stock and redeemed for cash the equivalent of 538,215
shares of common stock aggregating $1,315,846. At March 31, 1997, the 900
shares of Series B Convertible Preferred Stock outstanding had a liquidation
preference of $987,041 and were convertible into 475,683 shares of common stock.
No shares of Series B Convertible Preferred Stock have been submitted to the
Company for conversion since March 31, 1997. At May 11, 1997, the 900 shares of
Series B Convertible Preferred Stock outstanding were convertible into 337,446
shares of common stock.
In September 1996, the Company completed a private placement of 10,000 shares of
Series C Convertible Preferred Stock at $1,000 per share, receiving gross
proceeds of $10,000,000. The Company paid commissions and selling expenses of
13% of the gross proceeds. Through March 31, 1997, 8,796 shares of the
Company's Series C Convertible Preferred Stock were presented for conversion.
The Company issued 4,282,213 shares of common stock and redeemed for cash the
equivalent of 539,867 shares of common stock aggregating $1,191,291. At March
31, 1997, the 1,204 shares of Series C Convertible Preferred Stock outstanding
had a liquidation preference of $1,254,690 and were convertible into 604,670
shares of common stock. Between April 1, 1997 and May 11, 1997, 987 shares of
Series C Convertible Preferred Stock were submitted to the Company for
conversion. The Company issued 381,759 shares of common stock and redeemed for
cash the equivalent of 78,156 shares of common stock aggregating $200,133. At
May 11, 1997, the 217 shares of Series C Convertible Preferred Stock outstanding
were convertible into 77,121 shares of common stock.
The Series C Convertible Preferred Stock has a liquidation preference of $1,000
per share, plus a premium of 8 percent per annum from the date of issuance. The
Series C Convertible Preferred Stock is
9
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
================================================================================
convertible into shares of common stock equal to the aggregate liquidation
preference, including the 8 percent per annum premium, divided by a conversion
price that is the lesser of (i) 80 percent of the average closing bid price for
the Company's common stock for the five days prior to conversion or (ii) a set
amount, which is $3.00 for one-third of the shares, $3.50 for one-third of the
shares and $4.00 for one-third of the shares. In the event of a conversion when
the average closing bid price of the Company's common stock is below the price
at the issuance of the Series C Convertible Preferred Stock, the Company has the
option of redeeming for cash, at the average closing bid price, the shares of
common stock issuable upon such conversion. The Series C Convertible Preferred
Stock will convert into common stock on September 30, 1998, if not previously
converted.
In connection with the W-L Research, Inc. and Germain's, Inc. acquisition the
Company granted stock options to all employees of those entities who continued
employment with the Company. Options to purchase 108,300 shares of the
Company's common stock at $3.75 per share were granted. The Company also
granted to other employees options to purchase 600,000 shares of common stock at
prices ranging from $2.25 to $3.50 per share. The exercise price of all options
granted equaled or exceeded the quoted market price at the date of grant.
On January 6, 1997, the Company lowered the exercise price on its outstanding
Class B Warrants to $1.81 per share through January 17, 1997, the date on which
such warrants were to expire. Under the terms of the warrants the Company had
the right to arrange for standby purchasers to exercise any warrants not
exercised by their holders. The Company received $2,924,960 from the exercise
of these warrants and issued 1,616,000 shares of common stock and 1,616,000 of
its Class C Warrants. By their stated terms, the Class C Warrants are
exercisable for one share of the Company's common stock at $7.50 through January
17, 1998.
In January 1997, the Company issued 148,402 shares of its restricted common
stock in satisfaction of $320,000 of notes payable due in January 1997 to the
former owners of Clark Seeds, Inc.
Subsequent to March 31, 1997, outstanding options to purchase 85,000 shares
of common stock were exercised at their stated exercise prices of $2.12 to $3.00
per share, aggregating $233,000.
(6) CONTINGENCIES
-------------
On February 9, 1996, Jonathan R. Curshen commenced a lawsuit in the United
States District Court, Middle District of Florida, against the Company, John C.
Francis and Johnny R. Thomas, officers of the Company, and Tammie Winfield (a
shareholder). The plaintiff sought unspecified compensatory and punitive
damages based upon an alleged repudiation of an agreement to sell plaintiff
shares of common stock of the Company. The Company and the other defendants
denied the allegations. In March 1997, the Company's motion to dismiss this
lawsuit was granted by the court.
The former owner of one of the Company's subsidiaries filed a lawsuit alleging
the Company is obligated to make up a shortfall of approximately $137,000 in
proceeds upon the sale of the Company's common stock compared to the amount
guaranteed by the Company in the acquisition. However, the former owner
violated a lock-up agreement covering the common stock issued which, by its
terms, voids the Company's guarantee. On November 1, 1996, this lawsuit was
settled by the Company agreeing to issue the former owner 25,626 shares of its
common stock which was treated as an adjustment of the shares issued in the
acquisition.
(7) EARNINGS PER SHARE
------------------
Earnings per share is computed based upon the average shares outstanding during
the periods presented. Contingently issuable shares considered to be common
stock equivalents (options, warrants, and
10
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
================================================================================
convertible preferred stock) were anti-dilutive during the three-month period
ended March 31, 1997 and, therefore, not reflected in the computation of
earnings per share.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which specifies a new
accounting standard for the computation, presentation, and disclosure
requirements for earnings per share. This standard, which is effective for
periods ending after December 15, 1997 and cannot be applied earlier, will
require the dual presentation on the face of the income statement of "basic"
earnings per share, without any dilution, and "diluted" earnings per share,
reflecting all dilution. The Company has not completed its analysis of the
impacts of this standard on its financial statements.
---------------------------------------------------
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto of the Company included
elsewhere herein. The Company is a specialized distributor of forage (hay
crops), turf grass, corn, soybean and other seeds. The Company had limited
revenues until January 1, 1995, when it commenced an acquisition program (the
"Acquisition Program") to acquire various regional seed companies. The Company's
business strategy is to acquire reputable, regionally based seed companies with
proprietary products and established production and distribution channels in
their respective markets.
Since January 1, 1995, the Company has grown significantly, primarily through
acquisitions of regional seed companies. These acquisitions are more fully
discussed in Note 1 of Notes to Consolidated Financial Statements in the June
30, 1996 Form 10-KSB and Note 2 of Notes to Consolidated Financial Statements
herein. The results of operations of the acquired companies are included in the
Company's consolidated results beginning with the effective date of the
acquisition in accordance with the purchase method of accounting, as follows:
<TABLE>
<CAPTION>
Effective
Name Date
---- ----
<S> <C>
Seed Resource, Inc. January 1, 1995
Scott Seed Company March 1, 1995
Hobart Seed Company April 1, 1995
Halsey Seed Company July 1, 1995
Arnold Thomas Seed Service, Inc. October 1, 1995
Clark Seeds, Inc. October 1, 1995
Doug Conlee Seed Co. January 1, 1996
Beachley-Hardy Seed February 1, 1996
W-L Research, Inc. and Germain's Inc. September 1, 1996
</TABLE>
In addition to the above acquisitions, the Company acquired certain assets of
Sphar Seed Company effective July 1, 1995 to expand the operations of Scott Seed
Company. The Company also created Seed Mart, Inc. a start-up seed operation in
the upper midwest section of the United States. Seed Mart began operations in
the summer of 1995 but did not have significant sales until the spring of 1996.
The Company began limited operations in Mexico in 1994.
The acquisitions and other operations being included in the Company's
consolidated financial statements beginning with each of their effective or
start-up dates significantly affects the meaningfulness of comparisons drawn
between periods. Furthermore, the seed business is subject to wide seasonal
fluctuations and, therefore, the results of periods less than twelve months are
not necessarily indicative of results which may be expected for an entire year.
The statements discussed in this Report include forward looking statements that
involve a number of risks and uncertainties. These include the Company's lack
of profitability, need to manage its growth, intense competition in the seed
industry, seasonality of quarterly results, and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
The above factors have significant impacts on the following discussion and
analysis and should be considered as part of it.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $11,856,226 at March 31, 1997, as compared to
$6,460,969 at June 30, 1996. The March 31, 1997 amount reflects the acquisition
of W-L Research, Inc. and Germain's, Inc. (collectively, "W-L/Germain's"),
effective September 1, 1996. To finance acquisitions and ongoing operations,
the Company has raised significant amounts of additional equity capital. In the
nine-months ended March 31, 1997 (the "1997 Nine-Month Period"), the Company
received gross cash proceeds of $10,000,000 from the private placement of
preferred
12
<PAGE>
stock. The Company paid commissions and selling expenses equal to 13%
of the gross proceeds. In addition, the Company received $3,802,117 from the
exercise of existing options for common stock and $2,924,960 from the exercise
of its outstanding Class B Warrants. Subsequent to March 31, 1997, the Company
received $1,213,000 from the exercise of existing options. In the 1997 Nine-
Month Period, the Company paid cash of $2,507,137 in lieu of issuing common
stock in connection with preferred stock submitted to the Company for conversion
into common stock. The Company believes this promotes a more orderly conversion
to common stock and will allow the Company future access to growth capital under
more favorable terms. See Notes 2 and 5 of Notes to Consolidated Financial
Statements herein.
At June 30, 1996, the Company had a $4.5 million line of credit with Bank of
America ("BofA"). Borrowings under this line of credit are limited to 70% of
eligible accounts receivable and 50% of eligible inventory. On October 4, 1996,
the Company entered into a new agreement with BofA to increase the line of
credit to $15 million under similar terms and conditions. The new line of
credit bears interest at 1.25% over the BofA reference rate and expires November
30, 1997. The new line is secured by inventory, accounts receivable, certain
equipment and intangibles. On January 17, 1997, to accommodate the seasonality
of the Company's business, the line of credit was increased to $19 million
through March 31, 1997 when it reverted back to $15 million. In May 1997, the
BofA increased the Company's line of credit to $22 million for working capital
purposes. The BofA also agreed to provide the Company with an additional
unsecured credit facility for $4 million to be used for acquisitions. The $4
million facility bears interest at 2% over the bank's reference rate and is due
in equal payments on July 31, 1997 and August 31, 1997. The separate $721,000
line of credit maintained by one of the Company's subsidiaries, which had an
outstanding balance of $588,984 on June 30, 1996, was repaid and expired on
October 1, 1996.
In November 1996, the Company entered into an agreement with a financial
institution to obtain mortgage financing for the main location of Germain's,
Inc. The Company received net proceeds from this loan of approximately
$800,000. The loan bears interest at a variable rate based on 3.25% above the
BofA reference rate and is repayable over 20 years.
The Company believes it has adequate financial resources to finance its ongoing
operations. However, the seed business is subject to wide seasonal fluctuations
which result in a significant increase in the level of inventory prior to and
during the heavier selling season in the spring and related higher levels of
accounts receivable following such sales through the early summer. This also
reflects that industry practice dictates a significant amount of sales are made
with extended terms through mid summer. In addition, the seed business can be
significantly impacted by the weather which can alter the timing and nature of
crops planted by farmers which, in turn, affects the timing and nature of seed
sales. Therefore, it is possible that the Company may need to seek additional
financial resources to finance ongoing operations. Furthermore, the Company
will need to obtain additional equity and/or debt financing in order to continue
its Acquisition Program.
During the 1997 Nine-Month Period, the Company had net deficit cash flows from
operating activities of $8,690,477, compared to net deficit cash flows from
operating activities of $3,578,967 during the Nine-month period ended March 31,
1996 (the "1996 Nine-Month Period"). The 1997 Nine-Month Period reflects the
Company's operating loss of $1,188,926, adjusted for non-cash operating items
and changes in operating assets and liabilities (primarily increases in
inventory and accounts receivable resulting from the spring selling season that
were partially offset by an increase in accounts payable). During the 1997
Nine-Month Period, the Company had net deficit cash flows from investing
activities of $16,677,890 compared to net deficit cash flows from investing
activities of $2,279,191 in the 1996 Nine-Month Period. Cash used for
acquisitions was $15,997,034 and $1,434,732, respectively. During the 1997
Nine-Month Period, the Company had net cash flows from financing activities of
$23,490,469, primarily due to the factors stated above, compared to net cash
flows from financing activities of $4,620,733 during the 1996 Nine-Month Period.
These cash flows resulted in a decrease in cash of $1,877,898 during the 1997
Nine-Month Period and a decrease in cash of $1,237,425 during the 1996 Nine-
Month Period.
13
<PAGE>
RESULTS OF OPERATION
Selected information concerning the results of operations is summarized as
follows
<TABLE>
<CAPTION>
Nine-Month Period Three-Month Period
Ended March 31, Ended March 31,
------------------ -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $41,164,828 16,676,415 20,223,487 9,743,741
Gross Profit 10,159,294 4,294,663 5,392,469 2,601,443
Percentage of net sales 24.7% 25.8% 26.7% 26.7%
Operating Expenses 10,814,219 6,001,788 3,981,431 2,661,065
Percentage of net sales 26.3% 36.0% 19.7% 27.3%
</TABLE>
The increases in the dollar amounts of the above items are primarily due to the
Company's Acquisition Program described above which results in certain
operations not being included for the entire time periods listed above.
Gross profit as a percentage of sales is impacted by differences in product mix
of the acquired companies and seasonality of the Company's business. This
percentage is positively effected by the Company's focus on shifting product
lines from primarily public varieties (commodities) to proprietary (value-added
products). During the above periods in 1997, this percentage was negatively
impacted by large sales made to foreign customers at wholesale prices reflecting
low margins. These sales were committed to by W-L Research, Inc., prior to its
acquisition, to meet competitive pressures in certain markets. In addition, the
Company sold, at near cost, certain inventory acquired in the acquisition of W-L
Research, Inc. which was considered excess to current needs. Excluding these
sales, gross profit as a percentage of sales would have been 26.9% in the Nine-
Month Period 1997 and 29.7% in the three month period ended March 31, 1997 (the
"1997 Quarter").
The decrease in operating expenses as a percentage of net sales is the result of
building infrastructure ahead of revenue growth. This was necessary to
accomplish the Company's business strategy. This ratio is expected to continue
to decline as revenue growth continues to exceed growth in expenses and
operating synergies occur with integration of the acquired companies into
cohesive units.
The major components of operating expenses are personnel costs, occupancy
expense, vehicle and shipping expenses, outside services, travel and
advertising, all of which increased substantially in the current year compared
to the prior year. These increases are primarily due to the seed operations of
new acquisitions and operations, including additional employees and facilities.
However, the Company has significantly reduced expenses, after acquisition, as
compared to historical operations prior to the effective date of some
acquisitions as a result of operating efficiencies. The major components of
operating expenses are as follows:
<TABLE>
<CAPTION>
Nine-Month Period Three-Month Period
Ended March 31, Ended March 31,
----------------- ------------------
1997 1996 1997 1996
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Personnel costs $5,762,255 2,811,591 2,114,064 1,102,109
Occupancy expenses 2,211,277 946,006 827,020 386,305
Vehicle and shipping 735,140 324,155 446,961 112,416
Outside services 603,629 425,705 262,854 65,689
Travel 581,623 252,433 244,110 152,991
Advertising and promotion 511,862 330,252 238,766 184,014
</TABLE>
Research and development expenditures were $663,695 in the 1997 Nine-Month
Period and $284,861 in the 1997 Quarter, substantially all of which is
attributable to W-L/Germain's, as compared to $26,138 and $11,033 for periods in
the prior year. As the Company transforms its forage and turf grass seed
business to proprietary products and increases gross margins, the Company
expects research and development expenses to eventually be similar to
14
<PAGE>
other proprietary seed sectors. W-L Research, Inc. conducts extensive research
in alfalfa breeding and, accordingly, research expenditures will increase
significantly reflecting the W-L/Germain's acquisition after its September 1,
1996 effective date.
The Company's interest expense increased to $1,002,773 in the 1997 Nine-Month
Period and $381,647 in the 1997 Quarter, as compared to $270,174 and $215,925
for periods in the prior year. This is primarily due to increasing the
Company's line of credit and additional long-term and short-term debt in
connection with acquisitions, including W-L/Germain's. The Company anticipates
using more debt to fund future growth. As discussed above, the Company
increased its line of credit in connection with the W-L/Germain's acquisition
and borrowings under the line at March 31, 1997 were approximately $15 million.
Net earnings (loss) for the Company was ($1,188,926) for the 1997 Nine-Month
Period and $1,285,044 for the 1997 Quarter, as compared to ($1,956,576) and
($255,774) for periods in the prior year as a result of the items discussed
above. The net earnings (loss) per share was ($0.09) for the 1997 Nine-Month
Period and $0.07 for the 1997 Quarter based on average common shares outstanding
of 13,301,201 and 18,396,888 compared to ($0.27) and ($0.03) for periods in the
prior year based on average common shares outstanding of 7,345,419 and
7,567,200. The increase in average common shares reflects additional shares
issued in connection with acquisitions, options, warrants, conversions of
preferred stock, and services rendered.
Management believes operating results confirm the validity of the Company's
business strategy. However, it should be noted that management continues to
make all decisions to assure success of the long term plan, at the possible
expense of short term earnings. Earnings have been negatively impacted by
management's decision to build infrastructure faster than budgeted, delayed
opportunities to implement some synergies due to delayed closing of some
acquisitions (such as W-L/Germain's) and adverse weather conditions. The
Company is 6-9 months behind expected time tables for certain synergies for the
reasons stated above.
INFLATION
Management does not consider that inflation has had a significant effect on the
Company's operations to date, nor is inflation expected to have a material
impact in the United States. The cost of seed products is largely affected by
seed yields and alternative crop prices, which have not generally been greatly
impacted by inflation. However, there has been some upward movement in the cost
of goods sold as a result of worldwide shortages of crops such as corn and
wheat. Those costs which are normally impacted by inflation, such as wages,
transportation and energy, are a relatively small part of the Company's total
operations. However, the Company remains subject to possible significant
inflation in Mexico, Argentina and other foreign countries.
IMPACTS OF ACCOUNTING STANDARDS NOT YET ADOPTED
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which specifies a new
accounting standard for the computation, presentation, and disclosure
requirements for earnings per share. This standard, which is effective for
periods ending after December 15, 1997 and cannot be applied earlier, will
require the dual presentation on the face of the income statement of "basic"
earnings per share, without any dilution, and "diluted" earnings per share,
reflecting all dilution. The Company has not completed its analysis of the
impacts of this standard on its financial statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On February 9, 1996, Jonathan R. Curshen commenced a lawsuit in the United
States District Court, Middle District of Florida, against the Company, John C.
Francis and Johnny R. Thomas, officers of the Company, and Tammie Winfield (a
shareholder). The plaintiff sought unspecified compensatory and punitive
damages based upon an alleged repudiation of an agreement to sell plaintiff
shares of common stock of the Company. The Company and the other defendants
denied the allegations. In March 1997, the Company's motion to dismiss this
lawsuit was granted by the court.
15
<PAGE>
The former owner of one of the Company's subsidiaries filed a lawsuit alleging
the Company is obligated to make up a shortfall of approximately $137,000 in
proceeds upon the sale of the Company's common stock compared to the amount
guaranteed by the Company in the acquisition. However, the former owner
violated a lock-up agreement covering the common stock issued which, by its
terms, voids the Company's guarantee. On November 1, 1996, this lawsuit was
settled by the Company agreeing to issue the former owner 25,626 shares of its
common stock which was treated as an adjustment of the shares issued in the
acquisition.
Item 2. Changes in Securities
On February 24, 1997, the Company's stockholders at the annual meeting of
stockholders approved an amendment to the Company's Articles of Incorporation
increasing the number of authorized shares of Common Stock from 30,000,000 to
50,000,000. The issuance of any additional shares would dilute the voting power
and in many cases, the liquidation value of outstanding shares of Common Stock.
The Company has no present plans to issue additional shares of Common Stock
except under outstanding convertible securities.
Item 4. Submission of Matters to a Vote of Security Holders
a) The annual meeting of stockholders (the "Meeting") was held on
February 24, 1997.
b) The Board of Directors consisting of Johnny R. Thomas, John C.
Francis, Scott J. Loomis, Kent Schulze and Byron D. Ford were re-elected.
c) (i) The Election of the Board of Directors:
<TABLE>
<CAPTION>
FOR AGAINST OR WITHHELD ABSTENTIONS OR NON-VOTES
---- --------------------- ------------------------
<S> <C> <C> <C>
Johnny R. Thomas 12,340,878 0 54,313
John C. Francis 12,340,878 0 54,313
Scott J. Loomis 12,340,878 0 54,313
Kent Schulze 12,340,878 0 54,313
Byron D. Ford 12,340,878 0 54,313
</TABLE>
(ii) The ratification of amendments to the Company's Employee Stock Option
Plan.
5,121,698 For 716,695 Against 93,477 Non-Votes
--------- -------- ------
(iii) Adoption of amendment to the Articles of Incorporation increasing
the number of authorized shares from 30,000,000 to 50,000,000.
11,795,350 For 508,305 Against 91,536 Non-Votes
---------- ------- ------
(iv) Ratification of the appointment of KPMG Peat Marwick LLP as auditors.
12,335,106 For 28,160 Against 31,925 Non-Votes
---------- ------ ------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
16
<PAGE>
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AGRIBIOTECH, INC.
May 15, 1997 By: /s/ Henry A. Ingalls
- ------------ ---------------------
Date Henry A. Ingalls,
Vice-President/CFO
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 644,411
<SECURITIES> 0
<RECEIVABLES> 18,781,064
<ALLOWANCES> 514,426
<INVENTORY> 20,092,607
<CURRENT-ASSETS> 39,372,651
<PP&E> 12,783,273
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,290,355
<CURRENT-LIABILITIES> 27,516,425
<BONDS> 1,717,725
0
2
<COMMON> 19,830
<OTHER-SE> 26,036,373
<TOTAL-LIABILITY-AND-EQUITY> 55,290,355
<SALES> 41,164,828
<TOTAL-REVENUES> 41,164,828
<CGS> 31,005,534
<TOTAL-COSTS> 31,005,534
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,002,773
<INCOME-PRETAX> (1,188,926)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,188,926)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,188,926)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
