<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 December 31, 1996.
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 February 11, 1997, the Registrant had 19,228,894 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>
December 31, June 30,
1996 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,830,895 2,522,309
Accounts receivable, less allowance for doubtful accounts
of $542,799 at December 31, 1996 and $104,773 at June 30, 1996 8,999,669 7,501,725
Inventories 22,165,638 7,257,795
Other 378,454 285,811
----------- ----------
Total current assets 33,374,656 17,567,640
Property, plant and equipment, net 12,780,760 7,916,145
Intangible assets, net of accumulated amortization 2,320,005 546,327
Investment in associated entity, at equity 739,711 --
Other assets 126,333 153,676
----------- ----------
Total assets $49,341,465 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>
December 31, June 30,
1996 1996
------------- ------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 12,494,814 5,088,984
Current installments of long-term debt 279,317 567,353
Accounts payable 10,833,825 4,406,588
Accrued liabilities 1,369,058 1,043,746
------------ ----------
Total current liabilities 24,977,014 11,106,671
Long-term debt, excluding current installments 2,351,419 1,054,621
------------ ----------
Total liabilities 27,328,433 12,161,292
------------ ----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding 8,770 shares at December 31, 1996
(aggregate liquidation preference of $9,045,704) and 6,530 shares
at June 30, 1996 (aggregate liquidation preference of $6,667,002) 9 7
Common stock, $.001 par value; authorized 30,000,000
shares; issued and outstanding 14,667,637 shares at
December 31, 1996 and 8,543,757 shares at June 30, 1996 14,668 8,544
Capital in excess of par value 34,191,321 23,752,051
Accumulated (deficit) (12,185,286) (9,711,316)
------------ ----------
22,020,712 14,049,286
Deferred compensation (7,680) (26,790)
------------ ----------
Total stockholders' equity 22,013,032 14,022,496
------------ ----------
Contingency and subsequent events (notes 5 and 6)
Total liabilities and stockholders' equity $ 49,341,465 26,183,788
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six-month period Three-month period
ended December 31, ended December 31,
------------------ ------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $20,941,341 6,932,674 13,288,170 4,463,644
Cost of sales 16,174,516 5,239,454 10,561,936 3,388,669
----------- ---------- ---------- ---------
Gross profit 4,766,825 1,693,220 2,726,234 1,074,975
Operating expenses 6,832,788 3,340,723 3,533,398 1,943,549
----------- ---------- ---------- ---------
(Loss) from operations (2,065,963) (1,647,503) (807,164) (868,574)
----------- ---------- ---------- ---------
Other income (expense):
Interest expense (621,126) (54,249) (361,308) (41,156)
Interest income 173,910 20,771 83,926 6,495
Other 39,209 (28,821) (94,753) (31,952)
----------- ---------- ---------- ---------
Total other income (expense) (408,007) (62,299) (372,135) (66,613)
----------- ---------- ---------- ---------
Net (loss) $(2,473,970) (1,709,802) (1,179,299) (935,187)
=========== ========== ========== =========
Shares of common stock used in
computing loss per share 10,808,746 7,235,134 12,511,810 7,326,057
=========== ========== ========== =========
Net (loss) per share $ (0.23) (0.24) (0.09) (0.13)
=========== ========== ========== =========
</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 -- -- 1,670,748 1,671
Preferred stock converted and
redeemed (7,760) (8) 3,662,506 3,662
Cancellation of options -- -- 750,000 750
Other -- -- 25,626 26
Expenses of stock issuances -- -- -- --
Deferred compensation earned -- -- -- --
Net (loss) -- -- -- --
--------- -------- ---------- -------
Balance at December 31, 1996 8,770 $ 9 14,667,637 $14,668
========= ======== ========== =======
<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 3,022,383 -- -- 3,024,054
Preferred stock converted and
redeemed (1,248,011) -- -- (1,244,357)
Cancellation of options (750) -- -- --
Other (26) -- -- --
Expenses of stock issuances (1,380,201) -- -- (1,380,201)
Deferred compensation earned -- -- 19,110 19,110
Net (loss) -- (2,473,970) -- (2,473,970)
---------- ----------- ------- ----------
Balance at December 31, 1996 34,191,321 (12,185,286) (7,680) 22,013,032
========== =========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six-month period
ended December 31,
------------------
1996 1995
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,473,970) (1,709,802)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Amortization 83,534 66,515
Depreciation 371,103 187,970
Equity in earnings of associated entity (58,071) --
Common stock for services 65,010 142,539
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable 493,821 (52,522)
Inventories (6,129,219) (2,515,747)
Other assets (70,829) (153,006)
Payables 5,664,836 1,786,821
Accrued liabilities (509,688) 682,667
------------ ----------
Net cash flows from operating activities (2,563,473) (1,564,565)
------------ ----------
Cash flows from investing activities:
Additions to property, plant and equipment (587,521) (361,781)
Additions to intangible assets (4,302) (373,922)
Acquisitions (15,997,034) (1,434,732)
------------ ----------
Net cash flows from investing activities (16,588,857) (2,170,435)
------------ ----------
Cash flows from financing activities:
Net proceeds of short-term debt 7,405,830 1,592,709
Repayments of long-term debt (190,392) (119,388)
Sale of preferred stock 10,000,000 --
Exercise of options 3,024,054 --
Redemption of preferred stock (1,244,357) --
Expenses of stock issuance (1,380,201) --
Additions to long-term debt 845,982 --
Payments received on notes receivable from
sale of stock -- 1,502,607
------------ ----------
Net cash flows from financing activities 18,460,916 2,975,928
------------ ----------
Net increase (decrease) in cash and cash equivalents (691,414) (759,072)
Cash and cash equivalents at beginning of period 2,522,309 1,422,943
------------ ----------
Cash and cash equivalents at end of period $ 1,830,895 663,871
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six-month period
ended December 31,
------------------
1996 1995
----------- ----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 613,053 27,904
=========== ==========
Non cash investing and financing activities:
Accrued costs of acquisition $ 835,000 --
Debt issued in connection with acquisitions -- 1,250,000
Receivable from exercise of warrants -- 1,297,800
Increase in warrant exercise price -- 155,736
Reduction of notes receivable for acquisitions -- 1,853,587
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 1,991,765 878,272
Inventories 8,778,624 926,036
Property, plant and equipment 4,693,197 3,751,862
Intangible assets 1,807,910 --
Other assets 676,111 110,373
Accounts payable and accrued expenses (762,401) (255,131)
Long-term and short-term debt (353,172) (1,216,870)
----------- ----------
Net assets acquired $16,832,034 4,200,183
=========== ==========
</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 six-month and three-month periods ended
December 31, 1996 and 1995. 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, Inc. a limited liability company. 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
is as follows:
<TABLE>
<CAPTION>
Six-Month Period Ended Three-Month
---------------------- Period Ended
December 31, 1996 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue $23,464,809 21,175,088 13,829,446
Net earnings(loss) (2,542,239) (3,381,886) (1,212,267)
Net earnings(loss) per share (0.24) (0.44) (0.16)
</TABLE>
8
<PAGE>
AGRIBIOTECH, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
===============================================================================
(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 reverts back to $15
million. 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 December 31, 1996, 4,880 shares of the Company's Series
B Convertible Preferred Stock were presented for conversion. The Company issued
2,066,890 shares of common stock and redeemed for cash the equivalent of 435,820
shares of common stock aggregating $1,094,021. At December 31, 1996, the 1,650
shares of Series B Convertible Preferred Stock outstanding had a liquidation
preference of $1,768,275 and were convertible into 1,058,847 shares of common
stock. Between January 1, 1997 and February 11, 1997, 750 shares of Series B
Convertible Preferred Stock were submitted to the Company for conversion. The
Company issued 357,573 shares of common stock and redeemed for cash the
equivalent of 57,361 shares of common stock aggregating $120,781. At February
11, 1997, the 900 shares of Series B Convertible Preferred Stock outstanding
were convertible into 390,667 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 December 31, 1996, 2,880 shares of the
Company's Series C Convertible Preferred Stock were presented for conversion.
The Company issued 1,595,616 shares of common stock and redeemed for cash the
equivalent of 67,703 shares of common stock aggregating $150,336. At December
31, 1996, the 7,120 shares of Series C Convertible Preferred Stock outstanding
had a liquidation preference of $7,277,429 and were convertible into 4,357,742
shares of common stock. Between January 1, 1997 and February 11, 1997, 5,312
shares of Series C Convertible Preferred Stock were submitted to the Company for
conversion. The Company issued 2,434,058 shares of common stock and redeemed
for cash the equivalent of 472,164 shares of common stock aggregating
$1,040,955. At February 11, 1997, the 1,808 shares of Series C Convertible
Preferred Stock outstanding were convertible into 747,769 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 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,
9
<PAGE>
AGRIBIOTECH, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
===============================================================================
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 after being
outstanding two years if not been 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 567,000 shares of common stock at prices ranging
from $2.00 to $3.50 per share. The exercise price of all options granted equaled
or exceeded the quoted market price at the date of grant.
Subsequent to December 31, 1996, outstanding options to purchase 153,626 shares
of common stock were exercised at their stated exercise price of $1.81 per
share.
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 exerciseable
for one share of the Company's common stock at $7.50 through January 17, 1998.
In January 1997, the Company agreed to issue 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. Such amount has been excluded from
current liabilities.
(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 is seeking 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 have
denied the allegations and are vigorously defending the lawsuit. The Company
believes that the lawsuit has no merit.
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.
10
<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 $8,397,642 at December 31, 1996, as compared
to $6,460,969 at June 30, 1996. The December 31, 1996 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
11
<PAGE>
Company has raised significant amounts of additional equity capital. In the six-
months ended December 31, 1996 (the "1997 Six-Month Period"), the Company
received gross cash proceeds of $10,000,000 from the private placement of
preferred stock. The Company paid commissions and selling expenses equal to 13%
of the gross proceeds. In addition, the Company received $3,024,054 from the
exercise of existing options for common stock. Subsequent to December 31, 1996,
the Company received $278,063 from the exercise of existing options and
$2,924,960 from the exercise of its outstanding Class B Warrants. In the 1997
Six-Month Period, the Company paid $1,244,357 for the partial redemption of
preferred stock submitted to the Company for conversion into common stock since
the Company believes this will promote a more orderly conversion to common stock
which will allow the Company future access to growth capital under more
favorable terms. Between January 1, 1997 and February 11, 1997, the Company paid
$1,161,736 for the partial redemption of preferred stock. 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 reverts back to $15 million. In the event
borrowings under the line of credit exceed $15 million at March 31, 1997, the
Company would need to repay such excess or obtain a further amendment to the
line of credit. 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 Six-Month Period, the Company had net deficit cash flows from
operating activities of $2,563,473, compared to net deficit cash flows from
operating activities of $1,564,565 during the six-month period ended December
31, 1995 (the "1996 Six-Month Period"). The 1997 Six-Month Period reflects the
Company's operating loss of $2,473,970, adjusted for non-cash operating items
and changes in operating assets and liabilities (primarily an increase in
inventory in anticipation of the spring selling season that was substantially
offset by an increase in accounts payable). During the 1997 Six-Month Period,
the Company had net deficit cash flows from investing activities of $16,588,857
compared to net deficit cash flows from investing activities of $2,170,435 in
the 1996 Six-Month Period. Cash used for acquisitions was $15,997,034 and
$1,434,732, respectively. During the 1997 Six-Month Period, the Company had net
cash flows from financing activities of $18,460,916, primarily due to the
factors stated above, compared to net cash flows from financing activities of
$2,975,928 during the 1996 Six-Month Period. These cash flows resulted in a
decrease in cash of $691,414 during the 1997 Six-Month Period and a decrease in
cash of $759,072 during the 1996 Six-Month Period.
12
<PAGE>
RESULTS OF OPERATION
Selected information concerning the results of operations is summarized as
follows
<TABLE>
<CAPTION>
Six-Month Period Three-Month Period
Ended December 31, Ended December 31,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $20,941,341 6,932,674 13,288,170 4,463,644
Gross Profit 4,766,825 1,693,220 2,726,234 1,074,975
Percentage of net sales 22.8% 24.4% 20.5% 24.1%
Operating Expenses 6,832,788 3,340,723 3,533,398 1,943,549
Percentage of net sales 32.7% 48.2% 26.7% 43.5%
</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 1996, 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. Excluding these
sales gross profit as a percentage of sales would have been 24.4% in the Six-
Month Period 1997 and 22.8% in the three month period ended December 31, 1996
(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>
Six-Month Period Three-Month Period
Ended December 31, Ended December 31,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Personnel costs $3,648,191 1,709,482 2,070,644 956,183
Occupancy expenses 1,384,257 559,701 743,744 306,805
Vehicle and shipping 288,179 211,739 152,937 101,392
Outside service 340,775 360,016 179,365 252,301
Travel 337,513 99,442 207,720 65,329
Advertising and Promotion 272,916 146,238 75,497 90,119
</TABLE>
Research and development expenditures were $378,834 in the 1997 Six-Month Period
and $284,945 in the 1997 Quarter, all of which is attributable to W-L/Germain's,
as compared to $15,105 and $10,001 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 other proprietary seed sectors.
W-L Research, Inc. conducts extensive research in alfalfa breeding and,
accordingly,
13
<PAGE>
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 $621,126 in the 1997 Six-Month
Period and $361,308 in the 1997 Quarter, as compared to $54,249 and $41,156 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 December 31, 1996 were approximately $12.5 million.
Net loss for the Company was $2,473,970 for the 1997 Six-Month Period and
$1,179,299 for the 1997 Quarter, as compared to $1,709,802 and $935,187 for
periods in the prior year as a result of the items discussed above. The net
loss per share was $0.23 for the 1997 Six-Month Period and $0.09 for the 1997
Quarter based on average common shares outstanding of 10,808,746 and 12,511,810
compared to $0.24 and $0.13 for periods in the prior year based on average
common shares outstanding of 7,235,134 and 7,326,057. The increase in common
shares reflects additional shares issued in connection with acquisitions,
options, warrants, conversions of preferred stock, and services rendered.
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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) One report, as amended, on Form 8-K for October 30, 1996 was filed during
the quarter for which this Report is filed, reporting under Item 2 thereof the
acquisition of W-L/Germain's.
14
<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.,
2-13-97 By: /s/ Henry A. Ingalls
- ----------------------- ---------------------------
Date Henry A. Ingalls,
Vice-President/CFO
15
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,830,895
<SECURITIES> 0
<RECEIVABLES> 9,542,468
<ALLOWANCES> 542,799
<INVENTORY> 22,165,638
<CURRENT-ASSETS> 33,374,656
<PP&E> 13,703,295
<DEPRECIATION> 922,535
<TOTAL-ASSETS> 49,341,465
<CURRENT-LIABILITIES> 24,977,014
<BONDS> 2,630,736
0
9
<COMMON> 14,668
<OTHER-SE> 21,998,355
<TOTAL-LIABILITY-AND-EQUITY> 49,341,465
<SALES> 20,941,341
<TOTAL-REVENUES> 20,941,341
<CGS> 16,174,516
<TOTAL-COSTS> 16,174,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621,126
<INCOME-PRETAX> (2,473,970)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,473,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,473,970)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
