<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997.
Commission file number 0-19352
-------
AGRIBIOTECH, INC.
(Exact name of registrant as specified in its charter)
Nevada 85-0325742
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Corporate Park Drive, Henderson, Nevada 89014
(Address of principal executive offices)
(702) 566-2440
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (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 [_].
As of November 7, 1997, the registrant had 26,172,202 shares of Common
Stock, par value $.001 per share, issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,835,466 2,553,634
Accounts receivable, less allowance for doubtful
accounts of $820,064 at September 30, 1997
and $729,352 at June 30, 1997 27,918,974 17,474,887
Inventories 24,392,248 23,328,961
Notes receivable from sale of common stock - 9,990,000
Other 767,264 646,508
------------- -------------
Total current assets 54,913,952 53,993,990
Property, plant and equipment, net 21,043,170 17,864,052
Intangible assets, net of accumulated amortization 26,387,489 22,544,539
Investment in associated entity 759,221 567,235
Other assets 155,180 143,209
------------- -------------
Total assets $103,259,012 95,113,025
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- ------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 10,188,378 24,203,431
Current installments of long-term obligations 1,878,404 1,056,770
Accounts payable 19,397,770 10,601,813
Accrued liabilities 1,983,362 3,277,051
Amount due in connection with acquisition 8,500,000 7,300,000
------------ ------------
Total current liabilities 41,947,914 46,439,065
Long-term obligations, excluding current
installments 6,464,982 2,667,609
Deferred income taxes 1,018,369 1,018,369
------------ ------------
Total liabilities 49,431,265 50,125,043
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value; authorized
10,000,000 shares; issued and outstanding
1,100 shares at September 30, 1997
(aggregate liquidation preference of
$1,248,383) and 1,100 shares at June 30, 1997
(aggregate liquidation preference of
$1,221,666) 1 1
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
25,578,422 shares at September 30, 1997 and
23,743,385 shares at June 30, 1997 25,578 23,743
Capital in excess of par value 63,442,709 49,439,319
Common stock to be issued in acquisition 2,000,000 7,950,000
Accumulated (deficit) (11,640,541) (12,425,081)
------------ ------------
Total stockholders' equity 53,827,747 44,987,982
------------ ------------
Commitments, contingencies and subsequent
events (note 2)
Total liabilities and stockholders'
equity $103,259,012 95,113,025
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
Net sales $40,458,106 7,653,171
Cost of sales 32,923,941 5,612,580
----------- ----------
Gross profit 7,534,165 2,040,591
Operating expenses 6,470,865 3,299,390
----------- ----------
Earnings (loss) from operations 1,063,300 (1,258,799)
----------- ----------
Other income (expense):
Interest expense (708,360) (259,818)
Interest income 73,962 89,984
Other 355,638 133,962
----------- ----------
Total other income (expense) (278,760) (35,872)
----------- ----------
Net earnings (loss) 784,540 (1,294,671)
Discount and imputed dividends on preferred stock 26,718 706,850
----------- ----------
Net earnings (loss) attributable to common stock 757,822 (2,001,521)
=========== ==========
Shares of common stock used in computing earnings
(loss) per common share:
Basic 25,073,230 9,105,682
Diluted 28,213,336 9,105,682
=========== ==========
Net earnings (loss) per common
share:
Basic $ 0.03 (0.22)
Diluted 0.03 (0.22)
=========== ==========
</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 Capital in Common stock
--------------- ------------------- excess of to be issued Accumulated
Shares Amount Shares Amount par value in acquisition (deficit) Total
------ ------- ---------- ------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 1,100 $1 23,743,385 $23,743 49,439,319 7,950,000 (12,425,081) 44,987,982
Common stock issued for:
Exercise of options - - 185,000 185 439,353 - - 439,538
Exercise of warrants - - 862,537 863 5,632,852 - - 5,633,715
Acquisitions - - 787,500 787 7,949,213 (7,950,000) - -
Common stock to be issued in acquisition - - - - - 2,000,000 - 2,000,000
Expenses of stock issuances - - - - (18,028) - - (18,028)
Net earnings - - - - - - 784,540 784,540
------ ------- ---------- ------- ---------- -------------- ----------- ----------
Balance at September 30, 1997 1,100 $1 25,578,422 $25,578 63,442,709 2,000,000 (11,640,541) 53,827,747
====== ======= ========== ======= ========== ============== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 784,540 (1,294,671)
Adjustments to reconcile net earnings (loss) to net cash
flows from operating activities:
Amortization 283,169 35,991
Depreciation 342,464 150,274
Equity in earnings of associated entity (174,486) -
Common stock for services - 57,330
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable (9,636,018) 1,263,555
Inventories 347,735 (2,001,212)
Other assets 115,908 207,100
Payables 8,012,729 1,697,523
Accrued liabilities (1,613,241) 3,199
------------ ------------
Net cash flows from operating activities (1,537,200) 119,089
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (908,782) (406,902)
Additions to intangible assets (8,267) -
Advances to associated entity (17,500) -
------------ ------------
Net cash flows from investing activities (934,549) (406,902)
------------ ------------
Cash flows from financing activities:
Net proceeds (repayments) of short-term debt (14,015,053) (588,984)
Additions to long-term debt 5,000,000 20,982
Repayments of long-term debt (476,591) (121,201)
Payments on amount due in connection with acquisition (4,800,000) -
Sale of preferred stock - 10,000,000
Exercise of options 439,538 656,125
Exercise of warrants 5,633,715 -
Redemption of preferred stock - (905,465)
Expenses of stock issuance (18,028) (1,364,355)
Payments received on notes receivable from
sale of stock 9,990,000 -
------------ ------------
Net cash flows from financing activities 1,753,581 7,697,102
------------ ------------
Net increase (decrease) in cash and cash equivalents (718,168) 7,409,289
Cash and cash equivalents at beginning of period 2,553,634 2,522,309
------------ ------------
Cash and cash equivalents at end of period $ 1,835,466 9,931,598
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three-month period
ended September 30,
------------------------
1997 1996
----------- ------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 704,732 138,021
=========== ===========
Non cash investing and financing activities:
Accrued costs of acquisition $ 100,000 835,000
Amount due in connection with acquisitions 6,000,000 15,997,034
Common stock to be issued in acquisition 2,000,000 -
=========== ===========
Summary of assets and liabilities acquired
through acquisitions:
Accounts receivable $ 808,069 1,991,765
Inventories 1,411,022 8,778,624
Property, plant and equipment 2,612,800 4,693,197
Intangible assets 4,117,852 1,807,910
Other assets 248,635 676,111
Accounts payable and accrued expenses (1,002,780) (762,401)
Long-term and short-term debt (95,598) (353,172)
----------- -----------
Net assets acquired $ 8,100,000 16,832,034
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(Unaudited)
============================================================================
(1) Presentation of Unaudited Financial Statements
----------------------------------------------
AgriBioTech, Inc. ("ABT" or the "Company") is a vertically integrated
agricultural seed company specializing in developing, breeding, processing,
packaging and distributing varieties of forage (hay crops) and cool season
turfgrass seeds. The Company also distributes corn, soybean and other seeds as
ancillary products. Since January 1, 1995, the Company has followed a business
strategy to acquire established, regionally based seed companies with
proprietary products and established research, production and distribution
channels in their respective markets in order to consolidate and vertically
integrate the forage and turfgrass sectors 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 three-month periods ended September 30, 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 LaCrosse Seed
Corporation ("LaCrosse") effective July 1, 1997. The transaction was recorded
using the purchase method of accounting. The purchase includes cash, inventory,
accounts receivable, prepaid assets, fixed assets and intangible assets, less
accounts payable and certain assumed liabilities. The net purchase price was
paid through cash of $5,000,000 paid at closing and 229,885 shares of ABT common
stock valued at $2,000,000, which amount the Company has guaranteed will be
received by the former owners of LaCrosse, if the ABT common stock is sold
pursuant to a lock-up agreement through October 1998. The Company will receive a
portion of the proceeds from the sale of the ABT stock in excess of $14 per
share during this same period. In addition, the Company paid each of the two
former principals $500,000 for covenants not to compete. Intangible assets
consist of covenants not to compete, trademark rights and goodwill.
During the year ended June 30, 1997, the Company consummated the acquisitions
described in Note 1 of Notes to Consolidated Financial Statements in the
Company's June 30, 1997 Form 10-KSB. All consummated acquisitions are included
in the Company's consolidated results of operation for the entire three-month
period ended September 30, 1997 so pro-forma results of operations are the same
as the actual amounts. Unaudited pro-forma results of operations for the three-
month period ended September 30, 1996, assuming all acquisitions had occurred at
the beginning of the period presented, are as follows:
<TABLE>
<CAPTION>
Three-month period ended
------------------------
September 30, 1996
------------------
<S> <C>
Net sales $40,534,001
Net earnings 87,111
Net (loss) attributable to common stock (619,739)
Net (loss) per share (0.06)
</TABLE>
8
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(Unaudited)
============================================================================
On September 5, 1997, the Company signed a letter of intent to acquire through
merger all of the capital stock of Lofts Seed, Inc. and its affiliated
companies, Budd Seed, Inc. and Sunbelt Seeds, Inc. (collectively "Lofts").
Lofts is one of the premier turfgrass seed companies in the United States with
unaudited total assets at June 30, 1997 of approximately $23.4 million and, for
the twelve months ended June 30, 1997, had net sales of approximately $74.7
million and income before income taxes of approximately $4.0 million. The
Company anticipates closing this transaction in early 1998. The transaction
will be recorded using the purchase method of accounting.
On October 6, 1997, the Company signed a letter of intent to acquire all of the
ownership interests of Seed Corporation of America and Green Seed Company
Limited Partnership, which are companies with common ownership ("SeedCo/Green").
SeedCo/Green are major distributors of forage and turfgrass seed in the eastern
United States with unaudited total assets at June 30, 1997 of approximately $7.8
million and, for the twelve months ended June 30, 1997, net sales of
approximately $38.7 million and income before income taxes of approximately $0.5
million. The Company anticipates closing this transaction in early 1998. The
transaction will be recorded using the purchase method of accounting.
(3) Capital Stock
-------------
Between July 1, 1997 and September 30, 1997, 676,912 of the Company's Class C
Warrants were exercised at their stated conversion price of $7.50 and 185,625
other warrants were exercised at their stated conversion price of $3.00 per
share. In addition, options for 185,000 shares of the Company's common stock
were exercised at their stated exercise prices ranging from $1.81 to $5.19.
Since June 30, 1997, the Company has increased its outstanding stock options
through grants to new employees, options for all employees (including former
owners) of acquired entities who continued employment with the Company, and
options for the former owners of LaCrosse in connection with their covenant not
to compete. These grants aggregated 189,300 shares of the Company's common
stock from the Company's Employee Stock Option Plan and 1,200,000 shares outside
of this plan at prices ranging from $3.00 to $8.44. The exercise price of all
options granted equaled or exceeded the quoted market price at the date the
options were granted.
When the Company issued its Series B Convertible Preferred Stock in April 1996
and its Series C Convertible Preferred Stock in September 1996 (collectively,
the "Preferred Stock"), the Company determined the economic substance of the
Preferred Stock was equivalent to common stock. This conclusion was reached
because the documents authorizing the Preferred Stock provide that the holders
of the Preferred Stock are not entitled to receive dividends, the Company has no
requirements to make any cash payments with respect to the Preferred Stock, and
the ultimate satisfaction of the Preferred Stock would be through conversion
to common stock, either by the election of the holders or automatically at the
future date provided by the underlying documents. Accordingly, the Company did
not reflect any accounting consequences of the conversion features of the
Preferred Stock or account for dividends on the Preferred Stock. In March 1997,
an announcement was made at a meeting of the Financial Accounting Standards
Board's ("FASB") Emerging Issues Task Force (Topic No. D-60) setting forth the
position of the staff of the Securities and Exchange Commission (the "Staff")
regarding securities containing conversion features allowing for conversion into
common stock at a discount from future quoted market prices. The Staff stated
that an allocation of the proceeds from the issuance of the securities should be
made to the conversion feature and the resulting discount is analogous to a
dividend that should be recognized as a return to the holders of the securities
over the period between issuance and when the securities first become
convertible. The Staff also stated that affected financial statements should be
restated. Although the Preferred Stock will ultimately be converted into common
stock, the Company restated its financial statements to reflect the Staff's
position in February 1998 shortly after becoming aware of Topic No. D-60. The
application of the Staff's position results in discounts of none and $547,003
during the three-month periods ended September 30, 1997 and 1996 and imputed
dividends of $26,718 and $159,847 in such periods. As restated, such amounts are
reflected in net earnings (loss) attributable to common stock (on which earnings
(loss) per share is computed). This resulted in the net earnings attributable to
common stock being decreased by $26,718 to $757,822 for the three-month period
ended September 30, 1997 and net loss attributable to common stock being
increased by $706,850 to $2,001,521 for the three-month period ended September
30, 1996. It did not change earnings per share for the three-month period ended
September 30, 1997 but changed net loss per common share from $0.14 to $0.22 for
the three-month period ended September 30, 1996. The discounts and imputed
dividends were attributed to capital in excess of par value and, therefore,
resulted in no change in stockholders' equity. The restatement had no impact on
the Company's consolidated balance sheets, statements of cash flows, or the net
sales, costs, expenses, and net earnings (loss) shown on the Company's
consolidated statements of operations.
(4) Earnings per Share
------------------
The FASB has 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
and is required to be applied retroactively upon initial adoption at its
effective date, which for the Company is in connection with the quarter ended
December 31, 1997. Accordingly, the Company has applied SFAS No. 128 herein. The
company is required to make a dual presentation on the face of the income
statement of "basic" earnings per share, based on the average number of common
shares outstanding during each period without any dilution, and "diluted"
earnings per share, reflecting all dilution from contingently issuable
securities. Such statement did not have a significant impact on the Company's
computation of earnings (loss) per share. The impacts of outstanding options and
warrants were dilutive during the three-month period ended September 30, 1997
and, therefore, are reflected in the computation of diluted earnings per share
but the impacts of the Company's convertible preferred stock were anti-dilutive
and not included. All such items were anti-dilutive in the three-month period
ended September 30, 1996 and not reflected in diluted loss per share. The number
of shares used in computing diluted earnings per share for the three-month
period ended September 30, 1997 is as follows:
<TABLE>
<S> <C>
Weighted average shares outstanding 25,073,230
Options and warrants 3,140,106
----------
Total shares used in computing diluted earnings per share 28,213,336
==========
</TABLE>
9
<PAGE>
AGRIBIOTECH, INC., and SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 1996
(Unaudited)
============================================================================
(5) Income Taxes
------------
No provision for income taxes has been provided in the accompanying financial
statements since the Company estimates that its effective income tax rate for
the year ended June 30, 1998 will be zero based on the current level of the
Company's operations and the level of net operating losses available to offset
income subject to tax in the current period. See Note 9 of Notes to Consolidated
Financial Statements in the Company's June 30, 1997 Form 10-KSB.
-------------------------------------------------------------------
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion and analysis of financial condition and results of
operation should be read in conjunction with the consolidated financial
statements and notes thereto of the agricultural Company included elsewhere
herein. The Company is a vertically integrated agricultural seed company
specializing in developing, breeding, packaging, processing and distributing
varieties of forage (hay crops) and cool season turfgrass seeds. The Company
also distributes corn, soybean and other seeds as ancillary products. The
Company commenced an acquisition program (the "Acquisition Program") in January
1995 and has grown significantly through its business strategy of acquiring
reputable, regionally based seed companies with proprietary products and
established research, production, processing and distribution channels in their
respective markets. These acquisitions, as well as start-up operations, are more
fully discussed in Note 1 of Notes to Consolidated Financial Statements in the
June 30, 1997 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.
Acquisitions that have effective dates subsequent to July 1, 1996 and therefore
impact comparability of the financial information presented herein are as
follows:
<TABLE>
<CAPTION>
Effective
Name Date
- ---- ----
<S> <C>
W-L Research, Inc. and Germain's Inc. September 1, 1996
E.F. Burlingham & Sons April 1, 1997
The Sexauer Company April 1, 1997
Olsen Fennell Seeds, Inc. June 1, 1997
LaCrosse Seed Corporation July 1, 1997
</TABLE>
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 Company's recent and pending acquisitions have sales that are more
concentrated in turgrass seeds compared to earlier acquisitions that were more
concentrated in forage seeds. This change in product mix is expected to reduce
the variability associated with seasonality in that turfgrass seed operations
historically have large selling seasons in the spring and fall whereas the
selling season of forage operations is primarily in the spring. However,
quarterly operating results will continue to fluctuate depending on the timing
of future acquisitions and the relative magnitude of forage and turfgrass seed
sales.
The statements discussed herein include forward looking statements that involve
a number of risks and uncertainties. These include the Company's historical
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 $12,966,038 at September 30, 1997, as
compared to $7,554,925 at June 30, 1997. To finance acquisitions and ongoing
operations, the Company has raised significant amounts of additional equity
capital. In the three-months ended September 30, 1997 (the "1998 Three-Month
Period"), the Company received cash proceeds of $6,073,253 from the exercise of
options and warrants to acquire the Company's common stock. The Company also
received $9,990,000 in payments on notes receivable at June 30, 1997 from the
exercise of options and warrants prior to June 30, 1997.
11
<PAGE>
At June 30, 1997, the Company had a $22 million line of credit with Bank of
America ("BofA"). Borrowings under this line of credit bear interest at the
bank's reference rate plus 0.5% (9% at September 30, 1997) are are limited to
70% of eligible accounts receivable and 50% of eligible inventory. This facility
is collateralized by security interests in inventory, receivables, equipment and
intangibles. At June 30, 1997, the Company also had a $4 million term note
outstanding. The note was repayable in July and August 1997 and was repaid when
due. In August 1997, the revolving line of credit was increased to $25 million
and the Company received a $5 million term loan from BofA. At September 30,
1997, $10.2 million was outstanding on the revolving line of credit and the term
loan had been fully advanced.
The seed business is subject to wide seasonal fluctuations which result in
significant increases in the level of inventory prior to heavier selling seasons
and related higher levels of accounts receivable following such sales. In
addition, industry practice dictates a significant amount of sales are made with
extended terms. The seed business can also be significantly impacted by the
weather, which can alter the timing of seed sales. Therefore, it is possible
that the Company may need to seek additional financial resources to finance
ongoing operations. The Company believes it has adequate financial resources to
close its pending acquisitions. However, the Company expects that it will need
to obtain additional equity and/or debt financing in order to continue its
Acquisition Program beyond acquisitions that are currently pending.
During the 1998 Three-Month Period, the Company had net negative cash flows from
operating activities of $1,537,200, compared to net cash flows from operating
activities of $119,089 during the three-month period ended September 30, 1996
(the "1997 Three-Month Period"). The 1998 Three-Month Period reflects the
Company's net earnings of $784,540, adjusted for non-cash operating items and
changes in operating assets and liabilities (primarily increases in accounts
receivable resulting from the fall selling season that were partially offset by
an increase in accounts payable). During the 1998 Three-Month Period, the
Company had net negative cash flows from investing activities of
$934,549 compared to net negative cash flows from investing activities of
$406,902 in the 1997 Three-Month Period, primarily from additions to property,
plant and equipment. During the 1998 Three-Month Period, the Company had net
cash flows from financing activities of $1,753,581, primarily due to the
financing factors stated above offset by a net reduction of short-term debt of
$14,015,053 and reductions in amounts due in connection with acquisitions of
$4,800,000. Cash flows from financing activities of $7,697,102 during the 1997
Three-Month Period resulted primarily from the issuance of convertible preferred
stock. These cash flows resulted in a decrease in cash of $718,168 during the
1998 Three-Month Period and an increase in cash of $7,409,289 during the 1997
Three-Month Period.
Results of Operation
Selected information concerning the results of operations is summarized as
follows:
<TABLE>
<CAPTION>
Three-Month Period
Ended September 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Net sales $40,458,106 7,653,171
Gross profit 7,534,165 2,040,591
Percentage of net sales 18.6% 26.7%
Operating expenses 6,470,865 3,299,390
Percentage of net sales 16.0% 43.1%
</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.
Furthermore, companies acquired since July 1, 1996 have generally been larger
and more profitable than those acquired prior to that date.
The increase in the amount of gross profit is due to the acquisitions as
described above. The decrease in the gross profit percentage is primarily due
to a significant change in the mix of products sold resulting from recent
12
<PAGE>
acquisitions which have a higher percentage of turfgass seed sales that have
historically commanded lower margins than forage seeds. Many turfgrass seed
companies use their suppliers, who are typically large farmers that grow seed,
to also clean, process, package, store, and finance the seed prior to purchase.
This results in lower margins being captured by the turfgrass seed companies.
The sales of the recently acquired E.F. Burlingham & Sons and Olsen Fennell
Seeds, Inc., aggregating approximately $27.5 million during the 1998 Three-Month
Period, are primarily turfgrass seeds at relatively low margins compared to
forage seed sales. The Company's goal is to raise gross margins over the next
several years as a result of the Company's attempt to consolidate the forage and
turfgrass sector of the seed industry, vertically integrate its operations, and
shift its product lines from primarily public varieties (commodities) to
proprietary (value added) products.
To accomplish the Company's business strategy, it has been necessary to build
its operational infrastructure ahead of revenue growth. As revenue continues to
grow, operating expenses as a percentage of sales is expected to decrease due to
the spreading of the infrastructure costs over a larger sales base. This ratio
is expected to continue to decline as revenue growth continues to exceed growth
in expenses and operating synergies occur through 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. After acquisition, the Company has been able to significantly
reduce expenses, as compared to historical operations prior to the effective
date of some acquisitions, as a result of operating efficiencies. For example,
the Company has combined what were historically six separate operations into
three operations. The major components of operating expenses are as follows:
<TABLE>
<CAPTION>
Three-Month Period
Ended September 30,
-------------------
1997 1996
---- ----
<S> <C> <C>
Personnel costs $3,458,390 1,577,547
Occupancy expenses 1,069,551 640,513
Vehicle and shipping 335,326 135,242
Outside services 178,859 161,410
Travel 285,374 129,793
Advertising and promotion 270,202 197,419
</TABLE>
Research and development expenditures were $457,331 in the 1998 Three-Month
Period compared to $93,889 in the 1997 Three-Month Period, substantially all of
which was attributable to W-L Research, Inc., E.F. Burlingham & Sons, and Olsen
Fennell Seeds, Inc., all of which have major research and development programs.
As the Company transforms its forage and turfgrass seed businesses to
proprietary products and increases gross margins, the Company expects research
and development expenses as a percentage of sales will continue to increase and
to eventually be similar to public companies in the other proprietary seed
sectors.
The Company's interest expense increased to $708,360 in the 1998 Three-Month
Period compared to $259,818 in the prior year. This was primarily due to
increasing the Company's line of credit plus additional funds to finance its
growth. In addition, the Company recognized imputed interest expense of
$161,233 in the 1998 Three-Month Period compared to $110,148 in the 1997 Three-
Month Period to account for the period of time between the effective and closing
dates of the Company's acquisitions.
Included in other income is earnings of Seedbiotics, L.L.C., an entity owned
fifty percent by the Company, of $174,486 for the Fiscal 1998 Three-Month Period
compared to none in the prior year.
Net earnings for the Company was $784,540 for the 1998 Three-Month Period
compared to a net loss of $1,294,671 in the prior year as a result of the items
discussed above. Average common shares outstanding was 25,073,230 during the
1998 Three-Month Period compared to 9,105,682 in the prior year. The increase
reflects additional shares issued, primarily in connection with acquisitions,
options, warrants, and conversions of preferred stock as discussed in Note 4 of
Notes to Consolidated Financial Statements.
As discussed in note 3 of Notes to the Consolidated Financial Statements, the
Company recently became aware of a position taken by the staff of the Securities
and Exchange Commission regarding securities, such as the Company's convertible
preferred stock, containing conversion features allowing for conversion into
common stock at a discount from future quoted market prices. This position
required the Company to restate its financial statements to allocate an amount
to the conversion feature and to account for it as a return to the holders of
the securities, as well as to impute dividends on the convertible preferred
stock. This resulted in the net earnings attributable to common stock (on which
earnings (loss) per share is computed) being decreased by $26,718 to $757,822
for the 1998 Three-Month Period and net loss attributable to common stock being
increased by $706,850 to $2,001,521 for the 1997 Three-Month Period, did not
change net earnings per common share for the 1998 Three-Month Period, and
changed net loss per common share from $0.14 to $0.22 for the 1997 Three-Month
Period. The restatement had no impact on the Company's consolidated balance
sheets, statements of cash flows, or the net sales, costs, expenses, and net
earnings (loss) shown on the Company's consolidated statements of operations.
Furthermore, as discussed in note 4 of Notes to Consolidated Financial
Statements, Statement of Financial Accounting Standards No. 128 requires a
retroactive change in the presentation of earnings per share upon initial
adoption at its effective date, which for the Company is in connection with the
quarter ended December 31, 1997. Accordingly, the Company has applied SFAS No.
128 herein. Such statement did not have a significant impact on the Company's
computation of earnings (loss) per share.
As discussed in note 1(b) of Notes to the Consolidated Financial Statements in
the Company's June 30, 1997 Form 10-KSB, the Company takes effective control of
acquired businesses as of a mutually agreed upon effective date that precedes
the closing date when consideration is transferred to the sellers. The Company
begins reflecting the acquired businesses in its Consolidated Financial
Statements as of the effective date. The following table shows the net sales and
net earnings (loss) as if the results of operation of the acquired businesses
from the effective date to the closing date were removed from the reported
consolidated operating results and reflecting the acquisitions beginning with
the closing date:
<TABLE>
<CAPTION>
Period ended Net sales Net earnings
(loss)
(In thousands)
<S> <C> <C>
Three months ended September 30, 1996 $ 4,938 (1,563)
Three months ended September 30, 1997 30,618 (166)
</TABLE>
The following charts show the net sales and net earnings (loss) shown in the
Company's consolidated financial statements compared to those items as shown in
the above table, as well as similar comparisons of total assets and total
stockholders' equity:
[Omitted line graphs for 1) net sales, 2) net earnings (loss), 3) total assets,
and 4) total stockholders' equity showing by quarter from September 30, 1996
through September 30, 1997 amounts in thousands a) as reported, using effective
dates, and b) using closing dates.]
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 effected 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. The 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 impacts of recently adopted accounting standards is discussed in Note 2 of
Notes to Consolidated Financial Statements in the Company's Form 10-KSB for the
year ended June 30, 1997 and Note 4 of Notes to Consolidated Financial
Statements herein.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AGRIBIOTECH, INC.,
August 10, 1998 By: /s/ HENRY A. INGALLS
--------------------------
Henry A. Ingalls,
Vice-President/CFO
16
