United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999.
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 May 11, 1999, the registrant had 42,094,781 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)
<TABLE>
<CAPTION>
ASSETS
March 31, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,454,285 2,700,846
Accounts receivable, less allowance
for doubtful accounts of $3,373,214
at March 31, 1999 and $2,177,442 at
June 30, 1998 81,189,135 39,503,262
Inventories 100,126,259 58,609,554
Deferred income taxes 1,696,230 1,339,709
Other 2,880,013 1,673,903
------------ ------------
Total current assets 191,345,922 103,827,274
Property, plant and equipment, net 65,742,761 47,964,522
Intangible assets, net of accumulated
amortization 157,407,247 109,882,815
Investment in associated entity 1,187,806 818,182
Other assets 6,434,009 2,038,115
------------ ------------
Total assets $422,117,745 264,530,908
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1999 1998
------------ -------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 98,253,230 50,329,614
Current installments of long-term
obligations 2,437,195 3,251,846
Accounts payable 47,095,625 13,594,285
Accrued liabilities 16,494,091 11,251,757
------------- -------------
Total current liabilities 164,280,141 78,427,502
Long-term obligations, excluding
current installments 38,042,951 11,029,022
Deferred income taxes 2,667,912 503,348
------------- -------------
Total liabilities 204,991,004 89,959,872
------------- -------------
Stockholders' equity:
Preferred stock, $.001 par value;
authorized 10,000,000 shares; none
issued and outstanding -- --
Common stock , $.001 par value;
authorized 100,000,000 shares; issued
and outstanding 42,057,347 shares at
March 31, 1999 and 37,203,013 shares
at June 30, 1998 42,057 37,203
Capital in excess of par value 241,334,170 186,571,673
Accumulated (deficit) (24,249,486) (12,037,840)
------------- -------------
Total stockholders' equity 217,126,741 174,571,036
------------- -------------
Total liabilities and stockholders' equity $ 422,117,745 264,530,908
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $271,975,975 139,695,295 106,435,707 75,880,434
Cost of sales 202,317,624 109,209,431 78,076,245 57,623,388
------------ ------------ ------------ ------------
Gross profit 69,658,351 30,485,864 28,359,462 18,257,046
Operating expenses 73,374,229 27,441,877 27,071,015 14,762,934
Special charges 1,956,946 -- 1,956,946 --
------------ ------------ ------------ ------------
Earnings (loss) from operations (5,672,824) 3,043,987 (668,499) 3,494,112
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (7,836,358) (2,904,358) (2,257,861) (1,794,287)
Interest income 356,494 177,262 61,555 26,587
Earnings of associated entity 829,184 924,842 366,128 444,960
Other 153,109 168,401 246,764 (152,758)
------------ ------------ ------------ ------------
Total other income (expense) (6,497,571) (1,633,853) (1,583,414) (1,475,498)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes (12,170,395) 1,410,134 (2,251,913) 2,018,614
Income tax expense (benefit) 41,251 (2,907,500) 11,122 (2,907,500)
------------ ------------ ------------ ------------
Net earnings (loss) (12,211,646) 4,317,634 (2,263,035) 4,926,114
Discount and imputed dividends
on preferred stock -- 80,154 -- 26,718
------------ ------------ ------------ ------------
Net earnings (loss) attributable
to common stock $(12,211,646) 4,237,480 (2,263,035) 4,899,396
============ ============ ============ ============
Shares of common stock used in
computing earnings (loss)
per common share:
Basic 39,974,001 28,044,125 41,847,074 32,416,606
Diluted 39,974,001 32,373,638 41,847,074 36,982,290
============ ============ ============ ============
Net earnings (loss) per common share:
Basic $ (0.31) 0.15 (0.05) 0.15
Diluted (0.31) 0.13 (0.05) 0.13
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common stock Capital in
--------------------------- excess-of- Accumulated
Shares Amount par value (deficit) Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998 37,203,013 $ 37,203 186,571,673 (12,037,840) 174,571,036
Common stock issued for:
Cash 2,602,820 2,603 26,288,226 -- 26,290,829
Exercise of options 448,499 448 1,771,277 -- 1,771,725
Exercise of warrants 556,410 556 6,676,364 -- 6,676,920
Acquisitions 961,692 962 17,318,957 -- 17,319,919
Costs related to intellectual property 225,000 225 3,999,772 -- 3,999,997
Reduction of indebtedness 59,913 60 826,040 -- 826,100
Allocation to warrants of proceeds from
issuance of units including common stock
and convertible debt -- -- 4,075,820 -- 4,075,820
Options issued for services -- -- 849,452 -- 849,452
Adjustment to prior issuances of common stock
due to stock price guarantees -- -- (6,667,070) -- (6,667,070)
Amounts received pursuant to proceed sharing
under stock price guarantees -- -- 574,190 -- 574,190
Expenses of stock issuances -- -- (950,531) -- (950,531)
Net earnings (loss) -- -- -- (12,211,646) (12,211,646)
------------ ------------ ------------ ------------ ------------
Balance at March 31, 1999 42,057,347 $ 42,057 241,334,170 (24,249,486) 217,126,741
============ ============ ============ ============ ============
</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,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(12,211,646) 4,317,634
Adjustments to reconcile net earnings (loss)
to net cash flows from operating activities:
Amortization 5,062,733 1,514,164
Depreciation 3,550,306 1,298,251
Equity in earnings of associated entity (829,184) (924,842)
Deferred income taxes (1,100) (2,957,824)
Options issued for services 849,452 --
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable (29,012,133) (21,703,445)
Inventories (25,176,639) (13,781,556)
Other Assets (951,000) (336,122)
Accounts payable 21,183,687 4,981,239
Accrued liabilities (2,828,581) (1,956,038)
------------ ------------
Net cash flows from operating activities (40,364,105) (29,548,539)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (9,534,789) (2,820,736)
Additions to intangible assets (503,842) (81,081)
Distributions from (advances to) associated
entity 459,560 557,501
Acquisitions (44,067,983) (38,294,819)
Change in net assets held for sale 9,345,034 --
Amounts received (paid) pursuant to stock
price guarantees and proceed sharing (425,810) --
------------ ------------
Net cash flows from investing activities (44,727,830) (40,639,135)
------------ ------------
Cash flows from financing activities:
Net proceeds (repayments) of short-term debt 32,126,061 6,464,346
Additions to long-term debt 23,297,000 5,000,000
Reductions of long-term debt (5,442,450) (9,988,111)
Payments on amount due in connection with
acquisitions -- (5,200,000)
Sale of common stock 26,290,829 48,125,002
Exercise of options 1,771,725 2,306,192
Exercise of warrants 6,676,920 15,556,875
Allocation to warrants of proceeds from
issuance of common stock and convertible
debt 4,075,820 --
Expenses of stock issuances (950,531) (1,653,434)
Payments received on notes receivable from
sale of stock -- 9,990,000
----------- -----------
Net cash flows from financing activities 87,845,374 70,600,870
----------- -----------
Net increase (decrease) in cash and cash
equivalents 2,753,439 413,196
Cash and cash equivalents at beginning of period 2,700,846 2,553,634
----------- -----------
Cash and cash equivalents at end of period $ 5,454,285 2,966,830
=========== ===========
</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,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Supplemental Cash Flow Information:
Interest paid $ 7,842,937 2,821,988
============ ============
Non cash investing and financing activities:
Accrued costs of acquisitions $ 595,325 735,000
Common stock issued to reduce indebtedness 826,100 447,871
Common stock issued in acquisitions 17,319,919 36,802,595
Amount due in connection with acquisitions -- 15,250,000
Common stock to be issued in acquisitions -- 14,615,000
Common stock issued for costs related to
intellectual property 3,999,997 --
Debt issued in connection with acquisitions 4,890,000 --
Adjustment to prior issuances of common stock
due to stock price guarantees 6,667,070 --
============ ============
Summary of assets and liabilities acquired
through acquisitions:
Cash $ 1,126,805 1,280,985
Accounts receivable 12,673,740 12,502,486
Inventories 16,340,066 29,734,680
Net assets held for sale 9,345,034 --
Property, plant and equipment 11,793,755 16,870,511
Intangible assets 51,487,998 73,693,692
Other assets 651,007 1,573,808
Accounts payable and accrued expenses (14,952,272) (14,162,354)
Long-term and short-term debt (19,252,283) (29,771,909)
Deferred income taxes (1,809,143) (93,500)
------------ ------------
Net assets acquired $ 67,404,707 91,628,399
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
================================================================================
(A) 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 and
certain non-seed items as ancillary products. Since January 1, 1995, the Company
has followed a business strategy to acquire regionally based seed companies with
proprietary products and established research, production and distribution
channels in their respective markets in order to build a consolidated and
vertically integrated forage and turfgrass seed company to lead the
transformation of that 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
affect 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 consolidated financial statements included herein 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 and
nine-month periods ended March 31, 1999 and 1998. 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.
Certain reclassifications have been made to amounts shown for prior periods to
conform to the current-quarter presentation.
(B) Acquisitions
-------------
From July 1, 1998 through March 31, 1999, the Company completed the following
acquisitions:
<TABLE>
<CAPTION>
Purchase Price
Company Acquisition Date (In millions )
- ----------------------------- ---------------- --------------
<S> <C> <C>
Geo. W. Hill & Co. (KY) July 8, 1998 $ 6.3
Fine Lawn Research, Inc. July 8, 1998 2.7
Geo. W. Hill of Indiana, Inc. July 10, 1998 1.5
J & M Seed Company July 21, 1998 3.4
Willamette Seed Company August 21, 1998 10.8
Allied Seed Company August 28, 1998 14.0
Oseco Inc. September 1, 1998 4.3
Garden West Distributors September 18, 1998 6.5
HybriGene, LLC January 22, 1999 11.5
</TABLE>
The net purchase price of these acquisitions was paid through 961,692 shares of
ABT common stock valued at approximately $17.3 million, based on the market
price of ABT's common stock when the terms of the agreements were reached, with
the remainder paid in cash or seller provided financing. Each acquisition was
recorded using the purchase method of accounting.
As discussed in note 1(b) of Notes to the Consolidated Financial Statements in
the Company's June 30, 1998 Form 10-K, as amended, the Company had taken
effective control of acquired businesses as of a mutually agreed upon effective
8
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
================================================================================
date that preceded the closing date when consideration was transferred to the
sellers. Through March 31, 1998, the Company has reflected the acquired
businesses in its Consolidated Financial Statements as of the effective date.
After April 1, 1998, the Company is reflecting the acquired businesses in its
Consolidated Financial Statements as of the closing date.
The business of Willamette Seed Company ("Willamette") consisted of a seed
division and a division that manufactures fertilizer and distributes fertilizers
and other chemicals. Willamette's fertilizer division was outside the primary
strategic focus of the Company's business and, accordingly, when the Company
purchased Willamette in August 1998, it intended to dispose of the fertilizer
division. On December 22, 1998, the Company sold the assets of the fertilizer
division for $10.5 million with approximately $7.5 million paid in cash and the
balance paid through the assumption of trade payables and other selected debt.
Under Issue No. 87-11 of the Emerging Issues Task Force, the operating income of
the fertilizer division aggregating approximately $277,000, including interest
charges of approximately $336,000, during the period owned by the Company has
been excluded from the Company's consolidated results of operations. The sales
price for the fertilizer division approximated the estimated net realizable
value at the date of acquisition and no gain or loss was recognized.
During the year ended June 30, 1998, the Company consummated the acquisitions
described in Note 1 of Notes to Consolidated Financial Statements in the
Company's June 30, 1998 Form 10-K. Unaudited pro forma results of operations for
the three-month and nine-month periods ended March 31, 1999 and 1998, assuming
all acquisitions, had occurred at the beginning of the period presented, are as
follows:
<TABLE>
<CAPTION>
Three-month period ended
March 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Total sales $ 149,064,152 149,662,532
Intercompany sales 42,628,445 28,098,893
Net sales 106,435,707 121,563,639
Gross profit 28,359,462 27,735,914
Operating income (loss) (778,730) 5,487,127
Net earnings (loss) (2,373,158) 7,651,666
Net earnings (loss) attributable
to common stock (2,373,158) 7,624,948
Net earnings (loss) per share:
Basic (0.06) 0.18
Diluted (0.06) 0.17
Nine-month period ended
March 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Total sales $ 368,742,359 351,351,712
Intercompany sales 89,635,396 37,830,430
Net sales 279,106,963 313,521,282
Gross profit 70,927,439 69,334,369
Operating income (loss) (7,340,443) 3,100,240
Net earnings (loss) (13,551,570) 4,186,212
Net earnings (loss) attributable
to common stock (13,551,570) 4,106,058
Net earnings (loss) per share:
Basic (0.33) 0.10
Diluted (0.33) 0.09
</TABLE>
The Company entered into letters of intent to acquire the alfalfa and
international sorghum business units of AgriPro Seeds, Inc. ("ABI"), Moore Seed
Processors and Production Plus+. See note H included herein regarding ABI. The
9
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
================================================================================
Company has postponed the other two transactions and there can be no assurance
any of the three will ever be completed.
During the nine-month period ended March 31, 1999, ABT purchased approximately
15% of Kimeragen, Inc.'s common stock and acquired an exclusive world-wide
license to use Kimeragen's patented technology to develop genetically improved
forage and turfgrass species. Consideration for the license and purchase of
Kimeragen's common stock was an aggregate of $4.0 million, payable in the form
of 225,000 shares of ABT's common stock.
(C) Long-Term Obligations
----------------------
During the nine-month period ended March 31, 1999, the Company sold $23.3
million of convertible debentures and 1.7 million warrants to purchase the
Company's common stock. The Company received an aggregate of $25 million from
this transaction. The debt is due on December 30, 2001 and bears interest at 5%
per annum, which the Company has the option of paying in cash or the Company's
common stock. The debt is subordinated to the Company's revolving line of
credit. The debt is convertible into the Company's common stock at $13.68 per
share, a 10% premium above the $12.44 price of the Company's common stock on
December 29, 1998, when the transaction was priced. The Company has the option
to redeem the debt every six months beginning June 30, 1999 at redemption prices
beginning at 120% of the outstanding amounts and escalating thereafter. On each
redemption date that the Company does not redeem the debt, the conversion price
is adjusted to the market price at that time if such price is lower than the
conversion price. In addition, the conversion price is subject to adjustment
under standard anti-dilution provisions or, for five days thereafter, if the
Company enters into certain capital transactions at prices less than the
conversion price. On April 15, 1999, the Company announced its intent to pay off
the subordinated convertible debentures in full with cash to prevent a resetting
of the amount of shares into which the debt can be converted. The difference
between the amount paid to retire the debt and the amount reflected on the
Company's books would be reflected as an extraordinary item.
Each warrant is exercisable to purchase one share of the Company's common stock
at $15.00 per share through December 29, 2001. The warrants are subject to a
mandatory conversion requirement if the closing price of the Company's common
stock equals or exceeds $25.00 for 20 of 30 consecutive trading days.
(D) Short-Term Debt
----------------
The Company has a $100 million revolving line of credit with Bank of America
Business Credit and other lenders expiring in June 2001. In April 1999, the
lenders under the revolving line of credit provided the Company a seasonal
increase of $10.0 million, which allows up to $110.0 million to be borrowed
through June 30, 1999 subject to availability limitations. Borrowings under the
revolving line of credit were $98.2 million at March 31, 1999. At May 7, 1999,
the Company had borrowed $96.5 million under the revolving line of credit and
$12.4 million was available to be borrowed. Interest is payable monthly based on
a variable rate that averaged 7.6% at March 31, 1999.
Borrowings under the revolving line of credit are subject to a borrowing base
computation and compliance with certain financial covenants. Compliance with the
financial covenants is tested on a quarterly basis when quarterly financial
information is available. At March 31, 1999, the Company was not in compliance
with the debt service coverage covenant under the revolving credit agreement.
The lenders have waived compliance with this requirement. The Company is working
with the lenders to amend such covenant to be reflective of its current
operating configuration in a manner that should lessen the likelihood of the
need for similar waivers in the future. However, there is no assurance such
amendment will be obtained.
10
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
================================================================================
In July 1998, the Company obtained a $15 million bridge loan from Deutsche Bank
AG and in August 1998 the Company obtained a $15 million overadvance facility
under its revolving line of credit. Both of these borrowings were repaid in
early January 1999.
(E) Capital Stock
--------------
Since June 30, 1998, the Company has increased its outstanding stock options
through grants to new employees and consultants and options for all employees
(including former owners) of acquired entities who continued employment with the
Company. These option grants were for an aggregate of approximately 0.7 million
shares of the Company's common stock from the Company's Employee Stock Option
Plan and 1.6 million shares outside of this plan at exercise prices ranging from
$5.00 to $25.00.
In August 1998, the Company sold 1,752,820 shares of common stock and 886,410
warrants for an aggregate of $17,438,649. Each warrant is exercisable for three
years to purchase one share of the Company's common stock at $12.00. The Company
can force the warrants to be converted into common stock if the closing sale
price of the Company's common stock equals or exceeds $19.50 per share for 20 of
30 consecutive trading days. Of theses warrants, 556,410 have been exercised.
In December 1998, the Company sold 850,000 shares of common stock and 600,000
warrants for an aggregate of $11,225,000. Each warrant is exercisable for three
years to purchase one share of the Company's common stock at $15.00. The Company
can force the warrants to be converted into common stock if the closing sale
price of the Company's common stock equals or exceeds $25.00 per share for 20 of
30 consecutive trading days.
(F) Earnings per Share
-------------------
The components of shares of common stock used in computing earnings per share
are as follows:
<TABLE>
<CAPTION>
Nine-month period Three-month period
ended March 31 ended March 31
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Basic (weighted average
shares outstanding) 39,974,001 28,044,125 41,847,074 32,416,606
Options and warrants -- 4,031,214 -- 4,261,095
Convertible preferred stock -- 298,299 -- 304,589
---------- ---------- ---------- ----------
Diluted 39,974,001 32,373,638 41,847,074 36,982,290
========== ========== ========== ==========
</TABLE>
Due to net losses for the 1999 periods presented, instruments convertible into
common stock were anti-dilutive and do not impact earnings (loss) per share. At
March 31, 1999, the Company had options having aggregate exercise amounts of
$83.2 million for 9.1 million shares of common stock, warrants having aggregate
exercise amounts of $48.8 million for 3.2 million shares of common stock, and
$23.3 million of subordinated debt convertible into 1.7 million shares of common
stock.
(G) Income Taxes
-------------
The Company provides income taxes for interim periods based on the Company's
estimate of its effective income tax rate for the corresponding fiscal year. The
Company anticipates its effective income tax rate for the year ending June 30,
1999 will be approximately zero. During the three months ended March 31, 1998,
the Company concluded it was more likely than not that deferred tax assets would
be realized and, accordingly, recognized approximately $2.9 million as an income
tax benefit.
11
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
================================================================================
(H) Commitments and Contingencies
------------------------------
The Company, in connection with Garst Seed Company, a member of Advanta Seeds
Group, offered to purchase AgriPro Seeds, Inc. ("ABI") from Helena Chemical
Company ("Helena"). The Company's intent was to purchase the alfalfa business
unit and the international sorghum business units, and Garst was to purchase the
corn, soybean, wheat, cotton, sunflower and domestic sorghum business units.
Although Garst completed its portion of the acquisition, the Company's
transaction was not finalized. On or about January 7, 1999, Helena sued the
Company alleging breach of contract, libel and violations of the Tennessee
Consumer Protection Act and seeking unspecified and trebled damages. The Company
believes the suit is without merit and will defend it vigorously. ABT has
answered the complaint and denied the material allegations and counterclaimed
against Helena.
Between January 14, 1999 and March 19, 1999, fourteen securities class action
complaints were filed against the Company and certain of its former directors
and current and former officers in federal court in New Mexico, New York and
Nevada. The lawsuits were filed on behalf of purported classes of purchasers of
ABT common stock between various dates ranging from September 24, 1997 through
February 16, 1999.The complaints are presently all pending in the federal courts
in Nevada and contain allegations concerning, among other things, the Company's
financial statements, including the accounting treatment for acquisitions closed
in 1997 and 1998, and certain statements made by the Company concerning its
efforts to find a strategic equity investor in late 1998 and early 1999. The
complaints allege that the Company's statements on these and other topics were
false and misleading and caused an artificial rise in the Company's common stock
price in violation of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") as amended, Rule 10b-5 promulgated thereunder, and Section 20 of
the Exchange Act. The Company believes it has meritorious defenses to these
actions and intends to defend itself vigorously.
However, due to the risks of litigation, a prediction of the final outcome of
these proceedings cannot be made with certainty, and an unfavorable result in
any of these actions could have a material adverse impact.
In connection with acquisitions of businesses and intellectual property rights
where the owners received ABT common stock as part of the purchase price,
"lock-up agreements" were executed that limit the amount of ABT common stock
that the recipients can sell within specified time periods. In addition, the
Company guaranteed the proceeds to be received by certain of the recipients from
the sale of the common stock if sold in accordance with the lock-up agreements.
Through December 31, 1998, the Company was not required to provide additional
consideration under the guarantee agreements.
However, due to declines in the price of the Company's common stock since
December 31, 1998, there are five such arrangements where common stock has been
sold for less than the guaranteed price. These five arrangements, which were
entered into from June 1998 through January 1999, guaranteed that $21.9 million
would be received from the 1.2 million shares of ABT common stock issued in
these transactions when sold pursuant to the lock-up agreements. The common
stock issued in these transactions was recorded at values equal to the
guaranteed prices. Through March 31, 1999, approximately 617,000 shares have
been sold by the recipients who received proceeds of approximately $4.5 million,
which is approximately $6.7 million less than the guaranteed amounts. Two of
these arrangements have been modified whereby the recipients have agreed to
suspend sales of the Company's common stock until after June 30, 1999 and the
Company has agreed to make cash payments aggregating $2.8 million that are
credited against the guaranteed amounts to be received by the recipients.
Otherwise, the terms of the original agreements were not changed. In addition,
certain recipients were granted options to purchase an aggregate of 95,000
shares of the Company's common stock at $5.00, which equaled the market price at
the time of grant.
12
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
================================================================================
Generally accepted accounting principles provide that additional obligations
under stock issued with a guaranteed price be recorded with a simultaneous
reduction in the amount previously recorded for the stock issued. Accordingly,
in the three-month period ended March 31, 1999, the Company established a
current liability for the $6.7 million with a corresponding reduction in
stockholders' equity. Of this amount, $1.0 million was paid in cash prior to
March 31, 1999, $2.9 million will be paid in cash prior to June 30, 1999, and
$0.7 million will be paid in cash prior to September 30, 1999. The remaining
$2.1 million can be satisfied through the issuance of additional shares of the
Company's common stock or the payment of cash, at the Company's option.
If the shares remaining to be sold pursuant to these agreements are sold at an
average of $7.00 per share, the proceeds received would be approximately $6.7
million less than the amounts guaranteed to be received for such shares. Of this
amount, it is anticipated that approximately $2.2 million would be paid in cash
with the remaining $4.5 to be satisfied through the issuance of additional
shares of the Company's common stock or the payment of cash, at the Company's
option.
(I) Special Charges
----------------
Special charges include restructuring and other integration related costs which
are non-recurring or infrequent in occurrence. Certain management integration
and restructuring related decisions have been made and implemented through March
31, 1999. The costs of these activities are shown as special charges.
Though March 31, 1999, the Company has completed 34 acquisitions, most of which
have continued to be operated in a manner similar to their operations prior to
being acquired. To accomplish the Company's business strategy, it has been
necessary to build a centralized operational infrastructure ahead of revenue
growth and restructuring driven cost savings. The Company is in the process of
centralizing and improving its accounting and data processing functions and
implementing a company-wide enterprise resource planning system to meet all of
its information systems requirements. The Company is nearing the completion of
formulating a plan to integrate the acquired companies that includes the
evaluation of the business processes of each operation and location to determine
their relative importance to the Company's overall strategic plan. Such
evaluation for each operation encompasses, among other things, staffing levels,
product mix and focus, locale in relation to customer base, and levels and
nature of assets utilized. In connection with the anticipated integration of the
acquired companies, the Company previously announced it expects to record a
non-recurring charge of between $5 and $15 million during Fiscal 1999 consisting
primarily of severance and other personnel related costs and costs associated
with consolidation of facilities. The Company expects to implement its
anticipated integration plan resulting in a restructuring charge that will be at
the high end of this range, and possibly above it. Although the formal
restructuring plan has not been finalized, the Company has taken certain actions
and incurred certain costs in the integration process. These costs have amounted
to $1,956,946, which are being reported as special charges. Special charges
consist of severance costs of $764,831, consulting and attorney fees of
$402,377, travel of $420,917 and other costs of $368,821. The Company expects to
finalize and approve the restructuring plan and accrue the restructuring charge
in the fourth quarter of fiscal 1999.
ABT has recorded a significant amount of goodwill relating to the acquisitions
completed to date. Although the Company believes that goodwill is recoverable
from future operations in its current operating structure, as part of the
Company's planned restructuring, it is likely that product portfolios,
facilities and brands will be consolidated and, therefore, it is possible that
some portion of goodwill will become impaired. Therefore, management intends to
again review the recoverability of goodwill at the time of the restructuring to
determine if any impairment has occurred and, if so, record a write-down to
reflect such impairment. A write-down of goodwill would be a non-cash
expenditure and likely be additive to the restructuring charge.
- --------------------------------------------------------------------------------
13
<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
operations should be read in conjunction with the consolidated financial
statements and notes thereto of the Company included elsewhere herein. The
Company is a vertically integrated agricultural seed company specializing in
developing, packaging, processing and distributing varieties of forage and
cool-season turfgrass seeds. The Company also distributes corn, soybean, and
other seeds and certain non-seed items as ancillary products. Since January
1995, the Company has grown significantly through acquiring regionally based
seed companies with proprietary products and established research, processing
and distribution channels in their respective markets (the "Acquisition
Program"). These acquisitions are summarized in note 1 of Notes to Consolidated
Financial Statements in the Company's June 30, 1998 Form 10-K and note B of
Notes to Consolidated Financial Statements herein. The results of operations of
the acquired companies have been included in the Company's consolidated results
beginning with the date of the acquisition in accordance with the purchase
method of accounting. As discussed in note 1 (b) of Notes to Consolidated
Financial Statements in the June 30, 1998 Form 10-K, the Company had taken
effective control of acquired businesses as of a mutually agreed upon effective
date that preceded the closing date when consideration was transferred to the
sellers. Through March 31, 1998, the Company reflected the acquired businesses
in its Consolidated Financial Statements as of the effective date. After April
1, 1998, due to the size of the Company and the internal focus on integration of
acquired businesses, the Company has changed its acquisition practices, to
operate and acquire businesses at the closing date, instead of the effective
date.
Acquisitions occurring subsequent to July 1, 1997 and, therefore, impacting
comparability of the financial information presented herein, are as follows:
<TABLE>
<CAPTION>
Acquisition
Name Date
- ---- -----------
<S> <C>
Lofts Seed, Inc. and affiliates January 1, 1998
Seed Corporation of America and affiliates January 1, 1998
Zajac Performance Seeds, Inc. January 1, 1998
Van Dyke Seed, Inc. January 1, 1998
Las Vegas Fertilizer, Inc. January 1, 1998
Discount Farm Center, Inc. January 24, 1998
Kinder Seed, Inc. February 1, 1998
The Ohio Seed Company, Inc. March 1, 1998
Peterson Seed Co., Inc. May 22, 1998
W-D Seed Growers, Inc. June 25, 1998
Geo. W. Hill & Co. (KY) July 8, 1998
Fine Lawn Research, Inc. July 8, 1998
Geo. W. Hill of Indiana, Inc. July 10, 1998
J & M Seed Company July 21, 1998
Willamette Seed Company August 21, 1998
Allied Seed Company August 28, 1998
Oseco Inc. September 1, 1998
Garden West Distributors September 18, 1998
HybriGene, LLC January 22, 1999
</TABLE>
The acquisitions and other operations being included in the Company's
consolidated financial statements beginning with each of their acquisition 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 significant
number of acquisitions and the period for which each is included in the
Company's consolidated financial statements in relation to the seasonality of
the business cycle of each acquisition significantly affects the meaningfulness
of comparisons drawn between periods.
This report contains forward looking statements that reflect management's
current assumptions and estimates regarding future performance and economic
conditions. These include, among others, statements regarding the vertical
14
<PAGE>
integration of ABT, product development, demand for ABT's products, excess
inventories, the status of the integration implementation, the consolidation
trend of the industry, continuing downward pressure on prices and margins, the
integration plan, the range of the non-recurring charge, recoverability of
goodwill, proprietary transformation of products, margin increases, increase in
amounts of research and development expenditures, future compliance with debt
covenants, adequacy of funding, additional funding, rollout of the enterprise
resource planning ("ERP") system, Year 2000 readiness, inflation , price and
quality of supply, and weather. Forward looking statements involve a number of
risks and uncertainties, and are not a guarantee of future performance. Actual
results could differ materially. The risks and uncertainties associated with
these statements include, but are not limited to: total acres of turfgrass and
forage planted, customer purchases, deliveries and payments for ABT products,
competitive pricing, weather, effective management of the integration process
and cost reductions at ABT, ability of the Company to successfully transition to
the new information systems throughout its operations, customer response to the
integration, overall financial condition and asset status of ABT, relationships
with and perceptions of potential lenders and investors, ability to obtain
additional capital, litigation and other factors as detailed from time to time
in the Company's SEC filings.
The above factors have significant impacts on the following discussion and
analysis and should be considered as part of it.
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,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales $271,975,975 139,695,295 106,435,707 75,880,434
Gross profit 69,658,351 30,485,864 28,359,462 18,257,046
Percentage of net
sales 25.6% 21.8% 26.6% 24.1%
Operating expenses 73,374,229 27,441,877 27,071,015 14,762,934
Percentage of net
sales 27.0% 19.6% 25.4% 19.5%
Special charges 1,956,946 -- 1,956,946 --
Percentage of net
sales 0.7% -- 1.8% --
</TABLE>
The Company has essentially completed the first phase of its business strategy
through an acquisition program that enabled the Company to accumulate the
critical mass it believes is necessary to lead the transformation of the forage
and turfgrass sector of the seed industry. The Company is now beginning the
process of integrating the acquired businesses, which have generally been
operating as they were prior to being acquired, into a single, customer-driven
business entity centered around the ABT name and logo. In the integration
process, the Company's objectives include raising margins and reducing expenses.
The above table shows that some improvement has been made in margins. However,
the integration process has not progressed to the point that operating expenses
are being reduced. The Company has announced that it plans to remove at least
$14 million, on an annualized basis, from its operating expenses by June 30,
1999.
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. An
integral part of the Company's business strategy is to become vertically
integrated with production operations within the Company producing seed
varieties developed by the Company's research operations and then providing
those seeds to the Company's distribution operations. This results in sales made
by production operations that formerly were made to third parties prior to being
acquired by ABT, being made to ABT owned distribution operations after
acquisition. Such sales between ABT operations are eliminated in the Company's
consolidated results of operations and amounted to $89.1 million (32.8% of
reported net sales) in the nine-month period ended March 31, 1999 (the "Fiscal
1999 Nine-Month Period"), $42.6 million (40.1% of reported net sales) in the
15
<PAGE>
three-month period ended March 31, 1999 (the "Fiscal 1999 Three-Month Period"),
$32.1 million (22.3% of reported net sales) in the nine-month period ended March
31, 1998 (the "Fiscal 1998 Nine-Month Period") and $22.1 million (29.1% of
reported net sales) in the three-month period ended March 31, 1998 (the "Fiscal
1998 Three-Month Period").
In addition, total sales have been negatively impacted by less than expected
international seed sales due to weak demand from the "Pacific Rim" countries and
weak demand in Europe. The countries of the Pacific Rim continue to be affected
by weak economies, the strong U.S. dollar and tightening credit. This situation
has resulted in a significant reduction in sales to customers in these
countries. The demand in Europe was negatively impacted by higher than normal
fall moisture patterns, which resulted in higher than normal seed production
yields and less seed being planted due to wet conditions. Because of this
situation, European companies have continued to be net exporters of turfgrass
seed products instead of importers. They have also continued to ship less
expensive seed into the U.S. market, which is having a negative impact on
prices. The excess European inventories have reduced both the amount of product
sold into the European market and the price for which it was sold. Forage seed
sales were impacted by the continuing weakness in the agricultural markets.
Prices received by farmers for hogs and beef cattle have remained weak and
prices received for dairy products, which had been strong, fell significantly.
The major corn seed producers have been reducing prices in an effort to increase
their market share. These developments have exerted a downward pressure on
forage prices with some prices falling by half when compared to the previous
year. Farmers are also delaying buying decisions in anticipation of continued
price erosion. These factors have resulted in reduced sales of forage seeds.
Overall forage seed inventories continue to be in excess of demand, except for
shortages of non-dormant alfalfa and annual rye grass, which negatively impacted
sales. European supplies are still high and some inexpensive Canadian seed is
available.
An important part of the reason ABT management believes it can successfully
execute the Company's long-term business plan is demand for ABT's proprietary
forage and turfgrass seed products. Through the spring of 1999, the Company has
experienced strong demand for its proprietary products. At March 31, 1999, many
of the Company's important, leading forage and turfgrass seed varieties, were
virtually sold out. There has been strong demand during the winter and spring
for the many of Company's leading proprietary varieties of tall fescue,
perennial ryegrass, annual ryegrass, alfalfa and forage sorgham.
The increase in the amount of gross profit is due to the Acquisition Program, as
described above. The increase in the gross profit percentage is due to a
combination of factors, primarily a change in product mix toward higher gross
profit proprietary products, a decrease in prices of certain seed products
purchased by the Company that are priced much like commodities, which allows a
higher gross profit percentage to be earned, and a concentration of higher
margin turfgrass seed sales in the Eastern United States, partially offset by
higher production cost associated with the shortage of non-dormant alfalfa and
the downward price pressure because of excess supplies.
The worldwide supply of turfgrass and forage seed, except for non-dormant
alfalfa and annual ryegrass, is in excess of demand. This oversupply situation
was caused by the "El Nino" wet spring weather pattern which allowed U.S.,
Canadian and European seed growers to experience unusually large harvests during
the last crop year. The industry is following a trend towards consolidation in
the U.S. and in Europe. Smaller independent companies facing this trend have
responded with aggressive pricing programs to move their excess inventories and
retain their market share. These conditions are expected to continue to cause
downward pressure on prices and margins through the current crop year.
To accomplish the Company's business strategy, it has been necessary to build a
centralized, upgraded, operational infrastructure ahead of revenue growth and
restructuring driven cost savings. The Company is in the process of centralizing
and improving its accounting and data processing functions and implementing a
company-wide ERP system to meet all of its information systems requirements.
This necessitates that personnel and other resources be added at the central
location prior to the time corresponding resources are eliminated at other
locations, resulting in duplication of costs during the time both existing
systems are being operated and the new system is being implemented. For example,
prior to deciding to centralize the accounting function, the Company had
approximately 60 full-time equivalent employees in its various operations
performing accounting functions. During the centralization process, the Company
will add 10 to 15 employees, but after centralization, the Company believes the
accounting function will only require about 30 employees. In addition, many
businesses acquired since October 1, 1997, have been primarily distribution
oriented. Distribution companies generally have higher levels of operating
expenses, and higher gross margins than production oriented companies. The
Company is nearing the completion of formulating a plan to integrate the
16
<PAGE>
acquired companies that includes the evaluation of the business processes of
each operation and location to determine their relative importance to the
Company's overall strategic plan. Such evaluation for each operation
encompasses, among other things, staffing levels, product mix and focus, locale
in relation to customer base, and levels and nature of assets utilized. In
connection with the anticipated integration of the acquired companies, the
Company previously announced it expects to record a non-recurring charge of
between $5 and $15 million during Fiscal 1999 consisting primarily of severance
and other personnel related costs and costs associated with consolidation of
facilities. The Company expects to implement its anticipated integration plan
resulting in a restructuring charge that will be at the high end of this range,
and possibly above it. As described in Note I to the Consolidated Financial
Statements, the Company has incurred special charges including restructuring and
other integration related costs, which are non-recurring or infrequent in
occurrence. Certain management integration decisions have been made and
implemented through March 31, 1999. These charges were $1,956,946 for the three
months ended March 31, 1999.
ABT has recorded a significant amount of goodwill relating to the acquisitions
completed to date. Although the Company believes that goodwill is recoverable
from future operations in its current operating structure, as part of the
Company's planned restructuring, it is likely that product portfolios,
facilities and brands will be consolidated and, therefore, it is possible that
some portion of goodwill will become impaired. Therefore, management intends to
again review the recoverability of goodwill at the time of the restructuring to
determine if any impairment has occurred and, if so, record a write-down to
reflect such impairment. A write-down of goodwill would be a non-cash
expenditure and likely be additive to the restructuring charge.
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 costs incurred by newly
acquired entities. The major components of operating expenses are as follows:
<TABLE>
<CAPTION>
Nine-Month Period Three-Month Period
Ended March 31, Ended March 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Personnel costs $33,291,586 13,503,044 12,269,893 6,796,650
Occupancy expenses 11,151,615 4,656,959 4,582,063 2,651,453
Vehicle and shipping 6,948,879 1,700,787 4,077,053 1,039,496
Outside services 3,576,427 666,972 1,560,617 208,386
Travel 2,620,281 1,168,467 1,127,925 664,397
Advertising and promotion 5,425,116 1,468,550 1,660,769 961,551
</TABLE>
Research and development expenditures were $2,367,349 in the Fiscal 1999
Nine-Month period and $620,754 in the Fiscal 1999 Three-Month Period compared to
$1,461,715 in the Fiscal 1998 Nine-Month period and $542,218 in the Fiscal 1998
Three-Month Period, substantially all of which was attributable to W-L Research,
Inc., E.F. Burlingham & Sons, and Lofts Seed, 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 that 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 $7,836,358 in the Fiscal 1999
Nine-Month period and $2,257,861 in the Fiscal 1999 Three-Month Period compared
to $2,904,358 and $1,794,287 for the same periods in the prior year. This was
primarily due to increased borrowings under the Company's revolving line of
credit, including a $15 million overadvance facility beginning August 1998, and
the $15 million bridge loan from Deutsche Bank AG beginning July 1998. The
overadvance facility and the bridge loan bore interest at rates that were
considerably higher than the revolving line of credit. Under these arrangements,
the Company incurred interest expense and fees during the Fiscal 1999 Nine-Month
Period aggregating $2.9 million. In late December 1998 and early January 1999,
the Company issued $23.3 million of 5% subordinated convertible debentures and,
in early January 1999, the overadvance facility and the bridge loan were repaid.
The Company provides income taxes for interim periods based on the Company's
estimate of its effective income tax rate for the corresponding fiscal year. The
Company anticipates its effective income tax rate for the year ending June 30,
1999 will be approximately zero. During the three months ended March 31, 1998,
the Company concluded it was more likely than not that deferred tax assets would
be realized and, accordingly, recognized approximately $2.9 million as an income
tax benefit.
17
<PAGE>
The Company's net loss was $12,211,646 for the Fiscal 1999 Nine-Month Period and
$2,263,035 for the Fiscal 1999 Three-Month Period compared to net earnings of
$4,317,634 and $4,926,114 during the same periods in the prior year as a result
of the items discussed above. The net loss for Fiscal 1999 includes special
charges, described above and in the note I of Notes to Consolidated Financial
Statements, of $1,956,946. Average common shares outstanding used in computing
earnings per common share increased due to additional shares issued, primarily
for cash, acquisitions, options and warrants. Due to net losses for the Fiscal
1999 periods presented, currently outstanding options, warrants and convertible
debt are anti-dilutive and do not impact earnings (loss) per share.
As discussed above, through March 31, 1998, the Company recognized acquired
businesses in its Consolidated Financial Statements as of the effective date
agreed upon with their sellers. 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 acquisitions were reflected
beginning with the closing dates, net sales would have been approximately
$64,129,000 for the Fiscal 1998 Three-Month Period and $117,652,000 for the
Fiscal 1998 Nine-Month Period and net earnings would have been approximately
$4,314,000 and $2,620,000 for such periods.
Liquidity and Capital Resources
EBITDA (earnings before interest, income taxes, depreciation, and amortization)
is widely used as a measure of a company's operating performance and its ability
to service its indebtedness. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
construed as a substitute for net earnings (loss) as a measure of performance,
or cash flow from operations as a measure of liquidity. The Company had EBITDA
(excluding special charges) of $6.2 in the Fiscal 1999 Nine-Month Period and
$7.1 million in the Fiscal 1998 Nine-Month Period. For the Fiscal 1999
Three-Month Period, EBITDA (excluding special charges) was $5.4 million compared
to $5.3 million for the Fiscal 1998 Three-Month Period.
Net earnings (loss) adjusted for non-cash impacts of depreciation, amortization,
equity in earnings of associated entity, deferred taxes, and options for
services amounted to ($3.6) million in the Fiscal 1999 Nine-Month Period and
$3.2 million in the Fiscal 1998 Nine-Month Period. In addition, during the
Fiscal 1999 Nine-Month Period the Company's net operating assets and
liabilities, excluding the effects of acquisitions, required the use of $36.8
million of cash compared to $32.8 million in the prior year, which amounts were
funded by increases in short-term debt. This resulted in the Company having net
negative cash flows from operating activities of $40.4 million during the Fiscal
1999 Nine-Month Period compared to net negative cash flows from operating
activities of $29.5 million during the Fiscal 1998 Nine-Month Period. The
increases in accounts payable, inventories and accounts receivable are
reflective of the seasonality of the Company's business. During the Fiscal 1999
Nine-Month Period, the Company had net negative cash flows from investing
activities of $44.7 million, primarily from investments in property, plant and
equipment and acquisitions, reduced by the proceeds received from the sale of
the assets of the fertilizer division of the Willamette Seed Company compared to
net negative cash flows from investing activities of $40.6 million in the Fiscal
1998 Nine-Month Period. Also, during the Fiscal 1999 Nine-Month Period, the
Company had net cash flows from financing activities of $87.8 million, primarily
due to proceeds from short-term debt of $32.1 million, proceeds from long-term
debt of $23.3 million and proceeds from the issuance of common stock and
warrants of $38.8 million, compared to net cash flows from financing activities
of $70.6 million during the Fiscal 1998 Nine-Month Period.
The Company had working capital of $27.1 million at March 31, 1999, as compared
to $25.4 million at June 30, 1998. The increase in working capital was primarily
caused by the capital raising activities of the Company, offset by cash used in
operations. To finance acquisitions and ongoing operations, the Company has
raised additional equity capital. In the Fiscal 1999 Nine-Month Period, the
Company received cash proceeds of $26.3 million from the sale of 2,602,820
shares of the Company's common stock, $1.8 million from 448,499 options
exercised, $6.7 million from 556,410 warrants exercised and $4.1 million
allocated to warrants issued. In addition, as described in note C of Notes to
Consolidated Financial Statements, the Company sold $23.3 million of convertible
debentures.
The Company has a $100 million revolving credit facility with Bank America
Business Credit ("BABC") and other lenders expiring in June 2001. In April 1999,
the lenders under the revolving line of credit provided the Company a seasonal
increase of $10.0 million, which allows up to $110.0 million to be borrowed
through June 30, 1999 subject to availability limitations. Borrowings under the
revolving line of credit were $98.2 million at March 31, 1999. At May 7, 1999,
18
<PAGE>
the Company had borrowed $96.5 million under the revolving line of credit and
$12.4 million was available to be borrowed. Interest is payable monthly based on
a variable rate that averaged 7.6% at March 31, 1999. Borrowings under the
revolving line of credit are subject to a borrowing base computation and
compliance with certain financial covenants. Compliance with the financial
covenants is tested on a quarterly basis when quarterly financial information is
available. At March 31, 1999, the Company was not in compliance with the debt
service coverage covenant under the revolving credit agreement. The lenders have
waived compliance with this requirement. The Company is working with the lenders
to amend such covenant to be reflective of its current operating configuration
in a manner that should lessen the likelihood of the need for similar waivers in
the future. However, there is no assurance such amendment will be obtained.
As discussed in note C of Notes to Consolidated Financial Statements, on April
15, 1999, the Company announced its intent to pay off its $23.3 million of
subordinated convertible debentures in full with cash to prevent a resetting of
the amount of shares into which the debt can be converted. A significant portion
of the redemption is expected to be funded with internally-generated funds. To
the extent sufficient amounts are not available from internally-generated funds,
the Company will need to obtain additional amounts from external sources. The
difference between the amount paid to retire the debt and the amount reflected
on the Company's books would be reflected as an extraordinary item.
The Company believes, based on current plans and assumptions relating to its
operations, borrowings under its revolving credit facility will provide
sufficient resources to substantially fund the Company's operations through June
30, 1999. However, the Company may need to seek an increase in or an alternative
to the revolving credit facility to finance increased working capital needs if
acquisitions are consummated in the future. Furthermore, 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.
This also reflects industry practice that dictates a significant amount of sales
of certain products 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. For these reasons, it is possible
that the Company may need to seek additional financial resources to finance
ongoing operations. In addition, the Company may seek permanent financing at
some point in the future to reduce its dependence on short-term debt and provide
greater financial flexibility.
The Company entered into letters of intent to acquire certain business units of
AgriPro Seeds, Inc. ("ABI"), Moore Seed Processors and Production Plus+. See
note H of Notes to Consolidated Financial Statements regarding ABI. The Company
has postponed the other two transactions and there can be no assurance any of
the three will ever be completed. Should any acquisitions be completed in the
future, the Company will need to obtain additional debt or equity financing to
fund the cash portion of any additional acquisitions.
In October 1998, the Company previously announced it had retained Merrill Lynch
& Co. and Deutsche Bank Securities, an affiliate of Deutsche Bank AG, as its
investment bankers, to explore alternatives to maximize shareholder value. On
January 22, 1999, the Company announced it has decided to remain independent and
to suspend formal efforts to find a strategic partner. The Company believes its
goals can best be met by moving to an informal process of working with third
parties on a quiet basis without timeline expectations. See note H of Notes to
Consolidated Financial Statements.
Management Information System and Year 2000
The Company's Form 10-K for the year ended June 30, 1998 contains a discussion
of the Company's process to address the consequences of reaching the Year 2000
and the implementation of an ERP system to meet its information system
requirements. Approximately 90% of the Company's revenue base will be covered by
the ERP system and the remaining 10% will continue on an existing system that is
Year 2000 compliant. As of May 13, 1999, the Company has implemented the ERP
system, which is designed to be Year 2000 compliant, for approximately 45% of
its revenue base. The remaining revenue base is expected to implement the ERP
system by September 1999. The Company is also in the process of installing a
wide area network to support the ERP system and internal communications. Year
2000 compliance statements for all hardware, software and service providers
associated with this infrastructure have been obtained and are on file.
19
<PAGE>
In addition, a preliminary survey of internal systems has been completed. This
survey indicated that existing local area networks, desktop operating systems
and desktop hardware are, in many cases, not compliant. As a result, an in-depth
inventory assessment and testing of all internal systems regarding Year 2000 was
conducted. During this process, all hardware was inventoried and tested by using
a third-party Year 2000 software application. The Company has three sites that
have local area networks that are not Year 2000 compliant. These sites are
expected to be upgraded by July 31, 1999. All desktop systems that the Company
plans to retain are Year 2000 compliant and all desktop applications are being
upgraded to various Microsoft products which are Year 2000 compliant. Any
non-compliant equipment will be replaced or upgraded by approximately June 30,
1999.
An in-depth survey of all vendors and major customers regarding their Year 2000
compliance is in process. To date, the Company has Year 2000 readiness
certificates on file for 70% of our major customers and 80% of our major
vendors. This process is expected to be completed by June 30, 1999. A statement
of Year 2000 compliance has been received from 99% of critical vendors,
including the long distance and wireless service provider and local exchange
carriers. This process for the remaining critical vendors should be completed by
May 30, 1999.
Cumulative expenditures on the project are approximately $6.4 million through
March 31, 1999. Total costs for this project are estimated to be approximately
$7.5 million. This figure represents an increase of $1.5 million over the
previous estimate due to the decision to implement additional modules of the ERP
system and costs associated with certain design changes required to accommodate
changes in the Company's operating structure.
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 alfalfa, 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-K for the
year ended June 30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in the quantitative and qualitative disclosures about market
risk have occurred from the discussion contained in the Company's Form 10-K for
the year ended June 30, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about January 7, 1999, Helena Chemical Company ("Helena") commenced a
civil lawsuit in the U.S. District Court for the Western District of Tennessee
alleging breach of contract, libel and violation of the Tennessee Consumer
Protection Act. The suit resulted from the failure by the parties to finalize a
proposed acquisition from Helena of the alfalfa business unit and the
international sorghum business unit of Helena's subsidiary, AgriPro Seeds, Inc.
The Company believes the suit is without merit and it will be defended
vigorously. The Company has answered the complaint and denied the material
allegations and counterclaimed against Helena.
Between January 14, 1999 and March 19, 1999, fourteen securities class action
complaints were filed against the Company and certain of its former directors
and current and former officers in federal court in New Mexico, New York and
Nevada. The lawsuits were filed on behalf of purported classes of purchasers of
ABT common stock between various dates ranging from September 24, 1997 through
February 16, 1999.The complaints are presently all pending in the federal courts
in Nevada and contain allegations concerning, among other things, the Company's
20
<PAGE>
financial statements, including the accounting treatment for acquisitions closed
in 1997 and 1998, and certain statements made by the Company concerning its
efforts to find a strategic equity investor in late 1998 and early 1999. The
complaints allege that the Company's statements on these and other topics were
false and misleading and caused an artificial rise in the Company's common stock
price in violation of Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") as amended, Rule 10b-5 promulgated thereunder, and Section 20 of
the Exchange Act. The Company believes it has meritorious defenses to these
actions and intends to defend itself vigorously.
However, due to the risks of litigation, a prediction of the final outcome of
these proceedings cannot be made with certainty, and an unfavorable result in
any of these actions could have a material adverse impact.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
99.1 Pro forma financial information
(b) Reports on Form 8-K
During the quarter ended March 31, 1999 and through May 13, 1999 the following
Forms 8-K were filed:
Dated December 30, 1998 and filed on January 11, 1999 - To report under Item 5,
the issuance of convertible subordinated debentures and warrants to purchase
common stock.
Dated January 22, 1999 and filed on January 27, 1999 - To report under Item 5,
that the Company had suspended its previously announced efforts to find a
strategic equity partner.
Dated January 22, 1999 and filed on February 5, 1999 - To report under Item 5,
(a) the acquisition of HybriGene, LLC and to provide financial statements of the
acquired company and pro forma financial information and (b) changes in members
of the Company's board of directors.
Amendment filed January 29, 1999 to report dated August 28, 1998 and filed
September 11, 1998 - To provide under Item 7, pro forma financial information.
Amendment filed March 23, 1999 to report dated January 6, 1998 and filed January
16, 1998 - To provide under Item 7, the financial statements of Lofts Seed Inc.
21
<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.,
Date: May 14, 1999 By: /s/ Randy Ingram
Randy Ingram,
Co-President/CFO
22
<TABLE> <S> <C>
<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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,454,285
<SECURITIES> 0
<RECEIVABLES> 84,562,349
<ALLOWANCES> 3,373,214
<INVENTORY> 100,126,259
<CURRENT-ASSETS> 191,345,922
<PP&E> 65,742,761
<DEPRECIATION> 0
<TOTAL-ASSETS> 422,117,745
<CURRENT-LIABILITIES> 164,280,141
<BONDS> 38,042,951
0
0
<COMMON> 42,057
<OTHER-SE> 217,084,684
<TOTAL-LIABILITY-AND-EQUITY> 422,117,745
<SALES> 271,975,975
<TOTAL-REVENUES> 271,975,975
<CGS> 202,317,624
<TOTAL-COSTS> 202,317,624
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,836,358
<INCOME-PRETAX> (12,170,395)
<INCOME-TAX> 41,251
<INCOME-CONTINUING> (12,211,646)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,211,646)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
Exhibit 99.1
AGRIBIOTECH, INC.
Pro Forma Combined Financial Information
(Unaudited)
The following pro forma combined summary of operations combines the results of
operations of AgriBioTech, Inc. ("ABT"), Oseco Inc. ("Oseco"), Allied Seed
Division of Agway, Inc. ("Allied"), and other individually insignificant
acquisitions since July 1, 1998 (collectively "Other Acquisitions") as if all
acquisitions occurred at the beginning of the period presented. The pro forma
combined summary of operations reflects known changes resulting from the
acquisitions but does not reflect impacts of any changes in operations,
anticipated efficiencies and synergies from consolidation.
A pro forma combined summary balance sheet as of March 31, 1999 is not presented
since the above acquisitions are reflected in ABT's consolidated balance sheet
as of March 31, 1999.
The pro forma combined financial information does not purport to represent what
ABT's financial position or results of operations would actually have been if
such transactions had, in fact, occurred on the above dates and are not
necessarily representative of any future period. The pro forma adjustments are
based on preliminary estimates, available information, and certain assumptions
that management deems appropriate and may be revised as additional information
becomes available. The pro forma combined financial information should be read
in conjunction with the historical financial statements of ABT, Oseco, and
Allied included herein or previously filed with the Securities and Exchange
Commission.
<PAGE>
AGRIBIOTECH, INC. ("ABT");
Pro Forma Combined Summary of Operations
(Unaudited)
Nine months ended March 31, 1999
<TABLE>
<CAPTION>
Other Pro Forma
ABT (A) Oseco (A) Allied Seed(A) Acquistions(A) Adjustments combined
------------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 271,975,975 $ 946,770 $ 727,025 $ 6,966,421 $ (499,683) (E) $ 279,106,963
(1,009,545) (G)
Cost of sales 202,317,624 591,763 707,795 5,968,985 (499,683) (E) 208,179,524
(906,960) (G)
------------- --------- --------- ----------- ----------- -------------
Gross profit 69,658,351 355,007 19,230 997,436 (102,585) 70,927,439
Operating expenses 73,374,229 408,125 363,815 1,745,945 924,672 (B) 76,310,936
(40,790) (F)
(465,060) (G)
Special charges 1,956,946 -- -- -- -- 1,956,946
------------- --------- --------- ----------- ----------- -------------
Income (loss) from operations (5,672,824) (53,118) (344,585) (748,509) (521,407) (7,340,443)
Interest Expense (7,836,358) -- (41,515) (180,046) 540,169 (C) (7,452,115)
65,635 (G)
Interest Income 356,494 -- -- 5,819 -- 362,313
Earnings of associated entity 829,184 -- -- -- 829,184
Other 153,109 -- 78 (62,445) -- 90,742
------------- --------- --------- ----------- ----------- -------------
Other income (expense) (6,497,571) -- (41,437) (236,672) 605,804 (6,169,876)
Earnings (loss) before income taxes (12,170,395) (53,118) (386,022) (985,181) 84,397 (13,510,319)
Income tax expense (benefit) 41,251 -- -- -- -- 41,251
------------- --------- --------- ----------- ----------- -------------
Net earnings (loss) (12,211,646) (53,118) (386,022) (985,181) 84,397 (13,551,570)
Discount and imputed dividends on
preferred stock -- -- -- -- -- --
------------- --------- --------- ----------- ----------- -------------
Net earnings (loss) attributable to
common stock $ (12,211,646) $ (53,118) $(386,022) $ (985,181) $ 84,397 $ (13,551,570)
============= ========= ========= =========== =========== =============
Shares of common stock used in
computing loss per share:
Basic 39,974,001 1,679,054 (D) 41,653,055
Diluted 39,974,001 1,679,054 (D) 41,653,055
============= =========== =============
Net earnings (loss) per common share:
Basic $ (0.31) $ (0.33)
Diluted (0.31) (0.33)
============= =============
</TABLE>
<PAGE>
AGRIBIOTECH, INC.
Notes to Pro Forma Combined Financial Information
(Unaudited)
(A) The nine months ended March 31, 1999 for ABT includes the operations of
Allied from August 28, 1998 through March 31, 1999, the operations of Oseco
from September 1, 1998 through March 31, 1999, and the operations of Other
Acquisitions for the period from their respective acquisition dates through
March 31, 1999. The amounts in the Oseco, Allied and Other Acquisitions
columns include such acquisitions for periods from July 1, 1998 through
their respective acquisition dates.
(B) To reflect depreciation of property, plant and equipment and amortization
of intangible assets based on market value adjustments in connection with
applying purchase accounting. Intangible assets resulting from the
application of purchase accounting include goodwill (amortized over 10 to
30 years, with a weighted average of 18 years) and covenants not to compete
(amortized over 5 to 10 years).
(C) To adjust interest expense for the cash purchase price of the acquisitions.
Interest expense was computed on the cash purchase price of $50.2 million
for the periods prior to acquisition using an average interest rate of
7.5%. The pro forma interest expense was then reduced to reflect the
assumption that payments required to be made in the acquisitions would be
obtained through approximately $36.2 million of proceeds from the sale of
the Company's common stock in private placement transactions from August
1998 through March 1999 and the balance of $14.0 million from the Company's
5% convertible debentures.
(D) To reflect the impact on average shares outstanding of shares of ABT common
stock issued in connection with the acquisitions (535,188) and private
placements (1,143,866) of the Company's common stock as if they had been
outstanding for the entire period.
(E) To eliminate intercompany sales and other revenue.
(F) Prospective reductions in compensation of former owners of acquired
entities, employee benefits, management fees, and property rent resulting
from employment agreements, property purchased directly from former owners
and other contractual arrangements entered into in connection with
acquisitions.
(G) To eliminate the operations of the fertilizer division of one of the Other
Acquisitions that when purchased on August 21, 1998 was intended to be sold
and was sold in December 1998.
