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 December 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 (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 February 22,2000, the registrant had 51,054,978 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>
December 31, June 30,
1999 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 489,757 $ 4,604,739
Accounts receivable, less allowance for doubtful accounts
of $8,917,961 at December 31, 1999 and $6,489,753 at June 30, 1999 34,666,585 45,684,024
Inventories 108,109,930 66,917,763
Deferred income taxes 1,560,522 1,696,161
Other 2,565,715 1,748,157
------------ ------------
Total current assets 147,392,509 120,650,844
Property, plant and equipment, net 61,472,143 62,212,326
Intangible assets, net of accumulated amortization 148,539,823 152,949,334
Investment in associated entity 953,701 936,901
Other assets 5,524,898 5,379,306
------------ ------------
Total assets $363,883,074 $342,128,711
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------- -------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 76,657,220 $ 71,909,061
Current installments of long-term obligations 4,196,003 5,977,852
Accounts payable 42,705,402 20,124,901
Accrued liabilities 32,674,049 21,140,753
------------- -------------
Total current liabilities 156,232,674 119,152,567
Long-term obligations, excluding current installments 11,152,375 12,198,297
Deferred income taxes 1,560,522 1,696,161
------------- -------------
Total liabilities 168,945,571 133,047,025
------------- -------------
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 51,054,978 shares at
December 31, 1999 and 47,498,061 shares at June 30, 1999 51,055 47,498
Capital in excess of par value 279,834,220 270,832,335
Accumulated (deficit) (84,947,772) (61,798,147)
------------- -------------
Total stockholders' equity 194,937,503 209,081,686
------------- -------------
Contingencies and subsequent events (notes F and J)
Total liabilities and stockholders' equity $ 363,883,074 $ 342,128,711
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six-month period Three-month period
ended December 31, ended December 31,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 125,472,058 $ 165,540,268 $ 51,965,906 $ 75,938,660
Cost of sales 93,096,535 124,241,379 42,412,920 58,411,269
------------- ------------- ------------- -------------
Gross profit 32,375,523 41,298,889 9,552,986 17,527,391
Operating expenses 51,546,847 46,303,214 26,867,586 25,077,925
Restructuring and special charges 41,584 -- -- --
------------- ------------- ------------- -------------
Earnings (loss) from operations (19,212,908) (5,004,325) (17,314,600) (7,550,534)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (4,202,924) (5,578,497) (2,406,908) (3,333,262)
Interest income 137,544 294,939 85,085 160,210
Earnings of associated entity 66,800 463,056 22,888 360,398
Other 72,013 (93,655) 65,821 (230,154)
------------- ------------- ------------- -------------
Total other income (expense) (3,926,567) (4,914,157) (2,233,114) (3,042,808)
------------- ------------- ------------- -------------
Earnings (loss) before income taxes (23,139,475) (9,918,482) (19,547,714) (10,593,342)
Income tax expense 10,150 30,129 -- (311,505)
------------- ------------- ------------- -------------
Net earnings (loss) $ (23,149,625) $ (9,948,611) $ (19,547,714) $ (10,281,837)
============= ============= ============= =============
Shares of common stock used in computing earnings (loss)
per common share:
Basic 49,242,287 39,057,824 50,102,109 40,029,235
Diluted 49,242,287 39,057,824 50,102,109 40,029,235
============= ============= ============= =============
Net earnings (loss) per common share:
Basic $ (0.47) $ (0.25) $ (0.39) (0.26)
Diluted (0.47) (0.25) (0.39) (0.26)
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements 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, 1999 47,498,061 $ 47,498 $ 270,832,335 $ (61,798,147) $ 209,081,686
Common stock issued for:
Cash 1,696,697 1,697 6,298,303 -- 6,300,000
Exercise of options 447,400 447 1,258,265 -- 1,258,712
Reduction of indebtedness 680,000 680 2,234,320 -- 2,235,000
Adjustment to prior issuances of common stock
due to stock price guarantees 732,820 733 (1,071,094) -- (1,070,361)
Options issued for services -- -- 225,366 -- 225,366
Amounts received pursuant to proceed sharing
under stock price guarantees -- -- 141,775 -- 141,775
Expenses of stock issuances -- -- (85,050) -- (85,050)
Net loss -- -- -- (23,149,625) (23,149,625)
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 51,054,978 $ 51,055 $ 279,834,220 $ (84,947,772) $ 194,937,503
============= ============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AGRIBIOTECH INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six-month period
ended December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(23,149,625) $ (9,948,611)
Adjustments to reconcile net earnings (loss) to net cash
flows from operating activities:
Amortization 4,486,772 3,031,763
Depreciation 2,548,352 2,154,728
Equity in earnings of associated entity (66,800) (463,056)
Deferred income taxes -- --
Options issued for services 225,366 369,403
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable 11,017,439 18,995,610
Inventories (41,192,167) (32,609,051)
Other assets (963,150) (2,055,416)
Accounts payable 22,580,501 13,065,186
Accrued liabilities 11,840,641 (4,285,907)
------------ ------------
Net cash flows from operating activities (12,672,671) (11,745,351)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,808,168) (6,997,152)
Additions to intangible assets (77,261) (44,364)
Distributions from associated entity 50,000 66,297
Amounts received (paid) pursuant to stock price
guarantees and proceed sharing (1,235,932) --
Acquisitions -- (43,623,016)
Change in net assets held for sale -- 9,345,034
------------ ------------
Net cash flows from investing activities (3,071,361) (41,253,201)
------------ ------------
Cash flows from financing activities:
Net proceeds (repayments) of short-term debt 4,748,159 19,118,859
Additions to long-term debt 7,269,929
Reductions of long-term debt (592,771) (2,819,136)
Sale of common stock 6,300,000 26,290,829
Exercise of options 1,258,712 1,137,387
Exercise of warrants -- 6,676,920
Allocations to warrants of proceeds from issuance of
common stock and convertible debt 2,904,251
Expenses of stock issuances (85,050) (858,745)
------------ ------------
Net cash flows from financing activities 11,629,050 59,720,294
------------ ------------
Net increase (decrease) in cash and cash equivalents (4,114,982) 6,721,742
Cash and cash equivalents at beginning of period 4,604,739 2,700,846
------------ ------------
Cash and cash equivalents at end of period $ 489,757 $ 9,422,588
============ ============
</TABLE>
6
<PAGE>
See accompanying notes to consolidated financial statements.
AGRIBIOTECH INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six-month period
ended December 31,
------------------------
1999 1998
--------- ------------
<S> <C> <C>
Supplemental Cash Flow Information:
Interest paid $3,993,225 $ 5,660,421
========= ============
Non cash investing and financing activities:
Accrued costs of acquisitions $ -- $ 549,825
Common stock issued to reduce indebtedness 2,235,000 --
Common stock issued in acquisitions -- 6,543,152
Common stock issued for costs related to intellectual property -- 3,999,997
Debt incurred in connection with acquisitions -- 4,890,000
Short-term debt expected to be refinanced, reclassified
as long-term debt -- 17,198,610
========= ============
Summary of assets and liabilities acquired through acquisitions:
Cash $ -- $ 1,083,820
Accounts receivable -- 12,673,740
Inventories -- 16,340,066
Net assets held for sale -- 9,345,034
Property, plant and equipment -- 11,714,502
Intangible assets -- 40,152,716
Other assets -- 842,708
Accounts payable and accrued expenses -- (14,952,272)
Long-term and short-term debt -- (19,252,283)
Deferred income taxes -- (1,808,043)
--------- ------------
Net assets acquired $ -- $ 56,139,988
========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(Unaudited)
===========================================================================
(A) Presentation of Unaudited Financial Statements
AgriBioTech, Inc. ("ABT") is a vertically integrated developer, producer,
marketer, and distributor of forage and cool-season turfgrass seed. Since early
1995, ABT has implemented a business strategy designed to first, acquire leading
North American companies active in each step (research, production,
distribution, and sales) in the forage and cool-season turfgrass seed sector;
second, combine the acquired businesses into a single, customer-focused,
vertically integrated entity; and third, shift the focus of the acquired
businesses from public, non-proprietary seed varieties toward proprietary
varieties with a long-term objective of developing biotechnologically enhanced
varieties. ABT's vertically integrated forage and cool-season turfgrass seed
operations include traditional-genetic-breeding research and development
programs, seed conditioning plants that clean, condition and package seed grown
under contract for ABT, and national and international sales and distribution
networks.
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
six-month periods ended December 31, 1999 and 1998. ABT'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.
(B) Short-Term Debt
ABT has a $90 million revolving line of credit with Bank of America Business
Credit and other lenders expiring in June 2001. Borrowings under the revolving
line of credit were $73.8 million at December 31, 1999, including items in
process of collection. Interest is payable monthly based on a variable rate that
averaged 10.625% at December 31, 1999. At February 11, 2000, approximately $68.9
million was outstanding and a $4 million over-advance existed under the
revolving line of credit based on the borrowing base computation at that date.
At December 31, 1999, the Company was not in compliance with the terms and
various covenants (including debt service charge, fixed charged coverage ratio
and the minimum gross cash flow) under the revolving credit agreement.
In August and September of 1999 the Company borrowed approximately $3 million
from a special purpose entity controlled by officers of ABT, the proceeds of
which were used for working capital. This debt is secured by certain real estate
and provides for interest at 10% per annum. The debt is due on demand or, if no
demand is made, ninety days from the borrowing, and is repayable upon any
refinancing by ABT. In November the debt agreement was modified to be due upon
demand and it remains outstanding on February 13, 2000.
In October 1999, ABT signed a commitment letter with GE Capital (GE) to arrange
a syndicate of lenders to provide ABT with a revolving line of credit in the
amount of up to $115 million and five-year term financing of up to $20 million.
The revolving line would have replaced the above revolving credit facility.
8
<PAGE>
In early December 1999 GE advised the Company of the likelihood that an equity
infusion in an amount greater than $5 million would be necessary to complete the
syndication of a long-term debt financing package. GE Capital did not specify
the amount of additional equity necessary but estimated it to total
approximately $15 million including the $5 million referred to in the original
commitment letter.
The Company continued its efforts to complete long-term debt financing with GE
Capital and its existing bank syndicate which were unsuccessful. Subsequently
the Company filed for a voluntary case with the United States Bankruptcy Court
under Chapter 11 as discussed in note J.
The United States Bankruptcy Court has approved interim orders on January 28 and
February 15, 2000, authorizing the Company to use cash collateral of up to $3.2
million and an additional $1.2 million, respectively, and granting a replacement
lien to the bank syndicate. The latest interim order expires on February 25,
2000. The Company is currently negotiating with the bank syndicate for
debtor-in-possession financing.
(C) Capital Stock
Since June 30, 1999, ABT has increased its outstanding stock options through
grants to new employees and consultants. These option grants, which are outside
of ABT's Employee Stock Option Plan, were for an aggregate of 0.6 million shares
of ABT's common stock at exercise prices ranging from $4 to $6.125.
In July 1999, ABT sold 700,000 shares of common stock for cash of $3.5 million.
In September 1999, ABT issued 500,000 shares of common stock to extinguish an
obligation of $1.9 million under an agreement that cancelled a long-term
obligation to an individual related to certain intellectual property rights.
These shares can be sold pursuant to a lock-up agreement and if the proceeds
from such sale do not equal the amount of the obligation being extinguished, ABT
will make up the shortfall in cash. If the proceeds exceed the obligation prior
to all shares being sold, the remaining shares, or excess net proceeds, will be
returned to ABT. Subsequent to September 30, 1999, all of these shares were sold
with the proceeds exceeding the amount of the obligation by approximately
$60,000, which was paid to ABT.
As discussed in Note 7 of Notes to Consolidated Financial Statements in ABT's
June 30, 1999 Form 10-K, 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, ABT 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. In the six-month period ended December 31, 1999, ABT paid
$1.5 million in cash and issued 732,820 additional shares of its common stock
pursuant to these agreements. If the shares remaining to be sold pursuant to
these agreements at December 31, 1999 are sold at an average of $2.00 per share,
the total proceeds received would be approximately $2.2 million less than the
amounts guaranteed to be received for such shares. Of this amount, approximately
$1.7 million would be paid in cash and is to be paid in July 2000, with the
remaining $0.5 million to be satisfied through the issuance of additional shares
of ABT's common stock or the payment of cash, at ABT's option. Subsequent to
September 30, 1999, ABT issued an additional 200,000 shares under one of these
agreements, approximately $155,000 was paid in cash, and sales of shares under
one of the agreements was completed, which resulted in excess proceeds of
approximately $70,000 that was paid to ABT. As of February 11, 2000, the total
guaranteed proceeds to be received upon sale of approximately 48,000 shares of
ABT common stock under these agreements was approximately $2.2 million. The
satisfaction of the stock guarantee obligations are subject to certain
determinations that will be made as part of the Chapter 11 bankruptcy
proceedings.
9
<PAGE>
On November 10, 1999, ABT's Board of Directors adopted a Shareholder Rights Plan
under which all shareholders of record as of November 24, 1999 will receive
rights to purchase shares of a new series of preferred stock. The Rights Plan is
designed to enable all ABT shareholders to realize the full value of their
investment and to provide for fair and equal treatment for shareholders in the
event that an unsolicited attempt is made to acquire ABT. The adoption of the
Rights Plan is intended as a means to guard against abusive takeover tactics and
is not in response to any particular proposal. The rights will be distributed as
a non-taxable dividend and will expire in ten years. The rights will be
exercisable only if a person or group acquires 15% or more of the ABT common
stock or announces a tender offer for 15% or more of the common stock. If a
person or group acquires 15% or more of ABT's common stock, all shareholders
except the purchaser will be entitled to acquire ABT common stock at a 50%
discount. The effect will be to discourage acquisitions of more than 15% of ABT
common stock without negotiations with the Board. The rights will trade with
ABT's common stock, unless and until they are separated upon the occurrence of
certain future events. ABT's Board of Directors may redeem the rights prior to
the expiration of a specified period following the acquisition of more than 15%
of ABT's common stock. The terms of the Rights Plan allow The State of Wisconsin
Investment Board, which owns approximately 18.9% of ABT's common stock, to
maintain its investment in ABT, as well as to acquire up to 20% of ABT's common
stock, without triggering the rights. Continuation of the Rights Plan will be
subject to shareholder approval no later than the third annual meeting of
stockholders following the Board's adoption and periodically thereafter. The
Board of Directors has reserved and designated 1,000,000 shares of ABT's
preferred stock for possible issuance in connection with the Rights Plan.
In early December 1999, consistent with GE Capital's equity raising requirements
to complete the syndication of a long-term debt financing package, the Company
sold 835,407 shares of its common stock to an institutional investor for an
aggregate of $2.5 million. The purchase price reflects the average of recent
prices of the Company's common stock on the NASDAQ National Market, net of a
6.5% discount. The proceeds of this equity issuances were used for working
capital.
In late December the Company issued 161,290 shares of common stock to an
individual investor for cash at a negotiated price of $1.84 per share for an
aggregate of approximately $.3 million. In addition, the Company issued 180,000
shares of common stock to an individual investor at an agreed upon price of
$2.00 per share which equaled market price on the date of issuance, in
satisfaction of current and future obligations to pay royalties upon the sale of
certain current and future varieties of grass seed. The individual investors are
both members of the Company's management but are not officers. The proceeds of
these equity issuances were used for working capital.
(D) Earnings per Share
Due to the net losses for the periods presented, options
and warrants to purchase common stock, aggregating approximately 8.6 and 3.2
million shares of common stock at December 31, 2000, and 8.9 and 2.0 million
shares of common stock at December 31, 1998, were anti-dilutive and do not
impact earnings per share.
(E) Income Taxes
ABT provides income taxes for interim periods based on its estimate of its
effective income tax rate for the corresponding fiscal year. ABT anticipates its
effective income tax rate for the year ending June 30, 2000 will be
approximately zero.
(F) Contingencies
Between January 14, 1999 and March 19, 1999, a number of securities class action
complaints were filed against ABT and certain of its former directors and
current and former officers in federal courts in New Mexico, New York and
Nevada. All cases have been transferred to the United States District Court for
the District of Nevada and consolidated into one action. On July 6, 1999, a
consolidated amended complaint was filed by plaintiffs purporting to represent a
class of purchasers of ABT common stock from September 24, 1997 through February
16, 1999. The complaint alleges, among other things, that ABT's financial
statements, including the accounting treatment for acquisitions completed in
1997 and 1998, and certain statements made by ABT concerning its efforts to find
a strategic equity investor in late 1998 and early 1999 and other topics were
false and misleading and caused an artificial rise in ABT's common stock price
in violation of federal securities law. On August 18, 1999, ABT filed a motion
to dismiss the complaint. The plaintiffs have filed a brief in response to ABT's
motion and ABT has responded to that brief. ABT believes it has meritorious
defenses to this action 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 this action could
have a material adverse impact.
10
<PAGE>
On January 25, 2000, the Company filed a petition seeking relief under Chapter
11 of the Bankruptcy Code. The proceedings against ABT have been stayed pursuant
to the automatic stay provisions of the Bankruptcy Code. The proceedings against
the directors and officers are not stayed.
In the ordinary course of business, ABT is also a party to certain other claims,
actions and proceedings incidental to its business, none of which is expected to
have a material adverse effect on the business, financial position or results of
operations of ABT.
(G) Restructuring and Special Charges
In June 1999, ABT's Board of Directors approved the restructuring plan to
integrate the acquired businesses. The plan includes the closure of 33
facilities that were determined to be either redundant or inconsistent with
ABT's overall strategic plan and an associated reduction in workforce of
approximately 300 full-time employees related to facility closures, elimination
of duplicate positions, and streamlining ABT operations related to cost
reduction initiatives. In the year ended June 30, 1999, ABT recorded $9.8
million of restructuring and other integration related costs that are
non-recurring or infrequent in occurrence. In the six-month and three month
periods ended December 31, 1999, ABT recorded additional costs of $41,584 and
none. The restructuring and special charges are summarized as follows:
<TABLE>
<CAPTION>
Non-cash Cash
----------------------- -----------------------
Realized To be Paid To be paid
through realized after through after
Total December December December December
charges 31, 1999 31, 1999 31, 1999 31, 1999
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Facility closure $3,361,596 $ 272,695 $3,088,901 $ -- $ --
Employee termination 3,181,960 -- -- 1,828,089 1,353,871
Disposal of equipment 897,660 82,322 815,338 -- --
Other 2,351,999 -- -- 2,112,918 239,081
---------- ---------- ---------- ---------- ----------
Total $9,793,215 $ 355,017 $3,834,239 $3,941,007 $1,592,952
========== ========== ========== ========== ==========
</TABLE>
The restructuring charges are based on estimates and, therefore, are subject to
change. ABT does not believe any revisions to these estimates will be material.
(H) Segment Information
ABT operates and manages its business by business units focused on the nature of
the customers served by each business unit. ABT has segregated its customers
into three basic categories: (1) those that are primarily retail focused or are
end-use consumers; (2) those that are primarily wholesale focused; and (3) those
characterized by ABT as Specialty Distribution. The retail operations serve
customers throughout North America using four geographical areas. These
customers include mass merchandisers, independent lawn and garden or
agricultural retailers, golf courses, sports fields, sod farms, landscapers,
dairies, cattle ranchers, commercial hay growers, farmers, land reclamation
projects, hydroseeders, highway departments, and airports. Three of the retail
areas have similar economic characteristics and have been aggregated as "retail"
in the table below. The fourth retail area is quantitatively insignificant for
disclosure purposes and is included in "other/corporate" below. The wholesale
operations serve domestic customers that generally are larger entities with
their own sales forces and distribution channels that re-sell ABT's products to
others and international users of forage and cool-season turfgrass seed.
Wholesale operations also include seeds sold through private labels of others.
Specialty Distribution serves customers formerly served by three acquired
businesses that provide a full range of seed, chemicals, fertilizers, lawn and
garden supplies, and ancillary products to a wide range of customers, including
golf course, landscapers and hardware-type retail stores in certain markets in
the United States.
11
<PAGE>
The following table presents revenues from external customers, intersegment
revenues, and segment earnings (loss) for the six-month period ended December
31, 1999 and segment assets as of December 31, 1999:
<TABLE>
<CAPTION>
Specialty Other/
Retail Wholesale Distribution Corporate Total
------------- ------------- ------------- ------------- -------------
(In millions)
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 58.3 $ 40.2 $ 21.9 $ 5.0 $ 125.4
Intersegment revenues 0.4 7.3 0.1 0.6 8.4
Segment earnings (loss) (6.2) (5.8) (0.1) (11.0) (23.1)
Segment assets 48.9 114.6 19.5 180.9 363.9
</TABLE>
The above table includes corporate expenses aggregating $10.3 million that
primarily consist of general and administrative expenses of ABT's corporate
headquarters (including officer and administrative employee compensation),
research and development expenses, amortization of intangibles, and interest
expense. Budgeted corporate general and administrative expenses and research and
development expenses are allocated to the operating segments based on a
percentage of budgeted revenue. Variances to budget or absorption rates are not
reallocated. Segment earnings (loss) for the operating segments is determined
from revenues, cost of sales, operating expenses, and other income (expense)
directly attributable to each segment plus the allocation of budgeted corporate
costs. Corporate assets reflected in the above table amount to $180.5 million
and primarily include cash, property, plant and equipment (including ABT's
enterprise resource planning system and corporate headquarters), intangible
assets (including goodwill), deferred tax assets, and other assets (including
investments in other entities). The assets of the operating segments primarily
consist of accounts receivable, inventory, and property, plant and equipment
attributable to each segment.
The accounting policies of the reported segments are the same as those described
within Note 2 of Notes to Consolidated Financial Statements in ABT's June 30,
1999 Form 10-K. Sales between segments are accounted for at cost.
Due to the number of acquisitions completed by ABT and the different methods and
systems of accumulating data in the acquired businesses, similar information is
not available for prior years. Prior to the June 1999 restructuring, ABT
assessed performance of its operations and made decisions about allocation of
resources as one combined business, consisting of all the acquired entities and,
therefore, operated as a single segment.
(I) Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
be comparable to the current year presentation.
(J) Subsequent Events
On January 25, 2000, AgriBiotech, Inc. and several of its subsidiaries filed a
voluntary case (the "Bankruptcy Case") with the United States Bankruptcy Court
for the District of Nevada (the "Bankruptcy Court") under Chapter 11 of the
United States Bankruptcy Code ( the "Bankruptcy Code.") The Company is operating
its business as a debtor-in-possession and as such, certain of its proposed
actions are subject to Bankruptcy Court Approval.
12
<PAGE>
As the Company filed the Bankruptcy Case subsequent to the quarter ended
December 31, 1999, the financial statements do not reflect any requirements
under Statement of Position (SOP) 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code." The SOP provides guidance on
financial reporting by entities that have filed petitions with the Bankruptcy
Court and expect to reorganize as going concerns under Chapter 11 of Title 11 of
the United States Code. Due to the bankruptcy filing the Company is in default
of substantially all its debt financing agreements.
The Company's Chapter 11 filing results from a confluence of factors which
reduced liquidity and increased pressure on lenders and vendor relationships.
First, ABT has been unable to complete the integration of all the thirty-four
companies purchased pursuant to the first stage of the Business Plan and achieve
the economies of scale and related cost savings. Accordingly, ABT is saddled
with high operating costs. Second, the Company's revenues have declined as a
result of adverse weather in Oregon which led to delays in bringing products to
market. Moreover a worldwide oversupply of turfgrass and forage seed (except for
certain varieties) resulting from higher than average harvests in the United
States, Canada and Europe, have exerted downward pressure on prices and
inability to move inventory as quickly as projected. Third, slower cash
collections from customers due to a weak agricultural economy has resulted in
reduced liquidity.
The United States Bankruptcy Court approved interim orders on January 28 and
February 15, 2000 authorizing the Company to use collateral cash of $3.2 million
and an additional $1.2 million, respectively, and granting a replacement lien to
its bank syndicate. The latest interim order will expire on February 25, 2000.
ABT is currently negotiating with the bank syndicate for debtor-in-possession
financing.
On February 15, 2000, the Court approved the appointment of William A. Brandt,
Jr. as the Company's responsible natural person under Federal Rule of Bankruptcy
Procedure 9001(5). As the Responsible Natural Person, Mr. Brandt will be in
complete control of the day to day operations. Although Mr. Brandt will not be
an officer of the Company, he shall have all of the powers vested in the members
of the board of directors and officers of ABT. To assist Mr. Brandt in
fulfilling his duties as the Responsible Natural Person, the Court approved the
Company's retention of Development Specialists, Inc. ("DSI") as reorganization
consultants.
Mr. Brandt, together with DSI and ABT's other professionals, have determined
that it is in the best interests of the Company's estates to sell the assets in
one or more going-concern sales as efficiently and expeditiously as possible,
provided that sufficient financing for an orderly sale process exists. In that
regard, the Company is in the process of preparing a bid solicitation package
which will be disseminated to all parties expressing interest in purchasing any
of the Company's assets. The Company contemplates that the solicitation material
will be available on or before March 1, 2000 and that the deadline for
submitting bids will be March 24, 2000. As of the date of this report, all of
the members of the Company's Board of Directors and all of its officers have
resigned.
Nasdaq National Market has determined to delist the Company's securities from
the Nasdaq National Market effective with the close of business on February 18,
2000. The Company has chosen not to file an appeal. Due to the burden on the
Company's remaining management and other personnel resulting from the need to
focus on reorganization-related matters, the Company has requested a
modification of reporting requirements from the Securities and Exchange
Commission. The Company believes that the reporting modification requirement is
not inconsistent with the protection of investors.
--------------------------------------------------------------------
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 ABT included elsewhere herein. ABT is the
largest developer, producer, marketer, and distributor of forage and cool-season
turfgrass seed in North America. Since early 1995, ABT has implemented a
business strategy designed to first, acquire leading North America companies
active in each step (research, production, distribution, and sales) in the
forage and cool-season turfgrass seed sector; second, combine the acquired
businesses into a single, customer-focused, vertically integrated entity; and
third, shift the focus of the acquired businesses from public, non-proprietary
seed varieties toward proprietary varieties with a long-term objective of
developing biotechnologically enhanced varieties. ABT has acquired a number of
seed businesses since January 1, 1995 (the "Acquisition Program") to accomplish
its business strategy. These acquisitions are summarized in Note 1 of Notes to
Consolidated Financial Statements in ABT's June 30, 1999 Form 10-K.
Historically, the results of operations of the acquired companies had been
included in ABT's consolidated results beginning with the effective 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, 1999
Form 10-K, ABT 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. ABT had reflected the acquired
businesses in its Consolidated Financial Statements as of the effective date.
Due to the size of ABT and the internal focus on integration of acquired
businesses, ABT changed its acquisition practices, to operate and acquire
businesses at the closing date, instead of the effective date, for acquired
businesses not included in ABT's March 31, 1998 consolidated financial
statements.
The acquisitions and other operations being included in ABT'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, such as the
three-month and six-month periods presented herein (each a "Three-Month Period"
and "Six-Month Period"), are not necessarily indicative of results which may be
expected for an entire year. ABT's fiscal year ("Fiscal") ends on June 30. The
significant number of acquisitions and the period for which each is included in
ABT'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.
The Company has incurred significant operating and net losses since
inception, and has been unable to generate sufficient cash flow from operating
activities to meet projected debt service and other obligations as they become
due. The Company's business requires substantial amounts of capital and
liquidity, principally for the purchases of inventory, research and development
of new proprietary varieties, debt service and working capital requirements.
On January 25, 2000, AgriBiotech, Inc. and several of it's subsidiaries
filed a voluntary case (the "Bankruptcy Case") with the United States Bankruptcy
Court for the District of Nevada (the "Bankruptcy Court") under Chapter 11 of
the United States Bankruptcy Code ( the "Bankruptcy Code.") Following the
commencement of the Bankruptcy Case, the Company has continued to operate its
business as a debtor-in-possession with the protection and supervision of the
Bankruptcy Court. See "Liquidity and Capital Resources" for a description of
certain financings obtained by the Company since the filing of the Bankruptcy
Case.
The Company's Chapter 11 filing results from a confluence of factors which
reduced liquidity and increased pressure on lenders and vendor relationships.
First, ABT has been unable to complete the integration of all the thirty-four
companies purchased pursuant to the first stage of the Business Plan and achieve
the economies of scale and related cost savings. Accordingly, ABT is saddled
with high operating costs. Second, the Company's revenues have declined as a
result of adverse weather in Oregon which led to delays in bringing products to
market. Moreover a worldwide oversupply of turfgrass and forage seed (except for
certain varieties) resulting from higher than average harvests in the United
States, Canada and Europe, have exerted downward pressure on prices and
inability to move inventory as quickly as projected. Third, slower cash
collections from customers due to a weak agricultural economy has resulted in
reduced liquidity.
14
<PAGE>
On February 15, 2000, the Court approved the appointment of William A.
Brandt, Jr. as the Company's responsible natural person under Federal Rule of
Bankruptcy Procedure 9001(5). As the Responsible Natural Person, Mr. Brandt will
be in complete control of the day to day operations. Although Mr. Brandt will
not be an officer of the Company, he shall have all of the powers vested in the
members of the board of directors and officers of ABT. To assist Mr. Brandt in
fulfilling his duties as the Responsible Natural Person, the Court approved the
Company's retention of Development Specialists, Inc. ("DSI") as reorganization
consultants.
Mr. Brandt, together with DSI and ABT's other professionals, have
determined that it is in the best interests of the Company's estates to sell the
assets in one or more going-concern sales as efficiently and expeditiously as
possible, provided that sufficient financing for an orderly sale process exists.
In that regard, the Company is in the process of preparing a bid solicitation
package which will be disseminated to all parties expressing interest in
purchasing any of the Company's assets. As of the date of this report, all of
the members of the Company's Board of Directors and all of its officers have
resigned.
The Company anticipates that the filing of the Bankruptcy Case, lack of
liquidity and current absence of debtor-in-possession financing will have an
immediate negative impact on the results of operations. Lower revenues and net
losses are anticipated for the foreseeable future considering the Company has
not been able to afford certain activities (e.g. purchase of seed for blends and
mixes, freight costs, quality testing, etc.) needed to move products to market
during this critical shipping season.
Nasdaq National Market has determined to delist the Company's securities
from the Nasdaq National Market effective with the close of business on February
18, 2000. The Company has chosen not to file an appeal. Due to the burden on the
Company's remaining management and other personnel resulting from the need to
focus on reorganization-related matters, the Company has requested a
modification of reporting requirements from the Securities and Exchange
Commission. The Company believes that the reporting modification requirement is
not inconsistent with the protection of investors.
In this report and elsewhere (Annual Report, other public filings, press
releases, investor and analyst conference calls), ABT has made and will make
forward-looking statements relating to matters such as anticipated financial and
operational performance; management plans; revenue, cost and profit projections;
research and development of new products; acquisition and integration of
companies; performance of the seed industry and ABT's competitors; and
management's underlying assumptions about the above. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking
statements in order to encourage companies to make such statements in order to
provide additional information to investors. ABT wishes to make such statements
and to avail itself of the "safe-harbor". In order to do so, ABT states that any
forward-looking statement involves risks and uncertainties, is not a guarantee
of future performance, and the actual financial and economic performance and
condition of ABT may differ materially from that expressed in the
forward-looking statement, due to a variety of factors, such as those set forth
in Item 1 of ABT's Form 10-K for the year ended June 30, 1999 under the heading
"General - Forward Looking Statements" and other filings with the Securities and
Exchange Commission.
The above factors have significant effects on the following discussion and
analysis and should be considered as part of it.
15
<PAGE>
Results of Operation
Selected information concerning the results of operations is summarized as
follows:
<TABLE>
<CAPTION>
Six-Month Period Three-Month Period
Ended December 31, Ended December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $125,472,058 165,540,268 51,965,906 75,938,660
Gross profit 32,375,523 41,298,889 9,552,986 17,527,391
Percentage of net sales 25.8% 25.0% 18.4% 23.1%
Operating expenses 51,546,847 46,303,214 26,867,586 25,077,925
Percentage of net sales 41.1% 28.0% 51.7% 33.0%
Restructuring and special charges 41,584 - - -
Percentage of net sales .03% - - -
</TABLE>
ABT has essentially completed the first phase of its business strategy. The
first phase was the Acquisition Program that enabled ABT to accumulate the
critical mass it believed was necessary to lead the transformation of the forage
and turfgrass sector of the seed industry. The results of certain acquired
operations are not included for the entire Fiscal 1999 Six-Month and Three-Month
Periods, which effects the comparabilitiy of Fiscal 2000 and Fiscal 1999
results.
An integral part of ABT's business strategy is to become vertically
integrated with production operations producing seed varieties developed by
ABT's research operations and then providing those seeds to ABT's distribution
operations. This results in sales made by production operations that formerly
were made to third parties being made as intercompany sales within ABT owned
operations and also results in less purchases of inventory from outside
suppliers. Sales between ABT operations are eliminated in the consolidated
results of operations. Such sales amounted to $46.6 million (37.1% of reported
net sales) in the six-month period ended December 31, 1999 (the "Fiscal 2000
Six-Month Period"), $20.3 million (39.0% of reported sales) in the three-month
period ended December 31, 1999 (the the "Fiscal 2000 Three-Month Period"), $45.9
million (26.6% of reported net sales) in the six-month period ended December 31,
1998 (the "Fiscal 1999 Six-Month Period") and $20.1 million (26.5% of reported
sales) in the three-month period ended December 31, 1998 (the the "Fiscal 1999
Three-Month Period"). This has two impacts on the financial statements. First,
the time certain sales are recorded is delayed in that shipments to third
parties are recorded when shipped to the third party, but when shipped to other
ABT operations are not recorded as sales until that operation ships the product
to its customers. Second, as more production is used internally rather than sold
to third parties, sales revenue is reduced since both the internal sales and the
related cost of sales are eliminated in the financial statements. However, since
the internal costs are lower, the dollar amount of gross profit ultimately
realized on these sales is equal to that which would have been recognized prior
to the vertical integration. This results in gross profit increasing as a
percentage of net sales.
The Company's net sales for the three-months ended December 31, 1999 were
$52.0 million as compared to $75.9 million for the same period of 1999, a
decrease of 31.6%. The Company's net sales for the six-month period ended
December 31, 1999 were $125.5 million as compared to $165.5 million for the same
period of 1999, a decrease of 24.2%. The decreases are primarily due to three
reasons. As mentioned above, as ABT becomes more vertically integrated the
percentage of its products that are produced internally increases, which reduces
the amount recorded as sales. The average sales price for certain seed products
decreased substantially from the Fiscal 1999 Six-Month and Three-Month Periods
to the Fiscal 2000 Six-Month and Three-Month Periods. Of the seven major species
sold during these periods, six decreased in price. The percentage change in the
prices of these products ranged from 10% to 45%. This decrease in sales prices
negatively impacted net sales. In addition, adverse weather conditions caused
the harvest of seed grown for ABT in Oregon, where a significant amount of
turfgrass seed is grown, to be approximately three weeks later in the fall of
1999 than in the fall of 1998, which resulted in a reduced amount of seed being
available to be sold in the Fiscal 2000 Six Month and Three-Month Periods
compared to the prior year. These factors significantly reduced the time
available to bring product to market and resulted in unfilled demand, which
negatively impacted net sales.
16
<PAGE>
Cost of sales, primarily seed costs, for the three-months ended December 31,
1999 were $42.4 million or 81.6% of net sales compared to $58.4 million for the
same period of Fiscal 1999, a decrease of 27.4%. Cost of sales for the six
months ended December 31, 1999 were $93.1 million or 74.2% of net sales as
compared to $124.2 million for the same period of Fiscal 1999, a decrease of
25.1%. Gross Profit was $9.6 million or 18.4% of net sales for the three months
ended December 31, 1999 as compared to $17.5 million or 23.1% of net sales for
the same period in Fiscal 1999, a decrease of 27.4%. The decrease in the dollar
amounts are primarily due to reduced sales dollars, described above, partially
offset by an increase in transportation costs to move product from the
production facilities to the distribution facilities. The increased freight was
the result of an increased demand curve brought on by the compressed selling
season. The decreases in the gross profit percentage are due to a combination of
factors such as inventory adjustments as a result of physical inventory counts
in late November, a compressed selling season which caused difficulty in getting
proprietary products to market, an excess supply of seed for most turfgrass
species, which created downward pricing pressure, the continuing pressure on
farmers because of falling prices for their products which creates downward
pressure on the price of products they purchase, and the higher production costs
associated with the availability of transportation.
There is worldwide oversupply of turfgrass and forage seed except for
bluegrass, fine fescues, creeping red fescue, timothy and reed canarygrass. This
oversupply situation was caused by higher than average seed harvests in the
U.S., Canada and Europe and significant carryover from the prior crop year. The
dormant and non-dormant alfalfa harvest was the largest since 1991. Because of
this situation, compared to a year ago, tall fescue prices have fallen by 10 to
35 percent, ryegrass prices have fallen by 15 to 45 percent, and prices for
common varieties of alfalfa have fallen by 40 percent. 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 year.
Operating expense for the three months ended December 31, 1999 were $26.9
million as compared to $25.1 million for the same period of Fiscal 1999, an
increase of 7.1%. Operating expenses for the six months ended December 31, 1999
were $51.5 million as compared to $46.3 million for the same period of Fiscal
1999. ABT completed nine acquisitions between July 1, 1998 and June 30, 1999.
Total depreciation and amortization increased by $0.9 million in the December
31, 1999 Three-Month Period and $1.8 million in the December 31, 1999 Six-Month
Period compared to the prior year, primarily due to these acquisitions and
depreciation on ABT's new information system. On a pro forma basis, as if those
acquisitions had occurred on July 1, 1998, operating expenses would have been
$25.3 million and $48.8 million for the Fiscal 1999 Three and Six-Month Periods.
The levels of operating expenses were impacted by the items discussed below, and
by the Company's implementation of the Integration Process that was started late
in Fiscal 1999 (the "Integration Process"). However, many of the cost savings
and efficiencies of the Integration Process were only partially realized during
the Fiscal 2000 Six-Month Period due to the timing of its implementation. The
percentage increase is attributable to the decrease in the dollar amount of
sales due to the factors mentioned above combined with the fact that many
operating expenses are fixed and are therefore impacted by a shortfall in sales.
In addition to the items discussed below, during the Three-Month Period ended
December 31, 1999 the Company recorded an additional reserve for doubtful
accounts for approximately $1.8 million as a result of the Company's continued
deterioration of trade accounts receivable.
17
<PAGE>
<TABLE>
<CAPTION>
Six-Month Period Three-Month Period
Ended December 31, Ended December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Personnel costs $22,785,173 21,021,693 $11,162,814 11,276,822
Occupancy expenses 8,031,306 6,569,552 3,543,036 3,000,747
Vehicle and shipping 6,298,500 2,911,826 3,543,036 1,439,451
Outside services 1,844,104 2,015,810 504,595 773,799
Travel 1,459,643 1,729,952 769,819 926,438
Advertising and promotion 1,963,809 3,764,347 1,016,984 2,284,156
Amortization 4,486,772 3,031,763 2,531,132 1,711,348
</TABLE>
In addition to the impacts of the Acquisition Program and the Integration
Process, personnel costs increased in the Fiscal 2000 Six-Month and Three-Month
Periods compared to the same periods in the prior year due to additional
part-time and temporary workers hired to assist in the final phase of the
Enterprise Resource Planning (ERP) implementation and to assist in the
compressed fall selling season. Furthermore, the timing of the implementation of
the Integration Process, particularly with respect to ABT's turfgrass production
facilities, resulted in ABT not realizing all of the anticipated benefits from
reductions in personnel during the Fiscal 2000 Six-Month and Three-Month
Periods.
Occupancy expenses increased in the Fiscal 2000 Six-Month and Three-Month
Periods compared to the prior year resulting from additional facilities added
since September 30, 1998 due to acquisitions, construction of a new alfalfa
production facility, and expansion of ABT's corporate headquarters, partially
offset by the closing of certain facilities as part of the Integration Process.
At December 31, 1999, ABT had closed 29 of the 33 facilities scheduled to close.
However, until closed facilities are disposed of, ABT continues to incur costs
for utilities, maintenance, property taxes, and other operating costs. These
costs were not accruable as part of the restructuring and special charges
recorded at June 30, 1999.
Vehicle and shipping expenses increased in the Fiscal 2000 Six-Month and
Three-Month Periods compared to the prior year. The increase was caused by a
shortage of available transportation, which resulted in higher shipping prices.
Outside services decreased in the Fiscal 2000 Six-Month and Three-Month Periods,
primarily due to decreased levels in consulting expenses in connection with
acquisition and financing arrangements. Travel costs decreased in the Fiscal
2000 Six-Month and Three-Month Periods compared to the prior year resulting from
an increased emphasis by management to reduce travel costs. Advertising and
promotion costs decreased in the Fiscal 2000 Six-Month and Three-Month Periods
compared to the same period due to the consolidation of programs that reduced
redundant projects.
Amortization increased in the Fiscal 2000 Six-Month and Three-Month Period
due to acquisitions completed since July 1, 1998. At December 31, 1999, ABT has
unamortized intangible assets, including goodwill, of $151.0 million. ABT's
ability to recover the carrying amount of goodwill through undiscounted cash
flows assumes that results of operations and cash flows in future periods will
improve from historical levels. If ABT is unable to achieve its business
objectives, some portion of goodwill could be impaired in subsequent periods.
See "Introduction" above.
Research and development expenses, which are included within the various
components of operating expenses described above, were $1.5 million for the
three months ended December 31, 1999 compared to $1.2 million for the same
period of Fiscal 1999. R&D for the six month period ended December 31, 1999 were
$2.9 million compared to $2.0 million for the same period of Fiscal 1999. The
increases are due to increased expenditures on ABT's traditional genetic
breeding programs for alfalfa and turfgrasses, as well as the establishment of
ABT's research facility at The University of Rhode Island and expenses,
including amortization of intangibles,
18
<PAGE>
related to the technology of Hybrigene, Inc. and Kimergen, Inc., which were not
incurred in the Fiscal 1999 Six-Month and Three-Month Periods.
Interest expense decrease from $3.3 million for the three month period
ended December 31, 1999 compared to $2.4 million for the same period of Fiscal
1999. Interest expense for the six month period ended December 31, 1999 was $4.2
million as compared to $5.6 million for the same period of Fiscal 1999. This was
primarily due to reduced borrowings under ABT's revolving line of credit. In
addition, during the Fiscal 1999 Six-Month and Three-Month Periods, ABT had up
to $30 million in borrowings under two short-term bridge financing facilities,
which had higher interest rates than the revolving credit facility. These bridge
facilities did not exist in the Fiscal 2000 Six-Month and Three-Month Periods.
ABT's net loss was $19.5 million for the three month period ended December
31, 1999 as compared to $10.3 million for the same period of Fiscal 1999. For
the six month period ended December 31, 1999 the net loss was $23.1 million as
compared to $9.9 million for the same period of Fiscal 1999. The increase in net
loss is a result of the items discussed above. For the Fiscal 2000 Six and
Three-Month Periods, average common shares outstanding used in computing
earnings per common share increased due to additional shares issued, primarily
for cash, acquisitions, options and warrants.
Liquidity and Capital Resources
The Company has incurred significant operating and net losses since
inception, and has been unable to generate sufficient cash flow from operating
activities to meet projected debt service and other obligations as they become
due. The Company's business has required substantial amounts of capital and
liquidity, principally for the acquisitions, integration costs, debt service and
working capital requirements.
Net earnings (loss) adjusted for non-cash impacts of depreciation, amortization,
equity in earnings of associated entity, deferred taxes, and options for
services was a negative $16.0 million in the Fiscal 2000 Six-Month Period
compared to a negative $4.9 million for the same period of Fiscal 1999. The
Company had negative cash flows from operating activities of $12.7 million
during the Fiscal 2000 Six Month Period compared to net negative cash flows from
operating activities of negative $11.7 million during the Fiscal 1999 comparable
period. The increases in accounts payable and inventories are primarily
attributable to the delivery of seed harvested during the fall season. During
the Fiscal 2000 Six-Month Period, ABT had net negative cash flows from investing
activities of $3.1 million compared to $41.3 million in the prior year,
primarily from investments in property, plant and equipment and acquisitions.
During the Fiscal 2000 Six Month Period, ABT had net cash flows from financing
activities of $11.6 million, primarily due to the sale of common stock and
exercise of options, partially offset by a reduction of long and short term
debt. During the Fiscal 1999 Six Month Period, ABT had net cash flows from
financing activities of $59.7 million, primarily due to additional short-term
debt of $19.1 million and proceeds from the issuance of common stock of $26.3
million.
The Company had negative working capital of $8,840,165 at December 31, 1999 as
compared to $1,498,277 at June 30, 1999. The decrease in working capital was
primarily caused by a decrease in accounts receivable and an increase in
accounts payable and accrued liabilities.
ABT has a $90 million revolving credit facility with Bank America Business
Credit and other lenders expiring in June 2001, under which borrowings were
$73.8 million at December 31, 1999, including items in the process of
collection. Total short-term debt at December 31, 1999, was $76.7 million
compared to $71.9 million at December 31, 1998. At February 11, 2000,
approximately $68.9 million was outstanding and a $4 million over-advance
existed under the revolving line of credit based on the borrowing base
computation at that date. The Company is in default under the credit facility.
ABT has borrowed approximately $3 million from a special purpose entity
controlled by officers of ABT the proceeds of which were used for working
capital. This debt is secured by certain real estate and provides for interest
at 10% per annum. The debt is due on demand or, if no demand is made, ninety
days from the borrowing, and is repayable upon any refinancing by ABT. In
November this debt agreement was modified to be due upon demand and it remains
outstanding on February 13, 2000.
19
<PAGE>
In October 1999, ABT signed a commitment letter with GE Capital to arrange
a syndicate of lenders to provide ABT with a revolving line of credit in the
amount of up to $115 million and five-year term financing of up to $20 million.
The revolving line would have replaced the above revolving credit facility.
In early December GE advised the Company of the likelihood that an equity
infusion in an amount greater than $5 million would be necessary to complete the
syndication of a long-term debt financing package. GE Capital did not specify
the amount of additional equity necessary but estimated it to total
approximately $15 million including the $5 million referred to in the original
commitment letter. GE Capital withdrew its commitment.
In early January 2000 the Company commenced workout discussions with its
existing bank syndicate in an attempt to obtain additional financing which the
Company believed would allow restructuring of operations sufficient to avoid
seeking bankruptcy protection. After several days of discussions the bank
syndicate informed ABT that it refused to extend any additional financing to the
Company outside the context of Chapter 11 bankruptcy proceedings. The Company
continued its efforts to complete long-term debt financing with GE Capital and
its existing bank syndicate which were unsuccessful. Subsequently the Company
filed for a voluntary case with the United States Bankruptcy Court under Chapter
11.
The United States Bankruptcy Court approved interim orders on January 28
and February 15, 2000 authorizing the Company to use collateral cash of $3.2
million and an additional $1.2 million, respectively, and granting a replacement
lien to its bank syndicate. The latest interim order expires on February 25,
2000. ABT is currently negotiating with the bank syndicate for
debtor-in-possession financing. There can be no assurance that the Company will
emerge from the Bankruptcy Case, that the Company will be able to obtain any
necessary additional financing upon such emergence from bankruptcy, or that the
Company will generate positive operating cash flow upon such emergence from
bankruptcy. These factors raise substantial doubt about the Company's ability to
continue as a going concern. If the Company is unable to continue as a going
concern and is forced to liquidate assets to meet its obligations, the Company
may not be able to recover the recorded amount of such assets. The Company's
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
If the Company is able to emerge from bankruptcy, under SOP 90-7 "Financial
Reporting by Entities under Reorganization Under the Bankruptcy Code" the
Company will adjust the carrying value of its assets and liabilities based upon
the final determination of its reorganization value (a fair value concept) by a
third party. The adjustment, if there is one to be made, cannot be determined at
this time.
Management Information System and Year 2000
ABT's Form 10-K for the year ended June 30, 1999 contains a discussion of
ABT's process to address the consequences of reaching the Year 2000 and the
implementation of a company-wide enterprise resource planning system to meet its
information system requirements. No significant changes have occurred since the
June 30, 1999 Form 10-K was filed.
Inflation
Management does not consider that inflation has had a significant effect on
ABT's operations to date. The cost of seed products is largely affected by seed
yields and alternative crop prices, which have not generally been greatly
impacted by inflation. The costs which are normally impacted by inflation, such
as wages, transportation and energy, are a relatively small part of ABT's total
operations. However, ABT 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 ABT's Form 10-K for the year
ended June 30, 1999.
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No significant changes in the quantitative and qualitative disclosures
about market risk have occurred from the discussion contained in ABT's Form 10-K
for the year ended June 30, 1999.
PART II - OTHER INFORMATION
Between January 14, 1999 and March 19, 1999, a number of securities class
action complaints were filed against ABT and certain of its former directors and
current and former officers in federal courts in New Mexico, New York and
Nevada. All cases have been transferred to the United States District Court for
the District of Nevada and consolidated into one action, captioned In re:
AgriBioTech, Inc. Securities Litigation, Base File No. CV-S-99-144-PMP (LRL). On
July 6, 1999, a Consolidated Amended Complaint was filed by plaintiffs
purporting to represent a class of purchasers of ABT common stock from September
24, 1997 through February 16, 1999. The complaint alleges, among other things,
that ABT's financial statements, including the accounting treatment for
acquisitions completed in 1997 and 1998, and certain statements made by ABT
concerning its efforts to find a strategic equity investor in late 1998 and
early 1999 and other topics were false and misleading and caused an artificial
rise in ABT's common stock price in violation of Section 10(b) of the Securities
Exchange Act of 1934, as amended, Rule 10b-5 promulgated thereunder, and Section
20 of the Exchange Act. On August 18, 1999, ABT filed a motion to dismiss the
complaint. The plaintiffs have filed a brief in response to ABT's motion and ABT
has responded to that brief. ABT believes it has meritorious defenses to this
action 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 this action could have a
material adverse impact.
On January 25, 2000, the Company filed a petition seeking relief under
Chapter 11 of the Bankruptcy Code. The proceedings against ABT have been stayed
pursuant to the automatic stay provisions of the Bankruptcy Code. The
proceedings against the directors and officers are not stayed.
In the ordinary course of business, ABT is also a party to certain other
claims, actions and proceedings incidental to its business, none of which is
expected to have a material adverse effect on the business, financial position
or results of operations of ABT.
ITEM 3. Defaults Upon Material Indebtedness
The Company is in default on the BABC Revolving Line of Credit with various
terms and covenants (including debt service charge, fixed charged coverage ratio
and the minimum gross cash flow). As of December 31, 1999, $73.8 million was
outstanding including an over-advance of less than $0.1 million with no
arrearage.
As a result of the non-compliance with the BABC Revolving Line of Credit
terms and covenants, the Company became cross default with the Bank of America
Mortgage Loan. At December 31, 1999, $1.5 million was outstanding with no
arrearage.
ITEM 5. Other Information
On February 15, 2000, the Bankruptcy Court approved the appointment of
William A. Brandt, Jr. as the Company's responsible natural person under Federal
Rule of Bankruptcy Procedure 9001(5). As the Responsible Natural Person, Mr.
Brandt will be in complete control of the day to day operations. Although Mr.
Brandt will not be an officer of the Company, he shall have all of the powers
vested in the members of the board of directors and officers of ABT. To assist
Mr. Brandt in fulfilling his duties as the Responsible Natural Person, the Court
approved the Company's retention of Development Specialists, Inc. ("DSI") as
reorganization consultants.
Mr. Brandt, together with DSI and ABT's other professionals, have
determined that it is in the best interests of the Company's estates to sell the
assets in one or more going-concern sales as efficiently and expeditiously as
possible, provided that sufficient financing for an orderly sale process exists.
In that regard, the Company is in the process of preparing a bid solicitation
package which will be disseminated to all parties
21
<PAGE>
expressing interest in purchasing any of the Company's. As of the date of this
report, all of the members of the Company's Board of Directors and all of its
officers have resigned.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended December 31, 1999 and through February 21, 2000,
the following Form 8-K filings were made by ABT:
Dated January 25, 2000 and filed February 9, 2000 - To report under
Item 3, 5 and 7, relating to the Company filing Bankruptcy under
Chapter 11 and press releases.
Dated December 7, 1999 and filed December 7, 1999 - To report under
Item 5 and 7, press release relating to response from GE Capital
relating to additional equity infusion.
Dated November 10, 1999 and filed November 16, 1999 - To report under
Item 5 the adoption of a shareholder rights plan.
22
<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: February 22, 2000 By: /s/ William A. Brandt, Jr.
----------------
William A. Brandt, Jr.
Responsible Natural Person
23
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 489,757
<SECURITIES> 0
<RECEIVABLES> 43,584,546
<ALLOWANCES> 8,917,961
<INVENTORY> 108,109,930
<CURRENT-ASSETS> 147,392,509
<PP&E> 61,472,143
<DEPRECIATION> 0
<TOTAL-ASSETS> 363,883,074
<CURRENT-LIABILITIES> 156,232,674
<BONDS> 11,152,375
0
0
<COMMON> 51,055
<OTHER-SE> 194,886,448
<TOTAL-LIABILITY-AND-EQUITY> 363,883,074
<SALES> 125,472,058
<TOTAL-REVENUES> 125,472,058
<CGS> 93,096,535
<TOTAL-COSTS> 93,096,535
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,202,924
<INCOME-PRETAX> (23,139,475)
<INCOME-TAX> 10,150
<INCOME-CONTINUING> (23,149,625)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,149,625)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
</TABLE>
