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 July 31, 1998
Commission File Number: 0-24312
AGRI-NUTRITION GROUP LIMITED
State of Incorporation: Delaware I.R.S. Employer I.D. 43-1648680
Riverport Executive Center II
13801 Riverport Drive
Suite 111
Maryland Heights, MO 63043
(314) 298-7330
Indicate by check mark whether the registrant (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 twelve months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
The number of shares of common stock outstanding at September 14, 1998 is
9,295,280 shares.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Index
- --------------------------------------------------------------------------------
Page
Financial information
Financial Statements
Consolidated Balance Sheet -
October 31, 1997 and
July 31, 1998 (Unaudited) 1
Consolidated Statement of Operations -
three and nine months ended July 31, 1997
and 1998 (Unaudited) 2
Consolidated Statement of Cash Flows -
nine months ended July 31, 1997
and 1998 (Unaudited) 3
Consolidated Statement of Shareholders' Equity -
nine months ended July 31, 1998
(Unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Other information
Item 6. Exhibits and Reports on Form 8-K 14
Signature 14
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Balance Sheet
Page 1
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<TABLE>
<CAPTION>
October 31, July 31,
1997 1998
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 145,505 $ 64,844
Accounts receivable 3,817,417 4,082,490
Inventories 6,355,310 8,137,365
Prepaid expenses and other assets 1,260,672 1,421,507
---------------- -----------------
11,578,904 13,706,206
Property, plant and equipment, net 5,788,688 5,603,383
Goodwill 8,095,049 7,908,744
Other assets 1,133,509 995,538
---------------- -----------------
$ 26,596,150 $ 28,213,871
================ =================
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt and notes payable $ 201,636 $ 528,950
Current portion of acquisition notes payable 719,716 198,000
Accounts payable 1,417,286 2,173,507
Accrued expenses 1,467,948 647,226
---------------- -----------------
3,806,586 3,547,683
Long-term debt and notes payable 5,665,955 9,022,607
Acquisition notes payable 1,570,249 494,000
Commitments and contingencies (Notes 2 and 9)
Shareholders' equity:
Common stock ($.01 par value; 20,000,000 shares
authorized; 9,304,280 and 9,333,580 shares issued
and outstanding, respectively) 93,043 93,336
Additional paid-in capital 15,935,700 15,975,157
Accumulated deficit (395,841) (789,548)
---------------- -----------------
15,632,902 15,278,945
Cost of common stock held in Treasury
(46,850 and 88,161 shares in 1997 and 1998, respectively) (79,542) (129,364)
---------------- -----------------
15,553,360 15,149,581
---------------- -----------------
Total Liabilities and Shareholders' Equity $ 26,596,150 $ 28,213,871
---------------- -----------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Operations (unaudited)
Page 2
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<TABLE>
<CAPTION>
For the three and nine months ended July 31,
1997 1998
Three Nine Three Nine
months months months months
<S> <C> <C> <C> <C>
Net sales $ 8,093,922 $ 23,423,827 $ 8,046,043 $ 24,291,416
Cost of sales 5,915,757 17,416,253 5,685,493 17,672,462
---------------- --------------- --------------- ---------------
Gross profit 2,178,165 6,007,574 2,360,550 6,618,954
Selling, general and
administrative expenses 1,754,668 5,195,900 2,036,455 6,542,093
Research and development 43,866 127,560 42,924 143,932
---------------- --------------- --------------- ---------------
Operating income (loss) 379,631 684,114 281,171 (67,071)
Interest expense (166,529) (490,753) (189,254) (571,580)
Other income (expense) (Note 10) 16,045 (138,375) (2,035) (957)
---------------- --------------- --------------- ---------------
Income (loss) before income
tax benefit 229,147 54,986 89,882 (639,608)
Income tax (expense) benefit (87,792) (20,828) (34,605) 245,901
---------------- --------------- --------------- ---------------
Income (loss) from continuing
operations 141,355 34,158 55,277 (393,707)
(Loss) income from discontinued
operations, net (Note 8) (13,238) 14,659 -- --
---------------- --------------- --------------- ---------------
Net income (loss) $ 128,117 $ 48,817 $ 55,277 $ (393,707)
================ =============== =============== ===============
Basic net income (loss)
per share (Note 3):
Income (loss) from continuing
operations $ .02 $ .01 $ .01 $ (.04)
Income (loss) from discontinued
operations -- -- -- --
---------------- --------------- --------------- ---------------
Net income (loss) $ .02 $ .01 $ .01 $ (.04)
================ =============== =============== ===============
Diluted net income (loss)
per share (Note 3):
Income (loss) from continuing
operations $ .02 $ .01 $ .01 $ (.04)
Income from discontinued operations -- -- -- --
---------------- --------------- --------------- ---------------
Net income (loss) $ .02 $ .01 $ .01 $ (.04)
================ =============== =============== ===============
Basic common and common
equivalent shares outstanding (Note 3) 8,403,102 8,363,773 9,304,021 9,284,926
================ =============== =============== ===============
Diluted common and common
equivalent shares outstanding (Note 3) 8,577,092 8,570,007 9,467,623 9,284,926
================ =============== =============== ===============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Cash Flows (unaudited)
Page 3
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<TABLE>
<CAPTION>
For the nine months
ended July 31,
1997 1998
<S> <C> <C>
Operating activities
Net income (loss) from continuing operations $ 34,158 $ (393,707)
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by (used in) operating activities:-
Depreciation and amortization 642,871 870,788
Income from discontinued operations, net of taxes (Note 8) 14,659
Change in net assets from discontinued operations (Note 8) 1,343,398
Changes in operating assets and liabilities:
Increase in accounts receivable (1,252,834) (265,073)
Decrease (increase) in inventories 890,659 (1,782,055)
Decrease (increase) in prepaid expenses and other assets 101,063 (22,864)
(Decrease) increase in accounts payable (526,517) 756,221
Decrease in accrued expenses (502,964) (820,722)
---------------- -----------------
Net cash provided by (used in) operating activities 744,493 (1,657,412)
---------------- -----------------
Investing activities
Purchase of property, plant and equipment (570,709) (499,178)
---------------- -----------------
Net cash used in investing activities (570,709) (499,178)
---------------- -----------------
Financing activities
(Repayment) borrowings of long-term debt and notes payable, net (1,087,286) 3,683,966
Repayment of Acquisition notes payable (1,597,965)
Issuance of stock to directors 27,251 39,750
Purchase of Treasury Stock (29,556) (49,822)
---------------- -----------------
Net cash (used in) provided by financing activities (1,089,591) 2,075,929
---------------- -----------------
Decrease in cash and cash equivalents (915,807) (80,661)
Cash and cash equivalents, beginning of period 2,186,877 145,505
---------------- -----------------
Cash and cash equivalents, end of period $ 1,271,070 $ 64,844
================ =================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Consolidated Statement of Shareholders' Equity
Page 4
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<TABLE>
<CAPTION>
Common Stock in
Common Stock Treasury, at Cost
Number Additional Number
of Par Paid in of Accumulated
Shares Value Capital Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31,
1997 9,304,280 $ 93,043 $ 15,935,700 (46,850) $ (79,542) $ (395,841) $15,553,360
Issuance of stock to
directors and officers
(unaudited) 29,300 293 39,457 39,750
Treasury stock
purchased (unaudited) (41,311) (49,822) (49,822)
Net loss (unaudited) (393,707) (393,707)
-------------------------------------------------------------------------------------------
Balance, July 31,
1998 (unaudited) 9,333,580 $ 93,336 $ 15,975,157 (88,161) $ (129,364) $ (789,548) $ 15,149,581
==========================================================================================
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 5
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1. Unaudited consolidated financial statements
The consolidated balance sheet as of July 31, 1998, the
consolidated statements of operations for the three and nine-month
periods ended July 31, 1997 and 1998, the consolidated statements of cash
flows for the nine-month periods ended July 31, 1997 and 1998 and the
consolidated statement of shareholders' equity for the nine-month period
ended July 31, 1998 have been prepared by Agri-Nutrition Group Limited
(the Company) without audit. In the opinion of management, all
adjustments (which include only normal, recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows at and for the periods ended July 31, 1997 and 1998 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended July 31, 1997 and 1998,
respectively, are not necessarily indicative of the operating results for
the full year.
The consolidated financial statements have been restated to
reflect the Company's ingredients segment as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30, "Reporting
the Results of Operations" (APB 30) (see Note 8).
2. Organization
Agri-Nutrition Group Limited, a Delaware corporation, was
organized on July 20, 1993, to acquire and operate businesses in the
domestic and international food, agriculture and pet industries. In
September 1993, through its wholly-owned subsidiary, PM Resources, Inc.
(Resources), the Company acquired certain assets and assumed certain
liabilities of the Health Industries Business (the Business) of Purina
Mills, Inc. (Purina). See Note 14 to the Company's Consolidated Financial
Statements included in the Company's annual report to shareholders for
the year ended October 31, 1997 (1997 Annual Report) for further
discussion of related matters involving Purina. Resources commenced
operations on September 9, 1993, the effective date of the acquisition of
the Business. Resources formulates, manufactures and distributes feed
additives, medicated treatments, anthelmetics, nutritional supplements,
cleaners and disinfectants, pest control products, home, lawn and garden
products, and specialty compounds.
Effective March 31, 1995, the Company purchased substantially all
of the net assets and business of Zema Corporation (Zema). The Company
also purchased substantially all of the net assets and business of St.
JON Laboratories, Inc. (St. JON) effective August 31, 1995. In September
1997, the Company acquired Mardel Laboratories, Inc. (Mardel). Zema, St.
JON and Mardel formulate, package, market and distribute pet health care,
veterinary and grooming products domestically and abroad.
See Notes 2 and 4 to the Company's Consolidated Financial
Statements included in the 1997 Annual Report for additional information
related to the acquisitions of Zema, St. JON and Mardel, including
information regarding the additional purchase price which must be paid to
the former owner of Zema if Zema achieves certain financial goals. In
addition, see Note 3 to the Company's Consolidated Financial Statements
included in the 1997 Annual Report for information about the Company's
acquisition of the worldwide patents, active ingredient inventory,
registrations and rights to Bromethalin (the Bromethalin Assets), a
highly effective and proprietary rodenticide serving
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 6
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agricultural and Pest Control Operator (PCO) markets, including
information regarding additional consideration to be paid based on
shipments of Bromethalin to Purina over a five-year period.
As stated in the 1997 Annual Report, the Pet Health Care Division,
which is comprised of St. JON, St. JON VRx, Zema and Mardel, planned to
integrate operations in fiscal year 1998 to benefit from expected
operating synergies. During the first six months of fiscal 1998
production shifted from the Raleigh facility to the Company's other
manufacturing locations. Consolidation of the sales and administration
functions of the Pet Health Care Division was completed during the third
quarter of fiscal 1998. The distribution functions within the Pet Health
Care Division are anticipated to be consolidated by the end of the fourth
quarter. During August 1998, the Company's Raleigh facility was
effectively shut down and is in the process of being sublet.
3. Summary of significant accounting policies
The accounting policies followed by the Company are set forth in
Note 6 to the Consolidated Financial Statements included in the 1997
Annual Report. The financial statements included herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in such report.
Net income/loss per common and common equivalent share
Commencing with its fiscal 1998 first quarter, the Company is
subject to the provisions of Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" (FAS 128) that was adopted by the Financial
Accounting Standards Board in February 1997. FAS 128 simplifies the
standards for computing earnings per share and makes them comparable to
international earnings per share standards. The adoption of FAS 128 does
not affect the Company's fiscal 1998 third quarter financial statements
and management does not expect it to have a material impact on the
Company's future financial statements. The adoption of FAS 128 had no
impact on fiscal 1997 financial statements.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1997 1998
<S> <C> <C>
Raw materials $ 4,049,028 $ 4,816,661
Work-in-process 501,801 459,770
Finished goods 2,081,771 3,175,791
---------------- -----------------
6,632,600 8,452,222
Less: reserve for excess and obsolete inventories (277,290) (314,857)
---------------- -----------------
$ 6,355,310 $ 8,137,365
================ =================
</TABLE>
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 7
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5. Financing
In May 1998, the Company consolidated its existing credit
agreements increasing the facilities to $9.2 million and extending the
maturity date to March 31, 2001. The new bank agreement increased
borrowing availability for working capital demands and modified the bank
covenants. The new facility consists of $4.5 million in revolving credit
lines, the available amount being based upon specified percentages of
qualified accounts receivable and inventory, and a $4.7 million revolving
credit line with available amounts being reduced $150,000 per quarter
with the first such reduction on November 30, 1998. On August 6, 1998,
the Company again amended its credit facilities, increasing the available
credit line to $9.7 million to meet temporary working capital
requirements. On October 2, 1998, the available credit line will revert
back to $9.2 million. The interest rate ranges from prime minus .25% to
prime plus .5%, depending on the Company's ratio of debt to net worth, as
defined in the new agreement. At July 31, 1998, the interest rate charged
on borrowings outstanding under the new agreement, as amended, was 8.75%
which is the bank's prime rate plus .25%. At July 31, 1998, approximately
$.7 million would have been available under this new agreement after
increasing the Company's credit line to $9.7 million.
At July 31, 1998, the Company was not in compliance with certain
covenants related to its various financing arrangements. The bank has
waived such covenants for the months of July and August 1998.
6. Related party transactions
See Note 13 to the Company's Consolidated Financial Statements in
the 1997 Annual Report for a discussion regarding related party
transactions.
7. Employee benefit plans
During the nine months ended July 31, 1998, 29,300 shares and
options to purchase 65,000 shares of the Company's common stock were
granted to employees in connection with the Company's 1996 Incentive
Stock Plan. The exercise price of the options was $1.375 per share, which
approximated the fair value on the dates of grant. These options vest
ratably over two years from the date of grant and will expire ten years
from the grant date. No shares or options were issued in connection with
the Company's 1995 Incentive Stock Plan or the Company's 1994 Incentive
Stock Plan. See Note 12 to the Company's Consolidated Financial
Statements in the 1997 Annual Report for a discussion of the Company's
incentive stock plans.
8. Discontinued operations
In June 1997, the Company discontinued the distribution of
ingredients to Purina. Consequently, in July 1997, the Company
distributed all of its remaining ingredients inventories to Purina and
discontinued its operations in this area. This segment of the Company's
business has been accounted for and presented as a discontinued operation
in accordance with APB 30 for all periods reflected herein. At October
31, 1997, substantially all of the net assets relating to the ingredients
segment had either been disposed or had been deployed into the Company's
existing operations.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Notes to Consolidated Financial Statements (unaudited)
Page 8
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Management does not anticipate that the ingredients segment will
have any significant operations in the future. Furthermore, management
does not believe that there are any separately identifiable fixed assets
related to the ingredients segment and proceeds, if any, related to
disposition of such net assets subsequent to the June 1997 measurement
date have not to date and are not expected to result in a material net
gain or loss in future periods. However, the ultimate financial impact of
the discontinuation of the segment could differ from management's current
estimates.
There were no net assets from discontinued operations at October
31, 1997 and July 31, 1998. The operating results of the discontinued
operations are summarized as follows:
For the nine months ended
July 31,
1997 1998
Net sales $ 5,433,411 $ --
---------------- -----------------
Income before tax provision $ 23,835 $ --
Income tax provision (9,176) --
---------------- -----------------
Net income $ 14,659 $ --
----------------- -----------------
9. Commitments and contingencies
From time to time, the Company becomes party to various claims and
legal actions arising during the ordinary course of business. Management
believes that the Company's costs and any potential judgments resulting
from such claims and actions will be covered by the Company's product
liability insurance, except for deductible limits. The Company intends to
defend such claims and actions in cooperation with its insurers. It is
management's opinion that, in any event, their outcome would not have a
material effect on the Company's financial position, cash flows or
results of operations.
10. Termination of Anthony Products Letter of Intent
In March 1997, the Company terminated its letter of intent related to
its proposed acquisition of Anthony Products Company. In conjunction with
this action, the Company recorded a $202,000 pre-tax charge in the second
quarter of fiscal 1997. Such amount is included in other income (expense)
in the accompanying consolidated statement of operations. Net income
excluding the impact of this charge for the nine month period ended July
31, 1997 would have been approximately $174,000.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 9
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Overview
Organized in 1993, the Company manufactures and distributes animal health
and pet care products. In September 1993, the Company, through its PM Resources,
Inc. subsidiary (Resources), acquired the Health Industries Business of Purina
Mills, Inc. which formulates, manufactures and distributes animal health
products and to a lesser extent, home, lawn and garden, and other products. In
July 1994, the Company completed its initial public offering of Common Stock
(IPO), the net proceeds of which were approximately $12.1 million. Effective
March 31, 1995, the Company purchased substantially all of the net assets and
business of Zema Corporation (Zema), a formulator, manufacturer and supplier of
health care and grooming products to the pet industry. Effective August 31,
1995, the Company purchased substantially all of the net assets and business of
St. JON Laboratories, Inc. (St. JON), a developer, manufacturer and marketer of
oral hygiene, dermatological and gastrointestinal products for dogs and cats. In
September 1997, the Company purchased substantially all of the net assets and
business of Mardel Laboratories, Inc. (Mardel). Mardel is a developer,
manufacturer and marketer of high quality care products to the pet industry with
expertise extending to fresh water and marine fish, birds, dogs, cats, small
animals and pond accessories.
The Company's results of operations presented and discussed herein only
include the results of Mardel's operations subsequent to its acquisition by the
Company in September 1997.
The Company historically reported certain financial information for two
segments - ingredients and specialty products. Ingredients consist of feed
products that are purchased or blended by the Company and distributed for Purina
(see Note 15 to the Company's Consolidated Financial Statements included in the
1997 Annual Report). Specialty products consist of all other products
formulated, manufactured, and distributed by the Company to various customers,
including Purina. Included in the specialty products segment are sales of
private label and branded products for which the Company manufactures goods
using registrations and/or formulas owned by the Company, and sales of products
manufactured under contract for which the Company manufactures products using
the customers' registrations and/or formulas.
Given the acquisitions of businesses with branded, consumer-targeted
products and the continued emphasis on growth of the specialty product segment,
the significance of the ingredients segment had decreased in fiscal 1996 and
1997. As discussed in prior reports, management expected this trend to continue
in the future. In June 1997, the Company discontinued the distribution of
ingredients to Purina. In July 1997, the Company distributed all of its
remaining ingredients inventories and discontinued operations in its ingredients
segment. This segment is accounted for as discontinued operations in accordance
with Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". Accordingly, the Company has reported the ingredients segment as
discontinued operations and the consolidated financial statements have been
reclassified to report separately the financial position and operating results
of the segment. The Company's consolidated operating results for year ended
October 31, 1997 has been restated to reflect the Company's continuing
operations related to its specialty products business. There were no activities
from discontinued operation in fiscal year 1998.
In the fourth quarter of 1997, the Company formed the Pet Health Care
Division, which is comprised of St. JON, St. JON VRx, Zema and Mardel. The
integration of these companies is expected to produce certain operating
synergies, creating a platform for continued expansion. The benefits from such
integration started to impact the Company's operating results in the third
quarter of fiscal 1998. During the first six months of fiscal 1998 production
shifted from the Raleigh facility to the Company's other manufacturing
locations. The distribution functions within the Pet Health Care Division are
anticipated to be consolidated by the end of the fourth quarter. During August
1998, the Company's Raleigh facility was effectively shut down and is in the
process of being sublet. Consolidation of the sales and administration functions
of the Pet
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 10
- --------------------------------------------------------------------------------
Health Care Division was completed during the third quarter of fiscal 1998. The
Company has incurred certain incremental costs associated with the integration,
but such costs, in the aggregate, have not been nor are expected to be material
to the Company's consolidated results of operations. The Company continues to
pursue selective complementary acquisitions, alignments and/or licenses in
support of its core businesses.
<TABLE>
<CAPTION>
(Excludes discontinued operations)
(Dollars in 000's)
Three months ended July 31, Nine months ended July 31,
------------------------------------- ----------------------------------------
1997 1998 1997 1998
---------------- ----------------- ---------------- -------------------
Dollar % of Dollar % of Dollar % of Dollar % of
amount net sales amount net sales amount net sales amount net sales
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.................... 8,094 100.0 8,046 100.0 23,424 100.0 24,291 100.0
Cost of sales................ 5,916 73.1 5,686 70.7 17,416 74.4 17,672 72.8
Gross profit................. 2,178 26.9 2,360 29.3 6,008 25.6 6,619 27.2
Selling, general and
administrative expense..... 1,798 22.2 2,079 25.8 5,324 22.7 6,686 27.5
Operating income (loss)...... 380 4.7 281 3.5 684 2.9 (67) (.3)
</TABLE>
Three Months Ended July 31, 1998 Compared to Three Months Ended July 31, 1997
Total net sales decreased 1% from $8.1 million in fiscal 1997 to $8.0
million for 1998. This decrease reflects a 18% increase in sales of the Pet
Health Care Division due primarily to the acquisition of Mardel Laboratories in
September 1997 and continued strong growth in the pet oral hygiene product
category. The increased Pet Division sales were offset by anticipated weakness
in the agricultural portion of PM Resources' business, the timing of certain
rodenticide orders anticipated in the third quarter of fiscal 1998 that are
delayed until later in the year and the impact of unanticipated production
shortfalls during the first half of the quarter related to the consolidation of
manufacturing operations within the Pet Health Care Division.
Gross profit increased from $2.2 million in 1997 (26.9% of net sales) to
$2.4 million in 1998 (29.3% of net sales), primarily due to changes in the
Company's sales mix, which consisted of an increased proportion of sales of the
Pet Health Care Division, which generally has higher margins as compared to
sales of the Company's private label/contract manufacturing business. Gross
profit during the period continued to be negatively impacted by certain
redundant costs incurred during the consolidation of manufacturing operations
within the Pet Health Care Division, however such consolidation was
substantially completed during the third quarter of fiscal 1998.
Selling, general and administrative expenses increased from $1.8 million
in 1997 to $2.1 million in 1998 primarily due to the increased costs related to
Mardel Laboratories business, which was acquired in September 1997. The increase
in expenses includes certain redundant expenses that are being incurred prior to
the consolidation of certain manufacturing, marketing and overhead expenses
among the operating companies that comprise the Pet Health Care Division. Such
consolidation is anticipated to be completed by the end of the Company's 1998
fiscal year, which is one quarter later than had been previously anticipated by
management.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 11
- --------------------------------------------------------------------------------
The factors discussed above resulted in operating income of approximately
$.3 million during the three months ended July 31, 1998, compared to operating
income of approximately $.4 million for the three months ended July 31, 1997.
Interest expense was approximately $.17 million in 1997 and $.19 million
in 1998, reflecting increased debt balances that resulted from the Company's
investment in Mardel Laboratories and seasonal working capital requirements.
The effective income tax rate of the Company was approximately 38.5% for
both 1997 and 1998. The aggregate amount of the deferred tax asset valuation
allowance at July 31, 1998 was approximately $.1 million.
Nine Months Ended July 31, 1998 Compared to Nine Months Ended July 31, 1997
Total net sales increased 4% from $23.4 million in fiscal 1997 to $24.3
million for 1998. This increase reflects a 29% increase in sales of the Pet
Health Care Division due primarily to the acquisition of Mardel Laboratories in
September 1997 and continued strong growth in the pet oral hygiene product
category. The increase was offset by anticipated weakness in the agricultural
portion of PM Resources' business, the timing of certain rodenticide orders
anticipated in the third quarter of fiscal 1998 that are delayed until later in
the year and the impact of unanticipated production shortfalls related to the
consolidation of manufacturing operations within the Pet Health Care Division.
Gross profit increased from $6.0 million in 1997 (25.6% of net sales) to
$6.6 million in 1998 (27.2% of net sales), primarily due to changes in the
Company's sales mix, which consisted of an increased proportion of sales of the
Pet Health Care Division, which generally has higher margins as compared to
sales of the Company's private label/contract manufacturing business. Gross
profit during the period was negatively impacted by certain redundant costs
incurred during the consolidation of manufacturing operations within the Pet
Health Care Division, however such consolidation was substantially completed
during the third quarter of fiscal 1998.
Selling, general and administrative expenses increased from $5.3 million
in 1997 to $6.7 million in 1998 primarily due to the increased costs related to
Mardel Laboratories business, which was acquired in September 1997. The increase
in expenses includes certain redundant expenses that are being incurred during
the consolidation of certain manufacturing, marketing and overhead expenses
among the operating companies that comprise the Pet Health Care Division. Such
consolidation is anticipated to be completed by the end of the Company's 1998
fiscal year.
The factors discussed above resulted in an operating loss of
approximately $.1 million during the nine months ended July 31, 1998, compared
to operating income of approximately $.7 million for the nine months ended July
31, 1997.
Interest expense was approximately $.5 million in 1997 and $.6 million in
1998, reflecting increased debt balances that resulted from the Company's
investment in Mardel Laboratories and seasonal working capital.
The effective income tax rate of the Company was approximately 38.5% for
both 1997 and 1998. The aggregate amount of the deferred tax asset valuation
allowance at July 31, 1998 was approximately $.1 million.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 12
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
The Company's existing capital requirements are primarily to fund
equipment purchases and working capital needs. During April 1995, the Company
completed the acquisition of Zema, which required utilization of approximately
$3.2 million of net proceeds from its July 1994 initial public offering for the
acquisition and related expenses in 1995 and which required an additional
payment of $300,000 plus interest prior to April 1998, and potentially
additional payments conditioned upon the achievement of certain operating
criteria by Zema which would be due in April 2000. In April 1998 the $300,000
note plus interest was paid. In August 1995, the Company acquired the net assets
of St. JON, which required approximately $3.5 million of cash, the assumption of
certain liabilities aggregating approximately $1.5 million which were paid
within four months of closing, and an additional $2.0 million plus interest to
be paid in annual installments over six years commencing March 31, 1997. During
fiscal 1997, the Company utilized approximately $1.0 million of cash for payment
of this obligation and related accrued interest, and restructured the agreement,
with annual payments of $325,000 being required over the five years commencing
March 31, 1998. In May 1998, the Company paid approximately $1.1 million, the
remaining amounts outstanding under this note, to the former owner of St. JON in
conjunction with the Company's refinancing of its debt as discussed below.
Effective May 1996, the Company acquired the worldwide patents and other assets
and rights to Bromethalin, which required payments of $1.0 million including
related expenses at closing, and will require additional consideration based on
shipments of Bromethalin to Purina over a five-year period. In September 1997,
the Company acquired Mardel Laboratories, Inc. for cash of approximately $1.0
million and stock valued at approximately $1.1 million. As additional
consideration for the acquisition of Mardel, the Company also issued a note
payable of $300,000 to the former owners of the acquired company to be paid in
cash and stock over a period of three years. With the acquisition of Mardel, the
Company utilized its remaining proceeds from its initial public offering.
During the nine months ended July 31, 1997, the Company provided cash
from operations of approximately $.7 million. During the nine months ended July
31, 1998, cash used by operations approximated $1.7 million, which was primarily
related to an increased investment in inventory. The additional inventory
consists primarily of new product promotions and a build-up of core products for
the mass markets to reduce the risk of future stock-outs which had been
occurring through the first half of fiscal 1998. Management anticipates that
current inventory levels will be reduced over the balance of the year.
In May 1998, the Company consolidated its existing credit agreements
increasing the facility to $9.2 million with a maturity date of March 31, 2001.
The new bank agreement also increased borrowing availability for working capital
demand and modified the bank covenants. The new facility consists of $4.5
million in revolving credit lines, the available amount being based upon
specified percentages of qualified accounts receivable and inventory, and a $4.7
million revolving credit line with available amounts being reduced $150,000 per
quarter with the first such reduction on November 30, 1998. On August 6, 1998,
the Company again amended its existing credit facilities, increasing the latter
revolving credit line to $5.2 million from $4.7 million to meet temporary
working capital requirements. On October 2, 1998, this credit line will revert
back to 4.7 million. The interest rate will range from prime minus .25% to prime
plus .5%, depending on the Company's ratio of debt to net worth, as defined in
the new agreement. At July 31, 1998, the interest rate charged on borrowings
outstanding under the new agreement, as amended, was 8.75% which is the bank's
prime rate plus .25%. At July 31, 1998, approximately $.7 million would have
been available under this new agreement after increasing the Company's credit
line to $5.2 million.
At July 31, 1998, the Company was not in compliance with certain
covenants related to its various financing arrangements. The bank has waived
such covenants for months of July and August 1998.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 13
- --------------------------------------------------------------------------------
Management believes that the Company will have sufficient cash to meet
the needs of the current operations. However, there is a reasonable risk that
the Company will not be in compliance with its debt covenants through the end of
its fiscal year. Management is currently in discussions with its bank, and is
also evaluating other strategic alternatives with third parties, to address its
current and long-term working capital requirements. Managerment expects that
appropriate arrangements will be made prior to the end of its fiscal year.
The Company's board of directors has authorized the repurchase of up to
500,000 shares of the Company's Common Stock. The amount of funds required will
depend upon the actual number of shares repurchased and the market price paid by
the Company for those shares. The Company will utilize available funds to
implement this stock repurchase. During the quarter ended July 31, 1998, 43,311
shares were repurchased under this program at an aggregate cost of $49,822. As
of July 31, 1998, 88,161 shares had been repurchased under this program at an
aggregate cost of $129,364. In August 1998, the Company purchased 20,900 shares
at an aggregate cost of $23,313.
The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the nine
months ended July 31, 1998 were approximately $.5 million. Future capital
expenditures for the Company's operating subsidiaries are not expected to
significantly exceed historical amounts, which in prior periods approximated
current depreciation expense.
Quarterly Effects and Seasonality
Seasonal patterns of Resources' operations are highly dependent on
weather, feeding economics and the timing of customer orders. The results of
operations of the Pet Health Care Division historically have been seasonal with
a relatively lower volume of its sales and earnings being generated during the
Company's first fiscal quarter. In addition, consolidation of certain functions
within the Pet Health Care Division are anticipated to be completed by the end
of fiscal 1998.
New Accounting Standards
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive Income",
effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting and display of comprehensive income and
components in a financial statement that is displayed with the same prominence
as other financial statements. The Company continues to analyze FAS 130 and does
not currently expect it to have a significant impact on its financial statement
presentation.
In June 1997, the FASB issued FAS 131, "Disclosures about Segments of an
Enterprise and Related Information"' effective for periods beginning after
December 15, 1997. FAS 131 supersedes FAS 14, "Financial Reporting of Segments
of a Business Enterprise." FAS 131 establishes standards for the way public
business enterprises report financial and descriptive information about the
reportable operating segments in their financial statements. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company continues to evaluate the provisions of FAS
131 and determine the impact of the revised disclosure requirements on its
fiscal 1998 and 1999 financial statements.
<PAGE>
AGRI-NUTRITION GROUP LIMITED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Page 14
- --------------------------------------------------------------------------------
Forward Looking Statements
Certain of the statements made herein are "forward looking statements,"
as such term is used in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Any forward
looking statement set forth herein are necessarily subject to significant
uncertainties and risks. The words "believes," "anticipates," "expects," and
similar expressions are intended to identify forward looking statements. The
Company cautions readers that actual results could be materially different as a
result of various possibilities and differences between anticipated and actual
developments.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
10.25 Amended Credit Agreement by and between Agri-Nutrition Group
Limited, PM Resources, Inc., St. JON Laboratories, Inc. and
First Bank dated August 6, 1998.
27 Financial Data Schedule
b. Reports of Form 8-K.
No reports on Form 8-K were filed during the period covered by this
Report.
Signature
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.
AGRI-NUTRITION GROUP LIMITED
/s/ Robert J. Elfanbaum
- -----------------------------------------------------
Robert J. Elfanbaum
Vice President and Chief Financial Officer
February 8, 1999
Exhibit 10.25
AMENDMENT TO
CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT, made and entered into as
of the _____ day of August, 1998, by and between PM RESOURCES, INC., a Missouri
corporation ("PM"), AGRI-NUTRITION GROUP LIMITED, a Delaware corporation
("Agri-Nutrition"), and ST. JON LABORATORIES, INC., a California corporation
("St. JON," and collectively with PM and Agri-Nutrition referred to herein as
"Borrowers") and FIRST BANK, a Missouri state banking corporation ("Bank").
WITNESSETH:
WHEREAS, Borrowers heretofore jointly and severally executed
and delivered to Bank a Revolving Credit Note dated May 14, 1998, in the
principal amount of up to Nine Million Two Hundred Thousand Dollars
($9,200,000.00), payable to the order of Bank as therein set forth (the "Note");
and
WHEREAS, the Note is described in a certain Credit Agreement
dated May 14, 1998 made by and among Borrowers and Bank (as amended, the "Loan
Agreement"); and
WHEREAS, Borrowers and Bank desire to amend the Loan Agreement
and the Note to increase the maximum available principal amount thereunder by
Five Hundred Thousand Dollars ($500,000.00) until October 2, 1998 (subject to
the Borrowing Base and other terms and conditions of the Loan Agreement) and to
make certain other amendments thereto on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and the
mutual provisions and agreements hereinafter set forth, the parties hereto do
hereby mutually promise and agree as follows:
1. The Note shall be amended and restated in the form of that
certain Revolving Credit Note attached hereto as Exhibit C, to increase the
maximum principal amount thereof to Nine Million Seven Hundred Thousand Dollars
($9,700,000.00) for the period of time up to and including October 2, 1998 and
reducing automatically on October 2, 1998 to the new maximum amount of Nine
Million Two Hundred Thousand Dollars ($9,200,000.00) and to make certain
amendments as set forth therein. All references in the Loan Agreement to the
"Note," the "Revolving Credit Note" and other references of similar import shall
hereafter be amended and deemed to refer to the Note in the form of the
Revolving Credit Note, as amended and restated in the form attached hereto as
Exhibit C. Borrowers hereby agree that on or before 5:00 p.m. (St. Louis time)
on October 2, 1998, Borrowers shall jointly and severally repay to Bank, without
any requirement of demand or notice from Bank, an amount equal to amount by
which the outstanding principal balance of the Note exceeds Nine Million Two
Hundred Thousand Dollars ($9,200,000.00), together with all other amounts then
due under the terms of the Loan Agreement and the Note.
<PAGE>
2. The fourth paragraph beginning with the word "WHEREAS" on
the first page of the Loan Agreement shall be deleted in its entirety and in its
place shall be substituted the following:
WHEREAS, Borrowers have requested the consolidation
of the above described credit facilities under one borrowing base for
Agri-Nutrition and its Subsidiaries on a joint and several basis and an
extension of such joint and several loan facility from Bank in an
aggregate principal amount of up to Nine Million Seven Hundred Thousand
Dollars ($9,700,000.00) for a period of time from August 6, 1998 up to
and including October 2, 1998, Five Million Dollars ($5,000,000.00) of
which shall be subject to a Borrowing Base (as set forth herein)
("Facility A"), and the remaining Four Million Seven Hundred Thousand
Dollars ($4,700,000.00) of which shall be a reducing revolving credit
line from Bank ("Facility B"), and on October 2, 1998 the maximum
principal amount of such loan facility shall reduce automatically to an
aggregate principal amount of up to Nine Million Two Hundred Thousand
Dollars ($9,200,000.00) for the period of time from October 3, 1998 up
to and including March 31, 2001, Four Million Five Hundred Thousand
Dollars ($4,500,000.00) of which shall be subject to the Borrowing Base
under Facility A, and the remaining Four Million Seven Hundred Thousand
Dollars ($4,700,000.00) of which shall be a reducing revolving credit
line from Bank under Facility B; and
3. The last sentence of Section 3.2 of the Loan Agreement
shall be deleted in its entirety and in its place shall be substituted the
following:
Contemporaneously with the execution of that certain
Amendment to Credit Agreement dated as of August 6, 1998 made by and
among Borrowers and Bank (the "Amendment"), Borrowers shall execute and
deliver to Bank a Note of Borrowers dated as of August 6, 1998 and
payable jointly and severally to the order of Bank in the original
principal amount of Nine Million Seven Hundred Thousand Dollars
($9,700,000.00) in the form attached as Exhibit C to the Amendment and
incorporated herein by reference (as the same may from time to time be
amended, modified, extended or renewed, the "Note").
4. The Borrowing Base Certificate shall be amended and
restated in the form of that certain Borrowing Base Certificate attached hereto
as Exhibit A to incorporate the above changes. All references in the Loan
Agreement to the "Borrowing Base Certificate" and other references of similar
import shall hereafter be amended and deemed to refer to the Borrowing Base
certificate in the form attached hereto as Exhibit A.
5. The agreements of Bank contained herein are expressly
conditioned upon deliver by Borrowers of the following:
(a) the executed original of this Amendment to Credit Agreement;
(b) the executed original of the amended and restated Note;
(c) the executed original Sixth Amendment to Deed of Trust and Security
<PAGE>
Agreement of PM, together with such other documents required by Bank
pursuant thereto;
(d) a copy of resolutions of the Board of Directors of each of the
Borrowers, duly adopted, which authorize the execution, delivery and
performance of this Amendment to Credit Agreement and the amended and
restated Note, the Sixth Amendment to Deed of Trust and Security
Agreement of PM and the other Transaction Documents, certified by the
Secretary of each such Borrower;
(e) the Consent of Agri-Nutrition and St. JON in the form attached hereto,
acknowledging the amendments contained herein and the continuing
effectiveness of the Pledge Agreements, duly executed respectively by
Agri-Nutrition and St. JON; and
(f) such other documents as Bank may reasonably request.
6. Borrowers hereby represent and warrant to Bank that:
(a) The execution, delivery and performance by Borrowers of this Amendment
to Credit Agreement and the amended and restated Revolving Credit Note
are within the corporate powers of Borrowers, have been duly
authorized by all necessary corporate action and require no action by
or in respect of, or filing with, any governmental or regulatory body,
agency or official. The execution, delivery and performance by
Borrowers of this Amendment to Credit Agreement and the amended and
restated Revolving Credit Note do not conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a
default under or result in any violation of, and none of the Borrowers
is now in default under or in violation of, the terms of the Articles
of Incorporation or Bylaws of such Borrower, any applicable law, any
rule, regulation, order, writ, judgment or decree of any court or
governmental or regulatory agency or instrumentality, or any agreement
or instrument to which any of the Borrowers is a party or by which any
of them is bound or to which any of them is subject;
(b) This Amendment to Credit Agreement and the amended and restated
Revolving Credit Note have been duly executed and delivered and
constitute the legal, valid and binding obligations of Borrowers
enforceable in accordance with their terms; and
(c) As of the date hereof, all of the covenants, representations and
warranties of Borrowers set forth in the Loan Agreement are true and
correct and no "Event of Default" (as defined therein) under or within
the meaning of the Loan Agreement has occurred and is continuing.
7. All references in the Loan Agreement to "this Loan
Agreement" and any other references of similar import shall henceforth mean the
Loan Agreement as amended by this Amendment to Credit Agreement.
8. This Amendment to Credit Agreement and the amended and
restated Revolving Credit Note shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that
Borrowers may not assign, transfer or delegate any of their rights or
obligations hereunder.
<PAGE>
9. This Amendment to Credit Agreement shall be governed by and
construed in accordance with the internal laws of the State of Missouri.
10. In the event of any inconsistency or conflict between this
Amendment to Credit Agreement and the Loan Agreement, the terms, provisions and
conditions of this Amendment to Credit Agreement shall govern and control.
11. The Loan Agreement, as hereby amended and modified, and
the amended and restated Revolving Credit Note, as hereby amended and restated,
are and shall remain the binding obligations of Borrowers and all of the
provisions, terms, stipulations, conditions, covenants and powers contained
therein shall stand and remain in full force and effect, except only as the same
are herein and hereby specifically varied or amended, and the same are hereby
ratified and confirmed. If any installment of principal or interest on the
amended and restated Revolving Credit Note shall not be paid when due as
provided in the amended and restated Revolving Credit Note, the holder of the
amended and restated Revolving Credit Note shall be entitled to and may exercise
all rights and remedies under the amended and restated Revolving Credit Note and
the Loan Agreement, as amended.
12. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO
EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWERS AND BANK
FROM ANY MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWERS
AND BANK COVERING SUCH MATTERS ARE CONTAINED IN THE LOAN AGREEMENT, AS AMENDED
BY THIS AGREEMENT, WHICH CONSTITUTES A COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENTS BETWEEN BORROWERS AND BANK EXCEPT AS BORROWERS AND BANK MAY LATER
AGREE IN WRITING TO MODIFY. THE LOAN AGREEMENT, AS AMENDED BY THIS AGREEMENT,
EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES HERETO AND
SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS (ORAL OR WRITTEN) RELATING TO
THE SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date first written above on this _____ day of August, 1998.
PM RESOURCES, INC.
By:
Robert J. Elfanbaum,
Vice President and Treasurer
<PAGE>
AGRI-NUTRITION GROUP LIMITED
By:
Robert J. Elfanbaum, Secretary
ST. JON LABORATORIES, INC.
By:
Robert J. Elfanbaum, Vice President,
Secretary and Treasurer
FIRST BANK
By:
Ted H. Kraizer, Vice President
<PAGE>
CONSENT TO AMENDMENT TO
CREDIT AGREEMENT
The undersigned hereby consent to the terms of the foregoing
Amendment to Credit Agreement and the amended and restated Revolving Credit Note
and other amendments being executed in connection therewith as referenced
therein (collectively, the "Amendments"), and the undersigned acknowledge that
the execution and delivery by PM Resources, Inc., Agri-Nutrition Group Limited
and St. JON Laboratories, Inc. of said Amendments will not affect or impair the
undersigned's respective obligations to and agreements with Bank under (i) that
certain Agreement of Pledge (Third Party) dated May 14, 1998 made by
Agri-Nutrition in favor of Bank (the "Agri-Nutrition Pledge Agreement"), or (ii)
that certain Agreement of Pledge (Third Party) dated May 14, 1998 made by St.
JON in favor of Bank (the "St. JON Pledge Agreement"), which obligations and
agreements are hereby ratified and confirmed. The undersigned further
acknowledge and agree that all references in the Agri-Nutrition Pledge Agreement
and in the St. JON Pledge Agreement to the "Credit Agreement" and other
references of similar import shall henceforth mean the foregoing Credit
Agreement, as amended on the date hereof and as the same may from time to time
be further amended; all references in the Agri-Nutrition Pledge Agreement and
the St. JON Pledge Agreement to the "Note," the "Revolving Credit Note" and
other references of similar import shall henceforth mean the Revolving Credit
Note, as amended and restated, and as the same may from time to time be further
amended; and all references in the Agri-Nutrition Pledge Agreement and the St.
JON Pledge Agreement to any of the other transaction documents shall henceforth
mean such documents as the same may have been amended by the other Amendments
and as the same may from time to time be further amended.
Dated: as of August ___, 1998.
AGRI-NUTRITION GROUP LIMITED
By:
Robert J. Elfanbaum, Vice President
and Chief Financial Officer
ST. JON LABORATORIES, INC.
By:
Robert J. Elfanbaum, Vice President,
Secretary and Treasurer
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
This Borrowing Base Certificate is delivered pursuant to
Section 3.1(d) of that certain Credit Agreement dated May 14, 1998, by and
between Agri-Nutrition Group Limited, PM Resources, Inc., St. JON Laboratories,
Inc. and First Bank (as amended, the "Loan Agreement"). All capitalized terms
used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Loan Agreement.
Borrowers hereby represent and warrant to Bank that the
following information is true and correct as of _________________, 19__:
1. 75% of face amount of Eligible Accounts of PM Resources $
2. 75% of face amount of Eligible Accounts of Agri-Nutrition $
3. 75% of the face amount of Eligible Accounts of St. JON $
4. 45% of Eligible Inventory of PM Resources, valued
at the lower of cost or market $
5. 45% of Eligible Inventory of Agri-Nutrition, valued
at the lower of cost or market $
6. 45% of Eligible Inventory of St. JON, valued at the lower
of cost or market $
7. Total Borrowing Base (sum of 1 through 6 above not to exceed
$5,000,000.00 up to and including October 2, 1998 or
$4,500,000.00 thereafter) $
Borrowers hereby further represent and warrant to Bank that
the following information is true and correct as of ______________________,
19___:
8. Aggregate principal amount of outstanding Facility A Loans $
9. Aggregate face amount of outstanding Letters of Credit $
10. Total Outstanding (Item 8 plus Item 9) $
11. Borrowing Base Excess (Deficit) (Item 7 minus Item 10)
(Negative amount represents mandatory repayment) $
If Item 11 above is negative, this Borrowing Base Certificate
is accompanied by the mandatory repayment required by Section 3.1(e) of the Loan
Agreement.
<PAGE>
12. Maximum Available principal amount of Facility B Loans $
13. Aggregate principal amount of outstanding Facility B Loans $
This Borrowing Base Certificate is dated the _____ day
of __________________, 19__.
AGRI-NUTRITION GROUP LIMITED
By:
Title:
PM RESOURCES, INC.
By:
Title:
ST. JON LABORATORIES, INC.
By:
Title:
<PAGE>
EXHIBIT C
Revolving Credit Note
$9,700,000.00 St. Louis, Missouri
August 6, 1998
FOR VALUE RECEIVED, on March 31, 2001 (or such subsequent
anniversary thereof as determined pursuant to Section 3.10 of the Loan Agreement
(hereinafter identified)), the undersigned, AGRI-NUTRITION GROUP LIMITED, a
Delaware corporation, PM RESOURCES, INC., a Missouri corporation, and ST. JON
LABORATORIES, INC., a California corporation (collectively, the "Borrowers"),
hereby jointly and severally promise to pay to the order of FIRST BANK, a
Missouri state banking corporation ("Bank"), the principal sum of Nine Million
Seven Hundred Thousand Dollars ($9,700,000.00), or such lesser sum as may then
be outstanding hereunder. The aggregate principal amount which Bank shall be
committed to have outstanding under Facility A hereunder at any one time shall
not exceed the lesser of (i) for the period from the date hereof to and
including October 2, 1998 the amount of Five Million Dollars ($5,000,000.00), or
from and after October 2, 1998 an amount of Four Million Five Hundred Thousand
Dollars ($4,500,000.00), or (ii) the "Borrowing Base" (as defined in the Loan
Agreement (as hereinafter defined)), which amount may be borrowed, paid,
reborrowed and repaid, in whole or in part, subject to the terms and conditions
hereof and of the Loan Agreement hereinafter identified. The aggregate principal
amount which Bank shall be committed to have outstanding under Facility B
hereunder at any one time shall not exceed Four Million Seven Hundred Thousand
Dollars ($4,700,000.00) as reduced from time to time pursuant to Section 3.1(b)
of the Loan Agreement hereinafter identified, which amount may be borrowed,
paid, reborrowed and repaid, in whole or in part, subject to the terms and
conditions hereof and of the Loan Agreement hereinafter identified.
Borrowers further jointly and severally promise to pay to the
order of Bank interest on the principal amount from time to time outstanding
hereunder prior to maturity from the date disbursed until paid at the rate or
rates per annum required by the Loan Agreement or otherwise selected by any of
the Borrowers as set forth in the Loan Agreement. All accrued and unpaid
interest with respect to each principal disbursement made hereunder shall be
payable (a) monthly on the fifteenth (15th) day of the month following the month
in which such interest accrued, commencing with the fifteenth (15th) day of the
month following the month in which any such disbursement was made, and on the
fifteenth (15th) day of each month thereafter, (b) if such disbursement is a
Treasury Rate Loan, such accrued interest shall also be payable on the last day
of the Interest Period with respect thereto, and (c) at the maturity of this
Note, whether by reason of acceleration or otherwise. After the maturity of this
Note, whether by reason of acceleration or otherwise, interest shall accrue and
be payable on demand on the entire outstanding principal balance hereunder until
paid at a rate per annum equal to Three and One-Half Percent (3.50%) over and
above the Prime Rate, fluctuating as and when said Prime Rate shall change. All
payments hereunder (other than prepayments) shall be applied first to the
payment of all accrued and unpaid interest, with the balance, if any, to be
applied to the payment of principal. All prepayments hereunder shall be applied
solely to the payment of principal.
<PAGE>
All payments of principal and interest hereunder shall be made
in lawful currency of the United States in Federal or other immediately
available funds at the office of Bank situated at 1281 Graham Road, Florissant,
Missouri 63031, or at such other place as the holder hereof shall designate in
writing. Interest shall be computed on an actual day, 360-day year basis.
Bank may record the date and amount of all loans and all
payments of principal and interest hereunder in the records it maintains with
respect thereto. Bank's books and records showing the account between Bank and
Borrowers shall be admissible in evidence in any action or proceeding and shall
constitute prima facie proof of the items therein set forth.
This Note is the Note referred to in that certain Credit
Agreement dated as of May 14, 1998 made by and between Borrowers and Bank (as
the same may from time to time be amended, the "Loan Agreement"), to which Loan
Agreement reference is hereby made for a statement of the terms and conditions
upon which the maturity of this Note may be accelerated, and for other terms and
conditions, including prepayment, which may affect this Note. All capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
such terms in the Loan Agreement.
This Note is secured by that certain Security Agreement dated
as of May 14, 1998 executed by Agri-Nutrition Group Limited in favor of Bank, by
that certain Security Agreement dated as of May 14, 1998 and executed by PM
Resources, Inc. in favor of Bank and by that certain Security Agreement dated as
of May 14, 1998 executed by St. JON Laboratories, Inc. in favor of Bank (as the
same may from time to time be amended, the "Security Agreements"), to which
Security Agreements reference is hereby made for a description of the security
and a statement of the terms and conditions upon which this Note is secured.
This Note is also secured by that certain Deed of Trust and
Security Agreement dated September 9, 1993 and executed by PM Resources, Inc. in
favor of Katherine D. Knocke, as trustee for Bank (as the same may from time to
time be amended, the "Deed of Trust"), to which Deed of Trust reference is
hereby made for a description of the security and a statement of the terms and
conditions upon which this Note is secured.
This Note is also secured by that certain Agreement of Pledge
dated as of May 14, 1998 and executed by Agri-Nutrition Group Limited in favor
of Bank and by that certain Agreement of Pledge dated as of May 14, 1998 and
executed by St. JON Laboratories, Inc. in favor of Bank (collectively, as the
same may from time to time be amended, the "Pledge Agreements"), to which Pledge
Agreements reference is hereby made for a description of the additional security
and a statement of the terms and conditions upon which this Note is further
secured.
If any of the Borrowers shall fail to make any payment of any
principal of or interest on this Note as and when the same shall become due and
payable, or if an "Event of Default" (as defined therein) shall occur under or
within the meaning of the Loan Agreement, any of the Security Agreements, the
Deed of Trust or either of the Pledge Agreements, Bank may, at its option,
terminate its obligation to make any additional loans under this Note and Bank
may further declare the entire outstanding principal balance of this Note and
all accrued and unpaid interest thereon to be immediately due and payable.
<PAGE>
In the event that any payment of any principal of or interest
on this Note shall not be paid when due, whether by reason of acceleration or
otherwise, and this Note shall be placed in the hands of an attorney or
attorneys for collection or for foreclosure of any of the Security Agreements,
the Deed of Trust or either of the Pledge Agreements securing payment hereof or
for representation of Bank in connection with bankruptcy or insolvency
proceedings relating hereto, Borrowers jointly and severally promise to pay, in
addition to all other amounts otherwise due hereon, the reasonable costs and
expenses of such collection, foreclosure and representation, including, without
limitation, reasonable attorneys' fees and expenses (whether or not litigation
shall be commenced in aid thereof). All parties hereto severally waive
presentment for payment, demand, protest, notice of protest and notice of
dishonor.
This Note shall be governed by and construed in accordance
with the internal laws of the State of Missouri.
AGRI-NUTRITION GROUP LIMITED
By:
Robert J. Elfanbaum,
Vice President and Chief Financial Officer
PM RESOURCES, INC.
By:
Robert J. Elfanbaum,
Vice President and Treasurer
ST. JON LABORATORIES, INC.
By:
Robert J. Elfanbaum, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 64,844
<SECURITIES> 0
<RECEIVABLES> 4,082,490
<ALLOWANCES> 0
<INVENTORY> 8,137,365
<CURRENT-ASSETS> 13,706,206
<PP&E> 5,603,383
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,213,871
<CURRENT-LIABILITIES> 3,547,683
<BONDS> 0
0
0
<COMMON> 93,336
<OTHER-SE> 15,975,157
<TOTAL-LIABILITY-AND-EQUITY> 28,213,871
<SALES> 24,291,416
<TOTAL-REVENUES> 24,291,416
<CGS> 17,672,462
<TOTAL-COSTS> 17,672,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 571,580
<INCOME-PRETAX> (639,607)
<INCOME-TAX> 245,901
<INCOME-CONTINUING> (393,706)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (393,706)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
