<PAGE>
UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 6, 1998
-----------------------
AgriBioTech, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 1-1935 85-0325742
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
2700 Sunset Rd., Suite C-25, Las Vegas,Nevada (89120)
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 798-1969
--------------
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K ("Form
8-K") for January 6, 1998 of AgriBioTech, Inc., a Nevada corporation ("the
Company") is submitted in order to provide the Financial Statements and pro
forma financial information called for under Item 7 of Form 8-K. Therefore, the
Company hereby amends its Form 8-K in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Lofts Seed, Inc.
Winston-Salem, North Carolina
We have audited the accompanying balance sheets of Lofts Seed, Inc. as of
November 30, 1997, and December 31, 1996 and the related statements of
operations and retained earnings, and cash flows for the eleven month period and
six month period then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lofts Seed, Inc. as of November
30, 1997 and December 31, 1996 and the results of its operations and its cash
flows for the eleven month period and six month period then ended in conformity
with generally accepted accounting principles.
/s/ Cannon & Co.
January 22, 1998
<PAGE>
LOFTS SEED, INC.
BALANCE SHEETS
November 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 458,550 $ 222,290
Trade accounts receivable, net of allowance for
doubtful accounts of $400,000 for 1997 and 1996 5,356,874 4,621,132
Inventory 10,973,795 12,207,635
Prepaid expenses 96,214 34,526
----------- -----------
TOTAL CURRENT ASSETS 16,885,433 17,085,583
----------- -----------
PROPERTY AND EQUIPMENT 303,344 247,961
OTHER ASSETS
Investment in affiliated company 1,722,127 655,370
Loan acquisition costs 21,500 27,000
Deferred income taxes 85,000 85,000
----------- -----------
1,828,627 767,370
----------- -----------
TOTAL ASSETS $19,017,404 $18,100,914
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 5,635,203 $ 6,260,004
Current portion of long-term debt 1,278,634 916,428
Trade accounts payable 2,398,991 2,263,685
Royalties payable 119,294 474,000
Accrued expenses 587,420 493,688
Accrued payroll 281,588 345,428
----------- -----------
TOTAL CURRENT LIABILITIES 10,301,130 10,753,233
----------- -----------
SUBORDINATED NOTES PAYABLE - RELATED PARTIES 1,557,547 1,797,492
----------- -----------
LONG-TERM DEBT 4,125,844 4,165,358
----------- -----------
DEFERRED COMPENSATION 146,811 171,937
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, Class A (voting), no par value,
230 shares authorized, issued and outstanding 23,000 23,000
Common stock, Class B (nonvoting), no par value,
770 shares authorized, issued and outstanding 77,000 77,000
Retained earnings 2,786,072 1,112,894
----------- -----------
2,886,072 1,212,894
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,017,404 $18,100,914
=========== ===========
</TABLE>
See accompanying notes.
-1-
<PAGE>
LOFTS SEED, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
For the Eleven Months Ended November 30, 1997 and the Six Months Ended December
31, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
NET SALES $63,211,986 $30,061,112
COST OF SALES 47,611,739 22,606,937
----------- -----------
GROSS PROFIT 15,600,247 7,454,175
GENERAL AND ADMINISTRATIVE EXPENSES 11,022,502 5,917,993
----------- -----------
4,577,745 1,536,182
----------- -----------
OTHER INCOME (EXPENSE)
Equity in earnings of affiliate 166,757 205,530
Miscellaneous income 274,690 79,847
Gain on dispositions of fixed assets 14,500
Management fees expense (1,216,822) (150,621)
Interest expense (1,383,833) (557,642)
----------- -----------
(2,159,208) (408,386)
----------- -----------
INCOME BEFORE INCOME TAXES 2,418,537 1,127,796
INCOME TAXES 14,902
----------- -----------
NET INCOME 2,418,537 1,112,894
BEGINNING RETAINED EARNINGS 1,112,894
Dividend payments (745,359)
----------- -----------
ENDING RETAINED EARNINGS $ 2,786,072 $ 1,112,894
=========== ===========
</TABLE>
See accompanying notes.
-2-
<PAGE>
LOFTS SEED, INC.
STATEMENT OF CASH FLOWS
For the Eleven Months Ended November 30, 1997 and the Six Months Ended December
31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,418,537 $ 1,112,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 78,016 28,919
Equity in earnings of affiliate (166,757) (205,530)
Gain on disposal of fixed assets (14,500)
Changes in:
Accounts receivable (735,742) (202,758)
Inventory 1,233,840 (6,002,661)
Prepaid expenses (61,688) 44,927
Other assets 215,875
Trade accounts payable 135,306 269,306
Royalties payable (354,706) (337,888)
Accrued expenses 93,732 (805,339)
Accrued payroll (63,840) 345,428
Due to former stockholder (1,512,040)
Deferred compensation (25,125) (10,784)
----------- -----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 2,551,573 (7,074,151)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (127,899) (90,258)
Proceeds from sale of assets 14,500
----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (127,899) (75,758)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (745,359)
New borrowings
Short-term 4,308,952 5,847,497
Long-term 1,204,887
Debt reduction
Short-term (5,978,586)
Long-term (977,308) (735,330)
----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (2,187,414) 5,112,167
----------- -----------
NET INCREASE (DECREASE) IN CASH 236,260 (2,037,742)
CASH BEGINNING OF YEAR 222,290 2,260,032
----------- -----------
CASH AT END OF YEAR $ 458,550 $ 222,290
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1997 1996
---------- --------
<S> <C> <C>
Purchase of interest in subsidiary $ 900,000
Debt incurred on purchase (900,000)
----------
Net cash outlay $
==========
Cash paid during the year for:
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Interest $1,404,231 $527,835
========== ========
</TABLE>
-3-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
- ------------------
The Company develops and markets seed products with a distribution network of
locations operating throughout the United States.
Change in Fiscal Year
- ---------------------
Effective the year beginning July 1, 1996, the Company elected to change their
fiscal year to a calendar year.
Use of Estimates
- ----------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Inventory
- ---------
Inventory consists mainly of purchased seed either for resale or blending prior
to resale and is valued at the lower of cost or market, with cost determined
using the first-in, first-out method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and are depreciated by straight-line
and accelerated methods over estimated useful lives.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Income Taxes
- ------------
Effective July 1, 1996, the Company has elected to be treated as an eligible
small business (S Corporation) for tax purposes. Under this election, income is
taxed to the individual stockholders and not to the Company. This special
election recognized in all states the Company operates in, except one.
Accordingly, the only income taxes reflected in the provision will be those due
to this one state.
Reclassifications
- -----------------
Certain amounts for 1996 have been reclassified where appropriate to conform
with 1997 classifications.
-4-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE B - BUSINESS COMBINATIONS
On June 28, 1996, all of the previously outstanding shares of Lofts Seed, Inc.
were purchased for approximately $10,280,000, including acquisition costs. The
book value of the net assets and liabilities at that time was approximately
$9,814,000. The fair market value of the net assets and liabilities was
approximately $11,163,000, resulting in an excess fair market value over
purchase price of approximately $883,000. The purchase of the previously
outstanding shares of Lofts Seed, Inc. was financed substantially through
financing sources for approximately $10,000,000, accruals for approximately
$210,000 and capital contributions of $100,000 from the new stockholders.
The adjustments for fair market value and allocation of excess of fair market
value over purchase price were as follows:
. Net deferred assets with a book value of approximately $226,000 were
increased approximately $143,500 to a fair market value of approximately
$369,500.
. Property and equipment with a book value of approximately $1,880,000 were
increased approximately $1,010,000 to a fair market value of approximately
$2,890,000. Prior to the purchase transaction, one of the new stockholders
acquired property and equipment with an adjusted fair market value of
$2,200,000. In exchange, the stockholder assumed related debt for the
property and equipment of $2,200,000. The remaining fair market value of
property and equipment was approximately $690,000. This amount was
subsequently decreased as a result of the allocation of excess of fair
market value over the purchase price for approximately $465,000, plus an
additional amount of approximately $42,000 for the effect on deferred tax
assets.
. Investment in an affiliated company required no adjustment to fair market
value due to the fact that book value of $621,474 approximated fair market
value. However, this amount decreased as a result of the allocation of
excess fair market value over the purchase price for approximately
$171,633.
. Accrued expenses and other current liabilities with a book value of
approximately $3,738,000 were decreased approximately $274,000 to a fair
market value of approximately $3,464,000.
The acquisition was accounted for by the purchase method of accounting, whereby
the Company allocated the purchase price to the assets based upon their fair
market values. Since the fair market value of the assets and liabilities
exceeded the net purchase price, property and equipment, investment in
affiliated company and deferred taxes relating to the purchase and subsequent S
corporation election were reduced.
-5-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE B - BUSINESS COMBINATIONS
The table below presents the reduction:
<TABLE>
<CAPTION>
Fair
Market
Value Adjustments Total
---------- ----------- --------
<S> <C> <C> <C>
Property and equipment $ 690,123 $(506,499) $183,624
Investment in affiliate 621,474 (171,633) 449,841
Deferred taxes 369,482 (284,482) 85,000
---------- --------- --------
$1,681,079 $(962,614) $718,465
========== ========= ========
</TABLE>
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Autos $ 52,232 $ 52,232
Equipment 69,877 34,120
Furniture 255,584 170,442
Leasehold improvements 24,088 17,088
-------- --------
401,781 273,882
Less accumulated depreciation 98,437 25,921
-------- --------
$303,344 $247,961
======== ========
</TABLE>
Depreciation expense was $78,016 and $28,919 for the eleven months ended
November 30, 1997 and the six months ended November 30, 1997, respectively.
NOTE D - INVESTMENT IN AFFILIATED COMPANY
Investment in affiliated company reflects ownership by the Company of 100% of
the common stock of Sunbelt Seed, Inc. Summary of total information as of
November 30, 1997 and December 31, 1996, (unaudited) are approximately as
follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current assets $ 4,828,498 $ 3,467,421
Noncurrent assets 91
Current liabilities 3,196,609 1,608,349
Net sales 14,660,108 14,436,308
Net income 646,422 956,405
</TABLE>
-6-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE D - INVESTMENT IN AFFILIATED COMPANY
The investment in affiliated company was adjusted in a prior year as a result of
the allocation of excess fair market value over the purchase price of the
Company.
Included in accounts receivable is approximately $2,024,244 and $3,760, due
from the affiliated company's at November 30, 1997 and December 31, 1996,
respectively.
NOTE E - SHORT-TERM DEBT PAYABLE
The Company has a short term line of credit with an overall limitation of
$13,140,000, not to exceed 80% of eligible accounts receivable and 50% of
eligible inventory, less the amount of all accounts payable due to growers of
seed inventory. Borrowings under the line of credit bear interest at prime.
The line of credit agreement is collateralized by substantially all assets of
the Company, certain assets of the principal stockholder and a related party
company that is under common ownership. In addition, the line of credit is
personally guaranteed by the principal stockholder. The current line of credit
expires March 31, 1998.
The line of credit and notes payable agreement (Note F) place restrictions on
among other things, dividend payments, capital expenditures, capital lease
obligations, and officer compensation. In addition, the agreement requires
maintaining various financial ratios at predefined levels. All requirements
were either met or waived for the eleven months ended November 30, 1997.
As of November 30, 1997, the fair value of the line of credit was approximately
equivalent to its carrying value, due to the fact that the interest rates
currently available to the Company for debt with similar terms are approximately
equal to the interest rates for its existing debt.
The Company has a short term loan of $804,887 bearing interest at prime. It is
payable March 31, 1998. At the bank's option, this loan may be extended to a
maximum of sixty months from the original closing date of August 29, 1997.
During 1997, the Company borrowed $805,000 from an affiliated company's line of
credit. The amount was repaid in August of 1997.
NOTE F - LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable in monthly installments of $120,453
through July 2001, with interest at prime,
collateralized by substantially all of the
Company's assets $4,169,428
</TABLE>
-7-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE F - LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable in monthly installments of $76,369
through July 2001, plus interest at prime plus 1%,
collateralized by substantially all of the
Company's assets $5,081,786
Note payable in monthly installments of $21,667
through July 2001, plus interest at prime,
collateralized by substantially all of the
Company's assets 1,235,050
---------- ----------
5,404,478 5,081,786
Less current maturities 1,278,634 916,428
---------- ----------
$4,125,844 $4,165,358
========== ==========
</TABLE>
Future maturities of long-term debt are summarized as follows:
<TABLE>
<S> <C>
1998 $1,278,634
1999 1,471,011
2000 1,584,613
2001 875,170
2001 195,050
----------
$5,404,478
==========
</TABLE>
Interest expense was $1,383,833 and $568,358 for the eleven months ended
November 30, 1997 and the six months ended December 31, 1996, respectively.
NOTE G - SUBORDINATED NOTES PAYABLE
Subordinated notes payable to related parties represent the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable to an affiliated company under common
control, payable upon demand plus interest at prime
plus 2%. The note is subordinated to the bank debt $1,557,547 $1,747,492
Note payable to the principal stockholder, payable
in full in June 1998. Interest is payable quarterly
at prime plus 2%. The note is subordinated to the
bank debt 50,000
---------- ----------
$1,557,547 $1,797,492
========== ==========
</TABLE>
-8-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE H - LEASES AND RELATED PARTIES
Effective June 1996, the Company entered into two new operating lease agreements
with its majority stockholder to lease certain facilities in Oregon. The leases
require annual lease payments of $266,748 and expire in 2001.
Effective June 1996, the Company entered into a new lease agreement with its
majority stockholder to lease certain facilities in Massachusetts. The lease
requires annual lease payments of $61,500 and expires in 2001.
During the year, the Company entered into multiple lease agreements leasing
vehicles and equipment over periods ranging from 12 to 48 months, with lease
payments from $227 to $531.
Future minimum lease payments required by leases are summarized as follows:
<TABLE>
<S> <C>
1998 $ 711,590
1999 644,006
2000 474,313
2001 272,743
----------
$2,926,605
==========
</TABLE>
Total lease expense charge to operations was $842,321 and $500,755 for the
eleven months ended November 30, 1997 and the six months ended December 31,
1996, respectively.
NOTE I - DEFERRED COMPENSATION
The Company is obligated to make payments to the surviving spouse of a deceased
officer for a period of twenty years from the date of the death of such officer
(February 1983) or to the death of the surviving spouse, if earlier. The
obligation is payable at $800 per week including interest at 9% through February
2003. The interest paid in connection with the obligation was $15,437 and
$10,014 for the eleven months ended November 30, 1997 and the six months ended
December 31, 1996, respectively.
NOTE J - INCOME TAXES
The income tax provision resulting from federal taxes due prior to the election
to be treated as an S-Corporation consists of the following:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Federal income tax $14,902
=======
</TABLE>
-9-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE J - INCOME TAXES
As discussed in Note A, the Company has elected to be treated as an eligible
small business (S Corporation) in all states that it operates in except one. In
this state there is a net operating loss carryforward of $11,336,550 that begins
expiring in December 1997 as follows:
<TABLE>
<S> <C>
1997 $ 2,950,162
1998 2,670,452
1999 2 962,828
2000 1,268,260
2001 1,484,848
-----------
$11,336,550
===========
</TABLE>
Deferred taxes result from timing differences in the recognition of expenses for
income tax and financial statement purposes. The source of these differences
and the tax effect is as follows:
<TABLE>
<S> <C>
Net operating loss carryforward $ 903,550
Valuation allowance (818,550)
---------
$ 85,000
=========
</TABLE>
NOTE K - CONCENTRATION OF ECONOMIC DEPENDENCY
Sales to three customers approximated $19,991,614 (32%) of the Company's sales
for the eleven months ended November 30, 1997.
NOTE L - PURCHASE CONTRACTS
The Company maintains in the ordinary course of business, numerous contracts
with seed growers, primarily in the state of Oregon, to grow specified seed
varieties for a specified period of time (generally three years) and to sell the
harvested seed to the Company at a specified price per pound. These contracts
expire at various dates.
-10-
<PAGE>
LOFTS SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
- --------------------------------------------------------------------------------
NOTE M - ROYALTY CONTRACTS
The Company has entered into numerous royalty contracts with individuals and
research facilities which developed certain varieties of grass seed sold by the
Company. Royalties are based on pounds of seed sold and computed at the
growers' prices. Royalty percentages range from 2% to 6%. The majority of
contracts have minimum payments ranging from $100 to $1,000.
NOTE N - CONTINGENCIES
The Company is subject to legal proceedings and claims arising in the ordinary
course of business. It is management's opinion that all legal proceedings and
claims having a material effect on the financial statements have been adequately
recorded.
NOTE O - INTERCOMPANY SALES
Intercompany sales between the various divisions of the Company have not been
eliminated from the financial statements. These sales amounted to $15,707,849
and $6,494,611 for the eleven months ended November 30, 1997 and the six months
ended December 31, 1996, respectively.
NOTE P - PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan for qualified employees. The terms
of the plan define qualified employees as all full time non-union employees.
Qualified employees may contribute from 2% to 10% of their gross pay. The
Company has the option to match up to 25% of the employees' contributions up to
4% of eligible employee contributions. The Company's contributions to the
participants investments accounts are fully vested after five years. The
Company did not make any contributions for the eleven months ended November 30,
1997 or the six months ended December 31, 1996.
NOTE Q SUBSEQUENT EVENT
Effective January 6, 1998, all of the Company's stock was purchased by another
Company. As a part of the purchase, all security guarantees between the bank
and former stockholders were released.
<PAGE>
[LETTERHEAD OF AMPER, POLITZINER & MATTIA]
Independent Auditors' Report
Board of Directors
Lofts Seed, Inc.
We have audited the accompanying balance sheets of Lofts Seed, Inc. as of June
30, 1996 and 1995, and the related statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lofts Seed, Inc. as of June 30,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Amper, Politziner & Mattia
AMPER, POLITZINER & MATTIA
September 26, 1996
Edison, New Jersey
<PAGE>
LOFTS SEED, INC.
Balance Sheets
June 30,
Assets
<TABLE>
<CAPTION>
1996 1995
--------------- ----------------
Current assets
<S> <C> <C>
Cash $ 2,260,032 $ 90,015
Accounts receivable - less allowance for
doubtful accounts of $485,000 and $285,000 4,418,374 4,306,616
Inventory 6,204,974 8,037,012
Prepaid expenses 79,453 82,630
Deferred tax assets 90,000 321,700
Other current assets 190,048 172,284
-------------- --------------
13,242,881 13,010,257
-------------- --------------
Property and equipment, net of accumulated depreciation 183,624 1,733,185
-------------- --------------
Other assets
Investment in affiliated company 165,359 504,000
Deferred tax assets 279,500 216,400
Loan acquisition costs 30,000 -
Other assets 25,809 30,275
-------------- --------------
500,668 750,675
-------------- --------------
$ 13,927,173 $ 15,494,117
============== ==============
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
Current liabilities
<S> <C> <C>
Note payable - bank $ 700,000 $ 995,000
Current maturities of long-term debt 1,054,000 26,000
Accounts payable 1,994,379 2,779,736
Royalties payable 811,888 989,780
Accrued expenses and other current liabilities 1,274,063 857,446
Due to former stockholder 1,512,040 -
Deferred compensation, current maturities 23,949 21,900
-------------- --------------
7,370,319 5,669,862
Long-term debt, net of current maturities 4,763,118 197,010
Deferred compensation, net of current maturities 183,736 207,675
Subordinated notes payable - related parties 1,510,000 -
Stockholders' equity
Class A voting common stock, no par value,
230 shares authorized, issued and outstanding 23,000 -
Class B non-voting common stock, no par value,
770 shares authorized, issued and outstanding 77,000 -
Common stock, no par value, 500,000 shares authorized,
253,256 shares issued, 250,000 shares outstanding - 440,612
Retained earnings - 9,013,901
-------------- --------------
100,000 9,454,513
Less treasury stock, at cost, 3,256 shares - (34,943)
-------------- --------------
Total stockholders' equity 100,000 9,419,570
-------------- --------------
$ 13,927,173 $ 15,494,117
============== ==============
</TABLE>
See accompanyning notes to financial statements.
-2-
<PAGE>
LOFTS SEED INC.
Statements of Operations
For the Years Ended June 30,
<TABLE>
<CAPTION>
1996 1995
------------ ------------
Percentage Percentage
of of
Net Sales Net Sales
----------- -----------
<S> <C> <C> <C> <C>
Revenue
Net sales $42,488,363 100.0 $43,140,842 100.0
Royalty and commission income 327,558 .8 136,025 .3
Service charges income 67,203 .1 78,984 .2
----------- ---------- ----------- -----
42,883,124 100.9 43,355,851 100.5
Cost of goods sold 33,582,471 79.0 33,967,039 78.7
----------- ---------- ----------- -----
Gross profit 9,300,653 21.9 9,388,812 21.8
Selling, general and
administrative expenses 8,683,735 20.4 9,303,852 21.6
----------- ---------- ----------- -----
Earnings from operations 616,918 1.5 84,960 .2
----------- ---------- ----------- -----
Other income (expense)
Equity in earnings of affiliate 191,000 .4 80,000 .2
Management fees 225,000 .5 100,000 .3
Interest expense (191,142) (.4) (263,653) (.6)
Miscellaneous income 82,091 .2 63,842 .1
Gain (loss) on sale of property
and equipment (7,554) - 7,809 -
----------- ---------- ----------- -----
299,395 .7 (12,002) -
----------- ---------- ----------- -----
Earnings before provision for
income taxes 916,313 2.2 72,958 .2
Provision for income taxes 362,000 .9 18,000 .1
----------- ---------- ----------- -----
Net income $ 554,313 1.3 $ 54,958 .1
=========== ========== =========== =====
</TABLE>
See accompanyning notes to financial statements.
-3-
<PAGE>
LOFTS SEED, INC.
Statements of Stockholders' Equity
For the Years Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Common Retained Treasury Stockholders'
Stock Earnings Stock Equity
---------- ------------ --------- --------------
<S> <C> <C> <C> <C>
Balance - July 1, 1994 $ 440,612 $ 9,031,353 $(34,943) $ 9,437,022
Net income - 54,958 - 54,958
Dividends declared - (72,410) - (72,410)
--------- ----------- -------- -----------
Balance - June 30, 1995 440,612 9,013,901 (34,943) 9,419,570
Net income - 554,313 - 554,313
Dividends declared - (160,000) - (160,000)
Issuance of common stock 100,000 - - 100,000
Purchase acquisition adjustments (440,612) (9,408,214) 34,943 (9,813,883)
--------- ----------- -------- -----------
Balance - June 30, 1996 $ 100,000 $ - $ - $ 100,000
========= =========== ======== ===========
</TABLE>
See accompanyning notes to financial statements.
-4-
<PAGE>
LOFTS SEED, INC.
Statements of Cash Flows
For the Years Ended June 30,
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 554,313 $ 54,958
------------ -----------
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 192,799 184,931
Bad debt expense 301,994 122,418
Deferred tax expense 312,000 9,300
Equity in earnings of affiliate (191,000) (80,000)
(Gain) loss on sale of property and equipment 7,554 (7,809)
(Increase) decrease in
Accounts receivable (415,226) 112,228
Inventory 1,832,038 305,374
Prepaid expenses 3,177 7,988
Other current assets (17,764) 8,183
Other assets 4,448 (13,793)
Increase (decrease) in
Accounts payable (785,357) (1,335,459)
Royalties payable (177,892) (110,422)
Accrued expenses and other current liabilities 393,463 (309,831)
Deferred compensation (21,890) (20,007)
----------- -----------
Total adjustments 1,438,344 (1,126,899)
----------- -----------
1,992,657 (1,071,941)
----------- -----------
Cash flows from investing activities
Payments for purchase of property and equipment (299,270) (349,845)
Proceeds from sale of property and equipment - 25,850
Dividends received from affiliated company 75,000 40,000
----------- -----------
(224,270) (283,995)
----------- -----------
Cash flows from financing activities
Net proceeds (payments) of note payable - bank (995,000) 995,000
Principal payments of long-term debt (43,000) (26,000)
Dividend payments (72,410) -
Increase in due to former stockholder 1,512,040 -
----------- -----------
401,630 969,000
----------- -----------
Net change in cash 2,170,017 (386,936)
Cash - beginning 90,015 476,951
----------- -----------
Cash - ending $ 2,260,032 $ 90,015
=========== ===========
Supplemental disclosure of cash paid
Interest $ 191,142 $ 244,373
Income taxes 10,000 85,568
</TABLE>
See accompanyning notes to financial statements.
-5-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
------------------------------------------
Operations
----------
Lofts Seed, Inc., (the "Company"), develops, markets and distributes
seed products, with various operating facilities located throughout
the United States. Credit is granted to substantially all customers,
the majority of whom are in the retail and professional lawn products
and services industries and located throughout the United States. The
Company does not generally require collateral from its customers.
Use of Estimates
----------------
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.
Principles of Consolidation
---------------------------
At June 30, 1995 and for the year ended June 30, 1995, the
consolidated financial statements include the accounts of Lofts Seed,
Inc. and its wholly owned subsidiary, Great Western Seed Co., after
elimination of all significant intercompany balances and transactions
(See Note 2).
Inventory
---------
Inventory consists primarily of purchased seed either for resale or
blending prior to resale and is stated at the lower of cost (first-in,
first-out basis) or market.
Property and Equipment
----------------------
Property and equipment is stated at cost, less accumulated
depreciation. Depreciation is provided over the estimated useful lives
of the assets as follows:
<TABLE>
<CAPTION>
Estimated
Method Useful Life
------------- -------------
<S> <C> <C>
Building and building improvements Straight-line 10 - 20 years
Machinery and equipment Straight-line 5 - 7 years
Furniture and fixtures Straight-line 5 years
Leasehold improvements Straight-line 10 - 20 years
</TABLE>
Investment in Affiliated Company
--------------------------------
Investment in affiliated company is reflected using the equity method
(See Note 5).
-6-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies - (continued)
------------------------------------------
Income Taxes
------------
Effective July 1, 1996, the Company will be taxed as an S-Corporation
under the Internal Revenue Code. Under this election, the profits,
losses, credits and deductions of the Company are passed to the
individual stockholders. Profits and losses of the Company remain
taxable at the state level.
Loan Acquisition Costs
----------------------
Loan acquisition costs represent certain bank charges and professional
fees incurred in connection with bank debt acquired in June 1996. Loan
acquisition costs will be amortized on a straight-line basis over a
five year period beginning in July 1996.
Note 2 - Business Combination
--------------------
On June 28, 1996, all of the previously outstanding shares of Lofts
Seed, Inc. were purchased for approximately $10,280,000, including
acquisition costs. The book value of the net assets and liabilities at
June 28, 1996 was approximately $9,814,000. The fair market value of
the net assets and liabilities at June 28, 1996 was approximately
$11,163,000, resulting in an excess fair market value over purchase
price of approximately $883,000. The purchase of the previously
outstanding shares of Lofts Seed, Inc. was financed substantially
through financing sources for approximately $10,000,000, inclusive of
approximately $1,500,000 of subordinated debt payable to related
parties, accruals of approximately $210,000 and capital contributions
of $100,000 from the new stockholders of the Company.
The adjustment for fair market value and allocation of excess of fair
market value over purchase price were as follows:
1. Net deferred tax assets with a book value of approximately
$226,000 were increased approximately $64,000 to a fair
market value of approximately $290,000. This amount was
subsequently increased by approximately $79,500 as a
result of allocating the excess of fair market value over
the purchase price.
2. Property and equipment with a book value of approximately
$1,880,000 were increased approximately $1,010,000 to a
fair market value of approximately $2,890,000. Prior to
the purchase transaction, one of the new shareholders
acquired property and equipment with an adjusted fair
market value of $2,200,000. In exchange, the shareholder
assumed related debt for the property and equipment of
$2,200,000. The remaining fair market value of property
and equipment was approximately $690,000. This amount was
subsequently decreased as a result of the allocation of
excess of fair market value over the purchase price for
approximately $465,000, plus an additional amount of
approximately $42,000 for the effect on deferred tax
assets.
-7-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 2 - Business Combination - (continued)
--------------------
3. Investment in affiliated company required no adjustment to
fair market value due to the fact that book value
(approximately $621,000) approximated fair market value.
However, this amount decreased as a result of the
allocation of the excess of fair market value over the
purchase price for approximately $418,000, plus an
additional amount of approximately $37,500 for the effect
on deferred tax assets.
4. Accrued expenses and other current liabilities with a book
value of approximately $3,738,000 were decreased
approximately $274,000 to a fair market value of
approximately $3,464,000.
The acquisition was accounted for by the purchase method of
accounting, whereby the Company allocated the purchase price to the
assets based upon their fair market values. Since the fair market
value of the assets and liabilities exceeded the net purchase price,
property and equipment and investment in affiliated company were
reduced. The table below presents the reduction:
<TABLE>
<CAPTION>
Fair Adjustments
Market Adjusted
Value (A) (B) Total
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Property and equipment $ 690,123 $(464,678) $(41,821) $183,624
Investment in affiliated company 621,474 (418,454) (37,661) 165,359
---------- --------- -------- --------
Total $1,311,597 $(883,132) $(79,482) $348,983
========== ========= ======== ========
</TABLE>
(A) Reduction for excess of fair market value of assets over the
purchase price.
(B) Tax effect of the reduction for the excess of fair market value of
assets over the purchase price (Deferred taxes).
On June 28, 1996, Great Western Seed Co. was merged into Lofts Seed,
Inc. This merger took place prior to the stock sale described above.
All significant intercompany balances and transactions were
eliminated.
Note 3 - Concentration of Cash Balance
-----------------------------
The Company maintained cash accounts totaling approximately $3,000,000
at June 30, 1996 in various banks insured by the Federal Deposit
Insurance Corporation (FDIC). These balances exceed the insured amount
of $100,000 per bank.
-8-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 4 - Property and Equipment
----------------------
<TABLE>
<CAPTION>
June 30,
1996 1995
----------- -----------
<S> <C> <C>
Land $ - $ 403,531
Building and building improvements - 1,278,578
Machinery and equipment 163,215 1,479,699
Furniture and fixtures 20,409 568,837
Leasehold improvements - 224,076
-------- -----------
183,624 3,954,721
Accumulated depreciation - (2,221,536)
-------- -----------
Net property and equipment $183,624 $ 1,733,185
======== ===========
</TABLE>
Property and equipment was adjusted as a result of the allocation of
the excess fair market value over the purchase price. (See Note 2).
Depreciation expense was $192,799 and $184,931 for the years ended
June 30, 1996 and 1995, respectively.
Note 5 - Investment in Affiliated Company
--------------------------------
Investment in affiliated company reflects ownership by the Company of
50% of the common stock of Sunbelt Seed, Inc. Summary of information
for the investee as of June 30, (unaudited) are approximately as
follows:
<TABLE>
<CAPTION>
June 30,
1996 1995
----------- -----------
<S> <C> <C>
Current assets $ 1,284,000 $ 1,077,000
Noncurrent assets 400 3,000
Current liabilities 32,400 62,000
Noncurrent liabilities 10,000 10,000
Net sales 12,831,000 10,564,000
Net income 382,000 161,000
</TABLE>
The investment in affiliated company was adjusted as a result of the
allocation of the excess of the fair market value over the purchase
price. (See note 2).
Sales to the affiliated company were approximately $6,050,000 and
$6,550,000 for the years ended June 30, 1996 and 1995, respectively.
Included in accounts receivable at June 30, 1996 and 1995 are
approximately $30,000 and $40,000 due from the affiliated company,
respectively.
Management fee income of $225,000 and $100,000 was received from the
affiliated company for the years ended June 30, 1996 and 1995,
respectively.
-9-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 5 - Investment in Affiliated Company - (continued)
--------------------------------
Dividends of $75,000 and $40,000 were received from the affiliated
company for the years ended June 30, 1996, and 1995, respectively.
Note 6 - Note Payable - Bank
-------------------
The Company has a line of credit with an overall limitation of
$13,140,000, not to exceed 80% of eligible accounts receivable and 40%
of eligible inventory less the amount of all accounts payable due to
growers of seed inventory. Borrowings under the line of credit bear
interest at prime plus 1.75%. The prime rate at June 30, 1996 was
8.25%. During the months of January, February, March and April, the
line of credit will have a seasonal availability of up to $2,000,000.
Borrowings under the seasonal availability bear interest at prime plus
3%. The line of credit agreement is collateralized by substantially
all assets of the Company, certain assets of the principal stockholder
and a related party company that is under common ownership. In
addition, the line of credit is personally guaranteed by the principal
stockholder. The current line of credit expires July 1, 1997.
The line of credit and note payable to bank (See Note 7) agreement
places restrictions on dividend payments, capital expenditures,
capital lease obligations, and stockholder, directors and officers
compensation and contains requirements for maintaining defined levels
of tangible net worth, as well as various financial ratios, including
debt to equity.
As of June 30, 1995, the Company had a line of credit with an overall
limitation of $5,000,000. Interest on this line of credit was at prime
plus .50%. The prime rate at June 30, 1995 was 9%.
As of June 30, 1996, the fair value of the line of credit was
approximately equivalent to its carrying value, due to the fact that
the interest rates currently available to the Company for debt with
similar terms are approximately equal to the interest rates for its
existing debt.
-10-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 7 - Long-Term Debt
--------------
<TABLE>
<CAPTION>
June 30
1996 1995
---- ----
<S> <C> <C>
Mortgage note payable to a bank, payable
at $2,167 per month plus interest at prime
plus .75%. This mortgage was paid in total
in July 1996. $ 197,010 $ 223,010
Note payable to a bank, payable in fifty-nine
equal monthly installments of $120,453
including interest at prime plus 2%. Any
remaining principal is due and payable in
July 2001. This note is collateralized by
substantially all assets of the Company and
certain assets of the principal stockholders
and a related party company that is under
common ownership. The note is personally
guaranteed by the principal stockholder of
Company. See note 6 for the debt restrictions. 5,540,000 -
Various equipment loans through July 2000
payable at $1,834 per month including interest
at various rates. 80,108 -
---------- ----------
Total 5,817,118 223,010
Less current maturities 1,054,000 26,000
---------- ----------
Long-term debt, net of current
maturities $4,763,118 $ 197,010
========== ==========
The prime rate as of June 30, 1996 and 1995 was 8.25% and 9%, respectively.
The approximate aggregate amount of all long-term debt maturities for the years
ending June 30, is as follows:
1997 $1,054,000
1998 1,032,000
1999 1,138,000
2000 1,154,000
2001 1,439,000
----------
$5,817,000
==========
</TABLE>
As of June 30, 1996, the fair value of long-term debt was
approximately equivalent to its carrying value, due to the fact that
the interest rates currently available to the Company for debt with
similar terms are approximately equal to the interest rates for its
existing debt.
-11-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 8 - Due to Former Stockholder
-------------------------
The balance at June 30, 1996 represents an amount due to a former
stockholder for the purchase of stock, as discussed in Note 2. The
balance was paid in July 1996.
Note 9 - Subordinated Notes Payable - Related Parties
--------------------------------------------
At June 30, 1996, subordinated notes payable-related parties represent
the following:
<TABLE>
<S> <C>
Note payable to an affiliated company under
common control, payable upon demand plus
interest at prime plus 2%. The note is
subordinated to the bank debt. $1,460,000
Note payable to the principal stockholder
payable in full in June 1998. Interest is
payable quarterly commencing September
1996 at prime plus 2%. The note is
subordinated to the bank debt. 50,000
----------
$1,510,000
==========
</TABLE>
Determination of the fair value of the above debt is not practicable
due to the related party nature of the debt.
Note 10 - Deferred Compensation
---------------------
The Company is obligated to make payments to the surviving spouse of a
deceased officer for a period of 20 years from the date of death of
such officer (February 1983) or to the death of the surviving
officer's spouse, if earlier. The obligation is payable at $800 per
week including interest at 9% through February 2003. The interest paid
in connection with the obligation was approximately $20,000 and
$22,000 for the years ended June 30, 1996 and 1995.
Note 11 - Income Taxes
------------
Deferred tax attributes resulting from differences between financial
accounting amounts and tax bases of assets and liabilities follows:
<TABLE>
<CAPTION>
June 30,
1996 1995
------- --------
<S> <C> <C>
Current assets and liabilities
Allowance for doubtful accounts $44,000 $118,400
Inventory 17,000 162,400
Accrued expense and other 29,000 40,900
------- --------
90,000 321,700
Valuation allowance - -
------- --------
Net current deferred tax asset $90,000 $321,700
======= ========
</TABLE>
-12-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 11 - Income Taxes - (continued)
--------------------------
Noncurrent assets and liabilities
<TABLE>
<S> <C> <C>
Depreciation $ 38,500 $ -
Deferred compensation 17,000 86,200
Net operating loss carryforwards 1,170,000 1,421,800
Investment in affiliate (10,000) (188,600)
---------- -----------
1,215,500 1,319,400
Valuation allowance (936,000) (1,103,000)
---------- -----------
Net noncurrent deferred tax asset $ 279,500 $ 216,400
========== ===========
</TABLE>
The valuation allowance has been established for those loss
carryforwards which are presently considered more likely than not to
be realized.
The provision for income taxes for the years ended June 30, 1996 and
1995 consists of the following:
<TABLE>
<CAPTION>
June 30,
1996 1995
-------- ----------
<S> <C> <C>
Current tax expense (net of benefit
of net operating losses carryforwards of
approximately $750,000) $ 50,000 $ 8,700
Deferred tax expense 312,000 9,300
-------- ---------
$362,000 $ 18,000
======== =========
A reconciliation of net deferred tax assets as of June 30, 1996 follows:
Net deferred current and noncurrent
deferred tax assets - June 30, 1995 $538,100
Deferred tax expense (312,000)
Effect of allocating excess fair market value over purchase
price to property and equipment and investment in affiliated
company 79,500
Net deferred tax adjustment to fair market value for purposes
of applying the purchase method of accounting 63,900
---------
Net deferred current and noncurrent deferred tax assets -
June 30, 1996 $ 369,500
=========
</TABLE>
As of June 30, 1996, the Company has state net operating loss
carryforwards of approximately $12,900,000.
-13-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 11 - Income Taxes - (continued)
--------------------------
These net operating losses expire as follows:
<TABLE>
<S> <C>
1997 $ 1,500,000
1998 2,900,000
1999 2,700,000
2000 3,000,000
2001 1,300,000
2002 1,500,000
-----------
$12,900,000
===========
</TABLE>
Note 12 - Operating Leases
----------------
The Company leases warehouse space in Allentown, Pennsylvania under a
five year lease expiring October 1999, with renewal options for two
five year periods. Monthly payments under the current lease are
approximately $12,000 per month. The Company is required to pay
utilities, insurance and other costs relating to the leased
facilities.
The Company leases office space for the corporate headquarters under a
five year lease expiring December 1999 with a renewal option for an
additional five year period. Monthly payments under the current lease
are approximately $5,000. The Company is required to pay property
taxes, utilities, insurance and other costs related to the leased
facilities.
The Company leases warehouse space in Beltsville, Maryland, under a
lease expiring June 2001. Monthly payments under the current lease are
approximately $12,000. The Company is required to pay utilities,
insurance and other costs relating to the leased facilities.
The Company leases warehouse space in Wilmington, Ohio, under a lease
expiring December 1996. Monthly payments under the current lease are
approximately $7,000. The Company is required to pay utilities and
other costs relating to the leased facilities.
In June 1996, the Company began leasing warehouse space and a research
farm in Oregon and warehouse space in Massachusetts from the principal
stockholder under leases expiring in June 2001. Total monthly payments
under these leases are approximately $25,000. The Company is required
to pay utilities, insurance, taxes and other costs relating to the
leased facilities.
The Company also leases warehouse space in Arlington, Massachusetts on
a month to month basis. Monthly payments are approximately $2,000. The
Company is required to pay utilities, insurance and other costs
relating to these facilities.
-14-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 12 - Operating Leases - (continued)
----------------
The Company has various leases for vehicles expiring through December
1999. Monthly payments under the various leases range from
approximately $350 to $1,350.
The following is a schedule by years of approximate future minimum
rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of June
30, 1996:
<TABLE>
<CAPTION>
For the Years
Ending June 30,
---------------
<S> <C>
1997 $ 769,000
1998 729,000
1999 691,000
2000 512,000
2001 437,000
----------
Total minimum payments required $3,138,000
==========
</TABLE>
Rent expense for the years ended June 30, 1996 and 1995, was
approximately $487,000 and $604,000, respectively, which includes
expense of $113,000 for the year ended June 30, 1995 to an entity
controlled by the former stockholders.
Note 13 - Employee Benefit Plan
---------------------
The Company has a 401(k) plan ("Plan") for qualified employees. The
terms of the Plan define qualified employees as all full-time non-
union employees. Qualified employees may contribute from 2% to 10% of
their gross pay. The Company matches 25% of the employees'
contributions up to 4% of employee contributions. The Company's
contributions to the participants' investment accounts are fully
vested after five years.
The Company's contributions for the years ended June 30, 1996 and
1995, were approximately $30,000 and $23,000, respectively.
Note 14 - Noncash Transactions
--------------------
As of June 30, 1996 and 1995, dividends of $160,000 and $72,410,
respectively, were declared but not paid.
-15-
<PAGE>
LOFTS SEED, INC.
Notes to Financial Statements
Note 15 - Major Customers/Suppliers
-------------------------
Sales to three customers approximated 22% of the Company's sales and
25% of accounts receivable for the year ended June 30, 1996. Sales to
one customer approximated 18% of the Company's sales and 16% of
accounts receivable for the year ended June 30, 1995. Major customers
are considered to be those who accounted for more than 10% of total
sales.
Note 16 - Purchase Contracts
------------------
The Company maintains, in the ordinary course of business, numerous
contracts with seed growers, primarily in the state of Oregon, to grow
specified seed varieties for a specified period of time (generally
three years) and to sell the harvested seed to the Company at a
specified price per pound. These contracts expire at various dates.
Note 17 - Royalty Contracts
-----------------
The Company has entered into numerous royalty contracts with
individuals and research facilities which developed certain varieties
of grass seed sold by the Company. Royalties are based on pounds of
seed sold and computed at the growers' prices. Royalty percentages
range from 2% to 6%. The majority of contracts have minimum payments
ranging from $100 to $1,000.
Note 18 - Contingencies
-------------
The Company is subject to legal proceedings and claims arising in the
ordinary course of business. It is management's opinion that all legal
proceedings and claims having a material effect on the financial
statements have been adequately recorded.
-16-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Budd Seed, Inc.
Winston-Salem, North Carolina
We have audited the accompanying balance sheets of Budd Seed, Inc. as of
November 30, 1997 and December 31, 1996, and the related statements of
operations and retained earnings, and cash flows for the eleven months and year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Budd Seed, Inc. as of November
30, 1997 and December 31, 1996, and the results of its operations and its cash
flows for the eleven months and year then ended in conformity with generally
accepted accounting principles.
/s/ Cannon & Co.
January 8, 1998
<PAGE>
BUDD SEED, INC.
BALANCE SHEETS
November 30, 1997 and December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 147,336 $ 99,259
Trade accounts receivable, net of allowance for
doubtful accounts of $9,020 for 1997 and $9,600
for 1996 788,845 883,074
Inventory 1,463,547 2,423,054
Prepaid expenses 3,284 15,282
---------- ----------
TOTAL CURRENT ASSETS 2,403,012 3,420,669
PROPERTY AND EQUIPMENT 23,265 33,139
---------- ----------
TOTAL ASSETS $2,426,277 $3,453,808
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 275,000 $1,809,000
Current portion of long-term debt 39,528 39,528
Trade accounts payable 209,917 461,575
Accrued expenses 27,211 32,671
Accrued payroll 140,500 43,967
---------- ----------
TOTAL CURRENT LIABILITIES 692,156 2,386,741
---------- ----------
LONG-TERM DEBT 63,540 99,774
---------- ----------
STOCKHOLDER'S EQUITY
Common stock, Class A (voting), no par value,
100,000 shares authorized and 21,457 shares
issued 12,474 12,474
Common stock, Class B (nonvoting), no par value,
1,000,000 shares authorized and 214,570 shares
issued 124,738 124,738
Additional paid-in capital 655,294 655,294
Retained earnings 878,075 174,787
---------- ----------
1,670,581 967,293
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,426,277 $3,453,808
========== ==========
</TABLE>
See accompanying notes.
-1-
<PAGE>
BUDD SEED, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Eleven Months Ended November 30, 1997 and Year Ended December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
NET SALES $11,471,693 $9,480,386
COST OF SALES 9,208,998 7,757,192
----------- ----------
GROSS PROFIT 2,262,695 1,723,194
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,333,893 1,206,299
----------- ----------
928,802 516,895
----------- ----------
OTHER INCOME (EXPENSE)
Miscellaneous income 47,436 23,931
Finance charge income 15,034 18,964
Commissions income 722
Loss on dispositions of fixed assets, net (1,293)
Interest expense (92,681) (136,041)
----------- ----------
(30,211) (93,717)
----------- ----------
NET INCOME 898,591 423,178
BEGINNING RETAINED EARNINGS 174,787 (76,391)
Dividends paid (195,303) (172,000)
----------- ----------
ENDING RETAINED EARNINGS $ 878,075 $ 174,787
=========== ==========
</TABLE>
See accompanying notes.
-2-
<PAGE>
BUDD SEED, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
November 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Voting Nonvoting Additional
Common Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 18,238 $ 1,658 182,380 $ 16,580 $655,294 $(76,391) $597,141
Exercise of stock options 3,219 10,816 32,190 108,158 118,974
Net income 423,178 423,178
Distributions to Stockholders (172,000) (172,000)
------ ------- ------- -------- -------- -------- ----------
Balance, December 31, 1996 21,457 12,474 214,570 124,738 655,294 174,787 967,293
Net income 898,591 898,591
Distributions to stockholders (195,303) (195,303)
------ ------- ------- -------- -------- -------- ----------
Balance, November 30, 1997 21,457 $12,474 214,570 $124,738 $655,294 $878,075 $1,670,584
====== ======= ======= ======== ======== ======== ==========
</TABLE>
See accompanying notes.
-3-
<PAGE>
BUDD SEED, INC.
STATEMENTS OF CASH FLOWS
Eleven Months Ended November 30, 1997 and Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 898,591 $ 423,178
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 29,784 29,797
Loss on disposal of assets, net 1,293
Changes in:
Accounts receivable 94,229 (405,584)
Inventory 959,507 (534,036)
Prepaid expenses 11,998 (13,003)
Trade accounts payable (251,658) (24,783)
Accrued expenses (5,460) (16,657)
Accrued payroll 96,533 26,663
----------- ---------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 1,833,524 (479,818)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (19,910) (16,851)
Proceeds from sale of assets 25,553
----------- ---------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (19,910) 8,702
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends (195,303) (172,000)
Additional common stock issued (voting) 10,816
Additional common stock issued (nonvoting) 108,158
New borrowings
Short-term 559,000
Debt reduction
Long-term (36,234) (28,247)
Short-term (1,534,000)
----------- ---------
NET CASH PROVIDED
(USED) BY FINANCING ACTIVITIES (1,765,537) 477,727
----------- ---------
NET INCREASE IN CASH 48,077 6,611
CASH BEGINNING OF YEAR 99,259 92,648
----------- ---------
CASH AT END OF YEAR $ 147,336 $ 99,259
=========== =========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $94,231 $134,100
======= ========
</TABLE>
-4-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
The Company operates a retail and wholesale agricultural supply business in the
Southeast.
Use of Estimates
- ----------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Inventory
- ---------
Inventory is valued at the lower of cost or market, with cost determined using
the last-in, first-out method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and are depreciated by straight-line
and accelerated methods over estimated useful lives.
Other Assets
- ------------
Other assets which are amortizable are being amortized by the straight-line
method over the life of the respective agreements.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Income Taxes
- ------------
The Company has elected to be treated as an eligible small business (S
Corporation) for tax purposes. Under this election, income is taxed to the
individual stockholders and not to the Company. Accordingly, there is no
provision for income taxes.
Reclassifications
- -----------------
Certain amounts for 1996 have been reclassified where appropriate to conform
with 1997 classifications.
-5-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
NOTE B - CASH
At November 30, 1997, the Company had on deposit with a single bank funds in
excess of FDIC insurance. The amount on deposit before consideration of
deposits in transit and outstanding checks was $325,568.
NOTE C - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Grass seed $1,571,237 $2,508,835
Less excess of current cost over LIFO inventory 148,844 121,996
---------- ----------
Inventory - LIFO 1,422,393 2,386,839
Bag inventory 41,154 36,215
---------- ----------
$1,463,547 $2,423,054
========== ==========
</TABLE>
If these inventories had been stated at cost using the first-in, first-out
(FIFO) method of valuation, the net income would have been as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net income $ 898,591 $ 423,178
Increase in LIFO reserve 26,848 15,001
--------- ---------
$ 925,439 $ 438,179
========= =========
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<CAPTION>
1997 1996
--------- ---------
Equipment $159,351 $ 140,315
Furniture 30,209 30,209
Office equipment 96,804 95,929
Trucks 18,013 18,013
--------- ---------
304,377 284,466
Less accumulated depreciation (281,112) (251,327)
--------- ---------
$ 23,265 $ 33,139
========= =========
</TABLE>
Depreciation expense was $29,784 and $29,797 for the eleven months ended
November 30, 1997 and year ended December 31, 1996, respectively.
-6-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
NOTE E - SHORT-TERM DEBT PAYABLE
The Company has a loan agreement with a bank involving up to $2,000,000 on a
revolving line of credit. Interest at the prime rate is payable monthly on the
outstanding principal of the line of credit with all the outstanding principal
due in September 1997. The line of credit is secured by the Company's accounts
receivable and inventory and guaranteed by the Company's majority stockholder
and his spouse. The line of credit agreement includes several loan covenants
with which the Company complied.
NOTE F - LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Note payable in monthly installments of $3,294
through May 1999 (and a balloon payment at that
time), plus interest at prime, collateralized
by equipment. $103,068 $139,302
Less current portion 39,528 39,528
-------- --------
$ 63,540 $ 99,774
======== ========
</TABLE>
Future maturities of long-term debt are summarized as follows:
<TABLE>
<S> <C>
1998 $ 39,528
1999 63,540
--------
$103,068
========
</TABLE>
Interest expense was $92,681 and $136,041 for the eleven months ended November
30, 1997 and year ended December 31, 1996, respectively.
NOTE G - RELATED PARTY TRANSACTIONS
Sales to and accounts receivable with related parties (see Note H) amounted to
the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Sales $733,859 $601,237
Accounts Receivable 33,294 82,722
Miscellaneous Income 28,048
</TABLE>
-7-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
NOTE H - LEASES WITH RELATED PARTIES
The Company entered into an agreement with the majority stockholder to lease a
portion of its facilities for $10,775 per month. The agreement expires annually
with a renewal option for four years expiring in 1999 and provides for
adjustments each July for changes in the Consumer Price Index.
Total lease expense charged to operations on these leases was $130,258 and
$142,100 for the eleven months ended November 30, 1997 and year ended December
31, 1996, respectively. (See Note G)
During 1997, the company loaned an affiliated company $805,000 which was fully
repaid in August 1997. The company received interest income of $23,381 which
was netted against interest expense.
NOTE I - OPERATING LEASES
The Company has an operating lease on two trucks renewable on an annual basis.
The lease includes monthly payments of $2,800 and provides for adjustments each
year based on the Consumer Price Index.
The Company has an operating lease on two trailers renewable on an annual basis.
The lease includes monthly payments of $1,001 and provides for adjustments each
year based on the Consumer Price Index.
The Company entered into two operating leases on equipment in 1994. The leases
include monthly payments of $949 and expire in December 1998 and April 1999.
The Company entered into two operating leases on equipment in 1995. The leases
include a monthly payment of $59 expiring in April 1998 and a quarterly payment
of $321 expiring in December 1999.
The Company entered into three operating leases on vehicles and equipment in
1996. The leases include monthly payments of $1,110, expiring in 1998 and March
2001.
Future minimum operating and related party lease payments are summarized as
follows:
1998 $71,592
1999 5,771
2000 3,363
2001 560
-------
$81,286
=======
Total lease expense charged to operations on these leases was $ 77,814 and
$88,354 for the eleven months ended November 30, 1997 and year ended December
31, 1996, respectively.
-8-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
November 30, 1997 and December 31, 1996
- --------------------------------------------------------------------------------
NOTE J - STOCK OPTION AGREEMENT
On April 21, 1995, the Company entered into stock option plans with two officers
of the Company. The Plan grants the option to purchase a total of 3,219 shares
of voting common stock and 32,190 shares of nonvoting common stock as an
"incentive stock option". In June 1996, the options were exercised by the two
officers by purchasing a total of 3,219 shares of voting common stock and 32,190
shares of nonvoting common stock for $118,974.
NOTE K - STOCK GIFTS
Effective January 1, 1996, the Company's majority shareholder gifted 6,719
shares of the Company's stock to a stockholder, reducing the majority
shareholder's ownership percentage to 56% of the Company.
NOTE L - BUY/SELL AGREEMENT
On January 10, 1995, the Company stockholder's entered into an agreement
whereby, in the event a minority stockholder wants to dispose of all or a
portion of their stock, the majority stockholder has a right of first refusal to
the shares. In the event he does not purchase all of the shares, the other
minority stockholders have the right of purchase.
NOTE M - CAPITAL STOCK
On December 5, 1995, the Company amended the Articles of Incorporation to
provide for Class A (voting) no par value common stock with 100,000 shares
authorized and Class B (nonvoting) no par value common stock with 1,000,000
shares authorized. Each issued and outstanding share of common stock of the
corporation was converted into one share of Class A voting common stock and ten
shares of Class B nonvoting common stock.
NOTE N - CONCENTRATION OF ECONOMIC DEPENDENCY
The Company sold approximately 39% and 23% of its products in 1997 and 1996,
respectively, to one customer.
NOTE O SUBSEQUENT EVENT
Effective January 6, 1998, all of the Company's stock was purchased by another
Company. As a part of the purchase, all security guarantees between the bank
and former stockholders were released.
-9-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders
Budd Seed, Inc.
Winston-Salem, North Carolina
We have audited the accompanying balance sheets of Budd Seed, Inc. as of
December 31, 1996 and 1995, and the related statements of operations and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Budd Seed, Inc. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Cannon & Co.
February 3, 1997
<PAGE>
BUDD SEED, INC.
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 99,259 $ 92,648
Trade accounts receivable, net of allowance for
doubtful accounts of $9,600 for 1996 and $10,000
for 1995 883,074 477,490
Inventory 2,423,054 1,889,018
Prepaid expenses 15,282 2,279
----------- -----------
TOTAL CURRENT ASSETS 3,420,669 2,461,435
PROPERTY AND EQUIPMENT 33,139 72,931
----------- -----------
TOTAL ASSETS $ 3,453,808 $ 2,534,366
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 1,809,000 $ 1,250,000
Current portion of long-term debt 39,528 167,549
Trade accounts payable 461,575 486,358
Accrued expenses 32,671 16,014
Accrued payroll 43,967 17,304
----------- -----------
TOTAL CURRENT LIABILITIES 2,386,741 1,937,225
----------- -----------
LONG-TERM DEBT 99,774
-----------
STOCKHOLDERS' EQUITY
Common stock, Class A (voting), no par value,
100,000 shares authorized and 21,457 shares
issued in 1996 and 18,238 shares issued in 1995 12,474 1,658
Common stock, Class B (nonvoting), no par value,
1,000,000 shares authorized and 214,570 shares
issued in 1996 and 182,380 shares issued in 1995 124,738 16,580
Additional paid-in capital 655,294 655,294
Retained earnings 174,787 ( 76,391)
----------- -----------
967,293 597,141
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,453,808 $ 2,534,366
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
BUDD SEED, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Years Ended December 31, 1996 and 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
NET SALES $ 9,480,386 $ 8,459,626
COST OF SALES 7,685,706 6,919,805
----------- -----------
GROSS PROFIT 1,794,680 1,539,821
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,277,785 1,158,037
----------- -----------
516,895 381,784
----------- -----------
OTHER INCOME (EXPENSE)
Miscellaneous income 23,931 11,289
Finance charge income 18,964 9,896
Commissions income 722 388
Loss on dispositions of fixed assets, net (1,293)
Interest expense (136,041) (92,779)
----------- -----------
(93,717) (71,206)
----------- -----------
NET INCOME 423,178 310,578
BEGINNING ACCUMULATED DEFICIT (76,391) (299,027)
Dividends paid (172,000) (87,942)
----------- -----------
ENDING RETAINED EARNINGS $ 174,787 $ (76,391)
=========== ===========
</TABLE>
See accompanying notes.
-2-
<PAGE>
BUDD SEED, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
December 31, 1996 and 1995
<TABLE>
<CAPTION>
=====================================================================================================================
Voting Nonvoting Additional
Common Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
------ -------- ------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 18,238 $ 18,238 $655,294 ($299,027) $374,505
Reclassification of common
stock due to amendment of
Articles of Incorporation (16,580) 182,380 $ 16,580
Net income 310,578 310,578
Distributions to stockholders (87,942) (87,942)
------ -------- ------- -------- -------- --------- --------
Balance, December 31, 1995 18,238 1,658 182,380 16,580 655,294 (76,391) 597,141
Exercise of stock options 3,219 10,816 32,190 108,158 118,974
Net income 423,178 423,178
Distributions to stockholders (172,000) (172,000)
------ -------- ------- -------- -------- --------- --------
Balance, December 31, 1996 21,457 $ 12,474 214,570 $124,738 $655,294 $174,787 $967,293
====== ======== ======= ======== ======== ========= ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
BUDD SEED, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 423,178 $ 310,578
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 29,797 49,515
Loss on disposal of assets, net 1,293
Changes in:
Accounts receivable ( 405,584) ( 37,761)
Inventory ( 534,036) ( 209,640)
Prepaid expenses ( 13,003) ( 674)
Trade accounts payable ( 24,783) ( 442,632)
Accrued expenses 16,657 ( 2,303)
Accrued payroll 26,663 7,259
--------------- --------------
NET CASH USED BY
OPERATING ACTIVITIES ( 479,818) ( 325,658)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ( 16,851) ( 31,215)
Proceeds from sale of assets 25,553
--------------- --------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 8,702 ( 31,215)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends ( 172,000) ( 87,942)
Additional common stock issued (voting) 10,816
Additional common stock issued (nonvoting) 108,158
New borrowings
Short-term 559,000 470,000
Debt reduction
Long-term ( 28,247) ( 21,475)
NET CASH PROVIDED
BY FINANCING ACTIVITIES 477,727 360,583
--------------- --------------
NET INCREASE IN CASH 6,611 3,710
CASH BEGINNING OF YEAR 92,648 88,938
--------------- --------------
CASH AT END OF YEAR $ 99,259 $ 92,648
=============== ==============
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1996 1995
-------- --------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $134,100 $ 93,152
======== ========
</TABLE>
-4-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
- --------------------
The Company operates a retail and wholesale agricultural supply business in the
Southeast.
Use of Estimates
- ----------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Inventory
- ---------
Inventory is valued at the lower of cost or market, with cost determined using
the last-in, first-out method.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and are depreciated by straight-line
and accelerated methods over estimated useful lives.
Other Assets
- ------------
Other assets which are amortizable are being amortized by the straight-line
method over the life of the respective agreements.
Cash Equivalents
- ----------------
For purposes of the statement of cash flows, the Company considers all debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Income Taxes
- ------------
The Company has elected to be treated as an eligible small business (S
Corporation) for tax purposes. Under this election, income is taxed to the
individual stockholders and not to the Company. Accordingly, there is no
provision for income taxes.
Reclassifications
- -----------------
Certain amounts for 1995 have been reclassified where appropriate to conform
with 1996 classifications.
-5-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
- -------------------------------------------------------------------------------
NOTE B - CASH
At December 31, 1996, the Company had on deposit with a single bank funds in
excess of FDIC insurance. The amount on deposit before consideration of deposits
in transit and outstanding checks was $116,749.
NOTE C - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Grass seed $2,508,835 $1,973,887
Less excess of current cost over LIFO inventory 121,996 106,995
---------- ----------
Inventory - LIFO 2,386,839 1,866,892
Bag inventory 36,215 22,126
---------- ----------
$2,423,054 $1,889,018
========== ==========
</TABLE>
If these inventories had been stated at cost using the first-in, first-out
(FIFO) method of valuation, the net income would have been as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income $ 445,569 $ 310,578
Increase (decrease) in LIFO reserve 15,001 40,047
---------- ----------
$ 460,570 $ 350,625
========== ==========
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Autos $ 29,033
Equipment $ 140,315 132,778
Furniture 30,209 30,209
Office equipment 95,929 96,929
Trucks 18,013 18,013
---------- ----------
284,466 306,962
Less accumulated depreciation (251,327) (234,031)
---------- ----------
$ 33,139 $ 72,931
========== ==========
</TABLE>
Depreciation expense was $29,797 and $49,352 for the years ended December 31,
1996 and 1995, respectively.
-6-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE E - SHORT-TERM DEBT PAYABLE
The Company has a loan agreement with a bank involving up to $2,000,000 on a
revolving line of credit. Interest at the prime rate is payable monthly on the
outstanding principal of the line of credit with all the outstanding principal
due in September 1997. The line of credit is secured by the Company's accounts
receivable and inventory and guaranteed by the Company's majority stockholder
and his spouse. The line of credit agreement includes several loan covenants
with which the Company complied.
NOTE F - LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Note payable in monthly installments of
$3,294 through May 1999 (and a balloon
payment at that time), plus interest at
prime, collateralized by equipment. $ 139,302
Note payable in monthly installments of
$3,294 through August 1996 (and a balloon
payment at that time), plus interest at
prime, collateralized by equipment. $ 167,549
Less current portion 39,528 167,549
---------- ----------
$ 99,774 $
========== ==========
</TABLE>
Future maturities of long-term debt are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 39,528
1998 39,528
1999 $ 60,246
----------
$ 139,302
==========
</TABLE>
Interest expense was $136,041 and $92,779 for the years ended December 31, 1996
and 1995, respectively.
NOTE G - RELATED PARTY TRANSACTIONS
In 1996, total sales included $601,237 to related parties and accounts
receivable at December 31, 1996 including $82,722 to related parties. (see Note
H)
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE H - LEASES WITH RELATED PARTIES
The Company entered into an agreement with the majority stockholder to lease a
portion of its facilities for $10,775 per month. The agreement expires annually
with a renewal option for four years expiring in 1999 and provides for
adjustments each July for changes in the Consumer Price Index.
Total lease expense charged to operations on these leases was $142,100 and
$129,280 for the years ended December 31, 1996 and 1995, respectively. (See
Note G)
NOTE I - OPERATING LEASES
The Company has an operating lease on two trucks renewable on an annual basis.
The lease includes monthly payments of $2,762 and provides for adjustments each
year based on the Consumer Price Index.
The Company has an operating lease on two trailers renewable on an annual basis.
The lease includes monthly payments of $973 and provides for adjustments each
year based on the Consumer Price Index.
The Company entered into an operating lease on a vehicle in 1994, to be used by
the majority stockholder. The lease includes monthly payments of $504 and
expires in July 1997.
The Company entered into three operating leases on equipment in 1994. The leases
include monthly payments of $954 and expire in December 1996, January 1998, and
April 1999.
The Company entered into two operating leases on equipment in 1995. The leases
include a monthly payment of $59 expiring in April 1998 and a quarterly payment
of $321 expiring in December 1999.
The Company entered into three operating leases on vehicles and equipment in
1996. The leases include monthly payments of $1,282, expiring in 1997 and March
2001.
Future minimum operating and related party lease payments are summarized as
follows:
<TABLE>
<S> <C>
1997 $ 63,437
1998 9,225
1999 5,771
2000 3,363
2001 560
---------
$ 82,356
=========
</TABLE>
Total lease expense charged to operations on these leases was $88,354 and
$76,971 for the years ended December 31, 1996 and 1995, respectively.
-8-
<PAGE>
BUDD SEED, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
NOTE J - STOCK OPTION AGREEMENT
On April 21, 1995, the Company entered into stock option plans with two officers
of the Company. The Plan grants the option to purchase a total of 3,219 shares
of voting common stock and 32,190 shares of nonvoting common stock as an
"incentive stock option". In June 1996, the options were exercised by the two
officers by purchasing a total of 3,219 shares of voting common stock and 32,190
shares of nonvoting common stock for $118,974.
NOTE K - STOCK GIFTS
Effective January 1, 1995, the Company's sole stockholder gifted 364 shares of
the Company's stock to a company officer. In addition, the sole stockholder
gifted 6,973 shares to his son. These actions reduced his ownership percentage
to 60% of the Company.
Effective January 1, 1996, the Company's majority stockholder gifted 6,719
shares of the Company's stock to a stockholder, reducing the majority
stockholder's ownership percentage to 56% of the Company.
NOTE L - BUY/SELL AGREEMENT
On January 10, 1995, the Company stockholders entered into an agreement whereby,
in the event a minority stockholder wants to dispose of all or a portion of
their stock, the majority stockholder has a right of first refusal to the
shares. In the event he does not purchase all of the shares, the other minority
stockholders have the right of purchase.
NOTE M - CAPITAL STOCK
On December 5, 1995, the Company amended the Articles of Incorporation to
provide for Class A (voting) no par value common stock with 100,000 shares
authorized and Class B (nonvoting) no par value common stock with 1,000,000
shares authorized. Each issued and outstanding share of common stock of the
corporation was converted into one share of Class A voting common stock and ten
shares of Class B nonvoting common stock.
NOTE N - CONCENTRATION OF ECONOMIC DEPENDENCY
The Company sold approximately 23% and 25% of its products in 1996 and 1995,
respectively, to one customer.
-9-
<PAGE>
Independent Auditors' Report
----------------------------
To the Shareholders of
Sunbelt Seeds, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheet of Sunbelt Seeds, Inc. (a
Georgia corporation) as of November 30, 1997, and the related statements of
operations, changes in shareholder's investment, and cash flows for the ten
months then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunbelt Seeds, Inc. as of
November 30, 1997, and the results of its operations and its cash flows for the
ten months then ended in conformity with generally accepted accounting
principles.
Blackwell Poole, LLP
Certified Public Accountants
January 9, 1998
<PAGE>
SUNBELT SEEDS, INC.
BALANCE SHEET
NOVEMBER 30, 1997
Assets
<TABLE>
<S> <C> <C>
Current assets:
Cash $ 581,232
Accounts receivable less allowance for
doubtful accounts of $19,760 3,477,507
Employee advances 1,000
Inventories 668,227
Prepaid expenses 80,000
Deferred tax benefit 23,000
-------------
Total current assets 4,830,966
Property and equipment:
Machinery and equipment $ 11,590
Automobiles 7,222
Furniture and fixtures 8,502
-------------
27,314
Less: Accumulated depreciation (27,314) -
------------- -------------
Total assets $ 4,830,966
=============
</TABLE>
<PAGE>
Liabilities and Shareholder's Investment
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable $ 2,949,247
Accrued expenses 271,809
Income taxes payable 250,000
------------
Total current liabilities 3,471,056
Shareholder's investment:
Common stock of $1 par value; Authorized:
100,000 shares; Issued and outstanding:
2,000 shares $ 2,000
Paid-in capital 98,000
Retained earnings 1,259,910 1,359,910
--------------- ------------
Total liabilities and
shareholder's investment $ 4,830,966
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit A
<PAGE>
SUNBELT SEEDS, INC.
STATEMENT OF OPERATIONS
TEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
Sales $ 14,659,576
Cost of sales:
Seed purchases $ 11,498,772
Freight 312,592 11,811,364
-------------- --------------
Gross profit 2,848,212
Operating expenses:
Selling and delivery 1,551,710
General and administrative 346,287 1,897,997
-------------- --------------
Income from operations 950,215
Other income (expenses):
Interest 12,854
Other (47,353)
Management fees (300,000) (334,499)
-------------- --------------
Income before income taxes 615,716
Provision (benefit) for income taxes:
Current 247,873
Deferred (7,000) 240,873
-------------- --------------
Net income $ 374,843
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit B
<PAGE>
SUNBELT SEEDS, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S INVESTMENT
TEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance at January 31, 1997 $ 2,000 $ 98,000 $ 885,067
Net income for the period 374,843
------------------ ------------------ ------------------
Balance at November 30, 1997 $ 2,000 $ 98,000 $ 1,259,910
================== ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit C
<PAGE>
SUNBELT SEEDS, INC.
STATEMENT OF CASH FLOWS
TEN MONTHS ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C>
Cash flows provided by (used for)
operating activities:
Net income $ 374,843
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Bad debt expense 16,000
Deferred taxes (7,000)
Changes in operating assets and
liabilities:
Increase in accounts receivable (2,544,614)
Decrease in inventory 111,836
Increase in prepaid expenses (94,113)
Increase in accounts payable and
accrued expenses 2,262,350
Increase in income taxes payable 229,349
--------------
Net cash provided by operating
activities 348,651
--------------
Net increase in cash 348,651
Cash - beginning of period 232,581
--------------
Cash - November 30, 1997 $ 581,232
==============
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid during the period for:
Income taxes $ 20,711
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit D
<PAGE>
SUNBELT SEEDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization:
-------------
Prior to June 1997, Sunbelt Seeds, Inc. was owned by Lofts Seed, Inc. and
Southern Turf Nurseries (STN). In June 1997 Loft's Seeds acquired the
remaining 50% interest from STN. As part of the agreement, Sunbelt Seeds,
Inc. paid $100,000 to STN for a noncompete arrangement. The arrangement is
for two years.
In January 1998 Agribiotech, Inc. acquired the entire interest of Loft's
Seeds.
2. Summary of Significant Accounting Policies:
-------------------------------------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
Inventories:
Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market.
Property, Equipment, and Depreciation:
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by the straight-line method for
the financial statement and accelerated methods for income tax purposes.
There was no depreciation expense charged to operations for the ten months
ended November 30, 1997, because all assets had been completely depreciated
in prior periods. Maintenance and repairs are charged to expense as
incurred.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, cash equivalents include all
highly liquid debt instruments with original maturities of three months or
less.
3. Concentration of Credit Risk:
-----------------------------
The Company primarily sells its products to golf courses and garden
supply stores in the Southeastern United States.
Concentrations of credit risk within this region and industry are
generally diversified due to the large number of entities comprising the
Company's customer base. No one customer or affiliated group of customers
comprise a significant portion of the Company's receivables. While these
receivables are unsecured, the Company performs ongoing credit evaluations
of its customers' financial condition.
<PAGE>
SUNBELT SEEDS, INC.
NOTES TO FINANCIAL STATEMENTS
3. Concentration of Credit Risk (continued):
-----------------------------------------
The Company maintains its cash in bank deposit accounts which at times,
may exceed federally insured limits. The Company has not experienced any
losses in such amounts.
Sales to the Company's largest customer, Home Depot, Inc. were
approximately $4,518,955 for the ten months ending November 30, 1997.
4. Transactions with Related Parties:
----------------------------------
For the period ending November 30, 1997, the Company purchased
approximately $6,123,406 of seeds from Great Western Seed Company, a
subsidiary of Loft's Seed, Inc. and $93,392 from Bud Seed. The amount due
as of November 30, 1997 is $2,019,240.
Management services were provided to the Company from the shareholders.
The fees amounted to $300,000 for the period ending November 30, 1997.
5. Employees' Retirement Plan:
---------------------------
During the fiscal year 1989, the Company initiated a qualified retirement
plan under Section 401(k) of the Internal Revenue Code of 1986 that covers
substantially all employees. Eligible employees are permitted to
contribute a portion of gross compensation into the retirement plan and the
Company will match each employee contribution at a specified rate up to a
maximum matching contribution. The contributions for the period ended
November 30, 1997 were $13,124.
6. Lease Commitments:
------------------
The Company has various operating leases covering automobiles and office
space. Minimum rental commitments under these noncancelable leases are
approximately as follows:
November 30, 1998 $ 38,400
November 30, 1999 38,400
November 30, 2000 32,245
Lease expense charged to operations was $30,180 for the period ended
November 30, 1997.
<PAGE>
Independent Auditor's Report
----------------------------
To the Shareholders of
Sunbelt Seeds, Inc.
Atlanta, Georgia
We have audited the accompanying balance sheets of Sunbelt Seeds, Inc. (a
Georgia corporation) as of January 31, 1997 and 1996, and the related statements
of operations, changes in shareholders' investment, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sunbelt Seeds, Inc. as of
January 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Blackwell, Poole & Company
Certified Public Accountants
April 17, 1997
<PAGE>
SUNBELT SEEDS, INC.
BALANCE SHEETS
JANUARY 31, 1997 AND 1996
Assets
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 232,581 $ 81,592
Accounts receivable less allowance for
doubtful accounts of $52,628 in
1997 and $55,373 in 1996 948,768 1,050,905
Employee advances 1,125 3,900
Inventories 780,062 996,554
Prepaid expenses 1,733 7,857
Deferred tax benefit 16,000 16,000
--------------- ----------------
Total current assets 1,980,269 2,156,808
Property and equipment:
Machinery and equipment 11,590 11,590
Automobiles 7,222 7,222
Furniture and fixtures 8,502 8,502
--------------- ----------------
27,314 27,314
Less: Accumulated depreciation (27,314) (26,123)
--------------- ----------------
Total property and equipment - 1,191
--------------- ----------------
Total assets $ 1,980,269 $ 2,157,999
=============== ================
</TABLE>
<PAGE>
Liabilities and Shareholders' Investment
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Current liabilities:
Accounts payable:
Trade $ 845,052 $ 741,245
Related party - 10,037
Accrued expenses 129,499 217,763
Income taxes payable 20,651 133,186
--------------- ---------------
Total current liabilities 995,202 1,102,231
Shareholders' investment:
Common stock of $1 par value; Authorized:
100,000 shares; Issued and outstanding:
2,000 shares 2,000 2,000
Paid-in capital 98,000 98,000
Retained earnings 885,067 955,768
--------------- ---------------
Total shareholders' investment 985,067 1,055,768
--------------- ---------------
Total liabilities and
shareholders' investment $ 1,980,269 $ 2,157,999
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit A
<PAGE>
SUNBELT SEEDS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
<S> <C> <C>
Sales $ 14,705,646 $ 12,398,779
---------------------- ---------------------
Cost of sales:
Seed purchases 11,868,362 9,321,475
Freight 316,839 404,889
---------------------- ---------------------
Total cost of sales 12,185,201 9,726,364
---------------------- ---------------------
Gross profit 2,520,445 2,672,415
---------------------- ---------------------
Operating expenses:
Selling and delivery 1,632,869 1,588,903
General and administrative 426,621 411,057
---------------------- ---------------------
2,059,490 1,999,960
---------------------- ---------------------
Income from operations 460,955 672,455
---------------------- ---------------------
Other income (expenses):
Interest 2,252 (1,839)
Other (21,613) (11,432)
Management fees (300,000) (300,000)
---------------------- ---------------------
(319,361) (313,271)
---------------------- ---------------------
Income before income taxes 141,594 359,184
---------------------- ---------------------
Provision for income taxes:
Current 62,295 144,239
Deferred - -
---------------------- ---------------------
62,295 144,239
---------------------- ---------------------
Net income $ 79,299 $ 214,945
====================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit B
<PAGE>
SUNBELT SEEDS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT
YEARS ENDED JANUARY 31 1997 AND 1996
<TABLE>
<CAPTION>
Common Paid-in Retained
Stock Capital Earnings
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance at January 31, 1995 $ 2,000 $ 98,000 $ 890,823
Dividends - - (150,000)
Net income for the period - - 214,945
------------------ ------------------ ------------------
Balance at January 31, 1996 2,000 98,000 955,768
Dividends - - (150,000)
Net income for the period - - 79,299
------------------ ------------------ ------------------
Balance at January 31, 1997 $ 2,000 $ 98,000 $ 885,067
================== ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit C
<PAGE>
SUNBELT SEEDS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
<S> <C> <C>
Cash flows provided by (used for)
operating activities:
Net income $ 79,299 $ 214,945
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,191 1,100
Bad debt expense 25,500 13,000
Changes in operating assets and
liabilities:
Decrease (increase) in accounts receivable 79,412 (15,005)
Decrease in inventory 216,492 50,166
Decrease (increase) in prepaid expenses 6,124 (4,103)
Increase (decrease) in accounts
payable and accrued expenses 5,506 (14,398)
Increase (decrease) in income taxes payable (112,535) 47,370
---------------------- ---------------------
Net cash provided by operating
activities 300,989 293,075
Cash flows provided by (used for)
investing activities:
Acquisition of fixed assets - (11,549)
Insurance reimbursement on assets - 13,007
---------------------- ---------------------
Net cash provided by investing
activities - 1,458
Cash flows used for financing
activities:
Net loans on line of credit - (135,000)
Dividends paid (150,000) (150,000)
---------------------- ---------------------
Net cash used for financing
activities (150,000) (285,000)
---------------------- ---------------------
Net increase in cash 150,989 9,533
Cash - beginning of year 81,592 72,059
---------------------- ---------------------
Cash - end of year $ 232,581 $ 81,592
====================== =====================
</TABLE>
<PAGE>
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
<S> <C> <C>
Cash paid during the year for:
Income taxes $ 177,854 $ 96,869
======================== ======================
Interest $ 642 $ 2,801
======================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Exhibit D
<PAGE>
SUNBELT SEEDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization:
-------------
Sunbelt Seeds, Inc. (the Company) is owned by Loft's Seed, Inc. and STN.
Each shareholder owns fifty percent of the outstanding common stock of the
Company.
2. Summary of Significant Accounting Policies:
-------------------------------------------
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
Inventories:
Inventories are stated at the lower of last-in, first-out (LIFO) cost or
market.
Property, Equipment, and Depreciation:
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by the straight-line method for
the financial statement and accelerated methods for income tax purposes.
Depreciation expense charged to operations amounted to $1,191 in 1997 and
$1,100 in 1996. Maintenance and repairs are charged to expense as
incurred.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, cash equivalents include all
highly liquid debt instruments with original maturities of three months or
less.
3. Line of Credit:
---------------
The Company has a bank line of credit of $500,000 at a rate of 1/2% above
prime. All borrowings under this agreement are secured by the Company's
accounts receivable and inventories. As of January 31, 1997, $500,000 was
available to the Company.
<PAGE>
SUNBELT SEEDS, INC.
NOTES TO FINANCIAL STATEMENTS
4. Concentration of Credit Risk:
-----------------------------
The Company primarily sells its products to golf courses and garden
supply stores in the Southeastern United States.
Concentrations of credit risk within this region and industry are
generally diversified due to the large number of entities comprising the
Company's customer base. No one customer or affiliated group of customers
comprise a significant portion of the Company's receivables. While these
receivables are unsecured, the Company performs ongoing credit evaluations
of its customers' financial condition.
Sales to the Company's largest customer, Home Depot, Inc. were
approximately $3,960,446 and $2,900,000 for the years ended January 31,
1997 and 1996, respectively.
5. Transactions with Related Parties:
----------------------------------
In fiscal years ending January 31, 1997, and 1996, the Company purchased
approximately $6,878,523 and $5,823,265, respectively, of seeds from Great
Western Seed Company, a subsidiary of Loft's Seed, Inc.
Management services were provided to the Company from the shareholders.
The fees amounted to $300,000 for the fiscal years ending January 31, 1997
and 1996.
6. Employees' Retirement Plan:
---------------------------
During the fiscal year 1989, the Company initiated a qualified retirement
plan under Section 401(k) of the Internal Revenue Code of 1986 that covers
substantially all employees. Eligible employees are permitted to
contribute a portion of gross compensation into the retirement plan and the
Company will match each employee contribution at a specified rate up to a
maximum matching contribution. The contributions for the fiscal years 1997
and 1996 were $13,124 and $18,345, respectively.
<PAGE>
SUNBELT SEEDS, INC.
NOTES TO FINANCIAL STATEMENTS
7. Lease Commitments:
------------------
The Company has various operating leases covering automobiles and office
space. Minimum rental commitments under these noncancelable leases are
approximately as follows:
<TABLE>
<S> <C>
January 31, 1998 $42,765
January 31, 1999 38,726
January 31, 2000 39,202
2000 and beyond 26,304
</TABLE>
Lease expense charged to operations was $36,905 and $40,372 for 1997 and
1996, respectively.
8. Income Taxes:
-------------
The deferred tax assets and liabilities as of January 31, 1997 and 1996
were calculated as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Allowance for bad debts $ 16,000 $ 16,000
===================== =====================
</TABLE>
<PAGE>
AGRIBIOTECH, INC.
Pro Forma Combined Financial Information
(Unaudited)
The following pro forma combined summary of operations combines the results of
operations of AgriBioTech, Inc. ("ABT"), W-L Research, Inc. and Germain's, Inc.
(collectively "WL/Germain's"), E.F. Burlingham & Sons and Subsidiary
("Burlingham"), Olsen Fennell Seeds, Inc. ("Olsen Fennell"), Lofts Seed, Inc.
and Budd Seed, Inc. (collectively "Lofts"), Seed Corporation of America and
Green Seed Company Limited Partnership (collectively "SeedCo"), and Willamette
Seed Co. ("Willamette") as if all acquisitions occurred at the beginning of the
periods presented. The pro forma combined summary of operations reflects known
changes resulting from the acquisitions but does not reflect impacts of any
changes in operations, anticipated efficiencies and synergies from
consolidation.
The pro forma combined summary balance sheet reflects ABT's consolidated balance
sheet as of December 31, 1997 combined with the balance sheets of Lofts, SeedCo,
and Willamette as of December 31, 1997.
The business of these entities is subject to wide seasonal fluctuations and,
therefore, the results of operations for periods less than twelve months may not
be indicative of annual results. The pro forma adjustments are based on
preliminary estimates, available information, and certain assumptions that
management deems appropriate and may be revised as additional information
becomes available. The pro forma combined financial information does not
purport to represent what ABT's financial position or results of operations
would actually have been if such transactions had in fact occurred on those
dates and are not necessarily representative of ABT's financial position or
results of operation for any future period. The pro forma combined financial
information should be read in conjunction with the historical financial
statements of ABT, WL/Germain's, Burlingham, Olsen Fennell, Lofts, SeedCo, and
Willamette included herein or previously filed with the Securities and Exchange
Commission.
<PAGE>
AgriBioTech, Inc.
Pro Forma Combined Summary of Operations
Year ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Olsen
ABT (A) WL/Germain's (A) Burlingham (A) Fennell (A) Lofts (A) SeedCo (A)
----------- ---------------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $65,904,058 2,671,772 31,040,752 28,566,907 74,696,000 39,130,541
Cost of sales 49,527,150 1,816,236 25,439,688 25,214,881 53,802,000 31,108,155
----------- --------- ---------- ---------- ---------- ----------
Gross profit 16,376,908 855,536 5,601,064 3,352,026 20,894,000 8,022,386
Operating expenses 17,971,813 1,014,557 3,383,987 3,444,793 16,291,530 7,813,290
----------- --------- ---------- ---------- ---------- ----------
Income (loss) from operations (1,594,905) (159,021) 2,217,077 (92,767) 4,602,470 209,096
Other income (expense) (1,118,860) 57,045 (7,314) (24,940) (1,514,000) (150,603)
----------- --------- ---------- ---------- ---------- ----------
Net earnings (loss) (2,713,765) (101,976) 2,209,763 (117,707) 3,088,470 58,493
========= ========== ========== ========== ==========
Discount and imputed dividends
on preferred stock 3,233,426
-----------
Net earnings (loss) attributable
to common stock $(5,947,191)
===========
Shares of common stock used in
computing earnings (loss) per
share:
Basic 15,549,184
Diluted 15,549,184
===========
Net earnings (loss) per common
share:
Basic $ (0.38)
Diluted (0.38)
===========
</TABLE>
<TABLE>
<CAPTION>
Pro forma
Willamette (A) Adjustments combined
-------------- ------------ ------------
<S> <C> <C> <C>
Net sales 41,813,972 (11,430,339) (F) 272,393,613
Cost of sales 33,965,669 (11,430,339) (F) 209,030,439
(413,001) (K)
---------- ----------- -----------
Gross profit 7,848,253 413,001 63,363,174
Operating expenses 7,493,665 3,069,758 (C) 57,554,150
(2,895,243) (J)
(34,000) (L)
---------- ----------- -----------
Income (loss) from operations 354,588 272,486 5,809,024
Other income (expense) 13,372 (4,832,423) (D) (7,577,723)
---------- ----------- -----------
Net earnings (loss) 367,960 (4,559,937) (1,768,699)
========== ===========
Discount and imputed dividends
on preferred stock 3,233,426
-----------
Net earnings (loss) attributable
to common stock (5,002,125)
Shares of common stock used in
computing earnings (loss) per
share:
Basic 2,942,593 (E) 18,491,777
Diluted 2,942,593 (E) 18,491,777
=========== ===========
Net earnings (loss) per common
share:
Basic (0.27)
Diluted (0.27)
===========
</TABLE>
See accompanying notes to pro forma combined financial information.
<PAGE>
AGRIBIOTECH, INC.
PRO FORMA COMBINED SUMMARY BALANCE SHEET
DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION> Pro forma
ABT (G) Lofts (G) SeedCo(G) Williamette(G) Adjustments combined
------------ ----------- ------------ ------------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 8,235,871 144,197 9,906 564,248 (8,000,000) (I) 954,222
Accounts receivable 14,241,620 4,931,275 1,885,750 1,679,016 200,000 (I) 22,245,857
691,804) (H)
Inventories 34,167,138 14,991,981 6,186,885 7,636,612 442,844 (I) 63,425,460
Other 774,289 231,119 729,169 290,362 214,507 (I) 2,239,446
------------- ---------- --------- ---------- ---------- -----------
Total current assets 57,418,918 20,298,572 8,811,710 10,170,238 (7,834,453) 88,864,985
Property, plant and
equipment, net 21,713,245 332,749 230,903 4,380,163 13,260,922 (I) 39,907,982
Intangible assets, net of
accumulated amortization 26,018,264 - (2,005,037) 12,500 49,997,961 (I) 74,023,688
Investment in associated
entity, at equity 1,064,616 - - - - 1,064,616
Other 139,498 601,976 59,840 1,411,274 - 2,212,588
------------- ---------- --------- ---------- ---------- -----------
Total Assets $ 106,354,541 21,223,297 7,097,416 15,974,175 55,424,430 206,073,859
============= ========== ========= ========== ========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt - 8,512,490 5,576,653 4,483,753 34,220,983 (I) 53,793,879
Current installments of
long-term obligations 1,565,952 - 393,147 149,888 - 2,108,987
Accounts payable 14,597,325 2,272,273 1,582,252 7,332,250 (691,804) (H) 25,092,296
Accrued liabilities 1,701,685 1,131,414 - 61,567 733,000 (I) 3,627,666
Amount due in connection
with acquisition 1,600,000 - - 1,600,000
------------ ---------- ---------- ---------- ----------- -----------
Total current liabilities 19,464,962 11,916,177 7,552,052 12,027,458 34,262,179 85,222,828
Long-term obligation, excluding
current installments 5,274,206 6,347,248 350,866 1,210,231 2,152,607 (I) 15,335,158
Deferred income taxes 1,018,369 - - - 6,900,500 (I) 4,628,045
(3,290,824)(M)
------------ ---------- --------- ---------- ---------- -----------
Total liabilities 25,757,537 18,263,425 7,902,918 13,237,689 40,024,462 105,186,031
------------ ---------- --------- ---------- ---------- -----------
Stockholders' equity:
Preferred stock 1 - - - - 1
Common stock 28,822 922,506 50,500 495,000 (1,538,036)(I) 30,822
2,000
Capital in excess of par value 93,601,742 - - - - (I) 110,599,742
16,998,000 (I)
Accumulated (deficit) (13,033,561) 1,967,366 (856,002) 2,241,486 (3,352,850)(I) (9,742,737)
3,290,824 (M)
------------ ---------- --------- ---------- ---------- -----------
Total stockholders'
equity 80,597,004 2,959,872 (805,502) 2,736,486 15,399,968 100,887,828
------------ ---------- --------- ---------- ---------- -----------
Total liabilities and
stockholders' equity $106,354,541 21,223,297 7,097,416 15,974,175 55,424,430 206,073,859
============ ========== ========= ========== ========== ===========
</TABLE>
See accompanying notes to pro forma combined financial information.
<PAGE>
AGRIBIOTECH, INC.
PRO FORMA COMBINED SUMMARY OF OPERATIONS
SIX-MONTH PERIOD ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ABT (B) Lofts (B) SeedCo (B) Willamette (B) Adjustments
------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $ 63,814,861 39,022,000 16,401,233 17,662,735 (4,209,846) (F)
Cost of sales 51,586,043 28,063,000 12,693,089 13,980,373 (4,209,846) (F)
26,152 (K)
------------- ----------- ----------- ------------ ----------
Gross profit 12,228,818 10,959,000 3,708,144 3,682,362 (26,152)
Operating expenses 12,678,943 10,152,000 4,048,483 3,278,362 1,327,006 (C)
(1,311,451) (J)
(703,000) (L)
------------- ----------- ----------- ------------ ----------
Income (loss) from operations (450,125) 807,000 (340,339) 404,000 667,292
Other income (expense) (158,355) (845,757) 295,005 - (1,832,753) (D)
------------- ----------- ----------- ------------ ----------
Net earnings (loss) (608,480) (38,757) (45,334) 404,000 (1,165,460)
=========== =========== ============ ==========
Discount and imputed dividends on
preferred stock 53,436
-------------
Net earnings (loss)
attibutable to common stock $ (661,916)
=============
Shares of common stock used in
computing earnings (loss) per share:
Basic 25,905,412 2,000,000 (E)
Diluted 25,905,412 2,000,000 (E)
============= ==========
Net earnings (loss) per common
share:
Basic $ (0.03)
Diluted (0.03)
=============
</TABLE>
<TABLE>
<CAPTION>
Pro forma
combined
-----------
<S> <C>
Net sales 132,690,983
Cost of sales 102,138,811
-----------
Gross profit 30,552,172
Operating expenses 29,631,101
-----------
Income (loss) from operations 921,071
Other income (expense) (2,375,103)
-----------
Net earnings (loss) (1,454,031)
Discount and imputed dividends on
preferred stock 53,436
-----------
Net earnings (loss)
attibutable to common stock (1,507,467)
===========
Shares of common stock used in
computing earnings (loss) per share:
Basic 27,905,412
Diluted 27,905,412
==========
Net earnings (loss) per
common share:
Basic (0.05)
Diluted (0.05)
===========
</TABLE>
See accompanying notes to pro forma combined financial information.
<PAGE>
AGRIBIOTECH, INC.
Notes to Pro Forma Combined Financial Information
(Unaudited)
(A) The year ended June 30, 1997 for ABT includes the operations of WL/Germain's
for the period from September 1, 1996 through June 30, 1997, the operations
of Burlingham for the period from April 1, 1997 through June 30, 1997, and
the operations of Olsen Fennell for the period from June 1, 1997 through
June 30, 1997. The amounts under the WL/Germain's column are for the two-
month period ended August 31, 1996. The amounts under the Burlingham column
are for the nine-month period ended March 31, 1997. The amounts under the
Olsen Fennell column are for the eleven-month period ended May 31, 1997. The
amounts under the Lofts, SeedCo, and Willamette columns are for the twelve-
month period ended June 30, 1997. Income taxes for individual companies are
not presented as they would be offset by consolidated net operating loss
carryforwards.
(B) The six-month period ended December 31, 1997 for ABT includes the operations
of WL/Germain's, Burlingham, and Olsen Fennell for the entire period. The
amounts under the Lofts, SeedCo, and Willamette columns are for the six-
month period ended December 31, 1997. Income taxes for individual companies
are not presented as they would be offset by consolidated net operating loss
carryforwards.
(C) To reflect depreciation of property, plant and equipment and amortization of
intangible assets based on market value adjustments in connection with
applying purchase accounting. Intangible assets resulting from the
application of purchase accounting and amortization periods include goodwill
of $38.7 million (10 to 40 years, with a weighted average live of 34.9
years), germplasm of $8.5 million (20 to 40 years), trademarks and
tradenames of $1.4 million (15 to 40 years), and covenants not to compete of
$1.4 million (7 to 8 years).
(D) To reflect reduction of interest income earned and additional interest
expense for the cash purchase price of the acquisitions. The pro forma
amounts assume that the Company would use $8 million of its cash balance at
December 31, 1997 for payments required to be made in the acquisitions and
the remainder of payments would be obtained through the Company's existing
or similar short-term credit facilities. Interest expense was computed using
an interest rate of 8.5%.
(E) To reflect shares of ABT common stock issued in connection with the
acquisitions as if they had been outstanding for the entire period.
(F) To eliminate intercompany sales.
<PAGE>
(G) The consolidated balance sheet of ABT as of December 31, 1997 includes the
accounts of WL/Germain's, Burlingham, and Olsen Fennell. The amounts under
the Lofts, SeedCo, and Willamette columns reflect their accounts as of
December 31, 1997.
(H) To eliminate intercompany balances.
(I) To reflect the application of purchase accounting to the Lofts, SeedCo, and
Willamette acquisitions. The total purchase price of $58.2 million is
anticipated to be paid through the issuance of approximately 2,000,000
shares of the Company's common stock valued at approximately $17.0 million
and cash of approximately $41.2 million.
(J) Prospective reductions in compensation of former owners of acquired
entities, employee benefits, management fees, and property rent resulting
from employment agreements, property purchased directly from former owners
and other contractual arrangements entered into in connection with
acquisitions.
(K) Impacts of using the first-in, first-out method of accounting for inventory
accounted for using the last-in, first-out method prior to acquisition.
(L) Amounts associated with items not acquired in acquisition. Also includes
acquisition costs expensed by acquired entities that are not applicable to
ongoing operations.
(M) To eliminate ABT's existing valuation allowance recorded against deferred
tax assets as a result of deferred tax liabilities recognized in purchase
accounting directly attributable to the acquisitions. Such amount is
excluded from the pro forma combined summary of operations but is expected
to be recognized by ABT in its results of operations within the next 12
months.
<PAGE>
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.
AgriBioTech, Inc.
(Registrant)
/s/ Henry A. Ingalls
--------------------
Henry A. Ingalls
Date: March 9, 1998
