<PAGE>
UNITED STATES
SECURITIES AND 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): August 28, 1998
----------------
AgriBioTech, Inc.
-----------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Nevada 0-19352 85-0325742
-------- --------- ------------
<S> <C> <C>
(State or Other Jurisdiction (Commission File Number) (IRS Employer Ident. No.)
of Incorporation)
</TABLE>
120 Corporate Park Drive, Henderson, Nevada 89014
---------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(702) 566-2440
-----------------------------
Registrant's telephone number, including area code
<PAGE>
EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A to the Current Report on Form 8-K ("Form
8-K") for August 28, 1998 of AgriBioTech, Inc., a Nevada Corporation ("the
Company") is submitted in order to provide the Financial Statements of Oseco
Inc. and Allied Seed Division of Agway, Inc. 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 and Exchange Act of
1934.
2
<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"), Lofts Seed, Inc. and Budd Seed, Inc.
(collectively "Lofts"), Seed Corporation of America and Green Seed Company
Limited Partnership (collectively "SeedCo"), Oseco Inc. ("Oseco"), Allied Seed
Division of Agway, Inc. ("Allied"), and other individually insignificant
acquisitions since July 1, 1997 (collectively "Other Acquisitions") as if all
acquisitions occurred at the beginning of the period presented. The pro forma
combined summary of operations reflects known changes resulting from the
acquisitions but does not reflect impacts of any changes in operations,
anticipated efficiencies and synergies from consolidation.
The pro forma combined summary balance sheet reflects ABT's consolidated balance
sheet as of June 30, 1998 combined with the balance sheets of Oseco, Allied, and
Other Acquisitions to the extent such acquisitions occurred after June 30, 1998,
as if such acquisitions occurred as of June 30, 1998.
The pro forma combined financial information does not purport to represent what
ABT's financial position or results of operations would actually have been if
such transactions had, in fact, occurred on the above dates and are not
necessarily representative of any future period. The pro forma adjustments are
based on preliminary estimates, available information, and certain assumptions
that management deems appropriate and may be revised as additional information
becomes available. The pro forma combined financial information should be read
in conjunction with the historical financial statements of ABT, Lofts, SeedCo,
Oseco, and Allied included herein or previously filed with the Securities and
Exchange Commission.
3
<PAGE>
AGRIBIOTECH, INC. ("ABT");
Pro Forma Combined Summary of Operations
(Unaudited)
Year ended June 30, 1998
<TABLE>
<CAPTION>
ABT (A) Lofts (A) SeedCo (A) Oseco (A) Allied Seed (A)
------------ ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales $205,117,007 $39,022,000 $16,401,233 $10,898,808 $22,424,452
Cost of sales 157,796,888 28,315,773 12,693,089 7,303,517 19,244,757
------------ ----------- ----------- ----------- -----------
Gross profit 47,320,119 10,706,227 3,708,144 3,595,291 3,179,695
Operating expenses 47,579,105 10,318,757 4,048,483 2,845,695 1,740,747
------------ ----------- ----------- ----------- -----------
Income (loss) from operations (258,986) 387,470 (340,339) 749,596 1,438,948
Other income (expense) (2,261,273) (679,000) 295,005 - (297,360)
------------ ----------- ----------- ----------- -----------
Earnings (loss) before income taxes (2,520,259) (291,530) (45,334) 749,596 1,141,588
Income tax expense (benefit) (2,907,500) - - 407,468 455,330
------------ ----------- ----------- ----------- -----------
Net earnings (loss) 387,241 (291,530) (45,334) 342,128 686,258
Discount and imputed dividends on
preferred stock 84,100 - - - -
------------ ----------- ----------- ----------- -----------
Net earnings (loss) attributable to
common stock $ 303,141 $ (291,530) $ (45,334) $ 342,128 $ 686,258
============ =========== =========== =========== ===========
Shares of common stock used in
computing loss per share:
Basic 30,077,693
Diluted 32,061,546
============
Net earnings (loss) per common share:
Basic $ 0.01
Diluted 0.01
============
<CAPTION>
Other Pro Forma
Acquisitions (A) Adjustments combined
--------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 152,243,298 $ (16,984,670) (E) $ 409,470,680
(19,651,448) (N)
Cost of sales 123,303,749 (16,984,670) (E) 316,383,792
27,152 (G)
150,000 (E)
(15,466,463) (N)
-------------- ------------- -------------
Gross profit 28,939,549 (4,362,137) 93,086,888
Operating expenses 29,009,494 5,456,725 (B) 92,294,535
(3,867,216) (F)
(709,000) (H)
(4,128,255) (N)
-------------- ------------- -------------
Income (loss) from operations (69,945) (1,114,391) 792,353
Other income (expense) 296,976 (2,383,571) (C) (5,104,677)
(75,454) (N)
-------------- ------------- -------------
Earnings (loss) before income taxes 227,031 (3,573,416) (4,312,324)
Income tax expense (benefit) 71,209 (934,007) (I) (2,907,500)
-------------- ------------- -------------
Net earnings (loss) 155,822 (2,639,409) (1,404,824)
Discount and imputed dividends on
preferred stock - - 84,100
-------------- ------------- -------------
Net earnings (loss) attributable to
common stock $ 155,822 $ (2,639,409) $ (1,488,924)
============== ============= =============
Shares of common stock used in
computing loss per share:
Basic 7,708,364 (D) 37,786,057
Diluted 7,708,364 (D) 37,786,057
(1,983,853)(D)
============= =============
Net earnings (loss) per common share:
Basic $ (0.04)
Diluted (0.04)
=============
</TABLE>
See accompanying notes to pro forma combined financial information.
4
<PAGE>
AGRIBIOTECH, INC. ("ABT");
Pro Forma Combined Balance Sheet
(Unaudited)
June 30, 1998
<TABLE>
<CAPTION>
ABT (J) Oseco (J) Allied Seed (J)
------------- ----------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,700,846 $ 788,947 $ 59,994
Accounts receivable 39,503,262 1,215,618 1,039,625
Deferred income taxes 1,339,709 52,006
Inventories 58,609,554 1,840,437 2,337,692
Other 1,673,903 53,893 38,256
------------- ----------- ----------
Total current assets 103,827,274 3,898,895 3,527,573
Property, plant and equipment, net 47,964,522 1,102,273 780,185
Intangible assets, net of accumulated amortization 109,882,815
Investment in associated entity, at equity 818,182
Other 2,038,115 1,159
------------- ----------- ----------
Total assets $ 264,530,908 $ 5,002,327 $4,307,758
============= =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 50,329,614
Current installments of long-term obligations 3,251,846
Accounts payable 13,594,285 821,144 3,204,867
Accrued liabilities 11,251,757 167,036 416,633
------------- ----------- ----------
Total current liabilities 78,427,502 988,180 3,621,500
Long-term obligations, excluding current installments 11,029,022 3,010,000
Deferred income taxes 503,348 14,000 -
------------- ----------- ----------
Total liabilities 89,959,872 4,012,180 3,621,500
------------- ----------- ----------
Stockholders' equity:
Preferred stock
Common stock 37,203 70 686,258
Capital in excess of par value 186,571,673
Accumulated (deficit) (12,037,840) 990,077
------------- ----------- ----------
Total stockholders' equity 174,571,036 990,147 686,258
------------- ----------- ----------
Total liabilities and stockholders' equity $ 264,530,908 $ 5,002,327 $4,307,758
============= =========== ==========
<CAPTION>
Other Pro Forma
Acquisitions (J) Adjustments Combined
---------------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ (285,788) $ (59,994) (L) $ 3,204,005
Accounts receivable 15,117,603 (1,564,621) (L) 54,463,755
(847,732) (K)
Deferred income taxes 394,158 - 1,785,873
Inventories 13,454,435 (195,454) (L) 76,046,664
-
Other 480,505 (265,042) (L) 1,981,515
----------- ----------- -------------
Total current assets 29,160,913 (2,932,843) 137,481,812
Property, plant and equipment, net 6,586,150 8,863,538 (L) 65,296,668
Intangible assets, net of accumulated amortization 18,318 38,910,300 (L) 148,811,433
Investment in associated entity, at equity - - 818,182
Other 2,827,393 (1,098,014) (L) 3,768,653
----------- ----------- -------------
Total assets $38,592,774 $43,742,981 $ 356,176,748
=========== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $12,421,744 $50,083,893 (L) $ 95,396,602
(17,438,649) (M)
Current installments of long-term obligations 517,679 - 3,769,525
Accounts payable 10,356,381 (2,570,494) (L) 24,558,451
- (847,732) (K)
Accrued liabilities 898,690 1,910,050 (L) 14,644,166
----------- ----------- -------------
Total current liabilities 24,194,494 31,137,068 138,368,744
Long-term obligations, excluding current installments 5,672,842 (3,195,000) (L) 16,516,864
Deferred income taxes 6,543 3,269,991 (L) 3,793,882
----------- ----------- -------------
Total liabilities 29,873,879 31,212,059 158,679,490
----------- ----------- -------------
Stockholders' equity:
Preferred stock - - -
Common stock 1,755,072 (2,441,059) (L) 39,297
- 1,753 (M)
Capital in excess of par value - 5,487,232 (L) 209,495,801
- 17,436,896 (M)
Accumulated (deficit) 6,963,823 (7,953,900) (L) (12,037,840)
----------- ----------- ------------
Total stockholders' equity 8,718,895 12,530,922 197,497,258
----------- ----------- ------------
Total liabilities and stockholders' equity $38,592,774 $43,742,981 $356,176,748
=========== =========== ============
</TABLE>
See accompanying notes to pro forma combined financial information.
5
<PAGE>
AGRIBIOTECH, INC.
Notes to Pro Forma Combined Financial Information
(Unaudited)
(A) The year ended June 30, 1998 for ABT includes the operations of Lofts and
SeedCo for the period from January 1, 1998 through June 30, 1998, and the
operations of Other Acquisitions for the period from their respective
acquisition dates through June 30, 1998. The amounts under the Lofts and
SeedCo columns are for the six-month period ended December 31, 1997. The
amount in the Oseco and Allied columns are for the twelve-month period
ended June 30, 1998. The amounts in the Other Acquisitions column include
such acquisitions for periods not included in the ABT column. The amounts
for Lofts include its affiliates with intercompany transactions having been
eliminated.
(B) To reflect depreciation of property, plant and equipment and amortization
of intangible assets based on market value adjustments in connection with
applying purchase accounting. Intangible assets resulting from the
application of purchase accounting include goodwill of (amortized over 10
to 40 years, with a weighted average of 27 years) and covenants not to
compete (amortized over 6 to 8 years).
(C) To adjust interest expense for the cash purchase price of the acquisitions.
The pro forma amounts assume that payments required to be made in the
acquisitions would be obtained through approximately $83.2 million of
proceeds from the sale of the Company's common stock in private placement
transactions from December 1997 through August 1998 and the balance of
$30.2 million from the Company's existing or similar short-term credit
facilities. Interest expense was computed using an interest rate of 8.5%.
(D) To reflect the impact on average shares outstanding of shares of ABT common
stock issued in connection with the acquisitions (2,448,961) and private
placements (5,259,403) of the Company's common stock as if they had been
outstanding for the entire period. The dilutive impacts of options and
warrants included in ABT's historical operations has been eliminated since
there is a loss on a pro forma basis.
(E) To eliminate intercompany sales and other revenue.
(F) Prospective reductions in compensation of former owners of acquired
entities, employee benefits, management fees, and property rent resulting
from employment agreements, property purchased directly from former owners
and other contractual arrangements entered into in connection with
acquisitions.
(G) Impact of using the first-in, first-out method of accounting for inventory
accounted for using the last-in, first-out method prior to acquisition.
(H) Acquisition costs expensed by acquired entities that are not applicable to
ongoing operations.
(I) Reflects adjustment to income taxes on pro forma combined loss before
income taxes adjusted for nondeductible goodwill amortization.
(J) The consolidated balance sheet of ABT as of June 30, 1998 includes the
accounts of Lofts and SeedCo. The amounts under the Oseco and Allied
columns reflect their accounts as of June 30, 1998.
6
<PAGE>
The amounts in the Other Acquisitions column include such acquisitions to
the extent not included in the ABT column.
(K) To eliminate intercompany balances.
(L) To reflect the application of purchase accounting (including elimination of
assets and liabilities of acquired businesses not subject to purchase
agreements) to the Oseco and Allied acquisitions and, to the extent
effective after June 30, 1998, the Other Acquisitions. The total purchase
price of $52.2 million was to be paid through the issuance of approximately
340,505 shares of the Company's common stock valued at approximately $5.5
million and cash of approximately $46.7 million.
(M) To reflect the sale of 1,752,820 shares of common stock and warrants to
purchase 886,410 shares of common stock and the application of the proceeds
therefrom used to fund acquisitions aggregating $17,438,649.
(N) To eliminate the operations of the fertilizer division of Willamette Seed
Company that when purchased on August 21, 1998 was intended to be sold. In
November 1998, the Company entered into a letter of intent to sell the
fertilizer division that is anticipated to be consummated in December 1998.
7
<PAGE>
AUDITORS' REPORT
To the Directors of Oseco Inc.
We have audited the consolidated balance sheet of Oseco Inc. as at June 30, 1998
and the consolidated statements of income and retained earnings and changes in
cash resources for the 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1998 and
the results of its operations and the changes in its cash resources for the year
then ended in accordance with generally accepted accounting principles in Canada
which, except as described in note 10 to the consolidated financial statements,
also conform in all material respects with generally accepted accounting
principles in the United States.
KPMG LLP
Chartered Accountants
Mississauga, Canada
September 4, 1998
8
<PAGE>
OSECO INC.
Consolidated Balance Sheet
(Expressed in Canadian dollars)
June 30, 1998
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Current assets:
Cash $ 427,068
Short-term investments 700,000
Accounts receivable (net of allowance for
doubtful accounts of $33,730) 1,736,597
Inventories 2,629,196
Prepaid expenses and deposits 76,990
- -----------------------------------------------------------------------------
5,569,851
Investment in affiliated company (note 3) 1,655
Fixed assets (note 4) 1,574,676
- -----------------------------------------------------------------------------
$7,146,182
=============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $1,173,063
Income taxes payable 238,623
Deferred taxes 20,000
- -----------------------------------------------------------------------------
1,431,686
Redeemable, retractable Class A shares (note 8) 4,300,000
Shareholders' equity:
Capital stock:
Authorized:
Unlimited Class A shares
40,000 common shares
Issued:
4,300 Class A shares (note 8) -
100 common shares 100
Retained earnings 1,414,396
- -----------------------------------------------------------------------------
1,414,496
Commitments (note 7)
Subsequent event (note 13)
- -----------------------------------------------------------------------------
$7,146,182
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
OSECO INC.
Consolidated Statement of Income and Retained Earnings
(Expressed in Canadian dollars)
Year ended June 30, 1998
- -----------------------------------------------------------------------------
<TABLE>
<S> <C>
Sales $15,569,725
Cost of sales 10,433,596
- -----------------------------------------------------------------------------
Gross profit 5,136,129
Expenses:
Production 1,225,036
Selling 784,555
Research 82,045
General and administrative 1,434,981
Western division 233,075
Depreciation 305,586
- -----------------------------------------------------------------------------
4,065,278
=============================================================================
Income before income taxes 1,070,851
Income taxes (note 6):
Current 562,097
Deferred 20,000
- -----------------------------------------------------------------------------
582,097
- -----------------------------------------------------------------------------
Net income (note 10) 488,754
Retained earnings, beginning of year 925,642
- -----------------------------------------------------------------------------
Retained earnings, end of year $ 1,414,396
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
OSECO INC.
Consolidated Statement of Changes in Cash Resources
(Expressed in Canadian dollars)
Year ended June 30, 1998
- ---------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash provided by (used in):
Operating activities:
Net income $ 488,754
Items not involving cash:
Depreciation 305,586
Other (8,284)
Deferred income taxes 20,000
Gain on disposal of fixed assets (5,580)
- --------------------------------------------------------------------------
800,476
Change in non-cash operating working capital
(note 12) 2,512,059
- --------------------------------------------------------------------------
3,312,535
Financing activities:
Decrease in loan payable to affiliated company (758)
Investing activities:
Purchase of short-term investments (700,000)
Purchase of fixed assets (222,907)
Proceeds on sale of fixed assets 23,327
Proceeds from mortgage receivable 161,500
- --------------------------------------------------------------------------
(738,080)
- --------------------------------------------------------------------------
Increase in cash position 2,573,697
Cash position, beginning of year (2,146,629)
- --------------------------------------------------------------------------
Cash position, end of year $ 427,068
==========================================================================
</TABLE>
Cash position is defined as cash less bank indebtedness.
See accompanying notes to consolidated financial statements.
11
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Year ended June 30, 1998
- --------------------------------------------------------------------------
Oseco Inc. (the "Company") is incorporated under the Ontario Business
Corporations Act and its principal business activities, and those of its
subsidiary, are the processing, coating and sale of seeds.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Precision Seed Coaters Inc.
Significant intercompany balances and transactions have been eliminated.
(b) Investment:
The investment in the affiliated company is recorded on the equity
basis. Under this method, the Company's share of the net earnings or
loss of the affiliate, for the year, is reflected in the statement of
operations. The investment is carried at cost and include the Company's
share of undistributed earnings since acquisition.
The affiliated company included in the financial statements is as
follows:
---------------------------------------------------------------------
Percentage
ownership Year end
---------------------------------------------------------------------
Seed Coaters (Pty.) Limited 49.95 February 28, 1998
(c) Inventories:
Inventories are stated at the lower of average cost basis or replacement
cost.
12
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Fixed assets:
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is being provided by the diminishing balance method at the
following annual rates:
------------------------------------------------------------------------
Buildings 10%
Computer hardware and software 30%
Signs 35%
Office and production equipment 20%
Automotive equipment 30%
------------------------------------------------------------------------
Leasehold improvements are being amortized over the term of the lease
plus one renewal option.
(e) Foreign currency translation:
Assets and liabilities of the self-sustaining operation in the United
States are translated to Canadian dollars at the rates in effect at the
balance sheet date. Income and expenses are translated at average rates
of exchange for the year.
(f) Use of estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
year in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(g) Financial instruments:
The fair values of short-term investments, accounts receivable and
accounts payable and accrued liabilities approximate their book values
due to the relatively short-term nature of these instruments.
13
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The short-term investments earn interest at a weighted average
interest rate of 4.65% and mature as follows:
-------------------------------------------------------------------------
May 31, 1999 $200,000
June 5, 1999 500,000
-------------------------------------------------------------------------
(h) Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
2. BANK INDEBTEDNESS:
The Company has a bank credit facility totalling $4,500,000 which may be
drawn on by demand at the bank's prime rate. Bank indebtedness is secured by
a general security agreement and a general assignment of book debts. As at
June 30, 1998, no amounts were outstanding.
14
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- -------------------------------------------------------------------------------
3. INVESTMENT IN AFFILIATED COMPANY:
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Share of
undistributed
Investment loss since
at cost acquisition Total
----------------------------------------------------------------------------
<S> <C> <C> <C>
Seed Coaters (Pty.) Limited $6,133 $4,478 $1,655
----------------------------------------------------------------------------
</TABLE>
In fiscal 1998, Seed Coaters (Pty.) Limited sold its assets and realized net
proceeds of approximately $14,700. A distribution of these proceeds less any
related costs has not as yet been made to its shareholders.
4. FIXED ASSETS:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
----------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 78,450 $ - $ 78,450
Building 939,213 282,845 656,368
Office equipment 560,080 393,507 166,573
Production equipment 2,059,394 1,538,999 520,395
Automotive equipment 270,736 132,422 138,314
Leasehold improvements 163,581 156,570 7,011
Railway siding 13,730 6,823 6,907
Signs 17,675 17,017 658
----------------------------------------------------------------------------
$4,102,859 $2,528,183 $1,574,676
----------------------------------------------------------------------------
</TABLE>
5. MORTGAGE RECEIVABLE:
In 1997, the Company held a mortgage in the amount of $161,500, bearing
interest at 8%. The property was sold in 1998 and the mortgage and accrued
interest was fully paid.
15
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- --------------------------------------------------------------------------------
6. INCOME TAXES:
The income tax provision for the year ended June 30, 1998 is comprised of the
following:
<TABLE>
<S> <C>
Current $577,215
Benefit of loss carryforwards of subsidiary company (15,118)
Deferred 20,000
- ----------------------------------------------------------------------------------------
$582,097
- ----------------------------------------------------------------------------------------
</TABLE>
The effective rates of income taxes provided in the consolidated statement of
income vary from the combined Canadian federal and provincial statutory
income tax rates as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Percentage of
pre-tax income
- ----------------------------------------------------------------------------------------
<S> <C>
Income tax computed at statutory income tax rate 42.0%
Rate reduction for small business (3.0)
Manufacturing and processing tax credits (3.1)
Adjustment for prior years' estimations 14.5
Other 4.0
- ----------------------------------------------------------------------------------------
54.4%
- ----------------------------------------------------------------------------------------
</TABLE>
The Company's subsidiary has operating loss carryforwards of U.S. $166,000 as
of June 30, 1998 expiring in the year 2009, the tax benefits of which will be
recognized when realized.
7. COMMITMENTS:
(a) During fiscal 1998, the Company rented its premises in Brampton from an
affiliated company, Ontario Seed Cleaners and Dealers Limited. The lease
calls for an annual rental cost to be negotiated each year, plus property
taxes. As a result of the transaction described in note 13, these
companies are no longer affiliated.
For fiscal 1998, the Company paid rent in the amount of $105,269. The
rent for fiscal 1999 is to increase to $182,939.
16
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- ------------------------------------------------------------------------------
7. COMMITMENTS (CONTINUED):
(b) The Company rents its premises in St. Paul, Alberta from St. Paul
Municipal Seed Cleaning Association Ltd. The lease calls for an annual
rental of $13,000 from July 1, 1996 to June 30, 1999.
8. REDEEMABLE, RETRACTABLE CLASS A SHARES:
During fiscal 1997 the Company completed a share reorganization whereby the
Company created a new class of shares, being an unlimited number of
redeemable, retractable Class A voting shares, redeemable at $1,000 per
share and bearing a non-cumulative dividend of 5% if and when declared.
The shareholders of the Company exchanged their common shares for 4,300
Class A shares and were issued 100 new common shares for cash of $100.
In accordance with CICA Handbook Section 3860, the Class A shares are
classified outside shareholders' equity at their retraction value and the
difference between the retraction value assigned to the Class A shares and
the paid-up capital was reflected as a charge to retained earnings.
The Class A shares are entitled to receive dividends, as and when declared
in priority to the common shares.
In the event of liquidation or wind-up, the Class A shares shall receive an
amount equal to the redemption value together with any declared but unpaid
dividends. The Class A shares and the common shares have equal rights in
voting matters of the Company.
9. EARNINGS PER SHARE:
Earnings per share has not been presented as it would not provide any
meaningful information as all outstanding shares were held by two
individuals.
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
These financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which, in all material
respects, are in accordance with United States GAAP except as noted below.
17
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
Consolidated statement of income and retained earnings, year ended June 30,
1998:
If United States GAAP were employed, net income would be adjusted as follows:
-------------------------------------------------------------------------
<TABLE>
<S> <C>
Net income based on Canadian GAAP $488,754
Recognition of loss carryforwards of
subsidiary company (a) (15,118)
-------------------------------------------------------------------------
Net income based on United States GAAP $473,636
-------------------------------------------------------------------------
</TABLE>
(a) The Company follows the deferral method of accounting for income taxes
under Canadian GAAP, whereas United States GAAP requires the use of the
liability method. In 1994 and 1993 the Company's United States
subsidiary incurred losses of U.S. $394,000, the tax benefit of which is
not recognized under Canadian GAAP until realized because the subsidiary
did not have virtual certainty that it would realize such benefits.
Under United States GAAP, the recovery of deferred tax assets is assessed
using a "more likely than not" criterion as opposed to the virtual
certainty criterion which management considered was met in 1997.
As described in note 6, $15,000 of previously unrecognized loss
carryforwards were recognized under Canadian GAAP.
If United States GAAP were employed, shareholders' equity would be adjusted
as follows:
<TABLE>
-------------------------------------------------------------------------
<S> <C>
Shareholders' equity based on Canadian GAAP $1,414,496
Recognition of loss carryforwards of subsidiary
company 60,600
-------------------------------------------------------------------------
Shareholders' equity based on United States GAAP $1,475,096
=========================================================================
</TABLE>
18
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1998
- ----------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
Consolidated statement of changes in cash resources:
Under United States GAAP, bank indebtedness would not be included as a
component of cash position in the consolidated statement of changes in cash
resources. Accordingly, the $2,146,629 decrease in bank indebtedness would
be presented as a financing activity for the year and cash used in financing
activities would amount to $2,147,387.
11. SIGNIFICANT CUSTOMERS:
In fiscal 1998, no customer accounted for more than 10% of the Company's
sales. At June 30, 1998, four customers accounted for $511,100 of the
accounts receivable balance.
12. CHANGE IN NON-CASH WORKING CAPITAL:
The change in non-cash working capital comprise the following:
<TABLE>
-------------------------------------------------------------------------------------
<S> <C>
Accounts receivable $1,191,079
Inventories 643,595
Prepaid expenses 33,354
Income taxes 510,541
Accounts payable 138,909
Deferred revenues (5,419)
-------------------------------------------------------------------------------------
$2,512,059
=====================================================================================
</TABLE>
13. SUBSEQUENT EVENT:
On September 2, 1998, 100% of the outstanding shares of the Company were
sold to a public company based in the United States.
19
<PAGE>
ALLIED SEED COMPANY, INC.
(A Division of Agway, Inc.)
Financial Statements
June 30, 1998 and 1997
(With Independent Auditors' Report Thereon)
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AgriBioTech, Inc.:
We have audited the accompanying balance sheets of Allied Seed Company (A
Division of Agway, Inc.) as of June 30, 1998 and 1997, and the related
statements of income and division equity, and cash flows for the years then
ended. These financial statements are the responsibility of Allied Seed
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 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 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 Allied Seed Company (A
Division of Agway, Inc.) as of June 30, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
October 28, 1998
21
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Balance Sheets
June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash $ 59,994 3,567
Trade accounts receivable, net 1,039,625 893,517
Inventories 2,337,692 2,988,192
Prepaid expenses and other current assets 38,256 113,272
---------- ----------
Total current assets 3,475,567 3,998,548
Property, plant and equipment (note 2) 780,185 734,166
Deferred income taxes 52,006 46,119
---------- ----------
Total assets $ 4,307,758 4,778,833
========== ==========
Liabilities and Division Equity
Current liabilities:
Accounts payable $ 516,166 494,135
Accrued expenses and other liabilities 416,633 275,916
Agway, Inc. intercompany payable 2,688,701 3,615,271
---------- ----------
Total current liabilities 3,621,500 4,385,322
Division equity (note 4) 686,258 393,511
---------- ----------
Total liabilities and division equity $ 4,307,758 4,778,833
========== ==========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Statements of Income and Division Equity
For the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Net sales $ 22,424,452 16,318,772
Cost of sales 19,244,757 13,715,086
------------ -----------
Gross profit 3,179,695 2,603,686
Operating expenses 1,740,747 1,564,029
------------ -----------
Income from operations 1,438,948 1,039,657
Other income (expense):
Interest expense (note 4) (307,060) (385,294)
Gain on sale of equipment 9,700 5,500
------------ -----------
Total other income (expense) (297,360) (379,794)
------------ -----------
Income before income taxes 1,141,588 659,863
Income taxes (note 5) 455,330 266,352
------------ -----------
Net income 686,258 393,511
Division equity at beginning of year 393,511 609,345
Distribution to Agway, Inc. (393,511) (609,345)
------------ -----------
Division equity at end of year $ 686,258 393,511
============ ===========
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Statements of Cash Flows
For the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 686,258 393,511
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 118,168 126,593
Gain on sale of equipment (9,700) (5,500)
Deferred tax expense (benefit) (5,887) 2,181
Changes in assets and liabilities:
Trade accounts receivable (146,108) (137,619)
Inventories 650,500 (553,287)
Prepaid expenses and other current assets 75,016 26,501
Accounts payable 22,031 432,344
Agway, Inc., intercompany payable (926,570) 138,879
Accrued expenses and other liabilities 140,717 98,091
---------- ---------
Total adjustments (81,833) 128,183
---------- ---------
Net cash provided by operating activities 604,425 521,694
---------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment (164,187) (111,743)
Proceeds from sale of equipment 9,700 5,500
---------- ---------
Net cash used in investing activities (154,487) (106,243)
---------- ---------
Cash flows from financing activities - distribution paid to
Agway, Inc. (393,511) (609,345)
---------- ---------
Net cash used in financing activities (393,511) (609,345)
Net change in cash 56,427 (193,894)
Cash at beginning of year 3,567 197,461
---------- ---------
Cash at end of year $ 59,994 3,567
========== =========
Supplemental information - interest paid on Agway, Inc.
intercompany payable $ 307,060 385,294
========== =========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Notes to Financial Statements
June 30, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS
Allied Seed Company (the "Division") was an operating division of
Agway, Inc. until August 28, 1998 (note 7). The Division is primarily
engaged in the production and distribution of farm seed, including
alfalfa, forages and turf grasses. The Division's operations also
include the production and conditioning of breeder and foundation
seed. The Division, through the Agway, Inc. organization has product
sales throughout the United States and Canada.
The Division had sales to related parties of approximately 18
percent of net sales, respectively, in fiscal 1998 and 1997. The
Division had foreign sales of $2,002,514 and $687,904, respectively,
in fiscal 1998 and 1997.
(b) INVENTORIES
Inventories, primarily consisting of seed and related products, are
stated at the lower of cost (first-in, first-out) or market.
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation on
plant and equipment is provided over the estimated useful lives of the
respective assets ranging between 3-50 years using the straight-line
method.
(d) REVENUE RECOGNITION
The Division recognizes revenue on sales of its product when the
product is shipped from the warehouse, reduced by a reserve for
estimated returns. Additionally, the Division consigns out inventory
to certain distributors with sales to these distributors and related
gross profits recorded when products are resold by the distributors.
(e) INCOME TAXES
The calculation and presentation of income taxes in the accompanying
financial statements is prepared as if the Division was a stand-alone
entity and in accordance with Financial Accounting Standards No. 109,
Accounting for Income Taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Current income
tax liabilities calculated by the Division as a result of a stand-
alone entity approach are reflected on the accompanying balance sheets
in the Agway, Inc. intercompany payable.
(Continued)
25
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Notes to Financial Statements
June 30, 1998 and 1997
(f) USE OF ESTIMATES
The preparation of the 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.
(2) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
JUNE 30
1998 1997
----------- -----------
<S> <C> <C>
Land and land improvements $ 59,299 59,299
Building 406,218 406,218
Equipment 1,605,553 1,473,558
----------- -----------
2,071,070 1,939,075
Accumulated depreciation (1,290,885) (1,204,909)
$ 780,185 734,166
=========== ===========
</TABLE>
(3) LEASE COMMITMENTS
The Division has noncancelable operating leases for office/warehouse
facilities and vehicles which expire at various times during the next two
years. Lease and rental expense for these operating leases were $26,001 and
$26,941, respectively, in fiscal 1998 and 1997. Future minimum lease
payments under noncancelable operating leases (with initial or remaining
lease terms in excess of one year) are $18,930 and $6,930, respectively, in
fiscal 1999 and 2000.
(Continued)
26
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Notes to Financial Statements
June 30, 1998 and 1997
(4) DIVISION EQUITY AND INTERCOMPANY PAYABLE
On July 1 of each year, the Division distributes the entire division equity
balance to Agway, Inc.
The Agway, Inc. intercompany payable represents the movement of cash and
operating expense activity between the Division and Agway, Inc. Such
payable, classified as a current liability, and division equity bear
interest at an effective rate of 7.1 percent per annum.
(5) INCOME TAXES
The Division's operations have been included in the consolidated tax
returns of Agway, Inc. Income tax expense (benefit), computed as if the
Division was a stand-alone entity, consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year ended June 30, 1998:
Federal $ 373,366 (4,766) 368,600
State 87,851 (1,121) 86,730
---------- ---------- ----------
$ 461,217 (5,887) 455,330
========= ========== ==========
Year ended June 30, 1997:
Federal $ 213,853 1,766 215,619
State 50,318 415 50,733
---------- ---------- ----------
$ 264,171 2,181 266,352
========= ========== ==========
</TABLE>
(Continued)
27
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Notes to Financial Statements
June 30, 1998 and 1997
Income tax expense differed from amounts computed by applying the Federal
income tax rate of 34 percent as a result of the following:
<TABLE>
<CAPTION>
JUNE 30
1998 1997
--------- ---------
<S> <C> <C>
Expected federal tax expense $ 388,140 224,353
Increase in income tax expense resulting from:
State income taxes, net of federal
income tax benefits 57,241 33,484
Nondeductible expenses 9,949 8,515
--------- ---------
Actual total income tax expense $ 455,330 266,352
========= =========
</TABLE>
The net tax effect of temporary differences give rise to deferred tax
assets ($52,006 at June 30, 1998 and $46,119 at June 30, 1997), which
require no valuation allowance at June 30, 1998 and 1997.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, trade accounts receivables, accounts payable
and accrued expenses approximate fair value due to the short maturity
periods of these instruments.
The fair value of the Agway, Inc. intercompany payable could not be
obtained without incurring excessive costs due to the related party nature
of such instrument.
(Continued)
28
<PAGE>
ALLIED SEED COMPANY
(A Division of Agway, Inc.)
Notes to Financial Statements
June 30, 1998 and 1997
(7) SUBSEQUENT EVENT
Effective August 28, 1998, Agway, Inc. entered into an agreement with
AgriBioTech, Inc. ("ABT") to sell substantially all the operating assets
and liabilities of the Division, except cash, trade accounts receivable,
and Agway, Inc. intercompany payable, to ABT. The sales price, paid in
cash, was approximately $14 million.
29
<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)
Date: October 10, 1998 /s/ Henry A. Ingalls
---------------------
Henry A. Ingalls,
Vice President
30
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AgriBioTech, Inc.:
We consent to incorporation by reference in the registration statements
Nos. 333-33367, 333-13953, 333-47637, 333-61127 and 333-66145 on Form S-3, No.
333-61097 on Form S-4 and Nos. 333-07123, 333-9336 and 333-9330 on Form S-8 of
AgriBioTech, Inc. of our report dated October 28, 1998, with respect to the
balance sheets of Allied Seed Company, Inc. (a Division of Agway, Inc.) as of
June 30, 1998 and 1997 and the related statements of income and division equity
and cash flows for each of the years in the two-year period ended June 30, 1998,
which report appears in the Form 8-K of AgriBioTech, Inc. dated August 28, 1998.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
November 10, 1998
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
AgriBioTech, Inc.:
We consent to incorporation by reference in the registration statements Nos.
333-33367, 333-13953, 333-47637, 333-61127 and 333-66145 on Form S-3, No. 333-
61097 on Form S-4 and Nos. 333-07123, 333-9336 and 333-9330 on Form S-8 of
AgriBioTech, Inc. of our report dated September 4, 1998, with respect to the
consolidated balance sheet of Oseco Inc. as of June 30, 1998 and the related
consolidated statements of income and retained earnings and changes in cash
resources for the year then ended, which report appears in the Form 8-K of
AgriBioTech, Inc. dated August 28, 1998.
KPMG LLP
Chartered Accountants
Mississauga, Canada
November 10, 1998
