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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K
[X] Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act 1934
For the fiscal year ended June 30, 1998
[_] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the Transition Period from
______________ to ______________.
Commission file number 0-19352
AGRIBIOTECH, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 85-0325742
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
120 Corporate Park Drive, Henderson, NV 89014
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 566-2440
- --------------------------------------------------- --------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, par value $.001 per share.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X,
-
No__
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained herein, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant, as of September 23, 1998, was $438,494,342
(assuming solely for purposes of this calculation that all directors and
officers, but not greater than 5% stockholders of the Registrant are
"affiliates"), based on a closing sale price of $12 7/8 per share.
The number of shares outstanding of the Registrant's Common Stock, par
value $.001 per share, as of September 23, 1998, was 39,180,788.
Documents Incorporated by Reference: Not Applicable.
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PART I
ITEM 1. BUSINESS
GENERAL
AgriBioTech, Inc. ("ABT" or the "Company"), a Nevada corporation, was
formed under the laws of the State of Colorado on December 31, 1987, under the
name Sussex Ventures, Ltd. ("Sussex"). The Company was an inactive development
stage company until September 30, 1993 when it acquired all of the outstanding
stock of AgriBioTech, Inc., a Nevada corporation ("AgriBioTech"). AgriBioTech
was treated as the acquiring corporation in the transaction, which was accounted
for as a reverse purchase. In June 1994, the Company merged with and into
AgriBioTech, then a wholly-owned subsidiary of the Company, and changed its name
to AgriBioTech, Inc.
The Company's principal executive offices are located at 120 Corporate Park
Dr., Henderson, Nevada 89014, and its telephone number is (702) 566-2440.
The statements discussed in this Report include forward looking statements
that involve a number of risks and uncertainties. These include the Company's
historical lack of profitability, need to manage its growth, intense competition
in the seed industry, seasonality of quarterly results, volatility of Common
Stock prices and other risks detailed from time to time in the Company's filings
with the Securities and Exchange Commission.
OVERVIEW
The Company is a consolidator of and the largest participant in the
fragmented $1.3 billion forage and cool-season turfgrass sector of the seed
industry. Since January 1, 1995, the Company has completed 33 acquisitions (the
"Acquisitions"). The Company has grown from net sales of approximately $29,000
in calendar 1994 to pro forma net sales for the year ended June 30, 1998 of
approximately $429 million, including the Acquisitions. ABT's vertically
integrated forage and cool-season turfgrass seed operations include traditional
genetic breeding research and development programs, seed processing plants that
clean, condition and package seed grown under contract for ABT, and national and
international sales and distribution networks.
Since early 1995, ABT has implemented a business strategy designed to (i)
lead the consolidation of the forage and cool-season turfgrass seed sector, (ii)
vertically integrate ABT's operations and (iii) shift the focus of the acquired
companies from public, non-proprietary seed varieties toward proprietary
varieties with a long-term objective of developing biotechnologically enhanced
varieties.
Management believes, based on its knowledge of the industry, that the
Company has an industry-leading research and development program. For example,
the Company's alfalfa varieties have won the "Super Bowl" of forage production
three years in a row at the World Dairy Expo. In addition, the Company's
varieties have consistently ranked among the leaders in evaluation
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plots as evaluated by various universities. The Company's cool-season turfgrass
varieties are currently at or near the top of the National Turf Evaluation Plot
("NTEP") trials in the important cool-season turfgrass species of perennial
ryegrass and fine fescues. In addition, a number of the Company's varieties are
ranked in the top ten for each species.
The Company believes that the successful execution of its business strategy
will enable it to become the partner-of-choice for owners of value-added genetic
traits in order to accelerate the introduction of biotechnologically enhanced
seeds in the forage and cool-season turfgrass sector of the seed industry.
Leading companies in other seed sectors including corn, soybeans, and cotton
have become significant biotechnology partners with owners of value-added genes
for their respective crops. In March 1998, the Company announced that it signed
a biotechnology research and development agreement with the Samuel Roberts Noble
Foundation to use transformed plants to develop alfalfa with improved
digestibility utilizing genes developed by Noble. Digestibility is one of the
major measures of hay quality and an important determinant of the price per ton.
On July 24, 1998, the Company announced it had signed a letter of intent with
Global Agro, Inc. to enter into a biotechnology technology license and equity
stake agreement. As an equity owner in Global Agro, ABT will have worldwide
rights, exclusive in certain crops, to technology at Global Agro, including
rights to technology from The Salk Institute for Biological Studies. The
AgriBioTech worldwide exclusive technology rights are for all cool-season
turfgrass species and for selected forage grasses and certain legumes. On July
27, 1998, the Company announced it had signed a letter of intent with FFR
Cooperative to enter into and form a long-term, worldwide research alliance to
develop and commercialize improved proprietary seed products. The letter of
intent outlines how ABT and FFR will form a long-term research alliance to
develop improved proprietary seed products, and details other intentions
regarding selection and distribution of elite genetic material, biotechnology
assets, production, funding and other matters. On September 21, 1998, the
Company announced that it had signed a letter of intent with Mycogen Corporation
("Mycogen") to jointly develop insect-resistant alfalfa varieties. Insect-
resistant alfalfa varieties will be marketed to capture the added value expected
to result from higher yields, increased stand persistence and enhanced
nutritional value. The Company and Mycogen will share equally the captured
incremental value added under the terms of the exclusive license. The Company
and Mycogen have also agreed to priority negotiations on insect-resistant
turfgrasses utilizing Bt technology. See "Research and Development" and
"Biotechnology Access" below.
FORAGE AND COOL-SEASON TURFGRASS INDUSTRY
INDUSTRY OVERVIEW
The Company estimates aggregate annual revenue for the United States forage
and cool-season turfgrass seed sector is approximately $1.3 billion, with
approximately 40% forage seeds and 60% cool-season turfgrass seeds.
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FORAGES. Forage crops, which are crops in which the entire plant is
harvested for consumption, are the largest single component of livestock and
dairy herd diets. Forage crops are generally fed to animals either through
grazing or in the form of hay. Hay is one of the largest and most widely
produced cash crops in the United States and is harvested in all 50 states. The
following bar is entitled Estimated U.S. Crop Values -1996. It shows (in bars
less than two inches high) estimated crop sales (in billions) for corn ($24.9
billion), soybeans ($16.3 billion), hay, a forage ($12.0 billion), wheat ($9.0
billion) and cotton ($6.5 billion). The (omitted) graph that follows is entitled
U.S. Acreage 1996. It shows (in bars less than two inches high) estimated
acreage (in millions of acres) for corn (73.1 million), soybeans (63.4 million),
wheat (62.9 million), hay (61 million) and cotton (15 million)
Estimated U.S. Crop Values - 1997
[Chart Appears Here]
SOURCE: US DEPARTMENT OF AGRICULTURE
Since most forage crops are consumed by livestock and are bulky and
difficult to transport, they are typically grown in areas with high
concentrations of dairy and beef cattle. In contrast, seeds are typically grown
where climate and other favorable conditions result in optimal seed yields. For
example, management estimates that approximately 75% of all alfalfa hay is grown
east of the Mississippi River, while approximately 95% of all alfalfa seed is
grown in the Pacific Northwest and California, where seed quality and yields are
higher. This geographic separation between seed producers and end users of
forage seed virtually eliminates growers' incentives to "save seeds" in an
effort to reduce costs, or for subsequent sale.
While alfalfa is by far the best known of the forage crops and
comprises approximately 40% of planted forage acreage and an even greater
percentage of the hay cash crop value in the United States (see graph above),
there are numerous other species comprising the forage sector. A high
percentage of grass forage species, including tall fescue, orchardgrass and
bromegrass, are seeded in mixtures with non-grass forages. In general, the
grass component of the mixture is included to decrease bloat (swelling in the
stomach of cattle caused by foaming, which can result in death by asphyxiation),
improve soil structure, decrease weed competition, improve organic matter and
spread out seasonal peaks of forage production.
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COOL-SEASON TURFGRASS. Cool-season turfgrass is utilized in home
lawns, golf courses, parks, cemeteries, and roadway medians. Domestic cool-
season turfgrass seed consumption has increased primarily as a result of
increased housing starts and the growth in the number of golf courses. Cool-
season turfgrasses include bluegrass, tall fescue, fine fescue and ryegrass,
while warm-season turfgrasses include bermuda and zoysia. Cool-season
turfgrasses are generally used in two different situations. They provide the
permanent cover in the northern United States where cold winters kill warm-
season grasses. Cool-season turfgrasses are also used extensively in the
southern United States for overseeding to provide green grass, particularly for
golf courses and other public uses, during the winter months while the warm
season grasses are dormant (brown). The overseeding market results in annual
seeding of cool-season grasses while the northern cool-season turfgrasses are
seeded every 3-8 years depending upon degree of stress on the turf.
SEED PRODUCTION/DISTRIBUTION PROCESS
Outlined and illustrated below are the key components of the seed
production distribution process:
[An omitted graphic illustration of the seed production/distribution cycle
appears here. It shows a circular progression using arrows and several small
(less than on inch high) illustrations and includes the following text:
Research. Develops Genetically Superior Products. Seed Stocks (Foundation
Seed): Provided to individual farmers under contract. Farmer Grows: Commercial
Seed (Certified Seed) under contract with Regional Production Companies.
Uncleaned Seed Delivered to Production Company. Seed Cleaning Plant: Production
Company cleans, processes, coats and bags seed. Seed sold to Regional
Distribution Companies. Regional Distribution Companies warehouse, market
wholesale and/or retail seed and deliver to local outlet. Customer: i.e.,
forage farmer, homeowner, golf course.]
RESEARCH. Varieties are developed by research companies with desirable
value-added improvements such as yield, disease and insect resistance and
various quality traits. Research companies then typically license the varieties
to production and/or distribution companies and provide them with foundation
seed stocks, which are the proprietary source seed used to plant seed fields for
commercial seed production.
GROWING. Seed farmers are generally called upon to grow the proprietary
foundation seed stocks into commercial quantities of "certified" (i.e.
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complying with state and federal standards) seed under contract with processing
and/or distribution companies. These contracts are generally three years in
length and contain fixed contract prices for all or part of their duration.
Farmers assume all of the risks associated with growing the seed.
PROCESSING. The seed farmer delivers uncleaned seed to processing
companies. The processing companies clean, coat and package the seed in units
that are size-appropriate for the customer. Forage seeds are usually packaged in
50 pound bags, as are turfgrass seeds for larger customers such as golf courses.
Homeowner/retail turfgrass seeds are generally packaged in one to three pound
bags or boxes.
DISTRIBUTION. Forage distribution companies store seed and distribute it
wholesale to local farm supply outlets and directly to large forage farmers.
Turfgrass distribution companies generally market to mass merchandisers such as
K-Mart and Home Depot for sale to homeowners and also sell directly to large
seed users such as golf courses, municipalities and sod farmers.
LOCAL RETAIL OUTLETS. Local outlets generally service small geographic
areas. In most instances the local outlets are general farm supply stores that
supply a combination of seed, feed and fertilizers to local farmers and/or
homeowners in rural areas. Larger farmers will sometimes act as outlets (i.e.
farmer/dealers) to handle seed for their own use and that of their neighbors.
CUSTOMERS. The Company sells forage and cool-season turfgrass seed to a
wide variety of customers. These include sales directly to end users, large
regional distributors, national accounts, and local feed and seed stores. The
end customers for forage seeds are farmers who are generally located in regions
with large beef and dairy herds. Hay sales to dairies often have quality-based
price premiums and, consequently, this customer segment is extremely attractive
to forage growers. Turfgrass seed customers are generally centralized in densely
populated areas and generally consist of parks, golf courses and other customers
planting for their own personal lawns.
MARKETS/DEMAND
Incomes are growing worldwide, particularly in developing countries. As
incomes rise, global demand for meat and milk is rising, which in turn is
driving demand for forage seed. Demand for forage and turfgrass seed is
generally cyclical in nature and subject to numerous factors. Seeds, like most
other agricultural products, are subject to fluctuations based on the underlying
supply and demand for the crops produced. The demand for seed is also
influenced by the general farm economy and a variety of nature's adversities
including, but not limited to, drought, wind, hail, disease, insects and early
frost.
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FORAGES. Forages are the primary feed components for animals used in milk
and meat products (high protein foodstuffs). Forage seed sales are primarily
driven by the size of the animal population producing milk and meat products.
Recent efforts of underdeveloped countries to increase dietary protein have
created strong demand for forages. This demand is being driven by increasing
world population and income.
While global demand for milk and meat products has increased since 1990,
worldwide arable acreage, upon which forage can be grown, has not expanded at
the same rate. As demand for meat and dairy animals increases faster than
worldwide arable acreage, developing countries are likely to become increasingly
dependent on higher yielding varieties and agricultural imports. An omitted bar
graph (in millions of metric tons) appears here, which shows worldwide red meat
consumption increasing from approximately 115 million metric tons in 1990 to
approximately 134 million metric tons in 1997 (estimated).
In the United States, the 1996 Freedom to Farm Act was designed to allow
the market to better determine crop selection, and the Company believes the new
law will allow more farmers to choose to grow forages. The Conservation Reserve
Program will place approximately nine million acres of arable land back into
production, which the Company believes is likely to help stabilize the quantity
of forage acreage in the United States over the next several years. In addition,
farms in the United States are becoming larger in an effort to benefit from
economies of scale. The Company believes that these large-scale farmers tend to
recognize the advantages of value-added technology and are willing to pay a
premium for such benefits.
The Company believes that the countervailing influences for increasing
demand for forages and the acreage available for their production will create a
strong demand for superior seed varieties and germplasm to increase yields,
especially among large-scale United States farmers.
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COOL-SEASON TURFGRASS. The Company estimates that domestic turfgrass seed
consumption growth has averaged between 6% and 9% over the last ten years. The
Company believes that domestic demand for turfgrass is being driven by both
domestic population growth and the increased usage of turfgrass to increase home
values and build recreational facilities, such as golf courses and parks. For
example, the Company estimates that there are currently approximately 25 million
acres of home lawns, in addition to golf courses, parks and roadway medians
which use turfgrass seed in the United States. The Company also estimates that
American consumers spend more than $14 billion on professional lawns and
landscape services.
The Company believes cool-season turfgrass users are increasingly demanding
higher quality and as a result, average maintenance costs and pesticide use are
also rising. The Company believes that the increasing demands for high-quality,
combined with consumers' desires to reduce maintenance costs and pesticide
usage, will likely create a market for genetically enhanced cool-season
turfgrass.
INDUSTRY ECONOMICS
The forage and cool-season turfgrass seed sector has historically been a
low margin business due to its fragmented nature, lack of vertical integration,
price-based competition and, until recently, lack of protection for proprietary
seeds. More recently, however, margins have begun to expand as farmers have
moved away from public varieties and increasingly toward higher yielding
proprietary varieties with many desirable attributes, such as improved
nutritional quality and disease and insect tolerance.
As an example of the above described increase in margins, management
estimates that retail alfalfa seed pricing today is approximately $1.60 per
pound for public, non-proprietary varieties, while proprietary seed pricing is
in the $3.20 to $3.60 per pound range. Moreover, alfalfa seed with new value-
added traits, such as potato leafhopper tolerance, was introduced in limited
quantities in 1997 and sells for approximately $4.50 to $5.50 per pound.
Management believes that the introduction of biotechnology capabilities into the
forage and cool-season turfgrass seed sector, which is not reflected in the
following table, has the potential to further expand margins. Outlined below is
an allocation of management's estimate of the purchase price for public,
proprietary and enhanced value-added alfalfa varieties to the various
stakeholders in the production and distribution value chain.
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ALLOCATION OF THE WHOLESALE SEED DOLLAR PER POUND
(ALFALFA EXAMPLE)
Enhanced
Public Proprietary Value-added
Varieties Varieties Varieties
--------- --------- ---------
Grower $1.00 72% $1.30 46% $1.40 35%
Research company 0.00 0 0.40 15 1.00 25
Processing and packaging
company 0.20 14 0.40 15 0.55 14
Distribution company 0.20 14 0.70 24 1.05 26
----- ---- ---- -- ----- --
Wholesale seed price $1.40 100% $2.80 100% $4.00 100%
===== ==== ===== ==== ===== ====
Retail seed price $1.60 114% $3.40 121% $5.00 125%
====== ==== ===== ==== ====== ====
BUSINESS STRATEGY
OPERATING STRATEGY
The Company's strategy as the market share leader for the forage and cool-
season turfgrass seed sector is to develop and market value-added proprietary
seeds that meet the yield and quality needs of forage farmers and the
increasingly stringent cool-season turfgrass quality needs of end users, such as
homeowners and golf course superintendents. The Company strives to maintain
superior customer service while upgrading its product line. ABT plans to
increase the profitability of both the Company and its customers by implementing
the following key strategies:
VERTICAL INTEGRATION. ABT seeks to continue to vertically integrate its
forage and cool-season turfgrass seed operations and thus increase the
percentage of the wholesale seed dollar retained by the Company. This is being
achieved by owning companies which meet its needs with respect to proprietary
research and development, seed processing and the continued development of a
national and international sales network. Management believes that as the
Company continues the consolidation of this sector, the economies of scale
derived from vertical integration (see "Integration of Acquisitions" below)
should provide the Company with the opportunity to improve margins, enhance
efficiencies and eventually secure access to the biotechnology breakthroughs
that are expected to be available in the forage and cool-season turfgrass seed
sector in the future.
DEVELOPMENT OF PROPRIETARY SEED VARIETIES. Management believes, based on
its knowledge of the industry, that the Company's research capability will allow
it to develop proprietary seed varieties with value-added
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characteristics that improve yield, nutritional quality, persistence, and insect
and disease tolerance for forages and quality, color, persistence and insect and
disease tolerance for cool-season turfgrasses. The Company believes that
development of propriety seed varieties through traditional genetic research
programs has become an essential foundation for transforming the forage and
cool-season turfgrass seed sector into a high margin business similar to the
other proprietary seed sectors. See "Research and Development" below.
EFFICIENT PROCESSING AND PACKAGING. ABT owns and operates modern
processing and packaging facilities which clean, sort and bag seeds. The
Company's ownership of processing and packaging facilities enables it to improve
quality control, better control seed availability and capture a larger portion
of each seed sales dollar.
NATIONAL AND INTERNATIONAL SALES NETWORKS. The Company believes that its
national and international distribution network, which currently enables the
marketing and selling of goods in 50 states and 51 countries, can support the
Company's introduction of new products and will facilitate development of a
national brand.
BIOTECHNOLOGY ACCESS. The Company believes that the introduction of
proprietary seed varieties with value-added characteristics will provide the
genetic platform from which specific value-added genes may be introduced through
biotechnology. ABT is seeking to become the licensee or partner-of-choice for
owners of biotechnology genes in order to accelerate introduction of these
value-added genes to its customers through biotechnology.
INTEGRATION OF ACQUISITIONS. The Company continues to make strategic
acquisitions and is in the process of integrating these operations to increase
operating efficiencies by (i) eliminating geographic overlap in distribution,
(ii) consolidating administrative, finance and accounting functions, (iii)
expanding marketing and customer service programs, (iv) upgrading management
information systems and (v) coordinating and expanding research and development.
INVESTMENT IN INFRASTRUCTURE. The Company has invested in personnel in
advance of future sales in order to support the sales growth of acquired
companies while focusing on marketing new value-added products. The Company
will continue to upgrade and expand its infrastructure as required and believes
it has the necessary senior management in place to meet its near-term needs.
GROWTH STRATEGY
ABT's growth strategy focuses on acquiring attractive companies in the
forage and cool-season turfgrass seed sector and increasing their level of
sales, improving the Company's product mix and realizing operating efficiencies.
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CONSOLIDATION OF FORAGE AND COOL-SEASON TURFGRASS SEED SECTOR. ABT plans
to continue to build the premier forage and cool-season turfgrass seed company
in the United States by acquiring and integrating attractive companies which
specialize in research and development, processing and distribution. The
Company's acquisition strategy consists of acquiring geographically dispersed
companies with strong management and operations. Based on financial results
reported to date, the Company has generally been able to maintain historical
sales levels of its acquisitions while at the same time integrating them into
one organization and thereby developing synergies in operations.
INCREASING SALES OF HIGHER MARGIN PROPRIETARY SEEDS. ABT believes
opportunities exist to enhance profitability in the forage and cool-season
turfgrass seed sector through increased sales of higher-margin proprietary
seeds. The Company believes forage seed customers will place a premium on new
value-added varieties that increase their profitability through increased sales,
greater milk or meat production or higher margins. The Company believes cool-
season turfgrass seed customers will also seek new products that improve turf
quality while at the same time decrease maintenance costs and decrease
environmental pollution from chemicals previously used to control plant pests.
REALIZATION OF ECONOMIES AND OPERATING EFFICIENCIES. As ABT continues to
consolidate the forage and cool-season turfgrass seed sector, the Company
expects to achieve significant economies of scale and operating efficiencies.
However, because seed production contracts are generally three years in length
and management's desires to nurture certain existing business relationships, a
time lag will likely exist before full synergies can be achieved. Because of
the Company's investment in infrastructure ahead of future sales, the Company
believes operating expenses as a percentage of sales will likely decrease in the
future and revenue growth will exceed growth in general and administrative
expenses.
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ACQUISITION PROGRAM
Since the Company commenced its acquisition program in January 1995, it has
acquired all or part of 33 seed companies, as set forth in the table below.
AGRIBIOTECH, INC. ACQUISITIONS
<TABLE>
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ANNUAL
REVENUES FOR
FISCAL YEAR APPROXIMATE
AGRIBIOTECH PRECEDING PURCHASE
ACQUISITIONS ACQUISITION CQUISITION PRICE (IN
(1) DATE (IN MILLIONS) MILLIONS) DESCRIPTION OF BUSINESS
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<S> <C> <C> <C> <C>
Seed Resource Jan 95 $ 1.6 $ 1.1 Distribution, production
and research in Texas of
proprietary sorghum,
sudan grass, ryes &
millets in the U.S.,
Mexico and Europe.
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Scott Seed Mar 95 $ 5.5 $ 1.5 Distribution of
Company proprietary alfalfa
varieties, clover
varieties, pasture
mixes, turfgrass
varieties and corn
hybrids in Kentucky and
Southern Indiana.
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Hobart Seed Apr 95 $ 3.3 $ 1.7 Distribution of alfalfa,
Company field seeds & lawn and
garden supplies in
Oklahoma, Texas and
Kansas.
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Sphar Seed Jul 95 $ 2.1 $ 0.3 Markets proprietary
Company alfalfa varieties,
clover varieties,
pasture mixes, turfgrass
varieties and corn
hybrids throughout
Kentucky and Southern
Indiana.
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Halsey Seed Jul 95 $ 1.2 $ 1.1 Distribution of alfalfa,
Company field seeds and turf
seeds in New York and
New England.
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Arnold Thomas Oct 95 $ 2.3 $ 0.9 Production and seed
Seed Service cleaning lines in
Washington with access
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</TABLE>
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<TABLE>
<CAPTION>
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ANNUAL
REVENUES FOR
FISCAL YEAR APPROXIMATE
AGRIBIOTECH PRECEDING PURCHASE
ACQUISITIONS ACQUISITION ACQUISITION PRICE (IN
(1) DATE (IN MILLIONS) MILLIONS) DESCRIPTION OF BUSINESS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
to grass, clover and
alfalfa seed production
areas in the Northwest.
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Clark Seeds Oct 95 $ 4.1 $ 2.2 Distribution, production
and seed cleaning
facilities in Idaho and
Oregon.
- -----------------------------------------------------------------------------------------
Doug Conlee Jan 96 $ 1.0 $ 0.6 Distribution of forages,
Seed proprietary sorghum and
sudan grass germplasm
from Texas.
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Beachley-Hardy Feb 96 $ 9.7 $ 4.1 Distribution of
Seed proprietary forage and
turfgrass products,
Roundup-ready soybeans
and high-oil corn in the
Northeast.
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Michigan Jun 96 Nil Nil Distribution of
Hybrid Seed proprietary alfalfa
varieties and hybrid
seed corn in Michigan.
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W-L Research Sep 96 $22.2 $16.2 Alfalfa research company
and Germain's with distribution
through a base of
franchised distributors
in the U.S. and several
foreign countries.
Germain's is one of the
oldest regional seed
companies in the Western
U.S. The 127-year-old
company markets hybrid
corn, alfalfa, turfgrass,
clover, pasture grass
and clover crop seed in
the Western U.S. &
Mexico.
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</TABLE>
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<TABLE>
<CAPTION>
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ANNUAL
REVENUES FOR
FISCAL YEAR APPROXIMATE
AGRIBIOTECH PRECEDING PURCHASE
ACQUISITIONS ACQUISITION ACQUISITION PRICE (IN
(1) DATE (IN MILLIONS) MILLIONS) DESCRIPTION OF BUSINESS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E.F. Apr 97 $35.6 $ 9.6 Distribution, production
Burlingham & and research in Oregon
Sons (2) of turfgrass seed with
many varieties scoring
as leading performers in
official national turf
evaluation tests
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Sexauer Seed Apr 97 $10.3 $ 3.2 Distribution and
production of forages in
South Dakota with 107
years of history.
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Olsen Fennell Jun 97 $28.6 $15.2 Distribution and
Seeds production in Oregon
with good germplasm in
turf seeds and
non-alfalfa forages.
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LaCrosse Seed Jul 97 $ 9.4 $ 7.0 Distribution of alfalfa,
field seeds and
turfgrass seeds in the
upper Midwest.
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Lofts Seed (3) Jan 98 $74.7 $33.1 Distribution, production
and research company,
based in North Carolina.
Lofts Seed is a premier
turfgrass seed company
with national and
international sales.
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Seed Jan 98 $39.8 $ 9.2 Distribution of forage
Corporation of and turfgrass seed
America nationwide.
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Discount Farm Jan 98 $ 5.9 $ 3.1 Distribution of forage
Center small grains, other
forages and birdseed in
the Midwest.
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Kinder Seed Feb 98 $ 3.1 $ 3.5 Distribution of forages
and turfgrasses in the
Northeast.
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Las Vegas Jan 98 $16.0 $12.4 Distribution of
Fertilizer turfgrass to golf
courses and lawn and
garden products to home
improvement centers,
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</TABLE>
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<TABLE>
<CAPTION>
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ANNUAL
REVENUES FOR
FISCAL YEAR APPROXIMATE
AGRIBIOTECH PRECEDING PURCHASE
ACQUISITIONS ACQUISITION ACQUISITION PRICE (IN
(1) DATE (IN MILLIONS) MILLIONS) DESCRIPTION OF BUSINESS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
mass merchandisers and
nurseries in Nevada,
California, Utah, Idaho
and Wyoming.
- -----------------------------------------------------------------------------------------
Ohio Seed Mar 98 $ 9.3 $ 3.8 Distribution of forages
Company and turfgrasses in Ohio
and Michigan.
- -----------------------------------------------------------------------------------------
Van Dyke Seed Jan 98 $10.5 $ 8.2 Distribution and
production of forage
crops in Oregon.
- -----------------------------------------------------------------------------------------
Zajac Jan 98 $ 8.5 $ 6.6 Distribution and
Performance production of private
Seed label proprietary
turfgrass varieties to
independent wholesale
distributors in New
Jersey and Oregon.
- -----------------------------------------------------------------------------------------
Peterson Seed May 98 $11.8 $ 6.3 Distribution of alfalfa,
Company clovers, turf mixes and
other forages.
- -----------------------------------------------------------------------------------------
W-D Seed Jun 98 $14.2 $12.1 Production and seed
Growers Idaho cleaning facilities in
Idaho and Nevada.
- -----------------------------------------------------------------------------------------
Fine Lawn Jul 98 $ 5.1 $ 2.7 Production and
Research distribution of
proprietary rye grass
and turf type tall
fescue to professional
users.
- -----------------------------------------------------------------------------------------
Geo. W. Hill Jul 98 $ 4.9 $ 1.5 Distribution of alfalfa,
of Indiana clovers and turf mixes
to farmers, homeowners
and landscapers.
- -----------------------------------------------------------------------------------------
Geo. W. Hill & Jul 98 $20.8 $ 6.3 Distribution of turf
Co. mixes, perennial rye
grass, turf type tall
fescue to homeowners and
landscapers; also lawn
and garden supplies,
fertilizers and
chemicals to retail
stores and nurseries.
- -----------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
ANNUAL
REVENUES FOR
FISCAL YEAR APPROXIMATE
AGRIBIOTECH PRECEDING PURCHASE
ACQUISITIONS ACQUISITION ACQUISITION PRICE (IN
(1) DATE (IN MILLIONS) MILLIONS) DESCRIPTION OF BUSINESS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J&M Seed Jul 98 $ 9.2 $ 3.4 Distribution of alfalfa,
Company clovers, turf mixes,
other forages, and
reclamation seed
products.
- -----------------------------------------------------------------------------------------
Willamette Aug 98 $41.8 $13.6 Production and
Seed Company distribution of cool-
season turfgrass seed to
wholesale distributors
in the U.S. and
internationally; also
distribution of
fertilizer to farmers.
- -----------------------------------------------------------------------------------------
Allied Seed Aug 98 $22.6 $14.0 Production of alfalfa,
Company clovers and forage
grasses for Agway and
regional distributors in
the Northeast.
- -----------------------------------------------------------------------------------------
Oseco Sep 98 $10.8 $ 4.3 Distribution of alfalfa,
turf mixes, bluegrass,
ryegrass, forage grasses
and clovers to farmer
dealers, elevators,
nurseries and
landscapers. Also owns
a production facility
for cleaning, processing
of alfalfa and a seed
coating plant.
- -----------------------------------------------------------------------------------------
Garden West Sep 98 $14.6 $ 6.5 Distribution of
turfgrass to golf
courses and lawn and
garden products to home
improvement centers,
mass merchandisers and
nurseries in Arizona and
New Mexico.
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Other than as described in notes (2) and (3) below during the last five
years none of the Company's significant acquisitions have been involved in a
significant corporate transaction including, but not limited to (a) any
bankruptcy, receivership or similar proceedings, or (b) any material
16
<PAGE>
reclassification, merger, consolidation, or purchase or sale of a significant
amount of assets not in the ordinary course of business.
(2) In May 1994, Douglas Pope and Greg McCarthy, the principal shareholders
of E.F. Burlingham, who sold such company to ABT, purchased that company from
George Burlingham.
(3) Includes Lofts Seed, Inc. and Budd Seed, Inc., which are Companies under
common control. The stockholders of Budd Seed, Inc. acquired Lofts Seed, Inc.
on June 28, 1996.
RESEARCH AND DEVELOPMENT
The Company operates genetic breeding programs and intends to increase its
research and development spending to develop a full line of proprietary products
for most forage and cool-season turfgrass species, as well as continue
purchasing additional proprietary varieties and research programs.
The Company estimates that each of the industry's top five alfalfa research
companies, including the Company's wholly-owned subsidiaries, spend more on
proprietary alfalfa variety development than is spent by all industry members on
variety development for all other forage species combined. This minimal level
of research expenditure on variety development for secondary forage species
reflects the current fragmented nature of the forage business, and the lack of
critical mass within any one company to justify research and development
spending.
ABT's goal is to alter this scenario by consolidating the industry and
achieving the economies of scale necessary to conduct research on both alfalfa
and non-alfalfa forages, as well as on cool-season turfgrass. This research is
aimed at developing (i) value-added forage seed products with improved
characteristics in yield, nutritional quality, persistence, and disease and
insect tolerance and (ii) improved cool season turfgrass seeds with improvements
to color, ease of mowing, pest resistance, dwarfness and texture.
The Company sponsored research and development in the amounts of
approximately $2.3 million, $1.2 million, and $0.1 million for the fiscal years
ended June 30, 1998, 1997, and 1996, respectively. Management believes that
investment in research and development is integral to its strategy of shifting
its product mix from public varieties to higher margin proprietary species.
FORAGES
Management believes, based on its knowledge of the industry, that the
Company has an industry leading research and development program for forages
based upon alfalfa being the leading forage species and alfalfa research
conducted by the Company's subsidiary W-L Research. Management believes W-L
Research is the oldest proprietary alfalfa breeding program in the United
States. The Company has been successful in developing a number of varieties
17
<PAGE>
that produce higher yields under intensive cutting schedules, increased pest
tolerance and more recently, improved nutritional quality than other varieties.
The Company believes that W-L has more industry leading "breakthrough" varieties
than other companies including Sclerotina resistant varieties, white fly
resistant varieties and HQ(R) (high quality varieties). For example, the
Company's HQ(R) alfalfa varieties have won the "Super Bowl" of forage production
three years in a row where performance is measured by pounds of milk produced
per acre of alfalfa, i.e. nutritional quality. The Forage Super Bowl is held
annually in a conjunction with the World Dairy Expo in Madison, Wisconsin, and
is seen by customers and industry peers as the premier third party forage
analysis in the industry. In addition, the Company's varieties have consistently
ranked among the leaders in evaluation plots as evaluated by various
universities. The Company has industry leading forage grass varieties obtained
through Olsen Fennell Seeds and other acquisitions and from its alliance with
FFR Cooperative described below under "Biotechnology Access."
COOL-SEASON TURFGRASS
Management believes, based on its knowledge of the industry, that the
Company has an industry leading cool-season turfgrass research and development
program. Management measures its leading position primarily through the
Company's research programs at E.F. Burlingham, Lofts Seed, Zajac Performance
Seed, Fine Lawn Research and Olsen Fennell. For example, ABT has more than
50,000 turf evaluation plots throughout the United States and has developed a
number of cool-season turfgrass varieties with superior turf quality that are
independently evaluated in National Turf Evaluation Plot ("NTEP") trials
throughout the United States. The Company's varieties are currently at or near
the top of the NTEP list in the important cool-season turfgrass species of
perennial ryegrass and fine fescues. In addition, a number of the Company's
varieties are in the top ten for each species. As a result, the Company believes
its germplasm is highly desirable to customers who want ABT to provide private
label varieties for them. To date, the Company has chosen to engage in private
labeling in order to maximize market share.
SEED PROCESSING AND PACKAGING
Forage and cool-season turfgrass seed varieties are grown for the Company
under contract by farmers specializing in seed production. The Company provides
the farmer with proprietary seed stock and contracts for the entire production
from the farmer's field, generally for a three-year period. It is the farmer's
responsibility to plant, grow and harvest the seed crop. ABT's seed processing
facilities may provide the growers with re-usable bulk bins that farmers fill
with seed and deliver to ABT's processing facilities for cleaning, treating,
packaging and distribution or the growers may perform these functions on their
premises.
The seed production areas for forage and cool-season turfgrass seeds are
geographically separated from the seed consumption regions. The Pacific
Northwest states (Oregon, Washington, Idaho, Nevada, Montana and California) are
among the best areas in the world to grow forage and cool-season turfgrass
18
<PAGE>
seed. The favorable climatic conditions for growing seed in the Pacific
Northwest results in high yields of excellent quality alfalfa seed (700-1,200
pounds per acre) and cool-season turfgrass seed (1,500-2,000 pounds per acre).
In contrast, the hot, humid, rainy conditions prevalent in many of the seed
consumption regions dramatically decrease seed quality and yield for both forage
and cool-season turfgrass seeds (50-400 pounds per acre). Consequently, there is
little economic incentive for farmers to attempt to grow their own seed for
forage and cool-season turfgrass crops.
ABT's seed processing facilities are primarily located in Oregon, Idaho,
Washington, Texas, Wyoming and Nevada and generally contain modern and efficient
equipment. Management believes the Company's facilities have enough capacity to
handle current seed volume and accommodate its near term growth needs. Many of
these facilities were operating at significantly less than capacity prior to
their acquisition by the Company. The Company plans to acquire additional
capacity as distribution grows through acquisitions. As the Company acquires
additional companies specializing in seed processing, there will be an
opportunity to gain efficiencies by building one or two processing facilities
with larger capacities for shared use by a number of acquired companies that are
processing seed in close proximity.
DISTRIBUTION
DOMESTIC
Within the United States, the Company distributes seeds in 50 states. Since
forage crops are grown to be consumed by livestock and hay is bulky and
expensive to transport, these crops tend to be raised in geographic areas with
high concentrations of dairy and beef cattle. Consequently, the Company
distributes its forage products primarily in the Northeast, Midwest, Far West
and Southwest.
There is a strong correlation between population and turfgrass seed
consumption. As a result, the Company distributes cool-season turfgrass seed
primarily in urban areas. The heavily populated regions are best served by large
retail chain stores such as K-Mart and Home Depot.
FOREIGN
Internationally, the Company distributes seeds in 51 foreign countries
through its independent historical relationships. Management believes that
there is an opportunity to significantly enhance international sales by
coordinating sales efforts across subsidiaries. The Company has not established
an international business unit to consolidate international sales, but is
evaluating its international business with a view toward operating as an
international business unit.
Argentina is the most important forage market outside of the United States,
which the Company estimates at approximately 16 million acres of alfalfa planted
annually. The Company markets alfalfa under the W-L brand name through Cargill
S.A.C.I.
19
<PAGE>
PRODUCTS
ABT offers its customers a large and diverse selection of seeds in the
forage and cool-season turfgrass sector. The Company sells proprietary varieties
which are exclusively owned and protected under the PVPA (see "Proprietary
Rights") and marketed on their value-added traits. The Company also sells public
varieties that were developed with government funds and distributed to all
members of the seed industry. In order to offer its customers a full complement
of products, the Company also sells opportunistic crop seeds such as corn,
soybeans, vegetables and small grains. As a result of the Company's recent
acquisitions, its sales mix has shifted towards cool-season turfgrass sales.
These percentages, however, are expected to continue to change as the Company
makes additional acquisitions.
Public varieties generally refers to those varieties that were developed
with government funds (state or federal) in which the parent seed stocks are
released to all members of the seed sector. Conversely, proprietary varieties
have an exclusive owner who markets the varieties based on their value-added
traits and the profits they will generate for the customer. The Company is in
the process of reducing the number of products and brands that it offers and
increasing the percentage of proprietary seeds it sells. This effort is being
done cautiously, however, so as to retain customer loyalty while at the same
time concentrating on the more popular and value-added proprietary seed
varieties. As the Company invests in research and development and accelerates
the availability of proprietary products, the Company intends to increase the
rate at which these changes occur. There are consolidation efficiencies
associated with inventory costs when the number of products and brands are
decreased. Larger quantities of fewer items will facilitate inventory control,
especially where much of the inventory is transportable and can be moved to
other Company locations as needed.
Varieties vs. Hybrids - why the forage and cool-season turfgrass seed
sector was slow to consolidate. The primary reason why the corn seed sector
developed into a consolidated industry, with large research expenditures and
high gross margins, was the development of genetic hybridization techniques.
Hybrids are crosses between two inbred lines that produce superior crops. The
seed from these crops, however, cannot be retained for further use, as it will
not produce a superior crop. The owner of the inbred lines controls the inbred
parents and therefore controls ownership of the hybrid offspring. Development of
hybrids enabled investors to own and protect superior products developed through
research. Intellectual property rights protection for these products is by
trade secrets, the PVPA, patents or a combination of all three methods.
Hybridization techniques have not, to date, been successful in the forage
and cool-season turfgrass seed sector. Proprietary protection for this sector
was not generally available until passage of the Plant Variety Protection Act
(the "PVPA") in 1970, amendments to the PVPA in 1994 and a favorable United
States Supreme Court ruling in 1995. These recent developments have provided the
forage and cool-season turfgrass sector with
20
<PAGE>
the needed proprietary protection to increase research investment. Prior to
having the legal protection of the PVPA, it was relatively inexpensive to
duplicate the research efforts of industry leaders. "Copycat" varieties could
often be commercialized two to three years after being provided by the industry
leader. See "Proprietary Rights."
CUSTOMERS
The Company sells seed to a wide variety of customers including sales
direct to end users, large regional distributors, national accounts, and local
feed and seed stores. The relative percentages of customer mix varies among
ABT's operating subsidiaries. No one customer of the Company has accounted for
10% or more of the Company's net sales.
FORAGES
The Company sells most of its forage seeds to local feed and seed stores
and regional distributors, who, in turn, sell to the individual farmer. Alfalfa
varieties are primarily sold by the Company through regional franchisees in the
United States, and internationally, generally through exclusive representatives
such as Cargill S.A.C.I. in Argentina. The Company does some private labeling of
varieties to larger customers who have adequate value and brand recognition for
their territory.
COOL-SEASON TURFGRASS
A substantial majority of the Company's current cool-season turfgrass sales
are to regional distributors and national accounts and the remainder are divided
between direct sales to golf courses and to local feed and seed stores. The
regional distributors and national accounts then sell to professional end
users, such as golf courses, landscapers and parks, and to homeowners.
COMPETITION
The Company competes in both forage and cool-season turfgrass seeds on the
basis of price, product quality and service. The major agricultural companies
in the United States focus their sales around hybrid seed corn (Pioneer Hi-Bred
International, DEKALB Genetics Corporation, Novartis AG and Mycogen
Corporation), cotton seed (Delta and Pine Land Company) and other grain crops.
In the past, they have treated forage and cool-season turfgrass seeds as
ancillary crops when they compete in the marketplace. This is the opposite of
the Company's business strategy, which is to treat forage and cool-season
turfgrass seed as the primary product. Therefore, the Company's major
competitors in the forage and cool-season turfgrass seed sector are currently
large regional companies and numerous small family seed businesses. However, any
of the major agricultural companies may decide to compete directly against the
Company. Management believes that as ABT's acquisition
21
<PAGE>
strategy becomes better known in the seed industry, the competition for
acquisitions, sales, facilities and personnel will intensify.
In the alfalfa seed industry the largest United States competitors are
Cenex/Land O'Lakes/Research Seed, Helena/AgriPro, Pioneer and Cal/West Seeds,
which have annual alfalfa seed sales of between $20 and $60 million. Companies
which treat alfalfa as a primary crop include Research Seed, Helena/Agripro,
Cal/West Seeds and a large number of regional and family owned businesses,
similar to those the Company has acquired. Those companies which sell alfalfa as
an ancillary crop include Pioneer, DEKALB and Mycogen. The Company's largest
competitors for forages other than alfalfa are FFR Research and its farm
cooperative members. See "Biotechnology Access." There are also many small
family-owned businesses that are strong competitors in small geographic areas.
The Company has a number of competitors for cool-season turfgrass seed that
have annual seed sales of between $20 and $80 million. Most of these companies
are regional companies, with only Lofts Seed, Inc.( a subsidiary of the
Company), Pennington Seed and O.M. Scott having national name brand acceptance.
Cool-season turfgrass seed competitors generally sell cool-season turfgrass seed
as a primary seed product, including O.M. Scott, Pennington, Jacklin and
Pickseed, all of whom (except O.M. Scott and Pennington Seed) are privately
owned. However, some of these competitors sell more non-seed turfgrass products
(such as chemicals, sprays, fertilizer and lawn and garden products) than seed,
including O.M. Scott and Pennington.
BIOTECHNOLOGY ACCESS
Biotechnological breakthroughs have been introduced into other seed sectors
such as corn, soybeans and cotton. The Company believes similar biotechnology
breakthroughs in the forage and cool-season turfgrass sector will follow,
although this may not occur for some time. The Company believes there are three
essential criteria by which owners of seed biotechnology select seed companies.
These are (i) a well established traditional genetic breeding program, (ii)
significant market share and (iii) a management team committed to marketing
proprietary products with value-added attributes. The Company believes it meets
all three of these criteria.
Dr. Tom Rice, Vice President and Director of Research, is working with the
Company's traditional genetic research breeders to identify and prioritize
specific biotechnology projects. Management believes, based on its knowledge of
the industry, that the Company's market share and germplasm (see "Research and
Development" above), in conjunction with Dr. Rice's efforts, will enable the
Company to negotiate relationships for forage and cool-season turfgrass seed
biotechnology.
The Company's first biotechnology alliance, announced on March 26, 1998, is
its agreement to fund research by the Samuel Roberts Noble Foundation to use
transformed plants to develop alfalfa with improved digestibility utilizing
genes developed by Noble, a not-for-profit research institute
22
<PAGE>
located in Oklahoma. Digestibility is one of the major measures of hay quality
and an important determinant of the price per ton.
On July 24, 1998, the Company announced it had signed a letter of intent
with Global Agro, Inc. ("Global Agro") to enter into a biotechnology license
agreement and equity stake agreement. As an equity owner in Global Agro, the
Company will have worldwide rights, exclusive in certain crops, to technology at
Global Agro, including rights to technology from The Salk Institute for
Biological Studies. Global Agro has an agreement with The Salk Institute which
will permit the Company to commercialize and license specific proprietary
technologies developed by The Salk Institute's Plant Biology Laboratory. The
Salk Institute is an equity owner of Global Agro. The ABT worldwide exclusive
technology rights are for all turfgrass species and for all forage grasses and
certain legumes.
On July 27, 1998, the Company announced that it had signed a letter of
intent with FFR Cooperative ("FFR") to form a long-term, worldwide research
alliance to develop and commercialize improved proprietary seed products. FFR
was founded approximately 40 years ago by several regional farmer owned
cooperatives to breed genetically improved varieties of a number of crop
species. FFR has a well established breeding program and germplasm base in a
number of important forage species, including orchard grass, red clover, tall
fescue and timothy and has breeding programs in alfalfa, corn, soybeans, and
wheat.
Under the agreement, ABT will market under private label new genetically
improved varieties of orchard grass, red clover, tall fescue and timothy
developed by FFR through the Company's worldwide distribution system. FFR
members and affiliates will be the only other distributors of FFR varieties in
those species. The agreement provides for ABT to introduce genes into the
forage germplasm using biotechnology tools and to market such improved products
through the distribution system of the regional cooperative owners of FFR.
On September 21, 1998, the Company announced that it had signed a letter of
intent with Mycogen Corporation ("Mycogen") to jointly develop insect-resistant
alfalfa varieties. Insect-resistant alfalfa varieties will be marketed to
capture the added value expected to result from higher yields, increased stand
persistence and enhanced nutritional value. The Company and Mycogen will share
equally the captured incremental value added under the terms of the exclusive
license. The Company and Mycogen have also agreed to priority negotiations on
insect-resistant turfgrasses utilizing Bt technology.
Mycogen will be responsible for screening its Bt gene and strain library in
order to identify genes active against the insect pests targeted by the Company.
Mycogen will provide the Company with the selected genes in an expression
cassette ready for transformation into alfalfa. The Company will be responsible
for all transformation, regeneration, selection, conversion, and breeding
activities. The Company will utilize its germplasm for all breeding activities.
The Company will be primarily responsible for marketing the insect resistant
varieties. Mycogen will also market product through its distribution channels.
23
<PAGE>
PROPRIETARY RIGHTS
The Company owns proprietary varieties for a number of forage and cool-
season turfgrass species that are protected under the PVPA. The PVPA prohibits
others from selling seed of those proprietary varieties for 18 years, when such
protection expires. It was not until the PVPA was passed in 1970 that varieties
such as forage and turfgrass seed were given legal protection, which allowed
them to be sold as something other than commodities. Congress passed amendments
to the PVPA in 1994, which further strengthened the original legislation and in
addition, a January 1995 United States Supreme Court decision defined clear
limitations on farmers' ability to resell seed, essentially limiting the use of
saved seed to the farmers' personal use only.
The Company owns PVPA protected varieties as shown in the following table.
In addition, the Company has exclusive licenses from third parties to market
more than 20 protected varieties in numerous species, including alfalfa,
fescues, ryegrass, Kentucky bluegrass, bentgrass, red clover, corn and soybeans.
PVPA STATUS
<TABLE>
<CAPTION>
Issued Pending
------- --------
(Owned) (Owned)
<S> <C> <C>
Alfalfa 15 1
Tall Fescue 6 8
Perennial Ryegrass 4 17
Kentucky Bluegrass 3 4
Other Fescues 2 2
Other 1 2
-- --
31 34
</TABLE>
EMPLOYEES
As of September 16, 1998, the Company had 923 full-time employees including
six Executive Officers. The Company also had 156 part-time employees and
contracts with a number of independent sales representatives.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns or leases warehouse facilities, which generally contain
administrative office space, in the following states: Arizona; California;
Georgia; Iowa; Idaho; Indiana; Kentucky; Massachusetts; Maryland; Minnesota;
24
<PAGE>
Missouri; Nebraska; New Jersey; Nevada; New York; North Carolina; Ohio;
Oklahoma; Oregon; Pennsylvania; South Dakota; Tennessee; Texas; Utah; Virginia;
Washington; Wisconsin and Wyoming and in Mexico and Canada. The facilities in
Idaho, Oregon, Washington, Texas, Wyoming and Oklahoma include significant
amounts of equipment for cleaning, processing and treating seed. Some of the
facilities in North Carolina, Nevada, Oregon and Kentucky are pledged under
mortgages through various financial institutions aggregating approximately $6.6
million. The mortgages and lease and rental commitments are more fully
described in the Notes to Consolidated Financial Statements.
The Company believes that each facility is suitable for its current use, is
in good condition and is adequately insured. Management believes that such
properties, together, are generally adequate to meet the Company's foreseeable
needs. Nevertheless, the Company, in all likelihood, will combine the
operations of certain smaller facilities into new facilities, although it has no
definitive plans or fixed capital expenditures in this regard.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal or administrative
proceedings, and its property is not subject to any such proceedings, except as
may be incurred in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the Nasdaq National Market since
February 14, 1997, under the symbol "ABTX."
The following table sets forth the high and low closing sales prices for
the Common Stock for each quarter in Fiscal 1997 and Fiscal 1998 on the Nasdaq
SmallCap Market until February 13, 1997 and on the Nasdaq National Market
thereafter.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
Fiscal 1997
- --------------------------------------
July 1, 1996 - September 30, 1996 $4 1/16 $2 15/32
October 1, 1996 - December 31, 1996 $2 3/16 $2 1/32
January 1, 1997 - March 31, 1997 $3 3/8 $2 1/16
April 1, 1997 - June 30, 1997 $6 15/16 $2 15/32
Fiscal 1998
- --------------------------------------
July 1, 1997 - September 30, 1997 $10 1/2 $6 1/32
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
October 1, 1997 - December 31, 1997 $17 1/16 $9
January 1, 1998 - March 31, 1998 $19 3/32 $13 7/16
April 1, 1998 - June 30, 1998 $29 $13 3/4
</TABLE>
As of September 30, 1998, the closing price per share of Common Stock was
$11 1/8.
As of September 23, 1998, the Company had 409 record holders of its Common
Stock. The Company reasonably believes that there are in excess of 4,000
beneficial holders of its Common Stock.
Dividend Policy
- ---------------
The Company has never declared or paid any cash dividends on its Common
Stock. The Company and its Board of Directors currently intend to retain any
earnings for use in the operation and expansion of the Company's business and do
not anticipate paying any dividends on the Common Stock for the foreseeable
future. The Company's Credit Facility with Bank of America Business Credit
prohibits the declaration or payment of cash dividends without prior approval.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data in the following table should be read in
conjunction with the Company's Financial Statements and the notes thereto,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other financial information included herein. The historical
selected financial data presented below are derived from the consolidated
financial statements of the Company and subsidiaries, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of June 30, 1998 and 1997
and for each of the years in the three-year period ended June 30, 1998, and the
report thereon, are included elsewhere herein. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Seasonality of Business and Quarterly Comparisons" and Item 1. "Business-
Acquisition Program" for information that affects a comparison of the Company's
quarterly results of operations.
Statement of Operations Data(in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Year
Years Ended June 30, Months Ended
---------------------- Ended September
June 30, 30,
1998 1997 1996 1995(1) 1994
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Net sales........................................... $205,117 65,904 25,962 4,754 29
Cost of sales....................................... 157,797 49,527 19,236 3,398 12
-------- ------ ------ ------ -----
Gross profit........................................ 47,320 16,377 6,726 1,356 17
Operating expenses.................................. 47,579 17,972 9,637 2,779 915
-------- ------ ------ ------ -----
Earnings (loss) from operations..................... (259) (1,595) (2,911) (1,423) (898)
Total other income (expense)........................ (2,261) (1,119) (413) 16 8
-------- ------ ------ ------ -----
Earnings (loss) before income taxes................. (2,520) (2,714) (3,324) (1,407) (890)
Income tax expense (benefit)........................ (2,907) - - - -
-------- ------ ------ ------ -----
Net earnings (loss)................................. 387 (2,714) (3,324) (1,407) (890)
Discount and imputed dividends on
preferred stock................................... 84 3,233 2,318 - -
-------- ------ ------ ------ -----
Net earnings (loss) attributable to common stock.... $ 303 (5,947) (5,642) (1,407) (890)
======== ====== ====== ====== =====
Shares of common stock used in computing earnings
(loss)per common share:
Basic............................................. 30,078 15,549 7,459 5,485 3,911
Diluted........................................... 32,062 15,549 7,459 5,485 3,911
======== ====== ====== ====== =====
Net earnings (loss) per common share:
Basic............................................. $0.01 (0.38) (0.76) (0.26) (0.23)
Diluted........................................... 0.01 (0.38) (0.76) (0.26) (0.23)
======== ====== ====== ====== =====
</TABLE>
26
<PAGE>
Balance Sheet Data(in thousands):
<TABLE>
<CAPTION>
June 30, September
------------------------------------------------ 30,
1998 1997 1996 1995(1) 1994
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 2,701 2,554 2,522 1,423 441
Total assets........................................ 264,531 95,113 26,184 8,014 765
Long-term obligations, excluding current
installments...................................... 11,029 2,668 1,055 148 106
Total liabilities................................... 89,960 50,125 12,161 1,681 261
Working capital..................................... 25,400 7,555 6,461 3,792 375
Stockholders' equity................................ 174,571 44,988 14,022 6,333 504
</TABLE>
(1) The Company changed its fiscal year end to June 30th effective in 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes thereto of the Company included elsewhere herein. The
Company is a vertically integrated agricultural seed company specializing in
developing, packaging, processing and distributing varieties of forage and cool-
season turfgrass seeds. The Company also distributes corn, soybean and other
seeds as ancillary products. Since January 1995, the Company has grown
significantly through its business strategy of acquiring reputable, regionally
based seed companies with proprietary products and established research,
processing and distribution channels in their respective markets (the
"Acquisition Program"). These acquisitions are summarized in note 1 of Notes to
Consolidated Financial Statements. Historically, the results of operations of
the acquired companies have been included in the Company's consolidated results
beginning with the effective date of the acquisition in accordance with the
purchase method of accounting. As discussed in note 1(b) of Notes to
Consolidated Financial Statements, the Company has taken effective control of
acquired businesses as of a mutually agreed upon effective date that precedes
the closing date when consideration is transferred to the sellers. The Company
has reflected the acquired businesses in its Consolidated Financial Statements
as of the effective date. Due to the size of the Company and the internal focus
on integration of acquired businesses, the Company has changed its acquisition
practices, to operate and acquire businesses at the closing date, instead of the
effective date, for acquired businesses not included in the Company's March 31,
1998 consolidated financial statements. Accordingly, as of April 1, 1998, the
Company records acquired businesses at the closing date.
The seed business is subject to wide seasonal fluctuations. The
significant number of acquisitions and the period for which each is included in
the Company's consolidated financial statements in relation to the seasonality
of the business cycle of each acquisition significantly affects the
meaningfulness of comparisons drawn between periods. See also "Quarterly
Comparisons" below.
Subsequent to June 30, 1998, the Company completed eight additional
acquisitions . The net sales for these entities are not included in the
Company's results of operations for Fiscal 1998.
The above factors may have significant impact on the following discussion
and analysis and should be considered as part of it.
RESULTS OF OPERATIONS
Selected information concerning the results of operations (dollars in
thousands) is summarized as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
---- ---- -----
<S> <C> <C> <C>
Net sales $205,117 65,904 25,962
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C>
Gross profit 47,320 16,377 6,726
Percentage of net sales 23.1% 24.8% 25.9%
Operating expenses 47,579 17,972 9,637
Percentage of net sales 23.2% 27.3% 37.1%
</TABLE>
The increases in the dollar amounts of the above items are primarily due to
the Company's Acquisition Program described above which results in certain
operations not being included for the entire time periods listed above.
Net Sales. During Fiscal 1998, the Company had net sales of $205,117,007,
as compared to $65,904,058 during Fiscal 1997 and $25,961,541 during Fiscal
1996. Such amounts reflect the operations of 25, 14 and 10 acquisitions,
respectively, beginning with the date of acquisition, as well as certain start-
up operations.
During Fiscal 1998, weather conditions in the areas that grow a significant
amount of alfalfa seed that is sold for planting in warm climates resulted in a
relatively small crop being harvested. This resulted in reduced amounts of seed
available for sale in Fiscal 1998. Weather in the United States has been
significantly impacted by an "El Nino" weather pattern. Several regions have
been particularly hard hit by significant rainfall and flooding while other
areas have been experiencing drought conditions, both of which have reduced the
planting acreage for forage and turf crops. This has negatively impacted
business during the third and fourth quarters of Fiscal 1998. In addition, the
Company's net sales to Pacific Rim countries amounted to approximately 3.6% of
total net sales in Fiscal 1998 and were adversely impacted by the recent
economic conditions in those countries.
Cost of Sales. Cost of sales, primarily seed costs, were $157,796,888, or
76.9% of net sales, for Fiscal 1998, as compared to $49,527,150, or 75.2% of net
sales, for Fiscal 1997 and $19,235,670, or 74.1% of net sales, for Fiscal 1996.
The increases were due to the Acquisition Program reflecting that (i) certain
acquisitions have historically handled mostly lower margin public seed varieties
while other acquisitions handle higher margin proprietary varieties; and (ii)
the mix of products sold, in that turfgrass seed sales have historically
commanded lower margins than forage seed sales.
Gross Profit. The increase in gross profit is due to the Acquisition
Program. The decrease in the gross profit percentage is primarily due to a
significant change in the mix of products sold resulting from recent
acquisitions which have a higher percent of turfgrass seed sales. As is typical
in the industry, ABT's turfgrass seed companies use their suppliers, who are
typically large farmers that grow seed, to also clean, process, package, store,
and finance the seed prior to purchase. This results in lower margins being
captured by the turfgrass seed companies. The Company's goal is to raise gross
margins over the next several years as a result of the Company's attempt to
consolidate the forage and turfgrass sector of the seed industry, vertically
integrate its operations, and shift its product lines from primarily public
varieties (commodities) to proprietary (value added) products.
Operating Expenses. Operating expenses increased from $9,636,863 in Fiscal
1996, to $17,971,813 in Fiscal 1997 and $47,579,105 in Fiscal 1998.
28
<PAGE>
These increases are primarily due to the Acquisition Program. However, operating
expenses as a percent of net sales declined to 23.2% in Fiscal 1998 from 27.3%
in Fiscal 1997 and 37.1% in Fiscal 1996. To accomplish the Company's business
strategy, it has been necessary to build its operational infrastructure ahead of
revenue growth. As revenue continues to grow, operating expense as a percentage
of sales is expected to decrease due to the spreading of the infrastructure
costs over a larger sales base. This ratio is expected to continue to decline as
revenue growth continues to exceed growth in expenses and operating synergies
occur through integration of the acquired companies into cohesive units.
The major components of operating expenses are personnel costs, occupancy
expense, vehicle and shipping expenses, outside services, travel and
advertising, all of which increased substantially in the current year compared
to the prior year. These increases are primarily due to the Acquisition
Program. The major components of operating expenses (in thousands) were as
follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Personnel costs............. $22,353 9,415 4,939
Occupancy expenses.......... 5,587 2,778 1,452
Vehicle and shipping........ 2,646 1,280 826
Outside services............ 1,831 615 521
Travel...................... 1,867 810 402
Advertising and promotion... 3,901 642 444
</TABLE>
Personnel costs increased due to an increase in total employees to 864 at
June 30, 1998, as compared to 325 at June 30, 1997 and 161 at June 30, 1996.
Occupancy expenses increased resulting from the Company utilizing 70
warehouse/operating locations at June 30, 1998, compared to 27 at June 30, 1997
and 14 at June 30, 1996. Vehicle and shipping, outside services, travel and
advertising expenses also increased as a result of the Company's increased level
of operations following the Company's completion of acquisitions for each
respective period.
Research and Development. Research and development expenditures were
$2,271,466 in Fiscal 1998, as compared to $1,170,703 in Fiscal 1997 and $59,836
in Fiscal 1996. As the Company attempts to transform its forage and turfgrass
seed businesses to proprietary products with higher gross margins, the Company
expects that research and development expenses as a percentage of net sales will
continue to increase and eventually be similar to public companies in the other
proprietary seed sectors. Expenditures were low in 1996 relative to net sales
due to the dependence of the Company on licensing proprietary seed varieties.
Research and development expenditures increased dramatically in Fiscal 1997 due
to the Company's acquisition of W-L Research and Burlingham and in Fiscal 1998
with the acquisition of Lofts. W-L Research's operations contain a sizable
genetic research program in alfalfa and Burlingham's and Lofts' businesses
include significant research programs for turfgrasses. As discussed under Item
1-Business, the Company has recently entered into technology agreements with
Noble, Global Agro, FFR, and Mycogen. These agreements will increase the
Company's research and development expenditures in the future.
29
<PAGE>
Interest Expense. The Company's interest expense increased to $4,223,483
in Fiscal 1998, as compared to $1,691,084 in Fiscal 1997 and $464,515 in Fiscal
1996. This was primarily due to increasing the Company's line of credit plus
additional borrowings to finance the Acquisition Program and working capital
needs. Interest expense also includes imputed interest of $554,816 in Fiscal
1998, as compared to $390,000 in Fiscal 1997 to account for the period of time
between the effective and closing dates of the Company's acquisitions.
Income Tax Benefits. SFAS No. 109 provides that deferred taxes should be
determined by first identifying types and amounts of existing temporary
differences, the nature and amount of each type of operating loss carryforward,
and the remaining length of the carryforward period. Total deferred tax
liabilities and deferred tax assets are then measured by applying the enacted
tax rate to the existing differences. In addition, deferred tax assets are
reduced by a valuation allowance if, based on the weight of available evidence,
it is more likely than not (a likelihood of more than 50 percent) that some
portion or all of the deferred tax assets will not be realized. Accordingly, the
valuation allowance should be sufficient to reduce the deferred tax asset to the
amount that is more likely than not to be realized. A change in judgment about
the realizability of the related deferred tax asset in future years ordinarily
shall be included in income from operations. Future realization of the tax
benefit of an existing deductible temporary difference or carryforward depends
on the existence of sufficient taxable income within the period of reversal or
the carryforward period available under the tax law and/or future reversals of
existing deferred tax liabilities.
The Company's business objective is to consolidate the forage and turfgrass
sector of the seed industry and to then transform this sector from a low margin,
commodity oriented business to a high margin, proprietary, value-added business,
so that the Company is the partner of choice through which biotechnology will be
introduced into this sector. The Company has undertaken an aggressive
acquisition strategy to gain the critical mass necessary to achieve this
objective. Consistent with the expected trends of a strategy which initially
requires the building of infrastructure at the expense of revenue growth, the
Company has always anticipated losses for both financial reporting and income
tax purposes in the early years of implementing its strategy, with such losses
decreasing over time toward becoming both profitable and taxable. At June 30,
1997, the Company had deferred tax assets of approximately $3.6 million, which
amount was reduced by a valuation allowance of approximately $3.3 million as
required by SFAS No. 109, because the Company was unable to conclude that it is
more likely than not it will realize the deferred tax assets. Through the
quarter ended March 31, 1998, the Company reported approximately $1.4 million of
year-to-date book income before taxes, and forecast increasing future profits
based on the assumptions of increased revenue growth, synergies to occur from
the integration of acquired companies, and reduced product costs to be obtained
through vertical integration. Based on this current performance and projections,
the Company concluded that it was more likely than not that the deferred tax
assets would be realized, and removed the valuation allowance, resulting in an
income tax benefit of approximately $2.9 million in the quarter ended March 31,
1998. The reversal of existing deferred tax liabilities, including tax planning
strategies applied to the timing of the reversals, will be available to offset
all but approximately $0.8 million of the deferred tax assets prior to the
expiration of loss carryforwards, for which the company will need to generate
approximately $2.2 million over the next 15 years from future taxable income
exclusive of reversing temporary differences to fully realize the Company's
deferred tax assets related to operations at June 30, 1998.
The Company projects sufficient future taxable income exclusive of
reversing temporary differences to fully realize the deferred tax assets related
to operations at June 30, 1998. The projections are based on the continued
trend of operations and assumptions that increased profitability will be
realized through increased revenue growth, synergies to occur from the
integration of acquired companies, and reduced product costs to be achieved
through vertical integration. The trend from operations reflects a continued
decrease in the amount of both book and tax losses for the past three years.
The continuation of this trend will result in the generation of future income.
The Company's acquisition strategy has built the premiere forage and cool season
turfgrass seed company in the United States. As the Company achieves the
critical mass and infrastructure necessary to achieve profitability, the
strategic focus will continue to shift to increasing profitability. The Company
is positioned to transition towards this strategy as a result of the recent
addition of key personnel with operations management experience in the seed and
biotech industry, and now has sufficient size and scope of operations to
generate future profitability. Additionally, the Company expects to realize
significant future cost savings from the vertical integration of acquired
producing companies, which will eliminate the need to purchase from outside
third parties at marked-up prices. Further, a strategic planning process is
being implemented, which will result in organizational restructuring with the
intent of realizing cost synergies from the elimination of duplicate personnel,
facilities, and processes.
The adjustments to the valuation allowance resulted in a net increase to
the valuation allowance of $124,487 for the year ended June 30, 1998. These
adjustments are more fully described in note 9 of Notes to Consolidated
Financial Statements, and are summarized below:
<TABLE>
<S> <C>
Valuation allowance at June 30, 1997 $ 3,290,824
Increase from losses related to stock options 3,415,311
Increase from losses on current year activity 591,711
Reduction for expected realization of future benefits (2,947,914)
Reduction pursuant to deferred tax calculation
on acquisitions (934,621)
-----------
Valuation allowance at June 30, 1998 $ 3,415,311
===========
</TABLE>
Net Earnings/Losses. Net earnings for the Company was $387,241 for Fiscal
1998, as compared to net losses of $2,713,765 in Fiscal 1997 and $3,324,132 in
Fiscal 1996 as a result of the items discussed above.
As discussed in note 7 of Notes to Consolidated Financial Statements, the
Staff of the Securities and Exchange Commission has taken a position regarding
securities, such as the Company's convertible preferred stock, containing
conversion features allowing for conversion into common stock at a discount from
future quoted market prices. Application to this position required the Company
to allocate an amount to the conversion feature and to account for it as a
return to the holders of the securities, as well as to impute dividends on the
convertible preferred stock. This resulted in the net earnings (loss)
attributable to common stock (on which earnings (loss) per share is computed)
being decreased by $84,100 to $303,141 for Fiscal 1998, by $3,233,426 to
$(5,947,191) in Fiscal 1997 and by $2,317,625 to $(5,641,757) in Fiscal 1996.
Average common shares outstanding used in computing earnings (loss) per common
share increased due to additional shares issued, primarily for cash,
acquisitions, options and warrants. For purposes of computing diluted earnings
per share for Fiscal 1998, average shares outstanding are increased by the
dilutive effects of options, warrants, and convertible preferred stock
outstanding during the year. Such items were anti-dilutive and, therefore,
excluded in Fiscal 1997 and Fiscal 1996.
QUARTERLY COMPARISONS
See "Overview" above for a discussion of the Company's Acquisition Program.
The table below sets forth quarterly operating data of the Company for Fiscal
1997 and Fiscal 1998. This quarterly information is unaudited, but in
management's opinion, reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the period presented.
The forage and turfgrass seed sector have a seasonal sales cycle, as do
other agribusinesses. Weather conditions and the economic outlook for
alternative crops affect seed production yields, insect population and farmers'
planting decisions, which may, in turn, cause fluctuations in seed prices and
annual sales. A significant portion of the Company's sales have historically
been in the third fiscal quarter (ending March 31) for planting in late March
through May. The Company's acquisitions of Burlingham and Olsen
30
<PAGE>
Fennell added a significant amount of turfgrass seed sales in the first and
second fiscal quarters of Fiscal 1998, primarily for overseeding golf courses,
southern forage grasses, landscapes, and retail. The successful consolidation by
the Company of the forage and cool-season turfgrass seed sector is expected to
balance, in part, seasonal sales fluctuations.
<TABLE>
<CAPTION>
QUARTERS ENDED:
------------------------------------------------------------------------------------------
June March Dec. Sept. June March Dec. Sept.
30 31 31 30 30 31 31 30
1998 1998 1997 1997 1997 1997 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales $65,422 75,880 23,357 40,458 24,740 20,223 13,288 7,653
Cost of sales 48,588 57,623 18,662 32,924 18,521 14,831 10,562 5,613
------- ------ ------ ------ ------ ------ ------ ------
Gross 16,834 18,257 4,695 7,534 6,219 5,392 2,726 2,040
profit
Operating
expenses 20,137 14,763 6,208 6,471 7,159 3,981 3,533 3,299
------- ------ ------ ------ ------ ------ ------ ------
Earnings
(loss) from
operations (3,303) 3,494 (1,513) 1,063 (940) 1,411 (807) (1,259)
Other income
(expense) (627) (1,475) 120 (279) (585) (126) (372) (36)
------- ------ ------ ------ ------ ------ ------ ------
Earnings
(loss) before
income taxes (3,931) 2,019 (1,393) 785 (1,525) 1,285 (1,179) (1,295)
Income tax
expense
(benefit) __(-)___ (2,907) ___-___ ___-___ ___-___ ___-___ ___-___ ___-___
Net earnings
(loss) (3,931) 4,926 (1,393) 785 (1,525) 1,285 (1,179) (1,295)
Discount and
imputed
dividends on
preferred
stock 3 27 27 27 30 225 2,271 707
------- ------ ------ ------ ------ ------ ------ ------
Net earnings
(loss)
attributable
to common
stock $(3,934) 4,899 (1,420) 758 (1,555) 1,060 (3,450) (2,002)
======= ====== ====== ====== ====== ====== ====== ======
Net earnings
(loss)per
common share:
Basic $ (0.11) 0.15 (0.05) 0.03 (0.07) 0.06 (0.28) (0.22)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED:
------------------------------------------------------------------------------------------
June March Dec. Sept. June March Dec. Sept.
30 31 31 30 30 31 31 30
1998 1998 1997 1997 1997 1997 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Diluted (0.11) 0.l3 (0.05) 0.03 (0.07) 0.06 (0.28) (0.22)
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
As discussed under "Overview" above, through March 31, 1998, the Company has
recognized acquired businesses in its Consolidated Financial Statements as of
the effective date agreed upon with their sellers. The following table shows
the net sales and net earnings (loss) as if the results of operation of the
acquired business from the effective date to the closing date were removed from
the reported consolidated operating results and reflecting acquisitions
beginning with the closing date:
<TABLE>
<CAPTION>
NET EARNINGS
PERIOD ENDED NET SALES (LOSS)
------------- --------- ------
(IN THOUSANDS)
<S> <C> <C>
Three months ended September 30, 1995 $ 2,421 (668)
Three months ended December 31, 1995 2,004 (1,029)
Three months ended March 31, 1996 5,936 (721)
Three months ended June 30, 1996 7,722 (1,432)
-------- -------
Year ended June 30, 1996 18,083 (3,850)
======== =======
Three months ended September 30, 1996 $ 4,938 (1,563)
Three months ended December 31, 1996 11,073 (1,264)
Three months ended March 31, 1997 20,223 1,285
Three months ended June 30, 1997 16,264 (2,120)
-------- -------
Year ended June 30, 1997 $ 52,498 (3,662)
======== =======
Three months ended September 30, 1997 $ 30,618 (166)
Three months ended December 31, 1997 22,905 (1,528)
Three months ended March 31, 1998 64,129 4,314
-------- -------
Nine months ended March 31, 1998 $117,652 2,620
======== =======
</TABLE>
The following charts show the net sales and net earnings (loss) shown in the
Company's Consolidated Financial Statements compared to those items as shown in
the above table, as well as similar comparisons of total assets and total
stockholders' equity.
32
<PAGE>
[Omitted line graphs for 1) net sales, 2) net earnings (loss), 3) total assets,
and 4) total stockholders' equity showing by quarter from September 30, 1995
through March 31, 1998 amounts in thousands a) as reported, using effective
dates, and b) using closing dates.]
LIQUIDITY AND CAPITAL RESOURCES
The following summarizes certain information concerning the Company's financial
condition:
<TABLE>
<CAPTION>
JUNE 30,
--------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Working capital $25,400 7,555 6,461
Property, plant, and
equipment, net 47,965 17,864 7,916
Short-term debt 50,330 24,203 5,089
Long-term debt, including
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
amounts due within one
year 14,281 3,724 1,622
Total stockholders'
equity 174,571 44,988 14,022
</TABLE>
Changes in the above items are primarily due to the acquisitions completed
by the Company, including changes in these items following the dates of
acquisition due to growth and seasonality of the seed business and related
financings. Information concerning increases (decreases) in certain operational
assets and liabilities acquired in acquisitions and other changes is as follows:
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
----------- ----------- -----------
ACQUIS- OTHER ACQUIS- OTHER ACQUIS- OTHER
ITIONS CHANGES ITIONS CHANGES ITIONS CHANGES
------ ------- ------ ------- ------ -------
( IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Accounts Receivable $19,768 2,260 11,796 (1,823) 1,949 4,599
Inventories 34,574 706 18,172 (1,898) 4,643 796
Property, plant
and equipment 25,214 6,930 9,822 1,073 5,795 504
Accounts payable
and accrued expenses 20,294 (10,365) 12,210 (4,948) 2,389 2,216
</TABLE>
Net earnings (loss), adjusted for non-cash impacts of depreciation,
amortization, equity in earnings of associated entity, deferred income taxes,
and common stock and options for services amounted to $1,766,201, $(1,718,454),
and $(2,601,325) for Fiscal 1998, Fiscal 1997, and Fiscal 1996. Such amounts
reflect the growth of the Company due to the Acquisition Program and the items
discussed under Results of Operation above. These amounts and the changes in the
levels of operational assets and liabilities, primarily receivables,
inventories, and payables, resulted in total net cash used in operating
activities being $11,289,913, $2,526,926 and $5,688,435 for the years ended June
30, 1998, 1997 and 1996. The changes in operational assets and liabilities
reflect changes in the levels of such items at fiscal year end from such levels
at the beginning of the year or the acquisition date, if acquired during the
year. The impact of acquisitions is dependent upon the timing of the date of
acquisition in relation to the highs and lows of such items caused by the
seasonality of each acquired business.
The Company had working capital of $25,399,772 at June 30, 1998, as
compared to $7,554,925 at June 30, 1997. To finance acquisitions and ongoing
operations, the Company has raised significant amounts of equity capital.
During Fiscal 1998, the Company received cash proceeds of $67,663,505 from the
sale of 5,075,182 shares of its Common Stock and 586,500 warrants and
$19,103,300 from the exercise of options and warrants to acquire the Company's
Common Stock. The Company also received $9,990,000 in payments on notes
receivable at June 30, 1997 from the exercise of options and warrants prior to
June 30, 1997. Subsequent to June 30, 1998, the Company received gross cash
proceeds of $17,438,649 from the sale of 1,752,820 shares of Common stock and
886,410 Warrants.
During Fiscal 1997, the Company received cash proceeds of $9,443,827 from
the exercise of existing options and warrants, including payments on
34
<PAGE>
notes receivable for warrants and options exercised. In addition, the Company
received gross proceeds of $10 million from the private placement of its Series
C Preferred Stock during Fiscal 1997. The Company paid commissions equal to 13%
of the gross proceeds. During Fiscal 1996, the Company received cash proceeds of
$3,438,630 from the exercise of existing options and warrants, including
payments on notes receivable for warrants exercised. To facilitate raising
capital to fund the Company's Acquisition Program and operations and to clean up
its capital structure, the Company arranged for options previously issued to
consultants and other non-employees to be transferred to other non-affiliates
who exercised them in accordance with their stated terms. At the time of this
arrangement, the market price of the Company's common stock exceeded the
exercise price of the options. The difference between the market price and
exercise price, deemed to be a preferential dividend to these stockholders for
accounting purposes, aggregated approximately $1.8 million. However, since the
Company had no retained earnings, such amount would be charged to capital in
excess of par value and would be offset by a deemed contribution to capital in
excess of par value resulting in no change in stockholders' equity. The options
were assigned to persons, primarily stockholders, whom the Company believed
would exercise them to provide needed capital at a time when there was a general
downward trend in the price of the Company's common stock, while also reducing
the amount of dilutive options outstanding. The Company also completed the
private placement of 7,425 shares of its Series B Convertible Preferred Stock
during Fiscal 1996, receiving $7,425,000 before commissions and expenses.
The Company entered into a Revolving Credit Facility (the "Revolving Credit
Facility") on June 23, 1998, with BankAmerica Business Credit, Inc. ("BABC"),
and certain other financial institutions. Under the Revolving Credit Facility,
the Company has a maximum borrowing availability of up to $100 million (subject
to a borrowing base computation and compliance with certain financial
covenants), and may borrow, repay and reborrow revolving loans. The Revolving
Credit Facility expires on June 23, 2001. As of June 30, 1998, the Company had
borrowed approximately $50.0 million. Initially borrowings under the Revolving
Credit Facility were used to pay off amounts outstanding under three separate
short-term credit facilities and certain items of term debt. At September 28,
1998, approximately $86.0 million was outstanding and $14 million was available
under the revolving line of credit.
The Company may elect to borrow amounts under the Revolving Credit Facility
that bear interest at a variable rate equal to the "reference rate" of Bank of
America plus 1.125% or at a variable rate of interest equal to the applicable
"London Interbank Offered Rate" of the Bank plus 2.375%. The Revolving Credit
Facility is secured by collateral consisting of substantially all the assets
(excluding fixed assets and real property) of the Company and its subsidiaries.
The terms of the Revolving Credit Facility contain operating and financial
covenants, including requirements to maintain minimum ratios of cash flow to
debt service and a maximum ratio of total debt to equity. Standard & Poor's
assigned its single "B" rating to the Revolving Credit Facility and a single "B"
corporate credit rating to the Company.
On August 14, 1998, the Company and BABC amended the Revolving Credit
Facility to provide for borrowings of $15 million in excess of amounts allowed
under the borrowing base computation (the "BABC Bridge") This additional
borrowing carries a fixed interest rate of 18 percent and expires on December
31, 1998.
35
<PAGE>
The Company entered into a bridge loan facility (the "Deutsche Bridge") on
July 3, 1998 with Deutsche Bank AG, which provided the Company with $15 million
of unsecured bridge financing that matures on January 4, 1999. At the Company's
option, interest on the Deutsche Bridge is the bank's base rate or LIBOR rate
plus 3.5% prior to September 7, 1998, 5.5% per annum above such rates from then
to November 7, 1998 and 7.5% above such rates thereafter. At September 28,
1998, the entire $15 million was outstanding.
The Company is in compliance with its debt agreements or has obtained
waivers for instances of non-compliance.
The additional equity raised subsequent to June 30, 1998, along with
proceeds of the BABC Bridge and the Deutsche Bridge, were primarily used to fund
the acquisitions completed after July 1, 1998 as described in note 1(b) of Notes
to Consolidated Financial Statements.
The Company had long-term obligations (including current installments) of
approximately $14.3 million at June 30, 1998 and $3.7 million at June 30, 1997.
The long-term obligations consisted of mortgages, capital leases, covenants not
to compete and deferred compensation. In addition, the Company has guaranteed
the proceeds from the sale of Common Stock by certain former owners of certain
acquired companies. See note 7 of Notes to Consolidated Financial Statements.
The Company believes, based on current plans and assumptions relating to
its operations, that borrowings under the Revolving Credit Facility will provide
sufficient resources to fund the Company's operations through June 30, 1999,
including acquisitions completed through September 28, 1998. However, the
Company may need to seek an increase in or an alternative to the Revolving
Credit Facility to finance increased working capital needs should additional
acquisitions be consummated in the future. Furthermore, the seed business is
subject to wide seasonal fluctuations, which result in a significant increase in
the level of inventory prior to and during the heavier selling season in the
spring and related higher levels of accounts receivable following such sales
through the early summer. This also reflects industry practice that dictates a
significant amount of sales of certain products are made with extended terms
through mid summer. In addition, the seed business can be significantly
impacted by the weather, which can alter the timing and nature of crops planted
by farmers which, in turn, affects the timing and nature of seed sales. For
these reasons, or if acquisitions are completed more rapidly than anticipated it
is possible that the Company may need to seek additional financial resources to
finance ongoing operations. In addition, the Company will need to obtain
additional debt or equity financing to fund acquisitions and to repay the
Deutsche Bridge and the BABC Bridge.
MANAGEMENT INFORMATION SYSTEMS AND YEAR 2000
As a result of acquisitions completed to date, the Company has several
different data processing systems in use. These systems are substantially the
same systems that were in use prior to their acquisition by the Company. The
preliminary assessment of reaching the Year 2000 is that these systems are
generally not compliant. Some of the non-compliant systems can be easily updated
to be compliant but a number of these systems can not be updated because of
software and hardware limitations. The Company is in the process of integrating
its systems into one Company wide information system and has contracted for
software, hardware and consulting services to implement an enterprise resource
planning ("ERP") system to
36
<PAGE>
meet its current information system requirements. The cost of this
implementation is not expected to exceed $6 million, which amount includes
internal costs for personnel, training, supplies, travel and equipment. At June
30, 1998, the Company had incurred approximately $1 million of these costs. The
implementation costs are funded through operations, the credit facilities
described above, and approximately $875,000 of financing provided by one of the
vendors. It is possible that the Company may seek additional financing for the
implementation costs, either in the form of project financing or as part of
other financing obtained by the Company. The Company has completed preliminary
testing and design and is beginning the implementation phase. The initial phase
encompasses the implementation of the system at five operating sites and
developing a rapid implementation methodology which will be used to integrate
the remaining operating entities. The Company plans to integrate these entities
whereby the largest operating units would be integrated first such that all
significant operating units are integrated by June 30, 1999.
The ERP and related network and hardware systems are designed to be Year 2000
compliant. Local Area Networks (LANS), desktop hardware, and desktop operating
systems in some cases are not compliant. The Company has determined that the
non-compliant desktop and LAN systems will be converted either through normal
attrition or through the ERP implementation.
The Company believes that it has allocated adequate resources to ensure that all
information systems are Year 2000 compliant. The Company expects its Year 2000
program to be successfully completed on a timely basis prior to January 1, 2000.
However, there can be no assurance that this will be accomplished. In the event
any operating units remain Year 2000 non-compliant in late 1999, the Company's
contingency plan is twofold. First, where possible, the Company is in the
process of identifying reparation for existing software that is available as an
upgrade, patch, or limited re-coding (data field masks, editing date related
computations, or as a temporary workaround). Secondly, the Company is in the
process of identifying the potential to encapsulate data information as a
temporary measure until the software or systems can be replaced. Completion of
the assessment of these alternatives is anticipated to be completed by March 31,
1999. In the worst case scenario, the Company can resort at the operating unit
level to simple desktop accounting packages that are Year 2000 compliant. The
Company estimates that the overall risk to its operations as a result of non-
compliance with Year 2000 for its existing systems in a worst case scenario to
be less than $300,000. However, there can be no assurance that this estimate is
the absolute maximum.
The ability of third parties with whom the Company transacts business to
adequately address their Year 2000 issues is outside of the Company's control.
The Company is taking steps to confirm that the systems of its suppliers and
customers are Year 2000 compliant and to determine whether the nature of any
noncompliance would have a material adverse effect on the Company's business,
financial condition and results of operations. The Company anticipates this
process will be completed no later than June 30, 1999.
There can be no assurance that the failure of the Company or such third
parties to adequately address their respective Year 2000 issues will not have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
37
<PAGE>
INFLATION
Management does not believe that inflation has had a significant effect on
the Company's operations to date. The cost of seed products is largely affected
by seed yields and alternative crop prices, which have not generally been
greatly impacted by inflation. However, there has been some upward movement in
the cost of goods sold as a result of worldwide shortages of crops such as corn
and wheat. The costs which are normally impacted by inflation, such as wages,
transportation and energy, are a relatively small part of the Company's total
operations. However, the Company remains subject to possible significant
inflation in Mexico, Argentina and other foreign countries.
IMPACT OF ACCOUNTING STANDARDS NOT YET ADOPTED
The impact of recently adopted accounting standards is discussed in note 2
of Notes to Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the normal course of business, the Company is subject to a variety
of market risks, including, but not limited to, interest rate movements and
collectibility of accounts receivable. The Company routinely monitors these
risks and takes actions to protect against the adverse effects of these and
other potential exposures. Although the Company does not anticipate any material
losses in these areas, no assurance can be made that material losses will not be
incurred in these areas in the future. The Company has no derivative financial
instruments or derivative commodity instruments, nor does the Company have any
financial instruments entered into for trading purposes. The Company's financial
instruments are not subject to significant foreign currency exchange risk,
commodity price risk, or equity price risk. Other financial instruments are
discussed in note 11 of Notes to Consolidated Financial Statements. Long-term
obligations and short-term debt are discussed in notes 5 and 6 of Notes to
Consolidated Financial Statements, including the extent of such items that bear
interest at variable rates. An increase or decrease in the interest rate of 100
basis points on the Company's revolving line of credit would decrease or
increase the Company's pre-tax earnings by one percent of the average amount
outstanding under the line of credit. The average short term debt is
significantly impacted by the level and timing of acquisitions, the results of
operations, and the timing and amount of permanent capital raised. Such average
was approximately $32.5 million for the year ended June 30, 1998.
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ITEM 8. FINANCIAL STATEMENTS
The financial statements to be provided pursuant to this Item 8 begin on
page F-1 of this Report, following Part IV hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
39
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- --------------------------------------------------------------------------------------
<S> <C> <C>
Johnny R. Thomas 57 Chairman of the Board and Chief Executive Officer
Kent Schulze 54 President, Chief Operating Officer and Director
John C. Francis 49 Vice President, Secretary and Director
Scott J. Loomis 50 Vice President and Director
Kathleen L. Gillespie (2) 45 Vice President, Mergers and Acquisitions
Henry A. Ingalls 52 Vice President, Chief Financial Officer and Treasurer
Thomas B. Rice 51 Vice President, Director of Research
Richard P. Budd 56 Director(l)
James W. Hopkins 63 Director(l)
</TABLE>
- --------------------------
(1) Member of the Audit, Compensation and Stock Option Committees.
(2) Effective July 1, 1998, Ms. Gillespie is no longer deemed to be an
executive officer.
Johnny R. Thomas has served as Chairman of the Board and Chief Executive
Officer of the Company since April 1, 1994, a director of the Company since
September 30, 1993, was President of the Company from April 1, 1994 until
December 31, 1997 and was also President and a director of the Company's
predecessor from its inception in 1983 until June 30, 1992. He was President,
Chairman of the Board and Chief Executive Officer of FiberChem, Inc. ("FCI")
from its inception in December 1986 until March 31, 1994. Dr. Thomas received
his Ph.D. degree in genetics/plant breeding from Oregon State University in
1966.
Kent Schulze has served as President and Chief Operating Officer of the
Company since January 1, 1998 and as a director since May 8, 1996. He served as
a consultant to the Company from June 1997 until January 1998. Mr. Schulze is
the President and co-founder of Access Plant Technology, Inc., a technology
transfer firm which he founded in April 1996 and of which he is President. From
April 1990 to March 1996, Mr. Schulze was President and Chief Executive Officer
of Northrop King Company, a seed developer and marketing subsidiary of Sandoz
Corp., the world's second largest seed company. From 1986 to 1990, Mr. Schulze
was President and Chief Operating Officer of DEKALB-Pfizer Genetics, where he
was responsible for that company's worldwide seed operations.
John C. Francis has served as Vice President, Secretary and a director of
the
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Company since April 1, 1994. He was the Chief Financial Officer of the Company
from April 1994 until April 1996. He was Vice President, Secretary Treasurer and
a director of the Company's predecessor from 1983 to June 1992. Mr. Francis
served as Vice President, Chief Financial Officer and a Director of FCI from its
inception in December 1986 until March 31, 1994. Mr. Francis also served as a
Director of FCI Environmental, Inc., a wholly-owned subsidiary of FCI ("FCI
Environmental"), from January 1990 until March 31, 1994 and served as Director
of Marketing of FCI Environmental from September 1, 1993 to December 31, 1993.
Scott J. Loomis has served as Vice President of the Company since April 1,
1994; was President, Secretary and a director of the Company from September 30,
1993 until March 31, 1994; and a director of the Company's predecessor from
February 1988 and President from June 1992 until June 1994. He served as
Chairman of the Board of FCI from August 1995 until December 1997, served as
FCI's President from April 1994 until August 1995 and was a director of FCI from
June 1989 until December 1997. He was a director of FCI Environmental from
January, 1990 until December 1997. Mr. Loomis has been a licensed attorney in
the State of Arizona since 1974.
Kathleen L. Gillespie has served as Vice President, Mergers and
Acquisitions of the Company since January 1, 1998 and from November 29, 1994
until December 31, 1997, Ms. Gillespie served as Vice President of Seed
Operations and Acquisitions. Ms. Gillespie had more than 20 years of seed
experience at all levels of production, marketing, procurement, acquisitions,
operations and management prior to joining the Company. From 1977 until joining
the Company, Ms. Gillespie was employed by Agway, Inc. where, as Director of the
Seed Division, sales increased from $20 million per year to $80 million prior to
a divestiture. Ms. Gillespie was instrumental in Agway's acquiring four wholly-
owned subsidiaries. She selected and introduced over 100 proprietary seed
varieties and hybrids during the last 12 years.
Henry A. Ingalls has served as Vice President, Treasurer and Chief
Financial Officer of the Company since April 3, 1996. Mr. Ingalls worked for
the accounting firm of KPMG Peat Marwick LLP between 1969 and April 1, 1996, and
he was elected to the partnership in 1978. Mr. Ingalls has extensive experience
in public company auditing and public offerings.
Thomas B. Rice was elected Vice President, Director of Research of the
Company on January 1, 1998. Dr. Rice has over 20 years of experience in the
seed industry in both research and management. From 1976 to 1985, Dr. Rice
worked for Pfizer, Inc. where he served as senior research scientist, project
leader and manager. From 1985 to 1990, he served as Vice President, Director of
Research and Executive Vice President of DEKALB-Pfizer Genetics. From March
1990 to July 1993, Dr. Rice was the President and Chief Operating Officer of
DEKALB Plant Genetics. From July 1993 until April 1995 he served as the Senior
Vice President, Director of Research of DEKALB Genetics Corp. From May 1995
until joining the Company, Dr. Rice was a self employed consultant.
Richard P. Budd was elected a director of the Company on January 6, 1998,
upon the Company's acquisition by merger of Lofts Seed, Inc. He served
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as the Chief Executive Officer of Budd Seed, Inc., an affiliated company of
Lofts, from 1985 and of Lofts Seed, Inc. from June 1996 until both companies
were acquired by the Company in January 1998. Mr. Budd has also been the Chief
Executive Officer of The Budd Group since 1964. The Budd Group is a service
company engaged in primarily janitorial, landscape, security guard and
administrative support services, and has entered into a management services
agreement with the Company effective January 1998. Mr. Budd is President of
Sylco Aviation, Inc. and the Vice Chairman of High Point University.
James W. Hopkins has served as a director of the Company since January 1997
and also as a consultant to the Company since June 1997. Since July 1996, he
has served as President of Agriworld Technologies, an agricultural consulting
firm. Prior thereto, from December 1993, he served as Vice President of Mycogen
Corporation and General Manager of Mycogen Seeds. For Mycogen Corporation, Mr.
Hopkins worked on strategic alliances, joint ventures, acquisitions and mergers
and was responsible for all global seed activities. For Mycogen Seeds he was
responsible for the consolidation of four autonomous operating companies.
Between 1963 and 1992, Mr. Hopkins had a variety of responsibilities with four
different seed companies. He has extensive experience in the summer annual
forage crops.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board of
Directors.
The Board of Directors has established Audit, Stock Option and Compensation
Committees, each of which consists of Mr. Budd and Mr. Hopkins. Among the
duties of the Compensation Committee are the making of recommendations to the
Board of Directors concerning remuneration for officers and key employees of the
Company, the determination of the number and issuance of stock options and the
review of any compensation and incentive programs for executive officers,
consultants and others. There are no Compensation Committee or Board of
Directors interlocking relationships with respect to the Company.
The duties of the Audit Committee include recommending the independent
public accountants to serve as the Company's auditors, reviewing and considering
the actions of management in matters relating to audit functions, reviewing with
such accountants the scope and results of their audit engagement, reviewing the
financial statements and information included in the Company's filings with the
Securities and Exchange Commission, reviewing the Company's system of internal
controls and procedures and reviewing the effectiveness of procedures intended
to prevent violations of laws and regulations.
SEED ADVISORY COMMITTEE
The Company has established a Seed Advisory Committee (the "SAC")
consisting of seed industry experts with a wide variety of experience. Fred
Clark, the Company's Manager of International and Domestic Relations and past
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<PAGE>
President of the American Seed Trade Foundation and founder of Clark Seeds,
Inc., an ABT subsidiary, is serving as the Chairman of the SAC. The SAC will be
used as a general resource for the Company's management team. The SAC currently
consists of six members including Mr. Clark.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Pursuant to Section 16 of the Exchange Act, the Company's Directors and
executive officers and beneficial owners of more than 10% of the Company's
common stock, par value $.001 ("Common Stock"), are required to file certain
reports, within specified time periods, indicating their holdings of and
transactions in the Common Stock and derivative securities. Based solely on a
review of such reports provided to the Company and written representations from
such persons regarding the necessity to file such reports, the Company is not
aware of any failures to file reports or report transactions in a timely manner
during the Company's fiscal year ended June 30, 1998, except that Messrs.
Thomas, Loomis and Francis each filed one late report on Form 4 concerning one
transaction each, and Messrs. Hopkins and Schulze each filed one late report on
Form 5 concerning one transaction each.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the fiscal year ended June
30, 1998 ("Fiscal 1998"), the fiscal year ended June 30, 1997 ("Fiscal 1997")
and the fiscal year ended June 30, 1996 ("Fiscal 1996") by those persons who
served as Chief Executive Officer and any Named Executive Officers who received
compensation in excess of $100,000 during Fiscal 1998.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#)
- -------- ---- --------- ------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
Johnny R. Thomas 1998 $ 60,000 $ - 0 - $ - 0 - - 0 -
President and CEO 1997 $ 84,000 $ - 0 - $131,906(2) - 0 -
1996 $ 84,000 $ - 0 - $ - 0 - 1,000,000
Henry A. Ingalls 1998 $150,000 $30,000 $ 20,000 - 0 -
Vice President, CFO 1997 $150,000 $30,000 $ 26,250(2) - 0 -
and Treasurer 1996 $ 37,500(3) $ 7,500 5,000 1,250,000
</TABLE>
______________
(1) The above compensation figures do not include the cost to the Company of
benefits, including premiums for life and health insurance and any other
personal benefits provided by the Company to such persons in connection
with the Company's business, which were in any event below reportable
thresholds.
(2) Includes the difference between the exercise price and the fair market
value of options (the "spread") on the date of exercise of in-the-money
options, but excludes the spread for options not in-the-money when
exercised.
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<PAGE>
(3) Mr. Ingalls became Vice President, Chief Financial Officer, and Treasurer
of the Company on April 3, 1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The table below includes information regarding the value realized on option
exercises and the market value of unexercised options held by the Named
Executive Officers in the Summary Compensation Table during Fiscal 1998.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options at Options at
Acquired Value FY-End(#) FY-End($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Johnny R. Thomas - 0 - - 0 - - 0 - $- 0 -
Henry A. Ingalls - 0 - - 0 - 1,225,000/0(1) $31,320,800/0(2)
- ------------------------
</TABLE>
(1) Of these options, 475,000 are currently exercisable only for cash.
(2) Based on the closing price of the Company's Common Stock on June 30, 1998
of $27.688
Director Fees
Officer-directors currently receive no compensation for serving on the
Board of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. Outside directors receive $9,000 per year for attending
meetings on up to six different days, $1,500 for additional days and
reimbursement of expenses. Each outside director also received options to
purchase 20,000 shares of Common Stock upon joining the Board, 10,000 of which
vested immediately, and 10,000 of which vest after a year of service.
Employment Agreements
On February 1, 1994, Scott Loomis entered into an employment agreement
with the Company and became Vice President on April 1, 1994. Mr. Loomis was
compensated at the rate of $7,000 per month until July 1, 1997 when he agreed to
reduce his salary to $55,000 per year. The employment agreement is terminable
by the Company without cause on ten days' prior notice. During the term of his
agreement, and for a period of two years following termination of employment,
Mr. Loomis will be prohibited from engaging in activities which are competitive
with those of the Company and its affiliated corporations within the United
States and from disclosing confidential information of the Company.
On March 10, 1994, the Company entered into an employment agreement with
Johnny Thomas, commencing on April 11, 1994. The agreement contains
substantially the same terms as Mr. Loomis' above described agreement. On July
1, 1997, Dr. Thomas agreed to reduce his salary to $60,000 per year.
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<PAGE>
As of April 1, 1994, the Company entered into an employment agreement with
John C. Francis. The agreement contains substantially the same terms as Mr.
Loomis' above-described agreement. On July 1, 1997, Mr. Francis agreed to
reduce his salary to $48,000 per year.
On November 29, 1994, the Company entered into an employment agreement, as
amended, with Kathleen L. Gillespie. The Agreement contains substantially the
same terms as Mr. Loomis' above described agreement. Ms. Gillespie received
options to purchase 1,250,000 shares of Common Stock, exercisable at $2.00 per
share, which vest over six years, except that all such options are immediately
exercisable for cash. See "Stock Options" below.
On February 13, 1996, the Company entered into an employment agreement with
Henry A. Ingalls. The agreement's term runs from April 3, 1996 for four years.
Mr. Ingalls' aggregate compensation begins at $170,000 per annum plus a minimum
bonus of $30,000 per year. The compensation is subject to annual escalations at
the greater of 5% or the general inflation rate. The Agreement contains a
covenant by Mr. Ingalls not to compete against the Company during the term and
for a two-year period thereafter. Mr. Ingalls also received options to purchase
up to 1,250,000 shares of Common Stock, exercisable at $2.12 per share vesting
over five years, but immediately exercisable for cash. See "Stock Options"
below. Upon termination without cause, Mr. Ingalls would be entitled to two
years' compensation. In the event there is a material change in the ownership
or management of the Company and at any time thereafter Mr. Ingalls is either
terminated or, in his sole determination, there is a significant change in his
duties, responsibilities, principal location of employment or compensation, Mr.
Ingalls shall be vested in full in all stock options granted pursuant to his
employment agreement and shall be entitled to receive his full compensation and
other employee benefits for three years from the date of termination or his
determining that such a change has occurred. For purposes of Mr. Ingalls'
Employment Agreement, "change in control" refers to a change in the management
and "control" owners of the corporation, consisting of Johnny R. Thomas, John C.
Francis and Scott J. Loomis.
On November 18, 1997, the Company entered into an employment agreement with
Thomas B. Rice. The agreement's term runs from January 1, 1998 for four years.
Dr. Rice's salary begins at $120,000 and is subject to annual increases as
determined by the Compensation Committee. Dr. Rice also received options to
purchase up to 500,000 shares of Common Stock at prices ranging from $8.50 to
$10.00 per share vesting over four years. The agreement contains a covenant by
Dr. Rice not to compete against the Company during the term and for a two to
five-year period thereafter. Upon termination without cause, or if Dr. Rice
voluntarily terminates the agreement upon at least nine months' notice (and
assists in the transition process), Dr. Rice would be entitled to one year's
compensation from the date of involuntary termination or notice of voluntary
termination and become vested in his stock options which would otherwise become
vested 12 months from such date. In the event there is a change in the Chief
Executive Officer of the Company and at any time thereafter Dr. Rice is either
terminated or, in his sole determination, there is a significant change in his
duties, responsibilities, or compensation, Dr. Rice shall be vested in full in
all stock options granted pursuant to his employment agreement and shall be
entitled to receive his full compensation, less $1.00,
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<PAGE>
and other employee benefits for two years from the date of termination or his
determining that such a change has occurred. In addition for a one-year period
following the change of Chief Executive Officer, Dr. Rice has the option to
terminate the agreement without justification and be vested in his stock options
which would otherwise become vested on the next anniversary date of employment
and receive his full compensation for one year following such termination.
On November 19, 1997, the Company entered into an employment agreement with
Kent Schulze. The agreement's term runs from January 1, 1998 for four years. Mr.
Schulze's salary begins at $187,500 and is subject to annual increases as
determined by the Compensation Committee. Mr. Schulze also received options to
purchase up to 400,000 shares of Common Stock at prices ranging from $9.25 to
$13.25 per share vesting over four years. The agreement contains a covenant by
Mr. Schulze not to compete against the Company during the term and for a two
year period (one year if he is terminated without cause) thereafter. Upon
termination without cause Mr. Schulze would be entitled to one year's
compensation from the date of such involuntary termination and become vested in
his stock options which would otherwise become vested within 12 months from such
date. In the event there is a change in the Chief Executive Officer of the
Company, Mr. Schulze would have substantially the same rights as those granted
in Dr. Rice's agreement, described above.
Consulting Agreement
On June 17, 1997, the Company retained James W. Hopkins (the "Consultant"),
a director of the Company, pursuant to a consulting agreement for a term
commencing July 1, 1997 and continuing through June 30, 1998 (the "Consulting
Agreement"). The Company entered into the Consulting Agreement to capitalize on
the Consultant's knowledge and expertise in the seed business and to ensure that
the Consultant will not compete with ABT. The Consulting Agreement provides
that the Consultant shall provide up to 25 days of consulting services on
specific projects, as requested by the Company's Chief Executive Officer,
provided that the projects do not conflict with other seed business obligations
of the Consultant. The Consultant may also propose ideas or concepts to the
Company. The Company shall have exclusive control over deciding whether to
proceed with any proposal. In compensation for his services, the Consultant
received a retainer of options to purchase 5,000 shares of Common Stock at $5.50
per share through June 30, 1999, and shall receive $750 per day of actual
consulting services, plus pre-approved expenses. Mr Hopkins was paid $18,375
for consulting services provided during Fiscal 1998.
Stock Bonus Plan
The Company adopted an Employee Stock Bonus Plan (the "Bonus Plan")
effective May 24, 1994 providing for the issuance of up to 40,000 shares of
Common Stock per year to any employee, consultant, officer or director, up to an
aggregate of 400,000 shares for the entire Bonus Plan. Pursuant to the Bonus
Plan, employees of the Company are eligible to receive a stock bonus at the
discretion of the managing committee based on length of service and contribution
or potential value to the Company. As of the date hereof, no bonus shares have
been issued.
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<PAGE>
Stock Options
The Company has established the AgriBioTech, Inc. 1994 Employee Stock
Option Plan, as amended (the "Plan"). The Plan is intended to provide the
employees, directors, independent contractors and consultants of the Company
with an added incentive to continue their services to the Company, and to induce
them to exert their maximum efforts toward the Company's success. The Plan
provides for the grant of options to qualified directors, employees (including
officers), independent contractors and consultants of the Company to purchase an
aggregate of 3,600,000 shares of Common Stock, but no more than 300,000 options
may be granted to any one person in any two-year period. The Plan is currently
administered by the Stock Option Committee of the Board of Directors. The
Committee determines, among other things, the persons to be granted options
under the Plan, the number of shares subject to each option and the option
price.
The Plan allows the Company to grant incentive stock options ("ISOs"), as
defined in Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify under
Section 422(b) of the Code and Stock Appreciation Rights ("SARs"; collectively,
"Options") at any time within 10 years from the date the Plan was adopted. The
exercise price of ISOs may not be less than the fair market value of the Common
Stock on the date of grant, provided that the exercise price of ISOs granted to
an optionee owning more than 10% of the outstanding Common Stock may not be less
than 110% of the fair market value of the Common Stock on the date of grant. In
addition, the aggregate fair market value of stock with respect to which ISO's
were exercisable for the first time by an optionee during any calendar year
shall not exceed $100,000. Options shall have a term of no more than ten years,
except that ISOs granted to an optionee owning more than 10% of the Outstanding
Common Stock shall have a term of no more than five years and must be granted to
and exercised by employees of the Company (including officers). Options are not
transferable, except upon the death of the optionee.
At August 14, 1998, an aggregate of 1,527,659 options were outstanding
under the Plan, at prices ranging from $2.00 to $27.688, including 300,000
options to Kathleen L. Gillespie, a Vice President of the Company, 25,000 to
Kent Schulze, President, Chief Operating Officer and a Director of the Company,
and 20,000 options to an independent director of the Company. Options to
purchase an aggregate of 1,743,117 shares of Common Stock were available for
future grants under the Plan as of August 14, 1998.
In addition, as of August 14, 1998, officers, key employees and consultants
of the Company held options to purchase an aggregate of 6,102,666 shares of
Common Stock outside of the Plan, exercisable for up to ten years ending in
2006, at prices ranging from $2.00 to $25.63 per share. Ms. Gillespie held ten-
year options outside of the Plan to purchase up to an aggregate of 750,000
shares of Common Stock at $2.00 per share; Mr. Ingalls held ten-year options to
purchase up to 1,225,000 shares of Common Stock at $2.12 per share; Mr. Schulze
held five-year options to purchase up to an aggregate of 400,000 shares of
Common Stock at prices ranging from $9.25 to
47
<PAGE>
$13.25 per share, and Dr. Rice held five-year options outside of the Plan to
purchase up to an aggregate of 500,000 shares of Common Stock at prices ranging
from $8.50 to $10.00 per share. Such options vest over three to six-year
periods, and Ms. Gillespie's and Mr. Ingalls' options are immediately
exercisable for cash.
Retirement Plan
The Company has a defined contribution plan (the "401(k) Plan") which
covers all employees. Eligible employees may contribute up to 30 percent of
their annual compensation, not to exceed the statutory maximum. The Company may
make discretionary contributions. Participants are immediately vested in their
contribution and vest 20 percent per year in the Company's contributions for
each year of service after the first year. The Company made no contributions to
the 401(k) Plan in Fiscal 1997 or 1996. Beginning in January 1998, the Company
began matching employee contributions to the 401(k) Plan up to 50% of the first
4% of the employees' compensation for employees whose base compensation is
$60,000 or less. For other employees, the Company's matching will be limited to
50% of the first 2% of amounts contributed by the employees. No matching
contributions will be made for officers of the Company.
Compensation Committee Interlocks and Insider Participation
The Company has a Compensation Committee consisting of Richard P. Budd and
James W. Hopkins which has the responsibility of setting executive compensation.
There are no compensation committee (or Board of Directors) interlock
relationships with respect to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of September 23, 1998 based
on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, (ii) each Director (iii) each person named in the Summary
Compensation Table and (iv) all executive officers and Directors individually
and as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF COMMON
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) STOCK OWNED(2)
- ---------------- ------------------------- -----------------------
<S> <C> <C>
Johnny R. Thomas (3) 2,025,207 (4) 5.2%
John C. Francis 1,014,815 2.6%
Scott J. Loomis 1,174,207 3.0%
Henry A. Ingalls 1,302,378 (5) 3.3%
Kathleen L. Gillespie (12) 950,000 (6) 2.4%
Kent Schulze 100,000 (7) *
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
Thomas B. Rice 205,000 (8) *
James W. Hopkins 25,000 *
Richard P. Budd 711,368 (9) 1.8%
Quantum Partners LDC 4,562,882 (10) 11.6%
Kaya Flamboyan 9,
Willemstad, Curacao
Netherlands Antilles
All executive officers 7,507,975 (11) 19.2%
and directors as a
group (9 persons)
</TABLE>
______________________
* Less than 1%.
(1) Unless otherwise noted, the Company believes that each person has sole
voting and investment power with respect to all shares of Common Stock
beneficially owned, subject to community property laws, where applicable.
Each person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of determination upon
the exercise of warrants or options. The percentage ownership of each
person is determined by assuming that options or warrants that are held by
such person (but not those held by any other person) and which are
exercisable within 60 days from the date of determination have been
exercised.
(2) Based on 39,180,788 shares outstanding as of September 23, 1998.
(3) This persons address is c/o AgriBioTech, Inc., 120 Corporate Park Drive,
Henderson, NV 89014.
(4) Includes an aggregate of 228,500 shares of Common Stock gifted by Dr.
Thomas to his wife and children over which he retains voting power and
disposition power until the expiration of any lock-up agreement between Dr.
Thomas and any potential underwriter and up to 60,000 shares of Common
Stock which Dr. Thomas intends to gift to unaffiliated non-for-profit
charities.
(5) Includes 1,225,000 shares issuable upon exercise of currently exercisable
options (475,000 for cash only) and 13,000 shares held by Mr. Ingalls'
minor child for which Mr. Ingalls disclaims beneficial ownership.
(6) Includes 950,000 shares issuable upon exercise of currently exercisable
options (300,000 for cash only). Excludes 100,000 shares underlying
options not currently exercisable.
(7) Includes 100,000 shares issuable upon exercise of currently exercisable
options, but excludes 320,000 shares underlying options not currently
exercisable.
49
<PAGE>
(8) Includes 100,000 shares issuable upon exercise of currently exercisable
options, but excludes 400,000 shares underlying options not currently
exercisable.
(9) Includes 701,368 shares issued on January 6, 1998, in connection with the
Company's acquisition of Lofts Seed, Inc. and related entities. Mr. Budd
disclaims beneficial ownership of 1,298,632 shares owned by other former
shareholders of the acquired entities, including the Richard P. Budd
Irrevocable Living Trust. Also includes 10,000 shares issuable upon
exercise of options granted January 6, 1998 when Mr. Budd became a Director
of the Company, but excludes 10,000 shares issuable upon exercise of
options not exercisable within 60 days of the date of this Report.
(10) Includes 344,900 and 570,000 shares issuable upon conversion of Warrants
granted on May 13, 1998 and August 28, 1998, respectively. Soros Fund
Management LLC ("SFM LLC") serves as principal investment manager to
Quantum Partners LDC and as such, has been granted investment discretion
over Quantum Partners' shares. In such capacity SFM LLC may be deemed to
have voting and dispositive power over such shares. Mr. George Soros, as
Chairman of SFM LLC, and Mr. Stanley Druckenmiller, as Lead Portfolio
Manager of SFM LLC, may also be deemed to have voting power over such
shares.
(11) Includes 2,385,000 shares underlying options included for Messrs. Ingalls,
Schulze, Rice and Budd and Ms. Gillespie, respectively, in notes (4)-(9)
above.
(12) Effective July 1, 1998, Ms. Gillespie is no longer deemed to be an
executive officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1996, Dr. Thomas, and Messrs. Francis and Loomis, officers of the
Company, were granted options outside of the Plan to each purchase 1,000,000
shares of Common Stock at $3.00 per share. In May 1997, the unexercised
2,680,000 options were exercised by these officers signing promissory notes to
the Company for an aggregate of $8,040,000. Payments on these notes amounted to
$1,800,000 received by the Company through June 30, 1997 and the balance was
paid subsequent to June 30, 1997.
In May 1997, Dr. Thomas and Mr. Francis, officers of the Company, exercised
an aggregate of 300,000 Class C Warrants to purchase 300,000 shares of Common
Stock at $7.50 per share. These warrants were exercised by these officers
signing promissory notes to the Company for an aggregate of $2,250,000. Payments
on these notes amounted to $300,000 received by the Company through June 30,
1997 and the balance was paid subsequent to June 30, 1997.
50
<PAGE>
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Registrant, as amended. (1)
3.2 Amended and Restated By-Laws of the Registrant. (1)
3.3 Articles of Merger of the Registrant.(1)
3.4 Agreement and Plan of Merger.(1)
3.5 Certificate of Amendment of Articles of Incorporation. (8)
*4.1 Form of Common Stock Purchase Warrant dated May 1998.
4.2 Form of Common Stock Purchase Warrant dated August 1998. (11)
10.1 Employment Agreement between Registrant and Scott J. Loomis dated
February 1, 1994. (1)
10.2 Employment Agreement between Registrant and Johnny R. Thomas
dated March 10, 1994. (1)
10.3 Employment Agreement between Registrant and John C. Francis dated
March 24, 1994. (1)
10.4 1994 Stock Option Plan, as amended. (1)
10.5 Employee Stock Bonus Plan. (1)
10.6 Employment Agreement dated November 29, 1994 by and between
Kathleen L. Gillespie and the Registrant. (2)
10.7 Amendment, dated December 20, 1995, to Employment Agreement
between the Company and Kathleen Gillespie. (8)
10.8 Stock Option Agreement dated as of December 20, 1995 between
registrant and Kathleen L. Gillespie (ISOs). (4)
10.9 Stock Option Agreement dated as of December 20, 1995 between
Registrant and Kathleen L. Gillespie (NQSOs). (4)
10.10 Employment Agreement dated February 13, 1996 between Henry A.
Ingalls and the Registrant. (3)
10.11 Stock Option Agreement dated as of February 13, 1996 between
51
<PAGE>
Registrant and Henry A. Ingalls. (4)
________________________
*Filed with this Report.
10.12 Purchase Agreement dated October 30, 1996, by and among the
Registrant, certain subsidiaries of the Registrant, Berisford
Holdings, Inc., Germain's, Inc. and W-L Research, Inc.(5)
10.13 Stock Purchase Agreement dated May 15, 1997, by and among the
Registrant, E.F. Burlingham & Sons, G.W. Burlingham's, Inc.,
Greg McCarthy and Doug Pope.(6)
10.14 Stock Purchase Agreement dated August 22, 1997 by and among the
Registrant, Olsen Fennell Seeds, Inc., Greg S. Fennell and James
E. Olsen.(7)
10.15 Consulting Agreement dated June 17, 1997, between Kent Schulze
and the Registrant. (8)
10.16 Consulting Agreement dated June 17, 1997, between James W.
Hopkins and the Registrant.(9)
10.17 Form of Stock Purchase Agreement between AgribioTech, Inc. and each
of Quantum Partners LDC, Ardsley Partners I, L.P., Ardsley Partners
II, L.P., Ardsley Offshore Fund, Ltd., Brown Simpson Strategic Growth
Fund, Ltd. and Southbrook International Investments, Ltd. (10)
10.18 Loan and Security Agreement dated as of June 23, 1998 with Bank
America Business Credit, Inc., as agent, and Deutsche Financial
Services Corporation, as Administrative Agent. (12)
10.19 Over advance facility-amendment dated August 14, 1998 to the Loan and
Security Agreement referred to in Exhibit 10.18. (13)
10.20 Agreement and Plan of Reorganization dated December 1, 1997, by
and among the Registrant, Lofts Seed, Inc., Budd Seed Inc., Lofts
Mergerco, Inc. and the shareholders of Lofts Seed Inc. and Budd Seed,
Inc. (14)
10.21 Stock Purchase Agreement dated January 9, 1998, by and among the
Registrant, Alan Rosoff, Seed Corporation of America, Green SCA Corp.
and Green Seed Company Limited Partnership. (15)
10.22 Stock Purchase Agreement dated August 21, 1998, by and among the
Registrant and its subsidiary E.F.Burlingham & Sons, Willard W.
Mclagan, Robert R. Lowery, Thomas G. Burns, Hiram G. Olsen, The H.G.
Olsen & Ann Olsen Charitable Trust, Terry L. Shumaker, Evelyn
52
<PAGE>
J. Lacey, William W. Spurlin, Phillip J. Hawkins and Willamette Seed
Co. (16)
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of KPMG Peat Marwick LLP.
*27.1 Financial Data Schedule.
- ------------
* Filed with this Report
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 for April 29, 1994, as amended (No. 33-78470-NY).
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended June 30, 1995.
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 1996.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 filed June 28, 1996 (No. 333-07123).
(5) Incorporated by reference from the Registrant's Current Report on Form 8-K
for October 30, 1996.
(6) Incorporated by reference from the Registrant's Current Report on Form 8-K
for May 15, 1997.
(7) Incorporated by reference from the Registrant's Current Report on Form 8-K
for August 22, 1997.
(8) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB, as amended, for the fiscal year ended June 30, 1997.
(9) Identical to the Consulting Agreement between Kent Schulze and the
Registrant.
(10) Incorporated by reference from the Registrant's Current Report on Form
8-K for March 31, 1998.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
for August 28, 1998.
53
<PAGE>
(12) Incorporated by reference from the Registrant's Current Report on Form 8-K
for June 23, 1998.
(13) Incorporated by reference from Amendment No. 1 to the Registrant's Current
Report on Form 8-K for June 23, 1998.
(14) Incorporated by reference from the Registrant's Current Report on Form 8-K
for December 1, 1997.
(15) Incorporated by reference from the Registrant's Current Report on Form 8-K
for January 9, 1998.
(16) Incorporated by reference from the Registrant's Current Report on Form 8-K
for January 26, 1998.
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts appears on page S-1
of this Report, following Part IV hereof.
(b) Reports on Form 8-K:
(i) A Current Report on Form 8-K was filed for April 8, 1998 with
respect to an event on Item 5, the acquisition of Zajac Performance
Seeds, Inc.
(ii) A Current Report on Form 8-K was filed for May 22, 1998 with respect
to Item 7, setting forth the financial statements of the businesses
acquired for at least the substantial majority of the individually
insignificant subsidiaries acquired since June 30, 1997.
(iii) A Current Report on Form 8-K was filed for June 23, 1998, as
amended, with respect to an event on Item 5, the Company entering
into a Revolving Credit Facility with Bank America Business Credit,
Inc., as Agent.
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: October 6, 1998
AGRIBIOTECH, INC.
By: /s/Johnny R. Thomas
--------------------
Johnny R. Thomas,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Johnny R. Thomas Chief Executive Officer October 6, 1998
- ----------------------- (Principal Executive Officer)
Johnny R. Thomas and Director
/s/ Henry A. Ingalls Vice President and Treasurer October 6, 1998
- ----------------------- (Principal Financial and
Henry A. Ingalls Accounting Officer)
/s/ Scott J. Loomis Vice President and Director October 6, 1998
- -----------------------
Scott J. Loomis
/s/ John C. Francis Vice President, Secretary October 6, 1998
- ----------------------- and Director
John C. Francis
/s/ Kent Schulze President and Director October 6, 1998
- -----------------------
Kent Schulze
/s/ James W. Hopkins Director October 6, 1998
- -----------------------
James W. Hopkins
/s/ Richard P. Budd Director October 6, 1998
- -----------------------
Richard P. Budd
</TABLE>
55
<PAGE>
FINANCIAL STATEMENTS AND SCHEDULE OF AGRIBIOTECH, INC.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of
June 30, 1998 and 1997................................... F-3
Consolidated Statements of Operations for
the years ended June 30, 1998, 1997 and 1996 ............ F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1998, 1997 and
1996..................................................... F-6
Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1997 and 1996................. F-7
Notes to Consolidated Financial Statements - June 30,
1998, 1997 and 1996 ..................................... F-9
Schedule II - Valuation and Qualifying Accounts........... S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
AgriBioTech, Inc.:
We have audited the accompanying consolidated balance sheets of AgriBioTech,
Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1998. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed at Item 14(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgriBioTech, Inc.
and subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 28, 1998
F-2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,700,846 2,553,634
Accounts receivable, less allowance for doubtful accounts
of $2,177,442 at June 30, 1998 and $729,352 at June 30, 1997 39,503,262 17,474,887
Inventories 58,609,554 23,328,961
Notes receivable from sale of common stock - 9,990,000
Deferred income taxes 1,339,709 -
Other 1,673,903 646,508
---------------- --------------
Total current assets 103,827,274 53,993,990
Property, plant and equipment, net 47,964,522 17,864,052
Intangible assets, net of accumulated amortization 109,882,815 22,544,539
Investment in associated entity 818,182 567,235
Other assets 2,038,115 143,209
---------------- --------------
Total assets $264,530,908 95,113,025
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------------- --------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 50,329,614 24,203,431
Current installments of long-term obligations 3,251,846 1,056,770
Accounts payable 13,594,285 10,601,813
Accrued liabilities 11,251,757 3,277,051
Amounts due in connection with acquisitions - 7,300,000
------------ ----------
Total current liabilities 78,427,502 46,439,065
Long-term obligations, excluding current installments 11,029,022 2,667,609
Deferred income taxes 503,348 1,018,369
------------ ----------
Total liabilities 89,959,872 50,125,043
------------ ----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding none at June 30, 1998 and 1,100 shares
at June 30, 1997 (aggregate liquidation preference of $1,221,666) - 1
Common stock, $.001 par value; authorized 75,000,000 shares at
June 30, 1998 and 50,000,000 shares at June 30, 1997; issued
and outstanding 37,203,013 shares at June 30, 1998 and
23,743,385 shares at June 30, 1997 37,203 23,743
Capital in excess of par value 186,571,673 49,439,319
Common stock to be issued in acquisitions - 7,950,000
Accumulated (deficit) (12,037,840) (12,425,081)
------------ ----------
Total stockholders' equity 174,571,036 44,987,982
------------ ----------
Commitments, contingencies and subsequent events (notes 1, 6, 7 and 8)
Total liabilities and stockholders' equity $264,530,908 95,113,025
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $205,117,007 65,904,058 25,961,541
Cost of sales 157,796,888 49,527,150 19,235,670
------------ ------------ ------------
Gross profit 47,320,119 16,376,908 6,725,871
Operating expenses 47,579,105 17,971,813 9,636,863
------------ ------------ ------------
Earnings (loss) from operations (258,986) (1,594,905) (2,910,992)
------------ ------------ ------------
Other income (expense):
Interest expense (4,223,483) (1,691,084) (464,515)
Interest income 520,256 344,417 87,255
Earnings of associated entity 808,447 233,690 -
Other 633,507 (5,883) (35,880)
------------ ------------ ------------
Total other income (expense) (2,261,273) (1,118,860) (413,140)
------------ ------------ ------------
Earnings (loss) before income taxes (2,520,259) (2,713,765) (3,324,132)
Income tax expense (benefit) (2,907,500) - -
------------ ------------ ------------
Net earnings (loss) 387,241 (2,713,765) (3,324,132)
Discount and imputed dividends on preferred stock 84,100 3,233,426 2,317,625
------------ ------------ ------------
Net earnings (loss) attributable to common stock $ 303,141 (5,947,191) (5,641,757)
============ ============ ============
Shares of common stock used in computing earnings
(loss) per common share:
Basic 30,077,693 15,549,184 7,458,594
Diluted 32,061,546 15,549,184 7,458,594
============ ============ ============
Net earnings (loss) per common share:
Basic $ 0.01 (0.38) (0.76)
Diluted 0.01 (0.38) (0.76)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred stock Common stock Capital in
-------------------------- --------------------- excess of
Shares Amount Shares Amount par value
----------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 - $ - 7,145,200 $7,145 13,742,327
Issuance of preferred stock for cash 7,425 8 - - 7,424,992
Common stock issued for:
Services - - 10,000 10 31,490
Exercise of warrants - - 546,000 546 1,967,254
Acquisitions - - 162,343 163 608,624
Conversion of preferred stock (895) (1) 280,214 280 (279)
Exercise of options - - 250,000 250 624,750
Cancellation of options - - 150,000 150 (150)
Reduction of notes for:
Services - - - - -
Cash - - - - -
Acquisitions - - - - (343,777)
Increase in repayment amount of notes receivable - - - - 155,736
Restructuring of employee stock options - - - - 220,000
Options issued for services - - - - 185,616
Expenses of stock issuances - - - - (864,532)
Deferred compensation earned - - - - -
Net (loss) - - - - -
------- -------- ---------- -------- -----------
Balance at June 30, 1996 6,530 7 8,543,757 8,544 23,752,051
Issuance of preferred stock for cash 10,000 10 - - 9,999,990
Common stock issued for:
Services - - 15,000 15 45,885
Exercise of options - - 5,076,000 5,076 12,753,791
Exercise of warrants - - 2,116,000 2,116 6,672,844
Preferred stock converted and redeemed (15,430) (16) 7,094,226 7,094 (2,714,349)
Cancellation of options - - 750,000 750 (750)
Retirement of debt - - 148,402 148 319,852
Reduction of notes for:
Cash - - - - -
Notes receivable paid subsequent to year end - - - - -
Common stock to be issued in acquisition - - - - -
Expenses of stock issuances - - - - (1,389,995)
Reduction in deferred compensation - - - - -
Net (loss) - - - - -
------- -------- ---------- -------- -----------
Balance at June 30, 1997 1,000 1 23,743,385 23,743 49,439,319
Common stock issued for:
Cash - - 5,075,182 5,075 67,658,430
Exercise of options - - 993,005 993 3,545,432
Exercise of warrants - - 2,185,625 2,186 15,554,689
Acquisitions - - 4,867,030 4,867 51,441,971
Conversion of preferred stock (1,100) (1) 308,677 309 (308)
Reduction of indebtedness - - 30,109 30 447,841
Options issued for services - - - - 396,965
Expenses of stock issuances - - - - (1,912,666)
Net earnings - - - - -
------- -------- ---------- -------- -----------
Balance at June 30, 1998 - $ - 37,203,013 $ 37,203 186,571,673
======= ======== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Common stock Notes
to be issued Accumulated Deferred receivable from
in acquisition (deficit) compensation sale of stock Total
--------------- ------------- ------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 - (6,387,184) (358,640) (671,013) 6,332,635
Issuance of preferred stock for cash - - - - 7,425,000
Common stock issued for:
Services - - - - 31,500
Exercise of warrants - - - (1,297,800) 670,000
Acquisitions - - - - 608,787
Conversion of preferred stock - - - - -
Exercise of options - - - - 625,000
Cancellation of options - - - - -
Reduction of notes for:
Services - - - 40,499 40,499
Cash - - - 580,603 580,603
Acquisitions - - - 1,503,447 1,159,670
Increase in repayment amount of notes receivable - - - (155,736) -
Restructuring of employee stock options - - 260,000 - 480,000
Options issued for services - - - - 185,616
Expenses of stock issuances - - - - (864,532)
Deferred compensation earned - - 71,850 - 71,850
Net (loss) - (3,324,132) - - (3,324,132)
--------- ---------- ---------- --------- -----------
Balance at June 30, 1996 - (9,711,316) (26,790) - 14,022,496
Issuance of preferred stock for cash - - - - 10,000,000
Common stock issued for:
Services - - - - 45,900
Exercise of options - - - (8,040,000) 4,718,867
Exercise of warrants - - - (3,750,000) 2,924,960
Preferred stock converted and redeemed - - - - (2,707,271)
Cancellation of options - - - - -
Retirement of debt - - - - 320,000
Reduction of notes for:
Cash - - - 1,800,000 1,800,000
Notes receivable paid subsequent to year end - - - 9,990,000 9,990,000
Common stock to be issued in acquisition 7,950,000 - - - 7,950,000
Expenses of stock issuances - - - - (1,389,995)
Reduction in deferred compensation - - 26,790 - 26,790
Net (loss) - (2,713,765) - - (2,713,765)
--------- ---------- ---------- --------- -----------
Balance at June 30, 1997 7,950,000 (12,425,081) - - 44,987,982
Common stock issued for:
Cash - - - - 67,663,505
Exercise of options - - - - 3,546,425
Exercise of warrants - - - - 15,556,875
Acquisitions (7,950,000) - - - 43,496,838
Conversion of preferred stock - - - - -
Reduction of indebtedness - - - - 447,871
Options issued for services - - - - 396,965
Expenses of stock issuances - - - - (1,912,666)
Net earnings - 387,241 - - 387,241
--------- ---------- ---------- --------- -----------
Balance at June 30, 1998 - (12,037,840) - - 174,571,036
========= ========== ========== ========= ===========
</TABLE>
F-6
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 387,241 (2,713,765) (3,324,132)
Adjustments to reconcile net earnings (loss) to net
cash flows from operating activities:
Amortization 2,694,936 253,985 103,740
Depreciation 2,043,420 902,326 475,218
Equity in earnings of associated entity (808,447) (233,690) -
Deferred income taxes (2,947,914) - -
Common stock and options for services 396,965 72,690 143,849
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable (2,260,461) 1,822,905 (4,599,458)
Inventories (706,340) 1,898,354 (796,105)
Other assets 275,784 418,751 92,862
Accounts payable (13,302,854) (4,596,592) 1,446,661
Accrued liabilities 2,937,757 (351,890) 768,930
------------ ---------- ----------
Net cash flows from operating activities (11,289,913) (2,526,926) (5,688,435)
------------ ---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (6,930,355) (1,073,239) (504,395)
Additions to intangible assets (24,620) (19,228) (155,000)
Distributions from associated entity 557,500 348,095 -
Acquisitions (66,903,637) (25,790,301) (5,960,585)
------------ ---------- ----------
Net cash flows from investing activities (73,301,112) (26,534,673) (6,619,980)
------------ ---------- ----------
Cash flows from financing activities:
Net proceeds (repayments) of short-term debt 3,238,582 13,986,911 4,104,779
Additions to long-term obligations 7,559,848 1,037,717 -
Reductions of long-term obligations (12,854,332) (1,278,265) (696,096)
Sale of common stock 67,663,505 - -
Exercise of options 3,546,425 4,718,867 625,000
Exercise of warrants 15,556,875 2,924,960 670,000
Sale of preferred stock - 10,000,000 7,425,000
Redemption of preferred stock - (2,707,271) -
Expenses of stock issuance (1,912,666) (1,389,995) (864,532)
Expenses of debt issuance (750,000) - -
Restructuring of employee stock options - - 480,000
Payments on amount due in connection with acquisition (7,300,000) - -
Payments received on notes receivable from
sale of stock 9,990,000 1,800,000 1,663,630
------------ ---------- ----------
Net cash flows from financing activities 84,738,237 29,092,924 13,407,781
------------ ---------- ----------
Net increase in cash and cash equivalents 147,212 31,325 1,099,366
Cash and cash equivalents at beginning of year 2,553,634 2,522,309 1,422,943
------------ ---------- ----------
Cash and cash equivalents at end of year $2,700,846 2,553,634 2,522,309
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Interest paid $ 4,361,808 1,536,469 364,993
============ ============ ============
Non cash investing and financing activities:
Accrued costs of acquisition $ 1,038,000 1,167,322 -
Common stock issued in settlement of debt 447,871 320,000 -
Common stock issued in acquisitions 43,496,838 - -
Common stock to be issued in acquisition - 7,950,000 -
Debt issued in connection with acquisitions 4,457,000 - 1,250,000
Increase in warrant exercise price - - 155,736
Receivable from exercise of options and warrants - 11,790,000 1,297,800
Reduction of notes receivable for acquisitions - - 1,853,587
Notes receivable paid subsequent to year end - 9,990,000 -
Options granted for services - - 185,616
Notes receivable from sale of stock - - 161,023
Discount on notes receivable from sale of stock - - 343,777
============ ============ ============
Summary of assets and liabilities acquired through acquisitions:
Cash $ 1,367,211 567,566 5,641
Accounts receivable 19,767,914 11,796,067 1,949,016
Inventories 34,574,253 18,171,587 4,642,531
Property, plant and equipment 25,213,535 9,821,994 5,794,703
Intangible assets 88,970,592 22,094,688 330,193
Other assets 2,448,085 1,341,835 218,390
Accounts payable and accrued expenses (20,294,275) (12,209,690) (2,388,781)
Long-term and short-term debt (34,729,445) (7,790,489) (1,216,870)
Deferred income taxes (1,093,184) (1,018,369) -
------------ ------------ ------------
Net assets acquired $116,224,686 42,775,189 9,334,823
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998, 1997, and 1996
1) Corporate Organization and Acquisitions
---------------------------------------
a) Business
--------
AgriBioTech, Inc. ("ABT" or the "Company") is a vertically integrated
agricultural seed company specializing in developing, breeding,
processing, packaging and distributing varieties of forage (hay crops)
and cool season turfgrass seeds. The Company also distributes corn,
soybean and other seeds. Since January 1, 1995, the Company has
followed a business strategy to acquire established, regionally based
seed companies with proprietary products and established research,
production and distribution channels in their respective markets in
order to consolidate and vertically integrate the forage and turfgrass
sector of the seed industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect 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.
Approximately 11%, 15%, and 5% of the Company's sales for the years
ended June 30, 1998, 1997, and 1996 were to customers in foreign
countries.
b) Acquisitions
------------
The Company's business strategy is to consolidate and vertically
integrate the forage and turfgrass sector of the seed industry while
transforming its business from being composed of primarily commodity
type products to proprietary value-added products. To accomplish this,
the Company has acquired a number of seed businesses since January 1,
1995. Historically, the agreements for the acquisitions involved the
Company taking effective control of the acquired businesses as of a
mutually agreed upon date that preceded the closing date when
consideration was transferred to the sellers. Subsequent to the
effective date, the businesses were operated by the sellers on behalf
of and for the benefit or liability of the Company under the direct
supervision and control of the Company. This enabled the Company to
begin the process of integrating the acquired operations into those of
the Company as of the designated effective date. For accounting
purposes, the Company has included the acquired businesses in its
consolidated financial statements as of such effective dates. The
Company has not recognized the effects of the acquisition of a business
prior to the date that the seller conveys in a written agreement
effective control of the business to the Company without restrictions
other than those required to protect the owners of the acquired
business. At such effective date, there have been no substantive
conditions or material terms of the acquisition agreement remaining to
be resolved and all risks and rewards of ownership of the business pass
to the Company. Due to the size of the Company and the internal focus
on integration of acquired businesses, the Company has changed its
acquisition practices, to operate and acquire businesses at the closing
date, instead of the effective date, for acquired businesses not
included in the Company's March 31, 1998 consolidated financial
statements. Accordingly, as of April 1, 1998, the Company records
acquired businesses at their closing dates.
F-9
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Through June 30, 1998, the Company has completed the following acquisitions:
<TABLE>
<CAPTION>
Company Acquisition Date Purchase Price
------- ---------------- (In millions)
------------
<S> <C> <C>
Seed Resource, Inc January 1, 1995 $ 1.1
Scott Seed Co. March 1, 1995 1.5
Hobart Seed Company April 1, 1995 1.7
Sphar Seed July 1, 1995 0.3
Halsey Seed Company July 1, 1995 1.1
Arnold-Thomas Seed Service, Inc. October 1, 1995 0.9
Clark Seeds, Inc. October 1, 1995 2.2
Doug Conlee Seed Company January 1, 1996 0.6
Michigan Hybrid Seed June 30, 1996 Nil
Beachley-Hardy Seed February 1, 1996 4.1
W-L Research, Inc. and Germain's, Inc. September 1, 1996 16.2
E. F. Burlingham & Sons April 1, 1997 9.6
The Sexauer Company April 1, 1997 3.2
Olsen Fennell Seeds, Inc. June 1, 1997 15.2
Lacrosse Seed Corporation July 1, 1997 7.0
Lofts Seed, Inc. and affiliates January 1, 1998 33.1
Seed Corporation of America and affiliates January 1, 1998 9.2
Zajac Performance Seeds, Inc. January 1, 1998 6.6
Van Dyke Seed Co., Inc. January 1, 1998 8.2
Las Vegas Fertilizer Co., Inc. January 1, 1998 12.4
Discount Farm Center, Inc. January 24, 1998 3.1
Kinder Seed, Inc. February 1, 1998 3.5
Ohio Seed Company March 1, 1998 3.8
Peterson Seed Co., Inc. May 22, 1998 6.3
W-D Seed Growers, Inc. June 25, 1998 12.1
</TABLE>
The net purchase price of these acquisitions was paid through approximately
6.0 million shares of ABT common stock valued at approximately $52.9 million
based on the market price of ABT's common stock when the terms of the
agreements were reached with the remainder paid in cash or seller provided
financing. Each acquisition was recorded using the purchase method of
accounting.
Pro forma results of operations (unaudited) assuming the above acquisitions had
occurred at the beginning of the periods presented are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $310,928,741 318,164,828
Net earnings (loss) 2,866,546 1,693,846
Net earnings (loss) attributable to common stock 2,782,446 1,539,580
Net earnings (loss) per share:
Basic 0.07 (0.06)
Diluted 0.07 (0.06)
</TABLE>
Subsequent to June 30, 1998, the Company has completed the following
acquisitions:
<TABLE>
<CAPTION>
Company Acquisition Date Purchase Price
------- ----------------
<S> <C> <C>
</TABLE>
F-10
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(In millions)
-------------
<S> <C> <C>
Geo. W. Hill & Co. (KY) July 8, 1998 $ 6.3
Fine Lawn Research, Inc. July 8, 1998 2.7
Geo. W. Hill of Indiana, Inc. July 10, 1998 1.5
J & M Seed Company July 21, 1998 3.4
Willamette Seed Company August 21, 1998 13.6
Allied Seed Company August 28, 1998 14.0
Oseco, Inc. September 1, 1998 4.3
Garden West September 18, 1998 6.5
</TABLE>
The net purchase price of these acquisitions was paid through 340,505
shares of ABT common stock valued at approximately $5.6 million based on
the market price of ABT's common stock when the terms of the agreements
were reached with the remainder paid in cash or seller provided financing.
Each acquisition will be recorded using the purchase method of accounting.
Pro forma results of operations (unaudited) assuming the acquisitions
completed at June 30, 1998 and those completed after that date had occurred
at the beginning of the periods presented are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $428,715,173 434,066,115
Net earnings (loss) (989,023) (601,433)
Net earnings (loss) attributable to common stock (1,073,123) (3,834,859)
Net earnings (loss) per share:
Basic (0.03) (0.14)
Diluted (0.03) (0.14)
</TABLE>
In certain acquisitions, the Company has guaranteed the sellers will
receive an amount equal to the value assigned to the common stock in the
acquisition if the stock is sold pursuant to a schedule provided in a lock
up agreement. The status of these guarantees is discussed in note 7 of
Notes to Consolidated Financial Statements. In addition, the Company will
receive a portion of proceeds from the sale of the Company's common stock
by the former owners of certain of such acquired businesses at prices in
excess of certain amounts stated in the agreements.
2) Significant Accounting Policies
-------------------------------
a) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany accounts have been eliminated.
b) Cash and Cash Equivalents
-------------------------
Cash equivalents consist of financial instruments with original
maturities of no more than ninety days.
c) Inventories
-----------
Inventories, consisting primarily of seed and related products, are
stated at the lower of cost (first-in, first-out) or market.
d) Property, Plant, and Equipment
------------------------------
F-11
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives
of the assets. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets is determined by a
comparison of the carrying amount of an asset to undiscounted future net
cash flows expected to be generated by the asset. If an asset is
considered to be impaired, the impairment is measured by the excess of its
carrying amount over its fair value.
e) Intangible Assets
-----------------
Intangible assets are stated at cost and primarily consist of goodwill and
covenants not to compete related to the Company's seed business. Goodwill
is amortized using the straight-line method over the expected benefit
period of up to 40 years with a weighted average of 30.5 years at June 30,
1998 and 31.5 years at June 30, 1997. Covenants not to compete are
amortized using the straight-line method over the lives of agreements,
ranging from 3 to 8 years. The recoverability of intangible assets is
evaluated whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company assesses
the recoverability of goodwill and measures any impairment by determining
whether the amortization of goodwill over its remaining life can be
recovered through undiscounted future cash flows from the acquired
business.
f) Investment in Associated Entity
-------------------------------
The Company records its 50% investment in SeedBiotics, L.L.C., acquired
effective September 1, 1996, using the equity method of accounting and
records its share of the associated entity's income or loss as other income
or expense. A summary of financial information for SeedBiotics, LLC is as
follows:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets $ 705,080 163,623
Fixed assets 1,350,677 1,139,147
Other assets 2,288 3,204
---------- ---------
Total assets $2,058,045 1,305,974
========== =========
Liabilities and Members Equity
Current liabilities $ 425,825 128,417
Long-term liabilities - 1,232
Equity 1,632,220 1,176,325
---------- ---------
Total liabilities and equity $2,058,045 1,305,974
========== =========
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $4,236,467 1,970,316
Cost of sales 1,778,634 1,017,216
---------- ---------
Gross profit 2,457,833 953,100
Operating expenses 842,281 484,634
Other income (expense) 1,344 (1,086)
---------- ---------
Net earnings $1,616,896 467,380
========== =========
</TABLE>
g) Income Taxes
------------
F-12
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income taxes are provided under Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 requires that
---------------------------
deferred income taxes be provided on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes using the asset and liability method. Under this
method, deferred income taxes are computed based on the enacted tax rates
scheduled to be in effect when such differences reverse.
h) Revenue Recognition
-------------------
The Company recognizes revenue when product is shipped to customers and
title passes. Revenue is reduced by a reserve for estimated returns.
i) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred and aggregated
$2,271,466, $1,170,703, and $59,836 in the years ended June 30, 1998, 1997,
and 1996, respectively.
j) Employee Stock Options
----------------------
Under Accounting Principles Board Opinion No. 25, the Company does not
record compensation for stock options granted to employees unless the
exercise price is less than the quoted market price of the Company's common
stock at the measurement date. The Financial Accounting Standards Board
("FASB") has issued SFAS No. 123 which allows the Company to continue its
present policy or, alternatively, to record a compensation element for
stock options granted to employees on the "fair value based method" which
generally uses a modeling technique to calculate the fair value of options
issued. The Company has elected to continue its present method of
accounting for employee stock options. Had the Company adopted the
alternative method provided by SFAS No. 123, the net earnings (loss), net
earnings (loss) attributable to common stock, net earnings (loss) per share
basic, and net earnings (loss) per share - diluted would have been
$(392,213), $(476,313), $(0.02), and $(0.02) for the year ended June 30,
1998, ($3,603,236), ($6,836,662), ($0.44) and ($0.44) for the year ended
June 30, 1997, and ($3,561,625), ($5,879,250), ($0.79), and ($0.79) for the
year ended June 30, 1996. The weighted-average grant-date fair value of
options granted was $14,706,256 in the year ended June 30, 1998, $644,035
in the year ended June 30, 1997, and $5,288,928 in the year ended June 30,
1996. Such computations were made using the Black-Scholes modeling
technique. The modeling technique requires the utilization of assumptions,
the weighted-average of which for the years ended June 30, 1998, 1997, and
1996 were 5.9%, 5.8%, and 5.7% for risk-free interest rate; 2.9 years, 2.2
years, and 3.0 years for expected life; 55%, 37%, and 47% for expected
volatility; and 0%, 0%, and 0% for expected dividends.
k) Earnings/ (Loss) Per Common Share
---------------------------------
For all periods presented, the Company has applied SFAS No. 128, Earnings
Per Share, which specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company is required to make a
dual presentation on the face of the income statement of "basic" earnings
per share, based on the average number of common shares outstanding during
each period without any dilution, and "diluted" earnings per share,
reflecting all dilution from contingently issuable securities.
For the year ended June 30, 1998, net earnings attributable to common stock
was used to compute basic earnings per share and discount and imputed
dividends on preferred stock were added back to such amount to
compute diluted earnings per share. The components of shares of common
stock used in computing earnings per share were as follows:
<TABLE>
<S> <C>
Basic (weighted average shares outstanding) 30,077,693
Options and warrants 1,737,394
Convertible preferred stock 246,459
----------
</TABLE>
F-13
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
Diluted 32,061,546
==========
</TABLE>
The above table does not reflect anti-dilutive options to purchase
1,575,449 shares of common stock and anti-dilutive warrants to purchase
586,500 shares of common stock that were outstanding at June 30, 1998. Due
to losses in the years ended June 30, 1997 and 1996, all contingently
issuable shares, consisting of options, warrants, and convertible preferred
stock, are anti-dilutive and have been excluded for those periods.
l) Recently Adopted Accounting Standards
-------------------------------------
The FASB has issued SFAS No. 130 effective for years beginning after
December 15, 1997, which requires all changes in the equity of an
enterprise to be reported as total comprehensive income, except those
resulting from investments by owners and distributions to owners. The
Company has not had significant items in the past which would have been
impacted by SFAS No. 130. SFAS No. 130 will have no impact on the Company's
financial position, results of operation, or cash flows and any effects
will be limited to supplemental disclosure.
The FASB has issued SFAS No. 131 effective for years beginning after
December 15, 1997 which requires the presentation of certain information
about an enterprise's operating segments, products and services, geographic
areas of operation, and major customers. The Company has not completed
its analysis of SFAS No. 131 or the impacts, if any, on its financial
statements.
In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs
------------------------
of Computer Software Developed or Obtained for Internal Use, was issued.
------------------------------------------------------------
The SOP requires that certain costs related to the development or purchase
of internal-use software be capitalized and amortized over the estimated
useful life of the software. The SOP also requires that costs related to
the preliminary project stage and the post-implementation/operations stage
of an internal-use computer software development project to be expensed as
incurred. The SOP is effective for fiscal years beginning after December
15, 1998 and is to be applied on a prospective basis. The Company's
current practice is materially consistent with the SOP.
m) Reclassification
----------------
Certain amounts in the prior year financial statements have been
reclassified to be comparable to the current year presentation.
3) Property, Plant, and Equipment
------------------------------
A summary of property, plant, and equipment is as follows:
<TABLE>
<CAPTION>
Useful Lives June 30,
------------ --------
1998 1997
---- ----
<S> <C> <C> <C>
Land - $ 7,968,555 3,753,400
Buildings 12 to 40 years 24,511,420 8,540,058
Equipment 1 to 25 years 18,740,672 7,001,782
----------- ----------
Total property, plant, and
equipment 51,220,647 19,295,240
Less accumulated depreciation 3,256,125 1,431,188
----------- ----------
Property, plant, and equipment,
net $47,964,522 17,864,052
=========== ==========
</TABLE>
4) Intangible Assets
-----------------
Intangible assets consist of:
F-14
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Goodwill $101,449,406 20,877,101
Covenants not to compete 10,472,550 1,666,875
Other - 302,200
----------- ----------
Total intangible assets 111,921,956 22,846,176
Less accumulated amortization 2,039,141 301,637
------------ ----------
Intangible assets, net $109,882,815 22,544,539
============ ==========
</TABLE>
5) Long-Term Obligations
---------------------
A summary of long-term obligations is as follows:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Notes and mortgages payable; repayable in principal
payments of $1,347,872 annually plus interest at
7.9% to 10%; secured by property, plant and $ 9,495,300 2,245,631
equipment
Unsecured notes payable 1,120,449 232,456
Covenants not to compete 3,041,250 517,917
Deferred Compensation 283,333 255,128
Other 340,536 473,247
----------- ---------
Total long-term obligations 14,280,868 3,724,379
Less current installments 3,251,846 1,056,770
----------- ---------
Long-term obligations, excluding current
installments $11,029,022 2,667,609
=========== =========
</TABLE>
Required principal payments are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
-------------------- ------
<S> <C>
1999 $3,251,846
2000 1,915,375
2001 1,859,819
2002 1,513,670
2003 1,440,272
</TABLE>
6) Short-Term Debt
---------------
The Company has a credit facility with BankAmerica Business Credit, Inc.
and certain other financial institutions that includes a $100 million
revolving line of credit, of which approximately $50.0 million was
outstanding at June 30, 1998, including items in process of collection. The
amount available under the revolving line of credit is limited to the sum
of 85 percent of the Company's eligible receivables less than 60 days past
due and 65 percent of eligible inventory and is secured by substantially
all of the Company's assets, except fixed assets and real estate. The
Company can borrow up to the maximum amount under the line of credit,
subject to the limitations of the borrowing base and compliance with
certain covenants. All proceeds realized from inventory and receivables are
used to repay amounts outstanding under the revolving line of credit.
Accordingly, the revolving line of credit is classified as a current
liability although it matures in June 2001. Interest on the revolving line
of credit is at the Bank of America's reference rate plus 1.125 percent
(9.625% at June 30, 1998) or the LIBOR rate plus 2.375 percent (8.0% at
June 30, 1998), at the Company's option. All borrowings at June 30, 1998
were at the reference rate. In addition, the Company pays a commitment fee
F-15
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of 0.25 percent of the unused line of credit. Initially borrowings under
the revolving line of credit were used to pay off amounts under three
separate short-term credit facilities and certain items of term debt. The
average interest rate on short-term debt outstanding at June 30, 1997 was
9.0%. On August 14, 1998, the Company and BankAmerica Business Credit
amended the revolving line of credit to provide for borrowings of $15
million in excess of amounts allowed under the borrowing base computation.
This additional borrowing carries a fixed interest rate of 18 percent and
expires on December 31, 1998. At September 28, 1998, approximately $86.0
million was outstanding and $14 million was available under the revolving
line of credit.
On July 3, 1998, the Company entered into a bridge loan agreement in the
amount of $15 million with Deutsche Bank, AG. The loan is unsecured and
matures on January 4, 1999. At the Company's option, interest on the loan
is at Deutsche Bank's base rate or LIBOR rate plus 3.50 percent prior to
September 7, 1998, 5.50 percent above such rates from then to November 7,
1998 and 7.50% above such rates thereafter. At September 28, 1998, the
entire $15 million was outstanding.
The Company is in compliance with its debt agreements or has obtained
waivers of instances of non-compliance.
7) Capital Stock
-------------
To fund the acquisitions described above and to finance operations to date,
the Company has entered into numerous arrangements to raise equity capital.
Prior to July 1, 1995, the Company issued warrants to purchase the
Company's common stock as part of a private placement of the Company's
common stock for cash. The "Class A Warrant" entitled the holder to obtain
one share of ABT's common stock and a warrant (the "Class B Warrant") upon
payment of the exercise price of $3.50 through January 17, 1996. The Class
B Warrant entitled the holder to obtain one share of ABT's common stock and
a warrant (the "Class C Warrant") upon the payment of the exercise price of
$5.00 through January 17, 1997. The Class C Warrant entitled the holder to
obtain one share of ABT's common stock upon payment of the exercise price
of $7.50 through January 17, 1998. The Company also issued Class A Warrants
to a consultant for assistance with investor relations, strategic planning,
funding plans, and other corporate activities. The terms of the warrants
gave the Company the discretion to lower the exercise price, extend the
expiration date, call the warrants even when the exercise price was below
the current market price, and to arrange for stand-by purchasers in the
event holders did not exercise the warrants.
To accelerate the raising of capital, the Company reduced the exercise
price of certain of its warrants at various times. In addition, the Company
allowed certain warrants to be exercised through promissory notes that were
transferable and non-interest bearing. The common stock underlying the
exercise of these warrants was held in escrow by the Company until the
promissory notes were paid. All of the Class A, Class B, and Class C
Warrants were exercised prior to their expiration.
A summary of activity in the Company's warrants is as follows:
<TABLE>
<CAPTION>
Year ended June 30
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 2,185,625 2,685,625 2,500,000
Issued 586,500 1,616,000 731,625
Exercised 2,185,625 2,116,000 546,000
--------- --------- ---------
Outstanding at end of year 586,500 2,185,625 2,685,625
========= ========= =========
</TABLE>
The warrants outstanding at June 30, 1998 are exercisable through May 12,
2001 to purchase one share of the Company's common stock at $17.50. The
Company can force the warrants to be converted into common stock if the
closing sale price of the Company's common stock exceeds $25.00 for 15
consecutive trading days.
In April 1996, the Company completed a private placement of convertible
preferred stock and issued 7,425 shares of Series B Convertible Preferred
Stock. The Company received cash proceeds, after commissions, of $6,608,250
from the issuance of the Series B Convertible Preferred Stock. The
placement agent in this transaction received warrants to purchase 185,625
shares of the Company's common stock at $3.00 per share. In September 1996,
the Company completed a private placement of 10,000 shares of Series C
F-16
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Convertible Preferred Stock at $1,000 per share, receiving gross proceeds of
$10,000,000. The Company paid commissions and selling expenses of 13% of the
gross proceeds. These series of preferred stock (collectively, the "Preferred
Stock") were not entitled to dividends and were not mandatorily redeemable by
the Company. The Preferred Stock was convertible into shares of common stock
equal to the original amount of issuance plus a premium, divided by a
conversion price that was the lesser of 80 percent of the average closing bid
price for the Company's common stock for the five days prior to conversion or
a set amount. In the event of a conversion when the average closing bid price
of the Company's common stock was lower than a stated amount, the Company had
the option of redeeming for cash, at the average closing bid price, the shares
of common stock issuable upon such conversion. At June 30, 1998, all of the
Preferred Stock had been converted into common stock or redeemed.
When the Company issued the Preferred Stock, the Company determined the
economic substance of the Preferred Stock was equivalent to common stock. This
conclusion was reached because the documents authorizing the Preferred Stock
provide that the holders of the Preferred Stock are not entitled to receive
dividends, the Company has no requirements to make any cash payments with
respect to the Preferred Stock, and the ultimate satisfaction of the Preferred
Stock would be through conversion into common stock, either by the election of
the holders or automatically at the future date provided by the underlying
documents. Accordingly, the Company did not reflect any accounting
consequences of the conversion features of the Preferred Stock or account for
dividends on the Preferred Stock. In March 1997, an announcement was made at
a meeting of the FASB's Emerging Issues Task Force (Topic No. D-60) setting
forth the position of the staff of the Securities and Exchange Commission (the
"Staff") regarding securities containing conversion features allowing for
conversion into common stock at a discount from future quoted market prices.
The Staff stated that an allocation of the proceeds from the issuance of the
securities should be made to the conversion feature and the resulting discount
is analogous to a dividend that should be recognized as a return to the
holders of the securities over the period between issuance and when the
securities first become convertible. The Staff's position is reflected in the
accompanying financial statements. The discounts and imputed dividends were
attributed to capital in excess of par value and, therefore, resulted in no
change in stockholders' equity.
On January 5, 1996, the Company entered into an eighteen-month consulting
agreement to assist the Company with investor communications and relations.
In consideration of the agreement, the Company granted the consultant a five-
year option to purchase 2,000,000 shares of the Company's common stock
exercisable at $1.81 per share, which equaled the market price at the grant
date. The Company determined that the value of the investor communications
and relations services to be received under this agreement was $108,000, which
was amortized over the term of the agreement. In August 1996, the Company
entered into another agreement with the consultant under which the consultant
surrendered rights to 1,550,000 of the options. In exchange, the Company
issued 750,000 shares of its restricted common stock to the consultant. The
options surrendered by the consultant were transferable by their original
terms and were assigned to persons, primarily stockholders of the Company,
whom the Company believed would exercise them and provide capital to the
Company. At the time of this arrangement, the market price of the Company's
common stock exceeded the exercise price of the options. The difference
between the market price and the exercise price, deemed to be a preferential
dividend to these stockholders for accounting purposes, aggregated
approximately $1.8 million. However, since the Company had no retained
earnings, such amount would be charged to capital in excess of par value and
would be offset by a deemed contribution to capital in excess of par value
resulting in no change in stockholders' equity. All of these options have
been exercised.
In March 1996, the Company entered into a bridge financing agreement, pending
the completion of the Series B Convertible Preferred Stock issuance described
above, under which the Company borrowed $1,000,000 from an individual, who was
also a stockholder of the Company. The loan was repaid from the proceeds of
the Series B Convertible Preferred Stock offering. Under the agreement,
interest was paid on the loan at 9 percent per annum and the lender was
granted a five-year option to purchase 500,000 shares of the Company's common
stock exercisable at $2.50 per share, which equaled the market price at the
F-17
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
grant date. The Company has imputed $27,616 of additional interest expense
under this agreement to reflect the relative risk undertaken by the lender.
In addition, the Company granted a five year option to purchase 250,000 shares
of the Company's common stock exercisable at $2.50 per share to the agent for
the lender, who was also a consultant to the Company. The Company determined
that the compensation attributable to the agent's services was $50,000, which
was amortized over the term of the loan agreement. In June 1996, the Company
entered into an additional agreement with the holders of these options under
which the holders surrendered the 750,000 options in exchange for being issued
225,000 shares of common stock, the fair value of which approximated the fair
value of the options at such date. Of these options, 500,000 were cancelled
and 250,000 were transferred to an unrelated party who received 175,000 shares
of common stock upon exercise of these options for cash of $625,000 and the
relinquishment of 150,000 Class B Warrants, which were exercisable at $5.00
per share. The value of the common stock received by such unrelated party
equaled the $625,000 paid in cash. No expense was recorded in connection with
these transactions since they were exchanges of equity instruments of equal
value.
The Company has (1) an Employee Stock Option Plan (the "ESOP") under which
options for the purchase of up to 3,600,000 shares of common stock may be
granted to qualified employees, officers and directors, employees of
subsidiaries, independent contractors, consultants, and other individuals and
(2) an Employee Stock Bonus Plan under which up to 400,000 shares of common
stock may be issued to qualified full-time employees. The ESOP is
administered by a committee of non-employee members of the Company's Board of
Directors, who have complete discretion to select the optionee and the terms
and conditions of each option. The exercise price of the options cannot be
less than the fair market value of the Company's common stock on the date of
grant and options may not be exercised more than ten years from the date of
grant. At June 30, 1998, the Company had outstanding options under the ESOP
for the purchase of 1,559,579 shares of common stock at prices ranging from
$2.00 to $27.688 per share, of which 595,670 were exercisable. No shares have
been issued under the Employee Stock Bonus Plan.
The Company has also granted options outside of the ESOP for the purchase of
the Company's common stock to officers and key employees of the Company,
including those of acquired businesses. These options are exercisable at
prices ranging from $2.00 to $25.625 and expire five to ten years from the
date of grant. The options become exercisable over periods of three to five
years. Options for 6,116,116 shares were outstanding at June 30, 1998 of which
2,892,367 were exercisable.
Following is a summary of activity in the Company's options for employees and
directors:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1998 1997 1996
------------------ ------------------ --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
price Number price Number price Number
------ ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year $ 2.70 3,948,600 $2.63 5,751,500 $ - -
Issued 11.41 4,774,113 3.54 1,467,400 2.63 5,751,500
Exercised 3.85 (843,005) 2.93 (3,226,000) - -
Forfeited 6.57 (204,013) 3.75 (44,300) - -
------ --------- ----- ---------- ------ ---------
Outstanding at end of
Year $ 7.85 7,675,695 $2.70 3,948,600 $2.63 5,751,500
====== ========= ===== ========== ===== =========
Exercisable at end of
Year $ 4.73 3,488,037 $2.28 2,810,200 $2.59 5,590,500
====== ========= ===== ========== ===== =========
</TABLE>
The following summarizes certain information regarding stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Total Exercisable
----------------------- -------------------
<S> <C>
</TABLE>
F-18
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Weighted-
Weighted- average Weighted-
average remaining Average
Exercise exercise contractual Exercise
price Number Price life (years) Price Number
----- ------ ----- ----------- ----- ------
<S> <C> <C> <C> <C> <C>
$2.00 to $2.12 2,275,000 $ 2.06 7.6 $ 2.07 2,175,000
$2.13 to $5.00 1,108,916 3.91 5.1 3.96 569,684
$5.01 to $8.00 1,018,930 5.92 4.3 6.09 57,997
$8.01 to $11.00 846,400 9.12 4.5 8.80 215,033
$11.01 to $14.00 875,100 12.45 4.6 12.65 157,283
$14.01 to $17.00 952,256 15.02 4.8 15.00 184,047
$17.01 to $27.688 599,093 20.50 4.7 21.25 128,993
--------- ------ --- ------ ---------
Total 7,675,695 $ 7.85 5.5 $ 4.73 3,488,037
========= ====== === ====== =========
</TABLE>
In connection with acquisitions where the previous owners received ABT common
stock as part of the purchase price, such stock is subject to "lock-up
agreements" which limit the amount of common stock that the previous owners of
these entities can sell within specified time periods. In addition, the
Company guaranteed the proceeds to be received by the previous owners of
certain of these entities from the sale of the common stock if sold in
accordance with the lock-up agreements. The Company has not been required to
make any payments under these guarantees. At June 30, 1998, the Company had
guaranteed proceeds to the previous owners aggregating $6.4 million from the
sale of 616,249 shares of ABT common stock through June 30, 1999. At
September 28, 1998, by the stated terms of the agreements, such guaranteed
proceeds has been reduced to $4.4 million from the sale of 450,449 shares. In
addition, the Company has guaranteed that the owners of certain acquisitions
completed subsequent to June 30, 1998 will receive proceeds of $3.5 million
from the sale of 221,150 shares of the Company's common stock issued in such
acquisition if sold through June 30, 2000 pursuant to the respective lock-up
agreements. To secure the Company's guarantee, the previous owners have a lien
on certain items of property, plant, and equipment of the acquired businesses,
subordinated to existing mortgage financing. Any difference between the
guaranteed proceeds and the proceeds received by the previous owners will be
paid in cash by the Company
The closing price for the Company's common stock on September 28, 1998 was
$11.75 per share and the range of closing prices has been as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
July 1, 1995 - June 30, 1996 $ 5.4375 1.625
July 1, 1996 - June 30, 1997 6.9375 2.0625
July 1, 1997 - June 30, 1998 29.00 6.03125
July 1, 1998 September 28, 1998 25.75 8.125
</TABLE>
In August 1998, the Company sold 1,752,820 shares of common stock and 886,410
warrants for an aggregate of $17,438,649. Each warrant is exercisable through
August 27, 2001 to purchase one share of the Company's common stock at $12.00.
The Company can force the warrants to be converted into common stock if the
closing sale price of the Company's common stock equals or exceeds $19.50 per
share for 20 out of any 30 consecutive trading days.
8) Commitments
-----------
The Company contracts with growers to produce a substantial portion of its
proprietary seed requirements, which the Company would be obligated to
purchase upon delivery by the growers. These contracts are typically for one
to four growing seasons and are generally renewed or replaced with other
growers.
F-19
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company rents office space, land, warehouse space, vehicle, and
equipment under agreements expiring through the year 2000. Total rent
expense was approximately $1.3 million, $0.3 million, and $0.2 million for
the years ended June 30, 1998, 1997 and 1996. Rent commitments under
agreements longer than one year as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1999 $2,207,268
2000 1,379,847
2001 997,862
2002 712,590
2003 541,604
</TABLE>
To meet the information systems requirements necessitated by the large
number of acquisitions, the Company has contracted for the hardware,
software and consulting services to implement an "enterprise resource
planning" system for all of the Company's operations. This system is
designed to be compliant with reaching the year 2000. The Company estimates
the total cost of this project, including internal costs, will not exceed
$6 million, of which approximately $1 million has been incurred as of June
30, 1998.
9) Income Taxes
------------
The Company reported no income tax expense or benefit for the years ended
June 30, 1997 and 1996 due to operating losses in those periods and, as
required by SFAS No. 109, the deferred tax assets generated by those
operating losses being fully offset by a valuation allowance since, at that
time, the Company was unable to conclude it was more likely than not that
the deferred tax assets will be realized. The provision for income tax
attributable to operations for the year ended June 30, 1998 consists of the
following:
<TABLE>
<CAPTION>
Year ended
June 30, 1998
-------------
<S> <C>
Current tax expense:
Federal $ -
State 40,414
-----------
Total current tax expense 40,414
-----------
Deferred tax expense:
Federal (2,708,891)
State (239,023)
-----------
Total deferred tax expense (benefit) (2,947,914)
-----------
Total income tax expense (benefit) $(2,907,500)
===========
</TABLE>
The principal elements causing the Company's income tax provision to differ
from the expected federal statutory rate of 34% were as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------- -------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected income tax based on statutory rate $ (856,888) (922,680) (1,130,205)
Effect of valuation allowance (2,356,203) 949,241 1,098,000
Amortization of goodwill 256,900 - -
State income taxes, net of federal benefit (4,991) (53,733) -
Other 53,682 27,172 32,205
----------- -------- ----------
Total income tax expense (benefit) $(2,907,500) - -
=========== ======== ==========
</TABLE>
Deferred tax liabilities and assets as of June 30, 1998 and 1997 relate to the
following:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $(4,508,960) (665,866)
Other (478,453) (644,718)
----------- -----------
Total deferred tax liabilities (4,987,413) (1,310,584)
----------- -----------
Deferred tax assets:
Net operating loss carryforwards from operations 3,415,910 2,969,241
Net operating loss carryforwards from stock options 3,415,311 -
Inventory capitalization 718,283 -
Allowance for doubtful accounts 566,746 102,148
Inventory obsolescence 408,782 246,646
Other 714,054 265,004
----------- ----------
Total gross deferred tax assets 9,239,086 3,583,039
Less valuation allowance 3,415,311 3,290,824
----------- ----------
Net deferred tax assets 5,823,775 292,215
----------- ----------
Net deferred tax assets (liabilities) $ 836,632 (1,018,369)
=========== ==========
</TABLE>
SFAS No. 109 provides that deferred taxes should be determined by first
identifying types and amounts of existing temporary differences, the nature
and amount of each type of operating loss carryforward, and the remaining
length of the carryforward period. Total deferred tax liabilities and
deferred tax assets are then measured by applying the enacted tax rate to the
existing differences. In addition, deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not (a likelihood of more than 50 percent) that some portion or
all of the deferred tax assets will not be realized. Accordingly, the
valuation allowance should be sufficient to reduce the deferred tax asset to
the amount that is more likely than not to be realized. A change in judgment
about the realizability of the related deferred tax asset in future years
ordinarily shall be included in income from operations. Future realization of
the tax benefit of an existing deductible temporary difference or carryforward
depends on the existence of sufficient taxable income within the period of
reversal or the carryforward period available under the tax law and/or future
reversals of existing deferred tax liabilities. The reversal of existing
deferred tax liabilities, including tax planning strategies applied to the
timing of the reversals, will be available to offset all but approximately
$0.8 million of the deferred tax assets prior to the expiration of loss
carryforwards, for which the Company will need to generate approximately
$2.2 million over the next 15 years from future taxable income exclusive of
reversing temporary differences to fully realize the Company's deferred tax
assets related to operations at June 30, 1998.
The Company's business objective is to consolidate the forage and turfgrass
sector of the seed industry and to then transform this sector from a low
margin, commodity oriented business to a high margin, proprietary, value-added
business, so that the Company is the partner of choice through which
biotechnology will be introduced into this sector. The Company has undertaken
an aggressive acquisition strategy to gain the critical mass necessary to
achieve this objective. Consistent with the expected trends of a strategy
which initially requires the building of infrastructure at the expense of
revenue growth, the Company has always anticipated losses for both financial
reporting and income tax purposes in the early years of implementing its
strategy, with such losses decreasing over time toward becoming both
profitable and taxable. The Company reported book losses of approximately
$3.3 million and $2.7 million for 1996 and 1997, respectively. The tax losses
from operations reported for 1996, 1997, and 1998 were approximately $2.6
million, $1.8 million, and $1.1, million respectively. Through the year ended
June 30, 1997, the Company could not conclude that it was more likely than not
it would realize the deferred tax assets and had established a valuation
allowance for its deferred tax assets. Through the quarter ended March 31,
1998, the Company reported approximately $1.4 million of year-to-date book
income before taxes, and forecast increasing future profits based on the
assumptions of increased revenue growth, synergies to occur from the
integration of acquired companies, and reduced product costs to be obtained
through vertical integration. Based on this current performance and
projections, the Company concluded it was more likely than not that the
deferred tax assets would be realized, and removed the valuation allowance,
resulting in an income tax benefit of approximately $2.9 million in the
quarter ended March 31, 1998.
For income tax purposes, the Company receives a deduction for the difference
between the exercise price of certain stock options and the market price of
the Company's common stock at the date of exercise, even though there is no
compensation recorded for financial reporting purposes. During the year ended
June 30, 1998, the Company received approximately $9.2 million of such tax
deductions. Pursuant to APB Opinion No. 25 and SFAS No. 109, the tax benefits
resulting from the exercise of such options is to be recognized as a credit
directly to equity. The deferred tax asset for the year ended June 30, 1998,
attributable to the tax deductions from stock option exercises was $3,415,311.
The tax benefits from the realization of the loss carryforwards related to the
stock options will be the last benefits of the carryforwards recognized for
financial reporting purposes. The Company was not able to conclude that it is
more likely than not it will realize the deferred tax asset pertaining to this
loss carryforward, resulting in the Company establishing a valuation allowance
of $3,415,311 for the deferred tax asset from this loss carryforward. When
the deferred tax asset relating to the loss carryforward from stock option
deductions is realized, those benefits will be credited directly to equity,
and will not be reflected in the Company's statement of operations. In
addition, unexpected events occurring in the fourth quarter resulted in an
overall book loss before taxes for the year ended June 30, 1998, resulting in
the Company establishing a valuation allowance of $591,711.
Further, in accordance with SFAS No. 109, the valuation allowance was adjusted
during the current year pursuant to the interrelationship of deferred tax
calculations and applying the purchase method of accounting for acquired
businesses. Under SFAS No. 109, the deferred tax consequence of an
acquisition is measured as the difference between the acquiror's net deferred
tax asset or liability just prior to the acquisition and the combined entity's
net deferred tax asset or liability just after the acquisition. During the
current year, the Company reduced the valuation allowance by $934,621 as a
result of deferred tax calculations pursuant to acquisitions. The offset of
this entry was a reduction in goodwill of the respective acquired companies.
The adjustments to the valuation allowance described above resulted in a net
increase to the valuation allowance for the year of $124,487. A summary of the
valuation allowance adjustments is provided below.
<TABLE>
<S> <C>
Valuation allowance at June 30, 1997 $ 3,290,824
Increase from losses related to stock options 3,415,311
Increase from losses on current year activity 591,711
Reduction for expected realization of future benefits (2,947,914)
Reduction pursuant to deferred tax calculation on acquisitions (934,621)
-----------
Valuation allowance at June 30, 1998 $ 3,415,311
===========
</TABLE>
The Company has reported operating losses for income tax purposes. The
utilization of losses that originated prior to June 30, 1992 are limited in
each year to an amount equal to the Federal long-term tax exempt interest rate
times the entity's market value at the time of change in ownership. The
Company believes that the effect of these limitations will be to limit the
utilization of pre-1993 net operating loss carryforwards to approximately
$25,000 annually through the year 2007. The Company also has reported
approximately $795,000 of additional net operating loss carryforwards from
a company acquired during the year ended June 30, 1998 that will only be
available to offset future income generated by such acquired company. The
net operating losses, including the losses acquired, expire, if unused, as
follows:
<TABLE>
<CAPTION>
Loss from Loss from Total
Year ending June 30 Operations Stock Options Carryforward
------------------- ---------- ------------- ------------
<S> <C> <C> <C>
2001 - 2006 $ 350,000 - 350,000
2007 514,888 - 514,888
2008 443,691 - 443,691
2009 932,712 - 932,712
2010 1,354,706 - 1,354,706
2011 2,678,019 - 2,678,019
2012 1,834,113 - 1,834,113
2013 1,124,059 9,230,571 10,354,630
---------- ---------- ----------
Total $9,232,188 9,230,571 18,462,759
========== ========== ==========
</TABLE>
10) Retirement Plan
---------------
The Company has a defined contribution plan which covers all employees.
Eligible employees may contribute up to 30 percent of their annual
compensation, not to exceed the statutory maximum. The Company may make
discretionary contributions. Participants are immediately vested in their
contribution and vest 20 percent per year in the Company's contributions
for each year of service after the first year. The Company made a
contribution of $98,864, none, and none for the years ended June 30, 1998,
1997, and 1996.
11) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents, accounts receivables,
accounts payable and short-term debt approximate fair value due to the
short maturity periods of these instruments. The fair value of the
Company's long-term obligations based on the present value of the cash
flows from those obligations was approximately $13.2 million at June 30,
1998 using an assumed interest rate of 8.5%, and $3.7 million at June 30,
1997 using an assumed interest rate of 8.5%.
F-20
<PAGE>
Schedule II
AgriBioTech, Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
------------------------------
Beginning Acquired Bad Debt Ending
Description Balance In Acquisition Expense Write-Offs Balance
----------- ------- -------------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts for the Year Ended:
- --------------------------------------------------
June 30, 1998 $ 729,352 1,522,827 298,394 373,131 2,177,442
June 30, 1997 104,773 548,160 208,196 131,777 729,352
June 30, 1996 46,661 33,830 33,151 8,869 104,773
</TABLE>
S-1
<PAGE>
Exhibit 4.1
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. (THE "ACT") OR ANY APPLICABLE STATE SECURITIES LAWS
AND THE SECURITIES MAY NOT BE OFFERED OR SOLD, UNLESS THE SECURITIES ARE
REGISTERED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS, OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT OR ANY APPLICABLE STATES
SECURITIES LAWS IS AVAILABLE.
Warrant to Purchase _______ Shares of Common Stock
REDEEMABLE WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
AGRIBIOTECH, INC.
This is to certify that, FOR VALUE RECEIVED, ________________ ("Holder")
having an office at __________________________________________________, is
entitled to purchase, subject to the provisions of this Warrant, from
AgriBioTech, Inc., a Nevada corporation (the "Company"),_____________________
(_______) fully paid, validly issued and non-assessable shares of Common Stock
(the "Common Stock"), par value $.001 per share, of the Company at any time or
from time to time for three years from the date hereof until 5:00 PM. Pacific
Time, on May 12, 2001, at a price of $17.50 per share. This Warrant was issued
at a cost of $1.50 per share as part of the Units sold on this date by the
Company to the Holder, each Unit consisting of two shares of Common Stock and
one Warrant sold at a cost of $29.00 per Unit.
The number of shares of Common Stock to be received upon the exercise of
this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as
<PAGE>
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part
-------------------
(but no partial exercise shall be for less than ten thousand (10,000) Warrant
Shares) at any time or from time to time on or after the date hereof and until
May 12, 2001; provided, however, that if such day is a day on which banking
institutions in the State of Nevada are authorized by law to close, then this
Warrant may be exercised on the next succeeding day which shall not be such a
day. This Warrant may be exercised by presentation and surrender hereof to the
Company at its principal office or to the Company's warrant agent, if any has
been so appointed, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price, in cash or by certified or bank
cashier's check, for the number of Warrant Shares specified in such form. As
soon as practicable after each such exercise of the Warrants, the Company shall
issue or cause to be issued and delivered to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise, registered in
the name of the Holder. The Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of any such exercise,
provided such exercise is in accordance with the provisions set forth herein.
If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares purchasable thereunder In such denominations requested by the
Holder, but not to purchase less than 10,000 Warrant Shares. Upon receipt by
-2-
<PAGE>
the Company of this Warrant at its office in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be physically delivered to the Holder.
Notwithstanding the foregoing, commencing ninety (90) days from the date
hereof, if, and only if, at the time of exercise of this Warrant, the Warrant
Shares are not saleable pursuant to an effective registration statement, then in
addition to the exercise of all or a part of this Warrant by payment of the
Exercise Price in cash as provided above, and in lieu of such payment, the
Holder shall have the right at any time and from time to time as provided above
to exercise this Warrant in whole or in part by surrendering this Warrant in
exchange for the number of shares of Common Stock equal to the product of (x)
the number of shares as to which this Warrant is being exercised multiplied by
(y) a fraction the numerator of which is the current market value of the Common
Stock less the Exercise Price then in effect and the denominator of which is the
current market value (in each case adjusted for fractional shares as herein
provided).
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
----------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or script representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. No
adjustment shall be made in respect of cash dividends on Warrant Shares
delivered upon exercise of any Warrant. With respect to any fraction of a share
called for upon exercise hereof, the Company shall pay to the Holder an
-3-
<PAGE>
amount in cash equal to such fraction multiplied by the average closing bid and
asked prices of the Common Stock on the last available date for which quotations
are available immediately preceding the date of exercise of this Warrant, or if
the bid and asked prices are not so reported, then the current market value
shall be an amount, not less than the book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(d) EXCHANGE OR LOSS OF WARRANT. This Warrant is exchangeable, without
---------------------------
expense, at the option of the Holder, upon presentation and surrender hereof to
the Company for other Warrants of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common Stock
purchasable hereunder. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof at the principal
office of the Company with a written notice specifying the denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company or its warrant agent, if
any, of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except
-4-
<PAGE>
to the extent set forth herein and in any warrant agreement entered into by and
between the Company and a warrant agent with respect to the Warrants. In the
event the Company enters into a warrant agreement with a warrant agent, the
terms of the Warrant shall be embodied in the warrant agreement; and the
acceptance of this Warrant by the Holder shall be deemed consent by the Holder
for the Company to enter into any such warrant agreement, upon such terms and
conditions mutually agreeable between the Company and any such warrant agent,
provided such warrant agreement does not adversely affect any of the rights of
the Holder, as set forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. After each adjustment of the Exercise Price
------------------------
pursuant to this Section (f), the number of shares of Common Stock purchasable
upon the exercise of the Warrant shall be the number of Warrant Shares
receivable upon exercise thereof prior to such adjustment multiplied by a
fraction the numerator of which shall be the original Exercise Price as defined
above and the denominator of which shall be such adjusted Exercise Price. The
Exercise Price shall be subject to adjustment as set forth below:
(i) In the event that the Company shall hereafter (A) pay a dividend
or make a distribution on its Common Stock in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class), (B)
subdivide its outstanding shares of Common Stock, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, the Exercise Price in effect immediately prior to such action shall
be adjusted so that the Holder of any Warrant thereafter exercised shall be
entitled to receive the number of shares of capital stock of the Company which
the Holder would have owned immediately following such
-5-
<PAGE>
action had such Warrant been exercised immediately prior thereto. An adjustment
made pursuant to this subsection shall become effective immediately after the
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(ii) No adjustment in the Exercise Price shall be required to be made
unless such adjustment would require an increase or decrease of at least $.10;
provided, however, that any adjustments which by reason of this subsection are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section (f) shall be made to
the nearest cent or to the nearest one-one hundredth of a share, as the case may
be, but in no event shall the Company be obligated to issue fractional shares
upon the exercise of any Warrant.
(iii) No adjustment of the Exercise Price shall be made except on
the conditions set forth in this Section (f). Without limitation to the
foregoing, there shall be no adjustment pursuant to this Section (f) should the
Company issue any capital stock for cash or other consideration on terms
approved by the Board of Directors.
(iv) In the event of any change of outstanding shares of Common Stock
issuable upon exercise of the Warrants (other than a change in par value or from
par value to no par value or from no par value to par value or as a result of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a Subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification or change of the then outstanding shares of
Common Stock or other capital stock issuable upon exercise of the Warrants other
than a change in par
-6-
<PAGE>
value or from par value to no par value or from no par value to par value) or in
the case of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, then, as a condition of
such change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provision whereby the Holder of the Warrants shall have the right
thereafter to receive on exercise of such Warrant the kind and amount of shares
of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock issuable upon exercise of such Warrant
immediately prior to such change, consolidation, merger, sale or conveyance.
Such provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided elsewhere in this
Section (f). The above provisions of this Section (f) shall similarly apply to
successive consolidations, mergers, sales or conveyances.
(v) Before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value of the shares of Common Stock
issuable upon exercise of the Warrants, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
the Company at such adjusted Exercise Price.
(g) REGISTRATION RIGHTS. Section 3, with the heading "Registration," of
--------------------
the Securities Purchase Agreement executed on the date hereof pursuant to which
this Warrant was issued is incorporated here in by reference and shall govern
the registration of the Warrant Shares.
-7-
<PAGE>
(h) TRANSFERABILITY; INVESTMENT REPRESENTATION. This Warrant shall be
------------------------------------------
fully transferrable, except as provided herein. No transfer may take place in
violation of any securities laws or regulations. By accepting this Warrant, the
Holder acknowledges that it is being taken for his own account as principal, for
investment purposes only, and not with a view to, or for, resale (except to or
with the Company's consent), distribution or fractionalization thereof, in whole
or in part, and no other person has a direct or indirect beneficial interest in
such Warrant and such Warrant may only be transferred, subject to compliance
with the legend set forth on the first page. Unless the shares issuable upon
the exercise of this Warrant are registered under the Securities Act of 1933, as
amended (the "Act"), the Holder, upon exercise of this Warrant will be required
to provide the Company with an investment letter and the certificates
representing such shares will contain a legend to the effect that the Holder may
not transfer, sell, pledge or hypothecate such shares unless the registration
provisions of the Act have been complied with and unless the Company has
received an opinion of counsel that such registration is not required.
(i) MANDATORY CONVERSION/REDEMPTION. This Warrant may be automatically
-------------------------------
converted by the Company into Common Stock, if it has not previously been
exercised, upon five (5) business days prior written notice (the sixth business
day being the "Conversion Date") to the Holder of the Company's intent to
exercise the right of mandatory conversion, if the Closing sale price of the
Company's Common Stock has exceeded $25.00 per share, as subject to adjustments
consistent with those in paragraph (f) above, for fifteen (15) consecutive
trading days, ending within fifteen (15) calender days of the Company's
transmitting the notice of conversion in accordance with the notice provisions
set forth in Section (j) below.
-8-
<PAGE>
During the five business days following the Company's transmitting the notice of
conversion, the Holder shall retain all rights to exercise this Warrant.
In the event that the Holder fails to exercise this Warrant, in whole or in
part, before the Conversion Date, the Holder shall be paid a redemption price of
$.01 per unexercised Warrant. In the event that the Warrants are redeemed by the
Company, then simultaneous with the redemption, the Warrants shall be deemed to
have been assigned by the Holder to the designees of the Company who have agreed
to act as standby purchasers to the unexercised Warrants.
The Warrant Shares shall be delivered to the Holder of converted Warrants
within five (5) business days after the Conversion Date specified in the notice
of such conversion to such Holder; provided, however, that the Company shall not
be obligated to deliver any Warrant Shares unless either the Warrants are
delivered to the Company or its Warrant agent as provided in Section (a), or the
Holder notifies the Company or the Warrant Agent that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such certificates.
In the event that neither the Warrants are delivered to the Company or its
Warrant Agent or a satisfactory indemnity is not delivered to the Company as set
forth in the preceding sentence prior to the Conversion Date, the Holder's right
to convert this Warrant shall terminate and be null and void and the Company
shall have the right to have this Warrant transferred on its transfer books to a
standby purchaser who shall be entitled to exercise same. The transfer shall be
deemed to have occurred simultaneous with the Conversion Date.
(j) NOTICES. All notices and other communications which are required or
--------
may be
-9-
<PAGE>
given under this Warrant shall be in writing and shall be deemed to have been
duly given when delivered in person or transmitted by facsimile, one (1) day
after being sent by overnight courier service or three (3) days after being
mailed, postage prepaid, in the case of the Company to 120 Corporate Park Drive,
Henderson, Nevada 89014, and in the case of the Holder to the address set forth
herein, with a copy to ____________________________________________________, or
to such other address as such party shall have specified by notice to the other
party hereto. If notice is given by registered or certified first class mail,
postage prepaid, return receipt requested, the return receipt shall be
conclusive evidence of the notice having been mailed on the date set forth.
(k) MISCELLANEOUS. This Agreement contains the entire Agreement and
--------------
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Warrant may not
be changed orally, but only by an agreement in writing signed by the party
against whom any waiver, change, amendment, modification or discharge is sought,
provided, however, that this Warrant may be amended or modified without the
consent of the Holder if such amendment or modification does not adversely
affect the rights of the Holder hereunder. This Agreement will not be assigned
by either party hereto and shall be interpreted under the laws of the State of
Nevada without application to the principles of conflicts of laws.
[Remainder of this page intentionally left blank.]
-10-
<PAGE>
AGRIBIOTECH, INC.
ATTEST:
By:_______________________
_________________________ Henry A. Ingalls, Chief
Financial Officer
Dated: May 13, 1998
-11-
<PAGE>
PURCHASE FORM
-------------
Dated ______________, 19__
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ____________shares of Common Stock and hereby makes
payment of ______________________________ in payment of the actual exercise
price thereof.
--------------------------------
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Social Security No. TIN number________________________________
Signature__________________________________________
-12-
<PAGE>
EXHIBIT 21.1
AGRIBIOTECH, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY OTHER NAMES UNDER STATE OF INCORPORATION
- ---------- ----------------- ----------------------
WHICH SUBSIDIARY
----------------
DOES BUSINESS
-------------
- -------------------------------------------------------------------------------
<S> <C> <C>
Arnold-Thomas Seed Nevada
Service, Inc.
- -------------------------------------------------------------------------------
Arrowhead Enterprises, J & M Seed Kentucky
Inc.
- -------------------------------------------------------------------------------
Clark Seeds, Inc. Allied Seed Idaho
- -------------------------------------------------------------------------------
Discount Farm Center, South Dakota
Inc.
- -------------------------------------------------------------------------------
E.F. Burlingham & Sons Van Dyke Seed Oregon
- -------------------------------------------------------------------------------
Fine Lawn Research, Inc. Kentucky
- -------------------------------------------------------------------------------
Garden West Arizona
Distributors, Inc.
- -------------------------------------------------------------------------------
George W. Hill & Co., Kentucky
Inc.
- -------------------------------------------------------------------------------
George W. Hill of Indiana
Indiana, Inc.
- -------------------------------------------------------------------------------
G. W. Burlingham's Inc. Guam
- -------------------------------------------------------------------------------
Germain's Seeds,Inc. Nevada
- -------------------------------------------------------------------------------
Green SCA Corp. Maryland
- -------------------------------------------------------------------------------
Green Seed Company Maryland
Limited Partnership
- -------------------------------------------------------------------------------
Halsey Seed Company Beachley-Hardy Seed Nevada
- -------------------------------------------------------------------------------
Kinder Seed, Inc. New York
- -------------------------------------------------------------------------------
LaCrosse Seed Company, Michigan Hybrid Seed Nevada
Inc. Seed Mart
- -------------------------------------------------------------------------------
Las Vegas Fertilizer LVF Turf & Irrigation Nevada
Co., Inc. Supply
- -------------------------------------------------------------------------------
Lofts Seed Company, Inc. Lofts Great Western Nevada
- -------------------------------------------------------------------------------
Ohio Seed Company Ohio Harvest Ohio
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARY OTHER NAMES UNDER STATE OF INCORPORATION
- ---------- ----------------- ----------------------
WHICH SUBSIDIARY
----------------
DOES BUSINESS
-------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Olsen Fennell Seeds, Oregon
Inc.
- -------------------------------------------------------------------------------
Oseco Inc. Ontario
- -------------------------------------------------------------------------------
Peterson Exports, Inc. Minnesota
- -------------------------------------------------------------------------------
Peterson Seed Company, Knipple Seed Minnesota
Inc.
- -------------------------------------------------------------------------------
Premium Seed Company, Minnesota
Inc.
- -------------------------------------------------------------------------------
Precision Seed Coaters Oseco Arizona
Inc.
- -------------------------------------------------------------------------------
Rothwell Seeds Nova Scotia
International
Company
- -------------------------------------------------------------------------------
Scott Seed Company Holden Seed
Sphar Seed Nevada
- -------------------------------------------------------------------------------
Seed Corporation of Maryland
America Mock Seed
- -------------------------------------------------------------------------------
Seed Resource, Inc. Hobart Seed Nevada
- -------------------------------------------------------------------------------
Sexauer Seed Co. Northern Plains Seed Nevada
- -------------------------------------------------------------------------------
Stanford Holdings, Ltd. Discount Farm New York
- -------------------------------------------------------------------------------
W-D Seed Growers Idaho, Idaho
Inc.
- -------------------------------------------------------------------------------
W-L Research, Inc. Nevada
- -------------------------------------------------------------------------------
Wilber's Seed, Inc. Minnesota
- -------------------------------------------------------------------------------
Willamette Seed Co. Oregon
- -------------------------------------------------------------------------------
Zajac Performance Seeds, New Jersey
Inc.
- -------------------------------------------------------------------------------
Zajac Performance Seeds Oregon
Oregon, LLC
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 23.1
The Board of Directors
AgriBioTech, Inc.:
We consent to incorporation by reference in the registration statements
Nos. 333-33367, 333-13953, 333-47637 and 333-61127 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 28, 1998, relating to the consolidated
balance sheets of AgriBioTech, Inc. and subsidiaries as of June 30, 1998 and
1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1998 and related schedule, which report appears in the
June 30, 1998 Form 10-K of AgriBioTech, Inc.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
October 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,700,846
<SECURITIES> 0
<RECEIVABLES> 41,680,704
<ALLOWANCES> 2,177,442
<INVENTORY> 58,609,554
<CURRENT-ASSETS> 103,827,274
<PP&E> 51,220,647
<DEPRECIATION> 3,256,125
<TOTAL-ASSETS> 264,530,908
<CURRENT-LIABILITIES> 78,427,502
<BONDS> 11,029,022
0
0
<COMMON> 37,203
<OTHER-SE> 174,533,833
<TOTAL-LIABILITY-AND-EQUITY> 264,530,908
<SALES> 205,117,007
<TOTAL-REVENUES> 205,117,007
<CGS> 157,796,888
<TOTAL-COSTS> 157,796,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,223,483
<INCOME-PRETAX> (2,520,259)
<INCOME-TAX> (2,907,500)
<INCOME-CONTINUING> 387,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 387,241
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
