<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-KSB/A
AMENDMENT NO. 3
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-19352
AGRIBIOTECH, INC.
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(Name of small business issuer 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)
Issuer's telephone number, including area code: (702) 566-2440
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Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under 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 past 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-B 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-KSB or any
amendment to this Form 10-KSB [_].
The issuer's revenues for its most recent fiscal year were $65,904,058.
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of September 26, 1997, was $212,627,936 (assuming solely for
purposes of this calculation that all directors, officers and greater than 5%
stockholders of the Registrant are "affiliates").
The number of shares outstanding of the issuer's common stock, par value
$.001 per share, as of September 19, 1997, was 25,282,222
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Documents Incorporated by Reference: Not Applicable.
Exhibit Index is located on page ____
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PART I
ITEM 1. DESCRIPTION OF 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
Drive, 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
lack of profitability, need to manage its growth, intense competition in the
seed industry, seasonality of quarterly results, and other risks detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.
OVERVIEW
ABT is the largest agricultural seed company in the United States that
specializes in developing, processing, packaging and distributing varieties of
forage and cool season turfgrass seeds. Since January 1, 1995, the Company has
completed 14 acquisitions and has grown from essentially zero sales in calendar
1994 to a current annualized level of net sales of approximately $145 million
per annum. The Company has also executed letters of intent to acquire two
additional companies with aggregate annual net sales of approximately $85.4
million. The Company's vertically integrated forage and turfgrass seed
operations include research and development through traditional genetic breeding
programs for most forage and cool season turfgrass species, seed processing
plants that clean, condition and package ABT's products, and national and
international distribution and sales networks.
The Company estimates aggregate annual revenue for the United States forage
and turfgrass seed sectors, in which the Company sells its products is
approximately $1.1 billion, with revenue evenly divided between forage and
turfgrass seeds. According to the U.S. Department of Agriculture ("USDA"),
approximately 61 million acres of forage crops were harvested for hay during
1996, generating cash hay sales of approximately $12 billion. Forage seed sales
are driven primarily by the size of the animal population for milk and meat
production (high protein foodstuffs) and for recreational activities (e.g.,
horse industry). Recent efforts in underdeveloped countries to increase the
level of protein in diets have created strong demand for forage crops, while
declining arable (suitable for farming) land has resulted in slight declines in
worldwide forage acreage.
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The Company estimates that turfgrass seed consumption has increased at
average annual rates of between 6% and 9% during the period from 1987 to 1997,
primarily due to increased housing starts, increased appreciation by homeowners
of the added value of higher quality turfgrass and growth in the number of golf
courses and recreational parks. The Company believes that at December 31, 1996,
there were approximately 25 million acres of lawns, golf courses, parks and
roadway medians in the United States. The Company believes the increasing
demand for both forage and turfgrass will place ABT in a particularly
advantageous position with respect to its competitors in both the forage
turfgrass markets.
From its inception, ABT has implemented a business strategy designed to (i)
lead the consolidation of the forage and turfgrass seed sectors, (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 biotechnology enhanced varieties. Through its
efforts to consolidate these sectors, the Company has generated operating
efficiencies, including better utilization of personnel and inventory,
elimination of redundant resources and decreased administrative expenses. The
Company intends to expand development of proprietary genetically enhanced seed
varieties using traditional research, as well as fund biotechnology research to
accelerate product development. Management believes, based on its knowledge of
the industry, that ABT-maintains a leading position in the industry with respect
to elite forage and turfgrass germplasm (i.e., the chromosomes and genes of
seeds) through its traditional research and development program of its
subsidiaries, including W-L Research's alfalfa program and E.F. Burlingham's
turfgrass program. Management measurers its leading position generally by size
or scope and quality as gauged by the number of employees, dollars spent, plant
variety patents held, the relative performance of varieties (which verifies the
quality of germplasm) and frequency of developing breakthrough products. The
Company 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 based on its leading position with
respect to elite forage and turfgrass germplasm. See "Research and Development"
below.
FORAGE AND TURFGRASS INDUSTRY
INDUSTRY OVERVIEW
The Company estimates aggregate annual revenues for the United States
forage and turfgrass seed sector, in which the Company sells its products, is
approximately $1.1 billion, with revenue approximately evenly divided between
forage and turfgrass seeds.
The following (omitted) bar graph illustrates the relative size of the
forage and turfgrass seed sectors in comparison with other crops, based on the
most recently available USDA Statistics. The graph is entitled Revenue of Major
U.S. Seed Segments, Estimated 1996. It shows (in bars less than two inches
high) estimated revenue (in billions) for corn ($1.6 billion), soybean ($.7
billion), forage and turfgrass ($1.3 billion), commercial vegetables ($.4
billion) and home garden vegetables ($.3 billion). A footnote appears stating
that the Company excludes from its potential market approximately $0.2 billion
of annual sales in the forage and turfgrass seed sectors retailed to city
homeowners.
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,
and 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 (omitted) bar graph is
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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).
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 yields. For
example, approximately 75% of all alfalfa hay is grown east of the Mississippi
River, while 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 graphs 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.
TURFGRASS
Turfgrass is utilized in home lawns, golf courses, parks, cemeteries, and
roadway medians. Domestic turfgrass seed consumption has increased primarily as
a result of increased housing starts and the growth in the number of golf
courses. The Company estimates that there were approximately 15,700 golf
courses in the United States in 1996, compared with approximately 13,400 in
1986, an increase of 17%.
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
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appears here. It shows a circular progression using arrows and several small
(less than one inch high) illustrations and includes the following text:
Research. Develops Genetically Superior Proprietary 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. 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. However, because contracts are based on
acreage, excess seed produced by high yields must either be carried as inventory
by seed processing companies, or they must seek alternative distribution
channels or methods.
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.
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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 turfgrass seed to a wide variety of customers.
These include sales direct 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.
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 declined. As
demand for meat and dairy animals increases and arable acreage decreases,
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 $111 million metric tons in 1990 to 126 million
metric tons in 1996 (estimated).
WORLD RED MEAT CONSUMPTION
(IN MILLIIONS OF METRIC TONS)
[PERFORMANCE CHART APPEARS HERE]
SOURCE: U.S. Department of Agriculture
In the United States, the decline in arable acreage is less severe. 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
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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 economics 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 decreasing 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.
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
lawns, golf courses, parks and roadway medians which use turfgrass seed in the
United States alone. The Company also estimates American consumers spent $13.4
billion on professional lawns and landscape services in 1994, an increase of 7%
over 1993 and that there were approximately 15,700 golf courses in the United
States in 1996, compared with approximately 13,400 in 1986, an increase of 17%.
The Company believes turfgrass users are increasingly demanding higher
turfgrass quality and as a result, average maintenance costs and pesticide use
are also rising. The Company believes that the increasing demands for high-
quality turfgrass, combined with consumers' desires to reduce maintenance costs
and pesticide usage, will likely create a market for genetically enhanced
turfgrass.
INDUSTRY ECONOMICS
The forage and turfgrass seed sectors have historically been low margin
businesses due to their 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 turfgrass seed sectors has the potential to further expand margins.
Outlined
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below is an allocation of the estimated purchase price for public, proprietary
and enhanced value-added alfalfa varieties to the various stakeholders in the
production and distribution value chain.
ALLOCATION OF THE WHOLESALE SEED DOLLAR PER POUND (ALFALFA EXAMPLE)
<TABLE>
<CAPTION>
Enhanced
Public Proprietary Value-added
Varieties Varieties Varieties
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<S> <C> <C> <C> <C> <C> <C>
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%
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BUSINESS STRATEGY
OPERATING STRATEGY
The Company's strategy as the market share leader for the forage and cool
season turfgrass seed sectors is to develop and market value-added proprietary
seeds that meet the yield and quality needs of forage farmers and the
increasingly stringent 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 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 these sectors, 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 turfgrass seed sectors 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
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proprietary seed varieties with value-added characteristics that improve yield,
nutritional quality, persistence, and insect and disease tolerance for forages
and quality, color, persistence and insect and disease tolerance for
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 turfgrass seed sectors into high margin
businesses 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 sales force, which currently markets and sells goods
in 45 states and 26 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 turfgrass seed sectors and increasing their level of sales,
improving the Company's product mix and realizing operating efficiencies.
CONSOLIDATION OF FORAGE AND TURFGRASS SEED SECTORS. ABT plans to continue
to build the premier forage and turfgrass seed company in the United States by
acquiring and integrating attractive companies which specialize in research and
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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 thereby developing
synergies in operations.
INCREASING SALES OF HIGHER MARGIN PROPRIETARY SEEDS. ABT believes
opportunities exist to enhance profitability in the forage and turfgrass seed
sectors through increased sales of higher-margin proprietary seeds. The Company
believes forage seed customers will place a premium on new valued added
varieties that increase their profitability through increased sales, greater
milk or meat production or higher margins. The Company believes turfgrass seed
customers will also seek new products that improve turf quality while at the
same time decreasing maintenance costs and decreasing environmental pollution
from chemicals previously used to control plant pests.
REALIZATION OF ECONOMIES AND OPERATING EFFICIENCIES. As ABT continues to
consolidate the forage and turfgrass seed sectors, 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. In Fiscal 1997, the Company achieved a reduction in operating
expenses as a percentage of sales to approximately 27% from 37% in Fiscal 1996.
ACQUISITION PROGRAM
Since the Company commenced its acquisition program in January 1995, it has
acquired all or part of 14 seed companies and has signed letters of intent to
acquire two additional seed businesses, all as set forth in the table below.
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AGRIBIOTECH, INC.
ACQUISITIONS
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
ANNUAL REVENUE PURCHASE
EFFECTIVE AT ACQUISITION PRICE HEADQUARTERS AT DESCRIPTION
AGRIBIOTECH ACQUISITIONS DATE (IN MILLIONS) (IN MILLIONS) ACQUISITION OF BUSINESS
(1)
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<S> <C> <C> <C> <C> <C>
Seed Resource, Inc. Jan 95 $ 1.6 $ 1.1 Tulia, TX Markets proprietary sorghum,
sudan grass, ryes & millets in
the U.S., Mexico and Europe.
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Scott Seed Company Mar 95 $ 5.5 $ 1.5 New Albany, IN Markets proprietary alfalfa
varieties, clover varieties,
pasture mixes, turfgrass
varieties and corn hybrids
throughout Kentucky and Southern
Indiana.
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Hobart Seed Company Apr 95 $ 3.3 $ 1.7 Hobart, OK Markets alfalfa, field seeds &
lawn and garden supplies in
Oklahoma, Texas and Kansas.
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Sphar Seed Company July 95 $ 2.1 $ 0.3 Winchester, KY Markets proprietary alfalfa
varieties, clover varieties,
pasture mixes, turfgrass
varieties and corn hybrid
throughout Kentucky and Southern
Indiana. Sphar is also a
Pioneer corn distributor.
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Halsey Seed Company July 95 $ 1.2 $ 1.1 Trumansburg, NY Markets alfalfa, field seeds and
turf seeds in New York and New
England.
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Arnold Thomas Seed Service,
Inc. Oct 95 $ 2.3 $ 0.9 Lowden, WA Has four seed cleaning lines in
its Lowden, Washington facility
with access to grass, clover and
alfalfa seed production areas in
the Northwest.
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Clark Seeds, Inc. Oct 95 $ 4.1 $ 2.2 Nampa, ID Has two modern seed cleaning
facilities in Idaho and Oregon.
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Doug Conlee Seed Co. Jan 96 $ 1.0 $ 0.6 Waco, TX Is in same area as Seed
Resource, so operating synergies
were created along with
expansion of forage sales. The
company also has proprietary
sorghum and sudan grass
germplasm.
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Beachley-Hardy Seed Co. Feb 96 $ 9.7 $ 4.1 Shiremanstown, PA Strong market presence in
Northeast. Also included is
access to future breakthrough
proprietary forage and turf
products of its former owner.
It also provides ABT access to
products such as Roundup-ready
soybeans and high-oil corn.
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Michigan Hybrid Seed Co. Jun 96 Nil Nil Dansville, MI Markets proprietary alfalfa
varieties and hybrid seed corn
in Michigan.
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W-L Research, Inc. and Sept 96 $22.2 $16.2 Evansville, WI and W-L is a leading alfalfa
Germain's, Inc. Fresno, CA research company. The company
has a strong base of franchised
distributors in the U.S. and
several foreign countries. Its
alfalfa varieties are the
leading proprietary products in
Argentina. Germain's is one of
the leading regional seed
companies in the Western U.S.
The 125-year-old company markets
hybrid corn, alfalfa, turf,
clover, pasture grass and cover
crop seed in the Western U.S. &
Mexico.
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E.F. Burlingham & Sons Apr 97 $35.6 $ 9.6 Forest Grove, OR An 85-year-old turfgrass seed
(2) company with many varieties
scoring as leading performers in
official national turf
evaluation tests.
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The Sexauer Company Apr 97 $10.3 $ 3.2 Brookings, SD A full-service forage and turf
seed company with four
distribution locations. The
company has 106 years of
history.
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Olsen Fennell Seeds, Inc. Jun 97 $28.6 $15.2 Salem, OR Good germplasm in turf seeds and
non-alfalfa forages.
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Pending July 97(4) $ 9.4 $ 7.0(4) Pending Markets alfalfa, field seeds and
turfgrass seeds.
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Loft's Seed, Inc.(pending) Jan. 98(4) $74.7 $34.0(4) Winston-Salem, N.C. Premier turfgrass seed company.
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</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 and (b) any material
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.
(4) Estimatd based on signed agreements.
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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 turfgrass species, as well as continue to purchase
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 sector, 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 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 turfgrass seeds with improvements to color, ease of mowing,
pest resistance, dwarfness and texture.
The Company sponsored research and development in the amounts of
$1,170,703, $59,836 and $56,488 during the fiscal year ended June 30, 1997
("Fiscal 1997"), the fiscal year ended June 30, 1996 ("Fiscal 1996") and the
nine months ended June 30, 1995 ("Fiscal 1995"), respectively.
FORAGES
Management believes, based on its knowledge of the industry, that the
Company has an industry leading research and development program for forages
through alfalfa research conducted by the Company's subsidiary W-L Research and
an excellent alfalfa germplasm base. W-L Research has the oldest proprietary
alfalfa breeding program in the United States. W-L has as many or more research
personnel, research locations, evaluation plots, alfalfa plant variety patents,
and plant varieties as any other company. The Company has been successful in
developing numerous varieties that produce high yields under intensive cutting
schedules, multiple pest tolerance and more recently, improved nutritional
quality. 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). The Company's HQ(R) alfalfa
varieties have won the "superbowl" 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 Superbowl 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. The
Company's varieties consistently rank 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.
Potato leafhopper is often considered the most destructive alfalfa insect
pest in North America, with significant losses reported in both yield and forage
quality each year. However, chemical treatment is seldom undertaken because of
the cost of such treatment and/or the inability to detect the problem in time.
TURFGRASS
Management believes, based on its knowledge of the industry, that the
Company has an industry leading turfgrass research and development program.
Management measures its leading position primarily through the Company's
research programs, at E.F. Burlingham and Lofts Seed (which acquisition is
pending), which have as many or more research personnel, research locations,
research plots under evaluation, as any other United States research program.
Similarly, the quality and success of these research programs equals that of any
other company's program. ABT has more than 50,000 turf evaluation plots
throughout the United States and has developed a number of 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 currently top the NTEP list in three important turfgrass species (tall
fescue, 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's believes that its germplasm is highly desirable to customers who want
ABT to provide private label varieties for them. To date, the Company has
-12-
<PAGE>
chosen to engage in private labeling in order to maximize market share.
SEED PROCESSING AND PACKAGING
Forage and turfgrass seed varieties are grown for the Company under
contract by farmers specializing in seed production. The Company provides the
farmer with proprietary seed stocks 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 provide the growers with reusable bulk bins that farmers fill with
seed and deliver to ABT's processing facilities for cleaning, treating,
packaging and distribution.
The seed production areas for forage and 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 turfgrass 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 turfgrass seed
(1,500-2,000 pounds per acre). In contrast, the hot, humid, rainy conditions
prevalent in the seed consumption regions dramatically decrease seed quality and
yield for both forage and 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 turfgrass crops.
ABT's seed processing facilities are primarily located in Oregon, Idaho,
Washington and Texas 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. 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 45 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 Wisconsin, Michigan, Minnesota, New
York, Pennsylvania, Texas, Oklahoma, Kansas, Nebraska, Southern Indiana,
Southern Ohio, Kentucky, Virginia, Tennessee, and California.
There is a strong correlation between population and turfgrass seed
consumption. As a result, the Company distributes 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 26 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 in mid to late calendar 1998.
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
-13-
<PAGE>
under the W-L brand name through Cargill S.A.C.I. The largest international
turf markets for the Company are currently the Pacific Rim countries.
PRODUCTS
ABT offers its customers a large and diverse selection of seeds in the
forage and cool season turfgrass sectors. 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. The Company's acquisition of
Burlingham (effective April 1, 1997) and Olsen Fennell (effective June 1, 1997),
as well as its proposed acquisition of Lofts Seed, each of which adds a
significant amount of turfgrass sales, are expected to alter the Company's
product mix significantly, at least until any other forage companies are
acquired.
Public varieties generally means 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. On the other hand, 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.
-14-
<PAGE>
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 turfgrass seed sectors were 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 turfgrass seed sectors. Proprietary protection for these sectors 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 turfgrass sectors with 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.
TURFGRASS
About 15% of the Company's current turfgrass sales are direct to golf
courses, 70% are to regional distributors and national accounts and the
remaining 15% are to local feed and seed stores. Regional distributors of the
Company generally sell about 40% of the seed to professional end users, such as
golf courses, landscapers and parks. The remaining 60% is sold to homeowners.
Lofts Seeds, Inc.,
-15-
<PAGE>
a pending acquisition, specializes in direct golf course sales and mass
merchandising to the retail outlets that sell to individual homeowners.
International customers represented approximately 15% of the Company's turfgrass
sales for Fiscal 1997.
COMPETITION
The Company competes in both forage and 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 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 turfgrass seed as the primary
product. Therefore, the Company's major competitors in the forage and 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 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 between $20 and $60 million. Companies
which treat alfalfa as a primary crop include Research Seed, Helena/Agripro,
and Cal-West Seeds; while 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.
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 sales of between $20 and $80 million. Most of these companies are
regional companies, with only Lofts Seed, Inc. (a pending acquisition for the
Company), Pennington Seed and O.M. Scott having national name brand acceptance.
Turfgrass seed competitors generally sell turfgrass seed as a primary seed
product, including O.M. Scott Pennington, Jacklin and Pickseed, all of whom are
privately owned. However, some of these competitors sell more non-seed turgrass
products (such as chemicals, sprays, fertilizer and lawn and garden products)
than seed, including O.M. Scott and Pennington. Other forage competitors
generally sell foreages as a primary crop, including FFR Research, Research Seed
and a large number of regional and family owned businesses, similar to those the
Company has acquired.
Pennington Seed is the largest producer and marketer of turfgrass seed in
the United States, however, a higher percentage of their product revenues are
warm season grasses, birdseed and affiliated turf products, such as fertilizers
and chemicals. Therefore, based on its knowledge of the industry, the Company
believes that it is the largest forage and cool season turfgrass seed company in
the United States.
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 turfgrass sectors will follow, although this may
not occur for some time. Three essential criteria have been established by
owners of seed biotechnology in order for seed companies to be granted
biotechnology access at early stages. 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, an experienced biotechnology program manager who is a
consultant to the Company, is working with management and 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 industry leading 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 turfgrass seed
biotechnology.
PROPRIETARY RIGHTS
The Company owns proprietary varieties for a number of forage and 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
-16-
<PAGE>
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 licensed from third parties protected varieties for
exclusive marketing in numerous species, including alfalfa, red clover, corn and
soybean.
<TABLE>
<CAPTION>
- ------------------------------------------------------
PVPA STATUS
- ------------------------------------------------------
Issued Pending Exclusive
------- -------- License
(Owned) (Owned) ---------
- ------------------------------------------------------
<S> <C> <C> <C>
Alfalfa 16 1 5
- ------------------------------------------------------
Tall Fescue 2 3 6
- ------------------------------------------------------
Perennial Ryegrass 4 9 1
- ------------------------------------------------------
Kentucky Bluegrass 1 - 2
- ------------------------------------------------------
Fine Fescue 1 - 3
- ------------------------------------------------------
Orchardgrass - - 1
- ------------------------------------------------------
Crimson Clover - - 1
- ------------------------------------------------------
Bentgrass - - 2
- ------------------------------------------------------
Chicory - - 1
- ------------------------------------------------------
24 13 22
- ------------------------------------------------------
</TABLE>
EMPLOYEES
As of September 12, 1997, the Company had 286 full-time employees including
five Executive Officers (Johnny R. Thomas, President; John C. Francis, Vice
President and Secretary; Kathleen L. Gillespie, Vice President of Seed
Operations and Acquisitions; Henry A. Ingalls, Vice President, Treasurer and
Chief Financial Officer; and Byron Ford, Vice President of Corporate Development
and Strategic Planning), 93 marketing and sales personnel, 62 administrative
personnel and 131 distribution, processing and warehousing personnel. The
Company had 39 part-time employees and contracts with a number of independent
sales representatives.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns warehouse facilities in most of its operating locations,
which generally also contain administrative office space. The Company owns the
land and buildings for its facilities in New Albany, Indiana; Cactus, Texas;
Tulia, Texas; Hobart, Oklahoma; Trumansburg, New York; Shiremanstown,
Pennsylvania; Croton, Ohio; Ontario, Oregon; Nampa, Idaho; Fresno, California;
Forest Grove, Oregon; Shedd, Oregon and Salem, Oregon. In addition, the Company
owns the building for its facility in Lowden, Washington, which is on land
leased
-17-
<PAGE>
from a railroad. The facilities in Idaho, Oregon, Washington, Texas and
Oklahoma include significant amounts of equipment for cleaning, processing and
treating seed. All of the Company's facilities have equipment for mixing and
bagging seed, as well as other equipment such as forklifts, delivery and sales
vehicles, and warehouse and office equipment.
The facilities in Idaho and Ontario, Oregon are pledged under a mortgage
through Farm Credit Services and a promissory note to the former owners of the
operation aggregating $997,475 at June 30, 1997. A portion of the facilities in
Indiana are pledged under an industrial revenue bond, which had a balance of
$25,000 at June 30, 1997. The facility in Fresno, California is pledged under a
mortgage through Southern Pacific Thrift and Loan, which had an outstanding
balance of $815,877 at June 30, 1997. The facility in Salem, Oregon is pledged
under mortgages through the Oregon Economic Development Commission and the U.S.
National Bank of Oregon aggregating $407,279 at June 30, 1997.
The Company also leases warehouse and office facilities in Winchester,
Kentucky; Somerset, Kentucky; Prescott, Wisconsin; Albany, Oregon; Torreon,
Mexico and Las Vegas, Nevada, its corporate headquarters. Total commitments for
facility rentals are currently approximately $224,000 per year. Lease and rental
commitments are more fully described in note 8 of 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 in 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
described below, and as may be incurred in the ordinary course of business.
On February 9, 1996, Jonathan R. Curshen commenced a lawsuit in the United
States District Court, Middle District of Florida, against the Company, John C.
Francis and Johnny R. Thomas, officers of the Company, and Tammie Winfield (a
shareholder). The plaintiff sought unspecified compensatory and punitive damages
based upon an alleged repudiation of an agreement to sell plaintiff shares of
common stock of the Company. The Company and the other defendants denied the
allegations. In March 1997, the Company's motion to dismiss this lawsuit was
granted by the court. The case was closed on July 17, 1997. However on July 25,
1997, the plaintiff filed a Motion for Reconsideration requesting the court to
re-open the case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
-18-
<PAGE>
PART II
ITEM 5. MARKET FOR 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 prices for the Common Stock
for each quarter in Fiscal 1996 and Fiscal 1997, until February 13, 1997, on the
Nasdaq SmallCap Market and since February 14, 1997 on the Nasdaq National
Market.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Fiscal 1996
- -----------
July 1, 1995 - September 30, 1995 $5.50 $2.56
October 1, 1995 - December 31, 1995 $3.75 $1.56
January 1, 1996 - March 31, 1996 $4.19 $1.94
April 1, 1996 - June 30, 1996 $5.06 $3.50
Fiscal 1997
- -----------
July 1, 1996 - September 30, 1996 $4.13 $2.38
October 1, 1996 - December 31, 1996 $2.94 $1.97
January 1, 1997 - March 31, 1997 $3.53 $1.97
April 1, 1997 - June 30, 1997 $7.00 $2.25
Fiscal 1998
- -----------
July 1, 1997 - September 26, 1997 $10.50 $6.03
</TABLE>
As of September 26, 1997, the closing price per share of Common Stock was
$10.13.
As of September 22, 1997, the Company had 315 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 prohibits the
declaration or payment of cash dividends without prior bank approval.
-19-
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto of the Company included
elsewhere herein. The Company is a specialized processor and distributor of
forage (hay crops), turfgrass, corn, soybean and other seeds. The Company had
limited sales until January 1, 1995, when it commenced an acquisition program
(the "Acquisition Program") to acquire various seed companies. Therefore, a
comparison of the Company's operations during the nine-month period ended June
30, 1995 ("Fiscal 1995") has been combined with the discussion of the fiscal
years ended June 30, 1996 ("Fiscal 1996") and June 30, 1997 ("Fiscal 1997").
The Company's business strategy is to acquire reputable, regionally based
seed companies with proprietary products and established research, production,
processing and distribution channels in their respective markets. Since January
1, 1995, the Company has grown significantly, primarily through acquisitions of
regional seed companies. These acquisitions are more fully discussed in note 1
of Notes to Consolidated Financial Statements. The results of operations of the
acquired companies are included in the Company's consolidated results beginning
with the effective date of the acquisition in accordance with the purchase
method of accounting. Information concerning the acquisitions completed by the
Company with an effective date through June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Net sales included
Employees in consolidated
Effective at June 30, results for June 30,
-------------------
Name Date 1997 1997 1996
- ------------------------- ---------------- ----------- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Seed Resource, Inc. January 1, 1995 20 $ 2,361 $ 2,590
Scott Seed Company March 1, 1995 27 7,949 7,191
Hobart Seed Company April 1, 1995 15 3,413 2,607
Halsey Seed Company July 1, 1995 41 10,123 8,038
Clark Seeds, Inc. October 1, 1995 24 10,267 4,953
Arnold-Thomas Seed
Service, Inc. October 1, 1995 * * *
Doug Conlee Seed Company January 1, 1996 * * *
Beachley-Hardy Seed February 1, 1996 * * *
W-L Research, Inc. September 1, 1996 25 12,740 ---
Germain's Inc. September 1, 1996 32 12,080 ---
E.F. Burlingham & Sons April 1, 1997 41 5,705 ---
The Sexauer Company April 1, 1997 38 3,368 ---
Olsen Fennell Seeds,
Inc. June 1, 1997 27 2,203 ---
</TABLE>
*The operations of Arnold-Thomas Seed Services, Inc. have been combined with
Clark Seeds, Inc., those of Beachly-Hardy Seed have been combined with Halsey
Seed Company and those of Doug Conlee Seed Company have been combined with Seed
Resource, Inc.
In addition to the above acquisitions, the Company acquired certain assets of
Sphar Seed Company effective July 1, 1996 to expand the operations of Scott Seed
Company. The Company also created Seed Mart, Inc., a start-up seed operation in
the upper Midwest section of the United States. Seed Mart began operations in
-20-
<PAGE>
the summer of 1995 but did not have significant sales until the spring of 1996.
Net sales of Seed Mart were $1,537,667 and $866,133 in Fiscal 1997 and Fiscal
1996 and it has 12 employees at June 30, 1997. The Company's Mexico operation,
which commenced in 1994, had net sales of $1,114,807 in Fiscal 1997 and $525,100
in Fiscal 1996. Included in the above sales numbers are intercompany sales
aggregating $6,958,154 in Fiscal 1997 and $931,823 in Fiscal 1996.
The acquisitions and other operations are included in the Company's
consolidated financial statements beginning with each of their effective or
start-up dates which significantly affects the meaningfulness of comparisons
between periods.
Effective June 30, 1995, the Company changed its fiscal year end from
September 30, to June 30 since that date better reflects the natural business
year of the Company's operations. Therefore, the results of operation for
Fiscal 1997 and Fiscal 1996 reflects up to 12 months of operation, depending on
the date of acquisition or start-up, whereas the Fiscal 1995 results of
operation includes a maximum of nine months.
The seed business is subject to wide seasonal fluctuations and, therefore, the
results of periods less than twelve months are not necessarily indicative of
results which may be expected for an entire year.
The above factors have significant impacts on the following discussion and
analysis and should be considered as part of it.
LIQUIDITY AND CAPITAL RESOURCES
The following summarizes certain information concerning the Company's
financial condition since June 30, 1995:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996 1995
------- -------- ------
(In thousands)
<S> <C> <C> <C>
Working capital $ 7,555 $ 6,461 $3,792
Property, plant, and equipment, net 17,864 7,916 2,092
Short-term debt 24,203 5,089 564
Long-term debt, including
amounts due within one year 3,724 1,622 271
Total stockholders' equity 44,988 14,022 6,333
</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:
-21-
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
-------------------- -------------------- --------------------
(in thousands)
Acqui- Other Acqui- Other Acqui- Other
sitions Changes sitions Changes sitions Changes
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable $11,796 ($1,823) $1,949 $4,599 $1,088 $(168)
Inventories 18,172 (1,898) 4,643 796 2,756 (990)
Property, plant
and equipment 9,822 1,073 5,795 504 2,034 111
Accounts payable
and accrued expenses 12,210 (4,948) 2,389 2,216 1,232 (435)
</TABLE>
To finance acquisitions and ongoing operations, the Company has raised
significant amounts of additional equity capital since September 30, 1994.
During Fiscal 1997 the Company received cash proceeds of $9,443,827 from the
exercise of existing options and warrants, including payments on notes
receivable for warrants and options exercised. Subsequent to June 30, 1997, the
Company received payments of $9,990,000 on notes receivable from the exercise of
options and warrants during Fiscal 1997. In addition, the Company received gross
proceeds of $10,000,000 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. In Fiscal 1995 the Company
received cash proceeds of $3,760,631 from the exercise of existing warrants,
including payments on notes receivable for warrants exercised. Equity
transactions are more fully described in note 7 of Notes to Consolidated
Financial Statements.
In connection with two of the Company's acquisitions, the Company assumed
revolving lines of credit. These facilities, both of which have been
terminated, allowed borrowings up to $3,000,000 and $2,000,000. One facility
had an outstanding balance of $1,943,420 at June 30, 1997, that has been repaid.
At June 30, 1997, the Company had approximately $3.2 million outstanding under
the short-term borrowing arrangement used to finance the acquisition of The
Sexauer Company. This credit line was repaid and terminated subsequent to June
30, 1997.
At June 30, 1997, the Company had a $22,000,000 line of credit with Bank of
America (Nevada), $15,086,013 of which was outstanding. Borrowings under this
line of credit bear interest at the banks' reference rate plus 0.5% (9% at June
30, 1997) and are limited to 70% of eligible accounts receivable and 50% of
eligible inventory. This facility is collateralized by security interests in
inventory, receivables, equipment and intangibles. At June 30, 1997, the Company
also had a $4,000,000 term note outstanding. The note was repayable in July and
August 1997 and was repaid when due. In August 1997 the Company received a $5
million term loan from Bank of America that bears interest at the bank's
reference rate plus 0.5 percent and is repayable over five years.
In connection with the Company's acquisitions, the Company assumed long-term
mortgage debt of $1,004,754 and incurred long-term seller financing of
$1,250,000. The Company had approximately $3,724,000 in long-term debt
-22-
<PAGE>
outstanding at June 30, 1997. This long-term debt comprised 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 acquired companies. See note 7 of Notes to Consolidated
Financial Statements.
The Company believes it has adequate financial resources to close its pending
acquisitions and to finance its ongoing operations after such acquisitions.
However, the seed business is subject to wide seasonal fluctuations, as
described below under "Seasonality of Business", 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. Therefore, it is possible that the Company may need to seek additional
financial resources to finance ongoing operations. Furthermore, the Company
expects that it will need to obtain additional equity and/or debt financing in
order to continue its Acquisition Program.
RESULTS OF OPERATION
During Fiscal 1997, the Company had net sales of $65,904,058 as compared with
$25,961,541 during Fiscal 1996 and $4,753,608 during Fiscal 1995. Fiscal 1997
revenues reflect the operations of fourteen acquisitions (plus Seed Mart and
Mexico operations) for periods of one to twelve months. Fiscal 1996 revenues
reflect the operation of eight acquisitions (plus Seed Mart and Mexico
operations) for periods of five to twelve months. Fiscal 1995 revenues reflected
operations of three acquisitions for three to six months (plus Mexico). Customer
retention has been excellent in the operations acquired to date.
Cost of sales, primarily seed cost, were $49,527,150, or 75.2% of net sales
for Fiscal 1997, as compared to $19,235,670, or 74.1% of net sales for Fiscal
1996, and $3,397,860, or 71.5% of net sales in Fiscal 1995. The increase in the
amount of cost of sales is due to the acquisitions as described above 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. For example, the
average gross margin for Burlingham and Olsen Fennell, which are primarily
turfgrass companies, was approximately 16% for their latest fiscal year prior to
being acquired by the Company, compared to approximately 23% for the latest
fiscal year prior to acquisition for W-L Research/Germain's and Sexauer, which
are primarily forage companies. The Company's goal is to raise gross margins
over the next several years as a result of industry consolidation, vertical
integration and shifting the product lines from primarily public varieties
(commodities) to proprietary (value-added) products.
Operating expenses increased from $2,779,185 in Fiscal 1995 to $9,636,863 in
Fiscal 1996 and to $17,971,813 in Fiscal 1997. However, operating expenses as a
percent of net sales declined to 27% in Fiscal 1997 as compared to 37% in Fiscal
1996 and from 58% in Fiscal 1995. This ratio is expected to continue to decline
as sales growth continues to exceed growth in expenses and operating synergies
occur with integration of the acquired companies into cohesive units.
-23-
<PAGE>
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 Fiscal 1997 compared to
Fiscal 1996 and Fiscal 1995. These increases are primarily due to the seed
operations of new acquisitions. Total employees, including corporate
administrative employees, were 325 at June 30, 1997 compared to 161 at June 30,
1996 and 53 at June 30, 1995. At June 30, 1997, the Company had 27
warehouse/operating locations comprising approximately 870,000 square feet
compared to fourteen warehousing/operating locations comprising approximately
460,000 square feet at June 30, 1996 and six locations of approximately 250,000
square feet at June 30, 1995. After acquisition, the Company has reduced
expenses, as compared to historical operations prior to the effective date of
some acquisitions as a result of operating efficiencies. For example, the
Company has combined what were historically six separate operations into three
operations. Growth in corporate personnel, as planned, has not been as great as
revenue growth. There were eight corporate administrative personnel in June
1995, ten in June 1996 and thirteen in June 1997, even though net sales
increased by 446% in Fiscal 1996 and 154% in Fiscal 1997. The major components
of operating expenses are as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
(In thousands)
------------
<S> <C> <C> <C>
Personnel costs $9,415 $4,939 $1,001
Occupancy expenses 2,778 1,452 308
Vehicle and shipping 1,280 826 376
Outside services 615 521 107
Travel 810 402 35
Advertising and promotion 642 444 87
</TABLE>
In addition, the Company has expanded its infrastructure at an accelerated
pace incurring an additional $188,000 of compensation expense during Fiscal
1997. Also in late Fiscal 1997, the Company reorganized operations along
business units, rather than regional geographies, incurring additional expenses
of approximately $108,000, which are non-recurring.
Research and development expenditures were $1,170,703 in Fiscal 1997 as
compared to $59,836 in Fiscal 1996 and $56,488 in Fiscal 1995. Expenditures
were low in 1996 relative to net sales due to the dependence of the Company on
licensing proprietary varieties. Research and development expenditures
increased dramatically in Fiscal 1997 due to the Company's acquisition of W-L
Research, Olsen Fennell and Burlingham. W-L Research's operations contain a
sizable genetic research program in alfalfa and Burlingham has a significant
research program for turfgrasses. As the Company transforms its forage and
turfgrass seed business to proprietary products and increases gross margins, the
Company expects research and development expenses to eventually be similar to
other proprietary seed sectors.
-24-
<PAGE>
The Company's interest expenses increased to $1,691,084 in Fiscal 1997 as
compared to $464,515 in Fiscal 1996 and $35,624 in Fiscal 1995. This is
primarily due to increasing the Company's line of credit from $1,000,000 to
$4,500,000 during Fiscal 1996 and to $22,000,000 in Fiscal 1997, plus additional
borrowings to finance its growth. In addition, the Company recognized $390,000
of imputed interest expense in Fiscal 1997 to account for the period of time
between the effective and closing dates of the Company's acquisitions.
Net losses for the Company were $2,713,765 for Fiscal 1997 compared to
$3,324,132 for Fiscal 1996 and $1,406,687 for Fiscal 1995. The losses
were the result of the issues discussed above.
As discussed in note 7 of Notes to the Consolidated Financial Statements,
the Company recently became aware of a position taken by the staff of the
Securities and Exchange Commission 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.
This position required the Company to restate its financial statements 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 loss attributable to
common stock (on which loss per share is computed) being increased by $3,233,426
to $5,947,191 for Fiscal 1997 and by $2,317,625 to $5,641,757 for Fiscal 1996.
It also changed net loss per common share from $0.17 to $0.38 for Fiscal 1997
and from $0.45 to $0.76 for Fiscal 1996. The restatement had no impact on the
Company's consolidated balance sheets, consolidated statements of cash flows, or
the net sales, costs, expenses, and net loss shown on the Company's consolidated
statements of operations.
Furthermore, as discussed in note 1(k) of Notes to Consolidated Financial
Statements, Statement of Financial Accounting Standards No. 128 requires a
retroactive change in the presentation of earnings per share upon initial
adoption at its effective date, which for the Company is in connection with the
quarter ended December 31, 1997. Accordingly, the Company has applied SFAS No.
128 herein. Due to losses in the periods presented, such statement did not have
a significant impact on the Company's computation of earnings (loss) per share.
INFLATION
Management does not believe that inflation has had a significant effect on
the Company's operations to date, nor is inflation expected to have a material
impact in the United States. The cost of seed products is largely effected 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 alternative 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.
SEASONALITY OF BUSINESS
The forage and turfgrass seed sector has a seasonal revenue cycle, as do
other seed sectors. Consequently, the Company's quarterly operating revenue and
working capital needs vary widely, with the third fiscal quarter (January to
March) currently having the highest, and the first fiscal quarter the lowest,
revenue. Weather conditions and the economic outlook for alternative crops
affect seed production yields, insect population and farmers' planting
decisions, which may cause fluctuations in seed prices and annual revenues.
Successful consolidation of the forage and turfgrass seed industry, under
Company ownership, is expected to decrease the seasonality of operating revenue
and working capital needs. The Company's acquisition of Burlingham and Olsen
Fennell added a significant amount of turfgrass sales in the first and second
fiscal quarters, primarily for overseeding golf courses, southern forage
grasses, landscapes, and retail. The pending acquisition of Lofts would continue
this trend.
QUARTERLY COMPARISONS
The forage and turfgrass seed sector has a seasonal revenue cycle, as do
other seed sectors. Consequently, the Company's quarterly operating revenue
varies widely. In forages, where the majority of the Company's revenue has been
derived to date, the third fiscal quarter (ending March 31) has the highest
revenue, the fourth fiscal quarter the next highest and the first fiscal quarter
the lowest revenue. There is, however, a significant amount of turfgrass seed
sales in the first and second fiscal quarters primarily for overseeding golf
courses. Therefore, management believes that quarterly operating revenue will
continue to fluctuate depending on the breakdown of the Company's revenue
between the two sectors for any specific period of time.
The results of operations of the Company's acquisitions are included in the
Company's consolidated Financial Statements beginning with the effective date of
the acquisition. The table below sets forth quarterly operating data of the
Company for Fiscal 1996 and Fiscal 1997. 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. As discussed above and explained in note
1(k) and note 7 of Notes to Consolidated Financial Statements, the Company has
given retroactive effect to changes in accounting for earnings (loss) per share
and for its convertible preferred stock. The unaudited information in the table
below has not been reveiwed by the Company's independent certified public
accountants.
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30,
1997 1997 1996 1996
-------- --------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $24,740 $20,223 $13,288 $ 7,653
Cost of Sales 18,521 14,831 10,562 5,613
------- ------- ------- -------
Gross Profit 6,219 5,392 2,726 2,040
Operating Expenses 7,159 3,981 3,533 3,299
------- ------- ------- -------
Earnings (Loss)
from Operations (940) 1,411 (807) (1,259)
Other Income
(Expense) (585) (126) (372) (36)
------- ------- ------- -------
Net Earnings (Loss) (1,525) 1,285 (1,179) (1,295)
Discount and Imputed
Dividends on Preferred
Stock 30 225 2,271 707
------- ------- ------- -------
Net Earning (Loss) Attributable
to Common Stock $(1,555) $ 1,060 $(3,450) $(2,002)
======= ======= ======= =======
Net Earnings (Loss)
per Common Share:
Basic $ (0.07) $ 0.06 $ (0.28) $ (0.22)
Diluted (0.07) 0.06 (0.28) (0.22)
======= ======= ======= =======
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30,
1996 1996 1995 1995
-------- -------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 9,285 $ 9,744 $ 4,464 $ 2,469
Cost of Sales 6,854 7,142 3,389 1,851
------- ------- ------- -------
Gross Profit 2,431 2,602 1,075 618
Operating Expenses 3,635 2,661 1,944 1,397
------- ------- ------- -------
Earnings (Loss)
from Operations (1,204) (59) (869) (779)
Other Income
(Expense) (154) (197) (66) 4
------- ------- ------- -------
Net Earnings (Loss) (1,358) (256) (935) (775)
Discount and Imputed
Dividends on Preferred
Stock 2,318 - - -
------- ------- ------- -------
Net Earnings (Loss) Attributable
to Common Stock $(3,676) $ (256) $ (935) $ (775)
======= ======= ======= =======
Net Earnings (Loss)
per Common Share:
Basic $ (0.47) $ (0.03) $ (0.13) $ (0.11)
Diluted (0.47) (0.03) (0.13) (0.11)
======= ======= ======= =======
</TABLE>
As discussed in note 1(b) of Notes to the Consolidated Financial Statements, the
Company takes 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 begins reflecting the acquired
businesses in its Consolidated Financial Statements as of the effective date.
The following table shows, on a quarterly basis, the net sales and net earnings
(loss) as if the results of operation of the acquired businesses from the
effective date to the closing date were removed from the reported consolidated
operating results and reflecting the acquisitions beginning with the closing
date:
<TABLE>
<CAPTION>
Period ended Net sales Net earnings
(loss)
(In thousands)
<S> <C> <C>
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, 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)
======= ======
</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:
[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 June 30, 1997 amounts in thousands a) as reported, using effective
dates, and b) using closing dates.]
ITEM 7. FINANCIAL STATEMENTS
The financial statements to be provided pursuant to this Item 7 begin on
page F-1 of the Report, following Part III hereof.
-25-
<PAGE>
ITEM 10. 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,
1997 ("Fiscal 1997"), the fiscal year ended June 30, 1996 ("Fiscal 1996") and
the nine-month period ended June 30, 1995 ("Fiscal 1995") by those persons who
served as Chief Executive Officer and any Named Executive Officers who received
compensation in excess of $100,000 during such years.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
NAME AND ANNUAL COMPENSATION SHARES
PRINCIPAL ------------------------- OTHER ANNUAL UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#)
- --------- ---- -------------- -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Johnny R. Thomas, 1997 $84,000 -0- $131,906(2) -0-
President and CEO 1996 $84,000 -0- -0- 1,000,000
1995 $63,000 -0- -0- -0-
Henry A. Ingalls, 1997 $150,000 $30,000 $ 26,250(2) -0-
Vice President, 1996 $ 37,500(3) $ 7,500 $ 5,000 1,250,000
CFO, and 1995 -0- -0- -0- -0-
Treasurer
Scott J. Loomis, 1997 $84,000 -0- $165,000(2) -0-
Vice President 1996 $84,000 -0- -0- 1,000,000
1995 $63,000 -0- -0- -0-
John C Francis, 1997 $84,000 -0- $107,813(2) -0-
Vice President 1996 $84,000 -0- -0- 1,000,000
1995 $63,000 -0- -0- -0-
Kathleen L. 1997 $84,000 -0- $200,000(4) -0-
Gillespie, Vice 1996 $84,000 -0- -0- 1,250,000
President 1995 $49,000(5) -0- -0- -0-
</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.
(3) Mr. Ingalls became Vice President, Chief Financial Officer, and Treasurer
of the Company on April 3, 1996.
(4) Represents the sale of 200,000 options by Ms. Gillespie at $1.00 per
option.
(5) Ms. Gillespie became Vice President of Seed Operations and Acquisitions on
November 25, 1995.
-26-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The table below includes information regarding the value realized on option
exercises and the market value of unexercised options held by the executive
officers named in the Summary Compensation Table during the year ended June 30,
1997.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Shares options at FY- Options at
Acquired on Value End(#) FY-end($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---- ------------ ----------- ------------------ -------------
<S> <C> <C> <C> <C>
Johnny R. Thomas 1,000,000 $131,906(1) -0- -0-
Henry A. Ingalls 25,000 $ 6,250 1,225,000/0(2) $5,901,438/0
Scott J. Loomis 1,000,000 $165,000(1) -0- -0-
John C. Francis 1,000,000 $107,813(1) -0- -0-
Kathleen L. Gillespie -0- $200,000(3) 900,000/ $ 4,443,750/
150,000(4) 740,625
</TABLE>
(1) 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.
(2) Of these options, 725,000 are currently exercisable only for cash.
(3) Represents the sale of 200,000 options by Ms. Gillespie at $1.00 per
option.
(4) Of these options, 450,000 are currently exercisable only for cash.
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. See Item
12. "Certain Relationships and Related Transactions."
On March 10, 1994, the Company entered into an employment agreement with
Johnny Thomas, commencing on April 1, 1994. The agreement contains
substantially the same terms as Mr. Loomis' above-described agreement. On July
1, 1997, Dr.
-27-
<PAGE>
Thomas agreed to reduce his salary to $60,000 per year.
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. Upon termination without cause, Mr. Ingalls
would be entitled to two years' compensation. After a change of control of the
Company, in certain circumstances, Mr. Ingalls would be entitled to three years'
compensation. 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. 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 December 9, 1996, Byron D. Ford entered into an employment agreement
with the Company and became Vice President, Corporate Development and Strategic
Planning on January 15, 1997. The term of the agreement is for at least four
years through June 2001. It may, however, terminate sooner upon a change
of control (as defined). Mr. Ford was compensated at the rate of $90,000 per
annum through June 30, 1997. He is currently receiving $170,000 per year
through June 30, 2001 subject to annual adjustments beginning July 1, 1998; an
additional $30,000 in either bonus or perquisites aggregating $30,000 per year,
plus such additional bonuses as may be determined by the Board of Directors.
Upon a change of control of the Company, under certain circumstances, Mr. Ford
would be entitled to up to two years' compensation plus accelerated vesting of
his stock options which would become vested on the next anniversary date of his
employment. Mr. Ford received options to purchase up to 250,000 shares of Common
Stock, vesting through June 30, 2001. The first 125,000 options are exercisable
at $2.25 per share and the remaining 125,000 options are exercisable at $3.50
per share all until June 30, 2002 upon becoming vested. The Agreement contains
a covenant by Mr. Ford not to compete with the Company while employed by the
Company and for a two-year period following termination.
CONSULTING AGREEMENTS
On June 17, 1997 the Company retained Kent Schulze and James W. Hopkins,
directors of the Company (the "Consultants"), pursuant to separate consulting
agreements for terms commencing July 1, 1997 and continuing through June 30,
1998 (the "Consulting Agreements"). The Company entered into the Consulting
Agreements to capitalize on the Consultants' knowledge and expertise in the seed
business and to ensure that the Consultants will not compete with ABT. The
Consulting Agreements provide that the Consultants shall provide up to 25 days
of consulting services on specific projects, as requested by the Company's
CEO/President, provided that the projects do not conflict with other seed
business obligations of the Consultants. The Consultants 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 their
services, the Consultants received a retainer of options to purchase 5,000
shares
-28-
<PAGE>
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.
On July 17, 1997, the Company entered into a one-year consulting agreement
with Tom Rice. Dr. Rice is providing the Company with biotechnology consulting
services on specific projects as requested by the Company and may offer ideas or
concepts to the Company. He is being compensated at the rate of $1,200 per day.
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 to employees of the Company.
STOCK OPTIONS
The Company has established the AgriBioTech, Inc. 1994 Employee Stock
Option Plan (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 1,600,000 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
are 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 June 30, 1997, an aggregate of 1,123,600 options were outstanding under
the Plan, at prices ranging from $2.00 to $6.94, including 300,000 options to
Kathleen L. Gillespie, a Vice President of the Company, and 25,000 to each of
the two independent directors of the Company. An aggregate of 475,400 shares of
Common Stock are issuable upon exercise of options available for future grants
under the Plan.
In addition, the Company has granted options outside of the Plan to
purchase 6,050,000 shares of Common Stock, of which 3,225,000 options have been
exercised. See Item 12. "Certain Relationships and Related Transactions" for
information concerning the grant and exercise of 1,000,000 options to each of
Messrs. Thomas, Francis and Loomis. As of September 19, 1997, officers and
employees of the Company held options to purchase an aggregate of 2,825,000
shares of Common Stock outside of the Plan, exercisable for up to ten years
ending in 2006, at prices ranging from $2.00 to $5.00 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 outside of the Plan 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; and Mr. Ford held five-year options outside of the Plan to
purchase up to 125,000 shares of Common Stock at $2.25 per share and 125,000
shares of Common Stock at $3.50 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 1997, 1996 or 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On May 8, 1996, a Compensation Committee consisting of Mr. Schulze and Mr.
Ford (replaced by James W. Hopkins in January 1997) was appointed and took over
the responsibility of setting executive compensation. There are no compensation
committee (or Board of directors) interlock relationships with respect to the
Company.
-29-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of September 19, 1997 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 as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF COMMON
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) STOCK OWNED
- ------------------- ------------------------ -----------
<S> <C> <C>
Johnny R. Thomas(2) 2,379,213 (3) 9.3%
John C. Francis (2) 1,379,235 (4) 5.4%
Henry A. Ingalls (2) 1,302,378 (5) 4.9%
Scott J. Loomis 1,420,040 (6) 5.6%
5840 N. Genematas
Tucson, AZ 85704
Kathleen L. Gillespie (2) 900,000 (7) 3.4%
Kent Schulze 25,000 (8) *
2621 Irving Avenue, South
Minneapolis, MN 55408
James W. Hopkins 15,000 (9) *
P.O. Box 607
Arnolds Park, Iowa 51331
All executive officers and 7,502,866(10) 26.6%
directors as a group (8
persons)
</TABLE>
- ----------------------------
*Represents less than 1%.
(1) Includes all securities that can be acquired by such person within 60 days
from the date hereof upon the exercise of warrants or options. The
percentage ownership is determined based on 25,282,222 shares outstanding
as of September 19, 1997.
(2) This person's address is c/o the Company, 2700 Sunset Road, Suite C-25, Las
Vegas, Nevada 89120.
(3) Includes 304,006 shares issuable upon exercise of currently exercisable
Class C Warrants.
(4) Includes 364,420 shares issuable upon exercise of currently exercisable
Class C Warrants.
(5) Includes 1,225,000 shares issuable upon exercise of currently exercisable
options (725,000 for cash only), 6,500 shares and 6,500 currently
exercisable Class C Warrants held by Mr. Ingalls' minor child for which Mr.
Ingalls disclaims beneficial ownership and 19,689 currently exercisable
Class C Warrants.
(6) Includes 281,020 shares issuable upon exercise of currently exercisable
Class C Warrants.
(7) Includes 900,000 shares issuable upon exercise of currently exercisable
options (450,000 for cash only). Excludes 150,000 shares underlying
options not currently exercisable.
(8) Includes 25,000 shares issuable upon exercise of currently exercisable
options.
(9) Includes 15,000 shares issuable upon exercise of currently exercisable
options, but excludes 10,000 shares underlying options not currently
exercisable.
(10) Includes the shares underlying warrants and options included for Messrs.
Thomas, Francis, Ingalls, Loomis, Ford, Schulze, and Hopkins and Ms.
Gillespie, respectively, in notes (3)-(9) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 17, 1992, FiberChem, Inc. ("FCI") signed an agreement to sell all
of the capital stock of AgriBioTech, Inc., a Nevada corporation ("AgriBioTech"),
in four equal amounts to Johnny R. Thomas, then FCI's President, as well as
AgriBioTech's Vice President; John C. Francis, then FCI's Vice President and now
-30-
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF AGRIBIOTECH, INC.
- -----------------------------------------
<S> <C>
Independent Auditors' Report.......................... F-2
Consolidated Balance Sheets as of
June 30, 1997 and 1996............................... F-3
Consolidated Statements of Operations for
the years ended June 30, 1997 and 1996
and the nine-month period ended June 30, 1995........ F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1997 and 1996
and the nine-month period ended June 30, 1995........ F-6
Consolidated Statements of Cash Flows for the
years ended June 30, 1997 and 1996
and the nine-month period ended June 30, 1995....... F-7
Notes to Consolidated Financial Statements - June 30,
1997, 1996 and 1995 ................................. F-9
</TABLE>
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, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended June 30, 1997 and 1996 and the nine-month period ended June 30,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgriBioTech, Inc.
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended June 30, 1997 and 1996 and
the nine-month period ended June 30, 1995 in conformity with generally accepted
accounting principles.
As explained in note 7 to the consolidated financial statements, the Company has
given retroactive effect to a change in accounting for its convertible preferred
stock.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 26, 1997, except as to
note 2(K) and the twelfth
paragraph of note 7, which
are as of February 10, 1998
F-2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,553,634 2,522,309
Accounts receivable, less allowance for doubtful accounts
of $729,352 at June 30, 1997 and $104,773 at June 30, 1996 17,474,887 7,501,725
Inventories 23,328,961 7,257,795
Notes receivable from sale of common stock 9,990,000 -
Other 646,508 285,811
----------- ----------
Total current assets 53,993,990 17,567,640
Property, plant and equipment, net 17,864,052 7,916,145
Intangible assets, net of accumulated amortization 22,544,539 437,541
Investment in associated entity 567,235 -
Other assets 143,209 262,462
----------- ----------
Total assets $95,113,025 26,183,788
=========== ==========
</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,
1997 1996
------------ ----------
<S> <C> <C>
Current liabilities:
Short-term debt $ 24,203,431 5,088,984
Current installments of long-term obligations 1,056,770 567,353
Accounts payable 10,601,813 4,406,588
Accrued liabilities 3,277,051 1,043,746
Amount due in connection with acquisition 7,300,000 -
------------ ----------
Total current liabilities 46,439,065 11,106,671
Long-term obligations, excluding current installments 2,667,609 1,054,621
Deferred income taxes 1,018,369 -
------------ ----------
Total liabilities 50,125,043 12,161,292
------------ ----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding 1,100 shares at June 30, 1997
(aggregate liquidation preference of $1,221,666) and 6,530 shares
at June 30, 1996 (aggregate liquidation preference of $6,667,002) 1 7
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding 23,743,385 shares at
June 30, 1997 and 8,543,757 shares at June 30, 1996 23,743 8,544
Capital in excess of par value 49,439,319 23,752,051
Common stock to be issued in acquisition 7,950,000 -
Accumulated (deficit) (12,425,081) (9,711,316)
------------ ----------
44,987,982 14,049,286
Deferred compensation - (26,790)
------------ ----------
Total stockholders' equity 44,987,982 14,022,496
------------ ----------
Commitments, contingency and subsequent events (notes 1, 6, 7 and 8)
Total liabilities and stockholders' equity $ 95,113,025 26,183,788
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine-month
Year ended Year ended period ended
June 30, June 30, June 30,
1997 1996 1995
----------- ---------- ------------
<S> <C> <C> <C>
Net sales $65,904,058 25,961,541 4,753,608
Cost of sales 49,527,150 19,235,670 3,397,860
----------- ---------- ------------
Gross profit 16,376,908 6,725,871 1,355,748
Operating expenses 17,971,813 9,636,863 2,779,185
----------- ---------- ------------
(Loss) from operations (1,594,905) (2,910,992) (1,423,437)
----------- ---------- ------------
Other income (expense):
Interest expense (1,691,084) (464,515) (35,624)
Interest income 344,417 87,255 21,861
Other 227,807 35,880) 30,513
----------- ---------- ------------
Total other income (expense) (1,118,860) (413,140) 16,750
----------- ---------- ------------
Net (loss) (2,713,765) (3,324,132) (1,406,687)
Discount and imputed dividends
on preferred stock 3,233,426 2,317,625 -
----------- ---------- ------------
Net (loss) attributable to
comon stock $(5,947,191) (5,641,757) (1,406,687)
=========== ========== ============
Shares of common stock used in
computing (loss) per common share:
Basic 15,549,184 7,458,594 5,484,527
Diluted 15,549,184 7,458,594 5,484,527
=========== ========== ============
Net (loss) per share:
Basic $ (0.38) (0.76) (0.26)
Diluted $ (0.38) (0.76) (0.26)
=========== ========== ============
</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 September 30, 1994 - $ - 4,240,000 $ 4,240 6,150,765
Common stock issued for:
Exercise of warrants - - 2,638,000 2,638 6,911,362
Services - - 267,200 267 559,733
Reduction of notes for:
Cash - - - - -
Services - - - - -
Acquisitions - - - - -
Notes receivable paid subsequent to year end - - - - -
Increase in repayment amount of notes receivable - - - - 120,467
Deferred compensation earned - - - - -
Net (loss) - - - - -
------- ---- ---------- ------- ----------
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 1,100 $ 1 23,743,385 $23,743 49,439,319
======= ===== ========== ======= ==========
<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 September 30, 1994 - (4,980,497) - (670,511) 503,997
Common stock issued for:
Exercise of warrants - - - (4,914,000) 2,000,000
Services - - (560,000) - -
Reduction of notes for:
Cash - - - 1,760,631 1,760,631
Services - - - 196,167 196,167
Acquisitions - - - 1,644,000 1,644,000
Notes receivable paid subsequent to year end - - - 1,433,167 1,433,167
Increase in repayment amount of notes receivable - - - (120,467) -
Deferred compensation earned - - 201,360 - 201,360
Net (loss) - (1,406,687) - - (1,406,687)
--------- ----------- -------- ----------- ----------
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
========= =========== ======== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
Year ended Year ended period ended
June 30, June 30, June 30,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,713,765) (3,324,132) (1,406,687)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Amortization 253,985 103,740 68,154
Depreciation 902,326 475,218 70,760
Equity in earnings of associated entity (233,690) - -
Common stock for services 72,690 143,849 397,527
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable 1,822,905 (4,599,458) 168,331
Inventories 1,898,354 (796,105) 990,006
Other assets 418,751 92,862 (49,123)
Payables (4,596,592) 1,446,661 (486,259)
Accrued liabilities (351,890) 768,930 51,678
----------- ------------ -----------
Net cash flows from operating activities (2,526,926) (5,688,435) (195,613)
----------- ------------ -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,073,239) (504,395) (111,151)
Additions to intangible assets (19,228) (155,000) (15,790)
Distributions from associated entity 348,095 - -
Acquisitions (25,790,301) (5,960,585) (3,012,724)
----------- ------------ -----------
Net cash flows from investing activities (26,534,673) (6,619,980) (3,139,665)
----------- ------------ -----------
Cash flows from financing activities:
Net proceeds of short-term debt 13,986,911 4,104,779 564,291
Reductions of long-term obligations (1,278,265) (696,096) (8,333)
Sale of preferred stock 10,000,000 7,425,000 -
Exercise of options 4,718,867 625,000 -
Exercise of warrants 2,924,960 670,000 2,000,000
Additions to long-term obligations 1,037,717 - -
Redemption of preferred stock (2,707,271) - -
Expenses of stock issuance (1,389,995) (864,532) -
Restructuring of employee stock options - 480,000 -
Payments received on notes receivable from
sale of stock 1,800,000 1,663,630 1,760,631
----------- ------------ -----------
Net cash flows from financing activities 29,092,924 13,407,781 4,316,589
----------- ------------ -----------
Net increase in cash and cash equivalents 31,325 1,099,366 981,311
Cash and cash equivalents at beginning of period 2,522,309 1,422,943 441,632
----------- ------------ -----------
Cash and cash equivalents at end of period $2,553,634 2,522,309 1,422,943
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
Year ended Year ended period ended
June 30, June 30, June 30,
1997 1996 1995
------------- ---------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 1,536,469 364,993 5,284
============= ========== ============
Non cash investing and financing activities:
Accrued costs of acquisition $ 1,167,322 - -
Common stock issued in settlement of debt 320,000 - -
Common stock to be issued in acquisition 7,950,000 - -
Debt issued in connection with acquisitions - 1,250,000 -
Increase in warrant exercise price - 155,736 120,467
Receivable from exercise of options and warrants 11,790,000 1,297,800 4,914,000
Reduction of notes receivable for acquisitions - 1,853,587 1,644,000
Common stock issued for deferred compensation - - 560,000
Notes receivable paid subsequent to year end 9,990,000 - 1,433,167
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 $ 567,566 5,641 29,165
Accounts receivable 11,796,067 1,949,016 1,087,602
Inventories 18,171,587 4,642,531 2,755,658
Property, plant and equipment 9,821,994 5,794,703 2,034,000
Intangible assets 22,094,688 330,193 -
Other assets 1,341,835 218,390 78,483
Accounts payable and accrued expenses (12,209,690) (2,388,781) (1,232,352)
Long-term and short-term debt (7,790,489) (1,216,870) (66,667)
Deferred income taxes (1,018,369) - -
------------- ---------- ------------
Net assets acquired $ 42,775,189 9,334,823 4,685,889
============= ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997, 1996 and 1995
(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. Approximately 15% and 5% of the Company's
sales for the years ended June 30, 1997 and 1996 were to customers in
foreign countries. 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 sectors 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.
Effective June 30, 1995, the Company changed its fiscal year end from
September 30 to June 30 since that date better reflects the natural
business year of the Company's business.
(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. The agreements for the acquisitions involve the Company taking
effective control of the acquired businesses as of a mutually agreed
upon date that precedes the closing date when consideration is
transferred to the sellers. Subsequent to the effective date, the
businesses are 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 enables 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 begins
including the acquired businesses in its consolidated financial
statements as of such effective dates. The Company does not recognize
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 are
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.
The Company executed an asset purchase agreement to purchase
substantially all of the assets of Scott Seed Co. ("Scott") effective
March 1, 1995. The transaction was recorded using the purchase method of
accounting. The net purchase price was $1,956,411 which includes
inventory, accounts receivable, prepaid assets, and fixed assets, net of
accounts payable and certain assumed liabilities. The purchase price
was paid through 158,000 shares of ABT common stock valued at $474,000
and cash of $1,482,411.
The Company purchased all of the capital stock of Seed Resource, Inc.
("Seed Resource") effective January 1, 1995. The transaction was
recorded using the purchase method of accounting. The purchase price of
$1,075,500 was paid through 333,334 shares of ABT common stock valued at
$700,000 and cash of $375,500.
The Company executed an asset purchase agreement with Hobart Seed
Company ("Hobart") effective April 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$1,653,978 includes inventory, fixed assets, trademarks and trade names,
and a minority interest in the stock of a purchasing cooperative. The
purchase price was paid through 147,451 shares of ABT stock valued at
$470,000 and $1,183,978 of cash.
The Company purchased substantially all of the assets of Halsey Seed
Company ("Halsey") effective July 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$1,122,793 includes inventory, accounts receivable, prepaid assets, and
fixed assets, net of accounts payable and certain assumed liabilities.
The purchase price was paid through cash of $772,653 and 87,535 shares
of the Company's common stock valued at $350,140.
F-9
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company purchased substantially all of the assets of Arnold-Thomas
Seed Service, Inc. ("Arnold-Thomas") effective October 1, 1995. The
transaction was recorded using the purchase method of accounting. The
purchase price of $926,195 includes inventory, accounts receivable,
prepaid assets and fixed assets, net of accounts payable and certain
assumed liabilities. The purchase price was paid through cash of
$666,524 and 105,450 shares of the Company's common stock valued at
$259,671.
The Company purchased all of the capital stock of Clark Seeds, Inc.
("Clark Seed") effective October 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$2,150,000 was paid through 400,000 shares of the Company's common stock
valued at $900,000 and promissory notes of $1,250,000.
The Company purchased certain assets of Doug Conlee Seed Company
("Conlee") effective January 1, 1996. The transaction was recorded
using the purchase method of accounting. The purchase price of $639,606
includes inventory, prepaid assets, fixed assets and proprietary rights
to certain crop varieties. The purchase price was paid in cash. In
addition, the Company must pay the seller 20 percent of the net margin,
after expenses, from the business transferred to the Company through
December 31, 1998, which through June 30, 1997 was insignificant.
The Company purchased substantially all of the assets of Beachley-
Hardy Seed, a division of Research Seeds, Inc., ("Beachley-Hardy")
effective February 1, 1996. The transaction was recorded using the
purchase method of accounting. The net purchase price of $4,231,981
includes inventory, accounts receivable, prepaid assets, fixed assets
and trademark rights, less accounts payable and certain assumed
liabilities. The purchase price was paid through cash of $3,623,194 and
162,343 shares of the Company's common stock valued at $608,787.
The Company purchased substantially all of the assets of W-L Research,
Inc. and Germain's, Inc. (collectively "W-L/G"), which were indirect
subsidiaries of Berisford, plc, effective September 1, 1996. The
transaction also included the acquisition of a 50% ownership interest in
SeedBiotics, L.L.C. The transaction was recorded using the purchase
method of accounting. The net purchase price of $15,997,034 includes
inventory, accounts receivable, prepaid assets, fixed assets and
intangible assets, less accounts payable and certain assumed
liabilities. The intangible assets consist of trademark rights and
proprietary rights to certain crop varieties, as well as the genetic
breeding base for the development of additional varieties. The net
purchase price was paid in cash.
The Company purchased all of the capital stock of E. F. Burlingham &
Sons ("Burlingham") effective April 1, 1997. The net purchase price of
$10,100,000 was paid in cash. The transaction was recorded using the
purchase method of accounting which resulted in recording intangible
assets consisting of trademark rights, proprietary rights to certain
crop varieties (as well as the genetic breeding base for the development
of additional varieties), and goodwill.
The Company purchased substantially all of the assets of The Sexauer
Company ("Sexauer") effective April 1, 1997. The transaction was
recorded using the purchase method of accounting. The net purchase
price of $3,173,989 includes cash, inventory, accounts receivable,
prepaid assets, and fixed assets, less accounts payable and certain
assumed liabilities. The net purchase price was paid through a debt
arrangement with the bank that had been financing Sexauer's operations.
This debt was repaid subsequent to June 30, 1997.
The Company purchased all of the capital stock of Olsen Fennell Seeds,
Inc. ("OFI") effective June 1, 1997. The net purchase price of
$15,200,000 was paid through cash of $3,800,000 paid at closing,
payments of $3,500,000 to be made prior to April 14, 1998 paralleling
the timing of income tax payments made by the sellers, and 777,500
shares of ABT common stock valued at $7,900,000. The transaction was
recorded using the purchase method of accounting which resulted in
recording intangible assets consisting of trademark rights, proprietary
rights to certain crop varieties (as well as the genetic
F-10
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
breeding base for the development of additional varieties), and
goodwill. In connection with the OFI acquisition, the Company paid a
finders fee of $100,000, one-half of which was paid through the issuance
of 10,000 shares of ABT common stock valued at $50,000
Proforma results of operations (unaudited) assuming the above
acquisitions had occurred at the beginning of the periods presented are
as follows:
<TABLE>
<CAPTION>
Year ending Year ending
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Revenue $133,076,590 $108,334,417
Net (loss) (1,829,681) (6,546,875)
Net (loss) attributable to
common stock (5,063,107) (8,407,892)
Net (loss) per share (0.31) (0.98)
</TABLE>
In June 1997, the Company signed a letter of intent to purchase a seed
operation which markets forage and turfgrass seed primarily in the
United States. The acquisition is expected to close in early fiscal
1998. This seed operation had unaudited total assets of approximately
$4.2 million at June 30, 1997 and, for the twelve months ended June 30,
1997, sales of approximately $9.4 million and net income before income
taxes of approximately $.9 million. The transaction will be recorded
using the purchase method of accounting.
On September 5, 1997, the Company signed a letter of intent to acquire
through merger all of the capital stock of Lofts Seed, Inc. and its
affiliated companies, Budd Seed, Inc. and Sunbelt Seeds, Inc.
(collectively "Lofts"). Lofts is one of the premier turfgrass seed
companies in the United States with unaudited total assets at June 30,
1997 of approximately $23.4 million and, for the twelve months ended
June 30, 1997, sales of approximately $74.7 million and income before
income taxes of approximately $4.0 million. The Company anticipates
closing this transaction in early calendar 1998. The transaction will be
recorded using the purchase method of accounting.
(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
------------------------------
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the assets.
(e) Intangible Assets
-----------------
F-11
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Intangible assets are stated at cost and consist of costs of genetic
breeding bases for various proprietary plant varieties, trademarks,
covenants not to compete, and goodwill related to the Company's seed
business. Rights to genetic breeding bases and goodwill are amortized
using the straight-line and units-of-production methods over the
expected lives of such assets, up to 40 years with a weighted average at
June 30, 1997 of 31.5 years. Other intangible assets are amortized
using the straight-line method over three to fifteen years or the lives
of agreements, if applicable. 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.
(f) Investment in Associated Entity
-------------------------------
The Company records its 50% investment in SeedBiotics, L.L.C. using the
equity method of accounting and records its share of the associated
entity's income or loss as other income or expense.
(g) Income Taxes
------------
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
$1,170,703, $59,836 and $56,488 in the periods ended June 30, 1997, 1996
and 1995, 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 date of grant. To date, the Company has not granted
any stock options to employees under which compensation has been
recorded. 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 loss, net loss attributable to common
stock and net loss per share would have been $3,603,236, $6,836,662 and
$0.44 for the year ended June 30, 1997 and $3,561,625, $5,879,250 and
$0.79 for the year ended June 30, 1996. The weighted-average grant-date
fair value of options granted was $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 which was developed
based on the relationship between the trading prices of stock options
which are actively traded in the securities market and the trading
prices of the common stock underlying those options. Options to acquire
ABT common stock are not traded in the securities market. The modeling
technique requires the utilization of assumptions, the weighted average
of which for the years ended June 30, 1997 and 1996 were 5.8% and 5.7%
for risk-free interest rate; 2.2 years and 3.0 years for expected life;
37% and 47% for expected volatility; and 0% and 0% for expected
dividends.
(k) (Loss) Per Common Share
-----------------------
F-12
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The FASB has issued SFAS No. 128, Earnings Per Share, which specifies a
new accounting standard for the computation, presentation, and
disclosure requirements for earnings per share and is required to be
applied retroactively upon initial adoption at its effective date, which
for the Company is in connection with the quarter ended December 31,
1997. Accordingly, the Company has applied SFAS No. 128 herein. 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. Due to losses in the periods
presented, contingently issuable shares, consisting of options,
warrants, and convertible preferred stock, are anti-dilutive and have
been excluded. Therefore, the application of SFAS No. 128 did not have a
significant impact on the Company's computation of earnings (loss) per
share for the periods presented.
(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 reflected in the income statement except those
resulting from investments by owners and distributions to owners. The
Company has not had items in the past which would have been impacted by
SFAS No. 130 and, based on its current operations, does not anticipate
having such items in the future.
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.
(m) Reclassifications
-----------------
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>
June 30,
Useful --------
lives 1997 1996
----- ---- ----
<S> <C> <C> <C>
Land - $ 3,753,400 1,394,500
Buildings 12 to 40 years 8,540,058 3,668,555
Equipment 1 to 25 years 7,001,782 3,388,624
----------- ---------
Total property, plant, and
equipment 19,295,240 8,451,679
Less accumulated depreciation 1,431,188 535,534
----------- ---------
Property, plant, and
equipment, net $17,864,052 7,916,145
=========== =========
(4) Intangible Assets
-----------------
Intangible assets consist of:
June 30,
--------
1997 1996
---- ----
</TABLE>
F-13
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Genetic breeding bases $ 5,559,909 297,000
Goodwill 15,317,192 5,000
Covenants not to compete 1,666,875 170,000
Other 302,200 13,193
----------- -------
Total intangible assets 22,846,176 485,193
Less accumulated amortization 301,637 47,652
----------- -------
Intangible assets, net $22,544,539 437,541
=========== =======
</TABLE>
(5) Long-Term Obligations
---------------------
A summary of long-term obligations is as follows:
<TABLE>
<CAPTION>
June 30,
-------
1997 1996
---- ----
<S> <C> <C>
Notes and mortgages payable; repayable in principal
payments of $503,429 annually plus interest at
6% to 8.75% and monthly payments of $8,358
including interest as 10.75%; secured by property,
plant and equipment $2,245,631 1,471,032
Unsecured notes payable bearing interest at 8% to 10% 232,456 106,390
Covenants not to compete 517,917 -
Deferred compensation 255,128 -
Other 473,247 44,552
---------- ---------
Total long-term debt 3,724,379 1,621,974
Less current installments 1,056,770 567,353
---------- ---------
Long-term obligations, excluding current
installments $2,667,609 1,054,621
========== =========
</TABLE>
Required principal payments are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
-------------------- ------
<S> <C>
1997 $1,056,770
1998 606,083
1999 187,268
2000 179,575
2001 187,869
</TABLE>
(6) Short-Term Debt
---------------
At June 30, 1997, the Company had a credit facility with Bank of America
that included a $22 million revolving line of credit, of which $15,086,013
was outstanding, including items in the process of collection. The amount
available under the revolving line of credit is limited to the sum of 70
percent of the Company's eligible receivables less than 90 days old and 50
percent of eligible inventory and is secured by inventory, receivables,
equipment, and intangibles. In addition, the credit facility provided for an
unsecured $4 million term loan, all of which was outstanding, that was
repayable in July and August 1997 and was repaid when due. Interest on the
revolving line of credit is at the bank's reference rate plus 0.5 percent
(9.0% at June 30, 1997) or the LIBOR rate plus 3 percent (8.6875% at June
30, 1997), at the Company's option and the bank's reference rate plus 2
percent (10.5% at June 30, 1997) for the term loan. In addition, the Company
pays a commitment fee of 0.5% of the unused line of credit.
F-14
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 13, 1997, the revolving line of credit was increased to $25
million and the LIBOR interest rate was changed to the LIBOR rate plus 2.5%.
In addition, the credit facility was amended to add a $5 million term loan,
all of which was drawn subsequent to June 30, 1997, that is repayable over
five years and bears interest at the bank's reference rate plus 0.5%. The
credit facility is currently scheduled to expire on March 1, 1998.
At June 30, 1997, the Company had approximately $3.2 million outstanding
under the short-term borrowing arrangement used to finance the acquisition
of Sexauer. In addition, OFI had approximately $1.9 million outstanding
under the line of credit it used to finance its operations. Both of these
facilities were repaid and terminated subsequent to June 30, 1997.
(7) Capital Stock
-------------
Prior to October 1, 1994, 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 entitles 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 entitles the holder to
obtain one share of ABT's common stock upon payment of the exercise price of
$7.50 through January 17, 1998.
On January 30, 1995, in order to accelerate the raising of capital, the
Company's Board of Directors temporarily reduced the exercise price of all
of the 2,160,000 Class A Warrants then outstanding from $3.50 per share to
$2.00 per share until March 1, 1995. As a result, the Company received an
aggregate of $2,000,000 from the exercise of 1,000,000 Class A Warrants.
Effective March 2, 1995, the exercise price of the Class A Warrants reverted
back to $3.50 per share.
In mid-March 1995, to further accelerate the raising of capital, the Company
reduced the exercise price of the Class A Warrants and Class B Warrants to
$3.00 per share in the event the warrant holder exercised on or before March
30, 1995 using cash or promissory notes. To the extent exercise was by
promissory note, funds due on these promissory notes increased periodically
back to the original exercise price of the warrants. By March 30, 1995,
1,038,000 Class A Warrants and 600,000 Class B Warrants were exercised by
promissory notes. These promissory notes 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. On March 31,
1995, the exercise price of the unexercised Class A Warrants and Class B
Warrants reverted back to $3.50 per share and $5.00 per share, respectively.
In June 1995, the Company entered into a consulting agreement for assistance
with investor relations, strategic planning, funding plans, and other
corporate activities through December 31, 1995. The Company issued 300,000
Class A warrants exercisable at $3.50 per share through January 17, 1996 and
the market price on the date of the agreement was $3.00 per share. The
agreement was deemed to not contain significant compensation and, therefore,
no expense was recorded in connection with this agreement.
On October 10, 1995, the Company called all of its 422,000 outstanding Class
A Warrants. The Company paid warrant holders $.01 per warrant for A Warrants
not exercised by November 8, 1995. All of the warrants were
F-15
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
then exercised by "stand-by purchasers" who paid cash, signed promissory
notes or agreed to perform services. The warrants were exercised at $3.50
per share less a 10% commission.
During the nine-month period ended June 30, 1995, the Company reduced the
notes receivable from sale of stock by $1,644,000 through the acquisition of
Scott, Seed Resource and Hobart for $474,000, $700,000 and $470,000,
respectively, by the makers of the notes transferring 638,785 shares of ABT
common stock to the previous owners of those entities. During the year ended
June 30, 1996, in connection with the acquisitions of Arnold-Thomas and
Clark Seed, $1,503,447 of the notes were satisfied by makers of the notes
transferring 505,450 shares of stock to the previous owners of those
entities. To facilitate these transfers, the notes receivable for sale of
stock were discounted by $343,777 to reflect the then current market price
of the stock.
In January 1997, the Company lowered the exercise price on the Class B
Warrants to $1.81 which approximated the market price of the Company's
common stock at that time. All 1,616,000 outstanding Class B Warrants were
exercised by their holders or stand-by purchasers identified by the Company,
as permitted under the terms of the warrants. Upon exercise of the Class B
Warrants, the Company received proceeds of $2,924,960 and issued 1,616,000
Class C Warrants. In May 1997, officers of the Company and others exercised
500,000 Class C Warrants by signing promissory notes for $3,750,000 at the
stated exercise price of $7.50 per share. These notes were paid in full
subsequent to June 30, 1997. Subsequent to June 30, 1997, 392,912 Class C
Warrants were exercised at $7.50 per share and the 185,625 other warrants
(described below) were exercised at $3.00 per share.
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. The Series B Convertible
Preferred Stock is not entitled to a dividend and is not mandatorily
redeemable by the Company. The Series B Convertible Preferred Stock has a
liquidation preference of $1,000 per share, plus a premium of 10 percent per
annum from the date of issuance. The Series B Convertible Preferred Stock is
convertible into shares of common stock equal to the aggregate liquidation
preference, including the 10 percent per annum premium, divided by a
conversion price that is the lesser of (i) 80 percent of the average closing
bid price for the Company's common stock for the five days prior to
conversion or (ii) a set amount of approximately $3.90 per share which
escalates to approximately $5.90 per share over four years ($4.44 per share
at June 30, 1997). In the event of a conversion when the average closing bid
price of the Company's common stock is $3.75 per share or lower, the Company
has the option of redeeming for cash, at the average closing bid price, the
shares of common stock issuable upon such conversion. The Series B
Convertible Preferred Stock will convert into common stock after being
outstanding four years if not been previously converted.
Between the date of issuance and June 30, 1996, 895 shares of Series B
Convertible Preferred Stock were converted into 280,214 shares of common
stock. Between July 1, 1996 and June 30, 1997, 5,630 shares of Series B
Convertible Preferred Stock were submitted to the Company for conversion,
for which the Company issued 2,424,463 shares of common stock and redeemed
for cash the equivalent of 538,215 shares of common stock aggregating
$1,315,846. At June 30, 1996, the 6,530 shares of Series B Convertible
Preferred Stock outstanding were convertible into 2,096,542 shares of common
stock and had an aggregate liquidation preference of $6,667,002. At June 30,
1997, the 900 shares of Series B Convertible Preferred Stock outstanding
were convertible into 227,469 shares of common stock and had an aggregate
liquidation preference of $1,009,479.
In September 1996, the Company completed a private placement of 10,000
shares of Series C 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. The Series C Convertible
Preferred Stock is not entitled to a dividend and is not mandatorily
redeemable by the Company. The Series C Convertible Preferred Stock has a
liquidation preference of $1,000 per share, plus a premium of 8 percent per
annum from the date of issuance. The Series C Convertible Preferred Stock is
convertible into shares of common stock equal to the aggregate liquidation
preference, including the 8 percent per annum premium, divided by a
conversion price that is the lesser of (i) 80 percent of the average closing
bid price for the Company's common stock for the five days prior to
conversion or (ii) a set amount, which is $3.00 for one-third of the shares,
$3.50 for one-third of the shares and $4.00 for one-third of the shares. In
the event of a conversion when the average closing bid price of the
Company's common stock is below the price at the issuance of the Series C
Convertible Preferred Stock, the Company has the option of redeeming for
cash, at the average closing bid price, the shares of common stock issuable
upon such conversion. The Series C Convertible Preferred Stock will convert
into common stock on September 30, 1998, if not previously converted.
Through June 30, 1997, 9,800 shares of the Company's Series C Convertible
Preferred Stock were presented for conversion, for which the Company issued
4,669,763 shares of common stock and redeemed for cash the
F-16
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
equivalent of 618,024 shares of common stock aggregating $1,391,423. At June
30, 1997, the 200 shares of Series C Convertible Preferred Stock outstanding
were convertible into 61,467 shares of common stock and had a liquidation
preference of $212,186.
When the Company issued the Series B Convertible Preferred Stock in April
1996 and the Series C Convertible Preferred Stock in September 1996
(collectively, 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 to 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 also stated that
affected financial statements should be restated. Although the Preferred
Stock will ultimately be converted into common stock, the Company restated
its financial statements to reflect the Staff's position in February 1998
shortly after becoming aware of Topic No. D-60. The application of the
Staff's position results in the recognition of discounts of $2,718,622 and
$2,164,596 during the years ended June 30, 1997 and 1996 and imputed
dividends of $514,804 and $153,029 in such years. As restated, such amounts
are reflected in net loss attributable to common stock (on which loss per
share is computed). This resulted in the net loss attributable to common
stock being increased by $3,233,426 to $5,947,191 for the year ended June
30, 1997 and by $2,317,625 to $5,641,757 for the year ended June 30, 1996.
It also changed net loss per common share from $0.17 to $0.38 for the year
ended June 30, 1997 and from $0.45 to $0.76 for the year ended June 30,
1996. The discounts and imputed dividends were attributed to capital in
excess of par value and, therefore, resulted in no change in stockholders'
equity. The restatement had no impact on the Company's consolidated balance
sheets, consolidated statements of cash flows, or the net sales, costs,
expenses, and net loss shown on the Company's consolidated statements of
operations.
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 has determined that the value of the investor
communications and relations services to be received under this agreement is
$108,000, which is being 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. During
the year ended June 30, 1997, 1,850,000 of these options were exercised and
112,500 were exercised subsequent to June 30, 1997.
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 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 1,600,000 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, 1997, the Company had outstanding options
under the ESOP for the purchase of 1,123,600 shares of common stock at
prices ranging from $2.00 to $6.94 per share, of which 585,200 were
exercisable. Options for 1,000 shares have been exercised. 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
an aggregate of 6,050,000 shares of the Company's common stock to officers
of the Company and key employees of acquired companies. These options are
exercisable at prices ranging from $2.00 to $5.00, which equaled the market
values at the respective dates of grant, and expire five to ten years from
the date of grant. The options become exercisable over periods of three to
five years. Options for 3,225,000 shares have been exercised, including
2,680,000 options exercised by officers of the Company in May 1997 through
signing promissory notes for $8,040,000. Payments on these notes amounting
to $1,800,000 were received through June 30, 1997 and the remaining balance
was paid subsequent to June 30, 1997. Options for 1,050,000 shares were
vested at June 30, 1997. As part of the Company's capital raising program,
an additional 1,175,000 of the officers' options are exerciseable at any
time for cash.
F-17
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of activity in the Company's stock options for
employees and directors:
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------------
1997 1996
---------------- -----------------
Weighted- Weighted-
average average
exercise exercise
price Number price Number
----- ------ ----- ------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year $2.63 5,751,500 - -
Issued 3.54 1,467,400 2.63 5,751,500
Exercised 2.93 (3,226,000) - -
Forfeited 3.75 (44,300) - -
- ------------------------ ----- ---------- ----- ---------
Outstanding at end
of year $2.70 3,948,600 $2.63 5,751,500
===== ========== ===== =========
Exercisable at end of year $2.28 2,810,200 $2.59 5,590,500
===== ========== ===== =========
</TABLE>
The following summarizes certain information regarding stock options for
employees and directors outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Total Exercisable
---------------------- -----------
Weighted
Weighted average Weighted
average remaining average
exercise contractual exercise
Exercise Price Number price life (years) price Number
- -------------- ------ ----- ------------ ----- ------
<S> <C> <C> <C> <C> <C>
$2.00 to $2.12 2,275,000 $2.06 8.6 $2.06 2,275,000
$2.25 to $3.50 810,000 2.71 5.9 2.70 342,000
$3.75 312,300 3.75 4.8 3.75 131,900
$4.00 to $5.00 440,000 4.46 6.6 4.06 31,000
$5.50 to $6.94 111,300 5.84 5.2 5.87 30,300
--------- ----- --- ----- ---------
3,948,600 $2.70 7.4 $2.28 2,810,200
Total ========= ===== === ===== =========
</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 only acquisition with
guaranteed proceeds remaining in effect is OFI where the previous owners are
to receive $7,900,000 from the sale of 777,500 shares of ABT common stock
through June 30, 1999. To secure the Company's guarantee, the previous
owners have a lien on OFI's land and building, 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. In addition, the Company will receive a portion of proceeds from
the sale of common stock by the former owners of OFI at prices in excess of
$14. Sales made pursuant to lock-up agreements for the other acquisitions
were made such that the Company had no obligations under its guarantees.
The closing price for the Company's common stock on September 26, 1997 was
$10.125 per share and the range of closing prices has been as follows:
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
January 1, 1995 - June 30, 1995 $ 4.75 1.75
July 1, 1995 - June 30, 1996 5.4375 1.625
July 1, 1996 - June 30, 1997 6.9375 2.0625
July 1, 1997 - September 26, 1997 10.50 6.03125
</TABLE>
F-18
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Commitments and Contingency
---------------------------
The Company has entered into employment agreements with its executive
officers for periods of up to four years. Annual compensation, excluding
bonuses and out-of-pocket expenses, aggregates approximately $650,000 under
these agreements. In addition, the Company has employment agreements with
approximately 25 other employees at annual compensation rates ranging from
$40,000 to $100,000, which are terminable by the Company without cause with
ten days to six months notice.
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.
The Company rents office space, land, warehouse space and equipment under
agreements expiring through the year 2000. Total rent expense was $292,812
for the year ended June 30, 1997, $152,999 for the year ended June 30, 1996
and $79,999 for the nine-month period ended June 30, 1995. Rent commitments
as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1998 $224,167
1999 79,560
2000 44,673
2001 17,901
2002 13,024
</TABLE>
Subsequent to June 30, 1997, the Company entered into a contract for the
purchase of land and construction of an office building for an aggregate of
approximately $1.5 million.
(9) Income Taxes
------------
The Company has reported significant losses for income tax purposes.
Utilization of these losses as carryforwards to offset future taxable income
is dependent on having taxable income. The losses which originated prior to
June 30, 1992 are further 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 net operating losses expire, if unused, as follows:
<TABLE>
<CAPTION>
Year ending June 30 Amount
------------------- ------
<S> <C>
2001 - 2007 $ 375,000
2008 231,265
2009 890,308
2010 1,351,218
2011 2,663,355
2012 2,513,829
----------
Total $8,024,975
==========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
-----------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 665,865 -
Intangible assets 644,718 -
--------- ------
1,310,584 -
--------- ------
</TABLE>
F-19
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Net operating loss carryforward $ 2,969,241 2,020,000
Other 613,799 35,000
----------- ----------
Total gross deferred tax assets 3,583,039 2,055,000
Less valuation allowance (3,290,824) (2,055,000)
----------- ----------
Net deferred tax assets 292,215 -
----------- ----------
Net deferred tax liabilities $ 1,018,369 -
=========== ==========
</TABLE>
The tax benefits of the deferred tax assets have been substantially
offset by a valuation allowance since the Company cannot currently conclude
that it is more likely than not that the benefits will be realized. The
valuation allowance increased by $1,235,824 during the year ended June 30,
1997, $1,098,000 during the year ended June 30, 1996 and $467,000 during
the nine-month period ended June 30, 1995. The deferred tax liabilities
arose in connection with the Burlingham acquisition.
(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 no
contributions to the plan in 1997, 1996 and 1995.
(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 $3.7 million at June 30,
1997 using an assumed interest rate of 8.5% and $1.5 million at June 30,
1996 using an assumed interest rate of 10.25%.
F-20
<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: August 10, 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 August 10, 1998
- ----------------------- (Principal Executive Officer
Johnny R. Thomas and Director
/s/ Henry A. Ingalls Vice President and Treasurer August 10, 1998
- ----------------------- (Principal Financial and
Henry A. Ingalls Accounting Officer)
/s/ Scott J. Loomis Vice President and Director August 10, 1998
- -----------------------
Scott J. Loomis
/s/ John C. Francis Vice President, Secretary August 10, 1998
- ----------------------- and Director
John C. Francis
/s/ Kent Schulze President and Director August 10, 1998
- -----------------------
Kent Schulze
/s/ James W. Hopkins Director August 10, 1998
- -----------------------
James W. Hopkins
/s/ Richard P. Budd Director August 10, 1998
- -----------------------
Richard P. Budd
</TABLE>
