<PAGE>
UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 22, 1998
-----------------------
AgriBioTech, Inc.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 1-1935 85-0325742
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
120 Corporate Park Drive, Henderson, Nevada (89014)
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 566-2440
--------------
<PAGE>
EXPLANATORY NOTE
This Form 8-K is submitted in accordance with Rule 3.-05(b)(2) of
Registration S-X. Upon the closing of the Company's acquisition of Petersen Seed
Company, Inc. on May 22, 1998, the aggregate amount of the completed or probable
pending acquisitions since June 30, 1997, none of which are individually
significant, now exceeds the 50% level required by the Securities and Exchange
Commission and therefore financial statements are required to be filed for at
least the substantial majority of the individually insignificant subsidiaries.
Therefore, this Form 8-K is being filed to include the audited financial
statements for Ramy Commercial Properties and Subsidiary (LaCrosse Seed), Zajac
Performance Seed, Van Dyke Seed Co., Inc. and Oseco, Inc.
ITEM 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired
Van Dyke Seed Company, Inc.
Zajac Performance Seeds, Inc., et al
Oseco Inc.
Ramy Commercial Properties, Inc. and Subsidiary
(b) Exhibits.
23.1 Consent of Jones & Roth, P.C.
23.2 Consent of Ludwig Bulmer Seifert & Lane
23.3 Consent of KPMG, chartered accountants
23.4 Consent of Hawkins, Ash, Baptie & Company, LLP
<PAGE>
AGRIBIOTECH, INC.
Pro Forma Combined Financial Information
(Unaudited)
The following pro forma combined summary of operations combines the results of
operations of AgriBioTech, Inc. ("ABT"), W-L Research, Inc. and Germain's, Inc.
(collectively "WL/Germain's"), E.F. Burlingham & Sons and Subsidiary
("Burlingham"), Olsen Fennell Seeds, Inc. ("Olsen Fennell"), Lofts Seed, Inc.
and Budd Seed, Inc. (collectively "Lofts"), Seed Corporation of America and
Green Seed Company Limited Partnership (collectively "SeedCo"), Willamette Seed
Co. ("Willamette"), Ramy Commercial Properties Inc. and Subsidiary ("LaCrosse"),
Zajac Performance Seeds, Inc. et al. ("Zajac"), Van Dyke Seed Company, Inc.
("Van Dyke"), Oseco Inc. ("Oseco"), and other individually insignificant
acquisitions since July 1, 1996 (collectively "Other Acquisitions") as if all
acquisitions occurred at the beginning of the periods presented. The pro forma
combined summary of operations reflects known changes resulting from the
acquisitions but does not reflect impacts of any changes in operations,
anticipated efficiencies and synergies from consolidation.
The pro forma combined summary balance sheet reflects ABT's consolidated balance
sheet as of March 31, 1998 combined with the balance sheets of Willamette,
Oseco, and, to the extent effective after March 31, 1998, Other Acquisitions, as
if all such acquisitions occurred as of March 31, 1998.
The business of these entities is subject to wide seasonal fluctuations and,
therefore, the results of operations for periods less than twelve months may not
be indicative of annual results. The pro forma adjustments are based on
preliminary estimates, available information, and certain assumptions that
management deems appropriate and may be revised as additional information
becomes available. The pro forma combined financial information does not purport
to represent what ABT's financial position or results of operations would
actually have been if such transactions had in fact occurred on those dates and
are not necessarily representative of ABT's financial position or results of
operation for any future period. The pro forma combined financial information
should be read in conjunction with the historical financial statements of ABT,
WL/Germain's, Burlingham, Olsen Fennell, Lofts, SeedCo, Willamette, LaCrosse,
Zajac, Van Dyke, and Oseco included herein or previously filed with the
Securities and Exchange Commission.
<PAGE>
AGRIBIOTECH, INC. ("ABT");
Pro Forma Combined Summary of Operations
(Unaudited)
Year ended June 30, 1997
<TABLE>
<CAPTION> Olsen
ABT (A) W-L/Germains (A) Burlingham (A) Fennell (A) Lofts (A)
------------- ---------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $65,904,058 $2,671,772 $31,040,752 $28,566,907 $74,696,000
Cost of sales 49,527,150 1,816,236 25,439,688 25,214,881 53,802,000
----------- ---------- ----------- ----------- -----------
Gross profit 16,376,908 855,536 5,601,064 3,352,026 20,894,000
Operating expenses 17,971,813 1,014,557 3,383,987 3,444,793 16,291,530
----------- ---------- ----------- ----------- -----------
Income (loss) from operations (1,594,905) (159,021) 2,217,077 (92,767) 4,602,470
Other income (expense) (1,118,860) 57,075 (7,314) (24,940) (1,514,000)
----------- ---------- ----------- ----------- -----------
Earnings (loss) before income
taxes (2,713,765) (101,946) 2,209,763 (117,707) 3,088,470
Income tax expense (benefit) - - 719,057 - -
----------- ---------- ----------- ----------- -----------
Net earnings (loss) (2,713,765) (101,946) 1,490,706 (117,707) 3,088,470
Discount and imputed dividends on
preferred stock 3,233,426 - - - -
----------- ---------- ----------- ----------- -----------
Net earnings (loss) attributable
to common stock $(5,947,191) $ (101,946) $ 1,490,706 $ (117,707) $ 3,088,470
=========== ========== =========== =========== ===========
Shares of common stock used in
computing loss per share:
Basic 15,549,184
Diluted 15,549,184
===========
Net earnings (loss) per common share:
Basic $ (0.38)
Diluted (0.38)
==========
</TABLE>
<TABLE>
<CAPTION>
SeedCo(A) Willamette(A) LaCrosse(A) Van Dyke(A) Zajac(A) Oseco(A)
----------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $39,130,541 $41,813,922 $9,377,225 $9,737,858 $8,404,236 $9,414,835
Cost of sales 31,108,155 33,965,669 7,362,174 6,296,597 6,414,298 6,409,961
----------- ----------- ---------- ----------- ---------- ----------
Gross profit 8,022,386 7,848,253 2,015,051 3,441,261 1,989,938 3,004,874
Operating expenses 7,813,290 6,826,001 1,855,480 3,048,905 1,150,767 2,691,579
----------- ----------- ---------- ----------- ---------- ----------
Income (loss) from operations 209,096 1,022,252 159,571 392,356 839,171 313,295
Other income (expense) (150,603) (654,292) 10,852 (181,053) (23,785) 28,641
----------- ----------- ---------- ----------- ---------- ----------
Earnings (loss) before income
taxes 58,493 367,960 170,423 211,303 815,386 341,936
Income tax expense (benefit) - 159,330 80,639 - - 63,000
----------- ----------- ---------- ----------- ---------- ----------
Net earnings (loss) 58,493 208,630 89,784 211,303 815,386 278,936
Discount and imputed dividends on
preferred stock - - - - - -
----------- ----------- ---------- ----------- ---------- ----------
Net earnings (loss) attributable
to common stock $ 58,493 $ 208,630 $ 89,784 $ 211,303 $ 815,386 $ 278,936
=========== =========== ========== =========== ========== ==========
Shares of common stock used in
computing loss per share:
Basic
Diluted
Net earnings (loss) per common share:
Basic
Diluted
</TABLE>
<TABLE>
<CAPTION>
Other Pro Forma
Acquisitions(A) Adjustments Continued
---------------- ------------- -----------
<S> <C> <C> <C>
Net sales $107,676,008 $(21,673,639) (F) $406,760,475
Cost of sales 87,705,118 (21,673,639) (F) 312,975,287
(413,001) (K)
------------ ------------ ------------
Gross profit 19,970,890 413,001 93,785,188
Operating expenses 18,682,719 6,715,651 (C) 85,793,382
(5,063,690) (J)
(34,000) (L)
------------ ------------ ------------
Income (loss) from operations 1,288,171 (1,204,960) 7,991,806
Other income (expense) 426,097 (3,775,897) (D) (6,928,079)
------------ ------------ ------------
Earnings (loss) before income
taxes 1,714,268 (4,980,857) 1,063,727
Income tax expense (benefit) 241,949 (15,729) (M) 1,248,246
------------ ------------ ------------
Net earnings (loss) 1,472,319 (4,965,128) (184,519)
Discount and imputed dividends on
preferred stock - - 3,233,426
------------ ------------ ------------
Net earnings (loss) attributable
to common stock $ 1,472,319 $(4,965,128) $ (3,417,945)
============ ============ ============
Shares of common stock used in
computing loss per share:
Basic 10,017,230 (E) 25,566,414
Diluted 10,017,230 (E) 25,566,414
============ ============
Net earnings (loss) per common share:
Basic $ (0.13)
Diluted (0.13)
============
</TABLE>
See accompanying notes to pro forma combined financial information.
<PAGE>
AGRIBIOTECH, INC. ("ABT");
Pro Forma Combined Summary of Operations
(Unaudited)
Nine-month period ended March 31, 1998
<TABLE>
<CAPTION>
ABT (B) Lofts (B) SeedCo(B) Willamette(B)
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $139,695,295 $39,022,000 $16,401,233 $25,686,733
Cost of sales 109,209,431 28,063,000 12,693,089 20,093,280
---------------- --------------- --------------- ----------------
Gross profit 30,485,864 10,959,000 3,708,144 5,593,453
Operating expenses 27,441,877 10,318,757 4,048,483 4,925,191
---------------- --------------- --------------- ----------------
Income (loss) from operations 3,043,987 640,243 (340,339) 668,262
Other income (expense) (1,633,853) (679,000) 295,005 6,428
---------------- --------------- --------------- ----------------
Earnings (loss) before income
taxes 1,410,134 (38,757) (45,334) 674,690
Income tax expense (benefit) (2,907,500) - - 244,677
---------------- --------------- --------------- ----------------
Net earnings (loss) 4,317,634 (38,757) (45,334) 430,013
Discount and imputed dividends on
preferred stock 80,154 - - -
---------------- --------------- --------------- ----------------
Net earnings (loss) attributable to
common stock $ 4,237,480 $ (38,757) $ (45,334) $ 430,013
================ =============== =============== ================
Shares of common stock used in
computing earnings (loss) per share:
Basic 28,044,125
Diluted 32,373,638
================
Net earnings (loss) per common share:
Basic $ 0.15
Diluted 0.13
================
</TABLE>
<TABLE>
<CAPTION>
Other
Van Dyke (B) Zajac (B) Oseco (B) Acquisitions (B)
-------------- -------------- ------------- -------------------
<S> <C> <C> <C> <C>
Net sales $6,410,744 $3,497,853 $7,180,783 $70,583,987
Cost of sales 4,284,349 3,534,201 4,729,095 58,063,018
-------------- -------------- ------------- -------------------
Gross profit 2,126,395 (36,348) 2,451,688 12,520,969
Operating expenses 1,610,783 890,156 2,024,222 14,803,218
-------------- -------------- ------------- -------------------
Income (loss) from operations 515,612 (926,504) 427,466 (2,282,249)
Other income (expense) (115,989) 1,821 - 953,646
-------------- -------------- ------------- -------------------
Earnings (loss) before income
taxes 399,623 (924,683) 427,466 (1,328,603)
Income tax expense (benefit) - - 150,500 (44,030)
-------------- -------------- ------------- -------------------
Net earnings (loss) 399,623 (924,683) 276,966 (1,284,573)
Discount and imputed dividends on
preferred stock - - - -
-------------- -------------- ------------- -------------------
Net earnings (loss) attributable to
common stock $ 399,623 $ (924,683) $ 276,966 $(1,284,573)
============== ============== ============= ===================
Shares of common stock used in
computing earnings (loss) per share:
Basic
Diluted
Net earnings (loss) per common share:
Basic
Diluted
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjustments combined
--------------- -------------
<S> <C> <C>
Net sales $(14,305,726) (F) $294,172,902
Cost of sales (14,305,726) (F) 226,540,889
27,152 (K)
150,000 (F)
--------------- -------------
Gross profit (177,152) 67,632,013
Operating expenses 3,744,205 (C) 65,461,962
(3,635,930) (J)
(709,000) (L)
--------------- -------------
Income (loss) from operations 423,573 2,170,051
Other income (expense) (1,152,856) (D) (2,324,798)
--------------- -------------
Earnings (loss) before income
taxes (729,283) (154,747)
Income tax expense (benefit) (162,977) (N) (2,719,330)
--------------- -------------
Net earnings (loss) (566,306) 2,564,583
Discount and imputed dividends on
preferred stock - 80,154
--------------- -------------
Net earnings (loss) attributable to
common stock $ (566,306) $ 2,484,429
=============== =============
Shares of common stock used in
computing earnings (loss) per share:
Basic 7,434,409 (E) 35,478,534
Diluted 7,434,409 (E) 39,808,047
=============== =============
Net earnings (loss) per common share:
Basic $ 0.07
Diluted 0.06
=============
</TABLE>
See accompanying pro forma combined financial information.
<PAGE>
AGRIBIOTECH, INC. ("ABT");
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1998
<TABLE>
<CAPTION>
ABT (G) Willamette (G) Oseco (G)
------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,966,830 $ 1,809 $ -
Accounts receivable 51,680,818 3,670,967 3,036,481
Inventories 66,845,197 7,933,674 2,908,191
Other 2,216,406 35,003 174,999
------------- ------------ -------------
Total current assets 123,709,251 11,641,453 6,119,671
Property, plant and equipment, net 36,257,048 4,394,764 1,155,368
Intangible assets, net of accumulated amortization 95,540,148 1,469,093 -
Investment in associated entity, at equity 934,576 - -
Deferred income taxes 1,845,955 221,058 -
Other 483,241 - 1,159
------------- ------------ -------------
Total assets $ 258,770,219 $ 17,726,368 $ 7,276,198
============= ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 48,589,412 $ 8,556,711 $1,455,847
Current installments of long-term obligations 1,705,288 211,683 -
Accounts payable 26,348,501 5,220,444 1,636,834
Accrued liabilites 5,452,918 115,667 110,639
Amount due in connection with acquisition 17,350,000 - -
------------- ------------ -------------
Total current liabilities 99,446,119 14,104,505 3,203,320
Long-term obligations, excluding current installments 8,433,383 711,800 3,010,000
Deferred income taxes - - 137,892
------------- ------------ -------------
Total liabilites 107,879,502 14,816,305 6,351,212
------------- ------------ -------------
Stockholders' equity:
Preferred stock 1 - -
Common stock 33,681 495,000 70
Capital in excess of par value 144,349,482 - -
Common stock to be issued in acquisition 14,615,000 - -
Accumulated (deficit) (8,107,447) 2,415,063 924,916
------------- ------------ -------------
Total stockholders' equity 150,890,717 2,910,063 924,986
------------- ------------ -------------
Total liabilities and stockholders' equity $ 258,770,219 $ 17,726,368 $ 7,276,198
============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
Other Pro Forma
Acquisitions (G) Adjustments Combined
---------------- ------------ -------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $(1,216,443) $ - (I) $ 1,752,196
Accounts receivable 14,875,635 120,000 (I) 71,460,429
(1,923,472) (H)
Inventories 13,300,923 (95,954) (I) 90,892,031
Other 664,540 (161,116) (I) 2,929,832
----------- ------------ ------------
Total current assets 27,624,655 (2,060,542) 167,034,488
Property, plant and equipment, net 3,985,986 14,084,452 (I) 59,877,618
Intangible assets, net of accumulated amortization - 31,684,007 (I) 128,693,248
Investment in associated entity, at equity - - 934,576
Deferred income taxes 82,500 (2,149,513) (I) -
Other 2,023,208 - 2,507,608
----------- ------------ ------------
Total assets $33,716,349 $ 41,558,404 $359,047,538
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 9,380,995 $ 63,483,053 (I) $111,927,518
(19,538,500) (O)
Current installments of long-term obligations 165,534 - 2,082,505
Accounts payable 11,088,165 (1,923,472) (H) 42,370,472
Accrued liabilites 492,616 659,546 (I) 6,831,386
Amount due in connection with acquisition - (17,350,000) (I) -
----------- ------------ ------------
Total current liabilities 21,127,310 25,330,627 163,211,881
Long-term obligations, excluding current installments 3,517,699 (3,010,000) (I) 12,662,882
Deferred income taxes 43,277 3,162,391 (I) 3,343,560
----------- ------------ ------------
Total liabilites 24,688,286 25,483,018 179,218,323
----------- ------------ ------------
Stockholders' equity:
Preferred stock - - 1
Common stock 266,539 (759,806) (I) 36,841
1,357 (O)
Capital in excess of par value - 24,013,195 (I) 187,899,820
19,537,143 (O)
Common stock to be issued in acquisition - (14,615,000) (I) -
Accumulated (deficit) 8,761,524 (12,101,503) (I) (8,107,447)
----------- ------------ ------------
Total stockholders' equity 9,028,063 16,075,386 179,829,215
----------- ------------ ------------
Total liabilities and stockholders' equity $33,716,349 $ 41,558,404 $359,047,538
=========== ============ ============
</TABLE>
See accompanying notes to pro forma combined financial information.
<PAGE>
See accompanying notes to pro forma combined financial information.
AGRIBIOTECH, INC.
Notes to Pro Forma Combined Financial Information
(Unaudited)
(A) The year ended June 30, 1997 for ABT includes the operations of WL/Germain's
for the period from September 1, 1996 through June 30, 1997, the operations
of Burlingham for the period from April 1, 1997 through June 30, 1997, and
the operations of Olsen Fennell for the period from June 1, 1997 through
June 30, 1997. The amounts under the WL/Germain's column are for the two-
month period ended August 31, 1996. The amounts under the Burlingham column
are for the nine-month period ended March 31, 1997. The amounts under the
Olsen Fennell column are for the eleven-month period ended May 31, 1997. The
amounts under the Lofts, SeedCo, Willamette, LaCrosse, Van Dyke, Zajac, and
Oseco columns are for the twelve-month period ended June 30, 1997. The
amounts in the Other Acquisition column include such acquisitions for
periods not included in the ABT column. The amounts for Lofts include its
affiliates with intercompany transactions having been eliminated.
(B) The nine-month period ended March 31, 1998 for ABT includes the operations
of WL/Germain's, Burlingham, Olsen Fennell, and LaCrosse for the entire
period and the operations of Lofts, SeedCo, Van Dyke and Zajac for the
period from January 1, 1998 through March 31, 1998. The amounts under the
Lofts, SeedCo, Van Dyke and Zajac columns are for the six-month period ended
December 31, 1997. The amounts in the Willamette and Oseco columns are for
the nine-month period ended March 31, 1998. The amounts in the Other
Acquisition column include such acquisitions for periods not included in the
ABT column.
(C) To reflect depreciation of property, plant and equipment and amortization of
intangible assets based on market value adjustments in connection with
applying purchase accounting. Intangible assets resulting from the
application of purchase accounting and amortization periods include goodwill
of approximately $111 million (10 to 40 years, with a weighted average of 29
years) and covenants not to compete of approximately $9 million (6 to 8
years).
(D) To reflect reduction of interest income earned and additional interest
expense for the cash purchase price of the acquisitions. The pro forma
amounts assume that payments required to be made in the acquisitions would
be obtained through approximately $67.7 million of proceeds from the sale of
the Company's common stock in private placement transactions from December
1997 through May 1998 and the balance of $73.0 million from the Company's
existing or similar short-term credit facilities. Interest expense was
computed using an interest rate of 8.5%.
(E) To reflect the impact on average shares outstanding of shares of ABT common
stock issued in connection with the acquisitions (4,942,048 for the year
ended June 30, 1997 and 2,931,203 for the nine months ended March 31, 1998)
and private placements of the Company's common stock (5,075,182 for the year
ended June 30, 1997 and 4,503,206 for the nine months ended March 31, 1998)
as if they had been outstanding for the entire period. The dilutive impacts
of options and warrants are not considered in loss periods.
(F) To eliminate intercompany sales and other revenue.
<PAGE>
(G) The consolidated balance sheet of ABT as of March 31, 1998 includes the
accounts of WL/Germain's, Burlingham, Olsen Fennell, LaCrosse, Lofts,
SeedCo, Zajac, and Van Dyke. The amounts under the Willamette and Oseco
columns reflect their accounts as of March 31, 1998. The amounts in the
Other Acquisitions column include such acquisitions to the extent not
included in the ABT column.
(H) To eliminate intercompany balances.
(I) To reflect the application of purchase accounting to the Willamette and
Oseco acquisitions and, to the extent effective after March 31, 1998, the
Other Acquisitions. The total purchase price of $50.7 million is anticipated
to be paid through the issuance of approximately 548,673 shares of the
Company's common stock valued at approximately $9.4 million and cash of
approximately $41.3 million.
(J) Prospective reductions in compensation of former owners of acquired
entities, employee benefits, management fees, and property rent resulting
from employment agreements, property purchased directly from former owners
and other contractual arrangements entered into in connection with
acquisitions.
(K) Impacts of using the first-in, first-out method of accounting for inventory
accounted for using the last-in, first-out method prior to acquisition.
(L) Acquisition costs expensed by acquired entities that are not applicable to
ongoing operations.
(M) Reflects adjustment to income taxes on pro forma combined earnings before
income taxes adjusted for nondeductible goodwill amortization.
(N) Reflects income taxes on the impacts of pro forma adjustments and treating
acquired entities that were not taxable under prior ownership as if they
were taxable adjusted for nondeductible goodwill amortization.
(O) To reflect the sale of 1,357,000 shares of common stock and warrants to
purchase 586,500 shares of common stock and the application of the proceeds
therefrom used to fund acquisitions aggregating $19,538,500.
<PAGE>
[LETTERHEAD OF HAWKINS, ASH, BAPTIE & COMPANY, LLP]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors
Ramy Commercial Properties, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Ramy Commercial
Properties, Inc. and Subsidiary as of June 30, 1997 and 1996, and the related
consolidated statements of income and retained earnings, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ramy Commercial Properties,
Inc. and Subsidiary, as of June 30, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Hawkins, Ash, Baptie & Company, LLP
La Crosse, Wisconsin
August 27, 1997
- 1 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
ASSETS 1997 1996
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 624,008 $ 506,328
Trade receivables, less allowances of $25,500 in 1997
and $25,521 in 1996 683,144 622,524
Related party receivables 3,118 115,413
Inventories 1,456,022 1,190,028
Prepaid income tax 48,065 1,699
Prepaid expenses 131,901 34,614
Deferred tax asset 22,000 17,000
---------- ----------
TOTAL CURRENT ASSETS $2,968,258 $2,487,606
---------- ----------
PLANT AND EQUIPMENT, at cost
Land $ 24,194 $ 24,194
Buildings and improvements 237,355 237,356
Machinery and equipment 286,782 287,782
Vehicles 271,826 306,050
Furniture, fixtures, and office equipment 81,098 76,962
---------- ----------
$ 901,255 $ 932,344
Less accumulated depreciation 667,233 652,043
---------- ----------
NET EQUIPMENT AND IMPROVEMENTS $ 234,022 $ 280,301
---------- ----------
OTHER ASSETS
Cash surrender value of life insurance $ 157,523 $ 147,063
---------- ----------
TOTAL $3,359,803 $2,914,970
========== ==========
</TABLE>
The accompanying notes are an
integral part of these statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
- ------------------------------------ ----------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 17,328 $ 29,627
Note payable
Officer -- 7,000
Individual 70,000 70,000
Accounts payable 1,471,431 1,073,714
Related party payables 29,707 3,750
Accrued salaries and commissions 208,008 190,445
Accrued property, payroll, and sales taxes 23,100 23,105
Accrued interest 9,516 52,423
Deferred tax liability 8,000 --
Income tax payable -- 1,177
---------- ----------
TOTAL CURRENT LIABILITIES $1,837,090 $1,451,241
LONG-TERM LIABILITIES
Deferred tax liability -- 13,500
Long-term debt 8,270 25,571
Commitments and contingencies -- --
---------- ----------
TOTAL LIABILITIES $1,845,360 $1,490,312
---------- ----------
STOCKHOLDER'S EQUITY
Common stock, $1 par value, authorized
50,000 shares; issued 1,000 shares $ 1,000 $ 1,000
Additional paid-in capital 483,536 483,536
Retained earnings 1,029,907 940,122
---------- ----------
TOTAL STOCKHOLDER'S EQUITY $1,514,443 $1,424,658
---------- ----------
TOTAL $3,359,803 $2,914,970
========== ==========
</TABLE>
- 3 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1997 1996
------------------------ ------------------------
% OF % OF
AMOUNT SALES SALES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SALES $9,377,225 100.00% 100.00% $7,907,493
Cost of goods sold 7,583,655 80.87 80.05 6,329,400
---------- ---------- ---------- ----------
GROSS PROFIT $1,793,570 19.13% 19.95% $1,578,093
---------- ---------- ---------- ----------
EXPENSES
Selling expense $ 413,880 4.41% 4.85% $ 383,573
Administrative expense 1,216,910 12.98 11.86 937,793
Research and development 3,228 .03 .02 1,400
---------- ---------- ---------- ----------
TOTAL EXPENSES $1,634,018 17.42% 16.73% $1,322,766
---------- ---------- ---------- ----------
OPERATING INCOME $ 159,552 1.71 3.22% $ 255,327
OTHER INCOME (EXPENSE)
Interest income 33,940 .36 .33 25,801
Other income 2,948 .03 .14 10,419
(Loss) gain on sale of assets (2,679) (.03) (.11) (8,626)
Interest expense (23,338) (.25) (.37) (29,151)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES $ 170,423 1.82% 3.21% $ 253,770
PROVISION FOR INCOME TAXES 80,639 .86 1.35 106,844
---------- ---------- ---------- ----------
NET INCOME $ 89,784 .96% 1.86% $ 146,926
========== ==========
RETAINED EARNINGS, BEGINNING 940,123 793,196
---------- ----------
RETAINED EARNINGS, ENDING $1,029,907 $ 940,122
========== ==========
</TABLE>
The accompanying notes are an
integral part of these statements.
- 4 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------------
INCREASE (DECREASE) IN CASH 1997 1996
- ----------------------------- ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 89,784 $ 146,926
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 73,551 67,394
(Gain) on sale of assets 2,679 8,626
Changes in assets and liabilities
(Increase) decrease in assets
Accounts and related party receivable 51,675 (70,050)
Inventories (265,994) (43,707)
Prepaid expenses (143,651) (4,183)
Deferred tax asset (5,000) (2,800)
Increase (decrease) in liabilities
Accounts and related party payables 423,675 267,721
Accrued salaries and commissions 17,562 156,241
Accrued property, payroll, and sales taxes (6) (51,400)
Accrued interest (42,907) (34,792)
Income tax payable (1,177) 1,177
Deferred tax liability (5,500) 2,300
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 194,691 $ 443,453
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets $ 9,608 $ 18,250
Capital expenditures (39,559) (145,791)
Increase in cash surrender value of life insurance (10,460) (51,360)
---------- ----------
NET CASH (USED IN) INVESTING ACTIVITIES $ (40,411) $ (178,901)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ -- $ 70,000
Payments on notes payable (7,000) --
Net repayment of long-term debt (29,600) (24,746)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (36,600) $ 45,254
---------- ----------
NET INCREASE IN CASH $ 117,680 $ 309,806
CASH AT BEGINNING OF YEAR 506,328 196,522
---------- ----------
CASH AT END OF YEAR $ 624,008 $ 506,328
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
- -------------------------------------------------
Cash paid during the year for:
INTEREST $ 66,245 $ 39,907
========== ==========
INCOME TAXES $ 67,439 $ 101,251
========== ==========
</TABLE>
The accompanying notes are an
integral part of these statements.
- 5 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------
Ramy Commercial Properties is a real estate corporation and 100 percent owner of
La Crosse Seed Corporation.
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of
Ramy Commercial Properties, Inc., and its subsidiary, La Crosse Seed
Corporation. All intercompany transactions and accounts have been eliminated in
consolidation.
INVENTORIES - Inventories are priced at the lower of cost or market. Supplies
are priced at cost. Cost is determined using the specific identification
method.
REVENUE RECOGNITION - Revenue from sales is recognized when product is delivered
and accepted by the customer.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization are provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives. The straight-line method of depreciation is
followed for substantially all assets for financial reporting purposes, but
accelerated methods are used for tax purposes.
INCOME TAXES - The Company has joined with its parent company and other
affiliates in filing consolidated federal income tax returns. Taxes and
benefits are allocated among the group based upon each entity's respective
earnings and losses.
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires the use of the "liability method" of accounting for income taxes.
Accordingly, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Current income taxes are based on the
year's income taxable for federal and state income tax reporting purposes.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - NOTE PAYABLE TO BANK
- -----------------------------
The Company maintains a $2,000,000 revolving credit line promissory note dated
November 30, 1996, for working capital purposes and is payable on demand.
Interest on the note is at 1.50 percent above the bank's prime rate and is
payable monthly. The revolving line of credit is collateralized by accounts
receivable, inventory, plant and equipment and is guaranteed by Ramy Commercial
Properties, Inc. and Subsidiary, Superseed Holding Company, Ramy Holding
Company. There were no borrowings from this line of credit during the year.
- 6 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - Continued
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
NOTE 3 - LONG-TERM DEBT
- -----------------------
Long-term debt consisted of the following:
JUNE 30,
-----------------
1997 1996
------- -------
<S> <C> <C>
Note payable to bank, payable in monthly installments of
$455, including interest at 8.5 percent, due in 1997,
collateralized by a vehicle. $ 1,345 $ 6,447
Note payable to bank, payable in monthly installments of
$455, including interest at 8.5 percent, due in 1997,
collateralized by a vehicle. 1,345 6,447
Note payable to bank, payable in monthly installments of
$455, including interest at 8.5 percent, due in 1997,
collateralized by a vehicle. 2,225 7,256
Note payable to bank, payable in monthly installments of
$455, including interest at 8.5 percent, due in 1997,
collateralized by a vehicle. 2,225 7,256
Note payable to bank, payable in monthly installments of
$947, including interest at 8.5 percent, due in 1999,
collateralized by a vehicle. 18,458 27,792
------- -------
$25,598 $55,198
Less current maturities 17,328 29,627
------- -------
TOTAL $ 8,270 $25,571
======= =======
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $17,328
1999 8,270
</TABLE>
NOTE 4 - RELATED PARTIES TRANSACTIONS
- -------------------------------------
Ramy Commercial Properties, Inc. and Subsidiary is a wholly-owned subsidiary of
Superseed Holding Company. The Ramy Seed Corporation, Embro Seed Company, Inc.,
and MIR, Inc., are also subsidiaries of Superseed Holding Company. In addition,
the shareholders of Superseed Holding Company are partners and shareholders of
other related businesses.
- 7 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - Continued
JUNE 30, 1997 AND 1996
NOTE 4 - RELATED PARTIES TRANSACTIONS - CONTINUED
- -------------------------------------------------
Ramy Commercial Properties, Inc. and Subsidiary sells, as well as purchases,
goods among the above group of companies. In addition, the Company pays
commissions and other fees for services it receives from these companies. The
Company also has outstanding demand notes payable to certain officers of the
Company. The above transactions were approximately as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Sales $ 42,272 $ 29,926
Purchases 173,625 122,642
Management fees 648,000 420,000
Interest expense on officer notes 7,350 7,700
</TABLE>
The related party notes receivable (payable) balances were as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Officer $ 18 $ 2,215
Superseed Holding Company 3,100 101,181
Superseed Holding Company (25,957) --
Ramy Properties -- 12,017
Ramy Seed Corporation (3,750) (3,750)
Officers, interest at 10 percent -- (7,000)
</TABLE>
NOTE 5 - INCOME TAXES
- ---------------------
The provision for income taxes consists of:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
Income tax expense $ 91,139 $107,344
Deferred (benefit) (10,500) (500)
-------- --------
TOTAL PROVISION $ 80,639 $106,844
======== ========
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Temporary differences between
the carrying amounts of assets and liabilities and their tax basis, primarily
relate to depreciation, bad debt recognition, inventory, and various accruals.
- 8 -
<PAGE>
RAMY COMMERCIAL PROPERTIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - Continued
JUNE 30, 1997 AND 1996
NOTE 5 - INCOME TAXES - CONTINUED
- ---------------------------------
The total deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets $22,000 $ 17,000
Deferred tax liability (8,000) (13,500)
------- --------
NET DEFERRED TAX ASSET $14,000 $ 3,500
======= ========
</TABLE>
The expected income tax provision that would result from applying federal
statutory tax rates to income before income taxes differs from total income tax
expense for the following reasons: state income taxes, nondeductible expenses,
and prior year underaccrual.
NOTE 6 - Profit Sharing Plan
- ----------------------------
The Company maintains a profit sharing plan which covers substantially all
employees who have one or more years of service. The Company did not make a
contribution to the plan for the year ended June 30, 1997 and 1996.
NOTE 7 - LIFE INSURANCE
- -----------------------
The Company is the beneficiary of life insurance policies on the former
President of the Company, former employee and the current president with face
values of $1,000,000, $50,000, and $750,000, respectively. The cash surrender
values are shown net of policy loans of $193,925 and $185,814 at June 30, 1997
and 1996.
NOTE 8 - RECLASSIFICATION
- -------------------------
For comparability, the 1996 figures have been reclassified where appropriated to
conform with the financial statement presentation used in 1997.
NOTE 9 - Commitments and Contingencies
- --------------------------------------
The Companies' parent has entered into negotiations to transact a tax free stock
exchange with a company in a similar industry. The exchange of stock has not
been completed as of the date of this report.
The Companies were subject to audit by the Internal Revenue Service for the
periods ending June 30, 1994 and June 30, 1995. A tax assessment of $1,115 has
been agreed upon for June 30, 1995. Tax assessments and penalties of $4,163 for
June 30, 1994 and $4,695 for June 30, 1995 have not been agreed upon by the
Company.
- 9 -
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
Stockholders/Members
Zajac Performance Seeds, Inc., et al
North Haledon, New Jersey
We have audited the accompanying combined balance sheet of Zajac
Performance Seeds, Inc., et al as of December 31, 1997 and the related combined
statements of income, retained earnings and members capital and cash flows for
the year then ended. The financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Zajac Performance
Seeds, Inc., et al as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ LUDWIG BULMER SEIFERT & LANE
April 21, 1998
Hackensack, New Jersey
1
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 2b) $ 660,196
Accounts receivable less allowance
for doubtful accounts of $65,000 410,895
Inventories (Note 2c) 491,125
Prepaid expenses 10,796
Other receivable 10,301
----------
Total current assets 1,583,313
----------
PROPERTY
AND EQUIPMENT AT COST (Note 2d)
Land 62,800
Land improvements 83,710
Building 359,709
Warehouse equipment 80,087
Automobile 19,187
Office furniture and equipment 108,495
Leased auto 4,800
----------
718,787
Less accumulated depreciation 171,071
----------
Net property and equipment 547,716
----------
OTHER ASSETS
Organization costs
- net of accumulated amortization (Note 2e) 249
Mortgage acquisition costs
- net of accumulated amortization (Note 2e) 4,754
Deposits 1,000
----------
6,003
----------
TOTAL ASSETS $2,137,032
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------------
<S> <C>
LIABILITIES,
STOCKHOLDERS' EQUITY
AND MEMBERS CAPITAL
CURRENT LIABILITIES
Current maturities
of long-term debt $ 30,904
Accounts payable 707,926
Accrued liabilities
Profit sharing plan (Note 7) 28,330
Payroll 78,593
Vacation pay 23,700
NJ corporate franchise tax 974
Expenses 173,844
Dividends and distribution payable 426,000
----------
Total current liabilities 1,470,272
----------
LONG-TERM DEBT
Note payable
- Key Bank of Oregon (Note 5a) 241,054
Installment notes
- Key Bank of Oregon (Note 5b) 14,217
- GMAC Financial Service (Note 5c) 8,346
----------
263,616
Less current portion included above (30,904)
----------
Net long-term debt 232,712
----------
STOCKHOLDERS' EQUITY
AND MEMBERS CAPITAL
Common stock, no par value,
100 shares authorized,
issued and outstanding 50,000
Members capital 299,592
Retained earnings 84,455
----------
Total stockholders' equity
and members capital 434,047
----------
TOTAL LIABILITIES,
STOCKHOLDERS' EQUITY
AND MEMBERS CAPITAL $2,137,031
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year ended December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C>
SALES $8,461,711
COST OF GOODS SOLD 6,617,217
----------
Gross profit 1,844,494
----------
SELLING EXPENSE 392,798
GENERAL AND ADMINISTRATIVE EXPENSES 1,006,528
----------
1,399,326
----------
Operating income 445,168
OTHER INCOME 32,340
----------
NET INCOME $ 477,508
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
COMBINED STATEMENTS OF RETAINED EARNINGS AND MEMBERS CAPITAL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------
Retained Members
Earnings Capital
-------------- ---------------
<S> <C> <C>
BALANCE, BEGINNING JANUARY 1 $ 280,206 $ 52,333
Net Income 17,249 460,259
---------- ----------
Dividends and distributions (213,000) (213,000)
---------- ----------
BALANCE, ENDING DECEMBER 31 $ 84,455 $ 299,592
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Year ended December 31, 1997
- --------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 477,508
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 58,416
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (277,718)
Inventories 84,125
Prepaid expenses and other receivable (19,892)
Increase (decrease) in:
Accounts payable (131,711)
Accrued payroll 78,593
Accrued interest (3,010)
Profit sharing plan payable 2,966
Accrued NJ franchise tax 974
Accrued expense 156,514
---------
Net cash provided by operating activities 426,769
---------
CASH FLOWS FROM INVESTING ACTIVITIES - purchase of equipment (9,200)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (28,019)
Repayment of stockholder loan (133,757)
---------
Net cash (used) by financing activities (161,776)
---------
Increase in cash 255,793
Cash, beginning of year 404,403
---------
CASH, END OF YEAR $ 660,196
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid during the year for interest $ 43,414
Cash paid during the year for state taxes $ 2,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
1. COMPANIES INVOLVED IN THE COMBINATION
The accompanying combined financial statements include the accounts of Zajac
Performance Seeds, Inc. (An S Corporation) and Zajac Performance Seeds
Oregon, L.L.C., after elimination of intercompany accounts. Both companies
have common control.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Organization
Zajac Performance Seeds, Inc. and Zajac Performance Seeds Oregon, L.L.C.
develop, produce and market proprietary turf grass varieties to seed
companies throughout the U.S. and abroad. Zajac Performance Seeds Oregon,
L.L.C. also blends and packages turf grasses.
b) Cash and Cash Equivalents
For purposes of the statement of cash flows, the Companies consider all
interest bearing investments due on demand as cash equivalents.
c) Inventories are valued at the lower of cost or market using the first-in,
first-out method less a reserve for obsolescence in the amount of
$34,000.
d) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided by
charges to operations over the useful lives of the assets by the Modified
Accelerated Cost Recovery System (MACRS). While it is acknowledged that
MACRS is not considered in all cases to be in accordance with generally
accepted accounting principles (GAAP) - the use of MACRS useful lives and
computation factors in this instance does not yield a result that is
materially different from other generally accepted depreciation methods.
When assets are retired or otherwise disposed of, the loss and related
accumulated depreciation are removed from the accounts, and any resulting
gain or loss is reflected in income for the period. The cost of
maintenance and repairs is charged to income as incurred; significant
renewals and betterments are capitalized. The estimated useful lives by
asset class follow:
<TABLE>
<CAPTION>
MACRS
-----
<S> <C>
Land improvements 15
Buildings 39
Automobile 5
Office furniture and equipment 5 - 7
</TABLE>
7
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Organization Costs/Mortgage Acquisition Costs
The cost of formation of the L.L.C. is being amortized over sixty (60)
months. Cost incurred in financing the purchase of land and building are
being amortized over sixty (60) months.
f) Income Taxes
Zajac Performance Seeds, Inc. with the consent of its stockholders has
elected to be an "S" corporation for both Federal and New Jersey
purposes. The L.L.C. is treated as a partnership for both federal and
state purposes. in both cases the individuals are taxed on their
proportionate share of each company's taxable income.
3. LINE OF CREDIT
Zajac Performance Seeds Oregon, L.L.C. has a $300,000 line of credit with
Key Bank of Oregon. This line of credit is cross collateralized by the
Companies assets and is guaranteed by the majority member, John Zajac.
There were no borrowings outstanding on the line of credit as of December
31, 1997. The line of credit is subject to annual renewal and is
presently due to expire on September 1, 1998.
4. LOAN PAYABLE - STOCKHOLDER
The Company has repaid a note payable to the majority stockholder, John
Zajac, for $133,757. Interest paid this year was $12,038.
8
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
5. LONG-TERM DEBT
a) On September 11, 1995, Zajac Performance
Seeds Oregon, L.L.C. entered into a loan
agreement with Key Bank of Oregon
to finance the purchase of land, construction
of a warehouse/office and the purchase of
equipment. The loan bears interest at
8.75% per annum adjustable after five years.
Monthly payments of $3,630 began on
October 1, 1995. $241,054
b) Note payable to Key Bank of Oregon
payable in monthly installments of $436.59
including interest at 8.75%, final payment
due February 1, 2001, secured by equipment. 14,217
c) Note payable to GMAC Financial Services
payable in monthly installments of $345.60
including interest at 9.75%, final payment
due April, 2000, secured by an automobile. 8,346
--------
$263,616
========
Estimated maturities of long-term debt are as follow:
December 31, 1998 $ 30,904
December 31, 1999 33,764
December 31, 2000 33,768
December 31, 2001 31,174
December 31, 2002 33,083
Thereafter 100,923
--------
$263,616
========
</TABLE>
9
<PAGE>
ZAJAC PERFORMANCE SEEDS, INC., ET AL
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
6. OPERATING LEASE
The Company occupies facilities under a lease agreement expiring in December,
1998. The minimum lease commitment under the lease is $7,577 per year. The
lease also requires the Company to reimburse the landlord for its share of
common area maintenance expenses.
7. PROFIT SHARING PLAN
The Company participates in a profit sharing retirement plan. Under the
plan, the Company may contribute a portion of its earnings annually on a
discretionary basis. The defined contribution profit sharing plan contains a
cash deferred 401(k) feature. All employees with one year of service are
eligible to participate. The Company provides a matching contribution up to
a maximum of $250 per employee per year. Profit sharing expense of the
Company for the year ended December 31, 1997 was $30,383.
8. SUBSEQUENT EVENT
The stockholders of Zajac Performance Seeds, Inc. entered into a transaction
with AgriBiotech wherein they exchanged their stock in Inc. for 300,000
shares of AgriBiotech.
The assets of Zajac Performance Seeds Oregon, L.L.C. were sold to AgriBiotech
for $3,600,000 in cash.
The closing on both transactions occurred on April 8, 1998.
10
<PAGE>
[LETTERHEAD OF JONES & ROTH]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Agri Bio Tech, Inc.
We have audited the accompanying balance sheet of Van Dyke Seed Company, Inc.
(an S Corporation) as of December 31, 1997 and the related statements of income,
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Van Dyke Seed Company, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Jones & Roth, P.C.
Jones & Roth, P.C.
Hillsboro, Oregon
April 29, 1998
<PAGE>
VAN DYKE SEED COMPANY, INC
BALANCE SHEET
DECEMBER 31, 1997
---------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance $1,902,166
for doubtful accounts of $10,000
Inventory 1,438,499
Prepaid expenses 7,767
----------
Total current assets 3,348,432
----------
PROPERTY AND EQUIPMENT:
Land 449,693
Orchards 14,040
Buildings 2,204,694
Equipment 1,656,081
----------
4,324,508
Less accumulated depreciation (2,027,303)
----------
Total property and equipment 2,297,205
----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $33,167 16,833
----------
TOTAL ASSETS $5,662,470
==========
</TABLE>
See accompanying notes.
-2-
<PAGE>
VAN DYKE SEED COMPANY, INC
BALANCE SHEET (continued)
DECEMBER 31, 1997
---------------
LIABILITIES
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Bank overdraft $ 649,760
Line of Credit 1,676,293
Current maturities - long term debt 150,927
Demand note payable 27,500
Notes payable - related parties 530,451
Accounts payable 1,251,865
Accrued vacation 45,500
Other accrued expenses 20,702
----------
Total current liabilities 4,352,998
LONG-TERM LIABILITIES:
Long term debt, net of current maturities 543,215
----------
Total liabilities 4,896,213
----------
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000 shares
authorized 60,000 shares issued and outstanding 64,696
Retained earnings 701,561
----------
Total stockholders' equity 766,257
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,662,470
==========
</TABLE>
See accompanying notes.
-3-
<PAGE>
VAN DYKE SEED COMPANY, INC
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Year Ended December 31, 1997
-----------------
<TABLE>
<S> <C>
REVENUES $10,463,784
COST OF SALES (9,225,050)
-----------
Gross profit 1,238,734
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (628,170)
-----------
Operating income 610,564
-----------
OTHER INCOME (EXPENSE):
Rental income 20,386
Gain on sale of assets 2,006
Interest expense (204,921)
-----------
Total other income (expense) (182,529)
-----------
Net income 428,035
RETAINED EARNINGS, BEGINNING OF YEAR 1,186,680
S-Corporation distributions (913,154)
-----------
RETAINED EARNINGS, END OF YEAR $ 701,561
===========
</TABLE>
See accompanying notes.
-4-
<PAGE>
VAN DYKE SEED COMPANY, INC
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1997
----------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 428,035
Noncash items included in net income:
Depreciation 175,518
Amortization 2,000
Gain on sale of assets (2,006)
Increase in accounts receivable (356,197)
Increase in inventory (161,198)
Increase in prepaid expense (2,607)
Increase in accounts payable 110,787
Increase in accrued vacation 7,000
Decrease in other accrued expenses (31,619)
----------
Net cash provided by operating activities 169,713
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (525,991)
Proceeds from sale of equipment 28,500
----------
Net cash provided by investing activities (497,491)
----------
CASH FLOWS FORM FINANCING ACTIVITIES:
Increase in bank overdraft 259,474
Net increase in borrowings from line of credit 1,071,516
Proceeds from long-term borrowing 209,960
Principal payments on long-term debt (229,836)
Distributions to stockholders (913,154)
Net decrease in related party notes (70,182)
----------
Net cash provided by financing activities 327,778
----------
NET CHANGE IN CASH -
CASH, BEGINNING OF YEAR -
----------
CASH, END OF YEAR $ -
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest: $ 204,890
==========
</TABLE>
See accompanying notes.
-5-
<PAGE>
VAN DYKE SEED COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------
1. Summary of Significant Accounting Policies and Nature of Operations:
-------------------------------------------------------------------
Company Activities
------------------
The Company's operations consist of sales of clover and grass seed, seed
cleaning and grain and seed farming . The Company packages various seed and
grains for sale to distributors and agricultural users. The Company
purchases seed predominately from growers within a 130 mile radius of
Portland, Oregon. Sales are made throughout the United States and also
exported to foreign customers. The Company grants unsecured credit to its
domestic customers. The Company's ability to collect the amounts due from
customers is affected by economic fluctuations in the agricultural industry
and agricultural distribution industry. Revenue from farming represents
approximately 6% of revenue in 1997. All other revenue is primarily seed
sales.
Cash and Cash Equivalents
-------------------------
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid debt instruments purchased with maturities of three months or less to
be cash equivalent.
Inventory
---------
Inventory consists primarily of seed products and is valued at the lower of
cost (first-in, first-out basis) or market.
Property and Equipment
----------------------
Property and equipment are recorded at cost, with all significant
acquisitions, renovations and repairs which increase the value of assets
being capitalized. All expenditures for repair and maintenance, which do not
appreciably extend the useful life or increase the value of the asset, are
expensed in the period in which the cost is incurred. Gain or loss is
recognized on those assets sold or retired. The net book value of assets
traded on new property is included in cost of the property acquired.
Depreciation
------------
Depreciation of property and equipment is computed using the straight-line
method over estimated useful lives, ranging from five to forty years.
Other Assets
------------
Goodwill represents the excess of the cost of a Company acquired over the
fair value of their net assets at the date of acquisition and is amortized on
the straight-line method over twenty-five years.
- 6 -
<PAGE>
VAN DYKE SEED COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - continued
--------------------
1. Summary of Significant Accounting Policies and Nature of Operations
-------------------------------------------------------------------
(Continued):
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
------------
The Company, with the consent of its stockholders, elected under the Internal
Revenue Code to be an S-corporation, effective July 1, 1989. In lieu of
corporation income taxes, the stockholders of an S-corporation are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for Federal income taxes has been included in these
financial statements.
Advertising
-----------
Advertising costs are charged to operations when incurred. Total advertising
expense for the year ended December 31, 1997 was $9,944.
2. Lines of Credit
---------------
The Company has two lines of credit from U.S. Bank totaling $2,000,000. The
credit lines are due on demand, with interest payable monthly. Interest is
accrued at the lender's prime rate and was 8.5% at December 31, 1997. The
credit lines are secured by inventory, accounts receivable and crops. The
larger of the two lines of credit is guaranteed by four stockholders. The two
credit lines have a balance of $1,176,293 and $500,000 respectively at
December 31, 1997.
3. Demand Note Payable
-------------------
The Company has a demand note payable to an individual of $27,500 with
interest at 8.5%.
- 7 -
<PAGE>
VAN DYKE SEED COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS - continued
--------------------
4. Notes Payable to Related Parties
--------------------------------
At December 31, 1997, notes payable to related parties consists of the
following:
<TABLE>
<S> <C>
Demand notes payable to six shareholders with
interest from 8 to 9% due annually. $ 254,961
Demand notes payable to a stockholder's parent
with interest from 6 to 8% due annually. 275,490
----------
$ 530,451
==========
</TABLE>
Interest paid to related parties during 1997 was $50,086.
5. Long-Term Debt
--------------
At December 31, 1997, long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable to U.S. Bank payable in monthly
installments of $4,339 including interest at
8.25%, final payment due April, 1999, secured by
farm equipment and machinery. $ 60,668
Notes payable to two individuals and an estate,
payable in monthly installments of $2,857
including interest at 7.5%, final payment due
February, 2009, secured by real estate. 257,886
Contract payable to three individuals in annual
installments of $83,255 including interest at 9%,
final payment due June, 2001, secured by real
estate and buildings. 269,724
Contract payable to Case Credit in annual installments
of $30,785 including interest at 8.75%, final payment
due November, 2001, secured by equipment. 100,260
Contract payable in monthly installments of
$641, including interest at 6.9%, final payment
due September, 1998, secured by equipment. 5,604
----------
694,142
Less current maturities (150,927)
----------
Long-term debt, net of current maturities $ 543,215
==========
</TABLE>
-8-
<PAGE>
VAN DYKE SEED COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, continued
--------------------
5. Long-Term Debt (Continued):
--------------
Annual maturities of long-term debt obligations in the next five years are as
follows:
<TABLE>
<CAPTION>
December 31
-----------
<S> <C>
1998 $150,927
1999 116,673
2000 114,055
2001 124,057
2002 20,860
Thereafter 167,570
--------
Total $694,142
========
</TABLE>
6. Common Stock
------------
The corporation has two classes of common stock. Class A common stockholders
have voting privileges and Class B common stockholders have no voting
privileges. Shares of stock authorized, issued, and outstanding are as to
follows:
<TABLE>
<CAPTION>
Shares
Shares Issued and
Authorized Outstanding
---------- -----------
<S> <C> <C>
Class A Common Stock 20,000 10,000
Class B Common Stock 80,000 50,000
------- ------
100,000 60,000
======= ======
</TABLE>
7. Leases
------
The Company has various two year leases for farmland, which expire in
October, 1999 with options for renewal. Lease expense was $76,646 for the
year ended December 31, 1997. Minimum future lease payments under
noncancellable operating leases having remaining terms as of December 31,
1997 are $69,946 due during 1998. These leases include farmland leased from
eight stockholders. Lease payments made to the stockholders were $7,800 for
the year ended December 31, 1997.
-9-
<PAGE>
VAN DYKE SEED COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS, continued
--------------------
8. Commitments
-----------
As of December 31, 1997, the Company has committed to sell approximately
1,770,000 pounds of various grains and seeds for an estimated revenue of
$2,050,000. The Company is also committed to purchase approximately
1,190,000 pounds of grains and seeds at an estimated cost of $1,275,000.
9. Subsequent Events
-----------------
The Company sold all assets related to the seed cleaning and sales operations
of the business, including land at the North Plains site, effective January
1, 1998. The Company will receive $3,600,000 in cash, 460,000 shares of
AgriBioTech, Inc. (ABT) stock and assumption of all liabilities related to
the seed operation by ABT. The Company will give ABT a long-term, nominal
fee easement over the land at the Forest Grove site for the seed cleaning
operations. The Company will continue its farming operations, which
accounted for approximately 6% of revenue in 1997.
- 10 -
<PAGE>
AUDITORS' REPORT
To the Directors of Oseco Inc.
We have audited the consolidated balance sheet of Oseco Inc. as at June 30, 1997
and the consolidated statements of income and retained earnings and changes in
cash resources for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 1997 and
the results of its operations and the changes in its cash resources for the year
then ended in accordance with generally accepted accounting principles in Canada
which, except as described in note 12 to the consolidated financial statements,
also conform in all material respects with generally accepted accounting
principles in the United States.
/s/ KPMG
Chartered Accountants
Mississauga, Canada
September 12, 1997 (except for
note 10 which is as of June 12, 1998)
<PAGE>
OSECO INC.
Consolidated Balance Sheet
(Expressed in Canadian dollars)
June 30, 1997
<TABLE>
<S> <C>
- -------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable (net of allowance
for doubtful accounts of $52,038) $2,927,676
Inventories 3,272,791
Prepaid expenses and deposits 110,344
Income taxes recoverable and other current assets 271,918
-----------------------------------------------------------------
6,582,729
Investment in affiliated company (note 3) 1,655
Fixed assets (note 4) 1,666,818
Mortgage receivable (note 5) 161,500
- -------------------------------------------------------------------
$8,412,702
- -------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness (note 2) $2,146,629
Accounts payable and accrued liabilities 1,034,154
Payable to affiliated company (note 6) 758
Deferred revenues 5,419
-----------------------------------------------------------------
3,186,960
Redeemable, retractable Class A shares (note 7) 4,300,000
Shareholders' equity:
Capital stock:
Authorized:
Unlimited Class A shares
40,000 common shares
Issued:
4,300 Class A shares (note 7) --
100 common shares 100
Retained earnings 925,642
-----------------------------------------------------------------
925,742
Commitments (note 9)
- -------------------------------------------------------------------
$8,412,702
- -------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
OSECO INC.
Consolidated Statement of Income and Retained Earnings
(Expressed in Canadian dollars)
Year ended June 30, 1997
<TABLE>
<S> <C>
- ----------------------------------------------------------------------
Sales $13,449,764
Cost of sales 9,157,087
- ----------------------------------------------------------------------
4,292,677
Expenses:
Production 1,116,525
Selling 750,857
Research 77,703
General and administrative 1,424,062
Western division 217,242
Depreciation 258,724
--------------------------------------------------------------------
3,845,113
- ----------------------------------------------------------------------
447,564
Other income 40,916
- ----------------------------------------------------------------------
Income before income taxes 488,480
Income taxes (note 8) 90,000
- ----------------------------------------------------------------------
Net income (note 11) 398,480
Retained earnings, beginning of year 4,827,160
Excess of retraction price of redeemable, retractable
Class A shares over paid-up capital (4,299,998)
- ----------------------------------------------------------------------
Retained earnings, end of year $ 925,642
- ----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
OSECO INC.
Consolidated Statement of Changes in Cash Resources
(Expressed in Canadian dollars)
Year ended June 30, 1997
<TABLE>
<S> <C>
- ---------------------------------------------------------------
Cash provided by (used for):
Operating activities:
Net income $ 398,480
Items not involving cash:
Depreciation 258,724
Other (2,267)
Gain on disposal of fixed assets (5,768)
-------------------------------------------------------------
649,169
Change in non-cash operating working capital (927,583)
-------------------------------------------------------------
(278,414)
Financing activities:
Increase in loan payable to affiliated company 14,973
Dividends received 1,774
Purchase of shares 100
-------------------------------------------------------------
16,847
Investing activities:
Purchase of fixed assets (414,036)
Proceeds on sale of fixed assets 18,983
-------------------------------------------------------------
(395,053)
- ---------------------------------------------------------------
Increase in bank indebtedness (656,620)
Bank indebtedness, beginning of year (1,490,009)
- ---------------------------------------------------------------
Bank indebtedness, end of year $(2,146,629)
- ---------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Year ended June 30, 1997
- -------------------------------------------------------------------------------
The Company is incorporated under the Ontario Business Corporations Act and its
principal business activities, and those of its subsidiary, are the processing,
coating and sale of seeds.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Precision Seed Coaters Inc., a company
operating in the United States. Significant intercompany balances and
transactions have been eliminated.
(b) Investments:
The investments in affiliated companies are recorded on the equity basis.
Under this method, the Company's share of the net earnings or loss of such
companies, for the year, is reflected in the statement of operations. The
investments are carried at cost and include the Company's share of
undistributed earnings since acquisition.
The affiliated company included in the financial statements is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Percentage
Ownership Year-end
- ----------------------------------------------------------------
<S> <C> <C>
Seed Coaters (Pty.) Limited 49.95 February 28, 1997
- ----------------------------------------------------------------
</TABLE>
(c) Inventories:
Inventories are stated at the lower of average cost basis or replacement
cost.
4
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Fixed assets:
Fixed assets are stated at cost less accumulated depreciation.
Depreciation is being provided by the diminishing-balance method at the
following annual rates:
<TABLE>
<S> <C>
--------------------------------------------------------------------------
Building 10%
Computer hardware and software 30%
Signs 35%
Office and production equipment 20%
Automotive equipment 30%
--------------------------------------------------------------------------
</TABLE>
Leasehold improvements are being amortized over the term of the lease plus
one renewal option.
(e) Foreign currency translation:
Assets and liabilities of the self-sustaining operation in the United
States are translated to Canadian dollars at the rates in effect at the
balance sheet date. Income and expenses are translated at average rates
of exchange for the year. The resulting gains and losses are included in
shareholders' equity.
(f) Use of estimates:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(g) Financial instruments:
The fair values of the accounts receivable, bank indebtedness, accounts
payable and accrued liabilities, and payable to affiliated company
approximate their book values due to the relatively short-term nature of
these instruments. Management estimates that the fair value of the
mortgage receivable approximates its carrying value (note 5).
5
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
2. BANK INDEBTEDNESS:
<TABLE>
-----------------------------------------------------------------------------
<S> <C>
Bank overdraft $1,403,045
Outstanding cheques 743,584
-----------------------------------------------------------------------------
Bank indebtedness $2,146,629
-----------------------------------------------------------------------------
</TABLE>
The bank indebtedness forms part of the Company's bank credit facility
totalling $4,500,000 which may be drawn on by demand at the bank's prime
rate. Bank indebtedness is secured by a general security agreement and a
general assignment of book debts.
3. INVESTMENT IN AFFILIATED COMPANY:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Share of
undistributed
Investment loss since Dividends
at cost acquisition paid Net
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Seed Coaters (Pty.) Limited $6,133 $2,704 $1,774 $1,655
--------------------------------------------------------------------------------
</TABLE>
The Company received dividends of $1,744 from Seed Coaters (Pty.) Limited
during the year.
Subsequent to year-end, Seed Coaters (Pty.) Limited sold its assets and
realized net proceeds of approximately $18,000. A distribution of these
proceeds has not as yet been made to its shareholders.
6
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
4. FIXED ASSETS:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Accumulated
Cost depreciation Net
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 78,450 $ $ 78,450
Building 937,369 245,058 692,311
Office equipment 557,261 324,696 232,565
Production equipment 1,922,765 1,366,697 556,068
Automotive equipment 238,233 147,967 90,266
Leasehold improvements 165,837 156,886 8,951
Railway siding 13,730 6,535 7,195
Signs 17,675 16,663 1,012
-----------------------------------------------------------------------------
$3,931,320 $2,264,502 $1,666,818
-----------------------------------------------------------------------------
</TABLE>
5. MORTGAGE RECEIVABLE:
The Company holds a second mortgage in the amount of $161,500 bearing
interest at 8%. This mortgage relates to the settlement of an amount owing
by one of the purchasers of a former division of Oseco Inc. The mortgage was
due on June 3, 1997. No payments have been received; however, the property
securing this mortgage is listed for sale and management estimates that the
equity in the property will be sufficient to fully recover the second
mortgage held by the Company. No provision against the mortgage has been
recorded.
6. PAYABLE TO AFFILIATED COMPANY:
The Company has a loan payable to Ontario Seed Cleaners & Dealers Limited in
the amount of $758, bearing interest at agreed rates approximating prime. No
interest was paid in fiscal 1997.
7
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
7. REDEEMABLE, RETRACTABLE CLASS A SHARES:
During fiscal 1997 the Company completed a share reorganization whereby the
Company created a new class of shares, being an unlimited number of
redeemable, retractable Class A voting shares, redeemable at $1,000 per share
and bearing a non-cumulative dividend of 5% if and when declared.
The shareholders of the Company exchanged their common shares for 4,300 Class
A shares and were issued 100 new common shares for cash of $100.
In accordance with CICA Handbook section 3860, the Class A shares are
classified outside shareholders' equity at their retraction value and the
difference between the retraction value assigned to the Class A shares and
the paid-up capital is reflected as a charge to retained earnings.
The Class A shares are entitled to receive dividends, as and when declared in
priority to the common shares.
In the event of liquidation or wind-up, the Class A shares shall receive an
amount equal to the redemption value together with any declared but unpaid
dividends. The Class A shares and the common shares have equal rights in
voting matters of the Company.
8. INCOME TAXES:
The income tax provision for the year ended June 30, 1997 is comprised of the
following:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------
Current $118,280
Benefit of loss carryforward of
subsidiary company not previously recorded (28,280)
-----------------------------------------------------------------------------
$90,000
-----------------------------------------------------------------------------
</TABLE>
8
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
8. INCOME TAXES (CONTINUED):
The effective rates of income taxes provided in the consolidated statement of
income vary from the combined Canadian federal and provincial statutory
income tax rates as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
% of
pre-tax
Amount income
-----------------------------------------------------------------------------
<S> <C> <C>
Income tax computed at statutory income tax rate $210,000 43.0
Rate reduction for small business (37,000) (7.6)
Non-taxable income (36,000) (7.4)
Manufacturing and processing tax credits (12,000) (2.4)
Other (35,000) (7.2)
-----------------------------------------------------------------------------
$ 90,000 18.4
-----------------------------------------------------------------------------
</TABLE>
The Company's subsidiary has operating loss carryforwards of U.S. $205,000 as
of June 30, 1997 expiring in the year 2009, the tax benefits of which will be
recognized when realized.
9. COMMITMENTS:
(a) The Company rents its premises in Brampton from an affiliated company,
Ontario Seed Cleaners and Dealers Limited. The lease calls for an annual
rental cost to be negotiated each year, plus property taxes, from July 1,
1994 to June 30, 1998.
For fiscal 1997, the Company paid rent in the amount of $105,269. The
rent for fiscal 1998 is expected to remain at this amount.
(b) The Company rents its premises in St. Paul, Alberta from St. Paul
Municipal Seed Cleaning Association Ltd. The lease calls for an annual
rental of $12,300 from July 1, 1996 to June 30, 1997.
(c) The Company sponsors a non-contributory defined pension plan for an
employee. An actuarial valuation has indicated that the pension is fully
funded and does not require further contributions.
9
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENTS:
In May of 1998, the shareholders of the Company executed a letter of intent
to sell 100% of the outstanding shares of the Company to AgriBioTech Inc., a
public company based in the United States.
In September of 1997 the mortgage receivable, including accrued but
unrecorded interest as described in note 5, was repaid.
11. EARNINGS PER SHARE:
Earnings per share information has not been presented as it would not
provide any meaningful information as all outstanding shares are held by two
individuals.
12. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
These financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) in Canada which, in all material
respects, are in accordance with United States GAAP except as noted below.
Consolidated statement of income and retained earnings:
If United States GAAP were employed, net income for the year would be
adjusted as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------
Net income based on Canadian GAAP $398,480
Recognition of loss carryforwards of subsidiary company (a) 72,000
-----------------------------------------------------------------------------
Net income based on United States GAAP $470,480
-----------------------------------------------------------------------------
</TABLE>
(a) The Company follows the deferral method of accounting for income taxes
under Canadian GAAP, whereas United States GAAP requires the use of the
liability method. In 1994 and 1993 the Company's United States
subsidiary incurred losses of U.S. $394,000, the tax benefit of which is
not recognized under Canadian GAAP until realized because the subsidiary
did not have virtual certainty that it would realize such benefits.
Under United States GAAP, the recovery of deferred tax assets is assessed
using a "more likely than not" criterion as opposed to the virtual
certainty criterion which management considered was met in 1997.
As described in note 8, $28,000 of previously unrecognized loss
carryforwards were recognized under Canadian GAAP in 1997.
10
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements (continued)
(Expressed in Canadian dollars)
Year ended June 30, 1997
- --------------------------------------------------------------------------------
12. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
If United States GAAP were employed, shareholders' equity for the year would
be adjusted as follows:
<TABLE>
<S> <C>
----------------------------------------------------------------------------
Shareholders' equity based on Canadian GAAP $925,742
Recognition of loss carryforwards of subsidiary company 72,000
----------------------------------------------------------------------------
Shareholders' equity based on United States GAAP $997,742
----------------------------------------------------------------------------
</TABLE>
Consolidated statement of changes in cash resources:
Under United States GAAP, bank indebtedness would not be included as a
component of cash position in the consolidated statement of changes in cash
resources. Accordingly, the $656,620 increase in bank indebtedness would be
presented as a financing activity for the year and cash provided by
financing activities would amount to $673,467.
13. SIGNIFICANT CUSTOMERS:
In fiscal 1997 no customer accounted for more than 10% of the Company's
sales. At June 30, 1997 four customers accounted for $1,056,700 of the
accounts receivable balance.
11
<PAGE>
OSECO INC.
Consolidated Balance Sheets
(Expressed in Canadian dollars)
March 31, 1998
(Unaudited)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Current assets:
Accounts receivable $ 4,337,830
Inventories 4,154,559
Prepaid expenses and deposits 113,799
Other current assets 136,200
------------------------------------------------------------------------------
8,742,388
Investment in affiliated company 1,655
Fixed assets 1,650,525
- --------------------------------------------------------------------------------
$10,394,568
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness $ 2,079,782
Accounts payable and accrued liabilities 2,338,334
Income taxes payable 196,989
Payable to affiliated company 25,614
Deferred revenues 132,441
------------------------------------------------------------------------------
4,773,160
Redeemable, retractable Class A shares 4,300,000
Shareholders' equity:
Capital stock:
Authorized:
Unlimited Class A shares
40,000 common shares
Issued:
4,300 Class A shares -
100 common shares 100
Retained earnings 1,321,308
------------------------------------------------------------------------------
1,321,408
- --------------------------------------------------------------------------------
$10,394,568
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
OSECO INC.
Consolidated Statements of Income and Retained Earnings
(Expressed in Canadian dollars)
Nine month periods ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales $10,258,262 $ 7,678,422
Cost of sales 6,755,850 5,203,241
- --------------------------------------------------------------------------------
3,502,412 2,475,181
Expenses:
Production 850,471 822,478
Selling 496,678 527,341
Research 119,146 127,982
General and administrative 1,029,974 1,051,286
Western division 170,365 161,672
Depreciation 225,112 165,078
------------------------------------------------------------------------------
2,891,746 2,855,837
- --------------------------------------------------------------------------------
610,666 (380,656)
Other income - 40,916
- --------------------------------------------------------------------------------
Income (loss) before income taxes 610,666 (339,740)
Provision for (recovery of) income taxes 215,000 (63,000)
- --------------------------------------------------------------------------------
Net income (loss) 395,666 (276,740)
Retained earnings, beginning of period 925,642 4,827,160
Excess of retraction price of redeemable, retractable
Class A shares over paid-up capital - (4,299,998)
- --------------------------------------------------------------------------------
Retained earnings, end of period $ 1,321,308 $ 250,422
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
OSECO INC.
Consolidated Statements of Changes in Cash Resources
(Expressed in Canadian dollars)
Nine month periods ended March 31, 1998 and1997
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used for):
Operating activities:
Net income (loss) $ 395,666 $ (276,740)
Items not involving cash:
Depreciation 225,112 165,078
Other (4,627) (319)
Loss on disposal of fixed assets 18,082 -
------------------------------------------------------------------------------
634,233 (111,981)
Change in non-cash operating working capital (531,468) (1,202,264)
------------------------------------------------------------------------------
102,765 (1,314,245)
Financing activities:
Increase in loan payable to affiliated company 24,856 11,387
Dividend received - 1,774
Purchase of shares - 100
-----------------------------------------------------------------------------
24,856 13,261
Investing activities:
Purchase of fixed assets (222,274) (350,965)
Proceeds on repayment of mortgage receivable 161,500 -
------------------------------------------------------------------------------
(60,774) (350,965)
- --------------------------------------------------------------------------------
Decrease (increase) in bank indebtedness 66,847 (1,651,949)
Bank indebtedness, beginning of period (2,146,629) (1,490,009)
- --------------------------------------------------------------------------------
Bank indebtedness, end of period $(2,079,782) $(3,141,958)
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Nine month periods ended March 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with the rules of the United States Securities and Exchange Commission and,
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and retained earnings
and cash flows, in conformity with generally accepted accounting principles.
Reference is made to the audited financial statements of Oseco Inc. (the
"Company") as at and for the year ended June 30, 1997 for information on the
Company's accounting policies which have been consistently applied in these
unaudited interim financial statements. The information furnished in the
accompanying unaudited financial statements, in the opinion of management,
reflects all adjustments (consisting primarily of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for the nine-month periods ended March 31, 1998 and 1997. The
Company's business is subject to wide seasonal fluctuations and, therefore, the
results of operations for the periods presented are not necessarily indicative
of results which may be expected for any other interim period or for the year as
a whole.
1. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
These financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) in Canada which, in all material
respects, are in accordance with United States GAAP except as noted below.
Consolidated statement of income and retained earnings:
If United States GAAP were employed, net income for the periods would be
adjusted as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) based on Canadian GAAP $395,666 $(276,740)
Recognition of loss carryforwards of
subsidiary company (a) (8,000) 80,000
-----------------------------------------------------------------------------
Net income (loss) based on United States GAAP $387,666 $(196,740)
-----------------------------------------------------------------------------
</TABLE>
4
<PAGE>
OSECO INC.
Notes to Consolidated Financial Statements
(Expressed in Canadian dollars)
Nine month periods ended March 31, 1998 and 1997
(Unaudited)
- --------------------------------------------------------------------------------
1. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(a) The Company follows the deferral method of accounting for income taxes
under Canadian GAAP, whereas United States GAAP requires the use of the
liability method. In 1994 and 1993 the Company's United States
subsidiary incurred losses of U.S. $394,000, the tax benefit of which is
not recognized under Canadian GAAP until realized because the subsidiary
did not have virtual certainty that it would realize such benefits.
Under United States GAAP, the recovery of deferred tax assets is assessed
using a "more likely than not" criterion as opposed to the virtual
certainty criterion which management considered was met during the nine
month period ended March 31, 1997.
If United States GAAP were employed, shareholders' equity for the period
ended March 31, 1998 would be adjusted as follows:
<TABLE>
-----------------------------------------------------------------------------
<S> <C>
Shareholders' equity based on Canadian GAAP $1,321,408
Recognition of loss carryforwards of
subsidiary company 64,000
-----------------------------------------------------------------------------
Shareholders' equity based on United States GAAP $1,385,408
-----------------------------------------------------------------------------
</TABLE>
Consolidated statement of changes in cash resources:
Under United States GAAP, bank indebtedness would not be included as a
component of cash position in the consolidated statement of changes in cash
resources. Accordingly, the $66,847 decrease in bank indebtedness in 1998
and the $1,651,949 increase in 1997 would be presented as a financing
activity for the periods and cash provided by financing activities would
amount to ($41,991) and $1,665,210 respectively.
2. SUBSEQUENT EVENT:
In May of 1998, the shareholders of the Company executed a letter of intent
to sell 100% of the outstanding shares of the Company to a public company
based in the United States.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AgriBioTech, Inc.
(Registrant)
/s/ Henry A. Ingalls
--------------------
Henry A. Ingalls
Date: August 10, 1998
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AgriBioTech, Inc.
We hereby consent to the use of our reports related to the December 31,
1997 financial statements of Van Dyke Seed Company, Inc. herein.
JONES & ROTH, P.C.
Hillsboro, Oregon
August 7, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AgriBioTech, Inc.
We hereby consent to the use of our reports related to the combined
financial statements of Zajac Performance Seeds, Inc., et al herein.
LUDWIG BULMER SEIFERT & LANE
Hackensack New Jersey
August 7, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Directors of Osceo, Inc.
We consent to the incorporation by reference in the registration statements
on Form S-3 (Nos. 333-33367 and 333-13953) and Form S-8 (No. 333-07123), of
AgriBioTech, Inc. of our report dated September 12, 1997 (except for note 10
which is as of June 12, 1998), with respect to the consolidated balance sheet of
Osceo Inc. as of June 30, 1997 and the consolidated statements of income and
retained earnings and changes in cash resources for the year then ended, which
report appears in the Form 8-K of AgriBioTech, Inc. dated May 22, 1998.
KPMG, Chartered Accountants
Mississanga, Canada
August 10, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
AgriBioTech, Inc.
We hereby consent to the use of our reports related to the consolidated
financial statements of Ramy Commercial Properties, Inc. and Subsidiary herein.
HAWKINS, ASH, BAPTIE & COMPANY, LLP
LaCrosse, Wisconsin
August 7, 1998
