<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-KSB/A
Amendment No. 2
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
Commission file number 0-19352
AGRIBIOTECH, INC.
-----------------
(Name of small business issuer in its charter)
Nevada 85-0325742
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2700 Sunset Rd., Suite C-25, Las Vegas, Nevada 89120
---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (702) 798-1969
----------------------------------------------- --------------
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
par value $.001 per share.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [_].
The issuer's revenues for its most recent fiscal year were $65,904,058.
----------
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of September 26, 1997, was $212,627,936 (assuming solely for
purposes of this calculation that all directors, officers and greater than 5%
stockholders of the Registrant are "affiliates").
The number of shares outstanding of the issuer's common stock, par value
$.001 per share, as of September 19, 1997, was 25,282,222
----------
Documents Incorporated by Reference: Not Applicable.
Exhibit Index is located on page ____
<PAGE>
Explanatory Note
----------------
This Amendment No. 2 on Form 10-KSB/A to the Annual Report on Form 10-KSB
("Form 10-KSB") for the fiscal year ended June 30, 1997 of Agribiotech, Inc., a
Nevada Corporation (the "Company"), is submitted to reflect a restatement of the
Company's financial statements related to accounting for the Company's
convertible preferred stock as described herein. In addition, as required by
Statement of Financial Accounting Standards No. 128, Earnings Per Share, is
------------------
required to be applied retroactively upon initial adoption at its effective
date, which for the Company is in connection with the quarter ended December 31,
1997. Accordingly, the Company has applied SFAS No. 128 herein. Furthermore,
typographical errors in items 5 and 7 are being corrected. The Company
hereby amends its Form 10-KSB in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the Nasdaq National Market since
February 14, 1997, under the symbol "ABTX."
The following table sets forth the high and low prices for the Common Stock
for each quarter in Fiscal 1996 and Fiscal 1997, until February 13, 1997, on the
Nasdaq SmallCap Market and since February 14, 1997 on the Nasdaq National
Market.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
Fiscal 1996
- -----------
July 1, 1995 - September 30, 1995 $5.50 $2.56
October 1, 1995 - December 31, 1995 $3.75 $1.56
January 1, 1996 - March 31, 1996 $4.19 $1.94
April 1, 1996 - June 30, 1996 $5.06 $3.50
Fiscal 1997
- -----------
July 1, 1996 - September 30, 1996 $4.13 $2.38
October 1, 1996 - December 31, 1996 $2.94 $1.97
January 1, 1997 - March 31, 1997 $3.53 $1.97
April 1, 1997 - June 30, 1997 $7.00 $2.25
Fiscal 1998
- -----------
July 1, 1997 - September 26, 1997 $10.50 $6.03
</TABLE>
As of September 26, 1997, the closing price per share of Common Stock was
$10.13.
As of September 22, 1997, the Company had 315 record holders of its Common
Stock. The Company reasonably believes that there are in excess of 4,000
beneficial holders of its Common Stock.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto of the Company included
elsewhere herein. The Company is a specialized processor and distributor of
forage (hay crops), turfgrass, corn, soybean and other seeds. The Company had
limited sales until January 1, 1995, when it commenced an acquisition program
(the "Acquisition Program") to acquire various seed companies. Therefore, a
comparison of the Company's operations during the nine-month period ended June
30, 1995 ("Fiscal 1995") has been combined with the discussion of the fiscal
years ended June 30, 1996 ("Fiscal 1996") and June 30, 1997 ("Fiscal 1997").
The Company's business strategy is to acquire reputable, regionally based
seed companies with proprietary products and established research, production,
processing and distribution channels in their respective markets. Since January
1, 1995, the Company has grown significantly, primarily through acquisitions of
regional seed companies. These acquisitions are more fully discussed in note 1
of Notes to Consolidated Financial Statements. The results of operations of the
acquired companies are included in the Company's consolidated results beginning
with the effective date of the acquisition in accordance with the purchase
method of accounting. Information concerning the acquisitions completed by the
Company with an effective date through June 30, 1997 is as follows:
<TABLE>
<CAPTION>
Net sales included
Employees in consolidated
Effective at June 30, results for June 30,
-------------------
Name Date 1997 1997 1996
- ------------------------- ---------------- ----------- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Seed Resource, Inc. January 1, 1995 20 $ 2,361 $ 2,590
Scott Seed Company March 1, 1995 27 7,949 7,191
Hobart Seed Company April 1, 1995 15 3,413 2,607
Halsey Seed Company July 1, 1995 41 10,123 8,038
Clark Seeds, Inc. October 1, 1995 24 10,267 4,953
Arnold-Thomas Seed
Service, Inc. October 1, 1995 * * *
Doug Conlee Seed Company January 1, 1996 * * *
Beachley-Hardy Seed February 1, 1996 * * *
W-L Research, Inc. September 1, 1996 25 12,740 ---
Germain's Inc. September 1, 1996 32 12,080 ---
E.F. Burlingham & Sons April 1, 1997 41 5,705 ---
The Sexauer Company April 1, 1997 38 3,368 ---
Olsen Fennell Seeds,
Inc. June 1, 1997 27 2,203 ---
</TABLE>
*The operations of Arnold-Thomas Seed Services, Inc. have been combined with
Clark Seeds, Inc., those of Beachly-Hardy Seed have been combined with Halsey
Seed Company and those of Doug Conlee Seed Company have been combined with Seed
Resource, Inc.
In addition to the above acquisitions, the Company acquired certain assets of
Sphar Seed Company effective July 1, 1996 to expand the operations of Scott Seed
Company. The Company also created Seed Mart, Inc., a start-up seed operation in
the upper Midwest section of the United States. Seed Mart began operations in
-2-
<PAGE>
the summer of 1995 but did not have significant sales until the spring of 1996.
Net sales of Seed Mart were $1,537,667 and $866,133 in Fiscal 1997 and Fiscal
1996 and it has 12 employees at June 30, 1997. The Company's Mexico operation,
which commenced in 1994, had net sales of $1,114,807 in Fiscal 1997 and $525,100
in Fiscal 1996. Included in the above sales numbers are intercompany sales
aggregating $6,958,154 in Fiscal 1997 and $808,721 in Fiscal 1996.
The acquisitions and other operations are included in the Company's
consolidated financial statements beginning with each of their effective or
start-up dates which significantly affects the meaningfulness of comparisons
between periods.
Effective June 30, 1995, the Company changed its fiscal year end from
September 30, to June 30 since that date better reflects the natural business
year of the Company's operations. Therefore, the results of operation for
Fiscal 1997 and Fiscal 1996 reflects up to 12 months of operation, depending on
the date of acquisition or start-up, whereas the Fiscal 1995 results of
operation includes a maximum of nine months.
The seed business is subject to wide seasonal fluctuations and, therefore, the
results of periods less than twelve months are not necessarily indicative of
results which may be expected for an entire year.
The above factors have significant impacts on the following discussion and
analysis and should be considered as part of it.
LIQUIDITY AND CAPITAL RESOURCES
The following summarizes certain information concerning the Company's
financial condition since June 30, 1995:
<TABLE>
<CAPTION>
June 30,
---------------------------
1997 1996 1995
------- -------- ------
(In thousands)
<S> <C> <C> <C>
Working capital $ 7,555 $ 6,461 $3,792
Property, plant, and equipment, net 17,864 7,916 2,092
Short-term debt 24,203 5,089 564
Long-term debt, including
amounts due within one year 3,724 1,622 271
Total stockholders' equity 44,988 14,022 6,333
</TABLE>
Changes in the above items are primarily due to the acquisitions completed by
the Company, including changes in these items following the dates of acquisition
due to growth and seasonality of the seed business and related financings.
Information concerning increases (decreases) in certain operational assets and
liabilities acquired in acquisitions and other changes is as follows:
-3-
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
-------------------- -------------------- --------------------
(in thousands)
Acqui- Other Acqui- Other Acqui- Other
sitions Changes sitions Changes sitions Changes
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable $11,796 ($1,823) $1,949 $4,599 $1,088 $(168)
Inventories 18,172 (1,898) 4,643 796 2,756 (990)
Property, plant
and equipment 9,822 1,054 5,795 504 2,034 111
Accounts payable
and accrued expenses 12,210 (4,948) 2,389 2,216 1,232 (435)
</TABLE>
To finance acquisitions and ongoing operations, the Company has raised
significant amounts of additional equity capital since September 30, 1994.
During Fiscal 1997 the Company received cash proceeds of $9,443,827 from the
exercise of existing options and warrants, including payments on notes
receivable for warrants and options exercised. Subsequent to June 30, 1997, the
Company received payments of $9,990,000 on notes receivable from the exercise of
options and warrants during Fiscal 1997. In addition, the Company received gross
proceeds of $10,000,000 from the private placement of its Series C Preferred
Stock during Fiscal 1997. The Company paid commissions equal to 13% of the gross
proceeds. During Fiscal 1996 the Company received cash proceeds of $3,438,630
from the exercise of existing options and warrants, including payments on notes
receivable for warrants exercised. The Company also completed the private
placement of 7,425 shares of its Series B Convertible Preferred Stock during
Fiscal 1996, receiving $7,425,000 before commissions and expenses. In Fiscal
1995 the Company received cash proceeds of $3,760,631 from the exercise of
existing warrants, including payments on notes receivable for warrants
exercised. Equity transactions are more fully described in note 7 of Notes to
Consolidated Financial Statements.
In connection with two of the Company's acquisitions, the Company assumed
revolving lines of credit. These facilities, both of which have been
terminated, allowed borrowings up to $3,000,000 and $2,000,000. One facility
had an outstanding balance of $1,943,420 at June 30, 1997, that has been repaid.
At June 30, 1997, the Company had approximately $3.2 million outstanding under
the short-term borrowing arrangement used to finance the acquisition of The
Sexauer Company. This credit line was repaid and terminated subsequent to June
30, 1997.
At June 30, 1997, the Company had a $22,000,000 line of credit with Bank of
America (Nevada), $15,086,013 of which was outstanding. Borrowings under this
line of credit are limited to 70% of eligible accounts receivable and 50% of
eligible inventory. At June 30, 1997, the Company also had a $4,000,000 term
note outstanding. The note was repayable in July and August 1997 and was repaid
when due. In August 1997 the Company received a $5 million term loan from Bank
of America that bears interest at the bank's reference rate plus 0.5 percent
and is repayable over five years.
In connection with the Company's acquisitions, the Company assumed long-term
mortgage debt of $1,004,754 and incurred long-term seller financing of
$1,250,000. The Company had approximately $3,724,000 in long-term debt
-4-
<PAGE>
outstanding at June 30, 1997. This long-term debt comprised mortgages,
capital leases, covenants not to compete and deferred compensation.
The Company believes it has adequate financial resources to close its pending
acquisitions and to finance its ongoing operations after such acquisitions.
However, the seed business is subject to wide seasonal fluctuations, as
described below under "Seasonality of Business", which result in a significant
increase in the level of inventory prior to and during the heavier selling
season in the spring and related higher levels of accounts receivable following
such sales through the early summer. This also reflects industry practice that
dictates a significant amount of sales of certain products are made with
extended terms through mid summer. In addition, the seed business can be
significantly impacted by the weather, which can alter the timing and nature of
crops planted by farmers which, in turn, affects the timing and nature of seed
sales. Therefore, it is possible that the Company may need to seek additional
financial resources to finance ongoing operations. Furthermore, the Company
expects that it will need to obtain additional equity and/or debt financing in
order to continue its Acquisition Program.
RESULTS OF OPERATION
During Fiscal 1997, the Company had net sales of $65,904,058 as compared with
$25,961,541 during Fiscal 1996 and $4,753,608 during Fiscal 1995. Fiscal 1997
revenues reflect the operations of fourteen acquisitions (plus Seed Mart and
Mexico operations) for periods of one to twelve months. Fiscal 1996 revenues
reflect the operation of eight acquisitions (plus Seed Mart and Mexico
operations) for periods of five to twelve months. Fiscal 1995 revenues reflected
operations of three acquisitions for three to six months (plus Mexico). Customer
retention has been excellent in the operations acquired to date.
Cost of sales, primarily seed cost, were $49,527,150, or 75.2% of net sales
for Fiscal 1997, as compared to $19,235,670, or 74.1% of net sales for Fiscal
1996, and $3,397,860, or 71.5% of net sales in Fiscal 1995. The increase in the
amount of cost of sales is due to the acquisitions as described above reflecting
that (i) certain acquisitions have historically handled mostly lower margin
public seed varieties while other acquisitions handle higher margin proprietary
varieties; and (ii) the mix of products sold, in that turfgrass seed sales have
historically commanded lower margins than forage seed sales. The Company's goal
is to raise gross margins over the next several years as a result of industry
consolidation, vertical integration and shifting the product lines from
primarily public varieties (commodities) to proprietary (value-added) products.
Operating expenses increased from $2,779,185 in Fiscal 1995 to $9,636,863 in
Fiscal 1996 and to $17,971,813 in Fiscal 1997. However, operating expenses as a
percent of net sales declined to 27% in Fiscal 1997 as compared to 37% in Fiscal
1996 and from 58% in Fiscal 1995. This ratio is expected to continue to decline
as sales growth continues to exceed growth in expenses and operating synergies
occur with integration of the acquired companies into cohesive units.
-5-
<PAGE>
The major components of operating expenses are personnel costs, occupancy
expense, vehicle and shipping expenses, outside services, travel and
advertising, all of which increased substantially in Fiscal 1997 compared to
Fiscal 1996 and Fiscal 1995. These increases are primarily due to the seed
operations of new acquisitions. Total employees, including corporate
administrative employees, were 325 at June 30, 1997 compared to 161 at June 30,
1996 and 53 at June 30, 1995. At June 30, 1997, the Company had 27
warehouse/operating locations comprising approximately 870,000 square feet
compared to fourteen warehousing/operating locations comprising approximately
460,000 square feet at June 30, 1996 and six locations of approximately 250,000
square feet at June 30, 1995. After acquisition, the Company has reduced
expenses, as compared to historical operations prior to the effective date of
some acquisitions as a result of operating efficiencies. For example, the
Company has combined what were historically six separate operations into three
operations. Growth in corporate personnel, as planned, has not been as great as
revenue growth. There were eight corporate administrative personnel in June
1995, ten in June 1996 and thirteen in June 1997, even though net sales
increased by 446% in Fiscal 1996 and 154% in Fiscal 1997. The major components
of operating expenses are as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
(In thousands)
------------
<S> <C> <C> <C>
Personnel costs $9,415 $4,939 $1,001
Occupancy expenses 2,778 1,452 308
Vehicle and shipping 1,280 826 376
Outside services 615 521 107
Travel 810 402 35
Advertising and promotion 642 444 87
</TABLE>
In addition, the Company has expanded its infrastructure at an accelerated
pace incurring an additional $188,000 of compensation expense during Fiscal
1997. Also in late Fiscal 1997, the Company reorganized operations along
business units, rather than regional geographies, incurring additional expenses
of approximately $108,000, which are non-recurring.
Research and development expenditures were $1,170,703 in Fiscal 1997 as
compared to $59,836 in Fiscal 1996 and $56,488 in Fiscal 1995. Expenditures
were low in 1996 relative to net sales due to the dependence of the Company on
licensing proprietary varieties. Research and development expenditures
increased dramatically in Fiscal 1997 due to the Company's acquisition of W-L
Research, Olsen Fennell and Burlingham. W-L Research's operations contain a
sizable genetic research program in alfalfa and Burlingham has a significant
research program for turfgrasses. As the Company transforms its forage and
turfgrass seed business to proprietary products and increases gross margins, the
Company expects research and development expenses to eventually be similar to
other proprietary seed sectors.
-6-
<PAGE>
The Company's interest expenses increased to $1,691,084 in Fiscal 1997 as
compared to $464,515 in Fiscal 1996 and $35,624 in Fiscal 1995. This is
primarily due to increasing the Company's line of credit from $1,000,000 to
$4,500,000 during Fiscal 1996 and to $22,000,000 in Fiscal 1997, plus additional
borrowings to finance its growth. In addition, the Company recognized $390,000
of imputed interest expense in Fiscal 1997 to account for the period of time
between the effective and closing dates of the Company's acquisitions.
Net losses for the Company were $2,713,765 for Fiscal 1997 compared to
$3,324,132 for Fiscal 1996 and $1,406,687 for Fiscal 1995. The losses
were the result of the issues discussed above.
As discussed in note 7 of Notes to the Consolidated Financial Statements,
the Company recently became aware of a position taken by the staff of the
Securities and Exchange Commission regarding securities, such as the Company's
convertible preferred stock, containing conversion features allowing for
conversion into common stock at a discount from future quoted market prices.
This position required the Company to restate its financial statements to
allocate an amount to the conversion feature and to account for it as a return
to the holders of the securities, as well as to impute dividends on the
convertible preferred stock. This resulted in the net loss attributable to
common stock (on which loss per share is computed) being increased by $3,233,426
to $5,947,191 for Fiscal 1997 and by $2,317,625 to $5,641,757 for Fiscal 1996.
It also changed net loss per common share from $0.17 to $0.38 for Fiscal 1997
and from $0.45 to $0.76 for Fiscal 1996. The restatement had no impact on the
Company's consolidated balance sheets, consolidated statements of cash flows, or
the net sales, costs, expenses, and net loss shown on the Company's consolidated
statements of operations.
Furthermore, as discussed in note 1(k) of Notes to Consolidated Financial
Statements, Statement of Financial Accounting Standards No. 128 requires a
retroactive change in the presentation of earnings per share upon initial
adoption at its effective date, which for the Company is in connection with the
quarter ended December 31, 1997. Accordingly, the Company has applied SFAS No.
128 herein. Due to losses in the periods presented, such statement did not have
a significant impact on the Company's computation of earnings (loss) per share.
INFLATION
Management does not believe that inflation has had a significant effect on
the Company's operations to date, nor is inflation expected to have a material
impact in the United States. The cost of seed products is largely effected by
seed yields and alternative crop prices, which have not generally been greatly
impacted by inflation. However, there has been some upward movement in the cost
of goods sold as a result of worldwide shortages of alternative crops such as
corn and wheat. The costs which are normally impacted by inflation, such as
wages, transportation and energy, are a relatively small part of the Company's
total operations. However, the Company remains subject to possible significant
inflation in Mexico, Argentina and other foreign countries.
SEASONALITY OF BUSINESS
The forage and turfgrass seed sectors have a seasonal revenue cycle, as do
other seed sectors. Consequently, the Company's quarterly operating revenue
and working capital needs vary widely, with the third fiscal quarter (January to
March) currently having the highest, and the first fiscal quarter the lowest,
revenue. Weather conditions and the economic outlook for alternative crops
affect seed production yields, insect population and farmers' planting
decisions, which may cause fluctuations in seed prices and annual revenues.
Successful consolidation of the forage and turfgrass seed industry, under
Company ownership, is expected to decrease the seasonality of operating revenue
and working capital needs. The Company's acquisition of Burlingham and Olsen
Fennell added a significant amount of turfgrass sales in the first and second
fiscal quarters, primarily for overseeding golf courses, southern forage
grasses, landscapes, and retail. The pending acquisition of Lofts would continue
this trend.
QUARTERLY COMPARISONS
The forage and turfgrass seed sectors each have a seasonal revenue cycle,
as do other seed sectors. Consequently, the Company's quarterly operating
revenue varies widely. In the forage sector, where the majority of the Company's
revenue has been derived to date, the third fiscal quarter (ending March 31) has
the highest revenue, the fourth fiscal quarter the next highest and the first
fiscal quarter the lowest revenue. There is, however, a significant amount of
turfgrass seed sales in the first and second fiscal quarters primarily for
overseeding golf courses. Therefore, management believes that quarterly
operating revenue will continue to fluctuate depending on the breakdown of the
Company's revenue between the two sectors for any specific period of time.
-7-
<PAGE>
The results of operations of the Company's acquisitions are included in the
Company's consolidated Financial Statements beginning with the effective date of
the acquisition. The table below sets forth quarterly operating data of the
Company for Fiscal 1996 and Fiscal 1997. This quarterly information is
unaudited, but in management's opinion, reflects all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information for the period presented. As discussed above and explained in note
1(k) and note 7 of Notes to Consolidated Financial Statements, the Company has
given retroactive effect to changes in accounting for earnings (loss) per share
and for its convertible preferred stock.
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30,
1997 1997 1996 1996
-------- --------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $24,740 $20,223 $13,288 $ 7,653
Cost of Sales 18,521 14,831 10,562 5,613
------- ------- ------- -------
Gross Profit 6,219 5,392 2,726 2,040
Operating Expenses 7,159 3,981 3,533 3,299
------- ------- ------- -------
Earnings (Loss)
from Operations (940) 1,411 (807) (1,259)
Other Income
(Expense) (585) (126) (372) (36)
------- ------- ------- -------
Net Earnings (Loss) (1,525) 1,285 (1,179) (1,295)
Discount and Imputed
Dividends on Preferred
Stock 30 225 2,271 707
------- ------- ------- -------
Net Earning (Loss) Attributable
to Common Stock $(1,555) $ 1,060 $(3,450) $(2,002)
======= ======= ======= =======
Net Earnings (Loss)
per Common Share:
Basic $ (0.07) $ 0.06 $ (0.28) $ (0.22)
Diluted (0.07) 0.06 (0.28) (0.22)
======= ======= ======= =======
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30,
1996 1996 1995 1995
-------- -------- -------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 9,285 $ 9,744 $ 4,464 $ 2,469
Cost of Sales 6,854 7,142 3,389 1,851
------- ------- ------- -------
Gross Profit 2,431 2,602 1,075 618
Operating Expenses 3,635 2,661 1,944 1,397
------- ------- ------- -------
Earnings (Loss)
from Operations (1,204) (59) (869) (779)
Other Income
(Expense) (154) (197) (66) 4
------- ------- ------- -------
Net Earnings (Loss) (1,358) (256) (935) (775)
Discount and Imputed
Dividends on Preferred
Stock 2,318 - - -
------- ------- ------- -------
Net Earnings (Loss) Attributable
to Common Stock $(3,676) $ (256) $ (935) $ (775)
======= ======= ======= =======
Net Earnings (Loss)
per Common Share:
Basic $ (0.47) $ (0.03) $ (0.13) $ (0.11)
Diluted (0.47) (0.03) (0.13) (0.11)
======= ======= ======= =======
</TABLE>
-8-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements to be provided pursuant to this Item 7 begin on
page F-1 of this Report, following Part III hereof.
-9-
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF AGRIBIOTECH, INC.
- -----------------------------------------
<S> <C>
Independent Auditors' Report.......................... F-2
Consolidated Balance Sheets as of
June 30, 1997 and 1996............................... F-3
Consolidated Statements of Operations for
the years ended June 30, 1997 and 1996
and the nine-month period ended June 30, 1995........ F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1997 and 1996
and the nine-month period ended June 30, 1995........ F-6
Consolidated Statements of Cash Flows for the
years ended June 30, 1997 and 1996
and the nine-month period ended June 30, 1995....... F-7
Notes to Consolidated Financial Statements - June 30,
1997, 1996 and 1995 ................................. F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
AgriBioTech, Inc.:
We have audited the accompanying consolidated balance sheets of AgriBioTech,
Inc. and subsidiaries as of June 30, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended June 30, 1997 and 1996 and the nine-month period ended June 30,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgriBioTech, Inc.
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for the years ended June 30, 1997 and 1996 and
the nine-month period ended June 30, 1995 in conformity with generally accepted
accounting principles.
As explained in note 7 to the consolidated financial statements, the Company has
given retroactive effect to a change in accounting for its convertible preferred
stock.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 26, 1997, except as to
note 1(K) and the twelfth
paragraph of note 7, which
are as of February 10, 1998
F-2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,553,634 2,522,309
Accounts receivable, less allowance for doubtful accounts
of $729,352 at June 30, 1997 and $104,773 at June 30, 1996 17,474,887 7,501,725
Inventories 23,328,961 7,257,795
Notes receivable from sale of common stock 9,990,000 -
Other 646,508 285,811
----------- ----------
Total current assets 53,993,990 17,567,640
Property, plant and equipment, net 17,864,052 7,916,145
Intangible assets, net of accumulated amortization 22,544,539 437,541
Investment in associated entity 567,235 -
Other assets 143,209 262,462
----------- ----------
Total assets $95,113,025 26,183,788
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, June 30,
1997 1996
------------ ----------
<S> <C> <C>
Current liabilities:
Short-term debt $ 24,203,431 5,088,984
Current installments of long-term obligations 1,056,770 567,353
Accounts payable 10,601,813 4,406,588
Accrued liabilities 3,277,051 1,043,746
Amount due in connection with acquisition 7,300,000 -
------------ ----------
Total current liabilities 46,439,065 11,106,671
Long-term obligations, excluding current installments 2,667,609 1,054,621
Deferred income taxes 1,018,369 -
------------ ----------
Total liabilities 50,125,043 12,161,292
------------ ----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding 1,100 shares at June 30, 1997
(aggregate liquidation preference of $1,221,666) and 6,530 shares
at June 30, 1996 (aggregate liquidation preference of $6,667,002) 1 7
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding 23,743,385 shares at
June 30, 1997 and 8,543,757 shares at June 30, 1996 23,743 8,544
Capital in excess of par value 49,439,319 23,752,051
Common stock to be issued in acquisition 7,950,000 -
Accumulated (deficit) (12,425,081) (9,711,316)
------------ ----------
44,987,982 14,049,286
Deferred compensation - (26,790)
------------ ----------
Total stockholders' equity 44,987,982 14,022,496
------------ ----------
Commitments, contingency and subsequent events (notes 1, 6, 7 and 8)
Total liabilities and stockholders' equity $ 95,113,025 26,183,788
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine-month
Year ended Year ended period ended
June 30, June 30, June 30,
1997 1996 1995
----------- ---------- ------------
<S> <C> <C> <C>
Net sales $65,904,058 25,961,541 4,753,608
Cost of sales 49,527,150 19,235,670 3,397,860
----------- ---------- ------------
Gross profit 16,376,908 6,725,871 1,355,748
Operating expenses 17,971,813 9,636,863 2,779,185
----------- ---------- ------------
(Loss) from operations (1,594,905) (2,910,992) (1,423,437)
----------- ---------- ------------
Other income (expense):
Interest expense (1,691,084) (464,515) (35,624)
Interest income 344,417 87,255 21,861
Other 227,807 35,880) 30,513
----------- ---------- ------------
Total other income (expense) (1,118,860) (413,140) 16,750
----------- ---------- ------------
Net (loss) (2,713,765) (3,324,132) (1,406,687)
Discount and imputed dividends
on preferred stock 3,233,426 2,317,625 -
----------- ---------- ------------
Net (loss) attributable to
comon stock $(5,947,191) (5,641,757) (1,406,687)
=========== ========== ============
Shares of common stock used in
computing (loss) per common share:
Basic 15,549,184 7,458,594 5,484,527
Diluted 15,549,184 7,458,594 5,484,527
=========== ========== ============
Net (loss) per share:
Basic $ (0.38) (0.76) (0.26)
Diluted $ (0.38) (0.76) (0.26)
=========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred stock Common stock Capital in
----------------------- ---------------------- excess of
Shares Amount Shares Amount par value
----------------------- ---------------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 - $ - 4,240,000 $ 4,240 6,150,765
Common stock issued for:
Exercise of warrants - - 2,638,000 2,638 6,911,362
Services - - 267,200 267 559,733
Reduction of notes for:
Cash - - - - -
Services - - - - -
Acquisitions - - - - -
Notes receivable paid subsequent to year end - - - - -
Increase in repayment amount of notes receivable - - - - 120,467
Deferred compensation earned - - - - -
Net (loss) - - - - -
------- ---- ---------- ------- ----------
Balance at June 30, 1995 - - 7,145,200 7,145 13,742,327
Issuance of preferred stock for cash 7,425 8 - - 7,424,992
Common stock issued for:
Services - - 10,000 10 31,490
Exercise of warrants - - 546,000 546 1,967,254
Acquisitions - - 162,343 163 608,624
Conversion of preferred stock (895) (1) 280,214 280 (279)
Exercise of options - - 250,000 250 624,750
Cancellation of options - - 150,000 150 (150)
Reduction of notes for:
Services - - - - -
Cash - - - - -
Acquisitions - - - - (343,777)
Increase in repayment amount of notes receivable - - - - 155,736
Restructuring of employee stock options - - - - 220,000
Options issued for services - - - - 185,616
Expenses of stock issuances - - - - (864,532)
Deferred compensation earned - - - - -
Net (loss) - - - - -
------- ---- ---------- ------- ----------
Balance at June 30, 1996 6,530 7 8,543,757 8,544 23,752,051
Issuance of preferred stock for cash 10,000 10 - - 9,999,990
Common stock issued for:
Services - - 15,000 15 45,885
Exercise of options - - 5,076,000 5,076 12,753,791
Exercise of warrants - - 2,116,000 2,116 6,672,844
Preferred stock converted and redeemed (15,430) (16) 7,094,226 7,094 (2,714,349)
Cancellation of options - - 750,000 750 (750)
Retirement of debt - - 148,402 148 319,852
Reduction of notes for:
Cash - - - - -
Notes receivable paid subsequent to year end - - - - -
Common stock to be issued in acquisition - - - - -
Expenses of stock issuances - - - - (1,389,995)
Reduction in deferred compensation - - - - -
Net (loss) - - - - -
------- ---- ---------- ------- ----------
Balance at June 30, 1997 1,100 $ 1 23,743,385 $23,743 49,439,319
======= ===== ========== ======= ==========
<CAPTION>
Common stock Notes
to be issued Accumulated Deferred receivable from
in acquisition (deficit) compensation sale of stock Total
-------------- ------------ ------------ ----------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 - (4,980,497) - (670,511) 503,997
Common stock issued for:
Exercise of warrants - - - (4,914,000) 2,000,000
Services - - (560,000) - -
Reduction of notes for:
Cash - - - 1,760,631 1,760,631
Services - - - 196,167 196,167
Acquisitions - - - 1,644,000 1,644,000
Notes receivable paid subsequent to year end - - - 1,433,167 1,433,167
Increase in repayment amount of notes receivable - - - (120,467) -
Deferred compensation earned - - 201,360 - 201,360
Net (loss) - (1,406,687) - - (1,406,687)
--------- ----------- -------- ----------- ----------
Balance at June 30, 1995 - (6,387,184) (358,640) (671,013) 6,332,635
Issuance of preferred stock for cash - - - - 7,425,000
Common stock issued for:
Services - - - - 31,500
Exercise of warrants - - - (1,297,800) 670,000
Acquisitions - - - - 608,787
Conversion of preferred stock - - - - -
Exercise of options - - - - 625,000
Cancellation of options - - - - -
Reduction of notes for:
Services - - - 40,499 40,499
Cash - - - 580,603 580,603
Acquisitions - - - 1,503,447 1,159,670
Increase in repayment amount of notes receivable - - - (155,736) -
Restructuring of employee stock options - - 260,000 - 480,000
Options issued for services - - - - 185,616
Expenses of stock issuances - - - - (864,532)
Deferred compensation earned - - 71,850 - 71,850
Net (loss) - (3,324,132) - - (3,324,132)
--------- ----------- -------- ----------- ----------
Balance at June 30, 1996 - (9,711,316) (26,790) - 14,022,496
Issuance of preferred stock for cash - - - 10,000,000
Common stock issued for:
Services - - - - 45,900
Exercise of options - - - (8,040,000) 4,718,867
Exercise of warrants - - - (3,750,000) 2,924,960
Preferred stock converted and redeemed - - - - (2,707,271)
Cancellation of options - - - - -
Retirement of debt - - - - 320,000
Reduction of notes for:
Cash - - - 1,800,000 1,800,000
Notes receivable paid subsequent to year end - - - 9,990,000 9,990,000
Common stock to be issued in acquisition 7,950,000 - - - 7,950,000
Expenses of stock issuances - - - - (1,389,995)
Reduction in deferred compensation - - 26,790 - 26,790
Net (loss) - (2,713,765) - - (2,713,765)
--------- ----------- -------- ----------- ----------
Balance at June 30, 1997 7,950,000 (12,425,081) - - 44,987,982
========= =========== ======== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
Year ended Year ended period ended
June 30, June 30, June 30,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,713,765) (3,324,132) (1,406,687)
Adjustments to reconcile net (loss) to net cash
flows from operating activities:
Amortization 253,985 103,740 68,154
Depreciation 902,326 475,218 70,760
Equity in earnings of associated entity (233,690) - -
Common stock for services 72,690 143,849 397,527
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable 1,822,905 (4,599,458) 168,331
Inventories 1,898,354 (796,105) 990,006
Other assets 418,751 92,862 (49,123)
Payables (4,596,592) 1,446,661 (486,259)
Accrued liabilities (351,890) 768,930 51,678
----------- ------------ -----------
Net cash flows from operating activities (2,526,926) (5,688,435) (195,613)
----------- ------------ -----------
Cash flows from investing activities:
Additions to property, plant and equipment (1,073,239) (504,395) (111,151)
Additions to intangible assets (19,228) (155,000) (15,790)
Distributions from associated entity 348,095 - -
Acquisitions (25,790,301) (5,960,585) (3,012,724)
----------- ------------ -----------
Net cash flows from investing activities (26,534,673) (6,619,980) (3,139,665)
----------- ------------ -----------
Cash flows from financing activities:
Net proceeds of short-term debt 13,986,911 4,104,779 564,291
Reductions of long-term obligations (1,278,265) (696,096) (8,333)
Sale of preferred stock 10,000,000 7,425,000 -
Exercise of options 4,718,867 625,000 -
Exercise of warrants 2,924,960 670,000 2,000,000
Additions to long-term obligations 1,037,717 - -
Redemption of preferred stock (2,707,271) - -
Expenses of stock issuance (1,389,995) (864,532) -
Restructuring of employee stock options - 480,000 -
Payments received on notes receivable from
sale of stock 1,800,000 1,663,630 1,760,631
----------- ------------ -----------
Net cash flows from financing activities 29,092,924 13,407,781 4,316,589
----------- ------------ -----------
Net increase in cash and cash equivalents 31,325 1,099,366 981,311
Cash and cash equivalents at beginning of period 2,522,309 1,422,943 441,632
----------- ------------ -----------
Cash and cash equivalents at end of period $2,553,634 2,522,309 1,422,943
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-month
Year ended Year ended period ended
June 30, June 30, June 30,
1997 1996 1995
------------- ---------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 1,536,469 364,993 5,284
============= ========== ============
Non cash investing and financing activities:
Accrued costs of acquisition $ 1,167,322 - -
Common stock issued in settlement of debt 320,000 - -
Common stock to be issued in acquisition 7,950,000 - -
Debt issued in connection with acquisitions - 1,250,000 -
Increase in warrant exercise price - 155,736 120,467
Receivable from exercise of options and warrants 11,790,000 1,297,800 4,914,000
Reduction of notes receivable for acquisitions - 1,853,587 1,644,000
Common stock issued for deferred compensation - - 560,000
Notes receivable paid subsequent to year end 9,990,000 - 1,433,167
Options granted for services - 185,616 -
Notes receivable from sale of stock - 161,023 -
Discount on notes receivable from sale of stock - 343,777 -
============= ========== ============
Summary of assets and liabilities acquired through acquisitions:
Cash $ 567,566 5,641 29,165
Accounts receivable 11,796,067 1,949,016 1,087,602
Inventories 18,171,587 4,642,531 2,755,658
Property, plant and equipment 9,821,994 5,794,703 2,034,000
Intangible assets 22,094,688 330,193 -
Other assets 1,341,835 218,390 78,483
Accounts payable and accrued expenses (12,209,690) (2,388,781) (1,232,352)
Long-term and short-term debt (7,790,489) (1,216,870) (66,667)
Deferred income taxes (1,018,369) - -
------------- ---------- ------------
Net assets acquired $ 42,775,189 9,334,823 4,685,889
============= ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997, 1996 and 1995
(1) Corporate Organization and Acquisitions
---------------------------------------
(a) Business
--------
AgriBioTech, Inc. ("ABT" or the "Company") is a vertically integrated
agricultural seed company specializing in developing, breeding,
processing, packaging and distributing varieties of forage (hay crops)
and cool season turfgrass seeds. The Company also distributes corn,
soybean and other seeds. Approximately 15% and 5% of the Company's
sales for the years ended June 30, 1997 and 1996 were to customers in
foreign countries. Since January 1, 1995, the Company has followed a
business strategy to acquire established, regionally based seed
companies with proprietary products and established research, production
and distribution channels in their respective markets in order to
consolidate and vertically integrate the forage and turfgrass sectors of
the seed industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Effective June 30, 1995, the Company changed its fiscal year end from
September 30 to June 30 since that date better reflects the natural
business year of the Company's business.
(b) Acquisitions
------------
The Company executed an asset purchase agreement to purchase
substantially all of the assets of Scott Seed Co. ("Scott") effective
March 1, 1995. The transaction was recorded using the purchase method of
accounting. The net purchase price was $1,956,411 which includes
inventory, accounts receivable, prepaid assets, and fixed assets, net of
accounts payable and certain assumed liabilities. The purchase price
was paid through 158,000 shares of ABT common stock valued at $474,000
and cash of $1,482,411.
The Company purchased all of the capital stock of Seed Resource, Inc.
("Seed Resource") effective January 1, 1995. The transaction was
recorded using the purchase method of accounting. The purchase price of
$1,075,500 was paid through 333,334 shares of ABT common stock valued at
$700,000 and cash of $375,500.
The Company executed an asset purchase agreement with Hobart Seed
Company ("Hobart") effective April 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$1,653,978 includes inventory, fixed assets, trademarks and trade names,
and a minority interest in the stock of a purchasing cooperative. The
purchase price was paid through 147,451 shares of ABT stock valued at
$470,000 and $1,183,978 of cash.
The Company purchased substantially all of the assets of Halsey Seed
Company ("Halsey") effective July 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$1,122,793 includes inventory, accounts receivable, prepaid assets, and
fixed assets, net of accounts payable and certain assumed liabilities.
The purchase price was paid through cash of $772,653 and 87,535 shares
of the Company's common stock valued at $350,140.
F-9
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company purchased substantially all of the assets of Arnold-Thomas
Seed Service, Inc. ("Arnold-Thomas") effective October 1, 1995. The
transaction was recorded using the purchase method of accounting. The
purchase price of $926,195 includes inventory, accounts receivable,
prepaid assets and fixed assets, net of accounts payable and certain
assumed liabilities. The purchase price was paid through cash of
$666,524 and 105,450 shares of the Company's common stock valued at
$259,671.
The Company purchased all of the capital stock of Clark Seeds, Inc.
("Clark Seed") effective October 1, 1995. The transaction was recorded
using the purchase method of accounting. The purchase price of
$2,150,000 was paid through 400,000 shares of the Company's common stock
valued at $900,000 and promissory notes of $1,250,000.
The Company purchased certain assets of Doug Conlee Seed Company
("Conlee") effective January 1, 1996. The transaction was recorded
using the purchase method of accounting. The purchase price of $639,606
includes inventory, prepaid assets, fixed assets and proprietary rights
to certain crop varieties. The purchase price was paid in cash. In
addition, the Company must pay the seller 20 percent of the net margin,
after expenses, from the business transferred to the Company through
December 31, 1998, which through June 30, 1997 was insignificant.
The Company purchased substantially all of the assets of Beachley-
Hardy Seed, a division of Research Seeds, Inc., ("Beachley-Hardy")
effective February 1, 1996. The transaction was recorded using the
purchase method of accounting. The net purchase price of $4,231,981
includes inventory, accounts receivable, prepaid assets, fixed assets
and trademark rights, less accounts payable and certain assumed
liabilities. The purchase price was paid through cash of $3,623,194 and
162,343 shares of the Company's common stock valued at $608,787.
The Company purchased substantially all of the assets of W-L Research,
Inc. and Germain's, Inc. (collectively "W-L/G"), which were indirect
subsidiaries of Berisford, plc, effective September 1, 1996. The
transaction also included the acquisition of a 50% ownership interest in
SeedBiotics, L.L.C. The transaction was recorded using the purchase
method of accounting. The net purchase price of $15,997,034 includes
inventory, accounts receivable, prepaid assets, fixed assets and
intangible assets, less accounts payable and certain assumed
liabilities. The intangible assets consist of trademark rights and
proprietary rights to certain crop varieties, as well as the genetic
breeding base for the development of additional varieties. The net
purchase price was paid in cash.
The Company purchased all of the capital stock of E. F. Burlingham &
Sons ("Burlingham") effective April 1, 1997. The net purchase price of
$10,100,000 was paid in cash. The transaction was recorded using the
purchase method of accounting which resulted in recording intangible
assets consisting of trademark rights, proprietary rights to certain
crop varieties (as well as the genetic breeding base for the development
of additional varieties), and goodwill.
The Company purchased substantially all of the assets of The Sexauer
Company ("Sexauer") effective April 1, 1997. The transaction was
recorded using the purchase method of accounting. The net purchase
price of $3,173,989 includes cash, inventory, accounts receivable,
prepaid assets, and fixed assets, less accounts payable and certain
assumed liabilities. The net purchase price was paid through a debt
arrangement with the bank that had been financing Sexauer's operations.
This debt was repaid subsequent to June 30, 1997.
The Company purchased all of the capital stock of Olsen Fennell Seeds,
Inc. ("OFI") effective June 1, 1997. The net purchase price of
$15,200,000 was paid through cash of $3,800,000 paid at closing,
payments of $3,500,000 to be made prior to April 14, 1998 paralleling
the timing of income tax payments made by the sellers, and 777,500
shares of ABT common stock valued at $7,900,000. The transaction was
recorded using the purchase method of accounting which resulted in
recording intangible assets consisting of trademark rights, proprietary
rights to certain crop varieties (as well as the genetic
F-10
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
breeding base for the development of additional varieties), and
goodwill. In connection with the OFI acquisition, the Company paid a
finders fee of $100,000, one-half of which was paid through the issuance
of 10,000 shares of ABT common stock valued at $50,000
Proforma results of operations (unaudited) assuming the above
acquisitions had occurred at the beginning of the periods presented are
as follows:
<TABLE>
<CAPTION>
Year ending Year ending
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Revenue $133,076,590 $108,334,417
Net (loss) (1,829,681) (6,546,875)
Net (loss) attributable to
common stock (5,063,107) (8,407,892)
Net (loss) per share (0.31) (0.98)
</TABLE>
In June 1997, the Company signed a letter of intent to purchase a seed
operation which markets forage and turfgrass seed primarily in the
United States. The acquisition is expected to close in early fiscal
1998. This seed operation had unaudited total assets of approximately
$4.2 million at June 30, 1997 and, for the twelve months ended June 30,
1997, sales of approximately $9.4 million and net income before income
taxes of approximately $.9 million. The transaction will be recorded
using the purchase method of accounting.
On September 5, 1997, the Company signed a letter of intent to acquire
through merger all of the capital stock of Lofts Seed, Inc. and its
affiliated companies, Budd Seed, Inc. and Sunbelt Seeds, Inc.
(collectively "Lofts"). Lofts is one of the premier turfgrass seed
companies in the United States with unaudited total assets at June 30,
1997 of approximately $23.4 million and, for the twelve months ended
June 30, 1997, sales of approximately $74.7 million and income before
income taxes of approximately $4.0 million. The Company anticipates
closing this transaction in early calendar 1998. The transaction will be
recorded using the purchase method of accounting.
(2) Significant Accounting Policies
-------------------------------
(a) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts have been eliminated.
(b) Cash and Cash Equivalents
-------------------------
Cash equivalents consist of financial instruments with original
maturities of no more than ninety days.
(c) Inventories
-----------
Inventories, consisting primarily of seed and related products, are
stated at the lower of cost (first-in, first-out) or market.
(d) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful
lives of the assets.
(e) Intangible Assets
-----------------
F-11
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Intangible assets are stated at cost and consist of costs of genetic
breeding bases for various proprietary plant varieties, trademarks,
covenants not to compete, and goodwill related to the Company's seed
business. Rights to genetic breeding bases and goodwill are amortized
using the straight-line and units-of-production methods over the
expected lives of such assets, up to 40 years with a weighted average at
June 30, 1997 of 31.5 years. Other intangible assets are amortized
using the straight-line method over three to fifteen years or the lives
of agreements, if applicable. The recoverability of intangible assets is
evaluated whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
(f) Investment in Associated Entity
-------------------------------
The Company records its 50% investment in SeedBiotics, L.L.C. using the
equity method of accounting and records its share of the associated
entity's income or loss as other income or expense.
(g) Income Taxes
------------
Income taxes are provided under Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109
---------------------------
requires that deferred income taxes be provided on temporary differences
between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes using the asset and liability
method. Under this method, deferred income taxes are computed based on
the enacted tax rates scheduled to be in effect when such differences
reverse.
(h) Revenue Recognition
-------------------
The Company recognizes revenue when product is shipped to customers
and title passes. Revenue is reduced by a reserve for estimated
returns.
(i) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred and aggregated
$1,170,703, $59,836 and $56,488 in the periods ended June 30, 1997, 1996
and 1995, respectively.
(j) Employee Stock Options
----------------------
Under Accounting Principles Board Opinion No. 25, the Company does not
record compensation for stock options granted to employees unless the
exercise price is less than the quoted market price of the Company's
common stock at the date of grant. To date, the Company has not granted
any stock options to employees under which compensation has been
recorded. The Financial Accounting Standards Board ("FASB") has issued
SFAS No. 123 which allows the Company to continue its present policy or,
alternatively, to record a compensation element for stock options
granted to employees on the "fair value based method" which generally
uses a modeling technique to calculate the fair value of options issued.
The Company has elected to continue its present method of accounting for
employee stock options. Had the Company adopted the alternative method
provided by SFAS No. 123 the net loss, net loss attributable to common
stock and net loss per share would have been $3,603,236, $6,836,662 and
$0.44 for the year ended June 30, 1997 and $3,561,625, $5,879,250 and
$0.79 for the year ended June 30, 1996. The weighted-average grant-date
fair value of options granted was $644,035 in the year ended June 30,
1997 and $5,288,928 in the year ended June 30, 1996. Such computations
were made using the Black-Scholes modeling technique which was developed
based on the relationship between the trading prices of stock options
which are actively traded in the securities market and the trading
prices of the common stock underlying those options. Options to acquire
ABT common stock are not traded in the securities market. The modeling
technique requires the utilization of assumptions, the weighted average
of which for the years ended June 30, 1997 and 1996 were 5.8% and 5.7%
for risk-free interest rate; 2.2 years and 3.0 years for expected life;
37% and 47% for expected volatility; and 0% and 0% for expected
dividends.
(k) (Loss) Per Common Share
-----------------------
F-12
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The FASB has issued SFAS No. 128, Earnings Per Share, which specifies a
new accounting standard for the computation, presentation, and
disclosure requirements for earnings per share and is required to be
applied retroactively upon initial adoption at its effective date, which
for the Company is in connection with the quarter ended December 31,
1997. Accordingly, the Company has applied SFAS No. 128 herein. The
Company is required to make a dual presentation on the face of the
income statement of "basic" earnings per share, based on the average
number of common shares outstanding during each period without any
dilution, and "diluted" earnings per share, reflecting all dilution from
contingently issuable securities. Due to losses in the periods
presented, contingently issuable shares, consisting of options,
warrants, and convertible preferred stock, are anti-dilutive and have
been excluded. Therefore, the application of SFAS No. 128 did not have a
significant impact on the Company's computation of earnings (loss) per
share for the periods presented.
(l) Recently Adopted Accounting Standards
-------------------------------------
The FASB has issued SFAS No. 130 effective for years beginning after
December 15, 1997 which requires all changes in the equity of an
enterprise to be reflected in the income statement except those
resulting from investments by owners and distributions to owners. The
Company has not had items in the past which would have been impacted by
SFAS No. 130 and, based on its current operations, does not anticipate
having such items in the future.
The FASB has issued SFAS No. 131 effective for years beginning after
December 15, 1997 which requires the presentation of certain information
about an enterprise's operating segments, products and services,
geographic areas of operation, and major customers. The Company has
not completed its analysis of SFAS No. 131 or the impacts, if any, on
its financial statements.
(m) Reclassifications
-----------------
Certain amounts in the prior year financial statements have been
reclassified to be comparable to the current year presentation.
(3) Property, Plant, and Equipment
------------------------------
A summary of property, plant, and equipment is as follows:
<TABLE>
<CAPTION>
June 30,
Useful --------
lives 1997 1996
----- ---- ----
<S> <C> <C> <C>
Land - $ 3,753,400 1,394,500
Buildings 12 to 40 years 8,540,058 3,668,555
Equipment 1 to 25 years 7,001,782 3,388,624
----------- ---------
Total property, plant, and
equipment 19,295,240 8,451,679
Less accumulated depreciation 1,431,188 535,534
----------- ---------
Property, plant, and
equipment, net $17,864,052 7,916,145
=========== =========
(4) Intangible Assets
-----------------
Intangible assets consist of:
June 30,
--------
1997 1996
---- ----
</TABLE>
F-13
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Genetic breeding bases $ 5,559,909 297,000
Goodwill 15,317,192 5,000
Covenants not to compete 1,666,875 170,000
Other 302,200 13,193
----------- -------
Total intangible assets 22,846,176 485,193
Less accumulated amortization 301,637 47,652
----------- -------
Intangible assets, net $22,544,539 437,541
=========== =======
</TABLE>
(5) Long-Term Obligations
---------------------
A summary of long-term obligations is as follows:
<TABLE>
<CAPTION>
June 30,
-------
1997 1996
---- ----
<S> <C> <C>
Notes and mortgages payable; repayable in principal
payments of $503,429 annually plus interest at
6% to 8.75% and monthly payments of $8,358
including interest as 10.75%; secured by property,
plant and equipment $2,245,631 1,471,032
Unsecured notes payable bearing interest at 8% to 10% 232,456 106,390
Covenants not to compete 517,917 -
Deferred compensation 255,128 -
Other 473,247 44,552
---------- ---------
Total long-term debt 3,724,379 1,621,974
Less current installments 1,056,770 567,353
---------- ---------
Long-term obligations, excluding current
installments $2,667,609 1,054,621
========== =========
</TABLE>
Required principal payments are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
-------------------- ------
<S> <C>
1997 $1,056,770
1998 606,083
1999 187,268
2000 179,575
2001 187,869
</TABLE>
(6) Short-Term Debt
---------------
At June 30, 1997, the Company had a credit facility with Bank of America
that included a $22 million revolving line of credit, of which $15,086,013
was outstanding, including items in the process of collection. The amount
available under the revolving line of credit is limited to the sum of 70
percent of the Company's eligible receivables less than 90 days old and 50
percent of eligible inventory and is secured by inventory, receivables,
equipment, and intangibles. In addition, the credit facility provided for an
unsecured $4 million term loan, all of which was outstanding, that was
repayable in July and August 1997 and was repaid when due. Interest on the
revolving line of credit is at the bank's reference rate plus 0.5 percent
(9.0% at June 30, 1997) or the LIBOR rate plus 3 percent (8.6875% at June
30, 1997), at the Company's option and the bank's reference rate plus 2
percent (10.5% at June 30, 1997) for the term loan. In addition, the Company
pays a commitment fee of 0.5% of the unused line of credit.
F-14
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 13, 1997, the revolving line of credit was increased to $25
million and the LIBOR interest rate was changed to the LIBOR rate plus 2.5%.
In addition, the credit facility was amended to add a $5 million term loan,
all of which was drawn subsequent to June 30, 1997, that is repayable over
five years and bears interest at the bank's reference rate plus 0.5%. The
credit facility is currently scheduled to expire on March 1, 1998.
At June 30, 1997, the Company had approximately $3.2 million outstanding
under the short-term borrowing arrangement used to finance the acquisition
of Sexauer. In addition, OFI had approximately $1.9 million outstanding
under the line of credit it used to finance its operations. Both of these
facilities were repaid and terminated subsequent to June 30, 1997.
(7) Capital Stock
-------------
Prior to October 1, 1994, the Company issued warrants to purchase the
Company's common stock. The "Class A Warrant" entitled the holder to obtain
one share of ABT's common stock and a warrant (the "Class B Warrant") upon
payment of the exercise price of $3.50 through January 17, 1996. The Class B
Warrant entitles the holder to obtain one share of ABT's common stock and a
warrant (the "Class C Warrant") upon the payment of the exercise price of
$5.00 through January 17, 1997. The Class C Warrant entitles the holder to
obtain one share of ABT's common stock upon payment of the exercise price of
$7.50 through January 17, 1998.
On January 30, 1995, in order to accelerate the raising of capital, the
Company's Board of Directors temporarily reduced the exercise price of all
of the 2,160,000 Class A Warrants then outstanding from $3.50 per share to
$2.00 per share until March 1, 1995. As a result, the Company received an
aggregate of $2,000,000 from the exercise of 1,000,000 Class A Warrants.
Effective March 2, 1995, the exercise price of the Class A Warrants reverted
back to $3.50 per share.
In mid-March 1995, to further accelerate the raising of capital, the Company
reduced the exercise price of the Class A Warrants and Class B Warrants to
$3.00 per share in the event the warrant holder exercised on or before March
30, 1995 using cash or promissory notes. To the extent exercise was by
promissory note, funds due on these promissory notes increased periodically
back to the original exercise price of the warrants. By March 30, 1995,
1,038,000 Class A Warrants and 600,000 Class B Warrants were exercised by
promissory notes. These promissory notes were transferable and non-interest
bearing. The common stock underlying the exercise of these warrants was held
in escrow by the Company until the promissory notes were paid. On March 31,
1995, the exercise price of the unexercised Class A Warrants and Class B
Warrants reverted back to $3.50 per share and $5.00 per share, respectively.
In June 1995, the Company entered into a consulting agreement for assistance
with investor relations, strategic planning, funding plans, and other
corporate activities through December 31, 1995. The Company issued 300,000
Class A warrants exercisable at $3.50 per share through January 17, 1996 and
the market price on the date of the agreement was $3.00 per share. The
agreement was deemed to not contain significant compensation and, therefore,
no expense was recorded in connection with this agreement.
On October 10, 1995, the Company called all of its 422,000 outstanding Class
A Warrants. The Company paid warrant holders $.01 per warrant for A Warrants
not exercised by November 8, 1995. All of the warrants were
F-15
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
then exercised by "stand-by purchasers" who paid cash, signed promissory
notes or agreed to perform services. The warrants were exercised at $3.50
per share less a 10% commission.
During the nine-month period ended June 30, 1995, the Company reduced the
notes receivable from sale of stock by $1,644,000 through the acquisition of
Scott, Seed Resource and Hobart for $474,000, $700,000 and $470,000,
respectively, by the makers of the notes transferring 638,785 shares of ABT
common stock to the previous owners of those entities. During the year ended
June 30, 1996, in connection with the acquisitions of Arnold-Thomas and
Clark Seed, $1,503,447 of the notes were satisfied by makers of the notes
transferring 505,450 shares of stock to the previous owners of those
entities. To facilitate the Clark Seed transfer, the notes receivable for
sale of stock were discounted by $343,777 to reflect the then current market
price of the stock.
In January 1997, the Company lowered the exercise price on the Class B
Warrants to $1.81 which approximated the market price of the Company's
common stock at that time. All 1,616,000 outstanding Class B Warrants were
exercised by their holders or stand-by purchasers identified by the Company,
as permitted under the terms of the warrants. Upon exercise of the Class B
Warrants, the Company received proceeds of $2,924,960 and issued 1,616,000
Class C Warrants. In May 1997, officers of the Company and others exercised
500,000 Class C Warrants by signing promissory notes for $3,750,000 at the
stated exercise price of $7.50 per share. These notes were paid in full
subsequent to June 30, 1997. Subsequent to June 30, 1997, 392,912 Class C
Warrants were exercised at $7.50 per share and the 185,625 other warrants
(described below) were exercised at $3.00 per share.
In April 1996, the Company completed a private placement of convertible
preferred stock and issued 7,425 shares of Series B Convertible Preferred
Stock. The Company received cash proceeds, after commissions, of $6,608,250
from the issuance of the Series B Convertible Preferred Stock. The placement
agent in this transaction received warrants to purchase 185,625 shares of
the Company's common stock at $3.00 per share. The Series B Convertible
Preferred Stock is not entitled to a dividend and is not mandatorily
redeemable by the Company. The Series B Convertible Preferred Stock has a
liquidation preference of $1,000 per share, plus a premium of 10 percent per
annum from the date of issuance. The Series B Convertible Preferred Stock is
convertible into shares of common stock equal to the aggregate liquidation
preference, including the 10 percent per annum premium, divided by a
conversion price that is the lesser of (i) 80 percent of the average closing
bid price for the Company's common stock for the five days prior to
conversion or (ii) a set amount of approximately $3.90 per share which
escalates to approximately $5.90 per share over four years ($4.44 per share
at June 30, 1997). In the event of a conversion when the average closing bid
price of the Company's common stock is $3.75 per share or lower, the Company
has the option of redeeming for cash, at the average closing bid price, the
shares of common stock issuable upon such conversion. The Series B
Convertible Preferred Stock will convert into common stock after being
outstanding four years if not been previously converted.
Between the date of issuance and June 30, 1996, 895 shares of Series B
Convertible Preferred Stock were converted into 280,214 shares of common
stock. Between July 1, 1996 and June 30, 1997, 5,630 shares of Series B
Convertible Preferred Stock were submitted to the Company for conversion,
for which the Company issued 2,424,463 shares of common stock and redeemed
for cash the equivalent of 538,215 shares of common stock aggregating
$1,315,846. At June 30, 1996, the 6,530 shares of Series B Convertible
Preferred Stock outstanding were convertible into 2,096,542 shares of common
stock and had an aggregate liquidation preference of $6,667,002. At June 30,
1997, the 900 shares of Series B Convertible Preferred Stock outstanding
were convertible into 227,469 shares of common stock and had an aggregate
liquidation preference of $1,009,479.
In September 1996, the Company completed a private placement of 10,000
shares of Series C Convertible Preferred Stock at $1,000 per share,
receiving gross proceeds of $10,000,000. The Company paid commissions and
selling expenses of 13% of the gross proceeds. The Series C Convertible
Preferred Stock is not entitled to a dividend and is not mandatorily
redeemable by the Company. The Series C Convertible Preferred Stock has a
liquidation preference of $1,000 per share, plus a premium of 8 percent per
annum from the date of issuance. The Series C Convertible Preferred Stock is
convertible into shares of common stock equal to the aggregate liquidation
preference, including the 8 percent per annum premium, divided by a
conversion price that is the lesser of (i) 80 percent of the average closing
bid price for the Company's common stock for the five days prior to
conversion or (ii) a set amount, which is $3.00 for one-third of the shares,
$3.50 for one-third of the shares and $4.00 for one-third of the shares. In
the event of a conversion when the average closing bid price of the
Company's common stock is below the price at the issuance of the Series C
Convertible Preferred Stock, the Company has the option of redeeming for
cash, at the average closing bid price, the shares of common stock issuable
upon such conversion. The Series C Convertible Preferred Stock will convert
into common stock on September 30, 1998, if not previously converted.
Through June 30, 1997, 9,800 shares of the Company's Series C Convertible
Preferred Stock were presented for conversion, for which the Company issued
4,669,763 shares of common stock and redeemed for cash the
F-16
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
equivalent of 618,024 shares of common stock aggregating $1,391,423. At June
30, 1997, the 200 shares of Series C Convertible Preferred Stock outstanding
were convertible into 61,467 shares of common stock and had a liquidation
preference of $212,186.
When the Company issued the Series B Convertible Preferred Stock in April
1996 and the Series C Convertible Preferred Stock in September 1996
(collectively, the "Preferred Stock"), the Company determined the economic
substance of the Preferred Stock was equivalent to common stock. This
conclusion was reached because the documents authorizing the Preferred Stock
provide that the holders of the Preferred Stock are not entitled to
receive dividends, the Company has no requirements to make any cash payments
with respect to the Preferred Stock, and the ultimate satisfaction of the
Preferred Stock would be through conversion to common stock, either by the
election of the holders or automatically at the future date provided by the
underlying documents. Accordingly, the Company did not reflect any
accounting consequences of the conversion features of the Preferred Stock or
account for dividends on the Preferred Stock. In March 1997, an announcement
was made at a meeting of the FASB's Emerging Issues Task Force (Topic No. D-
60) setting forth the position of the staff of the Securities and Exchange
Commission (the "Staff") regarding securities containing conversion features
allowing for conversion into common stock at a discount from future quoted
market prices. The Staff stated that an allocation of the proceeds from the
issuance of the securities should be made to the conversion feature and the
resulting discount is analogous to a dividend that should be recognized as a
return to the holders of the securities over the period between issuance
and when the securities first become convertible. The Staff also stated that
affected financial statements should be restated. Although the Preferred
Stock will ultimately be converted into common stock, the Company restated
its financial statements to reflect the Staff's position in February 1998
shortly after becoming aware of Topic No. D-60. The application of the
Staff's position results in the recognition of discounts of $2,718,622 and
$2,164,596 during the years ended June 30, 1997 and 1996 and imputed
dividends of $514,804 and $153,029 in such years. As restated, such amounts
are reflected in net loss attributable to common stock (on which loss per
share is computed). This resulted in the net loss attributable to common
stock being increased by $3,233,426 to $5,947,191 for the year ended June
30, 1997 and by $2,317,625 to $5,641,757 for the year ended June 30, 1996.
It also changed net loss per common share from $0.17 to $0.38 for the year
ended June 30, 1997 and from $0.45 to $0.76 for the year ended June 30,
1996. The discounts and imputed dividends were attributed to capital in
excess of par value and, therefore, resulted in no change in stockholders'
equity. The restatement had no impact on the Company's consolidated balance
sheets, consolidated statements of cash flows, or the net sales, costs,
expenses, and net loss shown on the Company's consolidated statements of
operations.
On January 5, 1996, the Company entered into an eighteen-month consulting
agreement to assist the Company with investor communications and relations.
In consideration of the agreement, the Company granted the consultant a
five-year option to purchase 2,000,000 shares of the Company's common stock
exercisable at $1.81 per share which equaled the market price at the grant
date. The Company has determined that the value of the investor
communications and relations services to be received under this agreement is
$108,000, which is being amortized over the term of the agreement. In August
1996, the Company entered into another agreement with the consultant under
which the consultant surrendered rights to 1,550,000 of the options. In
exchange, the Company issued 750,000 shares of its restricted common stock
to the consultant. During the year ended June 30, 1997, 1,850,000 of these
options were exercised and 112,500 were exercised subsequent to June 30,
1997.
In March 1996, the Company entered into a bridge financing agreement,
pending the completion of the Series B Convertible Preferred Stock issuance
described above, under which the Company borrowed $1,000,000 from an
individual, who was also a stockholder of the Company. The loan was repaid
from the proceeds of the Series B Convertible Preferred Stock offering.
Under the agreement, interest was paid on the loan at 9 percent per annum
and the lender was granted a five year option to purchase 500,000 shares of
the Company's common stock exercisable at $2.50 per share which equaled the
market price at the grant date. The Company has imputed $27,616 of
additional interest expense under this agreement to reflect the relative
risk undertaken by the lender. In addition, the Company granted a five year
option to purchase 250,000 shares of the Company's common stock exercisable
at $2.50 per share to the agent for the lender, who was also a consultant to
the Company. The Company determined that the compensation attributable to
the agent's services was $50,000, which was amortized over the term of the
loan agreement. In June 1996, the Company entered into an additional
agreement with the holders of these options under which 250,000 of these
options were exercised, along with the conversion of 150,000 Class B
Warrants, with the Company receiving $625,000 in cash, and the remaining
500,000 options were canceled.
The Company has (1) an Employee Stock Option Plan (the "ESOP") under which
options for the purchase of up to 1,600,000 shares of common stock may be
granted to qualified employees, officers and directors, employees of
subsidiaries, independent contractors, consultants, and other individuals
and (2) an Employee Stock Bonus Plan under which up to 400,000 shares of
common stock may be issued to qualified full-time employees. The ESOP is
administered by a committee of non-employee members of the Company's Board
of Directors, who have complete discretion to select the optionee and the
terms and conditions of each option. The exercise price of the options
cannot be less than the fair market value of the Company's common stock on
the date of grant and options may not be exercised more than ten years from
the date of grant. At June 30, 1997, the Company had outstanding options
under the ESOP for the purchase of 1,123,600 shares of common stock at
prices ranging from $2.00 to $6.94 per share, of which 585,200 were
exercisable. Options for 1,000 shares have been exercised. No shares have
been issued under the Employee Stock Bonus Plan.
The Company has also granted options outside of the ESOP for the purchase of
an aggregate of 6,050,000 shares of the Company's common stock to officers
of the Company and key employees of acquired companies. These options are
exercisable at prices ranging from $2.00 to $5.00, which equaled the market
values at the respective dates of grant, and expire five to ten years from
the date of grant. The options become exercisable over periods of three to
five years. Options for 3,225,000 shares have been exercised, including
2,680,000 options exercised by officers of the Company in May 1997 through
signing promissory notes for $8,040,000. Payments on these notes amounting
to $1,800,000 were received through June 30, 1997 and the remaining balance
was paid subsequent to June 30, 1997. Options for 1,050,000 shares were
vested at June 30, 1997. As part of the Company's capital raising program,
an additional 1,175,000 of the officers' options are exerciseable at any
time for cash.
F-17
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of activity in the Company's stock options for
employees and directors:
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------------
1997 1996
---------------- -----------------
Weighted- Weighted-
average average
exercise exercise
price Number price Number
----- ------ ----- ------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year $2.63 5,751,500 - -
Issued 3.54 1,467,400 2.63 5,751,500
Exercised 2.93 (3,226,000) - -
Forfeited 3.75 (44,300) - -
- ------------------------ ----- ---------- ----- ---------
Outstanding at end
of year $2.70 3,948,600 $2.63 5,751,500
===== ========== ===== =========
Exercisable at end of year $2.28 2,810,200 $2.59 5,590,500
===== ========== ===== =========
</TABLE>
The following summarizes certain information regarding stock options for
employees and directors outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Total Exercisable
---------------------- -----------
Weighted
Weighted average Weighted
average remaining average
exercise contractual exercise
Exercise Price Number price life (years) price Number
- -------------- ------ ----- ------------ ----- ------
<S> <C> <C> <C> <C> <C>
$2.00 to $2.12 2,275,000 $2.06 8.6 $2.06 2,275,000
$2.25 to $3.50 810,000 2.71 5.9 2.70 342,000
$3.75 312,300 3.75 4.8 3.75 131,900
$4.00 to $5.00 440,000 4.46 6.6 4.06 31,000
$5.50 to $6.94 111,300 5.84 5.2 5.87 30,300
--------- ----- --- ----- ---------
3,948,600 $2.70 7.4 $2.28 2,810,200
Total ========= ===== === ===== =========
</TABLE>
In connection with acquisitions where the previous owners received ABT
common stock as part of the purchase price, such stock is subject to "lock-
up agreements" which limit the amount of common stock that the previous
owners of these entities can sell within specified time periods. In
addition, the Company guaranteed the proceeds to be received by the previous
owners of certain of these entities from the sale of the common stock if
sold in accordance with the lock up agreements. The only acquisition with
guaranteed proceeds remaining in effect is OFI where the previous owners are
to receive $7,900,000 from the sale of 777,500 shares of ABT common stock
through June 30, 1999. To secure the Company's guarantee, the previous
owners have a lien on OFI's land and building, subordinated to existing
mortgage financing. Any difference between the guaranteed proceeds and the
proceeds received by the previous owners will be paid in cash by the
Company. Sales made pursuant to lock-up agreements for the other
acquisitions were made such that the Company had no obligations under its
guarantees.
The closing price for the Company's common stock on September 26, 1997 was
$10.125 per share and the range of closing prices has been as follows:
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
January 1, 1995 - June 30, 1995 $ 4.75 1.75
July 1, 1995 - June 30, 1996 5.4375 1.625
July 1, 1996 - June 30, 1997 6.9375 2.0625
July 1, 1997 - September 26, 1997 10.50 6.03125
</TABLE>
F-18
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Commitments and Contingency
---------------------------
The Company has entered into employment agreements with its executive
officers for periods of up to four years. Annual compensation, excluding
bonuses and out-of-pocket expenses, aggregates approximately $650,000 under
these agreements. In addition, the Company has employment agreements with
approximately 25 other employees at annual compensation rates ranging from
$40,000 to $100,000, which are terminable by the Company without cause with
ten days to six months notice.
The Company contracts with growers to produce a substantial portion of its
proprietary seed requirements which the Company would be obligated to
purchase upon delivery by the growers. These contracts are typically for one
to four growing seasons and are generally renewed or replaced with other
growers.
The Company rents office space, land, warehouse space and equipment under
agreements expiring through the year 2000. Total rent expense was $292,812
for the year ended June 30, 1997, $152,999 for the year ended June 30, 1996
and $79,999 for the nine-month period ended June 30, 1995. Rent commitments
as of June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1998 $224,167
1999 79,560
2000 44,673
2001 17,901
2002 13,024
</TABLE>
Subsequent to June 30, 1997, the Company entered into a contract for the
purchase of land and construction of an office building for an aggregate of
approximately $1.5 million.
(9) Income Taxes
------------
The Company has reported significant losses for income tax purposes.
Utilization of these losses as carryforwards to offset future taxable income
is dependent on having taxable income. The losses which originated prior to
June 30, 1992 are further limited in each year to an amount equal to the
Federal long-term tax exempt interest rate times the entity's market value
at the time of change in ownership. The Company believes that the effect of
these limitations will be to limit the utilization of pre-1993 net operating
loss carryforwards to approximately $25,000 annually through the year 2007.
The net operating losses expire, if unused, as follows:
<TABLE>
<CAPTION>
Year ending June 30 Amount
------------------- ------
<S> <C>
2001 - 2007 $ 375,000
2008 231,265
2009 890,308
2010 1,351,218
2011 2,663,355
2012 2,513,829
----------
Total $8,024,975
==========
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
-----------
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 665,865 -
Intangible assets 644,718 -
--------- ------
1,310,584 -
--------- ------
</TABLE>
F-19
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Net operating loss carryforward $ 2,969,241 2,020,000
Other 613,799 35,000
----------- ----------
Total gross deferred tax assets 3,583,039 2,055,000
Less valuation allowance (3,290,824) (2,055,000)
----------- ----------
Net deferred tax assets 292,215 -
----------- ----------
Net deferred tax liabilities $ 1,018,369 -
=========== ==========
</TABLE>
The tax benefits of the deferred tax assets have been substantially
offset by a valuation allowance since the Company cannot currently conclude
that it is more likely than not that the benefits will be realized. The
valuation allowance increased by $1,235,824 during the year ended June 30,
1997, $1,098,000 during the year ended June 30, 1996 and $467,000 during
the nine-month period ended June 30, 1995. The deferred tax liabilities
arose in connection with the Burlingham acquisition.
(10) Retirement Plan
---------------
The Company has a defined contribution plan which covers all employees.
Eligible employees may contribute up to 30 percent of their annual
compensation, not to exceed the statutory maximum. The Company may make
discretionary contributions. Participants are immediately vested in their
contribution and vest 20 percent per year in the Company's contributions
for each year of service after the first year. The Company made no
contributions to the plan in 1997, 1996 and 1995.
(11) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents, accounts receivables,
accounts payable and short-term debt approximate fair value due to the
short maturity periods of these instruments. The fair value of the
Company's long-term obligations based on the present value of the cash
flows from those obligations was approximately $3.7 million at June 30,
1997 using an assumed interest rate of 8.5% and $1.5 million at June 30,
1996 using an assumed interest rate of 10.25%.
F-20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: February 13, 1998
AGRIBIOTECH, INC.
By: /s/ Johnny R. Thomas
--------------------
Johnny R. Thomas,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Johnny R. Thomas Chief Executive Officer February 13, 1998
- ----------------------- (Principal Executive Officer
Johnny R. Thomas and Director
/s/ Henry A. Ingalls Vice President and Treasurer February 13, 1998
- ----------------------- (Principal Financial and
Henry A. Ingalls Accounting Officer)
/s/ Scott J. Loomis Vice President and Director February 13, 1998
- -----------------------
Scott J. Loomis
/s/ John C. Francis Vice President, Secretary February 13, 1998
- ----------------------- and Director
John C. Francis
President and Director February 13, 1998
- -----------------------
Kent Schulze
Director February 13, 1998
- -----------------------
James W. Hopkins
/s/ Richard P. Budd Director February 13, 1998
- -----------------------
Richard P. Budd
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,553,634
<SECURITIES> 0
<RECEIVABLES> 18,204,239
<ALLOWANCES> 729,352
<INVENTORY> 23,328,961
<CURRENT-ASSETS> 53,993,990
<PP&E> 19,295,240
<DEPRECIATION> 1,431,188
<TOTAL-ASSETS> 95,113,025
<CURRENT-LIABILITIES> 46,439,065
<BONDS> 2,667,609
0
1
<COMMON> 23,743
<OTHER-SE> 44,964,238
<TOTAL-LIABILITY-AND-EQUITY> 95,113,025
<SALES> 65,904,058
<TOTAL-REVENUES> 65,904,058
<CGS> 49,527,150
<TOTAL-COSTS> 49,527,150
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,691,084
<INCOME-PRETAX> (2,713,765)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,713,765)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,713,765)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
