UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K/A
Amendment No. 2
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act 1934
For the fiscal year ended June 30, 1998
[_] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the Transition Period from
______________ to ______________.
Commission file number 0-19352
AGRIBIOTECH, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 85-0325742
------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Corporate Park Drive, Henderson, NV 89014
- --------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 566-2440
- --------------------------------------------------- --------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, par value $.001 per share.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X,
---
No___
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained herein, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant, as of September 23, 1998, was $438,494,342
(assuming solely for purposes of this calculation that all directors and
officers, but not greater than 5% stockholders of the Registrant are
"affiliates"), based on a closing sale price of $12 7/8 per share.
The number of shares outstanding of the Registrant's Common Stock, par
value $.001 per share, as of September 23, 1998, was 39,180,788.
Documents Incorporated by Reference: Not Applicable.
<PAGE>
EXPLANATORY NOTE
This Amendment No. 2 on Form 10-K/A to the Annual Report on Form 10-K ("Form
10-K") for the fiscal year ended June 30, 1998 of AgriBioTech, Inc., a Nevada
corporation (the "Company"), is submitted to provide audited financial
statements of SeedBiotics, L.L.C., an entity owned 50% by the Company, pursuant
to Rule 3.09 of Regulation S-X. SeedBiotics, L.L.C has a December 31 year end.
Per Rule 3.09, these financial statements are to be filed within 90 days of the
year end of the 50% owned entity. Therefore, the Company hereby amends its Form
10-K in accordance with Rule 12b-15 under the Securities Exchange Act of 1934.
This amendment does not change any financial information previously filed by the
Company.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts appears on page S-1
of this Report, following Part IV hereof.
(a)(3) Exhibits
Exhibit No. Description
3.1 Articles of Incorporation of the Registrant, as amended. (1)
3.2 Amended and Restated By-Laws of the Registrant. (1)
3.3 Articles of Merger of the Registrant.(1)
3.4 Agreement and Plan of Merger.(1)
3.5 Certificate of Amendment of Articles of Incorporation. (8)
4.1 Form of Common Stock Purchase Warrant dated May 1998.
4.2 Form of Common Stock Purchase Warrant dated August 1998. (11)
10.1 Employment Agreement between Registrant and Scott J. Loomis dated
February 1, 1994. (1)
10.2 Employment Agreement between Registrant and Johnny R. Thomas
dated March 10, 1994. (1)
10.3 Employment Agreement between Registrant and John C. Francis dated
March 24, 1994. (1)
10.4 1994 Stock Option Plan, as amended. (1)
10.5 Employee Stock Bonus Plan. (1)
10.6 Employment Agreement dated November 29, 1994 by and between
Kathleen L. Gillespie and the Registrant. (2)
10.7 Amendment, dated December 20, 1995, to Employment Agreement
between the Company and Kathleen Gillespie. (8)
10.8 Stock Option Agreement dated as of December 20, 1995 between
registrant and Kathleen L. Gillespie (ISOs). (4)
10.9 Stock Option Agreement dated as of December 20, 1995 between
Registrant and Kathleen L. Gillespie (NQSOs). (4)
10.10 Employment Agreement dated February 13, 1996 between Henry A.
Ingalls and the Registrant. (3)
10.11 Stock Option Agreement dated as of February 13, 1996 between
Registrant and Henry A. Ingalls. (4)
<PAGE>
10.12 Purchase Agreement dated October 30, 1996, by and among the
Registrant, certain subsidiaries of the Registrant, Berisford
Holdings, Inc., Germain's, Inc. and W-L Research, Inc.(5)
10.13 Stock Purchase Agreement dated May 15, 1997, by and among the
Registrant, E.F. Burlingham & Sons, G.W. Burlingham's, Inc.,
Greg McCarthy and Doug Pope.(6)
10.14 Stock Purchase Agreement dated August 22, 1997 by and among the
Registrant, Olsen Fennell Seeds, Inc., Greg S. Fennell and James
E. Olsen.(7)
10.15 Consulting Agreement dated June 17, 1997, between Kent Schulze
and the Registrant. (8)
10.16 Consulting Agreement dated June 17, 1997, between James W.
Hopkins and the Registrant.(9)
10.17 Form of Stock Purchase Agreement between AgriBioTech, Inc. and each
of Quantum Partners LDC, Ardsley Partners I, L.P., Ardsley Partners
II, L.P., Ardsley Offshore Fund, Ltd., Brown Simpson Strategic Growth
Fund, Ltd. and Southbrook International Investments, Ltd. (10)
10.18 Loan and Security Agreement dated as of June 23, 1998 with Bank
America Business Credit, Inc., as agent, and Deutsche Financial
Services Corporation, as Administrative Agent. (12)
10.19 Over advance facility-amendment dated August 14, 1998 to the Loan and
Security Agreement referred to in Exhibit 10.18. (13)
10.20 Agreement and Plan of Reorganization dated December 1, 1997, by
and among the Registrant, Lofts Seed, Inc., Budd Seed Inc., Lofts
Mergerco, Inc. and the shareholders of Lofts Seed Inc. and Budd Seed,
Inc. (14)
10.21 Stock Purchase Agreement dated January 9, 1998, by and among the
Registrant, Alan Rosoff, Seed Corporation of America, Green SCA Corp.
and Green Seed Company Limited Partnership. (15)
10.22 Stock Purchase Agreement dated August 21, 1998, by and among the
Registrant and its subsidiary E.F.Burlingham & Sons, Willard W.
Mclagan, Robert R. Lowery, Thomas G. Burns, Hiram G. Olsen, The H.G.
Olsen & Ann Olsen Charitable Trust, Terry L. Shumaker, Evelyn
J. Lacey, William W. Spurlin, Phillip J. Hawkins and Willamette Seed
Co. (16)
<PAGE>
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ripley Doorn & Company, P.L.L.C.
27.1 Financial Data Schedule.
*99.1 Financial Statements of SeedBiotics L.L.C.
* Filed with this Report
(1) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 for April 29, 1994, as amended (No. 33-78470-NY).
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB for the fiscal year ended June 30, 1995.
(3) Incorporated by reference from the Registrant's Quarterly Report on Form
10-QSB for the fiscal quarter ended March 31, 1996.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form S-8 filed June 28, 1996 (No. 333-07123).
(5) Incorporated by reference from the Registrant's Current Report on Form 8-K
for October 30, 1996.
(6) Incorporated by reference from the Registrant's Current Report on Form 8-K
for May 15, 1997.
(7) Incorporated by reference from the Registrant's Current Report on Form 8-K
for August 22, 1997.
(8) Incorporated by reference from the Registrant's Annual Report on Form 10-
KSB, as amended, for the fiscal year ended June 30, 1997.
(9) Identical to the Consulting Agreement between Kent Schulze and the
Registrant.
(10) Incorporated by reference from the Registrant's Current Report on Form
8-K for March 31, 1998.
(11) Incorporated by reference from the Registrant's Current Report on Form 8-K
for August 28, 1998.
<PAGE>
(12) Incorporated by reference from the Registrant's Current Report on Form 8-K
for June 23, 1998.
(13) Incorporated by reference from Amendment No. 1 to the Registrant's Current
Report on Form 8-K for June 23, 1998.
(14) Incorporated by reference from the Registrant's Current Report on Form 8-K
for December 1, 1997.
(15) Incorporated by reference from the Registrant's Current Report on Form 8-K
for January 9, 1998.
(16) Incorporated by reference from the Registrant's Current Report on Form 8-K
for January 26, 1998.
(b) Reports on Form 8-K:
(i) A Current Report on Form 8-K was filed for April 8, 1998 with
respect to an event on Item 5, the acquisition of Zajac Performance
Seeds, Inc.
(ii) A Current Report on Form 8-K was filed for May 22, 1998 with respect
to Item 7, setting forth the financial statements of the businesses
acquired for at least the substantial majority of the individually
insignificant subsidiaries acquired since June 30, 1997.
(iii) A Current Report on Form 8-K was filed for June 23, 1998, as
amended, with respect to an event on Item 5, the Company entering
into a Revolving Credit Facility with Bank America Business Credit,
Inc., as Agent.
(d)(1) Financial statements excluded from the annual report to shareholders
by Rule 14a-3(b)
The financial statements of SeedBiotics are included herein as
exhibit 99.1.
<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.
AGRIBIOTECH, INC.
Date: March 30, 1999 By: /s/ Randy Ingram
----------------
Randy Ingram,
Co-President/Chief Financial Officer
and Director of Business Development
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.
/s/Richard P. Budd Chairman of the Board March 30, 1999
- ----------------------- (Principal Executive Officer)
Richard P. Budd Chief Executive Officer and Director
/s/Randy Ingram Co-President (Principle Financial March 30, 1999
- ----------------------- and Accounting Officer) Chief
Randy Ingram Financial Officer and Director
/s/Thomas B. Rice Co-President, Director of March 30, 1999
- ----------------------- Research and Director
Thomas B. Rice
/s/James W. Hopkins Director March 30, 1999
- -----------------------
James W. Hopkins
/s/James W. Johnston Director March 30, 1999
- -----------------------
James W. Johnston
Exhibit 23.2
The Board of Directors
AgriBioTech, Inc.:
We consent to incorporation by reference in the registration statements
Nos. 333-33367, 333-13953, 333-47637, 333-61127, 333-66145, 333-71477 and
333-71485 on Form S-3, No. 333-61097 on Form S-4 and Nos. 333-07123, 333-9336
and 333-9330 on Form S-8 of AgriBioTech,Inc. of our report dated March 5, 1999,
relating to the balance sheet of SeedBiotics, L.L.C. as of December 31, 1998 and
the related statements of operations and members' equity, and cash flows for the
year then ended, which report appears in the June 30, 1998 Form 10-K/A Amendment
No. 2 of AgriBioTech, Inc.
/s/ Ripley Doorn & Company, P.L.L.C.
Caldwell, Idaho
March 29, 1999
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Seedbiotics, L.L.C.
Caldwell, Idaho
We have audited the accompanying balance sheet of Seedbiotics, L.L.C. as of
December 31, 1998, and the related statements of operations and members' equity,
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 Seedbiotics, L.L.C. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Ripley Doorn & Company, P.L.L.C.
Caldwell, Idaho
March 5, 1999
1
<PAGE>
SEEDBIOTICS, L.L.C.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash $ 76,341
Accounts receivable - net 1,093,163
Inventory 205,975
Employee travel advances 2,000
Prepaid expenses 2,725
-----------
Total current assets 1,380,204
-----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 1,559,905
Furniture and fixtures 61,988
Vehicles 91,064
Leasehold improvements 26,337
Construction in progress 249,882
-----------
Total 1,989,176
Less accumulated depreciation (600,366)
-----------
Equipment and leasehold improvements - net 1,388,810
OTHER ASSETS:
Patent in progress 9,258
Other 1,831
-----------
Total other assets 11,089
-----------
TOTAL ASSETS $ 2,780,103
===========
</TABLE>
See notes to financial statements.
2
<PAGE>
LIABILITIES AND
MEMBERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 143,770
Accrued liabilities:
Payroll 136,831
Payroll taxes 19,881
Property taxes 11,240
Paid time off 15,174
----------
Total current liabilities 326,896
MEMBERS' EQUITY:
AgriBioTech, Inc. 1,226,604
Research Seeds, Inc. 1,226,603
----------
Total members' equity 2,453,207
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $2,780,103
==========
</TABLE>
See notes to financial statements.
3
<PAGE>
SEEDBIOTICS, L.L.C.
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
% OF
AMOUNT SALES
----------- ------
<TABLE>
<CAPTION>
<S> <C> <C>
SALES $ 4,518,707 100.0%
----------- ------
COST OF SALES:
Direct plant expenses 1,381,164 30.5
Indirect plant expenses 437,525 9.7
----------- ------
Total cost of sales 1,818,689 40.2
----------- ------
GROSS PROFIT 2,700,018 59.8
----------- ------
OPERATING EXPENSES:
Administrative 445,048 9.9
Marketing 406,634 9.0
Research and development 244,703 5.4
----------- ------
Total operating expenses 1,096,385 24.3
----------- ------
INCOME FROM OPERATIONS 1,603,633 35.5
----------- ------
OTHER EXPENSE:
Interest expense 513
Forfeiture of earnest money 25,000 .6
----------- ------
Other expense 25,513 .6
----------- ------
NET INCOME 1,578,120 34.9%
======
MEMBERS' EQUITY, BEGINNING
OF YEAR 2,020,835
DISTRIBUTIONS TO MEMBERS (1,145,748)
-----------
MEMBERS' EQUITY, END OF
YEAR $ 2,453,207
===========
</TABLE>
See notes to financial statements.
4
<PAGE>
SEEDBIOTICS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,578,120
Adjustment to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 230,524
Provision for losses on accounts receivable (23,909)
(Increase) decrease in:
Accounts receivable (220,949)
Inventory (48,157)
Employee advances (335)
Prepaid expenses 8,009
Increase (decrease) in:
Accounts payable (49,134)
Accrued payroll 21,333
Accrued payroll taxes 704
Accrued property taxes 873
Accrued paid time off 15,174
-----------
Net cash provided by operating activities 1,512,253
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (509,282)
Expenditures on patents (9,258)
-----------
Net cash used in investing activities (518,540)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to members (1,145,748)
-----------
Net cash used in financing activities (1,145,748)
-----------
NET DECREASE IN CASH (152,035)
CASH, BEGINNING OF YEAR 228,376
-----------
CASH, END OF YEAR $ 76,341
===========
</TABLE>
See notes to financial statements.
5
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Seedbiotics, L.L.C. is engaged in the custom coating of seed. The Company is
owned by AgriBioTech, Inc. and by Research Seeds, Inc., which is wholly owned by
Land O'Lakes, Inc. All seed processed by the Company is owned by the contracting
customers. The Company has operations in Caldwell, Idaho and St. Joseph,
Missouri. To comply with the requirements of operating as an L.L.C., the Company
must select a dissolution date. In accordance with those requirements the
Company has elected to be dissolved on December 31, 2045, unless the term is
extended by an amendment to the Operating Agreement.
Basis of Accounting
The Company's records are maintained on the accrual basis, both for financial
and for income tax reporting purposes.
Revenue Recognition
The Company recognizes income once a coating order is complete. There were no
coating orders in progress as of December 31, 1998.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investment instruments purchased with a maturity of three months or less to be
cash equivalents.
Concentration of Credit Risk
The Company maintains its cash in a bank deposit account which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
A significant portion of the accounts receivable are from members of the
Company. (See Note 2)
Inventory
Inventory consists of raw material used in the custom coating of seed.
Inventories are valued at lower of cost or market on a first-in, first-out
basis.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. The estimated useful life of leasehold improvements is the life of the
lease, while the estimated useful life of equipment, fixtures and vehicles range
from 5 to 12 years. Total depreciation and amortization expense for the year
ended December 31, 1998 was $230,524. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred.
6
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company is a limited liability company. All income taxes are paid by the
L.L.C. members on their distributive share of net profits. Therefore, the
Company has not made a provision for these income taxes.
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could differ from those
estimates.
Research and Development
The Company is involved in the research and development of new products and
variations of its current products. Personnel, research facility, and overhead
costs are allocated to the research and development activities of the Company.
Research and development costs are expensed as incurred.
2. ACCOUNTS RECEIVABLE
At December 31, 1998, accounts receivable consisted of the following:
<TABLE>
<S> <C>
Trade receivables $ 1,108,163
Allowance for doubtful accounts (15,000)
-----------
Trade receivables - net $ 1,093,163
===========
</TABLE>
At December 31, 1998, accounts receivable from member companies and companies
controlled by the members were $854,961.
3. SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURES
The Company paid $513 during the year ended December 31, 1998 for interest.
7
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
4. LEASE COMMITMENTS
The Company leases its head office, warehouse space, research facility, and two
vehicles. Lease periods are from two (2) to fifteen (15) years and the research
facility lease contains a renewal option. The research facility lease is
adjustable annually based on the Consumer Price Index for urban consumers.
Future minimum lease payments for all leases are as follows:
<TABLE>
<S> <C>
1999 $ 79,835
2000 63,811
2001 63,154
2002 59,954
2003 50,352
Remainder 339,876
--------
Total minimum obligations $656,982
========
</TABLE>
The company also leases equipment and warehouse space on a short-term basis.
(See Note 7 for lease arrangements with related parties.)
Total rent expense for all facility and equipment leasing arrangements for the
year was $113,424.
5. INFORMATION REGARDING MAJOR SUPPLIERS
Purchases for the year ended December 31, 1998, include direct materials
purchases from major suppliers of $332,040, $168,475, and $118,902, representing
41%, 21%, and 15% of total direct material costs, respectively.
6. INFORMATION REGARDING MAJOR CUSTOMERS
Sales for the year ended December 31, 1998, include sales to a major non-related
customer of approximately 12% of total sales. (See Note 7 for information
regarding sales to related parties.)
7. RELATED PARTIES
The Company uses the payroll and benefit services of Land O'Lakes, Inc., the
majority owner of one of the members. Land O'Lakes, Inc. pays all of the related
payroll taxes, health insurance, and other employee benefits, collectively
called payroll burden, and Seedbiotics, L.L.C. reimburses them for their share
of those costs. During the year ended December 31, 1998, the Company paid
$1,094,510 to Land O'Lakes for payroll and payroll burden. The employees of
Seedbiotics, L.L.C. are eligible to participate in the employee retirement plans
sponsored by Land O'Lakes, Inc. At December 31, 1998 the payroll expense and the
related payroll burden included in accounts payable was $91,256.
8
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
7. RELATED PARTIES (CONTINUED)
Revenues are derived as a result of transactions with the members of the Company
or with companies related to the members of the Company. During the year ended
December 31, 1998, sales with these companies comprised approximately 59% of the
gross revenues of the Company. All sales to related companies are at prices
equivalent to those charged to all Seedbiotics, L.L.C. customers. Accounts
receivable from related companies are settled in the same manner as with any
customer receivable.
The Company leases manufacturing space on a month-to-month basis from one of the
members of the Company. During the year ended December 31, 1998, total rent paid
to this member was $12,600.
8. CONSTRUCTION IN PROGRESS
As of December 31, 1998, construction in progress consists of equipment not yet
placed in service and components related to a coating line that will be built in
the future.
<TABLE>
<S> <C>
Equipment not in service - Caldwell site $ 5,592
New coating line 244,290
--------
Total $249,882
========
</TABLE>
Management estimates that significant expenditures will be required to put the
new line in service. Total costs required to put the line in service will depend
upon where management elects to install the line.
9. LICENSE
Seedbiotics, L.L.C. pays the United States Department of Agriculture (USDA) an
annual licensing fee for a new product they are developing. During the year
ended December 31, 1998, the Company paid the USDA $3,070. This fee is a
"transfer of technology" surcharge. When the new product is sold commercially,
the Company will pay the USDA a royalty equal to 3% of the sales of this
product.
9
<PAGE>
SEEDBIOTICS, L.L.C.
BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS:
Cash $ 228,376
Accounts receivable 848,305
Inventory 157,818
Employee travel advances 1,665
Prepaid expenses 10,734
-----------
Total current assets 1,246,898
-----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Machinery and equipment 1,307,266
Furniture and fixtures 37,413
Vehicles 55,012
Leasehold improvements 20,892
Construction in progress 59,313
-----------
Total 1,479,896
Less accumulated depreciation (370,759)
-----------
Equipment - net 1,109,137
-----------
OTHER ASSETS 2,746
-----------
TOTAL ASSETS $ 2,358,781
===========
</TABLE>
See notes to financial statements.
1
<PAGE>
LIABILITIES AND
MEMBERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 192,904
Accrued liabilities:
Payroll 115,498
Payroll taxes 19,177
Property taxes 10,367
----------
Total current liabilities 337,946
----------
MEMBERS' EQUITY
AgriBioTech, Inc. 1,010,418
Research Seeds, Inc. 1,010,417
----------
Total members' equity 2,020,835
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $2,358,781
==========
</TABLE>
See notes to financial statements.
2
<PAGE>
SEEDBIOTICS, L.L.C.
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
% OF
AMOUNT SALES
----------- ------
<S> <C> <C>
SALES $ 3,607,229 100.0%
COST OF SALES:
Direct plant expenses 1,255,853 34.8
Indirect plant expenses 372,746 10.3
----------- -----
Total cost of sales 1,628,599 45.1
----------- -----
GROSS PROFIT 1,978,630 54.9
----------- -----
OPERATING EXPENSES:
Administrative 320,584 8.9
Marketing 207,284 5.8
Research and development 140,856 3.9
----------- -----
Total operating expenses 668,724 18.6
----------- -----
INCOME FROM OPERATIONS 1,309,906 36.3
----------- -----
OTHER INCOME (EXPENSE):
Interest income 1,206
Interest expense (365)
-----------
Other income - net 841
NET INCOME 1,310,747 36.3%
=====
MEMBERS' EQUITY, BEGINNING
OF YEAR 1,459,278
DISTRIBUTIONS TO MEMBERS (749,190)
-----------
MEMBERS' EQUITY, END OF
YEAR $ 2,020,835
===========
</TABLE>
See notes to financial statements.
3
<PAGE>
SEEDBIOTICS, L.L.C.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,310,747
Adjustment to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 194,589
Increase in:
Accounts receivable (403,302)
Inventory (60,918)
Employee advances (665)
Prepaid expenses (5,925)
Increase in:
Accounts payable 38,947
Accrued payroll 73,237
Accrued payroll taxes 12,165
Accrued property taxes 5,080
-----------
Net cash provided by operating
activities 1,163,955
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (177,366)
-----------
Net cash used in investing activities (177,366)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (5,618)
Distributions to members (749,190)
Principal payments on members' note payable (62,000)
-----------
Net cash used in financing activities (816,808)
-----------
NET INCREASE IN CASH 169,781
CASH, BEGINNING OF YEAR 58,595
-----------
CASH, END OF YEAR $ 228,376
===========
</TABLE>
See notes to financial statements.
4
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Seedbiotics, L.L.C. is engaged in the custom coating of seed. The Company is
owned by AgriBioTech, Inc. and by Research Seeds, Inc., which is wholly owned by
Land O'Lakes, Inc. All seed processed by the Company is owned by the contracting
customers. The Company has operations in Caldwell, Idaho and St. Joseph,
Missouri. To comply with the requirements of operating as an L.L.C., the Company
must select a dissolution date. In accordance with those requirements the
Company has elected to be dissolved on December 31, 2045, unless the term is
extended by an amendment to the Operating Agreement.
Basis of Accounting
The Company's records are maintained on the accrual basis, both for financial
and for income tax reporting purposes.
Revenue Recognition
The Company recognizes income once a coating order is complete. There were no
coating orders in progress as of December 31, 1997.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investment instruments purchased with a maturity of three months or less to be
cash equivalents.
Concentration of Credit Risk
The Company maintains its cash in a bank deposit account which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such account. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
A significant portion of the accounts receivable are from members of the
Company. (See Note 3)
Inventory
Inventory consists of raw material used in the custom coating of seed.
Inventories are valued at lower of cost or market on a first-in, first-out
basis.
Equipment and Leasehold Improvements
Equipment and leasehold Improvements are stated at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. The estimated useful life of leasehold improvements is the life of the
lease, while the estimated useful life of equipment, fixtures and vehicles range
from 5 to 12 years. Total depreciation and amortization expense for the year
ended December 31, 1997 was $193,673. Expenditures for major renewals and
betterments that extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred.
Income Taxes
The Company is a limited liability company. All income taxes are paid by the
L.L.C. members on their distributive share of net profits. Therefore, the
Company has not made a provision for these income taxes.
5
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
Use of Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could differ from those
estimates.
2. CASH
At December 31, 1998, the carrying amount of the Company's cash and cash
equivalents was $228,376 and the bank balance was $352,115. Of this bank
balance, $100,000 was covered by federal depository insurance and $252,115 was
uninsured and uncollateralized.
3. ACCOUNTS RECEIVABLE
At December 31, 1997, accounts receivable consisted of the following:
<TABLE>
<S> <C>
Trade receivables $ 887,214
Allowance for doubtful accounts (38,909)
---------
Trade receivables - net $ 848,305
=========
</TABLE>
At December 31, 1997, accounts receivable from member companies and companies
controlled by the members were $311,630.
4. SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURES
The Company paid $365 during the year ended December 31, 1997 for interest.
5. LEASE COMMITMENTS
The Company leases its head office, warehouse space, research facility, and a
vehicle for a salesperson. Lease periods are from two (2) to fifteen (15) years
and the research facility lease contains a renewal option. The research facility
lease is adjustable annually based on the Consumer Price Index for urban
consumers. Future minimum lease payments for all leases are as follows:
6
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
5. LEASE COMMITMENTS (CONTINUED)
<TABLE>
<S> <C>
1998 $ 72,552
1999 71,752
2000 62,952
2001 62,952
2002 59,802
Remainder 390,228
-------------
Total minimum obligations $ 720,238
=============
</TABLE>
The company also leases various pieces of equipment and storage space on a
short-term basis. (See Note 7 for lease arrangements with related parties.)
Total rent expense for all facility and equipment leasing arrangements for the
year was $87,355.
6. INFORMATION REGARDING MAJOR SUPPLIERS
Purchases for the year ended December 31, 1997, include direct materials
purchases from major suppliers of $267,611, $149,396, and $93,078, representing
34%, 19%, and 12% of total direct material costs, respectively.
7. RELATED PARTIES
The Company leases its employees from Land O'Lakes, Inc., the majority owner of
one of the members. Land O'Lakes, Inc. pays all of the related payroll taxes,
health insurance, and other employee benefits, collectively called payroll
burden, and Seedbiotics, L.L.C. reimburses them for their share of those costs.
The employees of Seedbiotics, L.L.C. are eligible to participate in the employee
retirement plans sponsored by Land O'Lakes, Inc. At December 31, 1997 the
payroll expense and the related payroll burden included in accounts payable was
$107,451.
Revenues are derived as a result of transactions with the members of the Company
or with companies owned or controlled by the members of the Company. during the
year ended December 31, 1997, sales with these companies comprised approximately
55% of the gross revenues of the Company. All sales to related companies are at
prices equivalent to those charged to all Seedbiotics, L.L.C. customers. Current
amounts receivable from related companies are settled in the same manner as with
any customer receivable.
7
<PAGE>
SEEDBIOTICS, L.L.C.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
7. RELATED PARTIES (CONTINUED)
The Company leases manufacturing space on a month-to-month basis from one of the
members of the Company. During the year ended December 31, 1997, total rent paid
to this member was $12,600.
8. CONSTRUCTION IN PROGRESS
As of December 31, 1997, construction in progress consists of equipment not yet
placed in service and capitalized expenditures on a processing line being built
as a pilot line for a new product. The amounts are as follows:
<TABLE>
<S> <C>
Assets not in service - Caldwell site $ 5,592
Assets not in service - St. Joseph site 2,096
Pilot line 51,625
----------
Total $ 59,313
==========
</TABLE>
Management projects that the pilot line will be completed by the end of March,
1998, for an additional $15,000.
9. LICENSE
Seedbiotics, L.L.C. pays the United States Department of Agriculture (USDA) an
annual licensing fee for a new product they are developing. This fee is a
"transfer of technology" surcharge. When the new product is sold commercially,
the Company will pay the USDA a royalty equal to 3% of the sales of this
product.
8
