<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-K/A
Amendment No. 1
[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. 1 on Form 10-K/A to the Annual Report on Form 10-K
("Form 10-K") for June 30, 1998 of AgriBioTech, Inc., a Nevada corporation (the
"Company"), is submitted in order to make the disclosure of unaudited pro forma
financial information in note 1 of Notes to Consolidated Financial Statements
included under Item 8 of the Form 10-K consistent with the pro forma financial
information included in subsequent filings on Forms 8-K. This amendment does not
restate any of the Company's historical financial information. The pro forma
information disclosure being filed excludes the fertilizer and chemical division
of Willamette Seed (which has been disposed of), reflects a correction of
amounts applicable to Lofts Seed prior to its acquisition by the Company and
other adjustments, including income tax impacts. Therefore, the Company hereby
amends its Form 10-K in accordance with Rule 12b-15 under the Securities
Exchange Act of 1934.
<PAGE>
FINANCIAL STATEMENTS AND SCHEDULE OF AGRIBIOTECH, INC.
ITEM 8.
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of
June 30, 1998 and 1997................................... F-3
Consolidated Statements of Operations for
the years ended June 30, 1998, 1997 and 1996 ............ F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1998, 1997 and
1996..................................................... F-6
Consolidated Statements of Cash Flows for the
years ended June 30, 1998, 1997 and 1996................. F-7
Notes to Consolidated Financial Statements - June 30,
1998, 1997 and 1996 ..................................... F-9
Schedule II - Valuation and Qualifying Accounts........... S-1
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
AgriBioTech, Inc.:
We have audited the accompanying consolidated balance sheets of AgriBioTech,
Inc. and subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1998. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed at Item 14(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgriBioTech, Inc.
and subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Albuquerque, New Mexico
September 28, 1998
F-2
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,700,846 2,553,634
Accounts receivable, less allowance for doubtful accounts
of $2,177,442 at June 30, 1998 and $729,352 at June 30, 1997 39,503,262 17,474,887
Inventories 58,609,554 23,328,961
Notes receivable from sale of common stock - 9,990,000
Deferred income taxes 1,339,709 -
Other 1,673,903 646,508
---------------- --------------
Total current assets 103,827,274 53,993,990
Property, plant and equipment, net 47,964,522 17,864,052
Intangible assets, net of accumulated amortization 109,882,815 22,544,539
Investment in associated entity 818,182 567,235
Other assets 2,038,115 143,209
---------------- --------------
Total assets $264,530,908 95,113,025
================ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
-------------- --------------
<S> <C> <C>
Current liabilities:
Short-term debt $ 50,329,614 24,203,431
Current installments of long-term obligations 3,251,846 1,056,770
Accounts payable 13,594,285 10,601,813
Accrued liabilities 11,251,757 3,277,051
Amounts due in connection with acquisitions - 7,300,000
------------ ----------
Total current liabilities 78,427,502 46,439,065
Long-term obligations, excluding current installments 11,029,022 2,667,609
Deferred income taxes 503,348 1,018,369
------------ ----------
Total liabilities 89,959,872 50,125,043
------------ ----------
Stockholders' equity:
Preferred stock, $.001 par value; authorized 10,000,000 shares;
issued and outstanding none at June 30, 1998 and 1,100 shares
at June 30, 1997 (aggregate liquidation preference of $1,221,666) - 1
Common stock, $.001 par value; authorized 75,000,000 shares at
June 30, 1998 and 50,000,000 shares at June 30, 1997; issued
and outstanding 37,203,013 shares at June 30, 1998 and
23,743,385 shares at June 30, 1997 37,203 23,743
Capital in excess of par value 186,571,673 49,439,319
Common stock to be issued in acquisitions - 7,950,000
Accumulated (deficit) (12,037,840) (12,425,081)
------------ ----------
Total stockholders' equity 174,571,036 44,987,982
------------ ----------
Commitments, contingencies and subsequent events (notes 1, 6, 7 and 8)
Total liabilities and stockholders' equity $264,530,908 95,113,025
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $205,117,007 65,904,058 25,961,541
Cost of sales 157,796,888 49,527,150 19,235,670
------------ ------------ ------------
Gross profit 47,320,119 16,376,908 6,725,871
Operating expenses 47,579,105 17,971,813 9,636,863
------------ ------------ ------------
Earnings (loss) from operations (258,986) (1,594,905) (2,910,992)
------------ ------------ ------------
Other income (expense):
Interest expense (4,223,483) (1,691,084) (464,515)
Interest income 520,256 344,417 87,255
Earnings of associated entity 808,447 233,690 -
Other 633,507 (5,883) (35,880)
------------ ------------ ------------
Total other income (expense) (2,261,273) (1,118,860) (413,140)
------------ ------------ ------------
Earnings (loss) before income taxes (2,520,259) (2,713,765) (3,324,132)
Income tax expense (benefit) (2,907,500) - -
------------ ------------ ------------
Net earnings (loss) 387,241 (2,713,765) (3,324,132)
Discount and imputed dividends on preferred stock 84,100 3,233,426 2,317,625
------------ ------------ ------------
Net earnings (loss) attributable to common stock $ 303,141 (5,947,191) (5,641,757)
============ ============ ============
Shares of common stock used in computing earnings
(loss) per common share:
Basic 30,077,693 15,549,184 7,458,594
Diluted 32,061,546 15,549,184 7,458,594
============ ============ ============
Net earnings (loss) per common share:
Basic $ 0.01 (0.38) (0.76)
Diluted 0.01 (0.38) (0.76)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred stock Common stock Capital in
-------------------------- --------------------- excess of
Shares Amount Shares Amount par value
----------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 - $ - 7,145,200 $7,145 13,742,327
Issuance of preferred stock for cash 7,425 8 - - 7,424,992
Common stock issued for:
Services - - 10,000 10 31,490
Exercise of warrants - - 546,000 546 1,967,254
Acquisitions - - 162,343 163 608,624
Conversion of preferred stock (895) (1) 280,214 280 (279)
Exercise of options - - 250,000 250 624,750
Cancellation of options - - 150,000 150 (150)
Reduction of notes for:
Services - - - - -
Cash - - - - -
Acquisitions - - - - (343,777)
Increase in repayment amount of notes receivable - - - - 155,736
Restructuring of employee stock options - - - - 220,000
Options issued for services - - - - 185,616
Expenses of stock issuances - - - - (864,532)
Deferred compensation earned - - - - -
Net (loss) - - - - -
------- -------- ---------- -------- -----------
Balance at June 30, 1996 6,530 7 8,543,757 8,544 23,752,051
Issuance of preferred stock for cash 10,000 10 - - 9,999,990
Common stock issued for:
Services - - 15,000 15 45,885
Exercise of options - - 5,076,000 5,076 12,753,791
Exercise of warrants - - 2,116,000 2,116 6,672,844
Preferred stock converted and redeemed (15,430) (16) 7,094,226 7,094 (2,714,349)
Cancellation of options - - 750,000 750 (750)
Retirement of debt - - 148,402 148 319,852
Reduction of notes for:
Cash - - - - -
Notes receivable paid subsequent to year end - - - - -
Common stock to be issued in acquisition - - - - -
Expenses of stock issuances - - - - (1,389,995)
Reduction in deferred compensation - - - - -
Net (loss) - - - - -
------- -------- ---------- -------- -----------
Balance at June 30, 1997 1,000 1 23,743,385 23,743 49,439,319
Common stock issued for:
Cash - - 5,075,182 5,075 67,658,430
Exercise of options - - 993,005 993 3,545,432
Exercise of warrants - - 2,185,625 2,186 15,554,689
Acquisitions - - 4,867,030 4,867 51,441,971
Conversion of preferred stock (1,100) (1) 308,677 309 (308)
Reduction of indebtedness - - 30,109 30 447,841
Options issued for services - - - - 396,965
Expenses of stock issuances - - - - (1,912,666)
Net earnings - - - - -
------- -------- ---------- -------- -----------
Balance at June 30, 1998 - $ - 37,203,013 $ 37,203 186,571,673
======= ======== ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Common stock Notes
to be issued Accumulated Deferred receivable from
in acquisition (deficit) compensation sale of stock Total
--------------- ------------- ------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 - (6,387,184) (358,640) (671,013) 6,332,635
Issuance of preferred stock for cash - - - - 7,425,000
Common stock issued for:
Services - - - - 31,500
Exercise of warrants - - - (1,297,800) 670,000
Acquisitions - - - - 608,787
Conversion of preferred stock - - - - -
Exercise of options - - - - 625,000
Cancellation of options - - - - -
Reduction of notes for:
Services - - - 40,499 40,499
Cash - - - 580,603 580,603
Acquisitions - - - 1,503,447 1,159,670
Increase in repayment amount of notes receivable - - - (155,736) -
Restructuring of employee stock options - - 260,000 - 480,000
Options issued for services - - - - 185,616
Expenses of stock issuances - - - - (864,532)
Deferred compensation earned - - 71,850 - 71,850
Net (loss) - (3,324,132) - - (3,324,132)
--------- ---------- ---------- --------- -----------
Balance at June 30, 1996 - (9,711,316) (26,790) - 14,022,496
Issuance of preferred stock for cash - - - - 10,000,000
Common stock issued for:
Services - - - - 45,900
Exercise of options - - - (8,040,000) 4,718,867
Exercise of warrants - - - (3,750,000) 2,924,960
Preferred stock converted and redeemed - - - - (2,707,271)
Cancellation of options - - - - -
Retirement of debt - - - - 320,000
Reduction of notes for:
Cash - - - 1,800,000 1,800,000
Notes receivable paid subsequent to year end - - - 9,990,000 9,990,000
Common stock to be issued in acquisition 7,950,000 - - - 7,950,000
Expenses of stock issuances - - - - (1,389,995)
Reduction in deferred compensation - - 26,790 - 26,790
Net (loss) - (2,713,765) - - (2,713,765)
--------- ---------- ---------- --------- -----------
Balance at June 30, 1997 7,950,000 (12,425,081) - - 44,987,982
Common stock issued for:
Cash - - - - 67,663,505
Exercise of options - - - - 3,546,425
Exercise of warrants - - - - 15,556,875
Acquisitions (7,950,000) - - - 43,496,838
Conversion of preferred stock - - - - -
Reduction of indebtedness - - - - 447,871
Options issued for services - - - - 396,965
Expenses of stock issuances - - - - (1,912,666)
Net earnings - 387,241 - - 387,241
--------- ---------- ---------- --------- -----------
Balance at June 30, 1998 - (12,037,840) - - 174,571,036
========= ========== ========== ========= ===========
</TABLE>
F-6
<PAGE>
AGRIBIOTECH, INC AND SUBSIDIARIES.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 387,241 (2,713,765) (3,324,132)
Adjustments to reconcile net earnings (loss) to net
cash flows from operating activities:
Amortization 2,694,936 253,985 103,740
Depreciation 2,043,420 902,326 475,218
Equity in earnings of associated entity (808,447) (233,690) -
Deferred income taxes (2,947,914) - -
Common stock and options for services 396,965 72,690 143,849
Changes in assets and liabilities excluding
effects of acquisitions:
Accounts receivable (2,260,461) 1,822,905 (4,599,458)
Inventories (706,340) 1,898,354 (796,105)
Other assets 275,784 418,751 92,862
Accounts payable (13,302,854) (4,596,592) 1,446,661
Accrued liabilities 2,937,757 (351,890) 768,930
------------ ---------- ----------
Net cash flows from operating activities (11,289,913) (2,526,926) (5,688,435)
------------ ---------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (6,930,355) (1,073,239) (504,395)
Additions to intangible assets (24,620) (19,228) (155,000)
Distributions from associated entity 557,500 348,095 -
Acquisitions (66,903,637) (25,790,301) (5,960,585)
------------ ---------- ----------
Net cash flows from investing activities (73,301,112) (26,534,673) (6,619,980)
------------ ---------- ----------
Cash flows from financing activities:
Net proceeds (repayments) of short-term debt 3,238,582 13,986,911 4,104,779
Additions to long-term obligations 7,559,848 1,037,717 -
Reductions of long-term obligations (12,854,332) (1,278,265) (696,096)
Sale of common stock 67,663,505 - -
Exercise of options 3,546,425 4,718,867 625,000
Exercise of warrants 15,556,875 2,924,960 670,000
Sale of preferred stock - 10,000,000 7,425,000
Redemption of preferred stock - (2,707,271) -
Expenses of stock issuance (1,912,666) (1,389,995) (864,532)
Expenses of debt issuance (750,000) - -
Restructuring of employee stock options - - 480,000
Payments on amount due in connection with acquisition (7,300,000) - -
Payments received on notes receivable from
sale of stock 9,990,000 1,800,000 1,663,630
------------ ---------- ----------
Net cash flows from financing activities 84,738,237 29,092,924 13,407,781
------------ ---------- ----------
Net increase in cash and cash equivalents 147,212 31,325 1,099,366
Cash and cash equivalents at beginning of year 2,553,634 2,522,309 1,422,943
------------ ---------- ----------
Cash and cash equivalents at end of year $2,700,846 2,553,634 2,522,309
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, June 30, June 30,
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Interest paid $ 4,361,808 1,536,469 364,993
============ ============ ============
Non cash investing and financing activities:
Accrued costs of acquisition $ 1,038,000 1,167,322 -
Common stock issued in settlement of debt 447,871 320,000 -
Common stock issued in acquisitions 43,496,838 - -
Common stock to be issued in acquisition - 7,950,000 -
Debt issued in connection with acquisitions 4,457,000 - 1,250,000
Increase in warrant exercise price - - 155,736
Receivable from exercise of options and warrants - 11,790,000 1,297,800
Reduction of notes receivable for acquisitions - - 1,853,587
Notes receivable paid subsequent to year end - 9,990,000 -
Options granted for services - - 185,616
Notes receivable from sale of stock - - 161,023
Discount on notes receivable from sale of stock - - 343,777
============ ============ ============
Summary of assets and liabilities acquired through acquisitions:
Cash $ 1,367,211 567,566 5,641
Accounts receivable 19,767,914 11,796,067 1,949,016
Inventories 34,574,253 18,171,587 4,642,531
Property, plant and equipment 25,213,535 9,821,994 5,794,703
Intangible assets 88,970,592 22,094,688 330,193
Other assets 2,448,085 1,341,835 218,390
Accounts payable and accrued expenses (20,294,275) (12,209,690) (2,388,781)
Long-term and short-term debt (34,729,445) (7,790,489) (1,216,870)
Deferred income taxes (1,093,184) (1,018,369) -
------------ ------------ ------------
Net assets acquired $116,224,686 42,775,189 9,334,823
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998, 1997, and 1996
1) Corporate Organization and Acquisitions
---------------------------------------
a) Business
--------
AgriBioTech, Inc. ("ABT" or the "Company") is a vertically integrated
agricultural seed company specializing in developing, breeding,
processing, packaging and distributing varieties of forage (hay crops)
and cool season turfgrass seeds. The Company also distributes corn,
soybean and other seeds. Since January 1, 1995, the Company has
followed a business strategy to acquire established, regionally based
seed companies with proprietary products and established research,
production and distribution channels in their respective markets in
order to consolidate and vertically integrate the forage and turfgrass
sector of the seed industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Approximately 11%, 15%, and 5% of the Company's sales for the years
ended June 30, 1998, 1997, and 1996 were to customers in foreign
countries.
b) Acquisitions
------------
The Company's business strategy is to consolidate and vertically
integrate the forage and turfgrass sector of the seed industry while
transforming its business from being composed of primarily commodity
type products to proprietary value-added products. To accomplish this,
the Company has acquired a number of seed businesses since January 1,
1995. Historically, the agreements for the acquisitions involved the
Company taking effective control of the acquired businesses as of a
mutually agreed upon date that preceded the closing date when
consideration was transferred to the sellers. Subsequent to the
effective date, the businesses were operated by the sellers on behalf
of and for the benefit or liability of the Company under the direct
supervision and control of the Company. This enabled the Company to
begin the process of integrating the acquired operations into those of
the Company as of the designated effective date. For accounting
purposes, the Company has included the acquired businesses in its
consolidated financial statements as of such effective dates. The
Company has not recognized the effects of the acquisition of a business
prior to the date that the seller conveys in a written agreement
effective control of the business to the Company without restrictions
other than those required to protect the owners of the acquired
business. At such effective date, there have been no substantive
conditions or material terms of the acquisition agreement remaining to
be resolved and all risks and rewards of ownership of the business pass
to the Company. Due to the size of the Company and the internal focus
on integration of acquired businesses, the Company has changed its
acquisition practices, to operate and acquire businesses at the closing
date, instead of the effective date, for acquired businesses not
included in the Company's March 31, 1998 consolidated financial
statements. Accordingly, as of April 1, 1998, the Company records
acquired businesses at their closing dates.
F-9
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Through June 30, 1998, the Company has completed the following acquisitions:
<TABLE>
<CAPTION>
Company Acquisition Date Purchase Price
------- ---------------- (In millions)
------------
<S> <C> <C>
Seed Resource, Inc January 1, 1995 $ 1.1
Scott Seed Co. March 1, 1995 1.5
Hobart Seed Company April 1, 1995 1.7
Sphar Seed July 1, 1995 0.3
Halsey Seed Company July 1, 1995 1.1
Arnold-Thomas Seed Service, Inc. October 1, 1995 0.9
Clark Seeds, Inc. October 1, 1995 2.2
Doug Conlee Seed Company January 1, 1996 0.6
Michigan Hybrid Seed June 30, 1996 Nil
Beachley-Hardy Seed February 1, 1996 4.1
W-L Research, Inc. and Germain's, Inc. September 1, 1996 16.2
E. F. Burlingham & Sons April 1, 1997 9.6
The Sexauer Company April 1, 1997 3.2
Olsen Fennell Seeds, Inc. June 1, 1997 15.2
Lacrosse Seed Corporation July 1, 1997 7.0
Lofts Seed, Inc. and affiliates January 1, 1998 33.1
Seed Corporation of America and affiliates January 1, 1998 9.2
Zajac Performance Seeds, Inc. January 1, 1998 6.6
Van Dyke Seed Co., Inc. January 1, 1998 8.2
Las Vegas Fertilizer Co., Inc. January 1, 1998 12.4
Discount Farm Center, Inc. January 24, 1998 3.1
Kinder Seed, Inc. February 1, 1998 3.5
Ohio Seed Company March 1, 1998 3.8
Peterson Seed Co., Inc. May 22, 1998 6.3
W-D Seed Growers, Inc. June 25, 1998 12.1
</TABLE>
The net purchase price of these acquisitions was paid through approximately
6.0 million shares of ABT common stock valued at approximately $52.9 million
based on the market price of ABT's common stock when the terms of the
agreements were reached with the remainder paid in cash or seller provided
financing. Each acquisition was recorded using the purchase method of
accounting.
Pro forma results of operations (unaudited) assuming the above acquisitions had
occurred at the beginning of the periods presented are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $310,928,741 318,164,828
Net earnings (loss) 2,323,975 1,541,595
Net earnings (loss) attributable to common stock 2,239,875 (1,691,831)
Net earnings (loss) per share:
Basic 0.06 (0.06)
Diluted 0.06 (0.06)
</TABLE>
Subsequent to June 30, 1998, the Company has completed the following
acquisitions:
<TABLE>
<CAPTION>
Company Acquisition Date Purchase Price
------- ----------------
<S> <C> <C>
</TABLE>
F-10
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(In millions)
-------------
<S> <C> <C>
Geo. W. Hill & Co. (KY) July 8, 1998 $ 6.3
Fine Lawn Research, Inc. July 8, 1998 2.7
Geo. W. Hill of Indiana, Inc. July 10, 1998 1.5
J & M Seed Company July 21, 1998 3.4
Willamette Seed Company August 21, 1998 13.6
Allied Seed Company August 28, 1998 14.0
Oseco, Inc. September 1, 1998 4.3
Garden West September 18, 1998 6.5
</TABLE>
The net purchase price of these acquisitions was paid through 340,505
shares of ABT common stock valued at approximately $5.6 million based on
the market price of ABT's common stock when the terms of the agreements
were reached with the remainder paid in cash or seller provided financing.
Each acquisition will be recorded using the purchase method of accounting.
Pro forma results of operations (unaudited) assuming the acquisitions
completed at June 30, 1998 and those completed after that date had occurred
at the beginning of the periods presented are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $409,470,680 412,742,531
Net earnings (loss) (1,527,824) (1,408,175)
Net earnings (loss) attributable to common stock (1,611,924) (4,641,601)
Net earnings (loss) per share:
Basic (0.04) (0.17)
Diluted (0.04) (0.17)
</TABLE>
In certain acquisitions, the Company has guaranteed the sellers will
receive an amount equal to the value assigned to the common stock in the
acquisition if the stock is sold pursuant to a schedule provided in a lock
up agreement. The status of these guarantees is discussed in note 7 of
Notes to Consolidated Financial Statements. In addition, the Company will
receive a portion of proceeds from the sale of the Company's common stock
by the former owners of certain of such acquired businesses at prices in
excess of certain amounts stated in the agreements.
2) Significant Accounting Policies
-------------------------------
a) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany accounts have been eliminated.
b) Cash and Cash Equivalents
-------------------------
Cash equivalents consist of financial instruments with original
maturities of no more than ninety days.
c) Inventories
-----------
Inventories, consisting primarily of seed and related products, are
stated at the lower of cost (first-in, first-out) or market.
d) Property, Plant, and Equipment
------------------------------
F-11
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property, plant, and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives
of the assets. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets is determined by a
comparison of the carrying amount of an asset to undiscounted future net
cash flows expected to be generated by the asset. If an asset is
considered to be impaired, the impairment is measured by the excess of its
carrying amount over its fair value.
e) Intangible Assets
-----------------
Intangible assets are stated at cost and primarily consist of goodwill and
covenants not to compete related to the Company's seed business. Goodwill
is amortized using the straight-line method over the expected benefit
period of up to 40 years with a weighted average of 30.5 years at June 30,
1998 and 31.5 years at June 30, 1997. Covenants not to compete are
amortized using the straight-line method over the lives of agreements,
ranging from 3 to 8 years. The recoverability of intangible assets is
evaluated whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company assesses
the recoverability of goodwill and measures any impairment by determining
whether the amortization of goodwill over its remaining life can be
recovered through undiscounted future cash flows from the acquired
business.
f) Investment in Associated Entity
-------------------------------
The Company records its 50% investment in SeedBiotics, L.L.C., acquired
effective September 1, 1996, using the equity method of accounting and
records its share of the associated entity's income or loss as other income
or expense. A summary of financial information for SeedBiotics, LLC is as
follows:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Assets
Current assets $ 705,080 163,623
Fixed assets 1,350,677 1,139,147
Other assets 2,288 3,204
---------- ---------
Total assets $2,058,045 1,305,974
========== =========
Liabilities and Members Equity
Current liabilities $ 425,825 128,417
Long-term liabilities - 1,232
Equity 1,632,220 1,176,325
---------- ---------
Total liabilities and equity $2,058,045 1,305,974
========== =========
</TABLE>
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $4,236,467 1,970,316
Cost of sales 1,778,634 1,017,216
---------- ---------
Gross profit 2,457,833 953,100
Operating expenses 842,281 484,634
Other income (expense) 1,344 (1,086)
---------- ---------
Net earnings $1,616,896 467,380
========== =========
</TABLE>
g) Income Taxes
------------
F-12
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income taxes are provided under Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 requires that
---------------------------
deferred income taxes be provided on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes using the asset and liability method. Under this
method, deferred income taxes are computed based on the enacted tax rates
scheduled to be in effect when such differences reverse.
h) Revenue Recognition
-------------------
The Company recognizes revenue when product is shipped to customers and
title passes. Revenue is reduced by a reserve for estimated returns.
i) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred and aggregated
$2,271,466, $1,170,703, and $59,836 in the years ended June 30, 1998, 1997,
and 1996, respectively.
j) Employee Stock Options
----------------------
Under Accounting Principles Board Opinion No. 25, the Company does not
record compensation for stock options granted to employees unless the
exercise price is less than the quoted market price of the Company's common
stock at the measurement date. The Financial Accounting Standards Board
("FASB") has issued SFAS No. 123 which allows the Company to continue its
present policy or, alternatively, to record a compensation element for
stock options granted to employees on the "fair value based method" which
generally uses a modeling technique to calculate the fair value of options
issued. The Company has elected to continue its present method of
accounting for employee stock options. Had the Company adopted the
alternative method provided by SFAS No. 123, the net earnings (loss), net
earnings (loss) attributable to common stock, net earnings (loss) per share
basic, and net earnings (loss) per share - diluted would have been
$(392,213), $(476,313), $(0.02), and $(0.02) for the year ended June 30,
1998, ($3,603,236), ($6,836,662), ($0.44) and ($0.44) for the year ended
June 30, 1997, and ($3,561,625), ($5,879,250), ($0.79), and ($0.79) for the
year ended June 30, 1996. The weighted-average grant-date fair value of
options granted was $14,706,256 in the year ended June 30, 1998, $644,035
in the year ended June 30, 1997, and $5,288,928 in the year ended June 30,
1996. Such computations were made using the Black-Scholes modeling
technique. The modeling technique requires the utilization of assumptions,
the weighted-average of which for the years ended June 30, 1998, 1997, and
1996 were 5.9%, 5.8%, and 5.7% for risk-free interest rate; 2.9 years, 2.2
years, and 3.0 years for expected life; 55%, 37%, and 47% for expected
volatility; and 0%, 0%, and 0% for expected dividends.
k) Earnings/ (Loss) Per Common Share
---------------------------------
For all periods presented, the Company has applied SFAS No. 128, Earnings
Per Share, which specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company is required to make a
dual presentation on the face of the income statement of "basic" earnings
per share, based on the average number of common shares outstanding during
each period without any dilution, and "diluted" earnings per share,
reflecting all dilution from contingently issuable securities.
For the year ended June 30, 1998, net earnings attributable to common stock
was used to compute basic earnings per share and discount and imputed
dividends on preferred stock were added back to such amount to
compute diluted earnings per share. The components of shares of common
stock used in computing earnings per share were as follows:
<TABLE>
<S> <C>
Basic (weighted average shares outstanding) 30,077,693
Options and warrants 1,737,394
Convertible preferred stock 246,459
----------
</TABLE>
F-13
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C>
Diluted 32,061,546
==========
</TABLE>
The above table does not reflect anti-dilutive options to purchase
1,575,449 shares of common stock and anti-dilutive warrants to purchase
586,500 shares of common stock that were outstanding at June 30, 1998. Due
to losses in the years ended June 30, 1997 and 1996, all contingently
issuable shares, consisting of options, warrants, and convertible preferred
stock, are anti-dilutive and have been excluded for those periods.
l) Recently Adopted Accounting Standards
-------------------------------------
The FASB has issued SFAS No. 130 effective for years beginning after
December 15, 1997, which requires all changes in the equity of an
enterprise to be reported as total comprehensive income, except those
resulting from investments by owners and distributions to owners. The
Company has not had significant items in the past which would have been
impacted by SFAS No. 130. SFAS No. 130 will have no impact on the Company's
financial position, results of operation, or cash flows and any effects
will be limited to supplemental disclosure.
The FASB has issued SFAS No. 131 effective for years beginning after
December 15, 1997 which requires the presentation of certain information
about an enterprise's operating segments, products and services, geographic
areas of operation, and major customers. The Company has not completed
its analysis of SFAS No. 131 or the impacts, if any, on its financial
statements.
In March 1998, Statement of Position (SOP) 98-1, Accounting for the Costs
------------------------
of Computer Software Developed or Obtained for Internal Use, was issued.
------------------------------------------------------------
The SOP requires that certain costs related to the development or purchase
of internal-use software be capitalized and amortized over the estimated
useful life of the software. The SOP also requires that costs related to
the preliminary project stage and the post-implementation/operations stage
of an internal-use computer software development project to be expensed as
incurred. The SOP is effective for fiscal years beginning after December
15, 1998 and is to be applied on a prospective basis. The Company's
current practice is materially consistent with the SOP.
m) Reclassification
----------------
Certain amounts in the prior year financial statements have been
reclassified to be comparable to the current year presentation.
3) Property, Plant, and Equipment
------------------------------
A summary of property, plant, and equipment is as follows:
<TABLE>
<CAPTION>
Useful Lives June 30,
------------ --------
1998 1997
---- ----
<S> <C> <C> <C>
Land - $ 7,968,555 3,753,400
Buildings 12 to 40 years 24,511,420 8,540,058
Equipment 1 to 25 years 18,740,672 7,001,782
----------- ----------
Total property, plant, and
equipment 51,220,647 19,295,240
Less accumulated depreciation 3,256,125 1,431,188
----------- ----------
Property, plant, and equipment,
net $47,964,522 17,864,052
=========== ==========
</TABLE>
4) Intangible Assets
-----------------
Intangible assets consist of:
F-14
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Goodwill $101,449,406 20,877,101
Covenants not to compete 10,472,550 1,666,875
Other - 302,200
----------- ----------
Total intangible assets 111,921,956 22,846,176
Less accumulated amortization 2,039,141 301,637
------------ ----------
Intangible assets, net $109,882,815 22,544,539
============ ==========
</TABLE>
5) Long-Term Obligations
---------------------
A summary of long-term obligations is as follows:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Notes and mortgages payable; repayable in principal
payments of $1,347,872 annually plus interest at
7.9% to 10%; secured by property, plant and $ 9,495,300 2,245,631
equipment
Unsecured notes payable 1,120,449 232,456
Covenants not to compete 3,041,250 517,917
Deferred Compensation 283,333 255,128
Other 340,536 473,247
----------- ---------
Total long-term obligations 14,280,868 3,724,379
Less current installments 3,251,846 1,056,770
----------- ---------
Long-term obligations, excluding current
installments $11,029,022 2,667,609
=========== =========
</TABLE>
Required principal payments are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
-------------------- ------
<S> <C>
1999 $3,251,846
2000 1,915,375
2001 1,859,819
2002 1,513,670
2003 1,440,272
</TABLE>
6) Short-Term Debt
---------------
The Company has a credit facility with BankAmerica Business Credit, Inc.
and certain other financial institutions that includes a $100 million
revolving line of credit, of which approximately $50.0 million was
outstanding at June 30, 1998, including items in process of collection. The
amount available under the revolving line of credit is limited to the sum
of 85 percent of the Company's eligible receivables less than 60 days past
due and 65 percent of eligible inventory and is secured by substantially
all of the Company's assets, except fixed assets and real estate. The
Company can borrow up to the maximum amount under the line of credit,
subject to the limitations of the borrowing base and compliance with
certain covenants. All proceeds realized from inventory and receivables are
used to repay amounts outstanding under the revolving line of credit.
Accordingly, the revolving line of credit is classified as a current
liability although it matures in June 2001. Interest on the revolving line
of credit is at the Bank of America's reference rate plus 1.125 percent
(9.625% at June 30, 1998) or the LIBOR rate plus 2.375 percent (8.0% at
June 30, 1998), at the Company's option. All borrowings at June 30, 1998
were at the reference rate. In addition, the Company pays a commitment fee
F-15
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
of 0.25 percent of the unused line of credit. Initially borrowings under
the revolving line of credit were used to pay off amounts under three
separate short-term credit facilities and certain items of term debt. The
average interest rate on short-term debt outstanding at June 30, 1997 was
9.0%. On August 14, 1998, the Company and BankAmerica Business Credit
amended the revolving line of credit to provide for borrowings of $15
million in excess of amounts allowed under the borrowing base computation.
This additional borrowing carries a fixed interest rate of 18 percent and
expires on December 31, 1998. At September 28, 1998, approximately $86.0
million was outstanding and $14 million was available under the revolving
line of credit.
On July 3, 1998, the Company entered into a bridge loan agreement in the
amount of $15 million with Deutsche Bank, AG. The loan is unsecured and
matures on January 4, 1999. At the Company's option, interest on the loan
is at Deutsche Bank's base rate or LIBOR rate plus 3.50 percent prior to
September 7, 1998, 5.50 percent above such rates from then to November 7,
1998 and 7.50% above such rates thereafter. At September 28, 1998, the
entire $15 million was outstanding.
The Company is in compliance with its debt agreements or has obtained
waivers of instances of non-compliance.
7) Capital Stock
-------------
To fund the acquisitions described above and to finance operations to date,
the Company has entered into numerous arrangements to raise equity capital.
Prior to July 1, 1995, the Company issued warrants to purchase the
Company's common stock as part of a private placement of the Company's
common stock for cash. The "Class A Warrant" entitled the holder to obtain
one share of ABT's common stock and a warrant (the "Class B Warrant") upon
payment of the exercise price of $3.50 through January 17, 1996. The Class
B Warrant entitled the holder to obtain one share of ABT's common stock and
a warrant (the "Class C Warrant") upon the payment of the exercise price of
$5.00 through January 17, 1997. The Class C Warrant entitled the holder to
obtain one share of ABT's common stock upon payment of the exercise price
of $7.50 through January 17, 1998. The Company also issued Class A Warrants
to a consultant for assistance with investor relations, strategic planning,
funding plans, and other corporate activities. The terms of the warrants
gave the Company the discretion to lower the exercise price, extend the
expiration date, call the warrants even when the exercise price was below
the current market price, and to arrange for stand-by purchasers in the
event holders did not exercise the warrants.
To accelerate the raising of capital, the Company reduced the exercise
price of certain of its warrants at various times. In addition, the Company
allowed certain warrants to be exercised through promissory notes that were
transferable and non-interest bearing. The common stock underlying the
exercise of these warrants was held in escrow by the Company until the
promissory notes were paid. All of the Class A, Class B, and Class C
Warrants were exercised prior to their expiration.
A summary of activity in the Company's warrants is as follows:
<TABLE>
<CAPTION>
Year ended June 30
------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 2,185,625 2,685,625 2,500,000
Issued 586,500 1,616,000 731,625
Exercised 2,185,625 2,116,000 546,000
--------- --------- ---------
Outstanding at end of year 586,500 2,185,625 2,685,625
========= ========= =========
</TABLE>
The warrants outstanding at June 30, 1998 are exercisable through May 12,
2001 to purchase one share of the Company's common stock at $17.50. The
Company can force the warrants to be converted into common stock if the
closing sale price of the Company's common stock exceeds $25.00 for 15
consecutive trading days.
In April 1996, the Company completed a private placement of convertible
preferred stock and issued 7,425 shares of Series B Convertible Preferred
Stock. The Company received cash proceeds, after commissions, of $6,608,250
from the issuance of the Series B Convertible Preferred Stock. The
placement agent in this transaction received warrants to purchase 185,625
shares of the Company's common stock at $3.00 per share. In September 1996,
the Company completed a private placement of 10,000 shares of Series C
F-16
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Convertible Preferred Stock at $1,000 per share, receiving gross proceeds of
$10,000,000. The Company paid commissions and selling expenses of 13% of the
gross proceeds. These series of preferred stock (collectively, the "Preferred
Stock") were not entitled to dividends and were not mandatorily redeemable by
the Company. The Preferred Stock was convertible into shares of common stock
equal to the original amount of issuance plus a premium, divided by a
conversion price that was the lesser of 80 percent of the average closing bid
price for the Company's common stock for the five days prior to conversion or
a set amount. In the event of a conversion when the average closing bid price
of the Company's common stock was lower than a stated amount, the Company had
the option of redeeming for cash, at the average closing bid price, the shares
of common stock issuable upon such conversion. At June 30, 1998, all of the
Preferred Stock had been converted into common stock or redeemed.
When the Company issued the Preferred Stock, the Company determined the
economic substance of the Preferred Stock was equivalent to common stock. This
conclusion was reached because the documents authorizing the Preferred Stock
provide that the holders of the Preferred Stock are not entitled to receive
dividends, the Company has no requirements to make any cash payments with
respect to the Preferred Stock, and the ultimate satisfaction of the Preferred
Stock would be through conversion into common stock, either by the election of
the holders or automatically at the future date provided by the underlying
documents. Accordingly, the Company did not reflect any accounting
consequences of the conversion features of the Preferred Stock or account for
dividends on the Preferred Stock. In March 1997, an announcement was made at
a meeting of the FASB's Emerging Issues Task Force (Topic No. D-60) setting
forth the position of the staff of the Securities and Exchange Commission (the
"Staff") regarding securities containing conversion features allowing for
conversion into common stock at a discount from future quoted market prices.
The Staff stated that an allocation of the proceeds from the issuance of the
securities should be made to the conversion feature and the resulting discount
is analogous to a dividend that should be recognized as a return to the
holders of the securities over the period between issuance and when the
securities first become convertible. The Staff's position is reflected in the
accompanying financial statements. The discounts and imputed dividends were
attributed to capital in excess of par value and, therefore, resulted in no
change in stockholders' equity.
On January 5, 1996, the Company entered into an eighteen-month consulting
agreement to assist the Company with investor communications and relations.
In consideration of the agreement, the Company granted the consultant a five-
year option to purchase 2,000,000 shares of the Company's common stock
exercisable at $1.81 per share, which equaled the market price at the grant
date. The Company determined that the value of the investor communications
and relations services to be received under this agreement was $108,000, which
was amortized over the term of the agreement. In August 1996, the Company
entered into another agreement with the consultant under which the consultant
surrendered rights to 1,550,000 of the options. In exchange, the Company
issued 750,000 shares of its restricted common stock to the consultant. The
options surrendered by the consultant were transferable by their original
terms and were assigned to persons, primarily stockholders of the Company,
whom the Company believed would exercise them and provide capital to the
Company. At the time of this arrangement, the market price of the Company's
common stock exceeded the exercise price of the options. The difference
between the market price and the exercise price, deemed to be a preferential
dividend to these stockholders for accounting purposes, aggregated
approximately $1.8 million. However, since the Company had no retained
earnings, such amount would be charged to capital in excess of par value and
would be offset by a deemed contribution to capital in excess of par value
resulting in no change in stockholders' equity. All of these options have
been exercised.
In March 1996, the Company entered into a bridge financing agreement, pending
the completion of the Series B Convertible Preferred Stock issuance described
above, under which the Company borrowed $1,000,000 from an individual, who was
also a stockholder of the Company. The loan was repaid from the proceeds of
the Series B Convertible Preferred Stock offering. Under the agreement,
interest was paid on the loan at 9 percent per annum and the lender was
granted a five-year option to purchase 500,000 shares of the Company's common
stock exercisable at $2.50 per share, which equaled the market price at the
F-17
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
grant date. The Company has imputed $27,616 of additional interest expense
under this agreement to reflect the relative risk undertaken by the lender.
In addition, the Company granted a five year option to purchase 250,000 shares
of the Company's common stock exercisable at $2.50 per share to the agent for
the lender, who was also a consultant to the Company. The Company determined
that the compensation attributable to the agent's services was $50,000, which
was amortized over the term of the loan agreement. In June 1996, the Company
entered into an additional agreement with the holders of these options under
which the holders surrendered the 750,000 options in exchange for being issued
225,000 shares of common stock, the fair value of which approximated the fair
value of the options at such date. Of these options, 500,000 were cancelled
and 250,000 were transferred to an unrelated party who received 175,000 shares
of common stock upon exercise of these options for cash of $625,000 and the
relinquishment of 150,000 Class B Warrants, which were exercisable at $5.00
per share. The value of the common stock received by such unrelated party
equaled the $625,000 paid in cash. No expense was recorded in connection with
these transactions since they were exchanges of equity instruments of equal
value.
The Company has (1) an Employee Stock Option Plan (the "ESOP") under which
options for the purchase of up to 3,600,000 shares of common stock may be
granted to qualified employees, officers and directors, employees of
subsidiaries, independent contractors, consultants, and other individuals and
(2) an Employee Stock Bonus Plan under which up to 400,000 shares of common
stock may be issued to qualified full-time employees. The ESOP is
administered by a committee of non-employee members of the Company's Board of
Directors, who have complete discretion to select the optionee and the terms
and conditions of each option. The exercise price of the options cannot be
less than the fair market value of the Company's common stock on the date of
grant and options may not be exercised more than ten years from the date of
grant. At June 30, 1998, the Company had outstanding options under the ESOP
for the purchase of 1,559,579 shares of common stock at prices ranging from
$2.00 to $27.688 per share, of which 595,670 were exercisable. No shares have
been issued under the Employee Stock Bonus Plan.
The Company has also granted options outside of the ESOP for the purchase of
the Company's common stock to officers and key employees of the Company,
including those of acquired businesses. These options are exercisable at
prices ranging from $2.00 to $25.625 and expire five to ten years from the
date of grant. The options become exercisable over periods of three to five
years. Options for 6,116,116 shares were outstanding at June 30, 1998 of which
2,892,367 were exercisable.
Following is a summary of activity in the Company's options for employees and
directors:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1998 1997 1996
------------------ ------------------ --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
price Number price Number price Number
------ ----- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year $ 2.70 3,948,600 $2.63 5,751,500 $ - -
Issued 11.41 4,774,113 3.54 1,467,400 2.63 5,751,500
Exercised 3.85 (843,005) 2.93 (3,226,000) - -
Forfeited 6.57 (204,013) 3.75 (44,300) - -
------ --------- ----- ---------- ------ ---------
Outstanding at end of
Year $ 7.85 7,675,695 $2.70 3,948,600 $2.63 5,751,500
====== ========= ===== ========== ===== =========
Exercisable at end of
Year $ 4.73 3,488,037 $2.28 2,810,200 $2.59 5,590,500
====== ========= ===== ========== ===== =========
</TABLE>
The following summarizes certain information regarding stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Total Exercisable
----------------------- -------------------
<S> <C>
</TABLE>
F-18
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Weighted-
Weighted- average Weighted-
average remaining Average
Exercise exercise contractual Exercise
price Number Price life (years) Price Number
----- ------ ----- ----------- ----- ------
<S> <C> <C> <C> <C> <C>
$2.00 to $2.12 2,275,000 $ 2.06 7.6 $ 2.07 2,175,000
$2.13 to $5.00 1,108,916 3.91 5.1 3.96 569,684
$5.01 to $8.00 1,018,930 5.92 4.3 6.09 57,997
$8.01 to $11.00 846,400 9.12 4.5 8.80 215,033
$11.01 to $14.00 875,100 12.45 4.6 12.65 157,283
$14.01 to $17.00 952,256 15.02 4.8 15.00 184,047
$17.01 to $27.688 599,093 20.50 4.7 21.25 128,993
--------- ------ --- ------ ---------
Total 7,675,695 $ 7.85 5.5 $ 4.73 3,488,037
========= ====== === ====== =========
</TABLE>
In connection with acquisitions where the previous owners received ABT common
stock as part of the purchase price, such stock is subject to "lock-up
agreements" which limit the amount of common stock that the previous owners of
these entities can sell within specified time periods. In addition, the
Company guaranteed the proceeds to be received by the previous owners of
certain of these entities from the sale of the common stock if sold in
accordance with the lock-up agreements. The Company has not been required to
make any payments under these guarantees. At June 30, 1998, the Company had
guaranteed proceeds to the previous owners aggregating $6.4 million from the
sale of 616,249 shares of ABT common stock through June 30, 1999. At
September 28, 1998, by the stated terms of the agreements, such guaranteed
proceeds has been reduced to $4.4 million from the sale of 450,449 shares. In
addition, the Company has guaranteed that the owners of certain acquisitions
completed subsequent to June 30, 1998 will receive proceeds of $3.5 million
from the sale of 221,150 shares of the Company's common stock issued in such
acquisition if sold through June 30, 2000 pursuant to the respective lock-up
agreements. To secure the Company's guarantee, the previous owners have a lien
on certain items of property, plant, and equipment of the acquired businesses,
subordinated to existing mortgage financing. Any difference between the
guaranteed proceeds and the proceeds received by the previous owners will be
paid in cash by the Company
The closing price for the Company's common stock on September 28, 1998 was
$11.75 per share and the range of closing prices has been as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
July 1, 1995 - June 30, 1996 $ 5.4375 1.625
July 1, 1996 - June 30, 1997 6.9375 2.0625
July 1, 1997 - June 30, 1998 29.00 6.03125
July 1, 1998 September 28, 1998 25.75 8.125
</TABLE>
In August 1998, the Company sold 1,752,820 shares of common stock and 886,410
warrants for an aggregate of $17,438,649. Each warrant is exercisable through
August 27, 2001 to purchase one share of the Company's common stock at $12.00.
The Company can force the warrants to be converted into common stock if the
closing sale price of the Company's common stock equals or exceeds $19.50 per
share for 20 out of any 30 consecutive trading days.
8) Commitments
-----------
The Company contracts with growers to produce a substantial portion of its
proprietary seed requirements, which the Company would be obligated to
purchase upon delivery by the growers. These contracts are typically for one
to four growing seasons and are generally renewed or replaced with other
growers.
F-19
<PAGE>
AGRIBIOTECH, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company rents office space, land, warehouse space, vehicle, and
equipment under agreements expiring through the year 2000. Total rent
expense was approximately $1.3 million, $0.3 million, and $0.2 million for
the years ended June 30, 1998, 1997 and 1996. Rent commitments under
agreements longer than one year as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1999 $2,207,268
2000 1,379,847
2001 997,862
2002 712,590
2003 541,604
</TABLE>
To meet the information systems requirements necessitated by the large
number of acquisitions, the Company has contracted for the hardware,
software and consulting services to implement an "enterprise resource
planning" system for all of the Company's operations. This system is
designed to be compliant with reaching the year 2000. The Company estimates
the total cost of this project, including internal costs, will not exceed
$6 million, of which approximately $1 million has been incurred as of June
30, 1998.
9) Income Taxes
------------
The Company reported no income tax expense or benefit for the years ended
June 30, 1997 and 1996 due to operating losses in those periods and, as
required by SFAS No. 109, the deferred tax assets generated by those
operating losses being fully offset by a valuation allowance since, at that
time, the Company was unable to conclude it was more likely than not that
the deferred tax assets will be realized. The provision for income tax
attributable to operations for the year ended June 30, 1998 consists of the
following:
<TABLE>
<CAPTION>
Year ended
June 30, 1998
-------------
<S> <C>
Current tax expense:
Federal $ -
State 40,414
-----------
Total current tax expense 40,414
-----------
Deferred tax expense:
Federal (2,708,891)
State (239,023)
-----------
Total deferred tax expense (benefit) (2,947,914)
-----------
Total income tax expense (benefit) $(2,907,500)
===========
</TABLE>
The principal elements causing the Company's income tax provision to differ
from the expected federal statutory rate of 34% were as follows:
<TABLE>
<CAPTION>
Year ended June 30
---------- -------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected income tax based on statutory rate $ (856,888) (922,680) (1,130,205)
Effect of valuation allowance (2,356,203) 949,241 1,098,000
Amortization of goodwill 256,900 - -
State income taxes, net of federal benefit (4,991) (53,733) -
Other 53,682 27,172 32,205
----------- -------- ----------
Total income tax expense (benefit) $(2,907,500) - -
=========== ======== ==========
</TABLE>
Deferred tax liabilities and assets as of June 30, 1998 and 1997 relate to the
following:
<TABLE>
<CAPTION>
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $(4,508,960) (665,866)
Other (478,453) (644,718)
----------- -----------
Total deferred tax liabilities (4,987,413) (1,310,584)
----------- -----------
Deferred tax assets:
Net operating loss carryforwards from operations 3,415,910 2,969,241
Net operating loss carryforwards from stock options 3,415,311 -
Inventory capitalization 718,283 -
Allowance for doubtful accounts 566,746 102,148
Inventory obsolescence 408,782 246,646
Other 714,054 265,004
----------- ----------
Total gross deferred tax assets 9,239,086 3,583,039
Less valuation allowance 3,415,311 3,290,824
----------- ----------
Net deferred tax assets 5,823,775 292,215
----------- ----------
Net deferred tax assets (liabilities) $ 836,632 (1,018,369)
=========== ==========
</TABLE>
SFAS No. 109 provides that deferred taxes should be determined by first
identifying types and amounts of existing temporary differences, the nature
and amount of each type of operating loss carryforward, and the remaining
length of the carryforward period. Total deferred tax liabilities and
deferred tax assets are then measured by applying the enacted tax rate to the
existing differences. In addition, deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not (a likelihood of more than 50 percent) that some portion or
all of the deferred tax assets will not be realized. Accordingly, the
valuation allowance should be sufficient to reduce the deferred tax asset to
the amount that is more likely than not to be realized. A change in judgment
about the realizability of the related deferred tax asset in future years
ordinarily shall be included in income from operations. Future realization of
the tax benefit of an existing deductible temporary difference or carryforward
depends on the existence of sufficient taxable income within the period of
reversal or the carryforward period available under the tax law and/or future
reversals of existing deferred tax liabilities. The reversal of existing
deferred tax liabilities, including tax planning strategies applied to the
timing of the reversals, will be available to offset all but approximately
$0.8 million of the deferred tax assets prior to the expiration of loss
carryforwards, for which the Company will need to generate approximately
$2.2 million over the next 15 years from future taxable income exclusive of
reversing temporary differences to fully realize the Company's deferred tax
assets related to operations at June 30, 1998.
The Company's business objective is to consolidate the forage and turfgrass
sector of the seed industry and to then transform this sector from a low
margin, commodity oriented business to a high margin, proprietary, value-added
business, so that the Company is the partner of choice through which
biotechnology will be introduced into this sector. The Company has undertaken
an aggressive acquisition strategy to gain the critical mass necessary to
achieve this objective. Consistent with the expected trends of a strategy
which initially requires the building of infrastructure at the expense of
revenue growth, the Company has always anticipated losses for both financial
reporting and income tax purposes in the early years of implementing its
strategy, with such losses decreasing over time toward becoming both
profitable and taxable. The Company reported book losses of approximately
$3.3 million and $2.7 million for 1996 and 1997, respectively. The tax losses
from operations reported for 1996, 1997, and 1998 were approximately $2.6
million, $1.8 million, and $1.1, million respectively. Through the year ended
June 30, 1997, the Company could not conclude that it was more likely than not
it would realize the deferred tax assets and had established a valuation
allowance for its deferred tax assets. Through the quarter ended March 31,
1998, the Company reported approximately $1.4 million of year-to-date book
income before taxes, and forecast increasing future profits based on the
assumptions of increased revenue growth, synergies to occur from the
integration of acquired companies, and reduced product costs to be obtained
through vertical integration. Based on this current performance and
projections, the Company concluded it was more likely than not that the
deferred tax assets would be realized, and removed the valuation allowance,
resulting in an income tax benefit of approximately $2.9 million in the
quarter ended March 31, 1998.
For income tax purposes, the Company receives a deduction for the difference
between the exercise price of certain stock options and the market price of
the Company's common stock at the date of exercise, even though there is no
compensation recorded for financial reporting purposes. During the year ended
June 30, 1998, the Company received approximately $9.2 million of such tax
deductions. Pursuant to APB Opinion No. 25 and SFAS No. 109, the tax benefits
resulting from the exercise of such options is to be recognized as a credit
directly to equity. The deferred tax asset for the year ended June 30, 1998,
attributable to the tax deductions from stock option exercises was $3,415,311.
The tax benefits from the realization of the loss carryforwards related to the
stock options will be the last benefits of the carryforwards recognized for
financial reporting purposes. The Company was not able to conclude that it is
more likely than not it will realize the deferred tax asset pertaining to this
loss carryforward, resulting in the Company establishing a valuation allowance
of $3,415,311 for the deferred tax asset from this loss carryforward. When
the deferred tax asset relating to the loss carryforward from stock option
deductions is realized, those benefits will be credited directly to equity,
and will not be reflected in the Company's statement of operations. In
addition, unexpected events occurring in the fourth quarter resulted in an
overall book loss before taxes for the year ended June 30, 1998, resulting in
the Company establishing a valuation allowance of $591,711.
Further, in accordance with SFAS No. 109, the valuation allowance was adjusted
during the current year pursuant to the interrelationship of deferred tax
calculations and applying the purchase method of accounting for acquired
businesses. Under SFAS No. 109, the deferred tax consequence of an
acquisition is measured as the difference between the acquiror's net deferred
tax asset or liability just prior to the acquisition and the combined entity's
net deferred tax asset or liability just after the acquisition. During the
current year, the Company reduced the valuation allowance by $934,621 as a
result of deferred tax calculations pursuant to acquisitions. The offset of
this entry was a reduction in goodwill of the respective acquired companies.
The adjustments to the valuation allowance described above resulted in a net
increase to the valuation allowance for the year of $124,487. A summary of the
valuation allowance adjustments is provided below.
<TABLE>
<S> <C>
Valuation allowance at June 30, 1997 $ 3,290,824
Increase from losses related to stock options 3,415,311
Increase from losses on current year activity 591,711
Reduction for expected realization of future benefits (2,947,914)
Reduction pursuant to deferred tax calculation on acquisitions (934,621)
-----------
Valuation allowance at June 30, 1998 $ 3,415,311
===========
</TABLE>
The Company has reported operating losses for income tax purposes. The
utilization of losses that originated prior to June 30, 1992 are limited in
each year to an amount equal to the Federal long-term tax exempt interest rate
times the entity's market value at the time of change in ownership. The
Company believes that the effect of these limitations will be to limit the
utilization of pre-1993 net operating loss carryforwards to approximately
$25,000 annually through the year 2007. The Company also has reported
approximately $795,000 of additional net operating loss carryforwards from
a company acquired during the year ended June 30, 1998 that will only be
available to offset future income generated by such acquired company. The
net operating losses, including the losses acquired, expire, if unused, as
follows:
<TABLE>
<CAPTION>
Loss from Loss from Total
Year ending June 30 Operations Stock Options Carryforward
------------------- ---------- ------------- ------------
<S> <C> <C> <C>
2001 - 2006 $ 350,000 - 350,000
2007 514,888 - 514,888
2008 443,691 - 443,691
2009 932,712 - 932,712
2010 1,354,706 - 1,354,706
2011 2,678,019 - 2,678,019
2012 1,834,113 - 1,834,113
2013 1,124,059 9,230,571 10,354,630
---------- ---------- ----------
Total $9,232,188 9,230,571 18,462,759
========== ========== ==========
</TABLE>
10) Retirement Plan
---------------
The Company has a defined contribution plan which covers all employees.
Eligible employees may contribute up to 30 percent of their annual
compensation, not to exceed the statutory maximum. The Company may make
discretionary contributions. Participants are immediately vested in their
contribution and vest 20 percent per year in the Company's contributions
for each year of service after the first year. The Company made a
contribution of $98,864, none, and none for the years ended June 30, 1998,
1997, and 1996.
11) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents, accounts receivables,
accounts payable and short-term debt approximate fair value due to the
short maturity periods of these instruments. The fair value of the
Company's long-term obligations based on the present value of the cash
flows from those obligations was approximately $13.2 million at June 30,
1998 using an assumed interest rate of 8.5%, and $3.7 million at June 30,
1997 using an assumed interest rate of 8.5%.
F-20
<PAGE>
Schedule II
AgriBioTech, Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
------------------------------
Beginning Acquired Bad Debt Ending
Description Balance In Acquisition Expense Write-Offs Balance
----------- ------- -------------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts for the Year Ended:
- --------------------------------------------------
June 30, 1998 $ 729,352 1,522,827 298,394 373,131 2,177,442
June 30, 1997 104,773 548,160 208,196 131,777 729,352
June 30, 1996 46,661 33,830 33,151 8,869 104,773
</TABLE>
S-1
<PAGE>
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: January 28, 1999
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.
/s/Johnny R. Thomas Chief Executive Officer January 28, 1999
- --------------------- Principal Executive Officer)
Johnny R. Thomas and Director
/s/Randy Ingram Vice President/CFO January 28, 1999
- --------------------- (Principal Financial and
Randy Ingram Accounting Officer)
/s/Henry A. Ingalls Vice President and Treasurer January 28, 1999
- --------------------- (Former Principal Financial and
Henry A. Ingalls Accounting Officer)
/s/Scott J. Loomis Vice President and Director January 28, 1999
- -----------------------
Scott J. Loomis
/s/John C. Francis Vice President, Secretary January 28, 1999
- --------------------- and Director
John C. Francis
/s/Kent Schulze President and Director January 28, 1999
- -----------------------
Kent Schulze
/s/James W. Hopkins Director January 28, 1999
- -----------------------
James W. Hopkins
/s/Richard P. Budd Director January 28, 1999
- -----------------------
Richard P. Budd
<PAGE>
Exhibit 23.1
The Board of Directors
AgriBioTech, Inc.:
We consent to incorporation by reference in the registration statements
Nos. 333-33367, 333-13953, 333-47637 and 333-61127 on Form S-3, No. 333-61097 on
Form S-4 and Nos. 333-07123, 333-9336 and 333-9330 on Form S-8 of AgriBioTech,
Inc. of our report dated September 28, 1998, relating to the consolidated
balance sheets of AgriBioTech, Inc. and subsidiaries as of June 30, 1998 and
1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended June 30, 1998 and related schedule, which report appears in the
June 30, 1998 Form 10-K/A Amendment No. 1 of AgriBioTech, Inc.
KPMG LLP
Albuquerque, New Mexico
January 28, 1999
