-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VR2XcqoxbWZJwAtIm3YaHMQwIQiCSjAEsRTo/cijDN+p8Il5opGgtmoSYt4lXHhE orR1FTnKJpKP2if37zwDrQ== 0000898430-98-001127.txt : 19980331 0000898430-98-001127.hdr.sgml : 19980331 ACCESSION NUMBER: 0000898430-98-001127 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980106 ITEM INFORMATION: FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGRIBIOTECH INC CENTRAL INDEX KEY: 0000876320 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 84117681 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19352 FILM NUMBER: 98577354 BUSINESS ADDRESS: STREET 1: QUAIL PARK W STREET 2: 2700 SUNSET RD STE 25 CITY: LAS VEGAS STATE: NV ZIP: 89120 BUSINESS PHONE: 7027981969 FORMER COMPANY: FORMER CONFORMED NAME: SUSSEX VENTURES LTD DATE OF NAME CHANGE: 19930328 8-K/A 1 FORM 8-K/A AMENDMENT #2 UNITED STATES SECURITIES EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 2 CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) January 6, 1998 ----------------------- AgriBioTech, Inc. - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Nevada 1-1935 85-0325742 - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 2700 Sunset Rd., Suite C-25, Las Vegas,Nevada (89120) - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (702) 798-1969 -------------- EXPLANATORY NOTE This Amendment No. 2 on Form 8-K/A to the Current Report on Form 8-K ("Form 8-K") for January 6, 1998 of AgriBioTech, Inc., a Nevada corporation ("the Company") is submitted in order to correct certain clerical errors in previously filed information in Item 7 of Form 8-K. Therefore, the Company hereby amends its Form 8-K in accordance with Rule 12b-15 under the Securities Exchange Act of 1934. INDEPENDENT AUDITORS' REPORT To the Stockholders of Lofts Seed, Inc. Winston-Salem, North Carolina We have audited the accompanying balance sheets of Lofts Seed, Inc. as of November 30, 1997, and December 31, 1996 and the related statements of operations and retained earnings, and cash flows for the eleven month period and six month period 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 Lofts Seed, Inc. as of November 30, 1997 and December 31, 1996 and the results of its operations and its cash flows for the eleven month period and six month period then ended in conformity with generally accepted accounting principles. /s/ Cannon & Co. January 22, 1998 LOFTS SEED, INC. BALANCE SHEETS November 30, 1997 and December 31, 1996
- ---------------------------------------------------------------------------------- 1997 1996 ----------- ----------- ASSETS CURRENT ASSETS Cash $ 458,550 $ 222,290 Trade accounts receivable, net of allowance for doubtful accounts of $400,000 for 1997 and 1996 5,356,874 4,621,132 Inventory 10,973,795 12,207,635 Prepaid expenses 96,214 34,526 ----------- ----------- TOTAL CURRENT ASSETS 16,885,433 17,085,583 ----------- ----------- PROPERTY AND EQUIPMENT 303,344 247,961 OTHER ASSETS Investment in affiliated company 1,722,127 655,370 Loan acquisition costs 21,500 27,000 Deferred income taxes 85,000 85,000 ----------- ----------- 1,828,627 767,370 ----------- ----------- TOTAL ASSETS $19,017,404 $18,100,914 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 5,635,203 $ 6,260,004 Current portion of long-term debt 1,278,634 916,428 Trade accounts payable 2,398,991 2,263,685 Royalties payable 119,294 474,000 Accrued expenses 587,420 493,688 Accrued payroll 281,588 345,428 ----------- ----------- TOTAL CURRENT LIABILITIES 10,301,130 10,753,233 ----------- ----------- SUBORDINATED NOTES PAYABLE - RELATED PARTIES 1,557,547 1,797,492 ----------- ----------- LONG-TERM DEBT 4,125,844 4,165,358 ----------- ----------- DEFERRED COMPENSATION 146,811 171,937 ----------- ----------- STOCKHOLDERS' EQUITY Common stock, Class A (voting), no par value, 230 shares authorized, issued and outstanding 23,000 23,000 Common stock, Class B (nonvoting), no par value, 770 shares authorized, issued and outstanding 77,000 77,000 Retained earnings 2,786,072 1,112,894 ----------- ----------- 2,886,072 1,212,894 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,017,404 $18,100,914 =========== ===========
See accompanying notes. -1- LOFTS SEED, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS For the Eleven Months Ended November 30, 1997 and the Six Months Ended December 31, 1996
- ------------------------------------------------------------------------- 1997 1996 ----------- ----------- NET SALES $63,211,986 $30,061,112 COST OF SALES 47,611,739 22,606,937 ----------- ----------- GROSS PROFIT 15,600,247 7,454,175 GENERAL AND ADMINISTRATIVE EXPENSES 11,022,502 5,917,993 ----------- ----------- 4,577,745 1,536,182 ----------- ----------- OTHER INCOME (EXPENSE) Equity in earnings of affiliate 166,757 205,530 Miscellaneous income 274,690 79,847 Gain on dispositions of fixed assets 14,500 Management fees expense (1,216,822) (150,621) Interest expense (1,383,833) (557,642) ----------- ----------- (2,159,208) (408,386) ----------- ----------- INCOME BEFORE INCOME TAXES 2,418,537 1,127,796 INCOME TAXES 14,902 ----------- ----------- NET INCOME 2,418,537 1,112,894 BEGINNING RETAINED EARNINGS 1,112,894 Dividend payments (745,359) ----------- ----------- ENDING RETAINED EARNINGS $ 2,786,072 $ 1,112,894 =========== ===========
See accompanying notes. -2- LOFTS SEED, INC. STATEMENT OF CASH FLOWS For the Eleven Months Ended November 30, 1997 and the Six Months Ended December 31, 1996
- ------------------------------------------------------------------------------------ 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,418,537 $ 1,112,894 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 78,016 28,919 Equity in earnings of affiliate (166,757) (205,530) Gain on disposal of fixed assets (14,500) Changes in: Accounts receivable (735,742) (202,758) Inventory 1,233,840 (6,002,661) Prepaid expenses (61,688) 44,927 Other assets 215,875 Trade accounts payable 135,306 269,306 Royalties payable (354,706) (337,888) Accrued expenses 93,732 (805,339) Accrued payroll (63,840) 345,428 Due to former stockholder (1,512,040) Deferred compensation (25,125) (10,784) ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,551,573 (7,074,151) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment (127,899) (90,258) Proceeds from sale of assets 14,500 ----------- ----------- NET CASH (USED) BY INVESTING ACTIVITIES (127,899) (75,758) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Payment of dividends (745,359) New borrowings Short-term 4,308,952 5,847,497 Long-term 1,204,887 Debt reduction Short-term (5,978,586) Long-term (977,308) (735,330) ----------- ----------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,187,414) 5,112,167 ----------- ----------- NET INCREASE (DECREASE) IN CASH 236,260 (2,037,742) CASH BEGINNING OF YEAR 222,290 2,260,032 ----------- ----------- CASH AT END OF YEAR $ 458,550 $ 222,290 =========== ===========
See accompanying notes.
- -------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION 1997 1996 ---------- -------- Purchase of interest in subsidiary $ 900,000 Debt incurred on purchase (900,000) ---------- Net cash outlay $ ========== Cash paid during the year for: 1997 1996 ---------- -------- Interest $1,404,231 $527,835 ========== ========
-3- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business - ------------------ The Company develops and markets seed products with a distribution network of locations operating throughout the United States. Change in Fiscal Year - --------------------- Effective the year beginning July 1, 1996, the Company elected to change their fiscal year to a calendar year. Use of Estimates - ---------------- Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. 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 vary from the estimates that were used. Inventory - --------- Inventory consists mainly of purchased seed either for resale or blending prior to resale and is valued at the lower of cost or market, with cost determined using the first-in, first-out method. Property and Equipment - ---------------------- Property and equipment are stated at cost and are depreciated by straight-line and accelerated methods over estimated useful lives. Cash Equivalents - ---------------- For purposes of the statement of cash flows, the Company considers all debt instruments purchased with an original maturity of three months or less to be cash equivalents. Income Taxes - ------------ Effective July 1, 1996, the Company has elected to be treated as an eligible small business (S Corporation) for tax purposes. Under this election, income is taxed to the individual stockholders and not to the Company. This special election recognized in all states the Company operates in, except one. Accordingly, the only income taxes reflected in the provision will be those due to this one state. Reclassifications - ----------------- Certain amounts for 1996 have been reclassified where appropriate to conform with 1997 classifications. -4- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE B - BUSINESS COMBINATIONS On June 28, 1996, all of the previously outstanding shares of Lofts Seed, Inc. were purchased for approximately $10,280,000, including acquisition costs. The book value of the net assets and liabilities at that time was approximately $9,814,000. The fair market value of the net assets and liabilities was approximately $11,163,000, resulting in an excess fair market value over purchase price of approximately $883,000. The purchase of the previously outstanding shares of Lofts Seed, Inc. was financed substantially through financing sources for approximately $10,000,000, accruals for approximately $210,000 and capital contributions of $100,000 from the new stockholders. The adjustments for fair market value and allocation of excess of fair market value over purchase price were as follows: . Net deferred assets with a book value of approximately $226,000 were increased approximately $143,500 to a fair market value of approximately $369,500. . Property and equipment with a book value of approximately $1,880,000 were increased approximately $1,010,000 to a fair market value of approximately $2,890,000. Prior to the purchase transaction, one of the new stockholders acquired property and equipment with an adjusted fair market value of $2,200,000. In exchange, the stockholder assumed related debt for the property and equipment of $2,200,000. The remaining fair market value of property and equipment was approximately $690,000. This amount was subsequently decreased as a result of the allocation of excess of fair market value over the purchase price for approximately $465,000, plus an additional amount of approximately $42,000 for the effect on deferred tax assets. . Investment in an affiliated company required no adjustment to fair market value due to the fact that book value of $621,474 approximated fair market value. However, this amount decreased as a result of the allocation of excess fair market value over the purchase price for approximately $171,633. . Accrued expenses and other current liabilities with a book value of approximately $3,738,000 were decreased approximately $274,000 to a fair market value of approximately $3,464,000. The acquisition was accounted for by the purchase method of accounting, whereby the Company allocated the purchase price to the assets based upon their fair market values. Since the fair market value of the assets and liabilities exceeded the net purchase price, property and equipment, investment in affiliated company and deferred taxes relating to the purchase and subsequent S corporation election were reduced. -5- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE B - BUSINESS COMBINATIONS The table below presents the reduction:
Fair Market Value Adjustments Total ---------- ----------- -------- Property and equipment $ 690,123 $(506,499) $183,624 Investment in affiliate 621,474 (171,633) 449,841 Deferred taxes 369,482 (284,482) 85,000 ---------- --------- -------- $1,681,079 $(962,614) $718,465 ========== ========= ========
NOTE C - PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1997 1996 -------- -------- Autos $ 52,232 $ 52,232 Equipment 69,877 34,120 Furniture 255,584 170,442 Leasehold improvements 24,088 17,088 -------- -------- 401,781 273,882 Less accumulated depreciation 98,437 25,921 -------- -------- $303,344 $247,961 ======== ========
Depreciation expense was $78,016 and $28,919 for the eleven months ended November 30, 1997 and the six months ended November 30, 1997, respectively. NOTE D - INVESTMENT IN AFFILIATED COMPANY Investment in affiliated company reflects ownership by the Company of 100% of the common stock of Sunbelt Seed, Inc. Summary of total information as of November 30, 1997 and December 31, 1996, (unaudited) are approximately as follows:
1997 1996 ----------- ----------- Current assets $ 4,828,498 $ 3,467,421 Noncurrent assets 91 Current liabilities 3,196,609 1,608,349 Net sales 14,660,108 14,436,308 Net income 646,422 956,405
-6- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE D - INVESTMENT IN AFFILIATED COMPANY The investment in affiliated company was adjusted in a prior year as a result of the allocation of excess fair market value over the purchase price of the Company. Included in accounts receivable is approximately $2,024,244 and $3,760, due from the affiliated company's at November 30, 1997 and December 31, 1996, respectively. NOTE E - SHORT-TERM DEBT PAYABLE The Company has a short term line of credit with an overall limitation of $13,140,000, not to exceed 80% of eligible accounts receivable and 50% of eligible inventory, less the amount of all accounts payable due to growers of seed inventory. Borrowings under the line of credit bear interest at prime. The line of credit agreement is collateralized by substantially all assets of the Company, certain assets of the principal stockholder and a related party company that is under common ownership. In addition, the line of credit is personally guaranteed by the principal stockholder. The current line of credit expires March 31, 1998. The line of credit and notes payable agreement (Note F) place restrictions on among other things, dividend payments, capital expenditures, capital lease obligations, and officer compensation. In addition, the agreement requires maintaining various financial ratios at predefined levels. All requirements were either met or waived for the eleven months ended November 30, 1997. As of November 30, 1997, the fair value of the line of credit was approximately equivalent to its carrying value, due to the fact that the interest rates currently available to the Company for debt with similar terms are approximately equal to the interest rates for its existing debt. The Company has a short term loan of $804,887 bearing interest at prime. It is payable March 31, 1998. At the bank's option, this loan may be extended to a maximum of sixty months from the original closing date of August 29, 1997. During 1997, the Company borrowed $805,000 from an affiliated company's line of credit. The amount was repaid in August of 1997. NOTE F - LONG-TERM DEBT The Company's long-term debt consists of the following:
1997 1996 ---------- ---------- Note payable in monthly installments of $120,453 through July 2001, with interest at prime, collateralized by substantially all of the Company's assets $4,169,428
-7- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE F - LONG-TERM DEBT
1997 1996 ---------- ---------- Note payable in monthly installments of $76,369 through July 2001, plus interest at prime plus 1%, collateralized by substantially all of the Company's assets $5,081,786 Note payable in monthly installments of $21,667 through July 2001, plus interest at prime, collateralized by substantially all of the Company's assets 1,235,050 ---------- ---------- 5,404,478 5,081,786 Less current maturities 1,278,634 916,428 ---------- ---------- $4,125,844 $4,165,358 ========== ==========
Future maturities of long-term debt are summarized as follows: 1998 $1,278,634 1999 1,471,011 2000 1,584,613 2001 875,170 2001 195,050 ---------- $5,404,478 ==========
Interest expense was $1,383,833 and $568,358 for the eleven months ended November 30, 1997 and the six months ended December 31, 1996, respectively. NOTE G - SUBORDINATED NOTES PAYABLE Subordinated notes payable to related parties represent the following:
1997 1996 ---------- ---------- Note payable to an affiliated company under common control, payable upon demand plus interest at prime plus 2%. The note is subordinated to the bank debt $1,557,547 $1,747,492 Note payable to the principal stockholder, payable in full in June 1998. Interest is payable quarterly at prime plus 2%. The note is subordinated to the bank debt 50,000 ---------- ---------- $1,557,547 $1,797,492 ========== ==========
-8- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE H - LEASES AND RELATED PARTIES Effective June 1996, the Company entered into two new operating lease agreements with its majority stockholder to lease certain facilities in Oregon. The leases require annual lease payments of $266,748 and expire in 2001. Effective June 1996, the Company entered into a new lease agreement with its majority stockholder to lease certain facilities in Massachusetts. The lease requires annual lease payments of $61,500 and expires in 2001. During the year, the Company entered into multiple lease agreements leasing vehicles and equipment over periods ranging from 12 to 48 months, with lease payments from $227 to $531. Future minimum lease payments required by leases are summarized as follows: 1998 $ 711,590 1999 644,006 2000 474,313 2001 272,743 ---------- $2,926,605 ==========
Total lease expense charge to operations was $842,321 and $500,755 for the eleven months ended November 30, 1997 and the six months ended December 31, 1996, respectively. NOTE I - DEFERRED COMPENSATION The Company is obligated to make payments to the surviving spouse of a deceased officer for a period of twenty years from the date of the death of such officer (February 1983) or to the death of the surviving spouse, if earlier. The obligation is payable at $800 per week including interest at 9% through February 2003. The interest paid in connection with the obligation was $15,437 and $10,014 for the eleven months ended November 30, 1997 and the six months ended December 31, 1996, respectively. NOTE J - INCOME TAXES The income tax provision resulting from federal taxes due prior to the election to be treated as an S-Corporation consists of the following:
1996 ------- Federal income tax $14,902 =======
-9- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE J - INCOME TAXES As discussed in Note A, the Company has elected to be treated as an eligible small business (S Corporation) in all states that it operates in except one. In this state there is a net operating loss carryforward of $11,336,550 that begins expiring in December 1997 as follows: 1997 $ 2,950,162 1998 2,670,452 1999 2 962,828 2000 1,268,260 2001 1,484,848 ----------- $11,336,550 ===========
Deferred taxes result from timing differences in the recognition of expenses for income tax and financial statement purposes. The source of these differences and the tax effect is as follows: Net operating loss carryforward $ 903,550 Valuation allowance (818,550) --------- $ 85,000 =========
NOTE K - CONCENTRATION OF ECONOMIC DEPENDENCY Sales to three customers approximated $19,991,614 (32%) of the Company's sales for the eleven months ended November 30, 1997. NOTE L - PURCHASE CONTRACTS The Company maintains in the ordinary course of business, numerous contracts with seed growers, primarily in the state of Oregon, to grow specified seed varieties for a specified period of time (generally three years) and to sell the harvested seed to the Company at a specified price per pound. These contracts expire at various dates. -10- LOFTS SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 - -------------------------------------------------------------------------------- NOTE M - ROYALTY CONTRACTS The Company has entered into numerous royalty contracts with individuals and research facilities which developed certain varieties of grass seed sold by the Company. Royalties are based on pounds of seed sold and computed at the growers' prices. Royalty percentages range from 2% to 6%. The majority of contracts have minimum payments ranging from $100 to $1,000. NOTE N - CONTINGENCIES The Company is subject to legal proceedings and claims arising in the ordinary course of business. It is management's opinion that all legal proceedings and claims having a material effect on the financial statements have been adequately recorded. NOTE O - INTERCOMPANY SALES Intercompany sales between the various divisions of the Company have not been eliminated from the financial statements. These sales amounted to $15,707,849 and $6,494,611 for the eleven months ended November 30, 1997 and the six months ended December 31, 1996, respectively. NOTE P - PROFIT SHARING PLAN The Company has a 401(k) profit sharing plan for qualified employees. The terms of the plan define qualified employees as all full time non-union employees. Qualified employees may contribute from 2% to 10% of their gross pay. The Company has the option to match up to 25% of the employees' contributions up to 4% of eligible employee contributions. The Company's contributions to the participants investments accounts are fully vested after five years. The Company did not make any contributions for the eleven months ended November 30, 1997 or the six months ended December 31, 1996. NOTE Q SUBSEQUENT EVENT Effective January 6, 1998, all of the Company's stock was purchased by another Company. As a part of the purchase, all security guarantees between the bank and former stockholders were released. [LETTERHEAD OF AMPER, POLITZINER & MATTIA] Independent Auditors' Report Board of Directors Lofts Seed, Inc. We have audited the accompanying balance sheets of Lofts Seed, Inc. as of June 30, 1996 and 1995, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lofts Seed, Inc. as of June 30, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Amper, Politziner & Mattia AMPER, POLITZINER & MATTIA September 26, 1996 Edison, New Jersey LOFTS SEED, INC. Balance Sheets June 30, Assets
1996 1995 --------------- ---------------- Current assets Cash $ 2,260,032 $ 90,015 Accounts receivable - less allowance for doubtful accounts of $485,000 and $285,000 4,418,374 4,306,616 Inventory 6,204,974 8,037,012 Prepaid expenses 79,453 82,630 Deferred tax assets 90,000 321,700 Other current assets 190,048 172,284 -------------- -------------- 13,242,881 13,010,257 -------------- -------------- Property and equipment, net of accumulated depreciation 183,624 1,733,185 -------------- -------------- Other assets Investment in affiliated company 165,359 504,000 Deferred tax assets 279,500 216,400 Loan acquisition costs 30,000 - Other assets 25,809 30,275 -------------- -------------- 500,668 750,675 -------------- -------------- $ 13,927,173 $ 15,494,117 ============== ==============
Liabilities and Stockholders' Equity
Current liabilities Note payable - bank $ 700,000 $ 995,000 Current maturities of long-term debt 1,054,000 26,000 Accounts payable 1,994,379 2,779,736 Royalties payable 811,888 989,780 Accrued expenses and other current liabilities 1,274,063 857,446 Due to former stockholder 1,512,040 - Deferred compensation, current maturities 23,949 21,900 -------------- -------------- 7,370,319 5,669,862 Long-term debt, net of current maturities 4,763,118 197,010 Deferred compensation, net of current maturities 183,736 207,675 Subordinated notes payable - related parties 1,510,000 - Stockholders' equity Class A voting common stock, no par value, 230 shares authorized, issued and outstanding 23,000 - Class B non-voting common stock, no par value, 770 shares authorized, issued and outstanding 77,000 - Common stock, no par value, 500,000 shares authorized, 253,256 shares issued, 250,000 shares outstanding - 440,612 Retained earnings - 9,013,901 -------------- -------------- 100,000 9,454,513 Less treasury stock, at cost, 3,256 shares - (34,943) -------------- -------------- Total stockholders' equity 100,000 9,419,570 -------------- -------------- $ 13,927,173 $ 15,494,117 ============== ==============
See accompanyning notes to financial statements. -2- LOFTS SEED INC. Statements of Operations For the Years Ended June 30,
1996 1995 ------------ ------------ Percentage Percentage of of Net Sales Net Sales ----------- ----------- Revenue Net sales $42,488,363 100.0 $43,140,842 100.0 Royalty and commission income 327,558 .8 136,025 .3 Service charges income 67,203 .1 78,984 .2 ----------- ---------- ----------- ----- 42,883,124 100.9 43,355,851 100.5 Cost of goods sold 33,582,471 79.0 33,967,039 78.7 ----------- ---------- ----------- ----- Gross profit 9,300,653 21.9 9,388,812 21.8 Selling, general and administrative expenses 8,683,735 20.4 9,303,852 21.6 ----------- ---------- ----------- ----- Earnings from operations 616,918 1.5 84,960 .2 ----------- ---------- ----------- ----- Other income (expense) Equity in earnings of affiliate 191,000 .4 80,000 .2 Management fees 225,000 .5 100,000 .3 Interest expense (191,142) (.4) (263,653) (.6) Miscellaneous income 82,091 .2 63,842 .1 Gain (loss) on sale of property and equipment (7,554) - 7,809 - ----------- ---------- ----------- ----- 299,395 .7 (12,002) - ----------- ---------- ----------- ----- Earnings before provision for income taxes 916,313 2.2 72,958 .2 Provision for income taxes 362,000 .9 18,000 .1 ----------- ---------- ----------- ----- Net income $ 554,313 1.3 $ 54,958 .1 =========== ========== =========== =====
See accompanyning notes to financial statements. -3- LOFTS SEED, INC. Statements of Stockholders' Equity For the Years Ended June 30, 1996 and 1995
Common Retained Treasury Stockholders' Stock Earnings Stock Equity ---------- ------------ --------- -------------- Balance - July 1, 1994 $ 440,612 $ 9,031,353 $(34,943) $ 9,437,022 Net income - 54,958 - 54,958 Dividends declared - (72,410) - (72,410) --------- ----------- -------- ----------- Balance - June 30, 1995 440,612 9,013,901 (34,943) 9,419,570 Net income - 554,313 - 554,313 Dividends declared - (160,000) - (160,000) Issuance of common stock 100,000 - - 100,000 Purchase acquisition adjustments (440,612) (9,408,214) 34,943 (9,813,883) --------- ----------- -------- ----------- Balance - June 30, 1996 $ 100,000 $ - $ - $ 100,000 ========= =========== ======== ===========
See accompanyning notes to financial statements. -4- LOFTS SEED, INC. Statements of Cash Flows For the Years Ended June 30,
1996 1995 ------------ ------------ Cash flows from operating activities Net income $ 554,313 $ 54,958 ------------ ----------- Adjustments to reconcile net income to net cash from operating activities Depreciation 192,799 184,931 Bad debt expense 301,994 122,418 Deferred tax expense 312,000 9,300 Equity in earnings of affiliate (191,000) (80,000) (Gain) loss on sale of property and equipment 7,554 (7,809) (Increase) decrease in Accounts receivable (415,226) 112,228 Inventory 1,832,038 305,374 Prepaid expenses 3,177 7,988 Other current assets (17,764) 8,183 Other assets 4,448 (13,793) Increase (decrease) in Accounts payable (785,357) (1,335,459) Royalties payable (177,892) (110,422) Accrued expenses and other current liabilities 393,463 (309,831) Deferred compensation (21,890) (20,007) ----------- ----------- Total adjustments 1,438,344 (1,126,899) ----------- ----------- 1,992,657 (1,071,941) ----------- ----------- Cash flows from investing activities Payments for purchase of property and equipment (299,270) (349,845) Proceeds from sale of property and equipment - 25,850 Dividends received from affiliated company 75,000 40,000 ----------- ----------- (224,270) (283,995) ----------- ----------- Cash flows from financing activities Net proceeds (payments) of note payable - bank (995,000) 995,000 Principal payments of long-term debt (43,000) (26,000) Dividend payments (72,410) - Increase in due to former stockholder 1,512,040 - ----------- ----------- 401,630 969,000 ----------- ----------- Net change in cash 2,170,017 (386,936) Cash - beginning 90,015 476,951 ----------- ----------- Cash - ending $ 2,260,032 $ 90,015 =========== =========== Supplemental disclosure of cash paid Interest $ 191,142 $ 244,373 Income taxes 10,000 85,568
See accompanyning notes to financial statements. -5- LOFTS SEED, INC. Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies ------------------------------------------ Operations ---------- Lofts Seed, Inc., (the "Company"), develops, markets and distributes seed products, with various operating facilities located throughout the United States. Credit is granted to substantially all customers, the majority of whom are in the retail and professional lawn products and services industries and located throughout the United States. The Company does not generally require collateral from its customers. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation --------------------------- At June 30, 1995 and for the year ended June 30, 1995, the consolidated financial statements include the accounts of Lofts Seed, Inc. and its wholly owned subsidiary, Great Western Seed Co., after elimination of all significant intercompany balances and transactions (See Note 2). Inventory --------- Inventory consists primarily of purchased seed either for resale or blending prior to resale and is stated at the lower of cost (first-in, first-out basis) or market. Property and Equipment ---------------------- Property and equipment is stated at cost, less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets as follows:
Estimated Method Useful Life ------------- ------------- Building and building improvements Straight-line 10 - 20 years Machinery and equipment Straight-line 5 - 7 years Furniture and fixtures Straight-line 5 years Leasehold improvements Straight-line 10 - 20 years
Investment in Affiliated Company -------------------------------- Investment in affiliated company is reflected using the equity method (See Note 5). -6- LOFTS SEED, INC. Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies - (continued) ------------------------------------------ Income Taxes ------------ Effective July 1, 1996, the Company will be taxed as an S-Corporation under the Internal Revenue Code. Under this election, the profits, losses, credits and deductions of the Company are passed to the individual stockholders. Profits and losses of the Company remain taxable at the state level. Loan Acquisition Costs ---------------------- Loan acquisition costs represent certain bank charges and professional fees incurred in connection with bank debt acquired in June 1996. Loan acquisition costs will be amortized on a straight-line basis over a five year period beginning in July 1996. Note 2 - Business Combination -------------------- On June 28, 1996, all of the previously outstanding shares of Lofts Seed, Inc. were purchased for approximately $10,280,000, including acquisition costs. The book value of the net assets and liabilities at June 28, 1996 was approximately $9,814,000. The fair market value of the net assets and liabilities at June 28, 1996 was approximately $11,163,000, resulting in an excess fair market value over purchase price of approximately $883,000. The purchase of the previously outstanding shares of Lofts Seed, Inc. was financed substantially through financing sources for approximately $10,000,000, inclusive of approximately $1,500,000 of subordinated debt payable to related parties, accruals of approximately $210,000 and capital contributions of $100,000 from the new stockholders of the Company. The adjustment for fair market value and allocation of excess of fair market value over purchase price were as follows: 1. Net deferred tax assets with a book value of approximately $226,000 were increased approximately $64,000 to a fair market value of approximately $290,000. This amount was subsequently increased by approximately $79,500 as a result of allocating the excess of fair market value over the purchase price. 2. Property and equipment with a book value of approximately $1,880,000 were increased approximately $1,010,000 to a fair market value of approximately $2,890,000. Prior to the purchase transaction, one of the new shareholders acquired property and equipment with an adjusted fair market value of $2,200,000. In exchange, the shareholder assumed related debt for the property and equipment of $2,200,000. The remaining fair market value of property and equipment was approximately $690,000. This amount was subsequently decreased as a result of the allocation of excess of fair market value over the purchase price for approximately $465,000, plus an additional amount of approximately $42,000 for the effect on deferred tax assets. -7- LOFTS SEED, INC. Notes to Financial Statements Note 2 - Business Combination - (continued) -------------------- 3. Investment in affiliated company required no adjustment to fair market value due to the fact that book value (approximately $621,000) approximated fair market value. However, this amount decreased as a result of the allocation of the excess of fair market value over the purchase price for approximately $418,000, plus an additional amount of approximately $37,500 for the effect on deferred tax assets. 4. Accrued expenses and other current liabilities with a book value of approximately $3,738,000 were decreased approximately $274,000 to a fair market value of approximately $3,464,000. The acquisition was accounted for by the purchase method of accounting, whereby the Company allocated the purchase price to the assets based upon their fair market values. Since the fair market value of the assets and liabilities exceeded the net purchase price, property and equipment and investment in affiliated company were reduced. The table below presents the reduction:
Fair Adjustments Market Adjusted Value (A) (B) Total ---------- ---------- --------- -------- Property and equipment $ 690,123 $(464,678) $(41,821) $183,624 Investment in affiliated company 621,474 (418,454) (37,661) 165,359 ---------- --------- -------- -------- Total $1,311,597 $(883,132) $(79,482) $348,983 ========== ========= ======== ========
(A) Reduction for excess of fair market value of assets over the purchase price. (B) Tax effect of the reduction for the excess of fair market value of assets over the purchase price (Deferred taxes). On June 28, 1996, Great Western Seed Co. was merged into Lofts Seed, Inc. This merger took place prior to the stock sale described above. All significant intercompany balances and transactions were eliminated. Note 3 - Concentration of Cash Balance ----------------------------- The Company maintained cash accounts totaling approximately $3,000,000 at June 30, 1996 in various banks insured by the Federal Deposit Insurance Corporation (FDIC). These balances exceed the insured amount of $100,000 per bank. -8- LOFTS SEED, INC. Notes to Financial Statements Note 4 - Property and Equipment ----------------------
June 30, 1996 1995 ----------- ----------- Land $ - $ 403,531 Building and building improvements - 1,278,578 Machinery and equipment 163,215 1,479,699 Furniture and fixtures 20,409 568,837 Leasehold improvements - 224,076 -------- ----------- 183,624 3,954,721 Accumulated depreciation - (2,221,536) -------- ----------- Net property and equipment $183,624 $ 1,733,185 ======== ===========
Property and equipment was adjusted as a result of the allocation of the excess fair market value over the purchase price. (See Note 2). Depreciation expense was $192,799 and $184,931 for the years ended June 30, 1996 and 1995, respectively. Note 5 - Investment in Affiliated Company -------------------------------- Investment in affiliated company reflects ownership by the Company of 50% of the common stock of Sunbelt Seed, Inc. Summary of information for the investee as of June 30, (unaudited) are approximately as follows:
June 30, 1996 1995 ----------- ----------- Current assets $ 1,284,000 $ 1,077,000 Noncurrent assets 400 3,000 Current liabilities 32,400 62,000 Noncurrent liabilities 10,000 10,000 Net sales 12,831,000 10,564,000 Net income 382,000 161,000
The investment in affiliated company was adjusted as a result of the allocation of the excess of the fair market value over the purchase price. (See note 2). Sales to the affiliated company were approximately $6,050,000 and $6,550,000 for the years ended June 30, 1996 and 1995, respectively. Included in accounts receivable at June 30, 1996 and 1995 are approximately $30,000 and $40,000 due from the affiliated company, respectively. Management fee income of $225,000 and $100,000 was received from the affiliated company for the years ended June 30, 1996 and 1995, respectively. -9- LOFTS SEED, INC. Notes to Financial Statements Note 5 - Investment in Affiliated Company - (continued) -------------------------------- Dividends of $75,000 and $40,000 were received from the affiliated company for the years ended June 30, 1996, and 1995, respectively. Note 6 - Note Payable - Bank ------------------- The Company has a line of credit with an overall limitation of $13,140,000, not to exceed 80% of eligible accounts receivable and 40% of eligible inventory less the amount of all accounts payable due to growers of seed inventory. Borrowings under the line of credit bear interest at prime plus 1.75%. The prime rate at June 30, 1996 was 8.25%. During the months of January, February, March and April, the line of credit will have a seasonal availability of up to $2,000,000. Borrowings under the seasonal availability bear interest at prime plus 3%. The line of credit agreement is collateralized by substantially all assets of the Company, certain assets of the principal stockholder and a related party company that is under common ownership. In addition, the line of credit is personally guaranteed by the principal stockholder. The current line of credit expires July 1, 1997. The line of credit and note payable to bank (See Note 7) agreement places restrictions on dividend payments, capital expenditures, capital lease obligations, and stockholder, directors and officers compensation and contains requirements for maintaining defined levels of tangible net worth, as well as various financial ratios, including debt to equity. As of June 30, 1995, the Company had a line of credit with an overall limitation of $5,000,000. Interest on this line of credit was at prime plus .50%. The prime rate at June 30, 1995 was 9%. As of June 30, 1996, the fair value of the line of credit was approximately equivalent to its carrying value, due to the fact that the interest rates currently available to the Company for debt with similar terms are approximately equal to the interest rates for its existing debt. -10- LOFTS SEED, INC. Notes to Financial Statements Note 7 - Long-Term Debt --------------
June 30 1996 1995 ---- ---- Mortgage note payable to a bank, payable at $2,167 per month plus interest at prime plus .75%. This mortgage was paid in total in July 1996. $ 197,010 $ 223,010 Note payable to a bank, payable in fifty-nine equal monthly installments of $120,453 including interest at prime plus 2%. Any remaining principal is due and payable in July 2001. This note is collateralized by substantially all assets of the Company and certain assets of the principal stockholders and a related party company that is under common ownership. The note is personally guaranteed by the principal stockholder of Company. See note 6 for the debt restrictions. 5,540,000 - Various equipment loans through July 2000 payable at $1,834 per month including interest at various rates. 80,108 - ---------- ---------- Total 5,817,118 223,010 Less current maturities 1,054,000 26,000 ---------- ---------- Long-term debt, net of current maturities $4,763,118 $ 197,010 ========== ========== The prime rate as of June 30, 1996 and 1995 was 8.25% and 9%, respectively. The approximate aggregate amount of all long-term debt maturities for the years ending June 30, is as follows: 1997 $1,054,000 1998 1,032,000 1999 1,138,000 2000 1,154,000 2001 1,439,000 ---------- $5,817,000 ==========
As of June 30, 1996, the fair value of long-term debt was approximately equivalent to its carrying value, due to the fact that the interest rates currently available to the Company for debt with similar terms are approximately equal to the interest rates for its existing debt. -11- LOFTS SEED, INC. Notes to Financial Statements Note 8 - Due to Former Stockholder ------------------------- The balance at June 30, 1996 represents an amount due to a former stockholder for the purchase of stock, as discussed in Note 2. The balance was paid in July 1996. Note 9 - Subordinated Notes Payable - Related Parties -------------------------------------------- At June 30, 1996, subordinated notes payable-related parties represent the following: Note payable to an affiliated company under common control, payable upon demand plus interest at prime plus 2%. The note is subordinated to the bank debt. $1,460,000 Note payable to the principal stockholder payable in full in June 1998. Interest is payable quarterly commencing September 1996 at prime plus 2%. The note is subordinated to the bank debt. 50,000 ---------- $1,510,000 ==========
Determination of the fair value of the above debt is not practicable due to the related party nature of the debt. Note 10 - Deferred Compensation --------------------- The Company is obligated to make payments to the surviving spouse of a deceased officer for a period of 20 years from the date of death of such officer (February 1983) or to the death of the surviving officer's spouse, if earlier. The obligation is payable at $800 per week including interest at 9% through February 2003. The interest paid in connection with the obligation was approximately $20,000 and $22,000 for the years ended June 30, 1996 and 1995. Note 11 - Income Taxes ------------ Deferred tax attributes resulting from differences between financial accounting amounts and tax bases of assets and liabilities follows:
June 30, 1996 1995 ------- -------- Current assets and liabilities Allowance for doubtful accounts $44,000 $118,400 Inventory 17,000 162,400 Accrued expense and other 29,000 40,900 ------- -------- 90,000 321,700 Valuation allowance - - ------- -------- Net current deferred tax asset $90,000 $321,700 ======= ========
-12- LOFTS SEED, INC. Notes to Financial Statements Note 11 - Income Taxes - (continued) -------------------------- Noncurrent assets and liabilities Depreciation $ 38,500 $ - Deferred compensation 17,000 86,200 Net operating loss carryforwards 1,170,000 1,421,800 Investment in affiliate (10,000) (188,600) ---------- ----------- 1,215,500 1,319,400 Valuation allowance (936,000) (1,103,000) ---------- ----------- Net noncurrent deferred tax asset $ 279,500 $ 216,400 ========== ===========
The valuation allowance has been established for those loss carryforwards which are presently considered more likely than not to be realized. The provision for income taxes for the years ended June 30, 1996 and 1995 consists of the following:
June 30, 1996 1995 -------- ---------- Current tax expense (net of benefit of net operating losses carryforwards of approximately $750,000) $ 50,000 $ 8,700 Deferred tax expense 312,000 9,300 -------- --------- $362,000 $ 18,000 ======== ========= A reconciliation of net deferred tax assets as of June 30, 1996 follows: Net deferred current and noncurrent deferred tax assets - June 30, 1995 $538,100 Deferred tax expense (312,000) Effect of allocating excess fair market value over purchase price to property and equipment and investment in affiliated company 79,500 Net deferred tax adjustment to fair market value for purposes of applying the purchase method of accounting 63,900 --------- Net deferred current and noncurrent deferred tax assets - June 30, 1996 $ 369,500 =========
As of June 30, 1996, the Company has state net operating loss carryforwards of approximately $12,900,000. -13- LOFTS SEED, INC. Notes to Financial Statements Note 11 - Income Taxes - (continued) -------------------------- These net operating losses expire as follows: 1997 $ 1,500,000 1998 2,900,000 1999 2,700,000 2000 3,000,000 2001 1,300,000 2002 1,500,000 ----------- $12,900,000 ===========
Note 12 - Operating Leases ---------------- The Company leases warehouse space in Allentown, Pennsylvania under a five year lease expiring October 1999, with renewal options for two five year periods. Monthly payments under the current lease are approximately $12,000 per month. The Company is required to pay utilities, insurance and other costs relating to the leased facilities. The Company leases office space for the corporate headquarters under a five year lease expiring December 1999 with a renewal option for an additional five year period. Monthly payments under the current lease are approximately $5,000. The Company is required to pay property taxes, utilities, insurance and other costs related to the leased facilities. The Company leases warehouse space in Beltsville, Maryland, under a lease expiring June 2001. Monthly payments under the current lease are approximately $12,000. The Company is required to pay utilities, insurance and other costs relating to the leased facilities. The Company leases warehouse space in Wilmington, Ohio, under a lease expiring December 1996. Monthly payments under the current lease are approximately $7,000. The Company is required to pay utilities and other costs relating to the leased facilities. In June 1996, the Company began leasing warehouse space and a research farm in Oregon and warehouse space in Massachusetts from the principal stockholder under leases expiring in June 2001. Total monthly payments under these leases are approximately $25,000. The Company is required to pay utilities, insurance, taxes and other costs relating to the leased facilities. The Company also leases warehouse space in Arlington, Massachusetts on a month to month basis. Monthly payments are approximately $2,000. The Company is required to pay utilities, insurance and other costs relating to these facilities. -14- LOFTS SEED, INC. Notes to Financial Statements Note 12 - Operating Leases - (continued) ---------------- The Company has various leases for vehicles expiring through December 1999. Monthly payments under the various leases range from approximately $350 to $1,350. The following is a schedule by years of approximate future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 1996:
For the Years Ending June 30, --------------- 1997 $ 769,000 1998 729,000 1999 691,000 2000 512,000 2001 437,000 ---------- Total minimum payments required $3,138,000 ==========
Rent expense for the years ended June 30, 1996 and 1995, was approximately $487,000 and $604,000, respectively, which includes expense of $113,000 for the year ended June 30, 1995 to an entity controlled by the former stockholders. Note 13 - Employee Benefit Plan --------------------- The Company has a 401(k) plan ("Plan") for qualified employees. The terms of the Plan define qualified employees as all full-time non- union employees. Qualified employees may contribute from 2% to 10% of their gross pay. The Company matches 25% of the employees' contributions up to 4% of employee contributions. The Company's contributions to the participants' investment accounts are fully vested after five years. The Company's contributions for the years ended June 30, 1996 and 1995, were approximately $30,000 and $23,000, respectively. Note 14 - Noncash Transactions -------------------- As of June 30, 1996 and 1995, dividends of $160,000 and $72,410, respectively, were declared but not paid. -15- LOFTS SEED, INC. Notes to Financial Statements Note 15 - Major Customers/Suppliers ------------------------- Sales to three customers approximated 22% of the Company's sales and 25% of accounts receivable for the year ended June 30, 1996. Sales to one customer approximated 18% of the Company's sales and 16% of accounts receivable for the year ended June 30, 1995. Major customers are considered to be those who accounted for more than 10% of total sales. Note 16 - Purchase Contracts ------------------ The Company maintains, in the ordinary course of business, numerous contracts with seed growers, primarily in the state of Oregon, to grow specified seed varieties for a specified period of time (generally three years) and to sell the harvested seed to the Company at a specified price per pound. These contracts expire at various dates. Note 17 - Royalty Contracts ----------------- The Company has entered into numerous royalty contracts with individuals and research facilities which developed certain varieties of grass seed sold by the Company. Royalties are based on pounds of seed sold and computed at the growers' prices. Royalty percentages range from 2% to 6%. The majority of contracts have minimum payments ranging from $100 to $1,000. Note 18 - Contingencies ------------- The Company is subject to legal proceedings and claims arising in the ordinary course of business. It is management's opinion that all legal proceedings and claims having a material effect on the financial statements have been adequately recorded. -16- INDEPENDENT AUDITORS' REPORT To the Stockholders Budd Seed, Inc. Winston-Salem, North Carolina We have audited the accompanying balance sheets of Budd Seed, Inc. as of November 30, 1997 and December 31, 1996, and the related statements of operations and retained earnings, and cash flows for the eleven months and 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Budd Seed, Inc. as of November 30, 1997 and December 31, 1996, and the results of its operations and its cash flows for the eleven months and year then ended in conformity with generally accepted accounting principles. /s/ Cannon & Co. January 8, 1998 BUDD SEED, INC. BALANCE SHEETS November 30, 1997 and December 31, 1996 - -------------------------------------------------------------------------------
1997 1996 ---------- ---------- ASSETS CURRENT ASSETS Cash $ 147,336 $ 99,259 Trade accounts receivable, net of allowance for doubtful accounts of $9,020 for 1997 and $9,600 for 1996 788,845 883,074 Inventory 1,463,547 2,423,054 Prepaid expenses 3,284 15,282 ---------- ---------- TOTAL CURRENT ASSETS 2,403,012 3,420,669 PROPERTY AND EQUIPMENT 23,265 33,139 ---------- ---------- TOTAL ASSETS $2,426,277 $3,453,808 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Note payable $ 275,000 $1,809,000 Current portion of long-term debt 39,528 39,528 Trade accounts payable 209,917 461,575 Accrued expenses 27,211 32,671 Accrued payroll 140,500 43,967 ---------- ---------- TOTAL CURRENT LIABILITIES 692,156 2,386,741 ---------- ---------- LONG-TERM DEBT 63,540 99,774 ---------- ---------- STOCKHOLDER'S EQUITY Common stock, Class A (voting), no par value, 100,000 shares authorized and 21,457 shares issued 12,474 12,474 Common stock, Class B (nonvoting), no par value, 1,000,000 shares authorized and 214,570 shares issued 124,738 124,738 Additional paid-in capital 655,294 655,294 Retained earnings 878,075 174,787 ---------- ---------- 1,670,581 967,293 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,426,277 $3,453,808 ========== ==========
See accompanying notes. -1- BUDD SEED, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Eleven Months Ended November 30, 1997 and Year Ended December 31, 1996 - -------------------------------------------------------------------------------
1997 1996 ----------- ---------- NET SALES $11,471,693 $9,480,386 COST OF SALES 9,208,998 7,757,192 ----------- ---------- GROSS PROFIT 2,262,695 1,723,194 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,333,893 1,206,299 ----------- ---------- 928,802 516,895 ----------- ---------- OTHER INCOME (EXPENSE) Miscellaneous income 47,436 23,931 Finance charge income 15,034 18,964 Commissions income 722 Loss on dispositions of fixed assets, net (1,293) Interest expense (92,681) (136,041) ----------- ---------- (30,211) (93,717) ----------- ---------- NET INCOME 898,591 423,178 BEGINNING RETAINED EARNINGS 174,787 (76,391) Dividends paid (195,303) (172,000) ----------- ---------- ENDING RETAINED EARNINGS $ 878,075 $ 174,787 =========== ==========
See accompanying notes. -2- BUDD SEED, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY November 30, 1997 and December 31, 1996 - --------------------------------------------------------------------------------
Voting Nonvoting Additional Common Stock Common Stock Paid-In Retained Shares Amount Shares Amount Capital Earnings Total ------ ------ ------ ------ ------- -------- ----- Balance, January 1, 1996 18,238 $ 1,658 182,380 $ 16,580 $655,294 $(76,391) $597,141 Exercise of stock options 3,219 10,816 32,190 108,158 118,974 Net income 423,178 423,178 Distributions to Stockholders (172,000) (172,000) ------ ------- ------- -------- -------- -------- ---------- Balance, December 31, 1996 21,457 12,474 214,570 124,738 655,294 174,787 967,293 Net income 898,591 898,591 Distributions to stockholders (195,303) (195,303) ------ ------- ------- -------- -------- -------- ---------- Balance, November 30, 1997 21,457 $12,474 214,570 $124,738 $655,294 $878,075 $1,670,584 ====== ======= ======= ======== ======== ======== ==========
See accompanying notes. -3- BUDD SEED, INC. STATEMENTS OF CASH FLOWS Eleven Months Ended November 30, 1997 and Year Ended December 31, 1996 - --------------------------------------------------------------------------------
1997 1996 -------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 898,591 $ 423,178 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,784 29,797 Loss on disposal of assets, net 1,293 Changes in: Accounts receivable 94,229 (405,584) Inventory 959,507 (534,036) Prepaid expenses 11,998 (13,003) Trade accounts payable (251,658) (24,783) Accrued expenses (5,460) (16,657) Accrued payroll 96,533 26,663 ----------- --------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,833,524 (479,818) ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment (19,910) (16,851) Proceeds from sale of assets 25,553 ----------- --------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (19,910) 8,702 ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends (195,303) (172,000) Additional common stock issued (voting) 10,816 Additional common stock issued (nonvoting) 108,158 New borrowings Short-term 559,000 Debt reduction Long-term (36,234) (28,247) Short-term (1,534,000) ----------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,765,537) 477,727 ----------- --------- NET INCREASE IN CASH 48,077 6,611 CASH BEGINNING OF YEAR 99,259 92,648 ----------- --------- CASH AT END OF YEAR $ 147,336 $ 99,259 =========== =========
See accompanying notes.
1997 1996 -------- -------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $94,231 $134,100 ======= ========
-4- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 and December 31, 1996 - -------------------------------------------------------------------------------- NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations - -------------------- The Company operates a retail and wholesale agricultural supply business in the Southeast. Use of Estimates - ---------------- Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. 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 vary from the estimates that were used. Inventory - --------- Inventory is valued at the lower of cost or market, with cost determined using the last-in, first-out method. Property and Equipment - ---------------------- Property and equipment are stated at cost and are depreciated by straight-line and accelerated methods over estimated useful lives. Other Assets - ------------ Other assets which are amortizable are being amortized by the straight-line method over the life of the respective agreements. Cash Equivalents - ---------------- For purposes of the statement of cash flows, the Company considers all debt instruments purchased with a maturity of three months or less to be cash equivalents. Income Taxes - ------------ The Company has elected to be treated as an eligible small business (S Corporation) for tax purposes. Under this election, income is taxed to the individual stockholders and not to the Company. Accordingly, there is no provision for income taxes. Reclassifications - ----------------- Certain amounts for 1996 have been reclassified where appropriate to conform with 1997 classifications. -5- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 and December 31, 1996 - -------------------------------------------------------------------------------- NOTE B - CASH At November 30, 1997, the Company had on deposit with a single bank funds in excess of FDIC insurance. The amount on deposit before consideration of deposits in transit and outstanding checks was $325,568. NOTE C - INVENTORY Inventory consists of the following:
1997 1996 ---------- ---------- Grass seed $1,571,237 $2,508,835 Less excess of current cost over LIFO inventory 148,844 121,996 ---------- ---------- Inventory - LIFO 1,422,393 2,386,839 Bag inventory 41,154 36,215 ---------- ---------- $1,463,547 $2,423,054 ========== ==========
If these inventories had been stated at cost using the first-in, first-out (FIFO) method of valuation, the net income would have been as follows:
1997 1996 ---------- ---------- Net income $ 898,591 $ 423,178 Increase in LIFO reserve 26,848 15,001 --------- --------- $ 925,439 $ 438,179 ========= ========= NOTE D - PROPERTY AND EQUIPMENT Property and equipment consist of the following: 1997 1996 --------- --------- Equipment $159,351 $ 140,315 Furniture 30,209 30,209 Office equipment 96,804 95,929 Trucks 18,013 18,013 --------- --------- 304,377 284,466 Less accumulated depreciation (281,112) (251,327) --------- --------- $ 23,265 $ 33,139 ========= =========
Depreciation expense was $29,784 and $29,797 for the eleven months ended November 30, 1997 and year ended December 31, 1996, respectively. -6- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 and December 31, 1996 - -------------------------------------------------------------------------------- NOTE E - SHORT-TERM DEBT PAYABLE The Company has a loan agreement with a bank involving up to $2,000,000 on a revolving line of credit. Interest at the prime rate is payable monthly on the outstanding principal of the line of credit with all the outstanding principal due in September 1997. The line of credit is secured by the Company's accounts receivable and inventory and guaranteed by the Company's majority stockholder and his spouse. The line of credit agreement includes several loan covenants with which the Company complied. NOTE F - LONG-TERM DEBT The Company's long-term debt consists of the following:
1997 1996 --------- -------- Note payable in monthly installments of $3,294 through May 1999 (and a balloon payment at that time), plus interest at prime, collateralized by equipment. $103,068 $139,302 Less current portion 39,528 39,528 -------- -------- $ 63,540 $ 99,774 ======== ========
Future maturities of long-term debt are summarized as follows: 1998 $ 39,528 1999 63,540 -------- $103,068 ========
Interest expense was $92,681 and $136,041 for the eleven months ended November 30, 1997 and year ended December 31, 1996, respectively. NOTE G - RELATED PARTY TRANSACTIONS Sales to and accounts receivable with related parties (see Note H) amounted to the following:
1997 1996 -------- -------- Sales $733,859 $601,237 Accounts Receivable 33,294 82,722 Miscellaneous Income 28,048
-7- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 and December 31, 1996 - -------------------------------------------------------------------------------- NOTE H - LEASES WITH RELATED PARTIES The Company entered into an agreement with the majority stockholder to lease a portion of its facilities for $10,775 per month. The agreement expires annually with a renewal option for four years expiring in 1999 and provides for adjustments each July for changes in the Consumer Price Index. Total lease expense charged to operations on these leases was $130,258 and $142,100 for the eleven months ended November 30, 1997 and year ended December 31, 1996, respectively. (See Note G) During 1997, the company loaned an affiliated company $805,000 which was fully repaid in August 1997. The company received interest income of $23,381 which was netted against interest expense. NOTE I - OPERATING LEASES The Company has an operating lease on two trucks renewable on an annual basis. The lease includes monthly payments of $2,800 and provides for adjustments each year based on the Consumer Price Index. The Company has an operating lease on two trailers renewable on an annual basis. The lease includes monthly payments of $1,001 and provides for adjustments each year based on the Consumer Price Index. The Company entered into two operating leases on equipment in 1994. The leases include monthly payments of $949 and expire in December 1998 and April 1999. The Company entered into two operating leases on equipment in 1995. The leases include a monthly payment of $59 expiring in April 1998 and a quarterly payment of $321 expiring in December 1999. The Company entered into three operating leases on vehicles and equipment in 1996. The leases include monthly payments of $1,110, expiring in 1998 and March 2001. Future minimum operating and related party lease payments are summarized as follows: 1998 $71,592 1999 5,771 2000 3,363 2001 560 ------- $81,286 ======= Total lease expense charged to operations on these leases was $ 77,814 and $88,354 for the eleven months ended November 30, 1997 and year ended December 31, 1996, respectively. -8- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS November 30, 1997 and December 31, 1996 - -------------------------------------------------------------------------------- NOTE J - STOCK OPTION AGREEMENT On April 21, 1995, the Company entered into stock option plans with two officers of the Company. The Plan grants the option to purchase a total of 3,219 shares of voting common stock and 32,190 shares of nonvoting common stock as an "incentive stock option". In June 1996, the options were exercised by the two officers by purchasing a total of 3,219 shares of voting common stock and 32,190 shares of nonvoting common stock for $118,974. NOTE K - STOCK GIFTS Effective January 1, 1996, the Company's majority shareholder gifted 6,719 shares of the Company's stock to a stockholder, reducing the majority shareholder's ownership percentage to 56% of the Company. NOTE L - BUY/SELL AGREEMENT On January 10, 1995, the Company stockholder's entered into an agreement whereby, in the event a minority stockholder wants to dispose of all or a portion of their stock, the majority stockholder has a right of first refusal to the shares. In the event he does not purchase all of the shares, the other minority stockholders have the right of purchase. NOTE M - CAPITAL STOCK On December 5, 1995, the Company amended the Articles of Incorporation to provide for Class A (voting) no par value common stock with 100,000 shares authorized and Class B (nonvoting) no par value common stock with 1,000,000 shares authorized. Each issued and outstanding share of common stock of the corporation was converted into one share of Class A voting common stock and ten shares of Class B nonvoting common stock. NOTE N - CONCENTRATION OF ECONOMIC DEPENDENCY The Company sold approximately 39% and 23% of its products in 1997 and 1996, respectively, to one customer. NOTE O SUBSEQUENT EVENT Effective January 6, 1998, all of the Company's stock was purchased by another Company. As a part of the purchase, all security guarantees between the bank and former stockholders were released. -9- INDEPENDENT AUDITORS' REPORT Stockholders Budd Seed, Inc. Winston-Salem, North Carolina We have audited the accompanying balance sheets of Budd Seed, Inc. as of December 31, 1996 and 1995, and the related statements of operations and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Budd Seed, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Cannon & Co. February 3, 1997 BUDD SEED, INC. BALANCE SHEETS December 31, 1996 and 1995
- ------------------------------------------------------------------------------------- 1996 1995 ----------- ----------- ASSETS CURRENT ASSETS Cash $ 99,259 $ 92,648 Trade accounts receivable, net of allowance for doubtful accounts of $9,600 for 1996 and $10,000 for 1995 883,074 477,490 Inventory 2,423,054 1,889,018 Prepaid expenses 15,282 2,279 ----------- ----------- TOTAL CURRENT ASSETS 3,420,669 2,461,435 PROPERTY AND EQUIPMENT 33,139 72,931 ----------- ----------- TOTAL ASSETS $ 3,453,808 $ 2,534,366 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Note payable $ 1,809,000 $ 1,250,000 Current portion of long-term debt 39,528 167,549 Trade accounts payable 461,575 486,358 Accrued expenses 32,671 16,014 Accrued payroll 43,967 17,304 ----------- ----------- TOTAL CURRENT LIABILITIES 2,386,741 1,937,225 ----------- ----------- LONG-TERM DEBT 99,774 ----------- STOCKHOLDERS' EQUITY Common stock, Class A (voting), no par value, 100,000 shares authorized and 21,457 shares issued in 1996 and 18,238 shares issued in 1995 12,474 1,658 Common stock, Class B (nonvoting), no par value, 1,000,000 shares authorized and 214,570 shares issued in 1996 and 182,380 shares issued in 1995 124,738 16,580 Additional paid-in capital 655,294 655,294 Retained earnings 174,787 ( 76,391) ----------- ----------- 967,293 597,141 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,453,808 $ 2,534,366 =========== ===========
See accompanying notes. BUDD SEED, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS Years Ended December 31, 1996 and 1995 - -------------------------------------------------------------------------------
1996 1995 ----------- ----------- NET SALES $ 9,480,386 $ 8,459,626 COST OF SALES 7,685,706 6,919,805 ----------- ----------- GROSS PROFIT 1,794,680 1,539,821 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,277,785 1,158,037 ----------- ----------- 516,895 381,784 ----------- ----------- OTHER INCOME (EXPENSE) Miscellaneous income 23,931 11,289 Finance charge income 18,964 9,896 Commissions income 722 388 Loss on dispositions of fixed assets, net (1,293) Interest expense (136,041) (92,779) ----------- ----------- (93,717) (71,206) ----------- ----------- NET INCOME 423,178 310,578 BEGINNING ACCUMULATED DEFICIT (76,391) (299,027) Dividends paid (172,000) (87,942) ----------- ----------- ENDING RETAINED EARNINGS $ 174,787 $ (76,391) =========== ===========
See accompanying notes. -2- BUDD SEED, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY December 31, 1996 and 1995
===================================================================================================================== Voting Nonvoting Additional Common Stock Common Stock Paid-In Retained Shares Amount Shares Amount Capital Earnings Total ------ -------- ------- -------- -------- --------- -------- Balance, January 1, 1995 18,238 $ 18,238 $655,294 ($299,027) $374,505 Reclassification of common stock due to amendment of Articles of Incorporation (16,580) 182,380 $ 16,580 Net income 310,578 310,578 Distributions to stockholders (87,942) (87,942) ------ -------- ------- -------- -------- --------- -------- Balance, December 31, 1995 18,238 1,658 182,380 16,580 655,294 (76,391) 597,141 Exercise of stock options 3,219 10,816 32,190 108,158 118,974 Net income 423,178 423,178 Distributions to stockholders (172,000) (172,000) ------ -------- ------- -------- -------- --------- -------- Balance, December 31, 1996 21,457 $ 12,474 214,570 $124,738 $655,294 $174,787 $967,293 ====== ======== ======= ======== ======== ========= ========
See accompanying notes.
BUDD SEED, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1996 and 1995 - ----------------------------------------------------------------------------------------------------------------------------------- 1996 1995 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 423,178 $ 310,578 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,797 49,515 Loss on disposal of assets, net 1,293 Changes in: Accounts receivable ( 405,584) ( 37,761) Inventory ( 534,036) ( 209,640) Prepaid expenses ( 13,003) ( 674) Trade accounts payable ( 24,783) ( 442,632) Accrued expenses 16,657 ( 2,303) Accrued payroll 26,663 7,259 --------------- -------------- NET CASH USED BY OPERATING ACTIVITIES ( 479,818) ( 325,658) --------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment ( 16,851) ( 31,215) Proceeds from sale of assets 25,553 --------------- -------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 8,702 ( 31,215) --------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends ( 172,000) ( 87,942) Additional common stock issued (voting) 10,816 Additional common stock issued (nonvoting) 108,158 New borrowings Short-term 559,000 470,000 Debt reduction Long-term ( 28,247) ( 21,475) NET CASH PROVIDED BY FINANCING ACTIVITIES 477,727 360,583 --------------- -------------- NET INCREASE IN CASH 6,611 3,710 CASH BEGINNING OF YEAR 92,648 88,938 --------------- -------------- CASH AT END OF YEAR $ 99,259 $ 92,648 =============== ==============
See accompanying notes.
- --------------------------------------------------------------------------------- 1996 1995 -------- -------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $134,100 $ 93,152 ======== ========
-4- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations - -------------------- The Company operates a retail and wholesale agricultural supply business in the Southeast. Use of Estimates - ---------------- Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. 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 vary from the estimates that were used. Inventory - --------- Inventory is valued at the lower of cost or market, with cost determined using the last-in, first-out method. Property and Equipment - ---------------------- Property and equipment are stated at cost and are depreciated by straight-line and accelerated methods over estimated useful lives. Other Assets - ------------ Other assets which are amortizable are being amortized by the straight-line method over the life of the respective agreements. Cash Equivalents - ---------------- For purposes of the statement of cash flows, the Company considers all debt instruments purchased with a maturity of three months or less to be cash equivalents. Income Taxes - ------------ The Company has elected to be treated as an eligible small business (S Corporation) for tax purposes. Under this election, income is taxed to the individual stockholders and not to the Company. Accordingly, there is no provision for income taxes. Reclassifications - ----------------- Certain amounts for 1995 have been reclassified where appropriate to conform with 1996 classifications. -5- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 - ------------------------------------------------------------------------------- NOTE B - CASH At December 31, 1996, the Company had on deposit with a single bank funds in excess of FDIC insurance. The amount on deposit before consideration of deposits in transit and outstanding checks was $116,749. NOTE C - INVENTORY Inventory consists of the following:
1996 1995 ---------- ---------- Grass seed $2,508,835 $1,973,887 Less excess of current cost over LIFO inventory 121,996 106,995 ---------- ---------- Inventory - LIFO 2,386,839 1,866,892 Bag inventory 36,215 22,126 ---------- ---------- $2,423,054 $1,889,018 ========== ==========
If these inventories had been stated at cost using the first-in, first-out (FIFO) method of valuation, the net income would have been as follows:
1996 1995 ---------- ---------- Net income $ 445,569 $ 310,578 Increase (decrease) in LIFO reserve 15,001 40,047 ---------- ---------- $ 460,570 $ 350,625 ========== ==========
NOTE D - PROPERTY AND EQUIPMENT Property and equipment consist of the following:
1996 1995 ---------- ---------- Autos $ 29,033 Equipment $ 140,315 132,778 Furniture 30,209 30,209 Office equipment 95,929 96,929 Trucks 18,013 18,013 ---------- ---------- 284,466 306,962 Less accumulated depreciation (251,327) (234,031) ---------- ---------- $ 33,139 $ 72,931 ========== ==========
Depreciation expense was $29,797 and $49,352 for the years ended December 31, 1996 and 1995, respectively. -6- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE E - SHORT-TERM DEBT PAYABLE The Company has a loan agreement with a bank involving up to $2,000,000 on a revolving line of credit. Interest at the prime rate is payable monthly on the outstanding principal of the line of credit with all the outstanding principal due in September 1997. The line of credit is secured by the Company's accounts receivable and inventory and guaranteed by the Company's majority stockholder and his spouse. The line of credit agreement includes several loan covenants with which the Company complied. NOTE F - LONG-TERM DEBT The Company's long-term debt consists of the following:
1996 1995 ----------- ----------- Note payable in monthly installments of $3,294 through May 1999 (and a balloon payment at that time), plus interest at prime, collateralized by equipment. $ 139,302 Note payable in monthly installments of $3,294 through August 1996 (and a balloon payment at that time), plus interest at prime, collateralized by equipment. $ 167,549 Less current portion 39,528 167,549 ---------- ---------- $ 99,774 $ ========== ==========
Future maturities of long-term debt are summarized as follows:
1997 $ 39,528 1998 39,528 1999 $ 60,246 ---------- $ 139,302 ==========
Interest expense was $136,041 and $92,779 for the years ended December 31, 1996 and 1995, respectively. NOTE G - RELATED PARTY TRANSACTIONS In 1996, total sales included $601,237 to related parties and accounts receivable at December 31, 1996 including $82,722 to related parties. (see Note H) BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE H - LEASES WITH RELATED PARTIES The Company entered into an agreement with the majority stockholder to lease a portion of its facilities for $10,775 per month. The agreement expires annually with a renewal option for four years expiring in 1999 and provides for adjustments each July for changes in the Consumer Price Index. Total lease expense charged to operations on these leases was $142,100 and $129,280 for the years ended December 31, 1996 and 1995, respectively. (See Note G) NOTE I - OPERATING LEASES The Company has an operating lease on two trucks renewable on an annual basis. The lease includes monthly payments of $2,762 and provides for adjustments each year based on the Consumer Price Index. The Company has an operating lease on two trailers renewable on an annual basis. The lease includes monthly payments of $973 and provides for adjustments each year based on the Consumer Price Index. The Company entered into an operating lease on a vehicle in 1994, to be used by the majority stockholder. The lease includes monthly payments of $504 and expires in July 1997. The Company entered into three operating leases on equipment in 1994. The leases include monthly payments of $954 and expire in December 1996, January 1998, and April 1999. The Company entered into two operating leases on equipment in 1995. The leases include a monthly payment of $59 expiring in April 1998 and a quarterly payment of $321 expiring in December 1999. The Company entered into three operating leases on vehicles and equipment in 1996. The leases include monthly payments of $1,282, expiring in 1997 and March 2001. Future minimum operating and related party lease payments are summarized as follows: 1997 $ 63,437 1998 9,225 1999 5,771 2000 3,363 2001 560 --------- $ 82,356 =========
Total lease expense charged to operations on these leases was $88,354 and $76,971 for the years ended December 31, 1996 and 1995, respectively. -8- BUDD SEED, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1996 and 1995 - -------------------------------------------------------------------------------- NOTE J - STOCK OPTION AGREEMENT On April 21, 1995, the Company entered into stock option plans with two officers of the Company. The Plan grants the option to purchase a total of 3,219 shares of voting common stock and 32,190 shares of nonvoting common stock as an "incentive stock option". In June 1996, the options were exercised by the two officers by purchasing a total of 3,219 shares of voting common stock and 32,190 shares of nonvoting common stock for $118,974. NOTE K - STOCK GIFTS Effective January 1, 1995, the Company's sole stockholder gifted 364 shares of the Company's stock to a company officer. In addition, the sole stockholder gifted 6,973 shares to his son. These actions reduced his ownership percentage to 60% of the Company. Effective January 1, 1996, the Company's majority stockholder gifted 6,719 shares of the Company's stock to a stockholder, reducing the majority stockholder's ownership percentage to 56% of the Company. NOTE L - BUY/SELL AGREEMENT On January 10, 1995, the Company stockholders entered into an agreement whereby, in the event a minority stockholder wants to dispose of all or a portion of their stock, the majority stockholder has a right of first refusal to the shares. In the event he does not purchase all of the shares, the other minority stockholders have the right of purchase. NOTE M - CAPITAL STOCK On December 5, 1995, the Company amended the Articles of Incorporation to provide for Class A (voting) no par value common stock with 100,000 shares authorized and Class B (nonvoting) no par value common stock with 1,000,000 shares authorized. Each issued and outstanding share of common stock of the corporation was converted into one share of Class A voting common stock and ten shares of Class B nonvoting common stock. NOTE N - CONCENTRATION OF ECONOMIC DEPENDENCY The Company sold approximately 23% and 25% of its products in 1996 and 1995, respectively, to one customer. -9- Independent Auditors' Report ---------------------------- To the Shareholders of Sunbelt Seeds, Inc. Atlanta, Georgia We have audited the accompanying balance sheet of Sunbelt Seeds, Inc. (a Georgia corporation) as of November 30, 1997, and the related statements of operations, changes in shareholder's investment, and cash flows for the ten months 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 Sunbelt Seeds, Inc. as of November 30, 1997, and the results of its operations and its cash flows for the ten months then ended in conformity with generally accepted accounting principles. Blackwell Poole, LLP Certified Public Accountants January 9, 1998 SUNBELT SEEDS, INC. BALANCE SHEET NOVEMBER 30, 1997 Assets Current assets: Cash $ 581,232 Accounts receivable less allowance for doubtful accounts of $19,760 3,477,507 Employee advances 1,000 Inventories 668,227 Prepaid expenses 80,000 Deferred tax benefit 23,000 ------------- Total current assets 4,830,966 Property and equipment: Machinery and equipment $ 11,590 Automobiles 7,222 Furniture and fixtures 8,502 ------------- 27,314 Less: Accumulated depreciation (27,314) - ------------- ------------- Total assets $ 4,830,966 =============
Liabilities and Shareholder's Investment Current liabilities: Accounts payable $ 2,949,247 Accrued expenses 271,809 Income taxes payable 250,000 ------------ Total current liabilities 3,471,056 Shareholder's investment: Common stock of $1 par value; Authorized: 100,000 shares; Issued and outstanding: 2,000 shares $ 2,000 Paid-in capital 98,000 Retained earnings 1,259,910 1,359,910 --------------- ------------ Total liabilities and shareholder's investment $ 4,830,966 ============
The accompanying notes are an integral part of these financial statements. Exhibit A SUNBELT SEEDS, INC. STATEMENT OF OPERATIONS TEN MONTHS ENDED NOVEMBER 30, 1997 Sales $ 14,659,576 Cost of sales: Seed purchases $ 11,498,772 Freight 312,592 11,811,364 -------------- -------------- Gross profit 2,848,212 Operating expenses: Selling and delivery 1,551,710 General and administrative 346,287 1,897,997 -------------- -------------- Income from operations 950,215 Other income (expenses): Interest 12,854 Other (47,353) Management fees (300,000) (334,499) -------------- -------------- Income before income taxes 615,716 Provision (benefit) for income taxes: Current 247,873 Deferred (7,000) 240,873 -------------- -------------- Net income $ 374,843 ==============
The accompanying notes are an integral part of these financial statements. Exhibit B SUNBELT SEEDS, INC. STATEMENT OF CHANGES IN SHAREHOLDER'S INVESTMENT TEN MONTHS ENDED NOVEMBER 30, 1997
Common Paid-in Retained Stock Capital Earnings ------------------ ------------------ ------------------ Balance at January 31, 1997 $ 2,000 $ 98,000 $ 885,067 Net income for the period 374,843 ------------------ ------------------ ------------------ Balance at November 30, 1997 $ 2,000 $ 98,000 $ 1,259,910 ================== ================== ==================
The accompanying notes are an integral part of these financial statements. Exhibit C SUNBELT SEEDS, INC. STATEMENT OF CASH FLOWS TEN MONTHS ENDED NOVEMBER 30, 1997 Cash flows provided by (used for) operating activities: Net income $ 374,843 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Bad debt expense 16,000 Deferred taxes (7,000) Changes in operating assets and liabilities: Increase in accounts receivable (2,544,614) Decrease in inventory 111,836 Increase in prepaid expenses (94,113) Increase in accounts payable and accrued expenses 2,262,350 Increase in income taxes payable 229,349 -------------- Net cash provided by operating activities 348,651 -------------- Net increase in cash 348,651 Cash - beginning of period 232,581 -------------- Cash - November 30, 1997 $ 581,232 ============== Supplemental Disclosure of Cash Flow Information: - ------------------------------------------------- Cash paid during the period for: Income taxes $ 20,711 ================
The accompanying notes are an integral part of these financial statements. Exhibit D SUNBELT SEEDS, INC. NOTES TO FINANCIAL STATEMENTS 1. Organization: ------------- Prior to June 1997, Sunbelt Seeds, Inc. was owned by Lofts Seed, Inc. and Southern Turf Nurseries (STN). In June 1997 Loft's Seeds acquired the remaining 50% interest from STN. As part of the agreement, Sunbelt Seeds, Inc. paid $100,000 to STN for a noncompete arrangement. The arrangement is for two years. In January 1998 Agribiotech, Inc. acquired the entire interest of Loft's Seeds. 2. Summary of Significant Accounting Policies: ------------------------------------------- Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. 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 vary from the estimates that were used. Inventories: Inventories are stated at the lower of last-in, first-out (LIFO) cost or market. Property, Equipment, and Depreciation: Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets by the straight-line method for the financial statement and accelerated methods for income tax purposes. There was no depreciation expense charged to operations for the ten months ended November 30, 1997, because all assets had been completely depreciated in prior periods. Maintenance and repairs are charged to expense as incurred. Cash and Cash Equivalents: For purposes of the statement of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less. 3. Concentration of Credit Risk: ----------------------------- The Company primarily sells its products to golf courses and garden supply stores in the Southeastern United States. Concentrations of credit risk within this region and industry are generally diversified due to the large number of entities comprising the Company's customer base. No one customer or affiliated group of customers comprise a significant portion of the Company's receivables. While these receivables are unsecured, the Company performs ongoing credit evaluations of its customers' financial condition. SUNBELT SEEDS, INC. NOTES TO FINANCIAL STATEMENTS 3. Concentration of Credit Risk (continued): ----------------------------------------- The Company maintains its cash in bank deposit accounts which at times, may exceed federally insured limits. The Company has not experienced any losses in such amounts. Sales to the Company's largest customer, Home Depot, Inc. were approximately $4,518,955 for the ten months ending November 30, 1997. 4. Transactions with Related Parties: ---------------------------------- For the period ending November 30, 1997, the Company purchased approximately $6,123,406 of seeds from Great Western Seed Company, a subsidiary of Loft's Seed, Inc. and $93,392 from Bud Seed. The amount due as of November 30, 1997 is $2,019,240. Management services were provided to the Company from the shareholders. The fees amounted to $300,000 for the period ending November 30, 1997. 5. Employees' Retirement Plan: --------------------------- During the fiscal year 1989, the Company initiated a qualified retirement plan under Section 401(k) of the Internal Revenue Code of 1986 that covers substantially all employees. Eligible employees are permitted to contribute a portion of gross compensation into the retirement plan and the Company will match each employee contribution at a specified rate up to a maximum matching contribution. The contributions for the period ended November 30, 1997 were $13,124. 6. Lease Commitments: ------------------ The Company has various operating leases covering automobiles and office space. Minimum rental commitments under these noncancelable leases are approximately as follows: November 30, 1998 $ 38,400 November 30, 1999 38,400 November 30, 2000 32,245 Lease expense charged to operations was $30,180 for the period ended November 30, 1997. Independent Auditor's Report ---------------------------- To the Shareholders of Sunbelt Seeds, Inc. Atlanta, Georgia We have audited the accompanying balance sheets of Sunbelt Seeds, Inc. (a Georgia corporation) as of January 31, 1997 and 1996, and the related statements of operations, changes in shareholders' investment, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sunbelt Seeds, Inc. as of January 31, 1997 and 1996, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Blackwell, Poole & Company Certified Public Accountants April 17, 1997 SUNBELT SEEDS, INC. BALANCE SHEETS JANUARY 31, 1997 AND 1996 Assets
1997 1996 --------------- --------------- Current assets: Cash $ 232,581 $ 81,592 Accounts receivable less allowance for doubtful accounts of $52,628 in 1997 and $55,373 in 1996 948,768 1,050,905 Employee advances 1,125 3,900 Inventories 780,062 996,554 Prepaid expenses 1,733 7,857 Deferred tax benefit 16,000 16,000 --------------- ---------------- Total current assets 1,980,269 2,156,808 Property and equipment: Machinery and equipment 11,590 11,590 Automobiles 7,222 7,222 Furniture and fixtures 8,502 8,502 --------------- ---------------- 27,314 27,314 Less: Accumulated depreciation (27,314) (26,123) --------------- ---------------- Total property and equipment - 1,191 --------------- ---------------- Total assets $ 1,980,269 $ 2,157,999 =============== ================
Liabilities and Shareholders' Investment
1997 1996 --------------- --------------- Current liabilities: Accounts payable: Trade $ 845,052 $ 741,245 Related party - 10,037 Accrued expenses 129,499 217,763 Income taxes payable 20,651 133,186 --------------- --------------- Total current liabilities 995,202 1,102,231 Shareholders' investment: Common stock of $1 par value; Authorized: 100,000 shares; Issued and outstanding: 2,000 shares 2,000 2,000 Paid-in capital 98,000 98,000 Retained earnings 885,067 955,768 --------------- --------------- Total shareholders' investment 985,067 1,055,768 --------------- --------------- Total liabilities and shareholders' investment $ 1,980,269 $ 2,157,999 =============== ===============
The accompanying notes are an integral part of these financial statements. Exhibit A SUNBELT SEEDS, INC. STATEMENTS OF OPERATIONS YEARS ENDED JANUARY 31, 1997 AND 1996
1997 1996 ---------------------- --------------------- Sales $ 14,705,646 $ 12,398,779 ---------------------- --------------------- Cost of sales: Seed purchases 11,868,362 9,321,475 Freight 316,839 404,889 ---------------------- --------------------- Total cost of sales 12,185,201 9,726,364 ---------------------- --------------------- Gross profit 2,520,445 2,672,415 ---------------------- --------------------- Operating expenses: Selling and delivery 1,632,869 1,588,903 General and administrative 426,621 411,057 ---------------------- --------------------- 2,059,490 1,999,960 ---------------------- --------------------- Income from operations 460,955 672,455 ---------------------- --------------------- Other income (expenses): Interest 2,252 (1,839) Other (21,613) (11,432) Management fees (300,000) (300,000) ---------------------- --------------------- (319,361) (313,271) ---------------------- --------------------- Income before income taxes 141,594 359,184 ---------------------- --------------------- Provision for income taxes: Current 62,295 144,239 Deferred - - ---------------------- --------------------- 62,295 144,239 ---------------------- --------------------- Net income $ 79,299 $ 214,945 ====================== =====================
The accompanying notes are an integral part of these financial statements. Exhibit B SUNBELT SEEDS, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' INVESTMENT YEARS ENDED JANUARY 31 1997 AND 1996
Common Paid-in Retained Stock Capital Earnings ------------------ ------------------ ------------------ Balance at January 31, 1995 $ 2,000 $ 98,000 $ 890,823 Dividends - - (150,000) Net income for the period - - 214,945 ------------------ ------------------ ------------------ Balance at January 31, 1996 2,000 98,000 955,768 Dividends - - (150,000) Net income for the period - - 79,299 ------------------ ------------------ ------------------ Balance at January 31, 1997 $ 2,000 $ 98,000 $ 885,067 ================== ================== ==================
The accompanying notes are an integral part of these financial statements. Exhibit C SUNBELT SEEDS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 31, 1997 AND 1996
1997 1996 ---------------------- --------------------- Cash flows provided by (used for) operating activities: Net income $ 79,299 $ 214,945 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,191 1,100 Bad debt expense 25,500 13,000 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 79,412 (15,005) Decrease in inventory 216,492 50,166 Decrease (increase) in prepaid expenses 6,124 (4,103) Increase (decrease) in accounts payable and accrued expenses 5,506 (14,398) Increase (decrease) in income taxes payable (112,535) 47,370 ---------------------- --------------------- Net cash provided by operating activities 300,989 293,075 Cash flows provided by (used for) investing activities: Acquisition of fixed assets - (11,549) Insurance reimbursement on assets - 13,007 ---------------------- --------------------- Net cash provided by investing activities - 1,458 Cash flows used for financing activities: Net loans on line of credit - (135,000) Dividends paid (150,000) (150,000) ---------------------- --------------------- Net cash used for financing activities (150,000) (285,000) ---------------------- --------------------- Net increase in cash 150,989 9,533 Cash - beginning of year 81,592 72,059 ---------------------- --------------------- Cash - end of year $ 232,581 $ 81,592 ====================== =====================
Supplemental Disclosure of Cash Flow Information: - -------------------------------------------------
1997 1996 ------------------------ ---------------------- Cash paid during the year for: Income taxes $ 177,854 $ 96,869 ======================== ====================== Interest $ 642 $ 2,801 ======================== ======================
The accompanying notes are an integral part of these financial statements. Exhibit D SUNBELT SEEDS, INC. NOTES TO FINANCIAL STATEMENTS 1. Organization: ------------- Sunbelt Seeds, Inc. (the Company) is owned by Loft's Seed, Inc. and STN. Each shareholder owns fifty percent of the outstanding common stock of the Company. 2. Summary of Significant Accounting Policies: ------------------------------------------- Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. 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 vary from the estimates that were used. Inventories: Inventories are stated at the lower of last-in, first-out (LIFO) cost or market. Property, Equipment, and Depreciation: Property and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the assets by the straight-line method for the financial statement and accelerated methods for income tax purposes. Depreciation expense charged to operations amounted to $1,191 in 1997 and $1,100 in 1996. Maintenance and repairs are charged to expense as incurred. Cash and Cash Equivalents: For purposes of the statement of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less. 3. Line of Credit: --------------- The Company has a bank line of credit of $500,000 at a rate of 1/2% above prime. All borrowings under this agreement are secured by the Company's accounts receivable and inventories. As of January 31, 1997, $500,000 was available to the Company. SUNBELT SEEDS, INC. NOTES TO FINANCIAL STATEMENTS 4. Concentration of Credit Risk: ----------------------------- The Company primarily sells its products to golf courses and garden supply stores in the Southeastern United States. Concentrations of credit risk within this region and industry are generally diversified due to the large number of entities comprising the Company's customer base. No one customer or affiliated group of customers comprise a significant portion of the Company's receivables. While these receivables are unsecured, the Company performs ongoing credit evaluations of its customers' financial condition. Sales to the Company's largest customer, Home Depot, Inc. were approximately $3,960,446 and $2,900,000 for the years ended January 31, 1997 and 1996, respectively. 5. Transactions with Related Parties: ---------------------------------- In fiscal years ending January 31, 1997, and 1996, the Company purchased approximately $6,878,523 and $5,823,265, respectively, of seeds from Great Western Seed Company, a subsidiary of Loft's Seed, Inc. Management services were provided to the Company from the shareholders. The fees amounted to $300,000 for the fiscal years ending January 31, 1997 and 1996. 6. Employees' Retirement Plan: --------------------------- During the fiscal year 1989, the Company initiated a qualified retirement plan under Section 401(k) of the Internal Revenue Code of 1986 that covers substantially all employees. Eligible employees are permitted to contribute a portion of gross compensation into the retirement plan and the Company will match each employee contribution at a specified rate up to a maximum matching contribution. The contributions for the fiscal years 1997 and 1996 were $13,124 and $18,345, respectively. SUNBELT SEEDS, INC. NOTES TO FINANCIAL STATEMENTS 7. Lease Commitments: ------------------ The Company has various operating leases covering automobiles and office space. Minimum rental commitments under these noncancelable leases are approximately as follows: January 31, 1998 $42,765 January 31, 1999 38,726 January 31, 2000 39,202 2000 and beyond 26,304
Lease expense charged to operations was $36,905 and $40,372 for 1997 and 1996, respectively. 8. Income Taxes: ------------- The deferred tax assets and liabilities as of January 31, 1997 and 1996 were calculated as follows:
1997 1996 --------------------- --------------------- Allowance for bad debts $ 16,000 $ 16,000 ===================== =====================
AGRIBIOTECH, INC. Pro Forma Combined Financial Information (Unaudited) The following pro forma combined summary of operations combines the results of operations of AgriBioTech, Inc. ("ABT"), W-L Research, Inc. and Germain's, Inc. (collectively "WL/Germain's"), E.F. Burlingham & Sons and Subsidiary ("Burlingham"), Olsen Fennell Seeds, Inc. ("Olsen Fennell"), Lofts Seed, Inc. and Budd Seed, Inc. (collectively "Lofts"), Seed Corporation of America and Green Seed Company Limited Partnership (collectively "SeedCo"), and Willamette Seed Co. ("Willamette") as if all acquisitions occurred at the beginning of the periods presented. The pro forma combined summary of operations reflects known changes resulting from the acquisitions but does not reflect impacts of any changes in operations, anticipated efficiencies and synergies from consolidation. The pro forma combined summary balance sheet reflects ABT's consolidated balance sheet as of December 31, 1997 combined with the balance sheets of Lofts, SeedCo, and Willamette as of December 31, 1997. The business of these entities is subject to wide seasonal fluctuations and, therefore, the results of operations for periods less than twelve months may not be indicative of annual results. The pro forma adjustments are based on preliminary estimates, available information, and certain assumptions that management deems appropriate and may be revised as additional information becomes available. The pro forma combined financial information does not purport to represent what ABT's financial position or results of operations would actually have been if such transactions had in fact occurred on those dates and are not necessarily representative of ABT's financial position or results of operation for any future period. The pro forma combined financial information should be read in conjunction with the historical financial statements of ABT, WL/Germain's, Burlingham, Olsen Fennell, Lofts, SeedCo, and Willamette included herein or previously filed with the Securities and Exchange Commission. AGRIBIOTECH, INC. PRO FORMA COMBINED SUMMARY BALANCE SHEET DECEMBER 31, 1997 (Unaudited)
Pro forma ABT (G) Lofts (G) SeedCo(G) Williamette(G) Adjustments combined ------------ ----------- ------------ ------------------ -------------- ----------- ASSETS Current Assets Cash and cash equivalents $ 8,235,871 144,197 9,906 564,248 (8,000,000) (I) 954,222 Accounts receivable 14,241,620 4,931,275 1,885,750 1,679,016 200,000 (I) 22,245,857 (691,804) (H) Inventories 34,167,138 14,991,981 6,186,885 7,636,612 442,844 (I) 63,425,460 Other 774,289 231,119 729,169 290,362 214,507 (I) 2,239,446 ------------- ---------- --------- ---------- ---------- ----------- Total current assets 57,418,918 20,298,572 8,811,710 10,170,238 (7,834,453) 88,864,985 Property, plant and equipment, net 21,713,245 332,749 230,903 4,380,163 13,260,774 (I) 39,907,834 Intangible assets, net of accumulated amortization 26,018,264 - (2,005,037) 12,500 46,205,609 (I) 70,231,336 Investment in associated entity, at equity 1,064,616 - - - - 1,064,616 Other 139,498 601,976 59,840 1,411,274 - 2,212,588 ------------- ---------- --------- ---------- ---------- ----------- Total Assets $ 106,354,541 21,223,297 7,097,416 15,974,175 51,631,930 202,281,359 ============= ========== ========= ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt - 8,512,490 5,576,653 4,483,753 34,220,983 (I) 53,793,879 Current installments of long-term obligations 1,565,952 - 393,147 149,888 - 2,108,987 Accounts payable 14,597,325 2,272,273 1,582,252 7,332,250 (691,804) (H) 25,092,296 Accrued liabilities 1,701,685 1,131,414 - 61,567 733,000 (I) 3,627,666 Amount due in connection with acquisition 1,600,000 - - 1,600,000 ------------ ---------- ---------- ---------- ----------- ----------- Total current liabilities 19,464,962 11,916,177 7,552,052 12,027,458 34,262,179 85,222,828 Long-term obligations, excluding current installments 5,274,206 6,347,248 350,866 1,210,231 2,152,607 (I) 15,335,158 Deferred income taxes 1,018,369 - - - 3,108,000 (I) 4,126,369 ------------ ---------- --------- ---------- ---------- ----------- Total liabilities 25,757,537 18,263,425 7,902,918 13,237,689 39,522,786 104,684,355 ------------ ---------- --------- ---------- ---------- ----------- Stockholders' equity: Preferred stock 1 - - - - 1 Common stock 28,822 992,506 50,500 495,000 (1,538,006)(I) 30,822 2,000 Capital in excess of par value 93,601,742 - - - - (I) 110,599,742 16,998,000 (I) Accumulated (deficit) (13,033,561) 1,967,366 (856,002) 2,241,486 (3,352,850)(I) (13,033,561) ------------ ---------- --------- ---------- ---------- ----------- Total stockholders' equity 80,597,004 2,959,872 (805,502) 2,736,486 12,109,144 97,597,004 ------------ ---------- --------- ---------- ---------- ----------- Total liabilities and stockholders' equity $106,354,541 21,223,297 7,097,416 15,974,175 51,631,930 202,281,359 ============ ========== ========= ========== ========== ===========
See accompanying notes to pro forma combined financial information. AGRIBIOTECH, INC. PRO FORMA COMBINED SUMMARY OF OPERATIONS SIX-MONTH PERIOD ENDED DECEMBER 31, 1997 (UNAUDITED)
ABT (B) Lofts (B) SeedCo (B) Willamette (B) Adjustments ------------- ----------- ----------- -------------- ----------- Net sales $ 63,814,861 39,022,000 16,401,233 17,662,735 (3,999,677) (F) Cost of sales 51,586,043 28,063,000 12,693,089 13,980,373 (3,999,677) (F) 26,152 (K) ------------- ----------- ----------- ------------ ---------- Gross profit 12,228,818 10,959,000 3,708,144 3,682,362 (26,152) Operating expenses 12,678,943 10,318,757 4,048,483 3,278,362 1,275,992 (C) (1,311,451) (J) (709,000) (L) ------------- ----------- ----------- ------------ ---------- Income (loss) from operations (450,125) 640,243 (340,339) 404,000 718,307 Other income (expense) (158,355) (679,000) 295,005 - (1,832,753) (D) ------------- ----------- ----------- ------------ ---------- Net earnings (loss) (608,480) (38,757) (45,334) 404,000 (1,114,446) =========== =========== ============ ========== Discount and imputed dividends on preferred stock 53,436 ------------- Net earnings (loss) attibutable to common stock $ (661,916) ============= Shares of common stock used in computing earnings (loss) per share: Basic 25,905,412 2,000,000 (E) Diluted 25,905,412 2,000,000 (E) ============= ========== Net earnings (loss) per common share: Basic $ (0.03) Diluted (0.03) =============
Pro forma combined ----------- Net sales 132,901,152 Cost of sales 102,348,980 ----------- Gross profit 30,552,172 Operating expenses 29,580,086 ----------- Income (loss) from operations 972,086 Other income (expense) (2,375,103) ----------- Net earnings (loss) (1,403,017) Discount and imputed dividends on preferred stock 53,436 ----------- Net earnings (loss) attibutable to common stock (1,456,453) =========== Shares of common stock used in computing earnings (loss) per share: Basic 27,905,412 Diluted 27,905,412 ========== Net earnings (loss) per common share: Basic (0.05) Diluted (0.05) ===========
See accompanying notes to pro forma combined financial information. AgriBioTech, Inc. Pro Forma Combined Summary of Operations Year ended June 30, 1997 (Unaudited)
Olsen ABT (A) WL/Germain's (A) Burlingham (A) Fennell (A) Lofts (A) SeedCo (A) ----------- ---------------- -------------- ----------- ---------- ---------- Net sales $65,904,058 2,671,772 31,040,752 28,566,907 74,696,000 39,130,541 Cost of sales 49,527,150 1,816,236 25,439,688 25,214,881 53,802,000 31,108,155 ----------- --------- ---------- ---------- ---------- ---------- Gross profit 16,376,908 855,536 5,601,064 3,352,026 20,894,000 8,022,386 Operating expenses 17,971,813 1,014,557 3,383,987 3,444,793 16,291,530 7,813,290 ----------- --------- ---------- ---------- ---------- ---------- Income (loss) from operations (1,594,905) (159,021) 2,217,077 (92,767) 4,602,470 209,096 Other income (expense) (1,118,860) 57,075 (7,314) (24,940) (1,514,000) (150,603) ----------- --------- ---------- ---------- ---------- ---------- Net earnings (loss) (2,713,765) (101,946) 2,209,763 (117,707) 3,088,470 58,493 ========= ========== ========== ========== ========== Discount and imputed dividends on preferred stock 3,233,426 ----------- Net earnings (loss) attributable to common stock $(5,947,191) =========== Shares of common stock used in computing earnings (loss) per share: Basic 15,549,184 Diluted 15,549,184 =========== Net earnings (loss) per common share: Basic $ (0.38) Diluted (0.38) ===========
Pro forma Willamette (A) Adjustments combined -------------- ------------ ------------ Net sales 41,813,922 (6,406,563) (F) 277,417,389 Cost of sales 33,965,669 (6,406,563) (F) 214,054,215 (413,001) (K) ---------- ----------- ----------- Gross profit 7,848,253 413,001 63,363,174 Operating expenses 7,493,665 3,022,694 (C) 57,445,341 (2,956,988) (J) (34,000) (L) ---------- ----------- ----------- Income (loss) from operations 354,588 381,295 5,917,833 Other income (expense) 13,372 (4,832,423) (D) (7,577,693) ---------- ----------- ----------- Net earnings (loss) 367,960 (4,451,128) (1,659,860) ========== =========== Discount and imputed dividends on preferred stock 3,233,426 ----------- Net earnings (loss) attributable to common stock (4,893,286) =========== Shares of common stock used in computing earnings (loss) per share: Basic 2,942,593 (E) 18,491,777 Diluted 2,942,593 (E) 18,491,777 =========== =========== Net earnings (loss) per common share: Basic (0.26) Diluted (0.26) ===========
See accompanying notes to pro forma combined financial information. AGRIBIOTECH, INC. Notes to Pro Forma Combined Financial Information (Unaudited) (A) The year ended June 30, 1997 for ABT includes the operations of WL/Germain's for the period from September 1, 1996 through June 30, 1997, the operations of Burlingham for the period from April 1, 1997 through June 30, 1997, and the operations of Olsen Fennell for the period from June 1, 1997 through June 30, 1997. The amounts under the WL/Germain's column are for the two- month period ended August 31, 1996. The amounts under the Burlingham column are for the nine-month period ended March 31, 1997. The amounts under the Olsen Fennell column are for the eleven-month period ended May 31, 1997. The amounts under the Lofts, SeedCo, and Willamette columns are for the twelve- month period ended June 30, 1997. Income taxes for individual companies are not presented as they would be offset by consolidated net operating loss carryforwards. (B) The six-month period ended December 31, 1997 for ABT includes the operations of WL/Germain's, Burlingham, and Olsen Fennell for the entire period. The amounts under the Lofts, SeedCo, and Willamette columns are for the six- month period ended December 31, 1997. Income taxes for individual companies are not presented as they would be offset by consolidated net operating loss carryforwards. (C) To reflect depreciation of property, plant and equipment and amortization of intangible assets based on market value adjustments in connection with applying purchase accounting. Intangible assets resulting from the application of purchase accounting and amortization periods include goodwill of $44.8 million (10 to 40 years, with a weighted average of 34.4 years) and covenants not to compete of $1.4 million (7 to 8 years). (D) To reflect reduction of interest income earned and additional interest expense for the cash purchase price of the acquisitions. The pro forma amounts assume that the Company would use $8 million of its cash balance at December 31, 1997 for payments required to be made in the acquisitions and the remainder of payments would be obtained through the Company's existing or similar short-term credit facilities. Interest expense was computed using an interest rate of 8.5%. (E) To reflect shares of ABT common stock issued in connection with the acquisitions as if they had been outstanding for the entire period. (F) To eliminate intercompany sales. (G) The consolidated balance sheet of ABT as of December 31, 1997 includes the accounts of WL/Germain's, Burlingham, and Olsen Fennell. The amounts under the Lofts, SeedCo, and Willamette columns reflect their accounts as of December 31, 1997. (H) To eliminate intercompany balances. (I) To reflect the application of purchase accounting to the Lofts, SeedCo, and Willamette acquisitions. The total purchase price of $58.2 million is anticipated to be paid through the issuance of approximately 2,000,000 shares of the Company's common stock valued at approximately $17.0 million and cash of approximately $41.2 million. (J) Prospective reductions in compensation of former owners of acquired entities, employee benefits, management fees, and property rent resulting from employment agreements, property purchased directly from former owners and other contractual arrangements entered into in connection with acquisitions. (K) Impacts of using the first-in, first-out method of accounting for inventory accounted for using the last-in, first-out method prior to acquisition. (L) Amounts associated with items not acquired in acquisition. Also includes acquisition costs expensed by acquired entities that are not applicable to ongoing operations. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AgriBioTech, Inc. (Registrant) /s/ Henry A. Ingalls -------------------- Henry A. Ingalls Date: March 27, 1998 -----END PRIVACY-ENHANCED MESSAGE-----