Exhibit 99.1
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
RADER FARMS, INC.
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
Years ended December 31, 2006 and 2005
Financial Statements for the Year Ended December 31, 2006: |
Report of Independent Registered Public Accounting Firm |
Balance Sheet |
Statement of Income and Retained Earnings |
Statement of Cash Flows |
Notes to Financial Statements |
|
Financial Statements for the Year Ended December 31, 2005: |
Report of Independent Registered Public Accounting Firm |
Balance Sheet |
Statement of Income and Retained Earnings |
Statement of Cash Flows |
Notes to Financial Statements |
Patrick Rhodes & Associates, PLLC
Certified Public Accountants
INDEPENDENT AUDITOR’S REPORT
May 16, 2007
To the Board of Directors
Rader Farms, Inc.
Lynden, WA
We have audited the accompanying balance sheet of Rader Farms, Inc. as of December 31, 2006, and the related statements of income and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 Rader Farms, Inc. as of December 31, 2006, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the financial statements for 2006 taken as a whole. The supplemental schedule of selling, general and administrative expenses contained in the additional information is presented for the purpose of additional analysis and is not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Patrick Rhodes & Associates, PLLC
31620 23rd Avenue S., Suite #218. Federal Way, WA 98003 Seattle
(253) 528-0808 -Tacoma (253) 528-8883 -Fax (253) 528-0298 E-mail:
pra@rhodescpa.com
2
RADER FARMS, INC.
BALANCE SHEET
DECEMBER 31, 2006
ASSETS
Current Assets: |
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Cash and cash equivalents |
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| $ | 319,805 |
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Accounts receivable |
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| 1,706,504 |
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Inventory |
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| 6,795,900 |
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Prepaid expenses |
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| 60,828 |
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Other receivables |
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| 19,521 |
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Related party receivable |
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| 9,554 |
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Total current assets |
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| 8,912,112 |
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Property, Plant and Equipment: |
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Buildings |
| $ | 3,685,921 |
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Processing equipment |
| 3,315,760 |
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Harvesting equipment |
| 2,126,576 |
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Plants |
| 1,830,952 |
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Vehicles |
| 638,014 |
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Field equipment |
| 625,450 |
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Tractors |
| 176,552 |
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Office equipment |
| 133,372 |
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Shop equipment |
| 61,082 |
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Capitalized assets not placed in service |
| 1,178,111 |
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| 13,771,790 |
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Less: Accumulated depreciation |
| 6,366,436 |
| 7,405,354 |
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Other Assets: |
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Investment in farmers’ cooperative |
| 77,256 |
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Deposit |
| 20,971 |
| 98,227 |
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Total Assets |
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| $ | 16,415,693 |
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3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities: |
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Accounts payable |
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| $ | 1,986,527 |
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Line of credit |
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| 6,995,500 |
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Accrued bonuses - stockholder |
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| 380,000 |
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Accrued expenses |
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| 357,952 |
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Accrued wages |
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| 132,661 |
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Accrued payroll and business taxes |
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| 39,560 |
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Accrued interest |
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| 65,076 |
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Current portion of long-term debt |
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| 373,000 |
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Total current liabilities |
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| 10,330,276 |
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Long-Term Debt: |
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Note payable - stockholders |
| $ | 2,754,227 |
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Notes payable |
| 1,850,312 |
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Obligations under capital leases |
| 80,565 |
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| 4,685,104 |
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Less: Current portion included above |
| 373,000 |
| 4,312,104 |
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Stockholders’ Equity: |
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Common stock, $1 par value, 50,000 shares authorized, 500 shares issued and outstanding |
| 500 |
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Additional paid-in capital |
| 201,815 |
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Retained earnings |
| 1,570,998 |
| 1,773,313 |
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Total Liabilities and Stockholders’ Equity |
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| $ | 16,415,693 |
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See notes to financial statements
4
RADER FARMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2006
Sales |
| $ | 27,439,617 |
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Cost of Sales |
| 23,860,525 |
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Gross Profit |
| 3,579,092 |
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Selling, General and Administrative Expenses |
| 1,985,490 |
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Income from Operations |
| 1,593,602 |
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Other Income (Expense): |
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Miscellaneous income |
| 68,304 |
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Patronage dividend |
| 20,607 |
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Gain on disposal of assets |
| 1,000 |
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Interest expense, net of interest income of $971 |
| (758,558 | ) | |
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| (668,647 | ) | |
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Net Income |
| $ | 924,955 |
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-ooOoo-
Retained Earnings, December 31, 2005 |
| $ | 1,493,992 |
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Net Income |
| 924,955 |
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Distributions |
| (847,949 | ) | |
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Retained Earnings, December 31, 2006 |
| $ | 1,570,998 |
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See notes to financial statements
5
RADER FARMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006
Cash Flows from Operating Activities: |
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Net income |
| $ | 924,955 |
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Adjustments to reconcile net income to net cash used by operating activities: |
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Depreciation and amortization |
| 890,618 |
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Gain on disposal of assets |
| (1,000 | ) | |
Stock dividend from investment in farmers’ cooperative |
| (13,342 | ) | |
(Increase) decrease in: |
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Accounts receivable |
| (353,672 | ) | |
Inventory |
| (1,528,293 | ) | |
Prepaid expenses |
| (22,418 | ) | |
Other receivables |
| (10,801 | ) | |
Related party receivable |
| (9,554 | ) | |
Deposit |
| (20,971 | ) | |
Increase (decrease) in: |
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|
| |
Accounts payable |
| (659,174 | ) | |
Accrued bonuses - stockholder |
| 380,000 |
| |
Accrued expenses |
| (91,375 | ) | |
Accrued wages |
| 38,109 |
| |
Accrued payroll and business taxes |
| 2,145 |
| |
Accrued interest |
| 33,703 |
| |
Net Cash Used by Operating Activities |
| (441,070 | ) | |
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Cash Flows from Investing Activities: |
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Proceeds from disposal of assets |
| 5,000 |
| |
Acquisition of property and equipment |
| (2,584,678 | ) | |
Net Cash Used by Investing Activities |
| (2,579,678 | ) | |
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Cash Flows from Financing Activities: |
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Net advances from line of credit |
| 4,105,170 |
| |
Principal payments on notes payable |
| (189,381 | ) | |
Principal payments on obligations under capital leases |
| (13,645 | ) | |
Principal payments on note payable - stockholders |
| (39,502 | ) | |
Distributions to stockholders |
| (787,075 | ) | |
Net Cash Provided by Financing Activities |
| 3,075,567 |
| |
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Net Increase in Cash and Cash Equivalents |
| 54,819 |
| |
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Cash and Cash Equivalents, Beginning of Year |
| 264,986 |
| |
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Cash and Cash Equivalents, End of Year |
| $ | 319,805 |
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See notes to financial statements
6
RADER FARMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
NOTE 1: | Significant Accounting Policies | |
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| The Company: | |
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| Rader Farms, Inc. (the Company) is a Washington corporation located in Whatcom County. The Company grows raspberries, blueberries, and rhubarb and purchases marion berries, cherries, cranberries and strawberries from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution to wholesale customers. The Company grants credit to, and generally does not require collateral from qualifying customers, all of whom are located in the United States. |
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| Accounts Receivable: | |
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| The Company carries its accounts receivable at cost. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. The Company considers accounts receivable to be fully collectible and accordingly, has not provided an allowance for doubtful accounts at December 31, 2006. All of the accounts receivable are pledged as collateral as of December 31, 2006. |
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| The Company does not charge interest on outstanding receivables. A receivable is considered past due based on contract terms, which vary depending on customer credit terms. Accounts are written off after all efforts to collect have been exhausted. Accounts receivable over 90 days as of December 31, 2006 totaled $41,427. |
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| Inventory: | |
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| The Company’s inventory is stated at the lower of cost or market using the last-in, first-out (LIFO) method. The amount of inventory stated at cost, using the first-in, first-out (FIFO) method exceeded the LIFO values as of December 31, 2006 by $889,117. |
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| Property, Plant and Equipment: | |
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| Property, plant and equipment are recorded at cost and are depreciated using straight-line and accelerated methods over estimated useful lives of 3 to 39 years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures determined to represent major additions and betterments are capitalized. Depreciation and amortization expense for the year ended December 31, 2006 totaled $890,618. |
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| Capitalized assets not placed in service as of December 31, 2006 relate to plants purchased in 2005 and 2006 that will be placed into service in 2007. |
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| Advertising: | |
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| Advertising costs are expensed in the period incurred. Advertising expense for the year ended December 31, 2006 totaled $16,510. |
7
Shipping and Handling Costs: | ||
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| Freight billed to customers is considered sales revenue and the related freight costs as cost of sales. |
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| Use of Estimates: | |
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| 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, the 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. |
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| Federal Income Tax: | |
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| Rader Farms, Inc., with the consent of its stockholders, has elected to be taxed as an “S” corporation under the Internal Revenue Code. In lieu of corporation income taxes, the stockholders of an “S” corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial statements. |
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NOTE 2: | Inventory | |
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| The Company’s inventory, as of December 31, 2006, consists of the following: |
Bulk fruit |
| $ | 5,139,700 |
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Processed fruit |
| 1,479,015 |
| |
Packaging materials |
| 169,454 |
| |
Deferred crop costs |
| 896,848 |
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LIFO adjustment |
| (889,117 | ) | |
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Total |
| $ | 6,795,900 |
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| Bulk fruit includes the cost of the fruit and all of the costs related to the initial processing, handling, and storage. | |
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| Processed fruit includes the cost of the bulk fruit and the additional processing costs which includes labor and related employee benefits, fixed and variable overhead and packaging for each item processed. |
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| Packaging materials are recorded at actual cost. |
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| Deferred crop costs are costs incurred from July 1 to December 31 relating to the following year’s harvest season. These costs include labor and related employee benefits, maintenance of fields and plants, and fixed and variable overhead. | |
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NOTE 3: | Line of Credit | |
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| As of December 31, 2006, the Company has a $8,000,000 revolving line of credit with a bank that is personally guaranteed by the stockholders of the Company and collateralized by all Company assets. The balance outstanding totaled $6,995,500 as of December 31, 2006. |
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| During 2006, the Company converted $1,245,000 of the outstanding balance on the line of credit to a term loan (see Note 4). Interest is calculated using the bank’s floating prime (8.25% at December 31, 2006) and is payable monthly. Accrued interest on the line of credit totaled $38,519 at December 31, 2006. The line of credit expires on November 16, 2007. The line of credit was paid in full in May 2007, as part of the sale of farm operations (see Note 12). |
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NOTE 4: | Related Party Transactions | |
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| During 2005, the stockholders entered into a financing agreement with a bank for $6,135,000 for the refinancing of personally owned assets. The note is secured by all farm real estate owned by the stockholders, the assets of the Company and personally guaranteed by the stockholders. Of the proceeds received on this note, the stockholders advanced $2,816,362 to the Company, which was used to pay off the outstanding balance of $2,809,763 owed to the stockholders that in turn was owed to a financial institution. At December 31, 2006, the outstanding balance due to the stockholders totaled $2,754,227 (See Note 5). Accrued interest on this note totaled $13,982 as of December 31, 2006. The note was paid in full in May 2007, as part of the sale of farm operations (see Note 12). |
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| The Company has a note receivable from a related party totaling $9,554 as of December 31, 2006. The note bears no interest and is expected to be repaid in 2007. |
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| The Company leases land and buildings used for its operations from the stockholders under a month-to-month operating lease as further described in Note 7. |
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| The Company had accrued bonuses due to a stockholder of $380,000 as of December 31, 2006. |
9
NOTE 5: Long-Term Debt
Long-term debt as of December 31, 2006 consists of the following:
Notes payable: |
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Note payable - stockholders in monthly installments of approximately $22,000, including interest at the published prime rate (8.25% at December 31, 2006), due March 2015 (see Note 4) |
| $ | 2,754,227 |
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Note payable in monthly installments of $25,917, including interest at the published prime rate (8.25% at December 31, 2006), personally guaranteed by the stockholders and substantially all of the Company’s assets, due May 2011 |
| 1,127,099 |
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Note payable in monthly installments of $8,602, including interest at 7.75%, personally guaranteed by the stockholders and secured by equipment, due June 2009 |
| 692,535 |
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Note payable in annual installments of $29,383, including interest at 8.25%, secured by equipment, due October 2007 |
| 28,555 |
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Note payable in monthly installments of $1,063, including interest at 1.90%, secured by a vehicle, due February 2007 |
| 2,123 |
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Total notes payable |
| 4,604,539 |
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Capital leases: |
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Payable in monthly installments of $1,091, including interest at 7.02%, secured by vehicle, due January 2011 |
| 54,610 |
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Payable in monthly installments of $589, including interest at 5.40%, secured by equipment, due February 2011 |
| 25,955 |
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Total obligations under capital leases |
| 80,565 |
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Total notes payable and obligations under capital leases |
| 4,685,104 |
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Less: Current portion |
| 373,000 |
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Total long-term debt, net of current portion |
| $ | 4,312,104 |
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10
Future minimum maturities of long-term debt are as follows:
Years ending December 31: |
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2007 |
| $ | 373,000 |
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2008 |
| 371,000 |
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2009 |
| 928,000 |
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2010 |
| 372,000 |
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2011 |
| 214,000 |
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Thereafter |
| 2,427,104 |
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| $ | 4,685,104 |
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Accrued interest on notes payable totaled approximately $26,000 at December 31, 2006.
NOTE 6: Capital Lease Obligations
The Company leases certain operating equipment totaling $94,210 under various capital leases. The following is a schedule of future minimum lease payments under capital leases, together with the present value of the minimum lease payments as of December 31, 2006:
Years ending December 31: |
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2007 |
| $ | 20,000 |
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2008 |
| 20,000 |
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2009 |
| 20,000 |
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2010 |
| 20,000 |
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2011 |
| 14,993 |
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Total minimum lease payments |
| 94,993 |
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Less: Amount representing interest |
| 14,428 |
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Present value of net minimum payments under capital leases |
| $ | 80,565 |
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Included in depreciation expense for the year ended December 31, 2006 is amortization related to assets held under capital leases totaling $9,428. Accumulated amortization related to assets held under capital leases as of December 31, 2006 totaled $9,428.
11
NOTE 7: Operating Leases
The Company leases real property and buildings from the stockholders and a non-related party, as further described below.
The Company leases real property used for its operations from a non-related party under a non-cancelable operating lease. The terms of the lease call for monthly payments of $3,420. The lease expires December 31, 2016. The agreement also includes certain provisions for cleanup of the property upon lease termination. To ensure such provisions are met, the lease agreement requires a deposit of $20,000 be maintained in a separate interest bearing bank account. This deposit and accumulated interest are reflected on the balance sheet as a noncurrent asset. These funds will be released upon satisfaction of cleanup provisions. Interest income earned is not restricted.
Rent expense for this lease totaled $41,040 for the year ended December 31, 2006.
Future minimum lease payments under operating leases for the years subsequent to December 31, 2006, are as follows:
Years ending December 31: |
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2007 |
| $ | 41,000 |
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2008 |
| 41,000 |
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2009 |
| 41,000 |
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2010 |
| 41,000 |
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2011 |
| 41,000 |
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Thereafter |
| 205,000 |
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| $ | 410,000 |
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The Company leases land and buildings used for its operations from the stockholders under a month-to-month operating lease. The terms of the lease call for monthly payments of $35,000. There are no future minimum lease payments of the lease from the stockholders since it is a month-to-month operating lease and can be terminated by either the stockholders or the Company at any time. Rent expense totaled $420,000 for the year ended December 31, 2006.
NOTE 8: Concentration of Credit Risk
The Company maintains cash and cash equivalents in banks. The Company’s cash balance from time to time exceeds the federally insured limits.
Approximately 79% of the Company’s revenues were derived from berry medley sales for the year ended December 31, 2006. Approximately 11% of the Company’s revenues were derived from blueberry sales for the year ended December 31, 2006.
12
Approximately 79% of the Company’s revenues were derived from two customers for the year ended December 31, 2006. Approximately 80% of the outstanding accounts receivable was related to these customers at December 31, 2006.
Approximately 10% of the Company’s purchases were derived from one supplier for the year ended December 31, 2006. Approximately 12% of the outstanding accounts payable was related to this supplier at December 31, 2006.
Additionally, approximately 27% of outstanding accounts payable was due to two other suppliers at December 31, 2006.
The Company has not experienced any losses related to these concentrations and do not believe they are exposed to any significant credit risk.
NOTE 9: Cash Flow Information
The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.
The Company had the following non-cash transactions for the year ended December 31, 2006:
The Company had a non-cash investing activity related to receiving a stock dividend for the investment in a farmers’ cooperative of $13,342.
The Company had a non-cash investing and financing activity related to the distribution of fixed assets to the stockholders with a net book value of $60,874.
The Company had a non-cash investing and financing transaction associated with the capital leases for equipment and a vehicle totaling $94,210.
The Company had a non-cash investment and financing activity totaling $1,955,500 associated with converting a portion of the line of credit to long-term debt and the acquisition of property, plant and equipment.
Cash paid for interest totaled $725,828 for the year ended December 31, 2006.
13
NOTE 10: Retirement Plan
The Company has a SIMPLE (Savings Incentive Match Plan for Employees) retirement plan under the rules and regulations of the Internal Revenue Service. Employees who have met the service requirements are eligible to contribute up to the amount allowed by law. The employer contribution is a dollar for dollar match of employee deferrals up to a maximum of 3% of each participating employee’s salary. Employer contributions totaled $9,493 for the year ended December 31, 2006.
NOTE 11: Contingencies
Cross Guarantee of a Note Payable:
The Company is a guarantor of a note payable to a bank by the stockholders. The note was issued to the stockholders for the refinance of the bank loan relating to all of the farm real estate owned by the stockholders (See Note 4). The note is secured by all the farm real estate owned by the stockholders, the assets of the Company and personally guaranteed by the stockholders. The note had a balance outstanding of approximately $6,000,000 as of December 31, 2006. This note was paid off in May 2007, as part of the sale of the farm operations (see Note 12).
NOTE 12: Subsequent Event
In May 2007, the Company sold its farm operations in Lynden, Washington for $20,700,000 in cash. The Company sold substantially all of its assets including accounts receivable, inventory, prepaid expenses, deposits, and property, plant and equipment. The buyer assumed various trade accounts payable, accrued expenses, selected notes payable for equipment, and various leases.
As part of the sale, various loans related to the Company and the stockholders’ farm assets totaling approximately $12,704,000 were paid from the closing proceeds. The Company’s portion related to the loans totaled approximately $7,927,000 and included the line of credit, the portion of the note payable to the stockholders owed to a bank, and two loans owed to a bank for equipment. The stockholders’ portion of the loans totaled approximately $4,777,000.
In addition, the Company also entered into a non-compete agreement for a period of five years. A key employee related to the stockholders was also retained under a three year executive employment agreement. The stockholders and the buyer also entered into a ten year land lease for $43,500 per month. After ten years, the lease amount increases to $52,200 per month.
The transaction resulted in a gain of approximately $9,000,000 which will be included in operations during the second quarter of 2007.
14
ADDITIONAL INFORMATION
15
RADER FARMS, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2006
Salaries and wages |
| $ | 851,827 |
|
Brokerage fees |
| 469,521 |
| |
Professional fees |
| 218,261 |
| |
Payroll taxes and employee benefits |
| 97,191 |
| |
Office supplies and expense |
| 70,333 |
| |
Insurance |
| 69,894 |
| |
Travel and entertainment |
| 41,484 |
| |
Business taxes and licenses |
| 30,804 |
| |
Assessments |
| 25,382 |
| |
Repairs and maintenance |
| 19,334 |
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Depreciation |
| 18,350 |
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Rent |
| 18,000 |
| |
Advertising |
| 16,510 |
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Bad debt expense |
| 14,341 |
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Telephone |
| 10,478 |
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Utilities |
| 7,922 |
| |
Dues and subscriptions |
| 5,858 |
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| $ | 1,985,490 |
|
See notes to financial statements
16
RADER FARMS, INC.
Financial Statements
and Additional Information
December 31, 2005
Patrick Rhodes & Associates, PLLC
Certified Public Accountants and Consultants
17
INDEPENDENT AUDITOR’S REPORT
April 12, 2006, except as to the fourth paragraph
below and Note 13, which are as of June 22, 2007
To the Board of Directors
Rader Farms, Inc.
Lynden, WA
We have audited the accompanying balance sheet of Rader Farms, Inc. as of December 31, 2005, and the related statements of income and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 Rader Farms, Inc. as of December 31, 2005, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
In our report dated April 12, 2006, we disclaimed an opinion on the statements of income, retained earnings and cash flows because we were not engaged as auditors until after December 31, 2004. We did not observe the physical inventory taken at that date, and inventory at December 31, 2004 enters significantly into the determination of the results of operations and cash flows for the year ended December 31, 2005. Subsequent to April 12, 2006, we were able to otherwise satisfy ourselves as to the quantities on hand and the valuation of inventory as of December 31, 2004. Accordingly, our present opinion on the 2005 financial statements, as presented herein, differs from that previously expressed.
Our audit was made for the purpose of forming an opinion on the financial statements for 2005 taken as a whole. The supplemental schedule of selling, general and administrative expenses contained in the additional information is presented for the purpose of additional analysis and is not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
Patrick Rhodes & Associates, PLLC
18
RADER FARMS, INC.
BALANCE SHEET
DECEMBER 31, 2005
ASSETS
Current Assets: |
|
|
|
|
| ||
Cash |
|
|
| $ | 264,986 |
| |
Accounts receivable |
|
|
| 1,352,832 |
| ||
Inventory |
|
|
| 5,267,607 |
| ||
Deposits and prepaid expenses |
|
|
| 38,410 |
| ||
Other receivables |
|
|
| 8,720 |
| ||
Total current assets |
|
|
| 6,932,555 |
| ||
Property, Plant and Equipment: |
|
|
|
|
| ||
Buildings |
| $ | 3,397,357 |
|
|
| |
Processing equipment |
| 2,001,178 |
|
|
| ||
Harvesting equipment |
| 1,382,946 |
|
|
| ||
Plants |
| 604,509 |
|
|
| ||
Field equipment |
| 580,948 |
|
|
| ||
Vehicles |
| 473,672 |
|
|
| ||
Tractors |
| 176,552 |
|
|
| ||
Office equipment |
| 110,407 |
|
|
| ||
Shop equipment |
| 53,046 |
|
|
| ||
Capitalized assets not placed in service |
| 1,674,437 |
|
|
| ||
|
| 10,455,052 |
|
|
| ||
Less: Accumulated depreciation |
| 5,483,594 |
| 4,971,458 |
| ||
|
|
|
|
|
| ||
Other Asset: |
|
|
|
|
| ||
Investment in farmers’ cooperative |
|
|
| 63,914 |
| ||
|
|
|
|
|
| ||
Total Assets |
|
|
| $ | 11,967,927 |
| |
19
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Accounts payable |
|
|
| $ | 2,645,701 |
| |
Line of credit |
|
|
| 4,135,330 |
| ||
Accrued expenses |
|
|
| 449,326 |
| ||
Accrued wages |
|
|
| 94,552 |
| ||
Accrued payroll and business taxes |
|
|
| 37,415 |
| ||
Accrued interest |
|
|
| 31,374 |
| ||
Current portion of long-term debt |
|
|
| 94,000 |
| ||
Total current liabilities |
|
|
| 7,487,698 |
| ||
|
|
|
|
|
| ||
Long-Term Debt: |
|
|
|
|
| ||
Note payable - stockholders |
| $ | 2,793,729 |
|
|
| |
Notes payable |
| 84,193 |
|
|
| ||
|
| 2,877,922 |
|
|
| ||
Less: Current portion included above |
| 94,000 |
| 2,783,922 |
| ||
|
|
|
|
|
| ||
Stockholders’ Equity: |
|
|
|
|
| ||
Common stock, $1 par value, 50,000 shares authorized, 500 shares issued and outstanding |
| 500 |
|
|
| ||
Additional paid-in capital |
| 201,815 |
|
|
| ||
Retained earnings |
| 1,493,992 |
| 1,696,307 |
| ||
|
|
|
|
|
| ||
Total Liabilities and Stockholders’ Equity |
|
|
| $ | 11,967,927 |
| |
See notes to financial statements
20
RADER FARMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2005
Sales |
| $ | 23,544,757 |
|
|
|
|
| |
Cost of Sales |
| 20,211,776 |
| |
|
|
|
| |
Gross Profit |
| 3,332,981 |
| |
|
|
|
| |
Selling, General and Administrative Expenses |
| 1,396,443 |
| |
|
|
|
| |
Income from Operations |
| 1,936,538 |
| |
|
|
|
| |
Other Income (Expense): |
|
|
| |
Miscellaneous income |
| 60,742 |
| |
Patronage dividend |
| 16,470 |
| |
Interest expense |
| (464,166 | ) | |
|
| (386,954 | ) | |
|
|
|
| |
Net Income |
| $ | 1,549,584 |
|
-ooOoo- |
|
|
|
Balance, December 31, 2004, as previously reported |
| $ | 318,224 |
|
|
|
|
| |
Prior-Period Adjustments |
| (138,274 | ) | |
|
|
|
| |
Balance, December 31, 2004, restated |
| 179,950 |
| |
|
|
|
| |
Distributions |
| (235,542 | ) | |
|
|
|
| |
Net Income |
| 1,549,584 |
| |
|
|
|
| |
Balance, December 31, 2005 |
| $ | 1,493,992 |
|
See notes to financial statements
21
RADER FARMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2005
Cash Flows from Operating Activities: |
|
|
| |
Net income |
| $ | 1,549,584 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
| |
Depreciation and amortization |
| 651,656 |
| |
Stock dividend from investment in farmers’ cooperative |
| (10,271 | ) | |
(Increase) decrease in: |
|
|
| |
Accounts receivable |
| (226,437 | ) | |
Inventory |
| (1,161,886 | ) | |
Deposits and prepaid expenses |
| (38,410 | ) | |
Other receivables |
| 15,892 |
| |
Increase (decrease) in: |
|
|
| |
Accounts payable |
| 1,221,551 |
| |
Accrued expenses |
| 188,710 |
| |
Accrued wages |
| 36,029 |
| |
Accrued payroll and business taxes |
| (14,189 | ) | |
Accrued interest |
| (53,589 | ) | |
Bank overdraft |
| (164,521 | ) | |
Net Cash Provided by Operating Activities |
| 1,994,119 |
| |
|
|
|
| |
Cash Flows from Investing Activities: |
|
|
| |
Acquisition of property, plant and equipment |
| (1,848,983 | ) | |
Net Cash Used by Investing Activities |
| (1,848,983 | ) | |
|
|
|
| |
Cash Flows from Financing Activities: |
|
|
| |
Net advances from line of credit |
| 1,265,330 |
| |
Proceeds from note payable - stockholders |
| 2,816,362 |
| |
Principal payments on notes payable - stockholders |
| (3,633,979 | ) | |
Distributions |
| (235,542 | ) | |
Principal payments on notes payable |
| (92,321 | ) | |
Net Cash Provided by Financing Activities |
| 119,850 |
| |
|
|
|
| |
Net Increase in Cash |
| 264,986 |
| |
|
|
|
| |
Cash, Beginning of Year |
| — |
| |
|
|
|
| |
Cash, End of Year |
| $ | 264,986 |
|
See notes to financial statements
22
RADER FARMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1: Significant Accounting Policies
The Company:
Rader Farms, Inc. (the Company) is a Washington corporation located in Whatcom County. The Company grows raspberries, blueberries, and rhubarb and purchases marion berries, cherries, cranberries and strawberries from a select network of fruit growers for resale. The fruit is processed, frozen and packaged for sale and distribution to wholesale customers. The Company grants credit to, and generally does not require collateral from qualifying customers, all of whom are located in the United States.
Accounts Receivable:
The Company carries its accounts receivable at cost. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. The Company considers accounts receivable to be fully collectible and accordingly, has not provided an allowance for doubtful accounts at December 31, 2005. All of the accounts receivable are pledged as collateral as of December 31, 2005.
The Company does not charge interest on outstanding receivables. A receivable is considered past due based on contract terms, which vary depending on customer credit terms. Accounts are written off after all efforts to collect have been exhausted. Accounts receivable over 90 days as of December 31, 2005 totaled $61,600.
Inventory:
The Company’s inventory is stated at the lower of cost or market using the last-in, first-out (LIFO) method. The amount of inventory stated at cost, using the first-in, first-out (FIFO) method exceeded the LIFO values as of December 31, 2005 by $508,526.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost and are depreciated using straight-line and accelerated methods over estimated useful lives of 3 to 39 years. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures determined to represent major additions and betterments are capitalized. Depreciation and amortization expense for the year ended December 31, 2005 totaled $651,656.
Capitalized assets not placed in service as of December 31, 2005 relate to plants and processing equipment purchased in 2005 and will be placed into service in 2006 and 2007.
Advertising:
Advertising costs are expensed in the period incurred. Advertising expense for the year ended December 31, 2005 totaled $46,650.
23
Shipping and Handling Costs:
Freight billed to customers is considered sales revenue and the related freight costs as cost of sales.
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, the 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.
Federal Income Tax:
Rader Farms, Inc., with the consent of its stockholders, has elected to be taxed as an “S” corporation under the Internal Revenue Code. In lieu of corporation income taxes, the stockholders of an “S” corporation are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for federal income taxes has been included in the financial statements.
NOTE 2: Inventory
The Company’s inventory, as of December 31, 2005, consists of the following:
Bulk Fruit |
| $ | 3,280,150 |
|
Processed Fruit |
| 1,253,414 |
| |
Packaging Materials |
| 299,206 |
| |
Deferred crop costs |
| 943,363 |
| |
LIFO adjustment |
| (508,526 | ) | |
|
|
|
| |
Total |
| $ | 5,267,607 |
|
Bulk fruit includes the cost of the fruit and all of the costs related to the initial processing, handling, and storage.
Processed fruit includes the cost of the bulk fruit and the additional processing costs which includes labor and related employee benefits, fixed and variable overhead and packaging for each item processed.
Packaging materials are recorded at actual cost.
24
Deferred crop costs are costs incurred from July 1 to December 31 relating to the following year’s harvest season. These costs include labor and related employee benefits, maintenance of fields and plants, and fixed and variable overhead.
NOTE 3: Line of Credit
At December 31, 2005, the Company has a $6,000,000 revolving line of credit with a bank that is personally guaranteed by the stockholders of the Company and collateralized by all Company assets. The balance outstanding totaled $4,135,330 as of December 31, 2005. Subsequent to December 31, 2005, the Company converted $1,245,000 of the outstanding balance on the line of credit to a term loan (see Note 12). Interest is calculated using the bank’s floating prime (7.25% at December 31, 2005) and is payable monthly. Accrued interest on the line of credit totaled $17,345 at December 31, 2005. The line of credit expires on November 16, 2007. The line of credit was paid in full in May 2007, as part of the sale of farm operations (see Note 12).
NOTE 4: Related Party Transactions
During 2005, the stockholders entered into a financing agreement with a bank for $6,135,000 for the refinancing of personally owned assets. The note is secured by all farm real estate owned by the stockholders, the assets of the Company and personally guaranteed by the stockholders. Of the proceeds received on this note, the stockholders advanced $2,816,362 to the Company, which was used to pay off the outstanding balance of $2,809,763 owed to the stockholders that in turn was owed to a financial institution. As of December 31, 2005, the outstanding balance due to the stockholders totaled $2,793,729 (See Note 5). Accrued interest on this note totaled $12,998 as of December 31, 2005. The note was paid in full in May 2007, as part of the sale of farm operations (see Note 12).
The Company had a note payable to the stockholders totaling $801,583 as of December 31, 2004. The note was repaid during 2005.
The Company leases land and buildings used for its operations from the stockholders under a month-to-month operating lease as further described in Note 6.
25
NOTE 5: Long-term Debt
Long-term debt as of December 31, 2005 consists of the following:
Note payable - stockholders in monthly installments of $20,154, including interest at the published prime rate (7.25% at December 31, 2005), due March 2015 (see Note 4) |
| $ | 2,793,729 |
|
|
|
|
| |
Note payable in annual installments of $29,383, including interest at 8.25%, secured by equipment, due October 2007 |
| 53,385 |
| |
|
|
|
| |
Note payable in monthly installments of $1,464, including interest at 0%, secured by vehicle, due November 2006 |
| 16,100 |
| |
|
|
|
| |
Note payable in monthly installments of $1,063, including interest at 1.9%, secured by vehicle, due February 2007 |
| 14,708 |
| |
|
|
|
| |
Total long-term debt |
| 2,877,922 |
| |
|
|
|
| |
Less: Current portion |
| 94,000 |
| |
|
|
|
| |
Total long-term debt, net of current portion |
| $ | 2,783,922 |
|
Future minimum maturities of long-term debt are as follows:
Years ending December 31: |
|
|
| |
2006 |
| $ | 94,000 |
|
2007 |
| 70,000 |
| |
2008 |
| 52,000 |
| |
2009 |
| 50,000 |
| |
2010 |
| 54,000 |
| |
Thereafter |
| 2,557,922 |
| |
|
|
|
| |
|
| $ | 2,877,922 |
|
Accrued interest on notes payable totaled approximately $14,000 at December 31, 2005.
26
NOTE 6: Operating Leases
The Company leases real property and buildings from the stockholders and a non-related party, as further described below.
The Company leases real property used for its operations from a non-related party under a non-cancelable operating lease. The terms of the lease call for monthly payments of $3,570. The lease expired December 31, 2006, at which time it was renewed. The terms of the renewed lease call for monthly payments of $3,420. The lease expires December 31, 2016. The agreement also includes certain provisions for cleanup of the property upon lease termination. To ensure such provisions are met, the lease agreement requires a deposit of $20,000 be maintained in a separate interest bearing bank account. This deposit was made in 2006. These funds will be released upon satisfaction of cleanup provisions. Interest income earned is not restricted.
Rent expense for this lease totaled $42,840 the year ended December 31, 2005.
Future minimum lease payments under operating leases for the years subsequent to December 31, 2005, are as follows:
Years ending December 31: |
|
|
| |
2006 |
| $ | 42,840 |
|
2007 |
| 41,000 |
| |
2008 |
| 41,000 |
| |
2009 |
| 41,000 |
| |
2010 |
| 41,000 |
| |
Thereafter |
| 246,000 |
| |
|
|
|
| |
|
| $ | 452,840 |
|
The Company leases land and buildings used for its operations from the stockholders under a month-to-month operating lease. The terms of the lease call for monthly payments of $35,000. There are no future minimum lease payments of the lease from the stockholders since it is a month-to-month operating lease and can be terminated by either the stockholders or the Company at any time. Rent expense totaled $420,000 for the year ended December 31, 2005.
27
NOTE 7: Concentration of Credit Risk
The Company maintains cash and cash equivalents in banks. The Company’s cash balance from time to time exceeds the federally insured limits.
Approximately 75% of the Company’s revenues were derived from berry medley sales for the year ended December 31, 2005.
The Company has two major customers who comprise approximately 79% of its annual sales for the year ended December 31, 2005. These customers represent 82% of its accounts receivable balance at December 31, 2005.
The Company has not experienced any losses related to these concentrations and do not believe they are exposed to any significant credit risk.
NOTE 8: Cash Flow Information
The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.
During 2005, the Company had a non-cash investing activity related to receiving a stock dividend for the investment in a farmers’ cooperative of $10,271.
During 2005, the Company retired $81,979 of fully depreciated fixed assets.
Cash paid for interest for the year ended December 31, 2005 totaled $517,754.
NOTE 9: Retirement Plan
The Company has a SIMPLE (Savings Incentive Match Plan for Employees) retirement plan under the rules and regulations of the Internal Revenue Service. Employees who have met the service requirements are eligible to contribute up to the amount allowed by law. The employer contribution is a dollar for dollar match of employee deferrals up to a maximum of 3% of each participating employee’s salary. Employer contributions totaled $6,645 for the year ended December 31, 2005.
28
NOTE 10: Prior Period Adjustments
During 2005, the Company was assessed $156,144 from the Department of Revenue for not paying retail sales tax on various types of fixed assets it acquired and used for the facility and the operations of the fields. This assessment was related to the tax years 1994 to 1999, resulting in an understatement of liabilities of $156,144 as of December 31, 2004.
In addition, the Company discovered an error made in the prior period accounting for the investment in the farmers’ cooperative and related dividend receivable, resulting in an understatement of other assets of $11,616 and an understatement of other receivables of $6,254.
These errors were corrected during the year ending December 31, 2005, and resulted in the following changes to retained earnings as of December 31, 2004.
Retained earnings, as previously reported |
| $ | 318,224 |
|
|
|
|
| |
Net effect of unrecorded tax liability related to Department of Revenue assessment |
| (156,144 | ) | |
Net effect of unrecorded investment and dividend receivable related to farmers’ cooperative |
| 17,870 |
| |
|
|
|
| |
Total prior period adjustments |
| (138,274 | ) | |
|
|
|
| |
Retained earnings, as restated |
| $ | 179,950 |
|
NOTE 11: Contingencies
Cross Guarantee of a Note Payable:
The Company is a guarantor of a note payable to a bank by the stockholders. The note was issued to the stockholders for the refinance of the bank loan relating to all of the farm real estate owned by the stockholders (See Note 5). The note is secured by all the farm real estate owned by the stockholders, the assets of the Company and personally guaranteed by the stockholders. The note had a balance outstanding of approximately $6,100,000 as of December 31, 2005. This note was paid off in May 2007, as part of the sale of farm operations (see Note 12).
29
NOTE 12: Subsequent Events
Subsequent to December 31, 2005, the line of credit balance was reduced by $1,245,000, which was converted to a long-term note. The terms of note include monthly principal and interest payments with interest at the prime rate beginning in June 2006. The note is due in full in June 2011. The line of credit limit remains at $6,000,000 (See Note 3). This note was paid off in May 2007, as part of the sale of farm operations noted below.
In May 2007, the Company sold its farm operations in Lynden, Washington for $20,700,000 in cash. The Company sold substantially all of its assets including accounts receivable, inventory, prepaid expenses, deposits, and property, plant and equipment. The buyer assumed various trade accounts payable, accrued expenses, selected notes payable for equipment, and various leases.
As part of the sale, various loans related to the Company and the stockholders’ farm assets totaling approximately $12,704,000 were paid from the closing proceeds. The Company’s portion related to the loans totaled approximately $7,927,000 and included the line of credit, the portion of the note payable to the stockholders owed to a bank, and two loans owed to a bank for equipment. The stockholders’ portion of the loans totaled approximately $4,777,000.
In addition, the Company also entered into a non-compete agreement for a period of five years. A key employee related to the stockholders was also retained under a three year executive employment agreement. The stockholders and the buyer also entered into a ten year land lease for $43,500 per month. After ten years, the lease amount increases to $52,200 per month.
The transaction resulted in a gain of approximately $9,000,000 which will be included in operations during the second quarter of 2007.
NOTE 13: Reissued Financial Statements
In our report dated April 12, 2006, we disclaimed an opinion on the statements of income, retained earnings and cash flows because we were not engaged as auditors until after December 31, 2004. We did not observe the physical inventory taken at that date, and inventory at December 31, 2004 enters significantly into the determination of the results of operations and cash flows for the year ended December 31, 2005. Subsequent to April 12, 2006, we were able to otherwise satisfy ourselves as to the quantities on hand and the valuation of inventory as of December 31, 2004. Accordingly, we issued an unqualified opinion on the 2005 financial statements as of June 22, 2007.
30
ADDITIONAL INFORMATION
31
RADER FARMS, INC.
SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2005
Brokerage fees |
| $ | 508,161 |
|
Salaries and wages |
| 377,006 |
| |
Professional fees |
| 133,117 |
| |
Payroll taxes and employee benefits |
| 62,772 |
| |
Office supplies and expense |
| 55,767 |
| |
Advertising |
| 46,650 |
| |
Travel and entertainment |
| 42,612 |
| |
Insurance |
| 34,675 |
| |
Business taxes and licenses |
| 27,692 |
| |
Assessments |
| 25,702 |
| |
Repairs and maintenance |
| 21,686 |
| |
Rent |
| 18,000 |
| |
Depreciation |
| 15,437 |
| |
Telephone |
| 13,732 |
| |
Dues and subscriptions |
| 7,851 |
| |
Utilities |
| 5,583 |
| |
|
|
|
| |
|
| $ | 1,396,443 |
|
See notes to financial statements
32