SURE GROW COMPANIES COMBINED
CENTRE, ALABAMA
MAY 31, 1996
SURE GROW COMPANIES COMBINED
INDEX
Accountant's Compilation Report
Financial Statements (unaudited)
Consolidated Balance Sheets--May 31, 1996
Consolidated Statements of Income--Nine Months Ended
May 31, 1996
Consolidated Statement of Cash Flows--Nine Months Ended
May 31, 1996
Certified
Public
Accountants
Goodgame & Associates, P.C.
Accountant's Compilation Report
To the Board of Directors and Stockholders of
Sure Grow Seed, Inc.,
Ellis Brothers Seed, Inc.,
Arizona Processing, Inc., and
Mississippi Seed, Inc.
Centre, Alabama
We have compiled the accompanying combined balance sheet of Sure Grow
Seed, Inc. as of May 31, 1996, including Ellis Brothers Seed, Inc. as of
March 31, 1996, Arizona Processing, Inc. as of March 31, 1996, and
Mississippi Seed, Inc. as of March 31, 1996; and the related combined
statements of income and cash flows for the nine months then ended, in
accordance with Statements of Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management. We have
not audited or reviewed the accompanying combined financial statements and,
accordingly, do not express an opinion or any other form of assurance on
them.
Management has elected to omit substantially all of the disclosures
required by generally accepted accounting principles. If the omitted
disclosures were included in the financial statements, they might influence
the user's conclusions about the Company's financial position, results
of operations, and cash flows. Accordingly, these financial statements are
not designed for those who are not informed about such matters.
/s/ Goodgame and Associates, P.C.
Anniston, Alabama
June 20, 1996
Post Office Box 128 - Anniston, Alabama 36202 - 205/236-4600
Centre Office 205/927-5382 - FAX 205/236-4670
MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
BALANCE SHEET
SURE GROW COMPANIES COMBINED
May 31,
1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,290,199
Receivables 7,693,740
Inventories 6,724,172
Prepaid expenses 462,571
Deferred incomes taxes -0-
Total Current Assets 16,170,682
Property, Plant and Equipment, net 4,682,291
Notes receivable from employees 146,056
Intangible assets, net 75,000
Other assets 578,967
TOTAL ASSETS $21,652,996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 8,516,168
Accounts payable 2,572,080
Accrued expenses 1,244,650
Income taxes payable 1,049,262
Total Current Liabilities 13,382,160
LONG-TERM DEBT 1,677,210
DEFERRED INCOME TAXES 188,819
STOCKHOLDERS' EQUITY:
Common stock 90,000
Capital in excess of par value 152,000
Retained earnings 6,162,807
Total Stockholders' equity 6,404,807
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $21,652,996
(Unaudited) See Accountant's Compilation Report.
STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED
SURE GROW COMPANIES COMBINED
May 31,
1996
Net Sales and Royalties $17,050,347
Costs of Sales 7,654,245
Gross Profit 9,396,102
Operating Expenses
Research and development 225,043
Selling 818,091
General and administrative 5,257,704
Total Operating Expenses 6,300,838
Operating Income 3,095,264
Interest Expense (379,810)
Other 88,105
Income before Income Taxes 2,803,559
Provision for Income Taxes 1,047,116
NET INCOME $ 1,756,443
(Unaudited) See Accountant's Compilation Report.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SURE GROW COMPANIES COMBINED
May 31,
1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,756,443
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 279,774
(Increase) decrease in:
Notes receivable from employees 3,637
Intangible and other assets (41,714)
Change in current assets and liabilities:
Accounts and notes receivable (5,800,197)
Inventories (4,294,441)
Prepaid expenses (417,280)
Accounts payable 6,524
Accrued expenses (536,172)
Income taxes payable 541,320
Other, Net (27,585)
Net cash used in operating activities (8,529,691)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (855,613)
Net cash used in investing activities (855,613)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short & long term debt (16,353)
Cash dividends -0-
Proceeds from long-term debt 212,556
Proceeds from short-term debt 7,860,091
Additional paid in capital -0-
Net cash provided by financing activities 8,056,294
Net Decrease in Cash & Cash Equivalents (1,329,010)
Cash and Cash Equivalents, beginning 2,619,209
Cash and Cash Equivalents, ending $ 1,290,199
Supplemental Disclosures of Cash Flow Information:
Cash paid during the nine months for:
Interest 379,810
Income Taxes 760,402
(Unaudited) See Accountant's Compilation Report.
SURE GROW COMPANIES COMBINED
CENTRE, ALABAMA
AUDITED FINANCIAL STATEMENTS
AUGUST 31, 1995
and
JUNE 30, 1995
TABLE OF CONTENTS
SURE GROW COMPANIES COMBINED
Centre, Alabama August 31, 1995
and June 30, 1995
Independent Auditor's Report
Combined Balance Sheets
Combined Income Statements
Combined Statements of Retained Earnings
Combined Statements of Cash Flows
Notes to the Financial Statements
Certified
Public
Accountants
Goodgame & Associates, P.C.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders of
Sure Grow Seed, Inc., Mississippi Seed, Inc.,
Arizona Processing, Inc., and Ellis Brothers Seed, Inc.
Centre, Alabama
We have audited the accompanying combined balance sheet of Sure Grow
Companies as of August 31, 1995 and June 30, 1995 and the related combined
statements of income, retained earnings, and cash flows for the year then
ended. The combined financial statements include the financial statements
of Sure Grow Seed, Inc. as of August 31, 1995 and Mississippi Seed, Inc.,
Arizona Processing, Inc., and Ellis Brothers Seed, Inc., as of June 30,
1995 which are related through common ownership and management. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
combined financial statements based on our audit. We did not audit the
financial statements of Mississippi Seed, Inc. which statements reflect
total assets of $2,487,442 as of June 30, 1995 and total revenues of
$3,303,442 for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for Mississippi Seed, Inc., is based
solely on the report of the other auditors.
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 combined financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
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 our
audit and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of other auditors,
the combined financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of the Sure Grow
Companies as of August 31, 1995 and June 30, 1995 and the result of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Goodgame and Associates, P.C.
Anniston, Alabama
October 20, 1995
Post Office Box 128 Anniston, Alabama 36202 - 205/1236-4600
Centre Office 205/927-5382 - FAX 205/236-4670
MEMBER OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
COMBINED BALANCE SHEET
SURE GROW COMPANIES COMBINED
Centre, Alabama
ASSETS
Current Assets
Cash $2,619,209
Accounts receivable - trade (net of
allowance for doubtful accounts) 1,386,912
Inventories 2,429,730
Prepaid taxes 45,292
Total Current Assets 6,481,143
Fixed Assets
Buildings & land 2,596,192
Equipment and furniture 3,727,210
Vehicles 449,640
Less: Accumulated depreciation (2,666,589)
Net Fixed Assets 4,106,453
Other Assets
Trade name and goodwill 75,000
Investments 586,230
Notes Receivable 498,202
Total Other Assets (Net of Amortization) 1,159,432
TOTAL ASSETS $11,747,028
August 31, 1995
& June 30, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 2,454,353
Accrued expenses 2,288,764
Notes Payable and Current Portion of long-term debt 650,307
Total Current Liabilities 5,393,424
Long-Term Liabilities
Notes payable 1,514,366
Deferred Income Taxes 384,296
Total Long-Term Liabilities 1,898,662
Total Liabilities 7,292,086
Stockholders' Equity
Common stock 90,000
Paid in capital 152,000
Retained earnings 4,212,942
Total Stockholders' Equity 4,454,942
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,747,028
COMBINED INCOME STATEMENTS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
1995
Sales 19,318,049
Cost of Sales 8,520,938
Gross Profit 10,797,111
Operating and Selling Expenses 8,912,350
Income from Operations 1,884,761
Other Income and Expenses (273,685)
Income from operations before provision for income taxes 1,611,076
Provision for Current and Deferred Income Taxes 772,209
Net Income before extraordinary items 838,867
Extraordinary items (Note 11)
(Less applicable income taxes of $17,009) 28,591
NET INCOME $ 867,458
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF RETAINED EARNINGS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
1995
Balance, beginning of year $3,401,568
Adjustment for the combination and eliminations
of party data (See Note 10) (56,084)
Balance, beginning of year restated 3,345,844
Net income for the year 867,458
BALANCE, END OF YEAR $4,212,942
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF CASH FLOWS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 867,458
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 427,808
Gain on sale of equipment (2,839)
(Increase) decrease in:
Accounts receivable - trade (380,326)
Inventories (395,058)
Prepaid expenses (2,415)
Increase (decrease) in:
Accounts payable & current notes payable 487,710
Deferred tax liability 248,784
Deferred revenue (23,198)
Accrued expenses 1,688,824
Total Adjustments 2,049,290
Net Cash Provided by Operating Activities 2,916,748
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (1,907,317)
Notes receivable--long-term 139,697
Investments purchased (554,872)
Net Cash (Used) by Investing Activities (2,322,492)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 575,557
Principal payments on long-term debt (154,424)
Equity transferred 204,841
Net Cash Provided by Financing Activities 625,974
Net Increase (Decrease) in Cash 1,220,230
Cash and Cash Equivalents, Beginning of Year 1,398,979
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,619,209
Supplemental Disclosure:
Interest 312,682
Taxes 46,833
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
NOTE 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies of Sure Grow Companies is
presented to assisted in understanding the combined financial statements.
The financial statements and notes are representations of the Companies
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
"Sure Grow Companies Combined" consists of the year end audited financial
statements of Sure Grow Seed, Inc. as of August 31, 1995 and Ellis
Brothers Seed, Inc., Mississippi Seed, Inc. and Arizona Processing, Inc.
as of June 30, 1995. The combined financial statements are adjusted for
intercompany sales, investments, accounts receivable, and accounts payable.
Nature of Operations
Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed,
Inc. sell and distribute cottonseed as their major product in the Arizona,
Alabama and Mississippi sales markets. Their primary customer is Sure
Grow Seed, Inc. of which the three companies are the sole shareholders.
Sure Grow Seed, Inc. was formed in August of 1992 by the other three
corporations to handle the combined sales efforts for selected varieties
of cottonseed. The company's major customers are three large chemical
companies. These companies represent 63 % of Sure Grow Seed, Inc.'s sales.
Basis of Accounting
Assets, liabilities, income and expenses are recorded using the accrual
basis of accounting.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-our cost flow assumption.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
NOTE 1 - Summary of Significant Accounting Policies-Continued
Property and Equipment
Fixed assets are recorded at cost. Depreciation is calculated using the
straight-line and accelerated cost recovery methods over the estimated
useful lives of the assets.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company has considered
only actual cash, and does not consider any debt to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - Accounts Receivable
Accounts receivable consists of amounts due to the Company from regular
operations. Related party transactions between the four companies have
been eliminated.
Accounts Receivable 1995
Accounts Receivable - Trade $1,242,643
Accounts Receivable - Insurance Settlement 144,269
TOTAL ACCOUNTS RECEIVABLE $1,386,912
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
NOTE 2- Accounts Receivable-Continued
Three of the companies use the direct write-off method for bad debts. One
company uses the allowance method. These receivables are reported net of an
allowance for doubtful accounts of $36,843.
NOTE 3- Inventories
Inventories as of August 31,1995 and June 30, 1995 consist of bagged,
delinted and treated cottonseed stored in warehouses in Phoenix (Arizona),
Centre(Alabama) and Tunica (Mississippi). Inventory located in Centre,
Alabama also includes Chemicals and Fertilizer.
Inventory of Cottonseed $1,982,329
Inventory of other items 447,401
Total Inventory $2,429,730
NOTE 4- Investments
Due to management's ability to influence the operating and financial
decisions of Sure Grow Seed, Inc., the investment in Sure Grow Seed,
Inc. by each shareholder is accounted for using the equity method.
Under the equity method, the original investment is recorded at cost
and adjusted periodically to recognize each shareholder's portion of the
subsequent earnings and losses of Sure Grow Seed, Inc. However, the
effect of this method of accounting for investments has been eliminated
in these combined financial statements.
NOTE 5- Notes Payable
Notes Payable consist of (A.) Lines of credit from banks secured by
inventory and accounts receivable and (B.) Installment notes with banks
and individuals secured by the property, plant, equipment, inventory and
receivables of the component companies.
A. Lines of Credit Consist of-
A $4,000,000 Line of Credit with a bank secured by the assets of Sure
Grow Seed, Inc. The balance outstanding at year end of -O-.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
NOTE 5- Notes Payable-Continued
A $3,000,000 Line of Credit with a bank secured by the assets of Ellis
Brothers Seed, Inc. The balance outstanding at year end of $410,000.
A $1,600,000 Line of Credit with a bank secured by the assets of Arizona
Processing, Inc. The balance outstanding at year end of -O-.
B. Installment Notes consist of-
Description Total Current Long-Term
Amount Due Portion Portion
A note to a tractor distributor
for the purchase of equipment
with interest at 9%. 16,838 2,286 14,552
A note secured by property and
equipment of the company,
guaranteed personally by its owner.
Interest at 9% is due quarterly. The
principal is payable in annual installments
due each July 2 through 1999. 750,000 150,000 600,000
Two installment notes, secured
by property and equipment
of the company. Interest at
7.25%. 250,860 12,000 238,860
A note to a stockholder due in annual
installments for 20 years. Interest is
payable annually at the current bank
prime rate. 294,854 12,854 282,000
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
Description Total Current Long-term
Amount Due Portion Portion
A note to the Small Business
Administration for disaster
assistance. Interest at
4%. 103,967 5,808 98,159
A note to First Alabama
Bank, original principal
$275,000 matures 8-1-99;
with annual payments
of $55,000 and interest
at a variable rate of
7.25%. 275,000 47,582 227,418
A note to GMAC Financial
Services, original principal
$17,000 matures 11-27-97;
$411.04/month, interest at
a fixed rate of 7.5 %. 10,505 4,265 6,240
A 48 months installment
note to purchase a vehicle.
Interest rate is 9%. 19,293 5,512 13,781
A note payable to a Life
Insurance Company. 5,771
Other notes payable per
Mississippi Seed, Inc.
auditor's report 27,585
TOTAL LONG-TERM DEBT $240,307 $1,514,366
Current portion of long-term debt consists of $240,307 from installment
loans and $410,000 outstanding and due on demand on the lines of credit.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1995 & June 30, 1995
NOTE 6- Income Taxes
The Companies have adopted SFAS No. 109 "Accounting for Income Taxes."
Among other provisions, this standard requires deferred tax amounts to
be computed using effective corporate incomes tax rates for the years
in which the taxes will be paid or refunds received.
The combined provision for income tax expense at August 31, 1995 and June
30, 1995 consisted of:
Taxes Payable $523,425
Deferred Taxes 248,784
Total $772,209
Deferred taxes arise because of differences in the book and tax basis
of certain assets and liabilities. These differences are referred to as
temporary differences. Deferred tax liabilities are taxes we expect to
pay in future periods. Similarly, deferred assets are taxes we expect
to be refunded in future periods. At August 3 1, 1995 and June 30, 1995
the following temporary differences existed.
Depreciation $328,572
Undistributed Earnings of Investees 519,580
Future Taxable Income $848,152
Applying an effective tax rate to the future income results in a
total deferred the liability of $384,296. The effective rate is comprised
of a federal tax rate of thirty-four percent and a state rate of five
percent for Sure Grow Seed, Inc., Mississippi Seed, Inc. Ellis Brothers
Seed, Inc., and a state rate of nine percent for Arizona Processing, Inc.
NOTE 7 - Extraordinary Items
On May 27, 1995 the Sure Grow Seed, Inc. lost approximately 4,132 bags of
cottonseed due to wind and water damage at a storage facility in Tunica,
Mississippi. The total cost of the seed and packaging destroyed was
$98,669. The insurance company with whom Sure Grow Seed, Inc. maintains
coverage has agreed to reimburse Sure Grow Seed, Inc. for $144,269.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
NOTE 7 - Extraordinary Items-Continued
This reimbursement constitutes the sales value of the seed less
freight included in the sales price and the policy deductible. Therefore,
a $45,600 gain, net of income tax at an effective rate of 37.3 % or
($17,009), has been recognized as an extraordinary gain of $28,591.
NOTE 8 - Merger and Breeder Contract
On February 21, 1992 Sure Grow Research (a Partnership) contracted
with Robert R. Bridge for his services as a cotton breeder for a minimum
term of 10 years. On June 30, 1995 Sure Grow Research (a Partnership) was
dissolved and it's assets and liabilities including this contract were merged
with Sure Grow Seed, Inc. The net result was a $56,643 increase in
investment in Sure Grow Seed, Inc.
NOTE 9 - Contingencies
Three farmers in Madison County, Mississippi, are asserting a claim
against Sure Grow Seed, Inc., for alleged defective cotton seed sold to them
for planting of the 1995 crop. The attorney for Sure Grow Seed, Inc. advises
that no litigation is pending on this claim at the present time, however,
these farmers have filed a complaint with the Mississippi Department of
Agriculture and that Complaint is now pending. The matter will be referred to
the Arbitration Council, appointed by the Mississippi Commissioner of
Agriculture, and while this arbitration is not binding, it is a
prerequisite to litigation.
Legal council is unable at this time to assess the exposure of Sure Grow
Seed, Inc. on these claims since there is no assessment of the claimed
damage. Investigation of these claims by Sure Grow Seed, Inc., indicates that
the problems experienced by these farmers with their 1995 crop was not the
fault of Sure Grow Seed, Inc., but was due to weather and other causes.
Therefore, no liability for the above referenced claim has been included
in these financial statements.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
Note 10- Retained Earnings Restatement
Subject to the issuance of combined financial statements of Sure Grow
Companies and elimination of the equity method of accounting for Arizona
Processing, Inc., Ellis Brothers Seed,Inc., and Mississippi Seed, inc.
common ownership and management of Sure Grow Seed, Inc. it was determined
that the cumulative change in beginning retained earnings of the year
ended August 31, 1995 and June 30, 1995 was overstated $56,084.
SURE GROW COMPANIES COMBINED
CENTRE, ALABAMA
AUDITED FINANCIAL STATEMENTS
AUGUST 31, 1994
and
JUNE 30, 1994
TABLE OF CONTENTS
SURE GROW COMPANIES COMBINED
Centre, Alabama August 31, 1994
and June 30, 1994
Independent Auditor's Report
Combined Balance Sheets
Combined Income Statements
Combined Statements of Retained
Earnings Combined Statements of Cash
Flows Notes to the Financial
Statements
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders of
Sure Grow Seed, Inc.
Mississippi Seed, Inc.
Arizona Processing, Inc.
Ellis Brothers Seed, Inc.
Centre, Alabama
We have audited the accompanying combined balance sheet of Sure
Grow Companies as of August 31, 1994 and June 30, 1994 and the related
combined statements of income, retained earnings, and cash flows for the
year then ended. The combined financial statements include the financial
statements of Sure Grow Seed, Inc. as of August 31, 1994 and Mississippi
Seed, Inc., Arizona Processing, Inc., and Ellis Brothers Seed, Inc., as
of June 30, 1994 which are related through common ownership and management.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
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 our
audit and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to in the
first paragraph present fairly, in all material respects, the financial
position of the Sure Grow Companies as of August 31, 1994 and June 30, 1994
and the result of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Goodgame and Associates, P.C.
Anniston, Alabama
July 31, 1996
COMBINED BALANCE SHEET
SURE GROW COMPANIES COMBINED
Centre, Alabama
ASSETS
Current Assets
Cash $1,398,978
Accounts receivable - trade (net of
allowance for doubtful accounts) 1,001,138
Inventories 2,034,673
Prepaid taxes 44,940
Total Current Assets 4,479,729
Fixed Assets
Buildings & land 1,613,265
Equipment and furniture 2,897,880
Vehicles 362,369
Less: Accumulated depreciation (2,301,073)
Net Fixed Assets 2,572,441
Other Assets
Trade name and goodwill (Net of Amortization) 126,666
Investments 81,478
Notes Receivable 1,547,673
Total Other Assets 1,755,817
TOTAL ASSETS $ 8,807,987
August 31, 1994
& June 30, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $2,050,000
Accrued expenses 558,180
Notes Payable and Current portion of long-term debt 400,818
Income taxes payable 28,604
Total Current Liabilities 3,037,602
Long-Term Liabilities
Notes payable 2,047,028
Deferred Income Taxes 135,513
Total Long-Term Liabilities 2,182,541
Total Liabilities 5,220,143
Stockholders' Equity
Common stock 90,000
Paid in capital 152,000
Retained earnings 3,345,844
Total Stockholders' Equity 3,587,844
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 8,807,987
The accompanying notes are an integral part of these financial statements.
COMBINED INCOME STATEMENTS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
Sales $13,079,882
Cost of Sales 7,489,793
Gross Profit 5,590,089
Operating and Selling Expenses 5,319,064
Income from operations 271,025
Other Income and Expenses (60,107)
Income from operations before provision for income taxes 210,918
Provision for Current and Deferred income Taxes 66,828
NET INCOME $144,090
The accompanying notes are an integral part of these financial statements.
COMBINED STATEMENTS OF RETAINED EARNINGS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
Balance, beginning of year $3,246,950
Adjustment for the combination and eliminations
of party data (See Note 8)
(45,196)
Balance, beginning of year restated 3,201,754
Net income for the year 144,090
BALANCE, END OF YEAR $3,345,844
The accompanying notes are an integral part of these financial statements
COMBINED STATEMENTS OF CASH FLOWS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $144,090
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 351,126
Gain on sale of equipment (72,301)
(Increase) decrease in:
Accounts receivable - trade 1,065,488
Inventories (949,811)
Prepaid expenses (6,710)
Increase (decrease) in:
Accounts payable & current notes payable 1,336,721
Deferred tax liability 32,851
Deferred revenue 23,198
Accrued expenses (115,234)
Other Adjustments (520,348)
Net Cash Provided by Operating Activities 1,289,070
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from equipment sales 133,060
Purchase of equipment (495,886)
Notes Receivable--long-term (128,829)
Investments purchased (220,580)
Net Cash (Used) by Investing Activities (712,235)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 89,162
Principal payments on long-term debt (794,891)
Equity transferred 10,528
Cash value of life insurance (774)
Net Cash Provided by Financing Activities (695,975)
Net Increase (Decrease) in Cash (119,140)
Cash and Cash Equivalents, Beginning of Year 1,518,118
CASH AND CASH EQUIVALENTS, END OF YEAR $1,398,978
Supplemental Disclosure:
Interest 186,481
Taxes 39,031
The accompanying notes are an integral part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
NOTE 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies of Sure Grow Companies
is presented to assist in understanding the combined financial statements.
The financial statements and notes are representations of the Companies
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial
statements.
"Sure Grow Companies Combined" consists of the year end audited financial
statements of Sure Grow Seed, Inc. as of August 31, 1994 and Ellis Brothers
Seed, Inc., Mississippi Seed, Inc. and Arizona Processing, Inc. as of June
30, 1994. The combined financial statements are adjusted for intercompany
sales, investments, accounts receivable, and accounts payable.
Nature of Operations
Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi Seed,
Inc. sell and distribute cottonseed as their major product in the Arizona,
Alabama and Mississippi sales markets. Their primary customer is Sure Grow
Seed, Inc. of which the three companies are the sole shareholders. Sure
Grow Seed, Inc. was formed in August of 1992 by the other three corporations
to handle the combined sales efforts for selected varieties of cottonseed.
The company's major customers are three large chemical companies. These
companies represent 70%. of Sure Grow Seed, Inc.'s sales.
Basis of Accounting
Assets, liabilities, income and expenses are recorded using the accrual
basis of accounting.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-our cost flow assumption.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
NOTE 1 -Summary of Significant Accounting Policies -Continued
Property and Equipment:
Fixed assets are recorded at cost. Depreciation is calculated using the
straight-line and accelerated cost recovery methods over the estimated
useful lives of the assets.
Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company has considered
only actual cash, and does not consider any debt to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements:
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and the disclosur of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - Accounts Receivable
Accounts receivable consists of amounts due to the Company from regular
operations. Related party transactions between the four companies have
been eliminated.
Accounts Receivable 1994
Accounts Receivable - Trade $ 681,631
Accounts Receivable - Employees 96,649
Accounts Receivable - Stockholders 226,412
Less. Allowance for Doubtful Accounts (3,554)
TOTAL ACCOUNTS RECEIVABLE $1,001,138
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
NOTE 2- Accounts Receivable-Continued
Three of the companies use the direct write-off method for bad debts. One
company uses the allowance method. These receivables are reported net of an
allowance for doubtful accounts of $3,554.
NOTE. 3- Inventories
Inventories as of August 31,1994 and June 30, 1994 consist of bagged,
delinted and treated cottonseed stored in warehouses in Phoenix (Arizona),
Centre (Alabama) and Tunica (Mississippi). Inventory located in Centre,
Alabama also includes Chemical and Fertilizer.
Finished Goods $1,548,291
Raw Materials 67,552
Supplies and Other 418,830
Less Reserves -0-
Total Inventory $2,034,673
NOTE 4- Investments
Due to management's ability to influence the operating and financial
decisions of Sure Grow Seed, Inc., the investment in Sure Grow Seed, Inc.
by each shareholder is accounted for using the equity method. Under the
equity method, the original investment is recorded at cost and adjusted
periodically to recognize each shareholder's portion of the subsequent
earnings and losses of Sure Grow Seed, Inc. However, the effect of this
method of accounting for investments has been eliminated in these combined
financial statements.
NOTE 5- Notes Payable
Notes Payable consist of (A.) Lines of credit from banks secured by
inventory and accounts receivable and (B.) Installment notes with banks
and individuals secured by the property, plant, equipment, inventory and
receivables of the component companies.
NOTES TO THE FINANCIAL STATEMENTS - CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre,Alabama August 31, 1995 & June 30, 1995
NOTE 5- Notes Payable-Continued
A. Lines of Credit Consist of:
A $1,000,000 Line of Credit with a bank secured by the assets of Sure
Grow Seed, lnc. The balance outstanding at year end of -O-.
A $3,000,000 Line of Credit with a bank secured by the assets of Ellis
Brothers Seed, Inc. The balance outstanding at year end of $57,573.
A $1,600,000 Line of Credit with a bank secured by the assets of Arizona
Processing, Inc. The balance outstanding at year end is -O-.
B. Installment Notes consist of:
Description Total Current Long-Term
Amount Due Portion Portion
A note to a tractor distributor
for the purchase of equipment
with interest at 9 %. 16,954 2,286 14,668
A note secured by property &
equipment of the company,
guaranteed personally by
its owner. Interest at 9%
is due quarterly. The
principal is payable in annual
installments due each July 2
through 1999. 900,000 300,000 600,000
Installment notes, secured
by property and equipment
of the company. Interest at
7.25%. 171,430 14,285 157,145
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
NOTE 5-Notes Payable-Continued
B.Installment Notes-Continued:
Description Total Current Long-Term
Amount Due Portion Portion
A note to a bank due in
annual installments for 20
years. Interest is payable
annually at the current bank
prime rate. 1,050,000 14,742 1,035,258
A note to the Small Business
Administration for disaster
assistance. Interest at 4%. 109,119 5,152 103,967
A installment note to purchase
a vehicle matures 11-27-97;
interest at a fixed rate of
7.5%. 14,487 3,982 10,505
2 48 months installment
note to purchase a vehicle.
Interest rate is 9%, 22,091 2,798 19,293
A note payable to a Life
Insurance Company 6,107
Note due by Mississippi Seed,
Inc. to a related party
Farmers & Planters Gin with
interest at 5%. 72,500 72,500
Other notes payable per
Mississippi Seed, Inc.
auditor's report 27,585
TOTAL LONG-TERM DEBT $343,245 $2,047,028
Current portion of Long-Term debt consists of $343,245 from installment
loans and $57,573 outstanding and due on demand on the lines of credit.
NOTES TO THE FINANCIAL STATEMENTS-CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
NOTE 6- Income Taxes
The Companies have adopted SFAS No. 109 "Accounting for Income Taxes,
Among other provisions, this standard requires deferred tax amounts to
be computed using effective corporate incomes tax rates for the years in
which the taxes will be paid or refunds received.
The combined provision for income tax expense at August 31, 1994 and June
30, 1994 consisted of:
Taxes Payable $42,904
Deferred Taxes 23,924
Total $66,828
Deferred taxes arise because of differences in the book and tax basis of
certain assets and liabilities. These differences are referred to as
temporary differences. Deferred tax liabilities are taxes we expect to pay
in future periods. Similarly, deferred assets are taxes we expect to be
refunded in future periods. At August 31, 1994 and June 30, 1994
the following temporary differences existed.
Depreciation $253,302
Undistributed Earnings of Investees 83,244
Future Taxable Income $336,546
Applying an effective tax rate to the future income results in a total
deferred tax liability of $135,513. The effective rate is comprised of a
federal tax rate of thirty-four percent and a state rate of five percent
for Sure Grow Seed, Inc., Mississippi Seed, Inc. Ellis Brothers Seed,
Inc., and a state rate of nine percent for Arizona Processing, Inc.
NOTE 7 - Merger and Breeder Contract
On February 21, 1992 Sure Grow Research (a partnership) contracted with
Robert R. Bridge for his services as a cotton breeder for a minimum term of
10 years. On June 30, 1995, Sure Grow Research (a Partnership) was
dissolved and it's assets and liabilities including this contract were
merged with Sure Grow Seed, Inc. The net result was a $56,643 increase
in investment in Sure Grow Seed, Inc.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
SURE GROW COMPANIES COMBINED For the years ended
Centre, Alabama August 31, 1994 & June 30, 1994
Note 8 - Retained Earnings Restatement
Subject to the issuance of combined financial statements of Sure Grow
Companies and elimination of the equity method of accounting for Arizona
Processing, Inc., Ellis Brothers Seed, Inc., and Mississippi Seed, Inc.
common ownership and management of Sure Grow Seed, Inc. it was determined
that the cumulative change in beginning retained earnings of the year
ended August 31, 1993 and June 30, 1993 was overstated $45,196.