SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 12 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): March 14, 1997
RED OAK HEREFORD FARMS, INC.
(Exact Name of Registrant as Specified in its Charter)
NEVADA 33-89714 84-1120614
(State or Other (Commission (Employer
Jurisdiction) File Number) Identification
Number)
2010 Commerce Drive, Red Oak, Iowa 51566
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (712) 623-9224
Wild Wings, Inc., 897 South Artistic Circle, Springville, Utah 84663
(Former Name or Former Address, if changed, since last report)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Red Oak Hereford Farms, Inc.,f/k/a, Wild Wings, Inc, a
Nevada corporation (the "Company") entered into an Agreement
and Plan of Reorganization dated March 14, 1997,
(the "Reorganization") between the Company and Red Oak Farms,
Inc., an Iowa corporation ("Red Oak"), pursuant to which the
Company acquired Red Oak in a tax-free reorganization whereby
the shareholders of Red Oak were issued 10,000,000 restricted
common shares of the Company plus options to acquire an
additional 3,000,000 common shares in exchange for all the
issued and outstanding common shares of Red Oak.
At the time of the reorganization the shareholders of the
Company elected new persons to the board of directors of the
Company. At the meeting of the shareholders held on March 14,
1997, Brenda Hall resigned as the President,
Secretary and Treasurer and sole director of the Company and
the shareholders of the Company elected new officers and
directors: Gordon Reisinger, Director and President;
John Derner, Director, Treasurer and Vice-President;
Charles Kolbe, Director and Secretary; and Leo M. DeSpain,
Director. The new directors and officers accepted the
appointments effective March 14, 1997.
In connection with the reorganization, the Company entered
a cancellation agreement with Komatsu Investments Limited
("Komatsu") whereby the Company repurchased and canceled
12,000,000 common shares of the Company owned by
Komatsu. The Reorganization and the cancellation agreement
resulted in a change of control of the Company with control
changing from Komatsu to new directors of the Company and the
shareholders of Red Oak. As a result of the reorganization,
a controlling interest of 91.24% of the Company's common shares
are now held by the former Red Oak Farms, Inc. shareholders.
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS
On March 14, 1997, the shareholders of the Company approved
the sale of all of the assets of the Company's business
including the rights to the name Wild Wings to Wild Wings
Hunting & Sporting Clays Club, Inc., a Utah corporation which
is 100% owned by David N. Nemelka, a former officer and director
of the Company, for the sum of $51,000 plus the assumption of
certain liabilities of the Company associated with the assets
being sold.
Also on March 14, 1997, the Company entered into an Agreement
and Plan of Reorganization (the "Reorganization") with Red Oak
Farms, Inc., an Iowa corporation (Red Oak). Pursuant to the
Reorganization, Red Oak delivered to the Company, 10,000,000
shares of common stock of Red Oak which represents the total
issued and outstanding stock of Red Oak in exchange for 10,000,000
shares of common stock of the Company and options for an
additional 3,000,000 shares of common stock of the Company.
The number of shares of Common Stock delivered to
Red Oak pursuant to the Reorganization was determined by
negotiation between the parties.
As a result of the Reorganization, the shareholders of Red Oak
own 91.24% of the outstanding Common Stock of the Company.
Following the Reorganization, Red Oak Farms, Inc. became a
wholly owned subsidiary of the Company and the
Company changed its name to Red Oak Hereford Farms, Inc.
The business of Red Oak has become the business of the Company.
The Company's current business is the production, management
and marketing of high quality "branded" beef. To this end,
Red Oak has negotiated an agreement with the American Hereford
Association that gives the Company the exclusive rights to
manage production and market world-wide, the Association's
Certified Hereford Beef Program. Certified Hereford Beef is a
premium branded beef program that capitalizes on the consumer
sensory qualities of tenderness, juiciness, flavor and
palatability inherent in Hereford cattle genetics.
The description contained herein of the Reorganization is
qualified in its entirety by reference to the Agreement and
Plan of Reorganization dated as of March 14, 1997 by and among
the Company and Red Oak, which is attached hereto as Exhibit 2.1
and incorporated herein by reference.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
At its board meeting on March 17, 1997, the Board of
Directors of the Company engaged the accounting firm of
Baird, Kurtz & Dobson, Certified Public Accountants, as
independent accountants for the Company for 1997. The work of
Pritchett, Siler and Hardy was terminated after the Form 10-KSB
report for December 31, 1996 was filed with the SEC on March 13,
1997. In connection with the reorganization, the Company's
principal offices and operations changed from Utah to Iowa.
For this reason it was determined that the Company should engage
an accounting firm nearer the location of the Company's
headquarters.
During the two most recent fiscal years, there have been
no disagreements with Pritchett, Siler and Hardy on any matter
of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or any reportable events.
Pritchett, Siler and Hardy's report on the financial
statements for the past two years contained no adverse opinion
or disclaimer of opinion and was not qualified as to audit
scope or accounting principles. The report did contain an
explanatory uncertainty paragraph regarding substantial doubt
about the entity's ability to continue as a going concern for
a reasonable period of time.
The Company has requested that Pritchett, Siler and Hardy
furnish it with a letter addressed to the SEC stating whether
it agrees with the above statements. A copy of Pritchett, Siler
and Hardy's letter to the SEC, dated March 21,1997, is filed
as Exhibit 16 to the Form 8-K.
ITEM 5. OTHER EVENTS
Also as a result of the Reorganization, the Company changed
its trading symbol on the NASD OTC Bulletin Board from WILG to
HERF, effective March 17, 1997.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The audited financial statements of Mid-Ag, LC, which was
reorganized on February 24, 1997 as Red Oak Farms, Inc.,
an Iowa corporation, as of December 31, 1996 and 1995,
and the related
statements of operations, changes in members equity and
cash flows for the years ended December 31, 1996 and 1995,
and for the period August 9, 1994 (inception) to December
31, 1994 are attached.
The reorganization was accounted for as a reverse
acquisition and accordingly, the exchange of shares between
Red Oak and Wild Wings, Inc. did not result in any change
in the basis of accounting for Red Oak's assets and
liabilities.
(b) Pro Forma financial Information
Pro Forma financial information has not been prepared
since Wild Wings, Inc. did not have any significant
revenues or expenses prior to the reorganization, and
would not differ materially from the Red Oak financial
statements included herein.
(c) Exhibits.
No. Description
2.1 Plan of Reorganization
2.2 Business Sale Agreement
16 Letter re change in certifying accountant
28.1 Certificate of Amended Articles of Incorporation
filed with the Nevada Secretary of State on
March 17, 1997.
28.2 Certificate of Articles of Exchange filed with
the Nevada Secretary of State on March 17, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned hereunto duly
authorized.
RED OAK HEREFORD FARMS, INC.
Date: March 27, 1997 By:
/s/ Gordon Reisinger
President
Mid-Ag, L.C.
Accountants' Report and
Financial Statements
December 31, 1996, 1995 and 1994
MID-AG, L.C.
DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
Page
INDEPENDENT ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Changes in Members' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
INDEPENDENT ACCOUNTANTS' REPORT ON
SUPPLEMENTARY INFORMATION 13
SUPPLEMENTARY INFORMATION
Schedules of Operating Expenses 14
Independent Accountants' Report
To the Members
Mid-Ag, L.C.
Red Oak, Iowa
We have audited the accompanying balance sheets of MID-AG,
L.C. as of December 31, 1996 and 1995, and the related
statements of operations, changes in members' equity and
cash flows for the years ended December 31, 1996 and 1995,
and for the period August 9, 1994 (inception) to
December 31, 1994. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of MID-AG, L.C. as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, and for the period
August 9, 1994 (inception) to December 31, 1994, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As
discussed in the notes to financial statements, the Company
has suffered recurring losses from operations and deficit
cash flows, and is in technical noncompliance with its loan
and product license agreement. These matters raise
substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these
matters are also described in Note 8. The financial
statements do not include any adjustments that might result
from the outcome of this uncertainty.
Kansas City, Missouri
January 31, 1997, except for Note 2, as
to which the date is February 26, 1997
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
CURRENT ASSETS
Accounts receivable $2,219,631 $3,280,929
Inventory 948,092 1,416,416
Prepaid expenses
26,589 18,541
Total Current 3,194,312
Assets 4,715,886
PROPERTY AND EQUIPMENT, At cost
Leasehold improvements 65,345 58,965
Office equipment 119,195
75,188
184,540 134,153
Less accumulated depreciation
51,693 20,004
132,847
114,149
OTHER ASSETS
70,312 53,529
$3,397,471 $4,883,564
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $1,109,889 $1,821,273
Current maturities of long- 1,018,063
term debt
Accounts payable 341,604 1,258,583
Accounts payable, affiliates 24,401 274,776
Accrued expenses 113,862
74,569
Total Current 2,607,819
Liabilities 3,429,201
DEFERRED INCOME 300,000
100,000
LONG-TERM DEBT 477,647
MEMBERS' EQUITY
12,005 1,354,363
$3,397,471 $4,883,564
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995, AND THE
PERIOD AUGUST 9, 1994 (INCEPTION) TO DECEMBER 31, 1994
1996 1995 1994
NET SALES $60,366,258 $34,278,255 $
5,582
COST OF GOODS SOLD
Related parties 12,342,894 8,665,843
Others
49,589,218 25,033,474 4,992
61,932,112 33,699,317 4,992
GROSS PROFIT (LOSS) (1,565,854) 590
578,938
OPERATING EXPENSES 187,765
1,074,859 687,654
LOSS FROM OPERATIONS (2,640,713) (187,175)
(108,716)
OTHER EXPENSE
Interest expense
194,145 44,141
NET LOSS $(2,834,858) $ (152,857) $(187,175)
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995, AND THE
PERIOD AUGUST 9, 1994 (INCEPTION) TO DECEMBER 31, 1994
1996 1995 1994
BALANCE, BEGINNING OF $ 1,354,363 $
PERIOD 147,075
CAPITAL CONTRIBUTIONS 1,492,500 1,360,145 $ 334,250
NET LOSS
(2,834,858) (152,857) (187,175)
BALANCE, END OF PERIOD $ 12,005 $1,354,363 $ 147,075
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE
PERIOD AUGUST 9, 1994 (INCEPTION) TO DECEMBER 31, 1994
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(2,834,858) $ (152,857) $(187,175)
Items not requiring
cash:
Depreciation and 56,858 43,156 5,216
amortization
Changes in:
Accounts 1,061,298 (3,250,468 (30,461)
receivable )
Inventories 468,324 (1,416,416
)
Prepaid expenses (8,048) (18,541)
Deferred income 200,000 100,000
Accounts payable (1,128,061) 1,554,204 53,724
and accrued expenses
Other assets
(41,952) (31,570) (6,227)
Net cash
used in operating activities (2,226,439) (3,172,492) (164,923)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of property (50,387) (115,799) (18,354)
and equipment
Organization costs
(44,100)
Net cash
used in investing activities (50,387) (115,799) (62,454)
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital contributions 1,492,500 1,360,145 334,250
Proceeds from issuance 1,500,000
of long-term debt
Net borrowings (711,384) 1,821,273
(payments) on line of credit
Payments on long-term
debt (4,290)
Net cash
provided by financing 2,276,826 3,181,418 334,250
activities
INCREASE (DECREASE) IN CASH 0 (106,873) 106,873
CASH, BEGINNING OF PERIOD
0 106,873 0
CASH, END OF PERIOD $ $ $ 106,873
0 0
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
The Company was formed August 9, 1994 as a limited
liability company. The life of the limited liability
company is thirty years from the date of formation unless
terminated earlier by amendment or agreement of all parties.
The Company sells premium, branded, fresh beef to retail and
food service markets and extends unsecured credit to
customers predominantly located in the southwest and midwest
United States.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Exclusive License and Royalty Agreement
The Company entered into an agreement on September 6,
1994, with the American Hereford Association (the "AHA") for
the exclusive license and right to process, distribute and
sell Certified Hereford Beef ("CHB") under the CHB
Trademark. The AHA works in conjunction with the Company,
providing marketing assistance, as well as pricing and
promotional strategies to the Company's major customers.
The agreement, which expires December 31, 1999, requires the
Company to maintain certain cattle processing standards and
process a certain number of CHB cattle. In addition, the
agreement requires the Company to pay the AHA a royalty fee
calculated for CHB cattle processed which approximated
$213,000 and $130,000 for the years ended December 31, 1996
and 1995, respectively. No royalty fees were incurred for
the period August 9, 1994 to December 31, 1994.
Inventory Pricing
Inventories of boxed beef are priced using market value
less cost of disposition. All other inventories are stated
at the lower of cost or market determined using the FIFO
(first-in, first-out) method.
Property and Equipment
Property and equipment are depreciated over the estimated
useful life of each asset. Leasehold improvements are
depreciated over the shorter of the lease term or the
estimated useful lives of the improvements. Annual
depreciation is primarily computed using accelerated
methods.
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Assets
The Company has various other assets, including
organization costs, grant performance costs, and loan and
grant origination costs. Amortization is computed using the
straight-line method over the following lives:
Organization costs 5 years
Loan and grant origination Life of agreements
costs
Costs related to the performance of grant conditions are
capitalized and expensed when grant terms are fully met.
Related grants are discussed in deferred income.
Deferred Income
Deferred income consists of two grants from the Iowa
Department of Economic Development. The first was for
$100,000 received in 1995 to form the Certified Hereford
Beef Program. The Company is required, among other things,
to feed a certain number of cattle in Iowa by June 1998.
When the Company meets the conditions, grant repayment is
permanently waived and the income will be recognized.
In 1996, the Company received an additional grant for
$200,000 to plan, market or construct a new state-of-the-art
beef processing facility in southwest Iowa by June 2001.
This grant will be amortized into income at such time as the
plant is completed over the life of the facility.
Income Taxes
The Company, as a limited liability company, is taxed as a
partnership. Income tax liabilities on the taxable income
of the Company will be assumed by the members and,
accordingly, are not reflected in the accompanying financial
statements.
NOTE 2: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require
disclosure of certain significant estimates and current
vulnerabilities due to certain concentrations. Those
matters include the following:
Major Customers
Net sales from two major customers approximated 65% of net
sales in 1995. In 1996, one of the customers, representing
approximately 45% of net sales, terminated its relationship
with the Company.
During 1996, net sales to three major customers
approximated 70% of net sales. Subsequent to year end, one
of the customers, representing approximately 27% of net
sales, terminated its relationship with the Company. The
Company is currently under negotiations with several large,
potential customers and management feels the customer will
be replaced within a reasonable period of time.
Product License Agreement
In connection with the exclusive license agreement
discussed in Note 1, the Company is required to process a
certain number of CHB program cattle per year. In 1996, the
Company processed approximately 55,000 head, which fell
short of the 60,000 head set forth in the AHA agreement.
Consequently, the exclusive license is revocable at June 30,
1997. Subsequent to year end, management and the AHA were
in the process of negotiating terms for a new contract.
Effective February 26, 1997, the AHA and the Company
entered into a letter of intent to amend the agreement. The
amendment is contingent upon the Company reorganizing as a
public company as discussed in Note 9.
Custom Slaughter and Fabrication Agreement
Subsequent to year end, the Company has renegotiated its
contract with its major beef processor. Under the
agreement, the Company is required to process 800 to 4,000
CHB carcasses per week. If the carcass count falls below
these numbers in any given week, the processor has the right
to terminate the agreement.
NOTE 3: INVENTORIES
Inventories at December 31, 1996 and 1995 consisted of the
following:
1996 1995
Boxed beef $860,810 $1,386,359
Other
87,282 30,057
$948,092 $1,416,416
NOTE 4: NOTES PAYABLE AND LONG-TERM DEBT
Short-term notes payable consisted of the following at
December 31, 1996 and 1995:
1996
1995
Revolving line of credit (A) $1,109,889 $1,821,27
3
Long-term debt consisted of the following at December 31,
1996:
IDED installment note (B) $
495,710
Installment note, feed
supplier (C) 1,000,000
1,495,710
Less current maturities
1,018,063
$ 477,64
7
(A) The Company had a revolving line of credit that
provided for borrowings up to $2,500,000 at December
31, 1995, which was collateralized by substantially
all of the Company's assets and a securities pledge
agreement by the AHA. The revolving loan, which
matured August 15, 1996, bore interest at the bank's
prime rate plus 2 1/2% (10 1/2% at December 31, 1995) and
required a .5% fee on the unused credit line, payable
quarterly. In addition, the Company was required to
maintain a lock box account with the lender.
In August of 1996, the Company replaced the line
of credit with a new line of credit at a different
bank. The line of credit provides for borrowings up
to $4,000,000 and is secured by personal guarantees
of two of the Company's members and is collateralized
by the same assets as the previous line and matures
June 30, 1997. The revolving loan bears an interest
rate of 2% above the bank's prime rate (10.25% at
December 31, 1996) and requires a fee of .25% of the
unused credit line, payable quarterly. The Company
is required to maintain a lock box account with the
bank.
In connection with this note payable to bank,
the Company is required, among other things, to
maintain certain financial conditions, including
combined members' equity and subordinated debt of at
least $1,750,000. The Company is in technical
noncompliance with certain of the requirements and
the debt is callable at the bank's option. The
Company has received no notice of the bank's intent
to call the debt. Subsequent to December 31, 1996,
members have contributed additional capital of
$125,000 and have pledged future contributions if
necessary.
(B) Installment note payable to the Iowa Department
of Economic Development; due July 2015; payable in
quarterly installments of $14,602 including interest
at prime, with final payment in July 2015 of
$409,716.
NOTE 4: NOTES PAYABLE AND LONG-TERM DEBT (Continued)
(C) Due October 2001; interest only payable monthly
through November 1998 at 1.75% above a published
prime rate, at which time the interest rate will
change retroactively to 1% above same published rate
and will continue to be paid monthly until maturity.
Principal is to be paid in 36 equal monthly
installments commencing November 1998. In
connection with this note, the Company is required,
among other things, to purchase cattle exclusively
from feedlots which have fed to such cattle for a
minimum of 100 days the lenders' products.
In connection with this note payable, the
Company is also required, among other things, to
remain in compliance with the covenants set forth in
the installment note agreement discussed at (A)
above, in which the feed supplier is a participating
lender. As discussed at (A), the Company is in
technical noncompliance with the Bank loan ageements
and thus, this entire loan is classified as current
in the accompanying financial statements. The
Company has received no notice of the feed supplier's
intent to call the debt.
Aggregate annual maturities of long-term debt are as
follows:
1997 $1,018,063
1998 19,600
1999 21,268
2000 23,077
2001
413,702
$1,495,710
NOTE 5: OPERATING LEASES
The Company leases certain office equipment under
noncancellable operating leases expiring in various years
through 1999.
Future minimum lease payments at December 31, 1996 are as
follows:
1997 $10,716
1998 8,811
1999
4,608
Future minimum lease payments $24,135
Rental expense for all operating leases consisted of
$12,573 for the year ended December 31, 1996.
NOTE 6: RELATED PARTY TRANSACTIONS
The Company buys cattle and freight services from
affiliates which have common management and ownership.
Total purchases from these affiliates during the years ended
December 31, 1996 and 1995 approximated $12,343,000 and
$8,666,000, respectively. There were no accounts payable
related to these purchases at December 31, 1996 and
$233,000 at December 31, 1995.
Program cattle are purchased and sold to third parties in
anticipation of the Company's future harvesting needs by a
cattle brokerage firm with common management and ownership.
Cattle are brokered on a speculative basis, and the Company
has no obligation to purchase cattle from the third parties.
The Company also collects marketing/enrollment fees from
certain of its suppliers and remits the fees to the related
cattle brokerage firm. At December 31, 1996 and 1995, the
Company had collected enrollment fees of approximately
$376,000 and $151,000, respectively, and accounts payable to
the affiliate were approximately $24,000 and $42,000,
respectively.
In December 1995, the Company moved into office space
owned by a related party. No formal lease agreement exists
between the Company and the related party and no office
space rent was paid in 1996 or 1995, or the period August 9,
1994 to December 31, 1994.
In addition, the Company is guarantor on two notes payable
in an aggregate of $2,000,000 for two parties with ownership
interest in the Company.
NOTE 7: ADDITIONAL CASH FLOWS INFORMATION
Additiona Period
l Cash August 9,
Informati 1996 1995 1994 to
on December 31,
1994
$174,844 $44,141 $ 0
Interest
paid
NOTE 8: GOING CONCERN
The accompanying financial statements have been prepared
in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going
concern. However, the Company has incurred losses and
deficit cash flows since inception and has not yet been
successful in establishing profitable operations and is in
technical noncompliance with certain loan and licensing
agreements. These factors raise substantial doubt about the
ability of the Company to continue as going concern. In
this regard, management is proposing to raise additional
funds through loans and/or through raising additional
capital with private placement offering, and increase
product awareness through marketing efforts to attain a
positive gross profit. There is no assurance that the
Company will be successful in raising this additional
capital or achieving profitable operations. The financial
statements do not include any adjustments that might result
from the outcome of these uncertainties.
NOTE 9: SUBSEQUENT EVENTS
Subsequent to year end, the Company executed a letter of
intent to reorganize the Mid-Ag, L.C. into Red Oak Hereford
Farms, Inc., after which a public company will acquire all
of the issued and outstanding shares in Red Oak Hereford
Farms, Inc. in exchange for approximately 91% of the
outstanding shares of the public company. The transaction
is intended to qualify under Internal Revenue Code Section
368 as a tax-free reorganization. The shares of the public
company will be issued and defined as "restricted
securities" as defined in Rule 144 of the Securities Act of
1933. The transaction is projected to occur on or before
March 10, 1997 subject to the terms set forth in the letter
of intent.
Independent Accountants' Report on
Supplementary Information
Board of Directors
Mid-Ag, L.C.
Red Oak, Iowa
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
nature of our audit procedures is more fully described in
our report on the basic financial statements. Our report on
the basic financial statements includes an emphasis
paragraph discussing substantial doubt regarding the
Company's ability to continue as a going concern. The
accompanying supplementary information is presented for
purposes of additional analysis and is not a required part
of the basic financial statements. The supplementary
information for the years ended December 31, 1996 and 1995
has been subjected to the 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.
Kansas City, Missouri
January 31, 1997
SCHEDULES OF OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
Wages $ $349,922
507,428
Advertising 136,453 22,679
Travel 126,950 94,642
Insurance 64,611 48,009
Depreciation and 56,858 43,156
amortization
Legal and 47,500 24,655
accounting
Payroll taxes 38,649 27,076
Telephone 28,691 20,531
Meals and 15,683 9,353
entertainment
Equipment lease 12,573 3,232
Office supplies 8,642 7,804
Postage 5,765 3,172
Dues and 5,054 7,958
subscriptions
Research and 1,724 1,830
development
Relocation 600 8,924
expense
Commissions 1,671
Lobby expense 1,533
Data collection 1,343
Other
17,678 10,164
$1,074,859 $687,654