ECO SOIL SYSTEMS INC, SB-2/A, 1997-11-21

ECO SOIL SYSTEMS INC
SB-2/A, 1997-11-21
AGRICULTURAL SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997

REGISTRATION NO. 333-39399

================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 1 TO

FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------

ECO SOIL SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<S> <C> <C>
NEBRASKA 0711 47-0709577
(STATE OR OTHER JURISDICTION
OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

10890 THORNMINT ROAD, SUITE 200
SAN DIEGO, CALIFORNIA 92127
(619) 675-1660
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND
PRINCIPAL PLACE OF BUSINESS)

WILLIAM B. ADAMS, CHIEF EXECUTIVE OFFICER
ECO SOIL SYSTEMS, INC.
10890 THORNMINT ROAD, SUITE 200
SAN DIEGO, CALIFORNIA 92127
(619) 675-1660
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
THOMAS A. EDWARDS, ESQ. JEREMY D. GLASER, ESQ.
ROBERT E. BURWELL, ESQ. ALEXANDER A. FITZPATRICK, ESQ.
LATHAM & WATKINS COOLEY GODWARD LLP
701 "B" STREET, SUITE 2100 4365 EXECUTIVE DRIVE, SUITE 1100
SAN DIEGO, CALIFORNIA 92101-8197 SAN DIEGO, CA 92121-2128
TELEPHONE: (619) 236-1234 TELEPHONE: (619) 550-6000
FACSIMILE: (619) 696-7419 FACSIMILE: (619) 453-3555
</TABLE>

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
=====================================================================================================
PROPOSED
MAXIMUM PROPOSED
AMOUNT OFFERING MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE FEE(3)
- -----------------------------------------------------------------------------------------------------
Common Stock, $.005 par value... 4,721,708 Shares $5.875 $27,740,035 $8,407
=====================================================================================================
</TABLE>

(1) Includes 615,875 shares subject to the Underwriters' option to cover
over-allotments and 105,833 shares to be registered by certain selling
shareholders of the Registrant.

(2) Estimated in accordance with Rule 457(c) solely for the purpose of computing
the amount of the registration fee based on the average of the high and low
prices of the Common Stock as reported on the Nasdaq SmallCap Market on
October 28, 1997.

(3) The Company paid a filing fee of $8,366 upon the initial filing of this
Registration Statement. A fee of $41 is being paid with this filing.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1997

4,105,833 SHARES

LOGO
COMMON STOCK
---------------------------------------

Of the 4,085,833 shares of Common Stock offered hereby (the "Offering"),
4,000,000 shares are being issued and sold by Eco Soil Systems, Inc. ("Eco Soil"
or the "Company") and 105,833 shares are being sold by certain selling
shareholders of the Company (the "Selling Shareholders"). See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Shareholders. The Company's Common Stock is traded
on the Nasdaq SmallCap Market under the symbol "ESSI." On October 31, 1997, the
last sale price of the Common Stock as reported by the Nasdaq SmallCap Market
was $6.875 per share. See "Price Range of Common Stock." The Company has applied
to have the Common Stock approved for quotation, subject to official notice of
issuance, on the Nasdaq National Market under the symbol ESSI.

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF
COMMON STOCK OFFERED HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================

<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total(3)...................... $ $ $ $
</TABLE>

================================================================================

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.

(2) Before deducting expenses of the offering payable by the Company estimated
at $ .

(3) The Underwriters have been granted an option by the Company, exercisable
within 30 days from the date hereof, to purchase up to 615,875 additional
shares of Common Stock, at the Price to Public per share, less the
Underwriting Discount, for the purpose of covering over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Use of Proceeds" and
"Underwriting."

------------------------

The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of the certificates representing the shares will be made
against payment on or about , 1997, at the offices of CIBC
Oppenheimer Corp., CIBC Oppenheimer Tower, One World Financial Center, New York,
New York 10281.
------------------------

CIBC OPPENHEIMER CRUTTENDEN ROTH
INCORPORATED

The date of this Prospectus is , 1997
<PAGE> 3

1997 BIOJECT CUSTOMERS BY REGION

[Picture of a map of the United States with dots at the location of each
U.S. installed BioJect unit]

WESTERN REGION
California
Nevada
Texas
Utah

MIDWESTERN REGION
Illinois
Indiana
Michigan
Missouri
Nebraska
Ohio
Wisconsin

NORTHEASTERN REGION
Connecticut
Delaware
Maine
Maryland
Massachusetts
New Jersey
New York
Pennsylvania
Rhode Island
Virginia

SOUTHEASTERN REGION
Florida
North Carolina
South Carolina

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS
OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN ACCORDANCE
WITH RULE 103 OF REGULATION M.

The following trademarks of the Company are used in this Prospectus:
BioJect(R), ClearLake(R), CleanRack(TM) and CalJect(TM). This Prospectus also
includes trade names, trademarks and registered trademarks of companies other
than Eco Soil Systems, Inc.

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
otherwise indicated, all information herein (i) excludes 5,052,526 shares of
Common Stock issuable upon exercise of outstanding warrants and stock options
and (ii) assumes no exercise of the Underwriters' over-allotment option or the
warrants granted to CIBC Oppenheimer Corp. and Cruttenden Roth Incorporated, as
representatives of the Underwriters (the "Representatives"). See "Underwriting."
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements because of a number of
factors, including, but not limited to, those discussed under "Risk Factors."

THE COMPANY

Eco Soil Systems, Inc. ("Eco Soil" or the "Company") develops, markets and
sells proprietary biological and traditional chemical products that provide
solutions for a wide variety of turf and crop problems in the golf and
agricultural industries. The Company has developed its patented BioJect system
for the distribution of naturally occurring microbes that complement or reduce
the need for many chemical fungicides, herbicides, insecticides and fertilizers
("chemical products") currently used in golf and agricultural markets. By
fermenting microbes at the customer's site and distributing them through the
customer's existing irrigation system, the BioJect system provides customers
with cost savings and mitigates the adverse environmental effects associated
with chemical products. The Company initially has focused its sales and
marketing efforts on the golf market, and recently has entered the agricultural
crop and ornamental markets. To date, Eco Soil has installed 345 BioJect systems
at customer sites, including such renowned golf courses as Congressional Country
Club, Winged Foot Golf Club and Spyglass Hill Golf Club.

By utilizing microbes that occur naturally in the environment, the BioJect
system overcomes many of the problems associated with traditional chemical
products. Traditional chemical products require repeated applications, which
reduce the long-term effectiveness of such products and have been shown to have
adverse environmental effects. The BioJect system reduces the need for repeated
chemical product applications, resulting in lower overall product and labor
costs and increases the effectiveness of traditional chemical products. In
addition, the Company believes that the use of microbes distributed through the
BioJect system provides environmental benefits as compared to chemical product
applications by limiting the exposure of humans to chemical products, reducing
residual pesticide contaminants in plants and soil, and minimizing groundwater
pollution.

The BioJect system overcomes many of the obstacles that historically have
hindered wide-spread use of microbes in the golf and agricultural industries.
Biological products generally have been perceived as economically infeasible
because of their short shelf life, rapid deterioration upon exposure to light or
heat, specialized transportation requirements and need for daily, manual
applications. By fermenting microbes at the customer's site and distributing
them through the customer's existing irrigation system, the BioJect system
preserves and protects the potency of microbes, significantly reduces shipping
costs, controls the concentration of product and allows for automated daily
application. Eco Soil knows of no other company pursuing this approach.

The Company generates recurring revenues by leasing BioJect systems to
customers and selling various microbial products for distribution through the
system. The Company has entered into technology transfer agreements pursuant to
which it has obtained rights to certain microbes for distribution through the
BioJect system from leading biotechnology companies such as Mycogen Corporation,
Abbott Laboratories and Encore Technologies, Inc. and major universities such as
Michigan State University and the University of California, Riverside. Eco Soil
currently offers BioJect customers a menu of six microbial products and intends
to obtain rights to additional microbes.

The Company believes that its biological products can be most effectively
marketed for use as part of regular maintenance programs and sold through the
long-standing relationships developed by existing turf

3
<PAGE> 5

products dealers and distributors. Consequently, Eco Soil has established its
sales and distribution capability through the acquisition of well-established
regional turf product dealers and distributors and by hiring key turf product
sales personnel in order to rapidly penetrate regional markets. To date, the
Company has acquired four distributors. By leveraging a dealer's existing
distribution channel, the Company is able to cost-effectively introduce its line
of proprietary products while also providing traditional products such as
fertilizers and chemical pesticides.

As part of its growth strategy, Eco Soil intends to increase its
penetration of golf markets, continue to establish a nationwide sales and
distribution network, expand into agricultural markets, increase the number of
microbial products available to BioJect customers and further develop
international markets. The Company also intends to leverage its installed base
of BioJect systems to generate follow-on sales of additional microbes and
traditional chemical products with minimal incremental costs.

A survey performed by the National Golf Foundation for 1996 indicated that
more than 15,700 golf courses in the United States spent in excess of $425
million on chemical products. The Company's strategy is to expand its leadership
position in the distribution and sale of microbial products in the golf and turf
industries and to leverage its experience with microbes into agricultural crop
and ornamental markets. According to data reported by AGROW World Crop
Protection News, an industry publication, the total worldwide agricultural
market for chemical products in 1996 was approximately $31.3 billion.

The Company was incorporated under the laws of the State of Nebraska in
1987. The Company's principal executive offices are located at 10890 Thornmint
Road, Suite 200, San Diego, California 92127, and its telephone number is (619)
675-1660.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by:
The Company.............................. 4,000,000 shares
The Selling Shareholders................. 105,833 shares
------------------
Total............................ 4,105,833 shares
==================
Common Stock outstanding after the 15,910,075 shares (1)
Offering..............................
Use of Proceeds.......................... Capital expenditures primarily related to the construction
of additional BioJect systems; acquisitions of independent
dealers and distributors; repayment of short-term debt;
repurchase of certain BioJect systems; and working capital
and general corporate purposes. See "Use of Proceeds."
Nasdaq Symbol............................ ESSI
</TABLE>

- ---------------

(1) Based on shares of Common Stock outstanding on October 28, 1997. Excludes
(i) 2,455,451 shares of Common Stock subject to outstanding options at a
weighted average exercise price of $3.07 per share, (ii) 2,597,075 shares of
Common Stock subject to warrants at a weighted average exercise price of
$3.22 per share and (iii) 410,583 shares of Common Stock subject to warrants
issued to the Representatives at an exercise price equal to 120% of the
public offering price per share (the "Representatives' Warrants"). See
"Dilution," "Description of Securities" and "Underwriting."

4
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL AND OPERATIONS DATA
(IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE AMOUNTS)

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Proprietary products............................. $ 2,511 $ 3,195 $ 4,483 $ 3,626 $ 8,876
Distributed products............................. 177 562 7,633 5,603 20,265
------- ------- ------- ------- -------
Total revenues............................ 2,688 3,757 12,116 9,229 29,141
Cost of revenues:
Proprietary products............................. 1,865 1,502 1,971 1,625 3,830
Distributed products............................. 133 478 5,399 4,080 15,229
------- ------- ------- ------- -------
Total cost of revenues.................... 1,998 1,980 7,370 5,705 19,059
------- ------- ------- ------- -------
Gross profit....................................... 690 1,777 4,746 3,524 10,082
Operating expenses:
Selling, general and administrative.............. 2,690 2,584 6,489 4,541 7,857
Research and development......................... 286 413 475 353 189
------- ------- ------- ------- -------
Income (loss) before interest, depreciation and
amortization..................................... (2,286) (1,220) (2,218) (1,370) 2,036
Depreciation and amortization...................... (306) (354) (911) (538) (777)
------- ------- ------- ------- -------
Income (loss) from operations...................... (2,592) (1,574) (3,129) (1,908) 1,259
Interest expense................................... (224) (262) (1,064) (523) (430)
------- ------- ------- ------- -------
Net income (loss).................................. $(2,816) $(1,836) $(4,193) $(2,431) $ 829
======= ======= ======= ======= =======
Net income (loss) per share(1)..................... $ (.62) $ (.35) $ (.62) $ (.40) $ .06
======= ======= ======= ======= =======
Shares used in calculating net income (loss) per
share(1)......................................... 4,557 5,207 6,809 6,050 14,341
</TABLE>

CONSOLIDATED BALANCE SHEETS DATA:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(2)
----------------- -------- --------------
<S> <C> <C> <C>
Cash...................................................... $ 150 $ 212 $ 21,007
Working capital (deficit)................................. (6,434) 5,304 29,667
Total assets.............................................. 12,886 28,105 48,900
Long-term debt and other obligations, net of current
portion................................................. 1,847 712 --
Common stock -- paid-in capital........................... 12,763 28,948 54,023
Accumulated deficit....................................... (12,887) (12,058) (12,058)
Total shareholders' equity (deficit)...................... (74) 16,940 42,015
</TABLE>

OPERATING DATA:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Number of installed BioJect systems................ 13 46 79 171 238 238 345
</TABLE>

- ---------------

(1) Computed on the basis described in Note 1 to the Consolidated Financial
Statements.

(2) Adjusted to give effect to the sale of the 4,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of $6.875
per share and the application of a portion of the net proceeds therefrom to
repay approximately $4.3 million of outstanding debt. The foregoing
calculations do not include (i) 2,455,451 shares of Common Stock subject to
outstanding options at a weighted average exercise price of $3.07 per share,
(ii) 2,597,075 shares of Common Stock subject to warrants at a weighted
average exercise price of $3.22 per share and (iii) 410,583 shares of Common
Stock subject to the Representatives' Warrants. See "Dilution," "Description
of Securities" and "Underwriting."

5
<PAGE> 7

RISK FACTORS

The following factors, in addition to information appearing elsewhere in
this Prospectus, should be considered carefully before making an investment in
the Common Stock offered hereby. Certain statements in this Prospectus that are
not historical fact constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results of the Company to be materially different from historical
results or from any results projected by such forward-looking statements. Such
risks, uncertainties and other factors include, but are not limited to, the
following risks:

ACCUMULATED DEFICIT; HISTORICAL OPERATING LOSSES

At September 30, 1997, the Company had an accumulated deficit of $12.1
million. The Company generated income from operations for the first time during
the quarters ended June 30, 1997 and September 30, 1997. There can be no
assurance that the Company can sustain such profitability. Prior to the quarter
ended June 30, 1997, the Company historically experienced losses due to
significant expenditures for product development, sales, marketing,
administrative and U.S. patent protection expenses, as well as amortization
costs associated with the Company's recent dealer acquisitions. See "Selected
Consolidated Financial and Operations Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

QUARTERLY FLUCTUATIONS IN THE COMPANY'S RESULTS OF OPERATIONS

Eco Soil's operating results vary from quarter to quarter as a result of
seasonality and various factors. Virtually all of the Company's customers are
located in the Northern Hemisphere and purchase greater quantities of microbes
and distributed products during the spring, summer and fall months. As a result
of low customer activity during the winter, the Company typically markets the
BioJect system during the fourth and first quarters. As a result of these
marketing efforts, the Company typically receives orders during the first and
second quarters and installs BioJect systems during the second and third
quarters. BioJect lease and installation revenues are recognized as payments
come due under the related contracts. Because of this sales cycle, the second
and third quarters historically have accounted for approximately 30% and 35%,
respectively, of annual revenues. The first and fourth quarters, by contrast,
historically have accounted for approximately 10% and 25% of revenues
respectively. Operating expenses have tended to be independent of the quarterly
sales cycle. As a result, operating expenses generally represent a higher
percentage of sales in the first and fourth quarters as compared to the second
or third quarters, and the Company may experience losses in the first and fourth
quarters. Accordingly, results for any quarter are not necessarily indicative of
results for any future period. The sales cycle for the BioJect system also makes
it difficult to predict the number of BioJect systems that will be leased and
the quantity of microbial product sales that will be sold until orders are
received by the Company during the first half of the year. Sales of the
Company's products also depend to some extent on the severity of weather
patterns in the geographic areas served by the Company. Given these factors, it
is difficult for the Company to accurately predict the level of demand for its
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

EXPANSION INTO NEW MARKETS

Although sales of certain of the Company's proprietary products are
increasing, such products remain in the early stages of market introduction and
are subject to the risks inherent in the commercialization of new product
concepts, particularly with respect to agricultural applications. To fully
maximize its marketing of new agricultural products, the Company believes it
will be necessary to enter into marketing partnerships with market leaders in
the agricultural industry. There can be no assurance that the Company's efforts
to market its proprietary products to agricultural crop and ornamental markets
will prove successful, that marketing partnerships will be established, or that
the Company's intended customers will purchase the Company's systems and
products instead of competing products. Failure to obtain significant customer
satisfaction or market share would have a material adverse effect on the
Company's business, financial condition and results

6
<PAGE> 8

of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- Strategy."

MANAGEMENT OF GROWTH

Eco Soil has experienced significant growth. Such growth has placed, and
will continue to place, significant strain on the Company's resources. The
Company's ability to manage future growth, should it occur, will require it to
implement and continually expand operational and financial systems, recruit
additional employees and train and manage both current and new employees. In
particular, the Company's success depends in large part on its ability to
attract and retain qualified technical, sales, financial and management
personnel. The Company faces competition for such persons from other companies,
academic institutions, government entities and other organizations. There can be
no assurance that the Company will be successful in recruiting or retaining
personnel of the requisite caliber or in adequate numbers to enable it to
conduct its business as proposed. See "Management -- Directors, Executive
Officers and Key Employees" and "Business."

ESTABLISHMENT OF SALES AND DISTRIBUTION CAPABILITIES

Distribution and sales of the Company's products have occurred through
distributors and dealers acquired by the Company and through independent dealers
and distributors. In 1996, Eco Soil initiated its strategy of establishing a
nationwide distribution system for its turf products through the acquisition of
various independent dealers and distributors and the hiring of selected sales
personnel. This strategy has required and is expected to continue to require
significant capital outlays and, due to the generally lower margins associated
with those dealers' existing products, likely will have the effect of lowering
the Company's gross profit margins. Achieving the anticipated benefits of such
acquisitions will depend on a variety of factors, including whether the
integration of such dealers and distributors with the Company's organization can
be accomplished in an efficient and effective manner and whether the acquired
sales force can effectively sell the Company's proprietary products. Any failure
to identify future hires or acquisition candidates properly, any large
expenditures on acquisitions that prove to be unprofitable, or any difficulties
encountered by Eco Soil in selling its proprietary products through the existing
distribution system could have a material adverse effect on the Eco Soil's
business, financial condition and results of operations. The Company has in the
past, and expects in the future, to continue to acquire companies in part
through the issuance of Common Stock. The issuance of additional shares of
Common Stock in connection with future acquisitions could result in dilution to
existing shareholders. See "Use of Proceeds" and "Business -- Strategy."

FUTURE ADDITIONAL CAPITAL REQUIREMENTS; NO ASSURANCE FUTURE CAPITAL WILL BE
AVAILABLE

The continuing commercialization of the Company's products requires the
commitment of significant capital expenditures. Eco Soil believes that upon
consummation of the Offering it will have sufficient resources to finance its
operations and future growth for at least the next 18 months, but no assurance
can be given in that regard. The Company anticipates that it will require
additional funds to support the rigorous testing and other costs of obtaining
government approval and for the marketing of its products for agricultural
applications. The Company anticipates that it will seek to obtain additional
funds in the future through public or private equity or debt financing,
collaborative or other arrangements with corporate partners or from other
sources. There can be no assurance that such additional financing can be
obtained on desirable terms, if at all. If additional funds are not available,
the Company may be required to curtail its operations and marketing efforts in
certain geographic areas or for one or more of its product lines. Although the
Company has established a line of credit with Imperial Bank, there can be no
assurance that the Company will be able to renew its line of credit on
acceptable terms or to increase such line if additional financing is required.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."

7
<PAGE> 9

PATENTS, PROPRIETARY TECHNOLOGY AND LICENSES

The Company's success will depend in large measure upon its ability to
obtain and enforce patent protection for its proprietary products, maintain
confidentiality of its trade secrets and know-how and operate without infringing
upon the proprietary rights of third parties. The Company has been granted three
U.S. patents for the technology relating to the BioJect system and has filed one
other U.S. patent application covering modifications to the BioJect system. The
Company does not have foreign patent protection with respect to the claims
covered by its two initial U.S. patents granted in 1993, and the Company is
precluded from obtaining such foreign rights due to the expiration of the period
for filing such claims. However, in connection with a U.S. patent granted in
1995 and a U.S. application filed later that year that still is pending, the
Company has applied for foreign patent protection with respect to the BioJect
system in selected countries. In addition, the Company has registered a number
of trademarks used in its business, including "BioJect," and has applied for
registration of a number of additional trademarks. The Company also relies on
trade secrets and proprietary know-how. The Company generally enters into
confidentiality and nondisclosure agreements with its employees and consultants
and generally controls access to and distribution of its documentation and other
proprietary information.

Despite the precautions described above, it may be possible for a third
party to copy or otherwise use the Company's products or technology without
authorization, or to develop similar products or technology independently. There
can be no assurance that the Company's patent or trademark applications will be
granted, that its means of protecting its proprietary rights will be adequate or
that the Company's competitors will not independently develop similar or
competing products. Furthermore, although the Company is not aware of any
infringement of any proprietary rights of others, there can be no assurance that
the Company is not infringing other parties' rights. If any of the Company's
patents are infringed upon or if a third party alleges that the Company violates
its proprietary rights, the Company may not have sufficient resources to
prosecute a lawsuit to defend its rights. In addition, an adverse determination
in any litigation could subject the Company to significant liabilities to third
parties, require the Company to seek licenses from or pay royalties to third
parties or prevent the Company from manufacturing, selling or using its
products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. Even if the Company
prevailed in litigation to protect its intellectual property rights, such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Patents and Proprietary
Rights."

LACK OF MANUFACTURING CAPABILITY; DEPENDENCE ON CONTRACT MANUFACTURERS AND
SUPPLIERS

Eco Soil currently does not have any manufacturing capability and must rely
on third parties to manufacture its products and components. The Company has
more than one supplier for the manufacture of most of its products and
components; however, some are being obtained from only one source. Although the
Company believes that it will be able to contract production with alternate
suppliers, there can be no assurance that this will be the case or that the need
to contract with additional suppliers will not delay the Company's ability to
have its products and components manufactured. There can be no assurance that
existing or future manufacturers will meet the Company's requirements for
quality, quantity and timeliness, and any such failure could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" and "Business."

NO ASSURANCE THAT RIGHTS TO ADDITIONAL MICROBIAL PRODUCTS WILL BE ACQUIRED

Eco Soil plans to obtain the rights to additional microbial products. The
Company currently does not engage in its own research and development with
respect to the discovery of microbial products, but instead licenses or acquires
rights to microbial products discovered by others. Although the Company is
actively seeking to obtain licenses for or otherwise acquire rights to
additional microbial products, there can be no assurance that the Company will
be successful in obtaining any such rights on terms acceptable to the Company,
if at all. The failure of the Company to acquire rights to additional products
could have a material

8
<PAGE> 10

adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Strategy."

PRODUCT LIABILITY CLAIMS AND UNINSURED RISKS

The Company may be exposed to product liability or environmental liability
resulting from the commercial use of its products. The Company currently carries
liability insurance, which covers, among other things, product liability and
environmental liability. A product liability, environmental or other claim with
respect to uninsured liabilities or in excess of insured liabilities could have
a material adverse effect on the Company's business, financial condition and
results of operations.

The Company has obtained insurance of such types and in such amounts as it
believes to be adequate and customary for similarly situated firms in its
business, including casualty insurance and workers' compensation insurance.
However, there are risks not normally covered by insurance over which the
Company has no control and that could result in Eco Soil incurring losses not
covered by insurance. Consequently, there can be no assurance that any losses
will be covered by insurance, that any covered losses will be fully insured
against or that any claim by the Company will be approved for payment by the
insurer. See "Business."

ENVIRONMENTAL LIABILITY

The federal government and some states have laws imposing liability on
certain parties for the release of fertilizers and other agents into the
environment in certain manners or concentrations. Such liability could include,
among other things, responsibility for cleaning up the damage resulting from
such a release. In addition, the federal Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), commonly known as the "Superfund" law,
and other applicable laws impose liability on certain parties for the release
into the environment of hazardous substances, which might include fertilizers
and water treatment chemicals. The Company is also subject to certain other
federal environmental laws, including the National Environmental Policy Act, the
Toxic Substance Control Act, the Resource Conservation and Recovery Act, the
Clean Air Act and the Clean Water Act and their state equivalents and may be
subject to other present and potential future federal, state or local
regulations. As noted above, the Company maintains insurance for environmental
claims which might result from the release of its products into the environment,
but there can be no assurance that any losses covered by insurance will be
adequately covered. Thus, a claim for environmental liability could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Product Liability Claims and Uninsured Risks" and
"Business."

GOVERNMENT REGULATION

The Company is subject to laws and regulations administered by federal,
state and foreign governments, including those requiring registration or
approval of fertilizers, pesticides, water treatment products and product
labeling. Eco Soil's current products are subject to regulation by the
Environmental Protection Agency (the "EPA"), the Food and Drug Administration
(the "FDA") and by certain state environmental and agricultural departments. To
date, with the exception of its bascillus thuringiensis product, which is an EPA
registered pesticide, the Company has marketed its microbes as soil inoculants.
The Company believes future sales will be strengthened if the Company can secure
EPA approval of other individual microbes as pesticides. In order to market a
microbe as a pesticide, the Company must obtain EPA approval of a particular
product containing that microbe, including EPA approval of the claims made in
the product label and the method of application. Registration of the Company's
microbial products as pesticides likely will be a lengthy and expensive process
that may or may not result in EPA approval. Without the desired EPA approvals,
the Company will not be able to market such unregistered microbes as pesticides,
and the Company's sales efforts will be limited to discussions of the soil
inoculant features of the microbe. If the EPA determines that a microbial
product has no significant commercially valuable use other use than as a
pesticide, however, the Company will be precluded from selling the product
entirely unless it is approved by the EPA.

In addition, if a microbe is sold as a pesticide for use on crops, the
Company must also seek to have a tolerance level set by the EPA which would
define the acceptable limit on the amount of microbes that could

9
<PAGE> 11

be present on a given raw agricultural commodity (food crop) at the time of
harvest. The Company also may petition the EPA for tolerance exemptions that
would not limit the residues of the microbial products on crops. If the EPA does
not issue a tolerance exemption, the Company would be required to obtain a
separate tolerance for each food product on which it intends to make its
microbial pesticides available for use. As a result, the Company would incur
costly application fees for each tolerance. There can be no assurance that the
Company will be successful in seeking such tolerances or tolerance exemptions,
and any failure to obtain such status which would prevent the Company from
selling microbes as pesticides for use on crops.

The Company may be subject to regulation in foreign countries. Compliance
with such requirements likely would result in additional cost to the Company and
delays in introducing the Company's products in such foreign countries.

Compliance with EPA and state environmental regulations as well as other
laws and regulations will increase the costs and time necessary to allow the
Company to operate successfully and may affect the Company in other ways not
currently foreseeable. In addition, more stringent requirements for regulation
or environmental controls may be imposed, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."

COMPETITION

The BioJect system competes against traditional chemical insecticides and
fungicides, chemical soil penetrants, acid injection systems, and the direct,
manual application of cultured microbial products. Although the Company believes
that none of its competitors offers an automated means of regularly applying
microbial products to turf and crops in an effective manner, many of the
Company's competitors have substantially greater financial, technical and
personnel resources than the Company and include such well-established companies
as Novartis Corporation, Rhone-Poulenc AG Company, the Dow Chemical Company,
O.M. Scotts & Sons, Inc., Lesco, Inc., and The Toro Company, as well as a number
of smaller local and regional competitors. The Company competes against
traditional technologies on the basis of its delivery mechanism and
bioaugmentation expertise. An important factor in the long-term competitiveness
of the BioJect system may be the timing and extent of the Company's penetration
into golf and agricultural markets compared to the market penetration achieved
by companies offering competing products for microbial distribution. Such timing
will be based on the effectiveness with which the Company or the competition can
complete product testing and approval processes and supply quantities of its
products to market. Competition among microbial distribution products is
expected to be based on, among other things, product effectiveness, safety,
reliability, cost, market capability and patent protection.

The CalJect system competes against a number of companies that have
developed products for applying gypsum onto soil to improve water penetration
through soil. At least one of the Company's competitors in the market for gypsum
distribution, Soil Solutions Corporation ("Soil Solutions"), has greater name
recognition in the soil amendments market and has significantly more installed
units. Soil Solutions' machine, like the Company's CalJect system, injects
gypsum directly into customers' irrigation systems. Competition among gypsum
distribution products is based on, among other things, cost, name recognition,
product effectiveness and reliability.

In markets for traditional chemical products, the Company competes against
well-established distributors of such products. Many of these competitors have
substantially greater financial, technical and personnel resources than the
Company and include such companies as Lesco, Inc., Terra Companies, Inc.,
Con-Agra, Inc. and Wilbur-Ellis Company. The Company competes on the basis of
price, name recognition, convenience and customer service with distributors of
traditional chemical products. See "Business -- Competition."

DEPENDENCE ON THE MARKET FOR GOLF

Golf participation has increased significantly since 1970. Although the
Company believes that golf markets will continue to grow, a decrease in the
number of golfers, their rates of participation or in consumer spending on golf
could have a material adverse effect on Eco Soil's golf course customers and, in
turn, on Eco Soil. Specifically, the success of efforts to attract and retain
members at private country clubs and the number

10
<PAGE> 12

of rounds played at public golf courses historically have been dependent upon
discretionary spending by consumers, which may be adversely affected by general
and regional economic conditions. In addition, the construction of additional
golf courses is dependent upon growth in the number of golfers. If customer
tastes or economic conditions cause golf courses to reduce their budgets or slow
the development of additional golf courses, the Company may see a correlative
decrease in sales of the BioJect system and its other products. See "Business."

POSSIBLE VOLATILITY OF STOCK PRICE

The Common Stock currently is quoted on the Nasdaq SmallCap Market. The
Company has applied to have the Common Stock approved for quotation, subject to
official notice of issuance, on the Nasdaq National Market. The market price of
the Common Stock could be subject to significant fluctuations in response to
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock. In addition, in the event the
listing of the Common Stock were discontinued for any reason, the liquidity and
price of the Common Stock would be adversely affected. See "Price Range of
Common Stock."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent upon the active participation of William B. Adams,
its Chairman of the Board and Chief Executive Officer, and Douglas M. Gloff, its
President. The loss of the services of either of these individuals could have a
material adverse effect upon the Company's business, financial condition and
results of operations. Each of Messrs. Adams and Gloff has entered into an
employment agreement with the Company which provides for his continued
employment with the Company through September 1998. The Company does not have
key person life insurance on any of its key employees. See "Management."

CONTROL BY PRINCIPAL SHAREHOLDERS

The current principal shareholders and management of the Company own
approximately 34.8% of the outstanding shares of Common Stock of the Company
before the Offering and will own approximately 26.9% after the Offering,
assuming the exercise of all outstanding options and warrants held by them and
no exercise of options or warrants held by others. Accordingly, even though the
Company currently has cumulative voting, the current principal shareholders and
management, if voting in concert, may have the ability to effectively control
the election of a majority of the directors of the Company or any other major
decisions involving the Company or its assets. See "Principal and Selling
Shareholders" and "Description of Securities."

OUTSTANDING WARRANTS AND OPTIONS

As of September 30, 1997, there were 5,052,526 shares of Common Stock
subject to issuance pursuant to options and warrants issued by the Company. In
addition, in connection with the Offering, the Representatives will receive the
Representatives' Warrants to purchase up to 410,583 shares of Common Stock.
Holders of warrants and options are likely to exercise them when, in all
likelihood, the Company could obtain additional capital on terms more favorable
than those provided by the warrants and options. While the warrants and options
are outstanding, they may adversely affect the terms on which the Company can
obtain additional capital. See "Description of Securities."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of significant amounts of Common Stock in the public market or the
perception that such sales will occur could adversely affect the market price of
the Common Stock or the future ability of the Company to raise capital through
an offering of its equity securities. Of the 15,910,075 shares of Common Stock
to be outstanding upon completion of the Offering, the 4,105,833 shares offered
hereby and the 3,795,000 shares sold in the Company's initial public offering
will be eligible for immediate sale in the public market without

11
<PAGE> 13

restriction, with the exception of any shares purchased in the Offering by
"affiliates" of the Company within the meaning of Rule 144 under the Securities
Act. The remaining 8,009,242 shares were issued and sold by the Company in
private transactions in reliance upon exemptions from registration under the
Securities Act and are, therefore, restricted securities (the "Restricted
Shares") that may not be sold publicly unless the Restricted Shares are
registered under the Securities Act or sold under Rule 144 or under similar
exemptions. Except for the 576,823 shares issued upon conversion of certain
bridge notes (as described below) and 25,000 shares issued to the sole
shareholder of Turfmakers, Inc. ("Turfmakers") in connection with the Company's
acquisition of substantially all of Turfmakers' assets in February 1997, all of
the Restricted Shares are eligible for resale subject to the restrictions
imposed by Rule 144. Holders of 4,708,799 shares of Common Stock have entered
into lock-up agreements under which they have agreed not directly or indirectly
to offer, sell or otherwise dispose, of any Common Stock owned or hereafter
acquired as with respect to which such shareholder has the power to control the
disposition for a period of 180 days after the date of this Prospectus without
the prior written consent of the Representatives. In addition, certain
shareholders have the right, subject to certain conditions, to participate in
future Company registrations and to cause the Company to register certain shares
of Common Stock owned by them. See "Shares Eligible for Future Sale."

UNDESIGNATED PREFERRED STOCK; ANTITAKEOVER PROVISIONS

The Board of Directors is authorized, without any action by the Company's
shareholders, to issue up to 5,000,000 shares of authorized but undesignated
preferred stock and to fix the powers, preferences, rights and limitations of
any such preferred stock or any class or series thereof. Persons acquiring
preferred stock could have preferential rights with respect to voting,
liquidation, dissolution or dividends over existing shareholders, including
purchasers of shares of Common Stock in the Offering. This ability of the Board
would permit the Company to adopt a shareholders' rights plan or to take other
action that could deter a hostile takeover of the Company, entrench the Board of
Directors or deter an unsolicited tender offer. In addition, certain provisions
of the Company's Amended and Restated Articles of Incorporation, including
provisions creating a staggered board of directors, and certain provisions of
Nebraska law, including the Nebraska Shareholders Protection Act, could have the
effect of deterring or delaying a takeover or other change in control of the
Company, could deny shareholders the receipt of a premium on their Common Stock
and could have a depressive effect on the market price of the Company's Common
Stock. See "Description of Securities."

DILUTION

Purchasers of the shares offered hereby will experience immediate and
substantial dilution of $4.63 per share in the net tangible book value per share
of the Common Stock as of September 30, 1997. Such investors will incur
additional dilution to the extent that options or warrants outstanding prior to
the Offering are exercised. See "Dilution."

NO DIVIDENDS

The Company has never paid or declared any cash dividends on its Common
Stock and does not intend to pay dividends on its Common Stock in the
foreseeable future. The Company is currently prohibited from paying dividends by
the terms of a loan agreement between the Company and Imperial Bank. The Company
intends to retain any earnings for use in the operation and expansion of its
business. See "Dividend Policy."

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 4,000,000 shares of
Common Stock offered by the Company hereby, at an assumed public offering price
of $6.875 per share, are estimated to be $25.1 million ($29.0 million if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use the estimated net proceeds as follows: (i) approximately $5.0 million
will be used for capital expenditures, primarily related to the construction of
additional BioJect systems to satisfy current and future customer orders; (ii)
approximately $5.0 million will be used for future acquisitions of independent
dealers and distributors of turf maintenance products and other related
products; (iii) approximately $2.3 million will be used to repay outstanding
amounts on its line of credit with Imperial Bank and approximately $63,000 will
be used to repay other miscellaneous debt; (iv) approximately $1.9 million will
be used to repay outstanding loans from significant shareholders and directors
of the Company; (v) approximately $2.7 million will be used to repurchase
BioJect systems currently leased to the Company; and (vi) approximately $8.2
million will be used for working capital and general corporate purposes.
Although the Company currently is evaluating additional acquisition
opportunities throughout the United States, it does not have any agreements to
acquire other companies. As of September 30, 1997, the outstanding principal
amount under the Imperial Bank line of credit was approximately $2.3 million.
The line of credit bears interest at Imperial Bank's prime rate plus 1.5% and
matures on June 15, 1998. The Company intends to repay an aggregate of
$1,050,000 outstanding on three notes held by William B. Adams, the Company's
Chairman and Chief Executive Officer. The first note held by Mr. Adams, in the
amount of $450,000, is payable on demand and bears interest at the rate of 8.0%
per year. The second note held by Mr. Adams is in the amount of $300,000, bears
interest at the rate of 8.0% per year and is due in November 1998. The third
note held by Mr. Adams is in the amount of $300,000, bears interest at the rate
of 8.0% per year and is due in March 1998. The Company intends to repay an
aggregate of $400,000 outstanding on two notes held by Heartland Capital Fund,
Ltd. ("Heartland Capital"), a significant shareholder of the Company. Bradley K.
Edwards, a director of the Company, is a general partner of Heartland Capital.
The first note held by Heartland Capital is in the amount of $200,000, bears
interest at the rate of 8.0% per year and is due in November 1998. The second
note held by Heartland Capital is in the amount of $200,000, bears interest at
the rate of 8.0% per year and is due in March 1998. The Company intends to repay
an aggregate of $450,000 outstanding on two notes held by Douglas M. Gloff, the
Company's President and a director of the Company. The first note held by Mr.
Gloff, in the amount of $200,000, bears interest at the rate of 8.0% per year
and is due in November 1998. The second note held by Mr. Gloff is in the amount
of $250,000, bears interest at the rate of 8.0% per year and is due in November
1998. The net proceeds from the sale of the 85,833 shares of Common Stock
offered hereby by the Selling Shareholders will be paid directly to the Selling
Shareholders. The Company will not receive any proceeds from such sale. See
"Principal and Selling Shareholders." Pending application of the proceeds as
described above, the Company intends to invest the net proceeds of the Offering
in short-term, investment-grade, interest-bearing securities. The amounts, if
any, actually expended for each described use are at the discretion of the
Company and may vary significantly depending upon a number of factors, including
the Company's future revenue growth, the amount of cash generated by the
Company's operations, the progress of the Company's product development and
marketing programs, changing competitive conditions and market acceptance of the
Company's products.

PRICE RANGE OF COMMON STOCK

The Company effected its initial public offering on January 16, 1997 at a
price to the public of $4.125 per share. Since that date, the Common Stock has
traded on the Nasdaq SmallCap Market under the symbol "ESSI." The following
table sets forth for the periods indicated the high and low sale prices for the
Common Stock as reported by the Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
1st Quarter (from January 16, 1997).......................... 6 15/16 4 3/16
2nd Quarter.................................................. 6 1/4 3 7/8
3rd Quarter.................................................. 8 5 9/16
4th Quarter (through October 31, 1997)....................... 7 5 3/4
</TABLE>

On October 31, 1997, the last reported sale price of the Common Stock on
the Nasdaq SmallCap Market was $6.875. As of October 31, 1997, there were
approximately 287 holders of record of the Common Stock.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the actual capitalization of the Company as
of September 30, 1997 and as adjusted to reflect the sale of 4,000,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of
$6.875 per share, the receipt of the estimated net proceeds therefrom and the
repayment of $712,000 of long-term debt. See "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion........................ $ 712 $ --
Shareholders' equity:
Preferred Stock, $.005 par value; 5,000,000 shares
authorized; none issued and outstanding, actual and as
adjusted................................................. -- --
Common Stock, $.005 par value; 20,000,000 shares authorized;
11,868,575 shares issued and outstanding: 25,000,000
shares authorized, 15,868,575 shares issued and
outstanding as adjusted(1)............................... 59 79
Additional paid-in capital.................................. 28,889 53,944
Warrants.................................................... 242 242
Note receivable from shareholder............................ (192) (192)
Accumulated deficit......................................... (12,058) (12,058)
-------- --------
Total shareholders' equity............................... 16,940 42,015
-------- --------
Total capitalization................................ $ 17,652 $ 42,015
======== ========
</TABLE>

- ---------------

(1) Excludes (i) 2,455,451 shares of Common Stock subject to outstanding options
at a weighted average exercise price of $3.07 per share, (ii) 2,597,075
shares of Common Stock subject to warrants at a weighted average exercise
price of $3.22 per share and (iii) 410,583 shares of Common Stock subject to
the Representatives' Warrants. See "Dilution," "Description of Securities"
and "Underwriting."

14
<PAGE> 16

DILUTION

As of September 30, 1997, the Company's net tangible book value was
$10,668,000, or $.90 per share. "Net tangible book value" per share represents
the amount of total tangible assets of the Company reduced by the total
liabilities divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 4,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $6.875 per share, less
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the Company's net tangible book value as of September 30, 1997
would have been $35,743,000, or $2.25 per share of Common Stock. This amount
represents an immediate increase in net tangible book value per share of $1.35
to existing shareholders and an immediate dilution of $4.63 per share to
investors purchasing shares of Common Stock in the Offering. "Dilution per share
to new investors" represents the difference between the price per share of
Common Stock paid for the shares issued in the Offering and the net tangible
book value per share at September 30, 1997, as adjusted to give effect to the
Offering.

<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)..................... $6.88
Net tangible book value per share at September 30, 1997........ $ .90
Increase per share attributable to new investors............... 1.35
-----
Net tangible book value per share after this offering.......... 2.25
-----
Dilution per share to new investors.......................... $4.63
=====
</TABLE>

- ---------------

(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.

If the Underwriter's over-allotment option is exercised in full, and
assuming a public offering price of $6.875 per share, the net tangible book
value of the Company as of September 30, 1997 would have been $39,681,000, or
$2.41 per share, representing an immediate increase in net tangible book value
of $1.51 per share to existing shareholders and an immediate dilution of $4.47
per share to the investors purchasing the shares of Common Stock in the
Offering.

The following summarizes, on a pro forma basis, the differences between
existing shareholders and purchasers of the shares offered hereby, with respect
to their ownership of Common Stock upon the closing of the Offering, the total
consideration paid and the average consideration paid per share:

<TABLE>
<CAPTION>
SHARES OWNED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... 11,868,575 74.8% $30,243,000 52.4% $ 2.55
New investors............................. 4,000,000 25.2% $27,500,000 47.6% $ 6.875
---------- ---- ----------- ---- -------
Total........................... 15,868,575 100% $57,743,000 100%
========== ==== =========== ====
</TABLE>

The foregoing calculations do not include (i) 2,455,451 shares of Common
Stock subject to outstanding options at a weighted average exercise price of
$3.07 per share, (ii) 2,597,075 shares of Common Stock subject to warrants at a
weighted average exercise price of $3.22 per share and (iii) 410,583 shares of
Common Stock subject to the Representatives' Warrants. See "Dilution,"
"Description of Securities" and "Underwriting."

DIVIDEND POLICY

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL AND OPERATIONS DATA
(IN THOUSANDS, EXCEPT OPERATING DATA AND PER SHARE AMOUNTS)

The selected consolidated financial data set forth below, with respect to
the Company's consolidated statement of operations data for the years ended
December 31, 1994, 1995 and 1996 and the consolidated balance sheet data set
forth below as of December 31, 1994, 1995 and 1996, have been derived from the
consolidated financial statements of the Company which have been audited by
Ernst & Young LLP, independent auditors (except for the financial statements of
Turf Specialty, Inc., a consolidated subsidiary, which were audited by Bigelow &
Company, Certified Public Accountants, P.C.), as set forth in their report. The
consolidated statement of operations data set forth below for the nine months
ended September 30, 1996 and 1997 and the consolidated balance sheet data as of
September 30, 1997 have not been audited but, in the opinion of management,
reflect all adjustments (consisting of only normal recurring adjustments) that
the Company considers necessary to present fairly the financial data for such
period. Results of the interim periods are not necessarily indicative of the
results that may be expected for the entire year or other interim periods. The
information presented below should be read in conjunction with the consolidated
financial statements and notes thereto presented elsewhere in this Prospectus
and in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Proprietary products................................................ $ 2,511 $ 3,195 $ 4,483 $ 3,626 $ 8,876
Distributed products................................................ 177 562 7,633 5,603 20,265
------- ------- ------- ------- -------
Total revenues................................................ 2,688 3,757 12,116 9,229 29,141
Cost of revenues:
Proprietary products................................................ 1,865 1,502 1,971 1,625 3,830
Distributed products................................................ 133 478 5,399 4,080 15,229
------- ------- ------- ------- -------
Total cost of revenues........................................ 1,998 1,980 7,370 5,705 19,059
------- ------- ------- ------- -------
Gross profit.......................................................... 690 1,777 4,746 3,524 10,082
Operating expenses:
Selling, general and administrative................................. 2,690 2,584 6,489 4,541 7,857
Research and development............................................ 286 413 475 353 189
------- ------- ------- ------- -------
Income (loss) before interest, depreciation and amortization.......... (2,286) (1,220) (2,218) (1,370) 2,036
Depreciation and amortization......................................... (306) (354) (911) (538) (777)
------- ------- ------- ------- -------
Income (loss) from operations......................................... (2,592) (1,574) (3,129) (1,908) 1,259
Interest expense...................................................... (224) (262) (1,064) (523) (430)
------- ------- ------- ------- -------
Net income (loss)..................................................... $(2,816) $(1,836) $(4,193) $(2,431) $ 829
======= ======= ======= ======= =======
Net income (loss) per share(1)........................................ $ (.62) $ (.35) $ (.62) $ (.40) $ .06
======= ======= ======= ======= =======
Shares used in calculating net income (loss) per share(1)............. 4,557 5,207 6,809 6,050 14,341
</TABLE>

CONSOLIDATED BALANCE SHEETS DATA:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
-------------------------------- ---------------------------
1994 1995 1996 ACTUAL AS ADJUSTED(2)
------- ------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Cash......................................................... $ -- $ -- $ 150 $ 212 $ 21,007
Working capital (deficit).................................... (793) (1,324) (6,434) 5,304 29,667
Total assets................................................. 2,354 3,981 12,886 28,105 48,900
Long-term debt and other obligations, net of current
portion.................................................... 1,489 941 1,847 712 --
Common stock/paid-in capital................................. 5,762 8,535 12,763 28,948 54,023
Accumulated deficit.......................................... (6,858) (8,694) (12,887) (12,058) (12,058)
Total shareholders' equity (deficit)......................... (1,095) (159) (74) 16,940 42,015
</TABLE>

OPERATING DATA:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of installed BioJect systems..... 13 46 79 171 238 238 345
</TABLE>

- ---------------

(1) See Note 1 to Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in calculating net
income (loss) per share.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL

The Company develops, markets and sells proprietary biological and
traditional chemical products that provide solutions for a wide variety of turf
and crop problems in the golf and agricultural industries. The Company's
principal products include proprietary products and distributed products. The
Company's proprietary products include its patented BioJect system and its
CalJect system, as well as its ClearLake and CleanRack systems. The Company's
distributed products consist of traditional fertilizers and pesticides that are
distributed through the Company's dealers and distributors.

The Company significantly changed its focus and product mix after it moved
its headquarters to San Diego from Nebraska in 1991. In 1991, a significant
portion of the Company's revenues were generated by the sale of products which
included fertilizer, nutrient and seed sales to golf courses. These products
generated low gross margins due to significant competition. Shortly thereafter,
the Company began to devote substantial resources towards the development of the
BioJect system, which resulted in the Company generating net losses. As the
BioJect system was developed, the Company began to focus its efforts on the
marketing and sales of BioJect systems and microbial products, which have higher
gross margins, and shifted away from lower margin sales of seed and fertilizer.
In 1996, the Company began to rapidly expand its sales and marketing
capabilities related to the BioJect system by hiring key personnel and acquiring
regional distributors whose sales representatives had established relationships
with potential BioJect customers. On May 31, 1996, the Company acquired both
Turf Products, Ltd., currently operating under the name Eco Turf Products, Inc.,
("Turf Products") and Turf Specialty, Inc. ("Turf Specialty"). In February 1997,
the Company acquired substantially all of the assets of Turfmakers, Inc.
("Turfmakers"). The acquisition of these distributors significantly increased
the volume of distributed products sold by the Company and lead to increased
penetration of the BioJect system within the golf industry. In addition to its
acquisitions of regional turf products dealers, the Company acquired Aspen
Consulting, Inc. ("Aspen"), an irrigation design and planning firm, in September
1995.

The BioJect system generates recurring revenues through customer leases of
BioJect equipment and the sale of various microbial products. In September 1997,
the Company sold certain of its equipment under operating leases to Eco Lease
Partners, LLC, an unaffiliated investor group, for aggregate proceeds of $4.0
million. The Company then leased the BioJect units back from Eco Lease Partners
under a 40-month lease agreement. The equipment is subleased to end-users,
generally under one-year lease terms. The gain of approximately $300,000 on the
sale has been deferred and will be amortized over the 40-month lease term.
Revenues from leasing and subleasing arrangements are recognized based on the
lease terms established with the customer which typically include monthly lease
payments and a one-time installation fee. All of the Company's leases are
terminable by the customer on 30 days' notice. The consumable microbial products
are sold separately on a seasonal basis based on the type and number of
microbial products selected and the desired frequency of application. The
Company outsources the assembly of the BioJect systems to third parties that use
parts sourced by the Company. As a result, during the assembly process, the
equipment assets are held in the Company's inventory and are subsequently
transferred to the Company's noncurrent assets thirty days after each BioJect
system is installed. Each BioJect system is depreciated over seven years.

17
<PAGE> 19

RESULTS OF OPERATIONS

The following table sets forth certain items in the Company's consolidated
statements of operations expressed as a percentage of revenues for the periods
indicated.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Proprietary products........................ 93.4% 85.0% 37.0% 39.3% 30.5%
Distributed products........................ 6.6 15.0 63.0 60.7 69.5
------ ------ ------ ------ ------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
Gross margin:
Proprietary products........................ 25.7 53.0 56.0 55.2 56.8
Distributed products........................ 24.9 15.0 29.3 27.2 24.9
Total gross margin.......................... 25.7% 47.3% 39.2% 38.2% 34.6%
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996

Revenues. For the nine months ended September 30, 1997, revenues were $29.1
million, an increase of 216% compared to $9.2 million for the nine months ended
September 30, 1996. The increase in revenues reflects an increase in both
distributed and proprietary revenues.

For the nine months ended September 30, 1997, revenues from sales of
proprietary products were $8.9 million, an increase of 145% compared to $3.6
million for the nine months ended September 30, 1996. BioJect lease revenues
were $1.0 million, an increase of 60% compared to $625,000 for the nine months
ended September 30, 1996. Revenues from sales of BioJect menu items, primarily
microbes, were $2.1 million, an increase of 106% compared to $1.0 million for
the nine months ended September 30, 1996. The increase in revenues from BioJect
leases and sales of menu items was due to an increase in the installed base of
BioJect systems from 238 to 345 during the first nine months of 1997. Included
in proprietary revenues for the nine months ended September 30, 1997 are $2.4
million of revenues from the sale leaseback transaction.

For the nine months ended September 30, 1997, revenues from sales of
CleanRack and ClearLake systems were $565,000, an increase of 52% compared to
$371,000 for the nine months ended September 30, 1996.

For the nine months ended September 30, 1997, revenues from Aspen were $1.2
million, an increase of 49% from $795,000 for the nine months ended September
30, 1996. The increase in Aspen's revenues resulted from an increase in the
number of its consulting contracts.

For the nine months ended September 30, 1997, revenues from other
proprietary products, which consisted primarily of fertilizer and nutrient
sales, were $1.0 million, an increase of 110% compared to $477,000 for the nine
months ended September 30, 1996.

For the nine months ended September 30, 1997, revenues from distributed
products were $20.3 million, an increase of 262% compared to $5.6 million for
the nine months ended September 30, 1996. The increase in distributed revenues
reflects the Company's acquisitions and the opening of new distributor
locations, as discussed above.

Gross Profit. For the nine months ended September 30, 1997, the Company's
gross profit was $10.1 million, an increase of 186% compared to $3.5 million for
the nine months ended September 30, 1996. The increase in gross profit resulted
from the increase in both distributed and proprietary revenues. For the nine
months ended September 30, 1997, the Company's gross margin was 35% compared to
38% for the first nine months of 1996. The relative decline in gross margin for
the first nine months of 1997 resulted from an increase in sales of distributed
products which carry lower margins, as well as the sale leaseback transaction,
for which the gain has been deferred.

For the nine months ended September 30, 1997, the gross profit from
proprietary products was $5.0 million, an increase of 152% compared to $2.0
million for the nine months ended September 30, 1996. The increase in the gross
profit from proprietary products resulted from an increase in the number of
installed

18
<PAGE> 20

BioJect systems. For the nine months ended September 30, 1997, the gross margin
on proprietary sales was 57% compared to 55% during the first nine months of
1996. The proprietary products gross margin for the first nine months of 1997
was favorably impacted by the product mix during the first nine months as the
Company has chosen to focus on its BioJect product line, while being negatively
impacted by the sale leaseback transaction.

For the nine months ended September 30, 1997, the Company's gross profit
from distributed products was $5.0 million, an increase of 231% compared to $1.5
million for the nine months ended September 30, 1996. The increase in the gross
profit resulted from an increase in sales of distributed products, which, in
turn, resulted from the acquisitions described above. For the nine months ended
September 30, 1997, the gross margin on distributed products was 25% compared to
27% during the first nine months of 1996. The decline in the gross profit on
sales of distributed products compared to the first nine months of 1996 resulted
from a change in the distributed product mix.

Selling, General and Administrative Expense. For the nine months ended
September 30, 1997, selling, general and administrative expense was $7.9
million, an increase of 73% compared to $4.5 million for the same period for
1996. The increase in selling, general and administrative expense was due to
additional overhead costs associated with the acquisitions discussed above.

Research and Development Expense. For the nine months ended September 30,
1997, research and development expense was $189,000, a decrease of 46% compared
to $353,000 for the nine months ended September 30, 1996. The decline in
research and development expense during the first nine months of 1997 reflects
the Company's decision to concentrate on the engineering and manufacture of the
BioJect system.

Interest Expense. For the nine months ended September 30, 1997, interest
expense was $430,000, a decrease of 18% compared to $523,000 for the nine months
ended September 30, 1996. The decrease in interest expense reflects a decrease
in the average amount of debt outstanding.

Amortization Expense. For the nine months ended September 30, 1997,
amortization expense was $401,000, an increase of 132% compared to $173,000 for
the nine months ended September 30, 1996. The increase in amortization expense
resulted from an increase in the Company's goodwill associated with the
previously discussed acquisitions.

Net Income. For the nine months ended September 30, 1997, net income was
$829,000 or $.06 per share compared to a loss of $2.4 million or $.40 per share
during the first nine months of 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995

Revenues. For the year ended December 31, 1996, revenues were $12.1
million, an increase of 222% compared to $3.8 million for the year ended
December 31, 1995. The increase in revenues reflects increases in revenues from
both the Company's proprietary and distributed products.

For the year ended December 31, 1996, revenues from sales of proprietary
products were $4.5 million, an increase of 40% compared to $3.2 million for the
year ended December 31, 1995. The increase in proprietary revenues resulted from
an increase in installations of the BioJect system. For the year ended December
31, 1996, revenues from BioJect leases were $681,000, an increase of 28%
compared to $534,000 for the year ended December 31, 1995. For the year ended
December 31, 1996, revenues from sales of BioJect menu items, primarily
microbes, were $1.2 million, an increase of 27% compared to $942,000 for the
year ended December 31, 1995. The increase in revenues from leases and sales of
menu items resulted from an increase in the number of installed BioJect systems.
At December 31, 1996, the Company had 238 BioJect systems installed, an increase
of 39% compared to 171 installed at December 31, 1995. In addition, the Company
increased the number of menu items available to customers in 1996 compared to
1995.

For the year ended December 31, 1996, revenues from sales of CleanRack and
ClearLake systems were $545,000, a decrease of 10% compared to $605,000 for the
year ended December 31, 1995. For the year ended December 31, 1996, CleanRack
sales increased by 101%, but these gains were offset by a decline of 53% in
ClearLake revenues. The decline in the sales of ClearLake systems during the
year ended December 31, 1996 resulted from a decline in unit sales while the
Company redesigned the ClearLake system. While redesigning the ClearLake system,
the Company did not actively market the ClearLake system.

19
<PAGE> 21

For the year ended December 31, 1996, revenues from sales of distributed
products were $7.6 million, an increase of 1,258% compared to $562,000 for the
year ended December 31, 1995. The increase in revenues from distributed products
resulted from the acquisitions described above. Revenues from sales of
distributed products reflect seven months of revenues from Turf Products and
Turf Specialty of $3.0 million and $3.9 million, respectively.

For the year ended December 31, 1996, revenues from Aspen's operations were
$1.1 million, an increase of 212% compared to $353,000 for the year ended
December 31, 1995. The Company acquired Aspen in September of 1995, and the
results for the year ended December 31, 1995 represent only three months of
operations.

For the year ended December 31, 1996, revenues from other proprietary
products, which consisted primarily of fertilizer, were $699,000, a decrease of
14% compared to $809,000 for the year ended December 31, 1995. The decrease
resulted from the Company's decision to focus on the marketing of its BioJect
system and its other proprietary products.

Gross Profit. For the year ended December 31, 1996, gross profit was $4.7
million, an increase of 167% compared to $1.8 million for the year ended
December 31, 1995. The increase in gross profit resulted from the increase in
the Company's revenues described above. For the year ended December 31, 1996,
gross margin was 39% compared to 47% for the year ended December 31, 1995. The
decline in gross profit margin was due to the increase in sales of distributed
products and a problem with the circuit boards for the BioJect system.

For the year ended December 31, 1996, gross profit from proprietary
products was $2.5 million, an increase of 48% compared to $1.7 million for the
year ended December 31, 1995. The increase in gross profit from proprietary
products resulted from an increase in revenues from proprietary products. For
the year ended December 31, 1996, the gross profit margin on proprietary
products was 56% compared to 53% during the year ended December 31, 1995. The
increase in gross profit margin on the Company's proprietary products resulted
from an increase in the proportion of sales of BioJect menu items, which carry
higher margins than other proprietary products.

For the year ended December 31, 1996, gross profit from distributed
products was $2.2 million, an increase of 2,560% compared to $84,000 for the
year ended December 31, 1995. The increase in gross profit from distributed
product sales resulted from the acquisitions described above. For the year ended
December 31, 1996, gross margin was 29% compared to 15% during the year ended
December 31, 1995.

Selling, General and Administrative Expense. For the year ended December
31, 1996, selling, general and administrative expense was $6.5 million, an
increase of 151% compared to $2.6 million for the year ended December 31, 1996.
The increase in selling, general and administrative expense resulted from the
costs associated with the integration of the Company's acquisitions, an increase
in the number of personnel at the Company and costs associated with the repair
of a circuit board problem on the BioJect system.

Research and Development Expense. For the year ended December 31, 1996,
research and development expense was $475,000, an increase of 15% compared to
$413,000 for the year ended December 31, 1995. The increase in research and
development expense resulted from increased expenditures on the BioJect and
ClearLake systems.

Interest Expense. For the year ended December 31, 1996, interest expense
was $1.1 million, an increase of 306% compared to $262,000 for the year ended
December 31, 1995. The increase in interest expense resulted from an increase in
the amount of debt outstanding. The amount of short and long term debt increased
to $9.1 million at December 31, 1996, compared to $2.6 million at December 31,
1995.

Amortization Expense. For the year ended December 31, 1996, amortization
expense was $464,000, an increase of 931% compared to $45,000 for the year ended
December 31, 1995. The increase in expense associated with the amortization of
goodwill resulted from the acquisitions discussed above.

Net Loss. For the year ended December 31, 1997, the net loss was $4.2
million or $.62 per share compared to $1.8 million or $.35 per share for the
year ended December 31, 1995.

20
<PAGE> 22

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1994

Revenues. For the year ended December 31, 1995, revenues were $3.8 million,
an increase of 40% compared to $2.7 million for the year ended December 31,
1994. The primary cause of the growth was the increase in revenues from
proprietary product sales.

For the year ended December 31, 1995, revenues from proprietary product
sales were $3.2 million, an increase of 27% compared to $2.5 million for the
year ended December 31, 1994. The major reason for the growth in revenues from
proprietary product sales was the growth in revenues associated with the
Company's BioJect system. For the year ended December 31, 1995 BioJect system
revenues were $1.5 million, an increase of 109% compared to $719,000 for the
year ended December 31, 1994. The cause of the increase was due to an increase
in revenues per BioJect system from approximately $10,000 to $11,000 as well as
an increase in the number of systems installed. In 1995 the BioJect system was
redesigned to distribute up to three microbial products on a daily basis. At
December 31, 1995 the Company had 171 BioJect systems installed, an increase of
116% compared to 79 installed at December 31, 1994.

For the year ended December 31, 1995, sales of the ClearLake system were
$436,000, an increase of 315% compared to $105,000 for the year ended December
31, 1994. The increase in ClearLake revenues was due to an increase in the
number of ClearLake systems sold from 13 to 30.

For the year ended December 31, 1995, revenues from distributed products
were $562,000, an increase of 218% compared to $177,000 for the year ended
December 31, 1994. The increase in distributed product sales reflects an
increase in foreign sales of distributed products.

For the year ended December 31, 1995, the Company had revenues from Aspen
of $353,000. The Company purchased Aspen in September of 1995.

Gross Profit. For the year ended December 31, 1995, gross profit was $1.8
million, an increase of 158% compared to $690,000 for the year ended December
31, 1994. The increase in gross profit was due an increase in the Company's
sales of proprietary products. For the year ended December 31, 1995 the gross
margin was 47% compared to 26% for the year ended December 31, 1994. The growth
of leases of BioJect system, the growth of sales of ClearLake systems, and the
growth of sales of microbes for use in the BioJect and Clearlake systems, all of
which have higher margins than fertilizers and grass seed, as well as the
inclusion of Aspen in the Company's results, produced a significant change in
product mix in 1995 that led to a substantial improvement in the gross margin of
the Company.

For the year ended December 31, 1995, gross profit from proprietary product
sales was $1.7 million, an increase of 162% compared to $646,000 for the year
ended December 31, 1994. For the year ended December 31, 1995, the gross margin
for proprietary product sales was 53% compared to 26% for the year ended
December 31, 1994. The increase in gross profit and gross margin was due to a
favorable product mix. In 1995 more than 56% of the Company's proprietary
product sales were generated from by the BioJect, ClearLake and CleanRack
product lines versus approximately 40% in 1994. The gross margin on these
products was significantly higher than the gross margins on the Company's
fertilizer and seed sales.

Selling, General and Administrative Expense. For the year ended December
31, 1995, selling, general and administrative expense was $2.6 million, a
decrease of 4% compared to $2.7 million for the year ended December 31, 1994.
The decline in selling, general and administrative expense was the result of a
reduction in spending on the Company's mobile laboratory which was used to
support fertilizer and nutrient sales.

Research and Development Expense. For the year ended December 31, 1995,
research and development expense was $413,000, an increase of 44% compared to
$286,000 for the year ended December 31, 1994. The increase in research and
development expense reflects the increased costs associated with a new
generation of the BioJect system which was developed in 1995 and introduced to
the market in 1996.

Interest Expense. For the year ended December 31, 1995, interest expense
was $262,000, an increase of 17% compared to $224,000 in 1994. The increase in
interest expense was due to an increase in outstanding borrowings to $2.6
million at December 31, 1995 from $2.0 million at December 31, 1994.

Net Loss. For the year ended December 31, 1995, the net loss was $1.8
million, or $.35 per share, a decrease of 35% compared to $2.8 million, or $.62
per share for the year ended December 31, 1994.

21
<PAGE> 23

QUARTERLY RESULTS OF OPERATIONS

The following tables present unaudited quarterly financial information for
the eleven quarters ended September 30, 1997. The information has been presented
by the Company on a basis consistent with the Consolidated Financial Statements
included elsewhere in this Prospectus and includes all necessary adjustments,
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of the unaudited quarterly results when read
in conjunction with the Consolidated Financial Statements and Notes thereto.
These operating results are not necessarily indicative of results that may be
expected for any subsequent periods.

<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------------
FISCAL YEAR 1995 FISCAL YEAR 1996
------------------------------------------------ ---------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- --------- --------- --------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Proprietary products.......... $ 806 $ 930 $ 697 $ 762 $ 963 $1,467 $ 1,196 $ 857
Distributed products.......... 106 98 146 212 149 1,560 3,894 2,030
----- ----- ----- ----- ------ ------ ------ -------
Total revenues.......... 912 1,028 843 974 1,112 3,027 5,090 2,887
Cost of revenues:
Proprietary products.......... 292 395 651 164 500 641 484 346
Distributed products.......... 87 70 120 201 112 1,076 2,892 1,319
----- ----- ----- ----- ------ ------ ------ -------
Total cost of
revenues.............. 379 465 771 365 612 1,717 3,376 1,665
Gross profit................... 533 563 72 609 500 1,310 1,714 1,222
Operating expenses:
Selling, general and
administrative.............. 595 620 448 921 974 1,697 1,870 1,948
Research and development...... 4 156 104 149 41 234 78 122
----- ----- ----- ----- ------ ------ ------ -------
Income (loss) before interest,
depreciation and
amortization.................. (66) (213) (480) (461) (515) (621) (234) (848)
Depreciation and
amortization................ 84 74 108 88 112 178 248 373
----- ----- ----- ----- ------ ------ ------ -------
Income (loss) from
operations.................... (150) (287) (588) (549) (627) (799) (482) (1,221)
Interest expense............... 66 65 41 90 56 136 331 541
----- ----- ----- ----- ------ ------ ------ -------
Net income (loss).............. $ (216) $ (352) $ (629) $ (639) $ (683) $ (935) $ (813) $(1,762)
===== ===== ===== ===== ====== ====== ====== =======
Net income (loss) per share.... $ (0.04) $ (0.07) $ (0.11) $ (0.11) $(0.11) $(0.15) $ (0.11) $ (0.23)
===== ===== ===== ===== ====== ====== ====== =======
Shares used in calculating net
income (loss) per share....... 5,155 5,217 5,544 5,933 6,018 6,174 7,459 7,566
===== ===== ===== ===== ====== ====== ====== =======
AS A PERCENTAGE OF REVENUES:
Revenues:
Proprietary products.......... 88.4% 90.5% 82.7% 78.2% 86.6% 48.5% 23.5% 29.7%
Distributed products.......... 11.6 9.5 17.3 21.8 13.4 51.5 76.5 70.3
----- ----- ----- ----- ------ ------ ------ -------
Total revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Proprietary products.......... 32.0 38.4 77.2 16.9 45.0 21.2 9.5 12.0
Distributed products.......... 9.6 6.8 14.3 20.6 10.0 35.5 56.8 45.7
----- ----- ----- ----- ------ ------ ------ -------
Total cost of
revenues.............. 41.6 45.2 91.5 37.5 55.0 56.7 66.3 57.7
Gross profit................... 58.4 54.8 8.5 62.5 45.0 43.3 33.7 42.3
Operating expenses:
Selling, general and
administrative.............. 65.2 60.3 53.1 94.5 87.6 56.1 36.8 67.5
Research and development...... 0.4 15.2 12.3 15.3 3.7 7.7 1.5 4.2
----- ----- ----- ----- ------ ------ ------ -------
Income (loss) before interest,
depreciation and
amortization.................. (7.2) (20.7) (56.9) (47.3) (46.3) (20.5) (4.6) (29.4)
Depreciation and
amortization................ 9.2 7.2 12.8 9.1 10.1 5.9 4.9 12.9
----- ----- ----- ----- ------ ------ ------ -------
Income (loss) from
operations.................... (16.4) (27.9) (69.7) (56.4) (56.4) (26.4) (9.5) (42.3)
Interest expense............... 7.3 6.3 4.9 9.2 5.0 4.5 6.5 18.7
----- ----- ----- ----- ------ ------ ------ -------
Net income (loss).............. (23.7)% (34.2)% (74.6)% (65.6)% (61.4)% (30.9)% (16.0)% (61.0)%
===== ===== ===== ===== ====== ====== ====== =======

FISCAL YEAR 1997
----------------------------------
MAR. 31, JUNE 30, SEPT. 30,
1997 1997 1997
-------- -------- ---------

<S> <<C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Proprietary products.......... $ 1,144 $ 2,788 $ 4,945
Distributed products.......... 2,785 8,512 8,968
------- ------- -------
Total revenues.......... 3,929 11,300 13,913
Cost of revenues:
Proprietary products.......... 214 543 3,073
Distributed products.......... 2,040 6,460 6,730
------- ------- -------
Total cost of
revenues.............. 2,254 7,003 9,803
Gross profit................... 1,675 4,297 4,110
Operating expenses:
Selling, general and
administrative.............. 2,288 2,798 2,772
Research and development...... 135 12 42
------- ------- -------
Income (loss) before interest,
depreciation and
amortization.................. (748) 1,487 1,296
Depreciation and
amortization................ 285 202 290
------- ------- -------
Income (loss) from
operations.................... (1,033) 1,285 1,006
Interest expense............... 167 83 179
------- ------- -------
Net income (loss).............. $(1,200) $ 1,202 $ 827
======= ======= =======
Net income (loss) per share.... $ (0.12) $ 0.08 $ 0.06
======= ======= =======
Shares used in calculating net
income (loss) per share....... 9,973 14,656 15,016
======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues:
Proprietary products.......... 29.1 % 24.7 % 35.5%
Distributed products.......... 70.9 75.3 64.5
------- ------- -------
Total revenues.......... 100.0 100.0 100.0
Cost of revenues:
Proprietary products.......... 5.5 4.8 22.1
Distributed products.......... 51.9 57.2 48.4
------- ------- -------
Total cost of
revenues.............. 57.4 62.0 70.5
Gross profit................... 42.6 38.0 29.5
Operating expenses:
Selling, general and
administrative.............. 58.1 24.8 19.9
Research and development...... 3.4 0.1 0.3
------- ------- -------
Income (loss) before interest,
depreciation and
amortization.................. (18.9) 13.1 9.3
Depreciation and
amortization................ 7.3 1.8 2.1
------- ------- -------
Income (loss) from
operations.................... (26.2) 11.3 7.2
Interest expense............... 4.3 0.7 1.3
------- ------- -------
Net income (loss).............. (30.5)% 10.6 % 5.9%
======= ======= =======
</TABLE>

22
<PAGE> 24

LIQUIDITY AND CAPITAL RESOURCES

Prior to its second quarter ended June 30, 1997, the Company had incurred
net losses and negative cash flows from operations. Since its inception, the
Company has financed its operations from revenues from sales of its products,
sales of its Common Stock, borrowing from its principal shareholders and bank
financing. In January 1997, the Company issued 3,795,000 shares of common stock
at a price of $4.125 per share in an initial public offering of its shares. The
Company received net proceeds of approximately $13,272,000 which were used for
the purchase of Turfmakers, the reduction of debt and working capital purposes.
During the first nine months of 1997, the Company used $4.9 million in cash
relating to its operating activities. At September 30, 1997, the Company had
working capital of $5.3 million.

During 1996, the Company used $4.6 million in cash relating to its
operating activities. The Company used $1.8 million to acquire Turf Products and
Turf Specialties in May 1996. The Company generated $6.0 million of cash from
financing activities during 1996. The financing activities consisted primarily
of: $3.7 million of bridge notes issued in July 1996, of which $1.8 million were
repaid and $1.9 million were converted in February 1997 subsequent to the
Company's initial public offering, approximately $1.0 million from bank
financing and approximately $1.3 million from loans from officers and
shareholders.

On September 30, 1997 the Company entered into a sale leaseback of certain
of its equipment under operating leases which generated proceeds of $4.0
million. In addition, the Company expanded its existing line of credit with
Imperial Bank to $5.0 million.

The Company believes that the net proceeds from the Offering will be
sufficient to finance its operations and future growth for at least the next
twelve months. The Company intends to fund its future operations and growth
through a combination of product revenues, borrowing available under the line of
credit, and public or private debt or equity financing. However, there can be no
assurance that such financing alternatives will be available under favorable
terms, if at all.

QUARTERLY FLUCTUATIONS

Eco Soil's operating results vary from quarter to quarter as a result of
various factors. Virtually all of the Company's customers are located in the
Northern Hemisphere and purchase greater quantities of microbes and distributed
products during the spring, summer and fall months. As a result of low customer
activity during the winter, the Company typically markets the BioJect system
during the fourth and first quarters. As a result of these marketing efforts,
the Company typically receives orders during the first and second quarters and
installs BioJect systems during the second and third quarters. BioJect lease and
installation revenues are recognized upon receipt of payment. Because of this
sales cycle, the second and third quarters historically have accounted for
approximately 30% and 35%, respectively, of annual revenues. The first and
fourth quarters, by contrast, historically have accounted for approximately 10%
and 25% of revenues, respectively. Operating expenses have tended to be
independent of the quarterly sales cycle. As a result, operating expenses
generally represent a higher percentage of sales in the first and fourth
quarters as compared to the second or third quarters, and the Company may
experience losses in the first and fourth quarters. Accordingly, results for any
quarter are not necessarily indicative of results for any future period. The
sales cycle for the BioJect system also makes it difficult to predict the number
of BioJect systems that will be leased and the quantity of microbial product
sales that will be sold until orders are received by the Company during the
first half of the year. Sales of the Company's products also depend to some
extent on the severity of weather patterns in the geographic areas served by the
Company. Given these factors, it is difficult for the Company to accurately
predict the level of demand for its products.

23
<PAGE> 25

ACCOUNTING PRINCIPLES

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share. Under Statement No. 128, the Company will be
required to present basic net income per share, which excludes the effects of
dilutive common stock equivalents, and diluted net income per share. Basic net
income per share is expected to be higher than the currently presented primary
net income per share in periods of positive earnings due to the exclusion of
dilutive stock options in its computation. Diluted net income per share is not
expected to be materially different from the earnings per share amounts which
would be computed under the current method.

The Company is required to adopt Statement No. 128 in its fiscal quarter
ending March 31, 1998, and at that time all historical net income per share data
presented will be restated to conform to the provisions of Statement No. 128.

24
<PAGE> 26

BUSINESS
GENERAL

Eco Soil develops, markets and sells proprietary biological and traditional
chemical products that provide solutions for a wide variety of turf and crop
problems in the golf and agricultural industries. The Company has developed its
patented BioJect system for the distribution of naturally occurring microbes
that complement or reduce the need for many chemical products currently used in
golf and agricultural markets. By fermenting microbes at the customer's site and
distributing them through the customer's existing irrigation system, the BioJect
system provides customers with cost savings and mitigates the adverse
environmental effects associated with chemical products. The Company initially
has focused its sales and marketing efforts on the golf market, and recently has
entered the agricultural crop and ornamental markets. To date, Eco Soil has
installed 345 BioJect systems at customer sites, including such renowned golf
courses as Congressional Country Club, Winged Foot Golf Club and Spyglass Hill
Golf Club.

By utilizing microbes that occur naturally in the environment, the BioJect
system overcomes many of the problems associated with traditional chemical
products. Traditional chemical products require repeated applications, which
reduce the long-terms effectiveness of such products and have been shown to have
adverse environmental effects. The BioJect system reduces the need for repeated
chemical product applications, resulting in lower overall product and labor
costs and increases the effectiveness of traditional chemical products. In
addition, the Company believes that the use of microbes distributed through the
BioJect system provides environmental benefits as compared to chemical product
applications by limiting the exposure of humans to chemical products, reducing
residual pesticide contaminants in plants and soil, and minimizing groundwater
pollution.

MARKET OVERVIEW

A survey performed by the National Golf Foundation indicates that in 1996
there were over 15,700 golf courses in the United States that purchased annually
in excess of $425 million of chemical products. According to data reported by
AGROW World Group Protection News, an industry publication, the total worldwide
agricultural market for chemical products in 1996 was approximately $31.3
billion.

Microbial products complement or reduce the need for traditional chemical
products and offer a number of advantages. When microbes are applied as part of
the normal irrigation cycle, chemical products can be used less frequently and
at lower rates to address specific problems. This, in turn, reduces the total
amount of chemical pesticides consumed, resulting both in cost savings and
environmental benefits. Environmental benefits include reduced soil and
groundwater contamination, slower resistance on the part of target plants and
animals to chemical products and decreased contact by golf course personnel or
farm workers with chemical products.

25
<PAGE> 27

Biological products generally have been perceived as economically
infeasible because of their short shelf life, rapid deterioration when exposed
to light or heat, specialized transportation requirements and the need for
daily, manual applications. In addition, most biological and chemical products
are applied manually by tank mixing the products in water and then manually
spraying the products on the areas that need to be treated. Due to the need for
manual application, this process is time consuming and labor intensive,
especially when performed on large acreages. In the case of biological products,
where more frequent applications are required than their chemical counterparts,
the need for frequent manual applications has made biological products
economically uncompetitive.

THE ECO SOIL SOLUTION

The BioJect system overcomes many of the obstacles that have hindered
wide-spread use of biological products in the turf and agricultural industries.
By fermenting microbes at the customer's site and distributing them through the
customer's existing irrigation system, the BioJect system preserves and protects
the potency of microbes, significantly reduces shipping costs, controls the
concentration of product and allows for automatic daily application. The "menu"
of six microbial products offered by the Company allows it to address a variety
of turf and crop problems and to customize treatment programs to meet customers'
specific needs. The Company knows of no other company pursuing this approach.
Some of the potential cost savings and environmental advantages of the BioJect
system include the following:

Potential Cost Savings

- reduced amounts and frequency of use of chemical fungicides, herbicides,
insecticides and fertilizers;

- reduced labor costs compared to traditional methods of applying chemical
and biological products by using irrigation water as a distribution
medium;

- reduced water consumption of up to 40% due to improved soil porosity and
increased toxin remediation; and

- increased seed germination rates, which may result in lower seed and
fertilizer costs.

Environmental Advantages

- reduced soil and groundwater pollution;

- fewer residual pesticide contaminants in plants and their byproducts;

- immediate access to treated areas after application; and

- lower toxicity to humans and non-target animals and plants.

STRATEGY

The Company's strategy is to expand its leadership position in the
distribution and sale of microbial products in the golf industry and to leverage
its experience in this industry into agricultural crop and ornamental markets.

Increase Penetration of Golf Markets. The Company currently has an
installed base of 320 BioJect systems and 14 CalJect systems in the golf market.
These BioJect systems are disbursed among 24 states and 7 countries. The Company
intends to continue to focus its sales and marketing efforts on increasing the
number of installations of its BioJect system and expanding the number of menu
items sold to each customer. The Company also intends to utilize its installed
base to further increase the volume of sales of distributed products. The
Company believes that its strategy of leasing rather than selling BioJect
systems promotes a more rapid expansion of its customer base by relieving its
customers of having to make substantial capital investments. The Company
believes that as it demonstrates the advantages of its proprietary products, the
use of biological products in the golf industry will become more widespread and
the Company will be well positioned to exploit new market opportunities.

26
<PAGE> 28

Establish Nationwide Sales and Distribution Network. Major golf course
markets tend to be represented by a single sales organization that controls a
significant portion of new product introductions and their subsequent
penetrations into golf courses in their regions. This distribution network is
highly regionalized and based strongly on individual relationships. The Company
has made three acquisitions in regional markets including New England, the
Chicago metropolitan area and Southern California. The Company intends to
acquire additional dealers and distributors, to hire selected personnel and to
integrate them into a single sales organization in order to enhance the
Company's ability to market and sell its proprietary products, establish itself
as a single source supplier to golf courses and increase its penetration into
golf markets. The Company believes that this consolidation of golf dealers and
distributors also may improve the Company's profitability through volume
discounts.

Expand into Agricultural Markets. The Company currently has an installed
base of 25 BioJect systems and 8 CalJect systems in agricultural markets.
Although the Company initially has focused on golf applications for the BioJect
system, the Company has begun to focus on agricultural crop and ornamental
markets. The Company currently is conducting tests of salt remediation products
on tomato fields in Mexico and on strawberry fields and avocado and citrus
groves in Southern California. The Company also is conducting tests with major
universities on the effectiveness of its microbial products on certain pathogens
found in the peanut, avocado and citrus industries. In addition, the Company has
begun testing applications for ornamentals such as ferns and cut flowers with
Novartis Crop Protection, Inc. If the Company's test programs prove successful,
the Company intends to form strategic partnerships with various companies
involved in the sale of products to the agriculture industry in order to jointly
market products. In particular, the Company intends to devote significant
resources to penetrating the ornamental markets because of the limited
regulation of such markets.

Increase Number of Microbial Menu Items. In order to maximize the revenues
it generates from each BioJect system, Eco Soil intends to expand the selection
of microbes it offers its customers. To this end, the Company has entered into
discussions with various leading biotechnology companies and major universities
to obtain rights to additional microbes. The Company also has increased its
research and development efforts to determine which microbes will be suitable
for distribution through the BioJect system.

Further Develop International Markets. To date, the Company has sold 25
BioJect systems to customers in 6 countries outside the U.S., including 11
BioJect systems in Japan and 7 BioJect systems in Mexico. The Company believes
that there is a significant opportunity to further develop its sales in
international markets due to increased demand for alternatives to chemical
products and heightened environmental awareness. The Company has established
formal distribution relationships in Japan, Korea, Australia, Mexico, Canada,
Brunei and South Africa. The Company also owns a 51% interest in a South African
golf products distribution company. The Company intends to expand its
international sales to additional markets, particularly within the Pacific Rim,
through independent third party distributors or through joint ventures.

PRODUCTS

The Company sells proprietary products and distributed products. The
Company's proprietary products primarily include its patented BioJect system,
its menu of six microbial products, its CalJect system and certain other
proprietary products, including its ClearLake and CleanRack systems. The
Company's distributed products consist of traditional fertilizers and pesticides
that are distributed through the Company's dealers and distributors.

Proprietary Products

The Company's proprietary products consist of (i) the BioJect system, which
automatically ferments and distributes microbes through irrigation systems, (ii)
the CalJect System, which permits the injection of soil and water amendments
into irrigation systems and (iii) other proprietary products, including the
ClearLake and CleanRack systems.

27
<PAGE> 29

BioJect System

The BioJect system permits the introduction of microbes into the soil with
the required frequency and in a cost-effective and environmentally safe manner.
Because biological products are subject to degradation upon exposure to high
temperatures, light or long storage periods, the introduction of these microbes
into the soil on a regular basis had not been economically feasible prior to the
development of the BioJect system. The BioJect system overcomes the traditional
problems associated with introduction of microbes into the soil by fermenting
them at the customers' site during the day and then dispensing the microbes into
the customer's irrigation system automatically at night. The BioJect system
includes fermentation chambers, pumps, injectors and computer controls that
coordinate the scale-up of microbial products and their injection into the
customer's irrigation system. The BioJect system is equipped with hardware and
proprietary software that allows the user to select or pre-program the microbe
application rate and time of delivery through its user-friendly control panel.
The system also automatically controls the amount of nutrients, dissolved
oxygen, temperature and pH of the fermentation chamber to optimize the scale-up
of microbial populations from a starter culture.

The Company believes that its BioJect system will become the preferred
distribution vehicle for many microbial products because it is able to overcome
the poor shelf life characteristics that have previously prevented biological
products from being practical alternatives or complements to chemical products.

The BioJect system has been designed to apply up to three microbial
products at a time. The Company is the sole supplier of all of the consumables
(biologicals and media) that are required in its BioJect system, as well as
hardware maintenance services. The BioJect system is the Company's primary
product, and the Company intends to focus most of its efforts on enhancing the
capabilities of and promoting the BioJect system to the golf industry and
exploring potential expansion of its BioJect system into the agricultural
ornamental and crop industries.

The Company's installed base of BioJect systems has experienced rapid
growth in recent years, as shown in the following table:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative number of installed
BioJect Systems................... 13 46 79 171 238 238 345
</TABLE>

The Company has sold or leased its BioJect system to some of the most
famous and notable golf courses in the world, including the following:

<TABLE>
<S> <C>
- Aviara Golf Club (CA) - Point-O'Woods Country Club (MI)
- Baltimore Country Club (MD) - Royal Brunei Golf and Country Club
- Big Horn Country Club (CA) (Brunei)
- Caledonian Golf Club (Japan) - Skokie Country Club (IL)
- Congressional Country Club (MD) - Spyglass Hill Golf Club (CA)
- John's Island Club (N,W&S) (FL) - Sun City Resorts -- Gary Player Country
- Jupiter Hills Club (FL) Club (S. Africa)
- Leopard Creek Golf Course (S. Africa) - Sun City Resorts -- Lost City Golf Course
- Merion Golf Club (PA) (S. Africa)
- North Shore Country Club (IL) - Tres Vidas Golf Course (Mexico)
- Pelican Hill Golf Club (CA) - Westchester Country Club (NY)
- Monterey Peninsula Country Club (CA)
- Winged Foot Golf Club (NY)
</TABLE>

The Company offers a menu of six microbial products that can be delivered
through its BioJect system. The BioJect system has evolved from delivering only
bacteria of the Bacillus family to delivering a variety of microbial products.
The Company licenses and/or acquires such microbes from universities and
corporations. These products appear on the Company's BioJect menu and complement
or reduce the need for many chemical fungicides, herbicides, insecticides and
fertilizers. The consumable product in each menu item is generally a microbe,
and each microbe is cultured in the BioJect system under a proprietary formula.
Different microbes are used for different applications because their mode of
action and performance varies.

28
<PAGE> 30

Set forth below is a table showing the name of each of the Company's
microbial products, the Company's rights to the microbe, the source of the
microbe and the application for each microbe.

<TABLE>
<CAPTION>
MICROBE NAME SOURCE COMPANY'S RIGHTS USE EXPIRATION DATES
- -------------------- -------------------- -------------------- ---------------------- -----------------
<S> <C> <C> <C> <C>
Bascillus Spp. Chr. Hansen, Inc. Public domain Improves soil porosity Indefinite
to enhance plant
growth

Azosporillium Encore Technologies, Exclusive worldwide Converts atmospheric February 29, 2000
brasilense Cd Inc. ("Encore") license for use nitrogen into plant
through the BioJect available form;
system enhances root and top
growth of plants

Cellulomonas Sps. Encore Public domain Helps reduce thatch Indefinite
layer to enhance turf
growth

Pseudomonas Encore/Michigan Assignment of rights Promotes organic Expiration date
aureofaciens TX-1 State University granted to Encore matter degradation and of underlying
("TX-1") under exclusive other activities in patents
worldwide license the soil and turf
from Michigan State environment that
University minimizes the
conditions conductive
to the development of
certain turfgrass
diseases

Bascillus Abbott Laboratories Non-exclusive Biological insecticide Terminable upon
thuringiensis distribution rights for the control of 30 days notice
(DiPel 2x) armyworms and sod
webworms in turf (EPA
Reg. No. 275-37)

Xanthomonas Mycogen Option through Research Authorization November 1, 1998
campestris Corporation/Michigan November 1, 1998 to and application for
State University acquire rights Experimental Use
granted to Mycogen Permit as a selective
under exclusive postemergent
worldwide license biological control of
from Michigan State Poa annua
University
</TABLE>

The Company has obtained exclusive rights to several microbes pursuant to a
license and supply agreement with Encore and certain assignments of intellectual
property made by Encore to the Company. The license and supply agreement
provides for an exclusive, worldwide, royalty-free license to use, sell and
distribute Azospirillum brasilense Cd for application through the BioJect
system. In addition, Encore has assigned to the Company all of Encore's rights
to media (proprietary material formulations used to promote fermentation and
multiplication of microbial products in the BioJect system) and rights to
Pseudomonas aureofaciens TX-1 that Encore obtained under a license agreement
with Michigan State University. Under the license and supply agreement with
Encore, Encore is obligated to produce cultures of microbial products suitable
for fermentation in BioJect systems ("Inoculum"), and the Company has agreed to
purchase certain minimum amounts of Inoculum from Encore.

To increase the menu of items for use in its BioJect system, the Company
intends to enter into additional licensing agreements with leading biotechnology
companies and major universities once new microbial products have been proven
effective. To meet the technical challenges associated with the task of
optimizing the scale-up of these distinct microbes within the BioJect system and
distributing them within the irrigation cycle, the Company has entered into
research and development agreements with companies specializing in fermentation
of microbes. The Company also intends to bring more technical expertise in-house
in order to evaluate new microbial products, maximize the value of its programs
and gain more expertise in the area of registration and labeling requirements.

29
<PAGE> 31

CalJect System

The Company's CalJect system permits the injection of soluble soil and
water amendments into irrigation systems. The Company has developed ESSI Soluble
Gypsum, a soil amendment, specifically for distribution through the CalJect
system. ESSI Soluble Gypsum combats water salinity, soil alkalinity and
bicarbonate problems most often encountered by golf courses and growers in the
western United States and Mexico. The Company believes that use of the CalJect
system and ESSI Soluble Gypsum can reduce golf courses' and growers' water
consumption and improve turf quality and crop yields. The Company currently has
an installed base of 22 CalJect systems.

As golf courses and growers irrigate with poor quality water, salts
accumulate in their soils. These salts damage soil and roots, reducing turf
quality and crop yields. The Company believes that approximately 20% of water
used on golf courses in the western United States is used to leach the excess
salt that accumulates in the soil. Eliminating the need for such extra water
could mean significant savings for such golf courses. In addition, alkaline
soils typically found in the western United States and Mexico harm turf and
crops by stressing roots, blocking nutrient uptake and impeding water
infiltration. The CalJect system provides for automatic application of water and
soil amendments through irrigation systems to address such problems.

The CalJect system converts the Company's water and soil amendment
products, including ESSI Soluble Gypsum, into solution form and injects them
into an irrigation system. The Company designs and implements a customized
CalJect program for each of its customers based on soil and water test results.
The Company monitors the success of each program and prepares a soil and water
analysis for each customer. Independent consultants make on-going
recommendations based on the results of such analyses.

Other Products

The Company also offers a ClearLake system, a pond and lake restoration
system, and CleanRack system, an equipment wash rack and water treatment system
that reclaims contaminated equipment wash water, making it suitable for
recycling or discharge. The ClearLake system is a patented system that is
designed to improve the aesthetics and water quality of water used for both
irrigation and ornamental ponds and lakes. The ClearLake system has been
designed for lakes which are particularly difficult to keep clean because the
constant inflow of contaminants and nutrients into the lake is too high for the
lake's ecosystem to stay in balance. The Company's CleanRack system cleans the
water that is typically used to wash golf course equipment and recycles it for
use. If the water is reused without treatment, it often contributes to
mechanical breakdowns and can pose serious health risks to those with whom it
comes into contact. The CleanRack system is designed to decontaminate wash water
so that it complies with applicable state and federal environmental and safety
regulations and is suitable for discharge or can be safely recycled.

Distributed Products

In addition to the proprietary products described above, the Company also
sells a complete line of traditional chemical fertilizers and pesticides and
other turf maintenance products through the dealers and distributors owned by
the Company. In order to meet all of its customer's turf maintenance needs, the
Company's distributors keep in stock an inventory of branded pesticides,
fertilizers, seed, and other necessary products from many agricultural
manufacturers. Such products include fertilizers from Lebanon Chemical
Corporation, The Doggett Corp., Growth Products Ltd., Plant Marvel Laboratories,
Inc., The Anderson's, Vicksburg Chemical Company, IMC Vigoro and pesticides from
Bayer Corporation, Novartis Corporation, ISK Biotech Corporation, PBI Gordon
Corporation, Kincaid Enterprises, Rhone-Poulenc AG Company and Rohm and Haas
Company.

SALES AND DISTRIBUTION

Since May 1996, the Company has focused on establishing sales and
distribution capabilities by acquiring independent turf products dealers and
distributors and integrating them into a single, nationwide sales organization
to promote sales of the Company's BioJect and CalJect systems to golf courses.
To date, the Company has acquired three independent golf product distributors,
which are located in New England, the

30
<PAGE> 32

Chicago metropolitan area and the Palm Springs area. The Company also has hired
sales and other key personnel to establish a regional presence in Southern
California and Pennsylvania. The Company currently has 38 sales and marketing
personnel divided among three sales regions covering the eastern, midwestern and
western parts of the United States. Each region has its own general manager
responsible for maintaining customer satisfaction and expanding the Company's
customer base.

Consistent with the Company's strategy of concentrating initially on golf
course markets, the Company has not sought to acquire agricultural product
distributors. To date, the Company has distributed BioJect and CalJect systems
to agricultural markets through testing programs and direct sales efforts.

Distribution to Golf Markets

In general, major golf course markets are represented by a single sales
organization that controls a significant portion of new product introductions
and their subsequent penetrations into golf courses in their regions. Prior to
the Company's initial dealer acquisitions in May 1996, the Company sold its
proprietary products primarily through direct sales efforts and relationships
with certain regional dealers. By expanding its distribution capabilities using
full-service turf products dealers, the Company has been able to leverage
existing distributor relationships to more effectively sell its proprietary
systems.

In early 1996, the Company initiated its strategy of consolidating its golf
distribution network through acquiring independent products distributors and
hiring key sales personnel. On May 31, 1996, the Company acquired Turf Products,
a Chicago-based company that markets and sells fertilizers, pesticides, grass
seed and soil amendments to golf courses throughout the greater Chicago
metropolitan area, and Turf Specialty, a New Hampshire-based company that
markets and sells similar products to golf courses and municipalities throughout
the New England region. On February 19, 1997, the Company acquired substantially
all of the assets of Turfmakers, a turf products distributor in the Palm Springs
area. Turf Products, Turf Specialty and Turfmakers are established in the turf
maintenance industry for golf course markets in the greater Chicago, New England
and Palm Springs areas, respectively. While other dealers in these markets
generally compete for market share through aggressive pricing, the Company has
adopted a value-added, customer service focus, which is essential for
introducing technologically-advanced, proprietary products such as the BioJect
system.

The Company expects to increase its market penetration in the geographic
areas served by its dealers and distributors by hiring additional sales
personnel as well as opening satellite warehouses to serve new customers. In
February 1997, the Company hired sales people and related personnel in San Diego
and established a distribution operation in Southern California. In March 1997,
the Company hired six sales people in Pennsylvania, enabling the Company to
penetrate that market.

The Company currently is exploring the possibility of acquiring additional
distributors and making additional strategic hires in areas of the United States
not currently serviced by the Company. When reviewing an acquisition candidate,
the Company looks for the following characteristics: (i) strength of the
candidate's management team and sales ability; (ii) the geographic location of
the candidate; (iii) the products sold by the candidate; and (iv) the
profitability of the candidate's business. In most cases, the Company seeks to
keep the candidate's management in place for a period of time.

The Company believes that the establishment of the Company's regional sales
and distribution network will offer several benefits to the Company, including
(i) improved profitability due to increased sales of proprietary products; (ii)
improved overall financial results due to consolidated operations; (iii)
increased margins through volume discounts; and (iv) increased visibility in
golf markets and greater credibility in larger markets such as the agricultural
crop and ornamental industries.

Although the Company has shifted its focus to expanding sales through the
Company's acquired dealers and distributors, the Company maintains relationships
with seven independent distributors. The Company supplements the sales efforts
of its acquired distributors, other regional distributors and its direct sales
force through seminars given by members of the Company's Scientific Advisory
Board on the benefits and efficacy of microbial products.

31
<PAGE> 33

Distribution to Agricultural Markets

The Company currently has an installed base of 25 BioJect systems and 8
CalJect systems in agricultural markets. Although the Company initially focused
on turf applications for the BioJect system, the Company has begun to focus on
agricultural crop and ornamental markets. The Company currently has three full
time sales people dedicated to agricultural markets.

As part of its strategy to penetrate agricultural markets, the Company has
begun testing combined applications of the Bacillus Spp. microbe through the
Bioject system and Eco Soil's soluble gypsum through the CalJect system to
address soil salinity problems. The Company currently is conducting tests of its
salt remediation products on tomato fields in Mexico and on strawberry fields
and avocado and citrus groves in Southern California. The Company also is
conducting tests with the University of Texas on the effectiveness of microbial
products on certain pathogens found in the peanut industry and with the
University of California, Riverside, on pathogens found in the avocado and
citrus industries. The Company intends to expand the number of trials on food
crops and apply for regulatory approval for products which are found to be
effective. In addition, the Company has begun testing applications on
ornamentals such as ferns and cut flowers with Novartis Crop Protection, Inc.

If the Company's test programs prove successful, the Company intends to
form strategic partnerships with various companies involved in the sale of
products to the agriculture industry in order to jointly market products. The
Company does not anticipate building a significant direct sales force for its
products in the agriculture industry.

RESEARCH AND DEVELOPMENT

The Company has not engaged in its own research and development with
respect to the discovery of microbial products. Instead, the Company has
obtained rights to microbial products that have been proven effective for
applications in the turf maintenance and agricultural crop and ornamental
industries. Much of the Company's in-house research and development effort is
targeted at determining which microbes will be suitable for distribution through
the BioJect system and the engineering of the fermentation and product delivery
features of the BioJect system. The Company spent approximately $413,000 and
$475,000 on research and development for the years ended December 31, 1995 and
1996, respectively. The Company believes its strategic objectives can best be
met by combining its in-house product development efforts with the licensing of
technology and the establishment of research collaborations with scientists at
academic institutions and at companies working in related fields.

GOVERNMENT REGULATION

The Company is subject to laws and regulations administered by federal,
state and foreign governments, including those requiring registration or
approval of fertilizers, pesticides, water treatment products and product
labeling. To date, with the exception of its bascillus thuringiensis product
which is an EPA registered pesticide, the Company has marketed its microbial
products as soil inoculants. The Company believes future sales will be
strengthened if the Company can secure approval of individual microbes as
pesticides.

In most countries, governmental authorities require registration of
pesticides before sales are allowed. In the United States, the EPA regulates
pesticides under the Federal Insecticide, Fungicide and Rodenticide Act
("FIFRA"). Pesticides are also regulated by the individual states such as
California which has its own extensive registration requirements. In order to
market pesticide products outside the United States, the Company must receive
regulatory approval from the authorities of each applicable jurisdiction. In
addition, the EPA under the Federal Food, Drug and Cosmetic Act ("FFDCA")
establishes standards for residues in food to protect health.

Detailed and complex procedures must be followed in order to obtain
approvals under FIFRA to develop and commercialize a pesticide product. A
separate registration application must be submitted to the EPA for each
microbial product. Evaluation data for the registration include, but may not be
limited to, non-target

32
<PAGE> 34

organism testing, environmental data, product analysis and residue chemistry,
and toxicology (hazards to human beings and domestic animals).

The EPA has established reduced testing requirements for registration of
microbial pesticides, which are set out in Subdivision M of the EPA's Pesticide
Assessment Guidelines. Microbial pesticides are currently subject to a
three-tier toxicology testing procedure, and a four-tier environmental
evaluation process. If results of toxicology and environmental Tier 1 tests do
not suggest health and safety concerns, then subsequent tier testing is not
required. Additional tests may be required, however, in response to any
questions which may arise during any tier of testing. Registration of the
Company's pesticidal products may take between eighteen months and five years
including the time necessary for collection of the necessary product data. If
only Tier 1 testing is required, the cost of registration is typically less than
$500,000. In contrast, synthetic chemical pesticides require much more extensive
toxicology and environmental testing to verify product safety prior to receiving
registration, which the Company estimates can take a total of five to seven
years or longer and can cost $5 to $10 million or more.

In July 1992, the EPA announced its "Reduced Risk Pesticide Policy"
initiative and is in the process of developing criteria for streamlining the
regulatory process. In June 1993, the Clinton Administration announced its
commitment to reduce the use of pesticides and promote sustainable agriculture
in the United States. The EPA, the United States Department of Agriculture (the
"USDA") and the FDA are all considering regulatory reforms. In testimony before
Congress on September 21, 1993, the administrators of the USDA, the FDA and EPA
stated their intentions to work jointly to reduce risk associated with
pesticides and to facilitate the availability of alternative effective pest
control products. These policy initiatives and legislative reviews could in the
future accelerate the registration of biopesticides meeting "reduced risk"
criteria, but there can be no assurance of the impact or timing of these
initiatives.

FIFRA allows laboratory and greenhouse testing and, usually, small-scale
field testing to be conducted prior to product registration, to evaluate product
efficacy and to gather data necessary to support an application. An Experimental
Use Permit ("EUP") must be obtained from the EPA to conduct large-scale field
testing prior to product registration. An EUP is required for testing in one or
more land sites greater than ten cumulative acres. Issuance of an EUP normally
requires satisfactory completion of certain toxicology and environmental
studies. Field testing of certain microbial agents may require the approval of
the Animal and Plant Health Inspection Service ("APHIS"), an office of the USDA.
APHIS approvals are granted on a site specific basis, and additional state
approvals may also be required.

With the exception of its bascillus thurnigiensis product which has been
registered with the EPA by the Company's licensor, the Company has not received
approvals for the use of any of its products as pesticides. The Company is
currently testing its Xanthomonas product that it intends to market as a
pesticide, has applied for an EUP and expects to apply for formal approval by
the EPA and certain state authorities in the future.

For marketing and use of its products outside the United States, the
Company will be subject to foreign regulatory requirements. Such requirements
vary widely from country to country. In some instances foreign government
approval may require different or additional testing data than that required by
the EPA. Failure to achieve such registration would prevent the Company from
marketing its unregistered products as pesticides in those jurisdictions where
approval is not granted. While the Company exports certain of its microbial
products outside the United States, it does not currently market any of its
products as pesticides in any foreign countries.

In addition, the Company is currently subject to the Occupational Safety
and Health Act, the National Environmental Policy Act, the Toxic Substance
Control Act, the Resource Conservation and Recovery Act, the Clean Air Act and
the Clean Water Act and may be subject to other present and potential future
federal, state or local regulations. From time to time, governmental authorities
review the need for additional laws and regulations for pesticide products that
could, if adopted, apply to the business of Eco Soil. The Company is unable to
predict whether any such new regulations will be adopted or whether, if adopted,
they will adversely affect its business. See "Risk Factors -- Government
Regulation."

33
<PAGE> 35

PATENTS AND PROPRIETARY RIGHTS

The Company's success is dependent in large measure upon its ability to
obtain patent protection for its products and to maintain confidentiality and
operate without infringing upon the proprietary rights of third parties. The
Company has obtained and is seeking additional U.S. and foreign patents covering
both the process of automatically inoculating irrigation water with biological
products and the equipment, namely the BioJect system, used in such process.
Specifically, in 1993 the Company was granted two U.S. patents that relate to
the inoculation process and the related equipment. In 1995, the Company was
granted an additional patent relating to the automatic inoculation of irrigation
water through the use of a BioJect system designed to "cleanse" itself so that
it may grow, culture and dispense distinct microbes or combinations of microbes
on a daily basis. The 1995 patent also expanded the scope of the invention to
include irrigation systems covering all types of vegetation, in addition to
turf. In August 1995, the Company submitted another patent application that
covers a system that is designed to grow and inject distinct microorganisms or
combinations of microorganisms selected on a preprogrammed basis. This
application is still pending.

In addition to the patent applications described above, the Company has
registered or applied for registration of a number of trademarks used in its
business, including the trade name "BioJect." The Company also relies on trade
secrets and proprietary know-how. See "Risk Factors -- Patents, Proprietary
Technology and Licenses."

MANUFACTURING AND SUPPLY

A majority of the parts and components utilized in the BioJect and CalJect
systems are standardized industrial components. The computer controls and the
fermentation tank used in the BioJect system are designed and manufactured to
Company specifications by third parties. The Company has no contracts for supply
of parts and components used in its systems. Instead, the Company submits
purchase orders for such items as needed. Parts and components are shipped
directly to the Company's third-party assemblers for assembly and testing, and
the Company's product management team oversees the assembly and testing process.
The completed BioJect and CalJect systems are shipped by the assemblers to the
Company's distributors or directly to customers. The Company believes that it is
not dependent on any single manufacturer or source of supply.

The Company has established relationships with third party fermentation
specialists that prepare base cultures of microbes for fermentation and
distribution through the BioJect system. The Company maintains starter cultures
for each of its microbes to use for ongoing testing purposes and as a backup
culture supply.

The Company obtains distributed products directly from manufacturers. The
Company does not have any long-term distribution agreements with distributed
product manufacturers. The Company maintains an inventory of distributed
products and submits purchase orders on an as-needed basis. The Company is an
approved distributor for various well-known pesticide, fertilizer and seed
manufacturers, including IMC Vigoro, Bayer Corporation, Novartis Corporation and
Rhone-Poulenc AG Company.

COMPETITION

The Company's principal competitors with respect to its primary products
are described below:

BioJect System

The Company's BioJect system competes against traditional chemical
insecticides and fungicides, chemical soil penetrants, acid injection systems,
and the direct, manual application of cultured microbial products. Although the
Company believes that none of its competitors offers an automated means of
regularly applying microbial products to turf and crops in an effective manner,
many of the Company's competitors have substantially greater financial,
technical and personnel resources than the Company and include such well-
established companies as Novartis Corporation, Rhone-Poulenc AG Company, the Dow
Chemical Company, O.M. Scotts & Sons, Inc., Lesco, Inc., and The Toro Company,
as well as a number of smaller local and regional competitors. The Company
competes against traditional technologies on the basis of its delivery

34
<PAGE> 36

mechanism and bioaugmentation expertise. An important factor in the long-term
competitiveness of the BioJect system may be the timing of and extent of the
Company's penetration into golf and agricultural markets compared to the market
penetration achieved by companies offering competing products for microbial
distribution. Such timing will be based on the effectiveness with which the
Company or the competition can complete product testing and approval processes
and supply quantities of its products to market. Competition among microbial
distribution products is expected to be based on, among other things, product
effectiveness, safety, reliability, cost, market capability and patent
protection.

CalJect System

The CalJect system competes against a number of products for applying
gypsum onto soil to improve water penetration through soil. At least one of the
Company's competitors in the market for gypsum distribution, Soil Solutions, has
greater name recognition in the soil amendments market and has significantly
more installed units. Soil Solutions' machine, like the Company's CalJect
system, injects gypsum directly into customers' irrigation systems. Competition
among gypsum distribution products is based on, among other things, cost, name
recognition, product effectiveness and reliability.

Distributed Products

In markets for distributed products, the Company competes against
distributors of traditional chemical products. Many of these competitors have
substantially greater financial, technical and personnel resources than the
Company and include such well-established companies as Lesco, Inc., Terra
Companies, Inc., Con-Agra, Inc. and Wilbur-Ellis Company. The Company competes
on the basis of price, name recognition, convenience and customer service with
distributors of traditional chemical products. See "Risk Factors --
Competition."

PERSONNEL

As of September 30, 1997, the Company had 122 full-time employees,
consisting of ten in general management, 38 in sales and marketing, 37 in
customer service, three in research and development, and 34 in finance and
general administrative activities. None of the Company's employees is
represented by a labor union or is covered by a collective bargaining agreement.
The Company has not experienced work stoppages and believes that it maintains
good relations with its employees.

FACILITIES

The Company's headquarters consist of 21,000 square feet located in San
Diego, California. The Company currently leases this building for warehouse,
sales and marketing, product development and administrative purposes. The
Company's lease for such space provides for base lease payments of $14,284 per
month, plus operating expenses, and expires in October 1999. The Company
currently is seeking new space to replace the Company's current office and
warehouse space in San Diego. The Company does not own any real property.

The Company's Florida subsidiary, Eco Soil Systems, Inc. (Florida),
occupies 5,000 square feet of office and warehouse space. Aspen leases 2,145
square feet in San Diego, California and 1,245 square feet in Phoenix, Arizona.
The sales organizations recently acquired, Turf Products, Turf Specialty and
Turfmakers, each have office and warehouse space. Turf Products leases 6,500
square feet in Chicago, Turf Specialty leases 10,000 square feet in northern New
Hampshire, 10,000 square feet in York, Pennsylvania and 4,500 square feet in
Gibsonia, Pennsylvania, and Turf Partners leases 14,128 square feet in Palm
Desert, California.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings and is
not aware of any material proceedings that are contemplated by any third party
or governmental authority.

35
<PAGE> 37

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The directors, executive officers and key employees of the Company and
their ages as of September 30, 1997 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------- --- ----------------------------------------------------
<S> <C> <C>
William B. Adams(1) 51 Chairman of the Board and Chief Executive Officer
Douglas M. Gloff(1) 50 President, Chief Operating Officer and Director
Jeffrey A. Johnson(2) 41 President and General Manager of Golf Division and
Director
L. Jean Dunn, Jr. 42 Chief Financial Officer and Secretary
Dr. Thomas C. Quick 42 Vice President, Agriculture
John M. Doyle 39 Vice President of Product Management
Dr. David A. Odelson 43 Director of Research and Development
Nicholas R. Spardy 34 Vice President of Turf Partners Western Region
Kevin P. Lyons 41 Senior Vice President and Co-General Manager, Turf
Specialty
David W. Schermerhorn 38 Senior Vice President and Co-General Manager, Turf
Specialty
Walter W. Fuchs 57 Vice President and General Manager, Turf Products
Bradley K. Edwards(3) 38 Director
S. Bartley Osborn(3) 55 Director
William S. Potter(2) 51 Director
</TABLE>

- ---------------

(1) Class I director; term expires in 1999.

(2) Class II director; term expires in 1998.

(3) Class III director; term expires in 2000.

WILLIAM B. ADAMS has served as Chairman of the Board and Chief Executive
Officer of the Company since March 1991. Mr. Adams is also currently Chairman of
Orphan Medical, Inc., a publicly traded spinoff of Chronimed, Inc., a publicly
held medical products company. Despite his position with Orphan Medical, Inc.,
Mr. Adams dedicates substantially all of his time to the Company. From 1985 to
1994, Mr. Adams was Chairman of the Board of Chronimed. Prior to his involvement
with the Company, Mr. Adams founded WBA Consultants, Ltd., a management
consulting firm, in 1980 and participated as chief executive officer in
corporate turnarounds. From August 1989 to February 1991, Mr. Adams was
Executive Chairman of Printrak, Inc., a publicly held developer of specialized
identification systems used by the law enforcement community. From April 1986 to
April 1988, Mr. Adams was President and Chief Executive Officer of Check
Technology Corporation, a manufacturer of electronic printing equipment. Mr.
Adams received his B.A. from Texas Tech University.

DOUGLAS M. GLOFF joined the Company as Executive Vice President in January
1994 and became a director of the Company in August 1995. Mr. Gloff has served
as the Company's President and Chief Operating Officer since April 1997. Mr.
Gloff shares many of the executive management duties of the Company with Mr.
Adams. Prior to joining the Company, Mr. Gloff acted as a consultant from 1992
until January 1994. From 1978 to 1992, he served in various capacities with U.S.
Surgical, Inc., a publicly held supplier of medical instruments used in surgery,
culminating in the position of Director of Sales for the western area. Mr. Gloff
received his B.A. and M.B.A. from Indiana University.

JEFFREY A. JOHNSON has served as a director of the Company since March 1991
and has served as President and General Manager of the Company's Golf Division
since April 1997. Mr. Johnson served as President and Chief Operating Officer of
the Company from March 1991 to April 1997 and as Secretary from March 1991 to
June 1997. Prior to his involvement with the Company, Mr. Johnson was a partner
and employee of WBA

36
<PAGE> 38

Consultants, Ltd. from 1986 until March 1991. Mr. Johnson was also a Vice
President of Printrak, Inc., a computer systems manufacturer, from 1989 to 1991
and Vice President of Corporate Development of Check Technology Corporation, a
manufacturer of electronic printing equipment, from 1986 to 1988. From 1983 to
1986, Mr. Johnson was Vice President of Corporate Finance for Craig Hallum,
Inc., an investment banking firm based in Minneapolis, Minnesota. Mr. Johnson
received his B.A. and M.B.A. from the University of Minnesota.

L. JEAN DUNN, JR. joined the Company as Chief Financial Officer in May
1996. Mr. Dunn has served as the Company's Secretary since June 1997. From 1992
to 1996, Mr. Dunn had been a partner in Capital Advisors LLC, an investment
banking firm. Prior to that, Mr. Dunn was a Vice President at Mitsubishi Bank in
New York from 1989 to 1992, and a Vice President at Banque Paribas, an
investment bank, in Los Angeles and New York from 1982 to 1989. Mr. Dunn
received his B.A. from the University of California, San Diego and his M.B.A.
from the Columbia University Graduate School of Business.

DR. THOMAS C. QUICK has served as the Vice President, Agriculture of the
Company since September 1996. From October 1994 to August 1996, he served as an
International Product Manager, Biopesticides, for Abbott Laboratories, a
pharmaceutical company. Prior to that, he served in various capacities with
Mycogen Corporation, an agricultural bio-tech company, from May 1987 until March
1994, culminating in the position of Technical Sales Representative. Dr. Quick
received his B.S. from the University of California, Riverside and a Ph.D. in
Agriculture from the University of Wisconsin, Madison.

JOHN M. DOYLE joined the Company in May 1994 as the Company's Vice
President of Product Management. Mr. Doyle is responsible for product and
technology acquisition, regulatory issues, production, marketing and
communication materials, product testing and sales support for the BioJect
system. Prior to joining the Company, Mr. Doyle spent seven years in various
positions with Ringer Corporation, a supplier of natural turf maintenance
products based in Minneapolis, Minnesota, culminating in the position of Vice
President of Product Development. Mr. Doyle received his B.S. and M.S. in
Horticulture from the University of Nebraska.

DR. DAVID A. ODELSON joined the Company in November 1996 as the Company's
Director of Research and Development. From May 1995 to April 1996, he was a
Visiting Scientist at Pharmacia & Upjohn Co., a pharmaceutical company. From
September 1989 to April 1995, he worked as a Co-Investigator at NSF Science and
Technology Center for Microbial Ecology and as an Assistant Professor at Central
Michigan University. Dr. Odelson received his B.S. in Microbiology from the
University of Illinois and his Ph.D. in Microbiology from Michigan State
University.

NICHOLAS R. SPARDY joined the Company in January 1997 as Vice President of
Turf Partners Western Region. From April 1991 to January 1997, Mr. Spardy served
as Branch Manager of Wilbur-Ellis, a turf and agriculture distribution company,
where he was responsible for sales of products to golf courses. Mr. Spardy
obtained his B.S. in Ornamental Horticulture from Cal State Polytechnic, Pomona
and is a certified agronomist.

KEVIN P. LYONS has served in various capacities with Turf Specialty since
October 1985, culminating in his current position of Senior Vice President and
Co-General Manager. The Company acquired Turf Specialty in May 1996. Prior to
joining Turf Specialty, he was a Senior Technical Representative for O.M. Scott
& Sons, Inc., a chemical and fertilizer manufacturer, from February 1980 until
October 1985. Mr. Lyons received his B.S. in Turfgrass Management from the State
University of New Jersey.

DAVID W. SCHERMERHORN has served in various capacities with Turf Specialty
since October 1987, culminating in his current position of Senior Vice President
and Co-General Manager. Prior to joining Turf Specialty, he was a Technical
Representative for O.M. Scott & Sons, Inc. from October 1985 until October 1987.
Mr. Schermerhorn received his B.S. from the University of Massachusetts.

WALTER W. FUCHS founded Turf Products in February 1969 and currently serves
as the Vice President and General Manager of Turf Products, which has been a
wholly owned subsidiary of the Company since May 1996. He was an original member
of the Independent Turf and Ornamental Distributors Association

37
<PAGE> 39

(ITODA), the principal association of golf course and nursery product
distributors. Mr. Fuchs received his B.A. from Iowa State University.

BRADLEY K. EDWARDS has served as a director of the Company since July 1991.
Since January 1993, Mr. Edwards has been a general partner of Heartland Capital.
Heartland Capital is the successor to the Nebraska Research and Development
Authority (the "NRDA"), a state-sponsored venture capital entity that was an
original investor in the Company. From November 1989 to January 1993, Mr.
Edwards was employed by the NRDA, initially as a fund manager and later as its
President.

S. BARTLEY OSBORN has served as a director of the Company since November
1991. Mr. Osborn is currently Chairman of the Board of Directors of the Fairway
Foundation, a nonprofit foundation dedicated to teaching the game of golf to
inner-city children in Minneapolis, Minnesota. From 1965 through 1982 Mr. Osborn
held various management positions at EcoLab, Inc., a Fortune 500 specialty
chemical manufacturer based in Minneapolis, Minnesota. Mr. Osborn is a trustee
of the IC Koran foundation, which assists employees of EcoLab through
scholarships for its children and through financial hardship assistance.

WILLIAM S. POTTER served as a director of the Company since August 1992.
Since 1988, Mr. Potter has also been President of Rugged Rigger, Inc., a
personal services corporation. From 1970 to 1988, Mr. Potter worked in various
capacities for H.M. Stevens Incorporated, a national food service and catering
company specializing in sporting events, culminating in the position of
Operational Vice President.

CLASSIFIED BOARD OF DIRECTORS

The Company's Amended and Restated Articles of Incorporation provide for
the Company's Board of Directors to be divided into three classes of directors,
with each class as nearly equal in number as possible, serving staggered
three-year terms. As a result, approximately one-third of the Company's Board of
Directors will be elected each year. The directors in Class I are William B.
Adams and Douglas M. Gloff, whose terms will expire at the annual meeting of
shareholders in 1999. The directors in Class II are Jeffrey A. Johnson and
William S. Potter, whose terms will expire at the annual meeting of shareholders
in 1998. The directors in Class III are Bradley K. Edwards and S. Bartley
Osborn, whose terms will expire at the annual meeting of shareholders in 2000.

COMMITTEES OF THE BOARD OF DIRECTORS

Compensation Committee

The Company has a Compensation Committee consisting of Messrs. Adams,
Edwards and Potter. The Compensation Committee provides recommendations
concerning salaries and incentive compensation for the Company's officers and
administers the Company's benefit plans, other than the 1992 Stock Option Plan.

Audit Committee

The Company has an Audit Committee consisting of Messrs. Johnson, Edwards
and Osborn. The Audit Committee recommends to the Board of Directors the
engagement of the Company's independent public accountants and reviews the scope
and results of their audits and other services. The Audit Committee meets with
management and with the independent public accountants to review matters
relating to the quality of the Company's financial reporting and internal
accounting control, including the nature, extent and results of the audits,
proposed changes to the Company's accounting principles and otherwise maintains
communications between the independent public accountants and the Board of
Directors.

SCIENTIFIC ADVISORY BOARD

The Company maintains a Scientific Advisory Board (the "SAB") that advises
the Company from time to time with respect to its scientific research and
development programs. These individuals are compensated through the grant of
stock options. They also receive fees for attending scientific advisory meetings
and reimbursement of out-of-pocket expenses. The SAB met in August 1995 and
September 1996.

38
<PAGE> 40

Members of the SAB may be employed by or have consulting agreements with
entities other than the Company, some of which may conflict or compete with
their obligations to the Company and which may limit their availability to the
Company. Most are not expected to participate actively in the Company's
development. Certain of the institutions with which SAB members are affiliated
may have regulations or policies which are unclear with respect to the ability
of such personnel to act as part-time consultants or in other capacities for a
commercial enterprise.

The current members of the SAB are as follows:

DR. DAVID E. CROWLEY is an Assistant Professor of Soil-Plant Relations at
the University of California, Riverside, where he has concentrated his efforts
on rhizosphere biology, the physiological basis for microbial competition in
soils and the activity of microorganisms that degrade soil contaminants. Dr.
Crowley received his Ph.D. from Colorado State University in 1986 and has been
associated with the University of California, Riverside since 1990.

DR. PETER H. DERNOEDEN is a Professor of Agronomy at the University of
Maryland, where he has focused on the impact of mowing, irrigation and fertility
on disease severity and weed encroachment in turf. He has also concentrated on
disease etiology, the effects of fungicides on non-target diseases, plant
parasitic nematodes, molecular techniques for identifying root pathogens and the
chemical control of diseases and weeds. Dr. Dernoeden received his Ph.D. in
Plant Pathology from the University of Rhode Island in 1980.

DR. ERIC B. NELSON is currently an Associate Professor of Plant Pathology
at Cornell University, where he has focused on spermosphere and rhizosphere
ecology, plant-microbe and microbe-microbe interactions and biological control
of plant pathogens. Dr. Nelson received his Ph.D. from Ohio State University and
has been associated with Cornell University since 1987.

DR. J. SCHENDEL is the Vice President of Research and Development for
Encore, a microbial fermentation company. In this capacity, Dr. Schendel is in
charge of all of Encore's research and development activities. Dr. Schendel
received his Ph.D. from the University of Wisconsin in 1986.

DR. JOSEPH M. VARGAS is a Professor of Botany and Plant Pathology at
Michigan State University, where he has concentrated his efforts on disease
management programs for turf. Dr. Vargas received his Ph.D. from the University
of Minnesota in 1968 and has been associated with Michigan State University
since that time. He has served in various capacities in the International
Turfgrass Society, the Turf and Ornamental Disease Committee of the American
Phytopathological Society and the Michigan Turfgrass Foundation Board.

39
<PAGE> 41

EXECUTIVE COMPENSATION

Compensation of Directors

The Company has not paid any cash compensation to a director in his
capacity solely as a director and has no present plan to pay directors' fees. It
is the Company's current policy to award non-employee directors options to
purchase 10,000 shares of Common Stock at the then-current market price, vesting
over three years, upon becoming directors and options to purchase 3,000 shares
of Common Stock, at the then-current market price, vesting six months after the
date of grant, at each annual meeting of the Company's Board of Directors. See
"-- Stock Option Plans -- 1996 Directors' Stock Option Plan." All directors are
reimbursed for travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors.

Compensation of Officers

The following table shows for each of the last three full fiscal years,
compensation awarded, paid to, or earned by the Company's Chief Executive
Officer and executive officers of the Company's subsidiaries whose compensation
exceeded $100,000 for that year (the "Named Executive Officers"). The Company
had no other executive officers whose compensation exceeded $100,000 for the
fiscal year ended December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
----------------------------------------
ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES
NAME AND ----------------------- ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION AWARDS($) OPTIONS(#) COMPENSATION($)
- ------------------------------ ---- ------------ -------- ------------ --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
William B. Adams(1)........... 1996 75,000 0 0 0 0 0
Chairman of the Board and 1995 75,000 0 0 0 5,556 0
Chief Executive Officer 1994 75,000 0 0 0 128,520 0
Kevin P. Lyons(2)............. 1996 85,000 80,000 0 0 10,000 0
Senior Vice President and
Co-General Manager
Turf-Specialty
David W. Schermerhorn(2)...... 1996 85,000 80,000 0 0 10,000 0
Senior Vice President and
Co-General Manager,
Turf-Specialty
Walter K. Fuchs(2)............ 1996 155,000 0 0 0 0 0
Vice President and
General Manager,
Turf Products
</TABLE>

- ---------------

(1) Mr. Adams' current annual salary is $150,000.

(2) Messrs. Lyons, Schermerhorn and Fuchs became employees of the Company on May
31, 1996 upon the acquisition by the Company of Turf Specialty and Turf
Products.

STOCK OPTION GRANTS TABLE

The following table provides information concerning the grant of stock
options to the Named Executive Officers of the Company during fiscal 1996. The
Company does not have any outstanding stock appreciation rights.

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME YEAR GRANTED(#) FISCAL YEAR(%) PRICE($/SH) DATE
- ------------------------------------------------ ---- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
William B. Adams................................ 1996 0(1) 0 N/A N/A
Kevin P. Lyons.................................. 1996 10,000 2.0 3.00 10/15/01
David W. Schermerhorn........................... 1996 10,000 2.0 3.00 10/15/01
Walter K. Fuchs................................. 1996 0 0 N/A N/A
</TABLE>

- ---------------

(1) Excludes warrants to purchase 192,500 shares of Common Stock at an exercise
price of $3.00 per share. For a further discussion of such warrants, see
"Certain Transactions."

40
<PAGE> 42

OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

The following table provides information with respect to the Named
Executive Officers, concerning the exercise of stock options during fiscal 1996
and unexercised options held as of the end of fiscal 1996.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT AT FY-END
FY-END(#) ($)(1)
------------- -------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------- --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
William B. Adams................ 1996 0 0 353,328(2)/0 586,746/0
Kevin P. Lyons.................. 1996 0 0 10,000/0 11,250/0
David W. Schermerhorn........... 1996 0 0 10,000/0 11,250/0
Walter W. Fuchs................. 1996 0 0 0/0 0/0
</TABLE>

- ---------------

(1) In order to calculate the value of unexercised in-the-money options at
fiscal year end, the Company assumed the fair market value of the Company's
Common Stock at fiscal year end was $4.125, the price set for the initial
public offering of the Company's Common Stock on January 17, 1997.

(2) Excludes warrants to purchase 192,500 shares of Common Stock at an exercise
price of $3.00. For a further discussion of such warrants, see "Certain
Transactions."

Employment Agreements

The Company has entered into employment agreements with each of the Named
Executive Officers and certain other executive officers. A summary of the
principal terms of such agreements is set forth below.

On May 21, 1991, the Company entered into an employment agreement with
William B. Adams, setting forth such officer's duties, compensation, employee
benefits and other terms of employment. The agreement, as amended on November 7,
1996, provides for an initial minimum annual salary of $75,000 and terminates on
December 31, 1998. Both the Company and Mr. Adams have the option to terminate
the agreement prior to the termination date. Under certain circumstances of
termination, Mr. Adams will be entitled to severance pay equal to six months'
base salary. Within six months of the occurrence of certain change in control
events, Mr. Adams may voluntarily terminate his employment and be entitled to
severance pay equal to six months' base salary. In February 1997, the Company's
Compensation Committee approved an increase of Mr. Adams' annual salary to
$150,000.

On January 1, 1994, the Company entered into an employment agreement with
Douglas M. Gloff, setting forth such officer's duties, compensation, employee
benefits and other terms of employment. The agreement, as amended on November 7,
1996, provides for an initial minimum annual salary of $75,000 and terminates on
December 31, 1998. Both the Company and Mr. Gloff have the option to terminate
the agreement prior to the termination date. Under certain circumstances of
termination, Mr. Gloff will be entitled to severance pay equal to six months'
base salary. Within six months of the occurrence of certain change in control
events, Mr. Gloff may voluntarily terminate his employment and be entitled to
severance pay equal to six months' base salary. In February 1997, the Company's
Compensation Committee approved an increase of Mr. Gloff's annual salary to
$150,000.

On July 8, 1996, the Company entered into employment agreements with Kevin
P. Lyons and David W. Schermerhorn in connection with the Company's acquisition
of Turf Specialty. Each employment agreement provides for a minimum annual
salary of $165,000 and terminates on July 7, 1999 and July 8, 1999,
respectively. See "Certain Transactions."

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<PAGE> 43

On July 10, 1996, the Company entered into an employment agreement with
Walter W. Fuchs in connection with Company's acquisition of Turf Products. The
employment agreement provides for a minimum annual salary of $155,000 and
terminates on July 10, 1998.

STOCK OPTION PLANS

1992 Stock Option Plan

In 1992, the Company adopted a Stock Option Plan (the "Option Plan"), under
which 125,000 shares of Common Stock were initially reserved for issuance upon
exercise of options granted to officers, employees and directors of, and
advisors and consultants to, the Company. The Option Plan provides for the grant
of both stock options intended to qualify as incentive stock options as defined
in the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options. The Option Plan will terminate on February 4, 2002, unless sooner
terminated by the Board of Directors. The Company's shareholders approved an
increase in the number of shares reserved for issuance under the Option Plan to
250,000 shares in August 1993, to 350,000 shares in April 1995, to 450,000
shares in May 1996, to 900,000 shares in November 1996 and to 1,100,000 shares
in June 1997.

Subject to the limitations set forth in the Option Plan, the Board of
Directors or a committee, if administration of the plan is delegated to a
committee of the Board comprised of at least three directors, has the authority
to select the persons to whom grants are to be made, to designate the number of
shares to be covered by each option, to determine whether an option is to be an
incentive stock option or a nonqualified stock option, to establish vesting
schedules and, subject to certain restrictions, to specify other terms of the
options. Generally, options vest over three years and expire in five years.
Options granted under the Option Plan generally are nontransferable and expire
three months after the termination of an optionee's employment or consultancy
with the Company. In general, if an optionee terminates service due to death or
disability, such person's options may be exercised up to one year after
separation from services.

The exercise price of options granted under the Option Plan is determined
by the Board of Directors (or its committee) at the time of grant. The exercise
price of incentive stock options must equal at least the fair market value of
the Common Stock on the date of grant. The exercise price of incentive stock
options granted to any person who at the time of grant owns stock possessing
more than 10% of the total combined voting power of all classes of stock must be
at least 110% of the fair market value of such stock on the date of grant, and
the term of these options cannot exceed five years. The exercise price of
nonqualified stock options is determined by the Board of Directors. As of
September 30, 1997, the Company had outstanding options under the Option Plan to
purchase an aggregate of 1,030,107 shares (all of which were nonqualified stock
options) held by 95 persons at a weighted average exercise price of $3.87 per
share.

1996 Directors' Stock Option Plan

The 1996 Directors' Stock Option Plan (the "Directors' Plan") provides for
the automatic grant of nonstatutory stock options to purchase 10,000 shares of
Common Stock to nonemployee directors at the time of their election as director,
and an option to purchase 3,000 shares of Common Stock on the date of each
subsequent annual shareholder meeting, subject to certain limitations. Options
granted on the date an individual is elected as a director of the Company shall
become vested and thereby exercisable with respect to 33 1/3% on the first
anniversary of such election, with respect to 33 1/3% on the second anniversary
date after such election and with respect to 33 1/3% on the date of the third
anniversary date after such election; provided, however, that an unvested
portion of such option grant shall only vest so long as the nonemployee director
remains a director on the date such portion vests, and that vested options shall
terminate two years after the date a director ceases to be a director of the
Company. Options granted on the date of each annual meeting of shareholders
become exercisable six months after the date of grant. The option price per
share for nonemployee directors is equal to the fair market value of a share of
Common Stock as of the date of grant. The Company has reserved a total of 60,000
shares of Common Stock for issuance under the Directors' Plan. As of September
30, 1997, the Company had issued options under the Directors' Plan to purchase
an aggregate of 39,000 shares of Common Stock.

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<PAGE> 44

INDEMNIFICATION

Pursuant to the Company's bylaws and Nebraska law, the Company's directors,
officers and employees may be entitled to indemnification and advancement of
expenses for certain acts or actions made by or on behalf of the Company. In
addition, the Underwriting Agreement entered into between the Company and the
Underwriters in connection with the Offering provides that the Company will
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or will contribute to payments the
Underwriters may be required to make in respect thereof. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
directors, officers and controlling persons of the issuer, the issuer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.

The Company also has adopted provisions in its Amended and Restated
Articles of Incorporation that limit the liability of directors for monetary
damages for breach of their fiduciary duties as directors except for (i) any
breach of their duty of loyalty to the Company or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) the unlawful payment of dividends or unlawful stock
purchases or redemptions under Section 21-2046 of the Nebraska Business
Corporation Act, or (iv) any transaction from which the directors derive an
improper personal benefit.

CERTAIN TRANSACTIONS

During the period from December 1994 to February 1995, Mr. Adams converted
$1.2 million of Subordinated Notes and shareholder advances into 400,000 shares
of Common Stock.

On November 15, 1995, Mr. Gloff and Heartland Capital (a limited
partnership, of which Bradley K. Edwards is a general partner) each purchased
$200,000 and Mr. Adams purchased $300,000 of collateralized subordinated
debentures from the Company. The debentures are secured by the assets of the
Company but are subordinated to any senior indebtedness of the Company. The
debentures bear interest at an 8% annual rate, payable on a quarterly basis, and
the entire principal balance is due on November 15, 1998.

On February 1, 1996, Mr. Adams loaned the Company $250,000 under the terms
of an 8% unsecured subordinated promissory note, with principal and interest due
upon demand.

On January 22 and 23, 1996, Mr. Adams purchased a total of $300,000 of
collateralized subordinated debentures from the Company. The debentures are
secured by the assets of the Company but are subordinated to any senior
indebtedness of the Company. The debentures bear interest at an 8% annual rate,
payable on a quarterly basis, and the entire principal balance is due on
November 15, 1998. In connection with these debentures, warrants were issued to
Mr. Adams to purchase 100,000 shares of Common Stock at an exercise price of
$3.00 per share. These warrants expire in January 2003.

On March 1, 1996, Rugged Rigger, Inc. (a company controlled by William S.
Potter) loaned the Company $100,000. The loan had an annual interest rate of 8%,
payable monthly, and the entire principal balance was due on November 15, 1998.
In connection with this subordinated unsecured note, warrants were issued to Mr.
Potter to purchase 15,000 shares of Common Stock at an exercise price of $3.00
per share. These warrants expire in March 1, 2001. The loan was repaid in full
with the proceeds from the sale of the Bridge Notes and the Bridge Warrants.

On March 15, 1996, Mr. Adams converted $300,000 of collateral that was
pledged to secure the Company's bank loan at Peninsula Bank into cash and used
the cash to reduce the Company's $1,013,000 principal loan at Peninsula Bank by
this amount. The Company in turn issued Mr. Adams a $300,000 secured
subordinated promissory note, which bears interest at an 8% annual rate, payable
on a quarterly basis, and the entire principal amount is due on March 15, 1998.
In connection with the promissory note, Mr. Adams was granted warrants to
purchase up to 100,000 shares of Common Stock at an exercise price of $3.00 per
share. These warrants expire in March 2003.

On March 15, 1996, Mr. Gloff and Heartland Capital converted $250,000 and
$200,000, respectively, of collateral that was pledged to secure the Company's
bank loan at Peninsula Bank into cash and used the cash to reduce the Company's
$1,013,000 principal loan at Peninsula Bank by this amount. The Company in turn
issued a $250,000 secured subordinated promissory note to Mr. Gloff and a
$200,000 secured subordinated

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<PAGE> 45

promissory note to Heartland Capital, each bearing interest at an 8% annual
rate, payable on a quarterly basis, and the principal amount of each note is due
on March 15, 1998. In connection with the debentures, warrants were issued to
Mr. Gloff and Heartland Capital to purchase up to 83,333 shares and 66,667
shares, respectively, of Common Stock at an exercise price of $3.00 per share.
These warrants expire in January 1998.

On March 26, 1996, the Company entered into a $1,000,000 line of credit
agreement with Imperial Bank, $500,000 of which was a revolving line of credit
that expired on April 1, 1997 and $500,000 of which was a revolving credit line
extended to finance exports based on a guarantee extended the Company by the
California Export Finance Organization ("CEFO"). The entire line of credit was
personally guaranteed by Mr. Adams. The term loan portion of the line of credit
bore interest at a rate of prime plus 2%. The CEFO portion of the credit line
bore interest at prime plus 1.5%. CEFO's obligations were in turn guaranteed by
Mr. Adams. In connection with the revolving line of credit, warrants were issued
to Imperial Bank to purchase 20,833 shares of Common Stock at an exercise price
of $3.00 per share. These warrants expire in March 2001.

Between March and July 1996, the Company loaned $72,000 to Rugged Rigger,
Inc. to enable it to exercise options to purchase Common Stock. The loan bears
interest at an annual rate of 5%, compounded annually, and is payable on demand
with the understanding that Rugged Rigger will repay the loan on the earlier of
(i) January 16, 1998 or (ii) the sale of the underlying Common Stock.

On April 1, 1996, Mr. Osborn loaned the Company $100,000. The loan had an
annual interest rate of 10%, payable upon demand, and the entire principal
balance was due on July 1, 1996. In connection with this unsecured note,
warrants were issued to Mr. Osborn to purchase 15,000 shares of Common Stock at
an exercise price of $3.00 per share. These warrants expire in April 2001. The
loan was repaid in full with the proceeds from the sale by the Company of bridge
notes and bridge warrants in July 1996. See "Description of Securities -- Bridge
Financing."

On May 15, 1996, Mr. Gloff converted the entire principal balance of his
$100,000 unsecured promissory note into 100,000 shares of Common Stock.

On May 24, 1996, the Company issued three convertible unsecured $50,000
promissory notes for the purpose of providing short-term financing until the
proceeds of the Company's initial public offering could be received, one from
each of Mr. Adams, Mr. Gloff and Heartland Capital. Each note is payable upon
demand and bears interest at an annual rate of 8%. In connection with these
promissory notes, warrants were issued to each of Messrs. Adams and Gloff and
Heartland Capital to purchase 7,500 shares of Common Stock at an exercise price
of $3.00 per share. These warrants expire in May 2001.

In May 1996, the Company acquired from Messrs. Lyons and Schermerhorn, the
only shareholders of Turf Specialty, all of the stock of Turf Specialty for a
total of $500,000 in cash and 647,650 shares of Common Stock. In addition, the
Company agreed to pay to Messrs. Lyons and Schermerhorn a total of $1,000,000 if
Turf Specialty earned a pre-tax profit for the year ending December 31, 1996 of
at least $900,000, with lesser payments due if Turf Specialty earned less than
$900,000 in pre-tax profit for the year ending December 31, 1996. Turf Specialty
achieved $979,161 in pre-tax profits for the year ending December 31, 1996.

In connection with the acquisition of Turf Specialty, effective July 8,
1996, the Company entered into employment agreements with each of Messrs. Lyons
and Schermerhorn providing for minimum annual salary levels of $165,000 and the
right to participate in any incentive compensation plans sponsored by Turf
Specialty. The employment agreements for Messrs. Lyons and Schermerhorn expire
on July 7, 1999 and July 8, 1999, respectively. Pursuant to these agreements,
the Company agreed to loan $250,000 to each of these individuals on or about
December 15, 1996. These loans do not have to be repaid and will be forgiven on
July 1, 1999 if these officers are employed by the Company at that time. If
either officer's employment is terminated by the Company before that date, such
officer will be obligated to repay a portion of the loan prorated to the number
of days worked from July 2, 1996 to the effective date of the termination of his
employment. Compensation expense will be recorded by the Company over the period
of forgiveness.

On May 30, 1997, the Company issued a $100,000 unsecured promissory note to
Mr. Gloff. The note was payable on demand and bore interest at an annual rate of
10%. The loan was repaid in full on July 1, 1997.

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<PAGE> 46

In connection with the Offering, the Company has agreed to repay an
aggregate of $400,000 outstanding on two notes held by Heartland Capital. The
Company intends to repay the amounts outstanding on such notes, as well as an
aggregate of $1,050,000 outstanding on three notes held by Mr. Adams and an
aggregate of $450,000 outstanding on two notes held by Mr. Gloff, with a portion
of the proceeds of the Offering. Each of the notes to be repaid bears interest
at the rate of 8.0% per year.

Management of the Company believes that the terms of the transactions
described above were no less favorable to the Company than would have been
obtained from an unaffiliated third party. Any future material transactions and
loans with officers, directors or 5% beneficial shareholders of the Company's
Common Stock, or affiliates of such persons, will be on terms no less favorable
to the Company that could be obtained from unaffiliated third parties and will
be approved by a majority of the outside members of the Company's Board of
Directors who do not have an interest in the transactions.

The Company has agreed with the Minnesota Department of Commerce that so
long as the Company's securities are registered in the State of Minnesota, or
one year from January 16, 1997 (the effective date of the Company's initial
public offering), whichever is longer, the Company will not make loans to its
officers, directors, employees, or principal shareholders, except for loans made
in the ordinary course of business, such as travel advances, expense account
advances, relocation advances, or reasonable salary advances.

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<PAGE> 47

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of October 28, 1997,
and as adjusted to reflect the sale of shares by the Company and the Selling
Shareholders for (i) each person who is known by the Company to own beneficially
more than five percent of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, (iv) all directors and
executive officers as a group and (v) each of the Selling Shareholders. Unless
otherwise indicated in the footnotes to the table set forth below, each person
or entity named below has an address in care of the Company's principal
executive offices.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED(1) OWNED
BEFORE THE OFFERING SHARES AFTER THE OFFERING
------------------- BEING -------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------- --------- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
William B. Adams(2).............................. 1,442,763 11.5% -- 1,442,763 8.7%
Bradley K. Edwards(3)............................ 820,072 6.7 -- 820,072 5.1
Heartland Capital Fund, Ltd.
11930 Arbor Street, Suite 201
Omaha, NE 68144
Douglas M. Gloff(4).............................. 626,056 5.0 -- 626,056 3.8
Walter W. Fuchs(5)............................... 374,424 3.1 -- 374,424 2.4
William S. Potter(6)............................. 383,132 3.2 -- 383,132 2.4
13875 Old El Camino Real
San Diego, CA 92130
Kevin P. Lyons(7)................................ 333,825 2.8 -- 333,825 2.1
David W. Schermerhorn(8)......................... 333,825 2.8 -- 333,825 2.1
Jeffrey A. Johnson(9)............................ 299,166 2.5 -- 299,166 1.9
S. Bartley Osborn(10)............................ 77,499 * -- 77,499 *
360 Orono Orchard Road
Wayzata, MN 55391
Imperial Bank(11)................................ 60,833 * 20,833 40,000 *
701 B Street, Suite 600
San Diego, CA 92101
Christ Church Day School......................... 65,000 * 65,000 -- --
1208 Ninth Street
P.O. Box 180755
Coronado, CA 92148
Ben & Sophie Reuben(12).......................... 60,100 * 20,000 40,100 *
899 Lincoln Ave.
St. Paul, MN 55105
All executive officers and directors as a group
(10 persons)(13)............................... 4,740,762 34.8% -- 4,740,762 26.9%
</TABLE>

- ---------------

* Less than 1%.

(1) Shares of Common Stock subject to options, warrants or convertible debt
securities currently exercisable or exercisable within 60 days after
October 28, 1997, are deemed to be outstanding for purposes of computing
the percentage of shares beneficially owned by the person holding such
options, warrants or convertible debt securities, but are not deemed to be
outstanding for purposes of computing such percentage for any other person.
Except as indicated by footnote, each person or group identified has sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Except as otherwise indicated, the
address of each of the above persons is c/o Eco Soil Systems, Inc., 10890
Thornmint Road, Suite 200, San Diego, California 92127.

(2) Includes 353,328 shares of Common Stock subject to currently exercisable
options and 242,500 shares of Common Stock subject to currently exercisable
warrants.

(3) All shares of Common Stock included are owned by Heartland Capital;
beneficial ownership of such shares is attributed to Mr. Edwards because he
is a general partner of Heartland Capital and is therefore deemed to
exercise voting power and investment authority with respect to the shares.
Shares listed

46
<PAGE> 48
include 53,333 shares of Common Stock subject to currently exercisable
options held by Heartland Capital, 6,666 shares of Common Stock subject to
currently exercisable options held by Mr. Edwards and 180,834 shares of
Common Stock subject to currently exercisable warrants held by Heartland
Capital.

(4) Includes 271,056 shares of Common Stock subject to currently exercisable
options and 230,000 shares of Common Stock subject to currently exercisable
warrants. Does not include 150,000 shares of Common Stock subject to
currently unexercisable options that will vest in 50,000 share increments
based upon certain market price milestones that may be attained by the
Company's Common Stock.

(5) Includes 18,721 shares of Common Stock held by Mr. Fuchs as Trustee for the
Fuchs Family Charitable Remainder Trust.

(6) Includes 80,132 shares of Common Stock subject to currently exercisable
options and 110,000 shares of Common Stock subject to currently exercisable
warrants all held by Rugged Rigger, Inc., a California corporation that is
wholly owned by Mr. Potter. Also includes 193,000 shares owned by Rugged
Rigger, Inc.

(7) Includes 10,000 shares of Common Stock subject to currently exercisable
options.

(8) Includes 10,000 shares of Common Stock subject to currently exercisable
options.

(9) Includes 72,682 shares of Common Stock subject to currently exercisable
options and 20,000 shares of Common Stock subject to currently exercisable
warrants.

(10) Includes 6,666 shares of Common Stock subject to currently exercisable
options and 30,000 shares of Common Stock subject to currently exercisable
warrants.

(11) Includes 60,833 shares of Common Stock subject to currently exercisable
warrants. Imperial Bank will exercise warrants covering 20,833 shares of
Common Stock prior to the closing of the Offering.

(12) Includes 60,000 shares of Common Stock subject to currently exercisable
warrants. The Reubens will exercise warrants covering 20,000 shares of
Common Stock prior to the closing of the Offering.

(13) See notes 1-10 above. Also includes 50,000 shares of Common Stock subject
to currently exercisable options held by L. Jean Dunn, Jr.

DESCRIPTION OF SECURITIES

GENERAL

The Company's authorized capital stock currently consists of 25,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock. As of October
28, 1997, there were issued and outstanding 11,910,075 shares of Common Stock,
which were held by approximately 287 shareholders of record, and 5,052,526
shares of Common Stock were reserved for issuance upon exercise of outstanding
options and warrants. No shares of Preferred Stock were outstanding as of that
date.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders other than in the
election of directors, in which event any holder may exercise cumulative voting.
In cumulative voting, the holders of Common Stock are entitled to cast for each
share held the number of votes equal to the number of directors to be elected. A
holder may cast all of his or her votes for one nominee or distribute them among
any number of nominees for election. Subject to preferences that may be
applicable to any outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends, if any) as may be declared by the
Board of Directors out of funds legally available therefor and are entitled to
share ratably in all assets of the Company available for distribution to holders
of the Common Stock upon liquidation, dissolution or winding up of the affairs
of the Company.

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<PAGE> 49

Holders of Common Stock have no preemptive, subscription or conversion rights,
and there are no redemption or sinking fund provisions applicable thereto. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be, fully paid and nonassessable.

PREFERRED STOCK

The Company's Amended and Restated Articles of Incorporation authorize the
Company's Board of Directors, without further shareholder action, to issue up to
5,000,000 shares of Preferred Stock in one or more series and to fix the voting
rights, liquidation preferences, dividend rights, repurchase rights, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences, of the Preferred Stock. Although there is
no current intention to do so, the Board of Directors of the Company may,
without shareholder approval, issue shares of a class or series of Preferred
Stock with voting and conversion rights which could adversely affect the voting
power or dividend rights of the holders of Common Stock and may have the effect
of delaying, deferring or preventing a change in control of the Company.

BRIDGE FINANCING

In July 1996, the Company completed a bridge financing (the "Bridge
Financing") consisting of the issuance of approximately 74 Units (the "Bridge
Units"). Each Bridge Unit consisted of a note (the "Bridge Note") in the
principal amount of $50,000 and warrants (the "Bridge Warrants") to purchase
10,000 shares of the Company's Common Stock. The Bridge Financing resulted in
the issuance of $3,695,000 of principal amount of Bridge Notes and Bridge
Warrants to purchase 739,000 shares of Common Stock.

Bridge Notes

The Bridge Notes were issued in July 1996 with an annual interest rate of
10% and were payable at maturity. Up to 100% of the principal amount of each
Bridge Note became convertible, at the option of the holder thereof, into the
Company's Common Stock for a period of 20 days after the effective date of the
Company's registration statement for its initial public offering at a conversion
price equal to $3.30 per share. The Bridge Notes became due and payable in full
30 days after the effective date of the registration statement. Bridge Notes in
the aggregate principal amount of $1,900,000 were converted by their holders
into a total of 576,823 shares of Common Stock, and Bridge Notes in the
aggregate principal amount of $1,800,000 were repaid by the Company. None of the
Bridge Notes remains outstanding.

Bridge Warrants

Each Bridge Warrant entitles the holders thereof to purchase one share of
Common Stock after December 31, 1996. The Bridge Warrants expire on July 5,
2001. The exercise price of the Bridge Warrants is $3.00 per share.

The Bridge Warrants provide for the automatic adjustment of the number of
shares issuable upon exercise of the Bridge Warrants, and of the exercise price,
in certain events, including stock dividends, stock splits, distributions of
Common Stock, reorganizations, reclassification, subdivisions and combinations
of the Common Stock, and the merger, consolidation or sale of all or
substantially all of the assets of the Company.

The Company has agreed to register the stock issued upon exercise of the
Bridge Warrants and conversion of the Bridge Notes under federal and state
securities laws at such time as it becomes eligible to use the Registration
Statement on Form S-3 or 12 months after the Company's initial public offering
(whichever is earlier) and upon written request from holders of a majority of
the shares of Common Stock purchasable or purchased at the time of the request
upon exercise of the Bridge Warrants or conversion of the Bridge Notes. The
Company is required to maintain the effectiveness of such registration until the
earlier of 12 months after the effective date or until all shares subject to
such registration have been resold. Holders of shares of stock purchased upon
exercise of the Bridge Warrants or conversion of the Bridge Notes will also be
entitled to certain incidental or "piggyback" registration rights. Holders must
convert Bridge Notes and exercise Bridge Warrants prior to any registration of
the sale of the Common Stock subject thereto. Certain of

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<PAGE> 50

the holders of the Bridge Warrants and shares issued upon conversion of the
Bridge Notes have entered into lock-up agreements with the Underwriters. See
"Shares Eligible for Future Sale."

OTHER WARRANTS

As of September 30, 1997, in addition to the Bridge Warrants to acquire
739,000 shares of Common Stock, the Company had outstanding warrants to purchase
a total of 1,858,075 shares of Common Stock of the Company with a weighted
exercise price of $3.31 per share. Such warrants were issued in connection with
prior financing transactions by the Company. The holders of such warrants, as
such, are not entitled to vote, receive dividends or exercise any of the rights
of holders of shares of Common Stock for any purpose until such warrants have
been duly exercised and payment of the purchase price has been made. Holders of
such Warrants exercisable for 633,483 shares of Common Stock have the right,
subject to certain conditions, to participate in future company registrations.
Holders of such warrants exercisable for 441,383 shares of Common Stock have the
option, subject to certain restrictions, to cause the Company to register
certain shares of Common Stock owned by them.

NEBRASKA SHAREHOLDERS PROTECTION ACT

The Company is a Nebraska corporation and may be subject to the provisions
of the Nebraska Shareholders Protection Act. The Nebraska Shareholders
Protection Act, subject to certain exemptions, prohibits a Nebraska corporation
from engaging in any of a broad range of "business combinations" involving an
"interested" shareholder, or any affiliate or associate of such interested
shareholder, for a period of five years following the date that such shareholder
became an interested shareholder, unless prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the shareholder becoming an interested shareholder.
A "business combination" includes, among other things, a merger, asset sale or
other transaction resulting in a financial benefit to the shareholder. The
Nebraska Shareholders Protection Act also provides that shares acquired in a
control-share acquisition have no voting rights with respect to matters other
than the elections of directors unless approved by a vote of shareholders of the
corporation, and that any such control share acquisition is effective only if
approved by a majority of the corporation's voting shares that are "not
interested" shares. A "control-share acquisition" is an acquisition of voting
stock in a corporation that, when added to the shares the shareholder had prior
to the acquisition, would elevate the shareholder's voting power into one the
three following ranges: (i) between 20% and 33 1/3%, (ii) between 33 1/3% and
50% and (iii) over 50%. For purposes of the Nebraska Shareholders Protection
Act, an "interested shareholder" is a person who owns 10% or more of a
corporation's outstanding voting stock, or an affiliate or associate of the
corporation that owns, or within five years prior, did own, 10% or more of the
corporation's outstanding voting stock. These provisions may have the effect of
discouraging, delaying, deferring or preventing a change in control of the
Company.

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company serves as the transfer agent and
registrar for the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon closing of the Offering, assuming no exercise of any options or
warrants, the Company will have outstanding an aggregate of 15,910,075 shares of
Common Stock. Of these shares, the 4,105,833 shares sold in the Offering and the
3,795,000 shares sold in the Company's initial public offering will be freely
tradeable without restriction or further registration under the Securities Act,
except for such shares, if any, purchased by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act (whose sales would be
subject to certain volume limitations and other restrictions described below).
The remaining 8,009,242 shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and are, therefore, restricted securities (the "Restricted Shares") that may
not be sold publicly unless the Restricted Shares are registered under the
Securities Act or sold under

49
<PAGE> 51

Rule 144 under the Securities Act or under similar exemptions. Except for the
576,823 shares issued upon conversion of the Bridge Notes and 25,000 shares
issued to the sole shareholder of Turfmakers in connection with the Company's
acquisition of substantially all of Turfmakers' assets in February 1997, all of
the Restricted Shares are eligible for resale subject to the restrictions
imposed by Rule 144. Holders of 4,708,799 shares of Common Stock have entered
into lock-up agreements under which they have agreed not to offer, sell or
otherwise dispose, or directly or indirectly cause or permit the offer, sale or
other disposition, of any Common Stock owned of record or beneficially and of
which such shareholder has the power to control the disposition for a period of
180 days after the date of this Prospectus without the prior written consent of
the Representatives. Holders of 589,323 shares of Common Stock and holders of
warrants exercisable for 1,372,483 shares of Common Stock have the right,
subject to certain conditions, to participate in future Company registrations.
Holders of 576,823 shares of Common Stock and holders of warrants exercisable
for 1,179,833 shares of Common Stock have the option, subject to certain
restrictions, to cause the Company to register certain shares of Common Stock
owned by them.

In general, under Rule 144, a person (or persons whose sales are
aggregated) who beneficially owns shares last acquired privately from the
Company or an affiliate of the Company at least one year previously and
affiliates of the Company are entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of the Company's Common Stock or the average weekly reported volume of
trading in the Company's Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. A person who has not been an affiliate of the
Company at any time during the three months preceding a sale, and who
beneficially owns shares last acquired from the Company or an affiliate of the
Company at least two years previously, is entitled to sell all such shares under
Rule 144 without regard to any of the limitations of Rule 144.

On May 20, 1997 the Company filed a Form S-8 Registration Statement under
the Securities Act to register all shares of Common Stock issuable at that time
under the Option Plan and the Directors' Plan, which became effective upon
filing. Shares covered by that registration statement are eligible for sale in
the public market, subject to Rule 144 limitations applicable to affiliates and
to the lock-up agreements described above.

The Company can make no prediction as to the effect, if any, that sales of
shares of Common Stock or the availability of Common Stock for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public markets or the perception
that such sales could occur could adversely affect the market price or the
future ability of the Company to raise capital through an offering of its equity
securities.

50
<PAGE> 52

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, for whom CIBC Oppenheimer Corp. and Cruttenden Roth
Incorporated are acting as representatives (the "Representatives"), have
severally agreed with the Company and the Selling Shareholders, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
and the Selling Shareholders, the respective number of shares of Common Stock
set forth opposite the name of such Underwriter below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
CIBC Oppenheimer Corp.............................................
Cruttenden Roth Incorporated......................................

---------
Total...................................................
=========
</TABLE>

The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
changed by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.

The Company has granted the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of
615,875 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shared to be purchased by each of them as shown in
the foregoing table bears to the shares of Common Stock offered hereby. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of Common Stock offered hereby.

In connection with the Offering, the Company has agreed to issue to the
Representatives the Representatives' Warrants to purchase up to 410,583 shares
of Common Stock. The Representatives' Warrants are exercisable for a period of
four years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the public
offering price. The Representatives' Warrants are nontransferable for a period
of one year following the date of this Prospectus,

51
<PAGE> 53

except (i) to any of the Underwriters, or to individuals who are either officers
or partners of an Underwriter or (ii) by will or the laws of descent and
distribution. The Representatives intend to transfer some of the Representatives
Warrants to certain of their partners and officers. The holders of the
Representatives' Warrants will have, in that capacity, no voting, dividend or
other shareholder rights. The Representatives possess certain demand and
incidental registration rights that may require the Company to register for
public resale the shares of Common Stock issuable under the Representatives'
Warrants. The number of shares covered by the Representatives' Warrants and the
exercise price are subject to adjustment in certain events to prevent dilution.
Any profit realized by the Representatives on the sale of securities issuable on
exercise of the Representatives' Warrants may be deemed to be additional
underwriting compensation.

The Company and the Selling Shareholders have agreed to indemnify the
Representatives of the Underwriters and the several Underwriters against certain
liabilities, including, without limitation liabilities under the Securities Act.

The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions,
penalty bids and "passive" market making in accordance with Regulation M under
the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions. In
"passive" market making, market makers in the Common Stock who are Underwriters
or prospective underwriters may, subject to certain limitations, make bids for
or purchases of the Common Stock until the time, if any, at which a stabilizing
bid is made. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate member when the Common Stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions, penalty bids and passive market making may cause the price of the
Common Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

Pursuant to the terms of lock-up agreements, the officers and directors of
the Company, the Selling Shareholders and certain other significant shareholders
have agreed with the Representatives not to sell, otherwise dispose of, contract
to sell, grant any option to sell, transfer or otherwise dispose of, directly or
indirectly, shares of Common Stock or other equity securities of the Company or
securities exchangeable for or convertible into shares of Common Stock or other
equity securities of the Company for a period of 180 days after the date of this
Prospectus, without the prior written consent of the Representatives. The
Company has agreed not to sell, contract to sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, shares of Common Stock
or other equity securities of the Company for a period of 180 days after the
date of this Prospectus, without the prior written consent of the
Representatives, except that the Company may issue securities pursuant to the
Option Plan and the Directors' Plan and upon the exercise of outstanding stock
options or purchase rights under such plans. See "Shares Eligible for Future
Sale."

The Underwriters will not make sales to accounts over which they exercise
discretionary authority (i) in excess of five percent of the number of shares of
Common Stock offered hereby, and (ii) unless they obtain specific written
consent of the customer.

EXPERTS

The consolidated financial statements of Eco Soil Systems, Inc. at December
31, 1996 and for each of the three years in the period then ended, appearing in
this Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement which, as of December 31,
1996 and the year then ended are based in part on the report of Bigelow &
Company, independent auditors, and are included in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.

52
<PAGE> 54

The consolidated financial statements of Turf Specialty, Inc. for the years
ended December 31, 1995 and 1994 included in this Prospectus and Registration
Statement and the financial statements as of and for the seven month period
ended December 31, 1996 of Turf Specialty, Inc., as a consolidated subsidiary of
the Company, not included herein, have been audited by Bigelow & Company,
Certified Public Accountants, P.C., as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

The financial statements of Turf Products, Ltd. for the years ended
December 31, 1994 and 1995 included in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Fitzgerald, Schorr, Barmettler & Brennan, P.C.,
Omaha, Nebraska. Certain other legal matters in connection with the Offering
will be passed upon for the Company by Latham & Watkins, San Diego, California.
Certain legal matters in connection with the Offering will be passed upon for
the Underwriters by Cooley Godward LLP, San Diego, California. A self-directed
investment account controlled by a partner of Cooley Godward LLP owns 10,000
warrants to purchase Common Stock of the Company at an exercise price of $3.00
per share.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
These materials can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained at prescribed rates from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Electronic
reports, proxy statements and other information filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval system are publicly available
through the Commission's Web site (http://www.sec.gov). In addition, the Common
Stock is listed on the Nasdaq SmallCap Market and similar information concerning
the Company is available for inspection and copying at the offices of the
National Association of Securities Dealers, Inc., 1735 "K" Street, N.W.,
Washington, D.C. 20006.

The Company has filed with the Commission a Registration Statement on Form
SB-2 (including all amendments thereto, the "Registration Statement") with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information about the Company and the Securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.

53
<PAGE> 55

ECO SOIL SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ECO SOIL SYSTEMS, INC.
Report of Ernst & Young LLP, Independent Auditors................................... F-2
Report of Bigelow & Company, Independent Auditors................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)....................................................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1996 and 1997 (unaudited)........ F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1994, 1995 and 1996 and the nine months ended September 30, 1997
(unaudited)....................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1996 and 1997 (unaudited)........ F-7
Notes to Consolidated Financial Statements.......................................... F-8
TURF SPECIALTY, INC.
Report of Bigelow & Company, Independent Auditors................................... F-20
Consolidated Statements of Income and Retained Earnings for the years ended December
31, 1994 and 1995................................................................. F-21
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and
1995.............................................................................. F-22
Notes to Consolidated Financial Statements.......................................... F-23
TURF PRODUCTS, LTD.
Report of Ernst & Young LLP, Independent Auditors................................... F-26
Statements of Income and Retained Earnings for the years ended December 31,
1994 and 1995..................................................................... F-27
Statements of Cash Flows for the years ended December 31, 1994 and 1995............. F-28
Notes to Financial Statements....................................................... F-29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Pro Forma Condensed Consolidated Statements of Operations................. F-32
Notes to Pro Forma Condensed Consolidated Statements of Operations.................. F-33
</TABLE>

F-1
<PAGE> 56

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Eco Soil Systems, Inc.

We have audited the accompanying consolidated balance sheets of Eco Soil
Systems, Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' deficit and cash flows for each of the
three years in the period ended December 31, 1996. 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 did not
audit the financial statements of Turf Specialty, Inc., a wholly-owned
subsidiary, which statements reflect total assets of $2,548,000 as of December
31, 1996, and total revenues, since its acquisition on May 31, 1996 of
$3,867,000 included in the consolidated results of operations for the year ended
December 31, 1996. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for Turf Specialty, Inc., is based solely on the report of the other
auditors.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Eco Soil Systems, Inc. at December 31,
1995 and 1996, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP

San Diego, California
March 14, 1997

F-2
<PAGE> 57

REPORT OF BIGELOW & COMPANY, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Turf Specialty, Inc.
Londonderry, New Hampshire

We have audited the accompanying consolidated balance sheet of Turf
Specialty, Inc. ( a wholly-owned subsidiary of Eco Soil Systems, Inc.) as of
December 31, 1996, and the related consolidated statements of income, retained
earnings and cash flows for the seven months then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and consolidated 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 consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the financial position
of Turf Specialty, Inc. as of December 31, 1996, and the results of its
operations and its cash flows for the seven months then ended in conformity with
generally accepted accounting principles.

BIGELOW & COMPANY
Certified Public Accountants, P.C.

By: /s/ MARIE C. McKAY
--------------------------------------
Marie C. McKay
Certified Public Accountant

Manchester, New Hampshire
January 23, 1997

F-3
<PAGE> 58

ECO SOIL SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.................................................... $ -- $ 150 $ 212
Accounts receivable, net of allowance for doubtful
accounts of $24, $113 and $117 (unaudited) at
December 31, 1995 and 1996 and September 30, 1997,
respectively......................................... 1,231 2,193 10,552
Inventories............................................. 592 2,047 4,161
Prepaid expenses and other current assets............... 52 289 622
------- -------- --------
Total current assets...................................... 1,875 4,679 15,547
Equipment under operating leases, net..................... 1,074 1,325 4,910
Property and equipment, net............................... 260 656 1,188
Intangible assets, net.................................... 751 5,663 6,272
Other assets.............................................. 21 563 188
------- -------- --------
Total assets.............................................. $ 3,981 $ 12,886 $ 28,105
======= ======== ========
Current liabilities:
Accounts payable........................................ $ 1,111 $ 2,743 $ 4,697
Accrued expenses........................................ 96 734 1,978
Current portion of long-term debt....................... 1,703 7,266 3,568
Current portion of advances from shareholders........... 190 348 --
Current portion of capital lease obligations............ 99 22 --
------- -------- --------
Total current liabilities................................. 3,199 11,113 10,243
Long-term debt, net of current portion.................... 911 1,826 712
Deferred gain on sale leaseback, net of current
position................................................ -- -- 210
Advances from shareholders, net of current portion........ -- 21 --
Capital lease obligations, net of current portion......... 30 -- --
Commitments
Shareholders' equity (deficit):
Preferred stock, $.005 par value; 5,000,000 shares
authorized at December 31, 1996 and September 30,
1997; none issued and outstanding.................... -- -- --
Common stock, $.005 par value; 15,000,000 shares
authorized at December 31, 1995, 20,000,000 shares
authorized at December 31, 1996 and September 30,
1997; 4,968,935, 6,606,590 and 11,868,575 (unaudited)
shares issued and outstanding at December 31, 1995
and 1996 and September 30, 1997, respectively........ 25 33 59
Additional paid-in capital.............................. 8,510 12,730 28,889
Warrants................................................ -- 242 242
Note receivable from shareholder........................ -- (192) (192)
Accumulated deficit..................................... (8,694) (12,887) (12,058)
------- -------- --------
Total shareholders' equity (deficit)...................... (159) (74) 16,940
------- -------- --------
Total liabilities and shareholders' equity (deficit)...... $ 3,981 $ 12,886 $ 28,105
======= ======== ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 59

ECO SOIL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Proprietary products......................... $ 2,511 $ 3,195 $ 4,483 $ 3,626 $ 8,876
Distributed products......................... 177 562 7,633 5,603 20,265
------- ------- ------- ------- -------
Total revenues....................... 2,688 3,757 12,116 9,229 29,141
Cost of revenues:
Proprietary products......................... 1,865 1,502 1,971 1,625 3,830
Distributed products......................... 133 478 5,399 4,080 15,229
------- ------- ------- ------- -------
Total cost of revenues............... 1,998 1,980 7,370 5,705 19,059
------- ------- ------- ------- -------
Gross profit................................. 690 1,777 4,746 3,524 10,082
Operating expenses:
Selling, general and administrative.......... 2,690 2,584 6,489 4,541 7,857
Research and development..................... 286 413 475 353 189
------- ------- ------- ------- -------
Income (loss) before interest, depreciation and
amortization................................. (2,286) (1,220) (2,218) (1,370) 2,036
Depreciation................................. (269) (309) (447) (365) (376)
Amortization of intangibles.................. (37) (45) (464) (173) (401)
------- ------- ------- ------- -------
Income (loss) from operations.................. (2,592) (1,574) (3,129) (1,908) 1,259
Interest expense............................... (224) (262) (1,064) (523) (430)
------- ------- ------- ------- -------
Net income (loss).............................. $(2,816) $(1,836) $(4,193) $(2,431) $ 829
======= ======= ======= ======= =======
Net income (loss) per share.................... $ (.62) $ (.35) $ (.62) $ (.40) $ .06
======= ======= ======= ======= =======
Shares used in calculating net income (loss)
per share.................................... 4,557 5,207 6,809 6,050 14,341
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-5
<PAGE> 60

ECO SOIL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
NOTE
COMMON STOCK ADDITIONAL RECEIVABLE
------------------- PAID-IN FROM ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS SHAREHOLDER DEFICIT TOTAL
---------- ------ ---------- -------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... 3,225,268 $ 16 $ 4,075 $ -- $ -- $ (4,042) $ 49
Issuance of common stock, net
of issuance costs of $336... 629,500 3 1,235 -- -- -- 1,238
Conversion of debenture....... 20,000 -- 50 -- -- -- 50
Conversion of advances from
shareholder................. 166,667 1 499 -- -- -- 500
Exercise of employee stock
options..................... 2,500 -- 4 -- -- -- 4
Repurchase of common stock
under rescission offer...... (75,833) -- (120) -- -- -- (120)
Net loss...................... -- -- -- -- -- (2,816) (2,816)
---------- --- ------- ---- ----- -------- -------
Balance at December 31, 1994.... 3,968,102 20 5,743 -- -- (6,858) (1,095)
Issuance of common stock, net
of issuance costs of $256... 606,333 3 1,629 -- -- -- 1,632
Conversion of promissory
note........................ 233,333 1 699 -- -- -- 700
Issuance of common stock for
purchase of Aspen
Consulting, Inc............. 133,667 1 400 -- -- -- 401
Exercise of stock options..... 27,500 -- 39 -- -- -- 39
Net loss...................... -- -- -- -- -- (1,836) (1,836)
---------- --- ------- ---- ----- -------- -------
Balance at December 31, 1995.... 4,968,935 25 8,510 -- -- (8,694) (159)
Issuance of common stock for
purchase of Turf Products,
Ltd......................... 374,424 2 1,121 -- -- -- 1,123
Issuance of common stock...... 138,583 1 387 -- -- -- 388
Issuance of warrants in
connection with debt........ -- -- -- 242 -- -- 242
Exercise of stock options..... 239,000 1 391 -- (192) -- 200
Issuance of common stock for
purchase of Turf Specialty,
Inc......................... 647,650 3 1,940 -- -- -- 1,943
Conversion of debt............ 237,998 1 381 -- -- -- 382
Net loss...................... -- -- -- -- -- (4,193) (4,193)
---------- --- ------- ---- ----- -------- -------
Balance at December 31, 1996.... 6,606,590 33 12,730 242 (192) (12,887) (74)
Issuance of common stock in
IPO, (unaudited)............ 3,795,000 19 13,253 -- -- -- 13,272
Issuance of common stock for
purchase of Turfmakers, Inc.
(unaudited)................. 25,000 -- 109 -- -- -- 109
Exercise of stock options
(unaudited)................. 849,855 4 845 -- -- -- 849
Conversion of debt
(unaudited)................. 592,130 3 1,952 -- -- -- 1,955
Net income (unaudited)........ -- -- -- -- -- 829 829
---------- --- ------- ---- ----- -------- -------
Balance at September 30, 1997
(unaudited)................... 11,868,575 $ 59 $ 28,889 $242 $(192) $ (12,058) $16,940
========== === ======= ==== ===== ======== =======
</TABLE>

See accompanying notes.

F-6
<PAGE> 61

ECO SOIL SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................. $(2,816) $(1,836) $(4,193) $(2,431) $ 829
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization............... 306 354 911 538 777
Amortization of discount on long-term
debt..................................... -- -- 189 -- --
Deferred gain on sale leaseback............. -- -- -- -- 210
Changes in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable...................... (50) (652) 2,045 961 (8,359)
Inventories.............................. (225) (35) 114 103 (1,630)
Prepaid expenses and other assets........ 71 2 (472) (634) 42
Accounts payable......................... 367 139 (2,932) (2,340) 1,941
Accrued liabilities...................... 75 (3) (292) (511) 1,244
------- ------- ------- ------- -------
Net cash used in operating activities......... (2,272) (2,031) (4,630) (4,314) (4,946)
INVESTING ACTIVITIES
Cash received in acquisitions................. -- -- 1,656 1,656 --
Payments related to acquired businesses....... -- -- (2,690) (1,810) (1,424)
Payments for equipment under operating
leases...................................... -- -- -- -- (5,063)
Purchase of property and equipment............ (507) (569) (748) (741) (715)
Proceeds from sale of equipment under
operating leases............................ -- -- -- -- 1,325
Proceeds from note receivable................. -- -- 595 595 --
------- ------- ------- ------- -------
Net cash used in investing activities......... (507) (569) (1,187) (300) (5,877)
FINANCING ACTIVITIES
Advances from shareholder..................... 1,435 1,000 179 74 --
Repayment of advances from shareholder........ (807) (80) -- -- (356)
Proceeds from long-term debt.................. 1,613 858 6,442 5,416 4,489
Repayments of long-term debt.................. (973) (751) (1,135) (948) (7,297)
Payments on capital lease obligations......... (18) (98) (107) (76) (22)
Repurchase of common stock.................... (120) -- -- -- --
Net proceeds from issuance of common stock.... 1,242 1,671 588 585 14,071
------- ------- ------- ------- -------
Net cash provided by financing activities..... 2,372 2,600 5,967 5,051 10,885
------- ------- ------- ------- -------
Net increase (decrease) in cash............... (407) -- 150 437 62
Cash at beginning of period................... 407 -- -- -- 150
------- ------- ------- ------- -------
Cash at end of period......................... $ -- $ -- $ 150 $ 437 $ 212
======= ======= ======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Subordinated debentures issued upon conversion
of shareholder advances..................... $ -- $ 300 $ -- $ -- $ --
======= ======= ======= ======= =======
Common stock issued upon conversion of debt
and shareholder advances.................... $ 550 $ 700 $ 382 $ 382 $ 1,955
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid................................. $ 224 $ 262 $ 537 $ 243 $ 652
======= ======= ======= ======= =======
</TABLE>

See accompanying notes.

F-7
<PAGE> 62

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Eco Turf Products, Ltd. (d.b.a. Turf Products, Ltd.) and Turf Specialty,
Inc., wholly-owned subsidiaries of the Company, are wholesalers/distributors of
golf course supplies and turfgrass supplies and operate in the Greater Chicago
area and New England, respectively.

In January 1997, the Company completed its initial public offering of
3,795,000 shares of common stock at a price of $4.125 per share, providing the
Company with net proceeds of approximately $13.3 million, after deducting
underwriting discounts, commissions and other offering costs of approximately
$2.0 million. At December 31, 1996, included in other assets are deferred
issuance costs associated with this offering of approximately $462,000.
Additionally, in February 1997, as a result of the completion of the initial
public offering, $1,904,000 of debt and related accrued interest were converted
into 576,823 common shares and $5,613,000 in debt was repaid.

BASIS OF CONSOLIDATION

The accompanying financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

INTERIM FINANCIAL INFORMATION (UNAUDITED)

The accompanying financial statements and related notes as of September 30,
1997 and for the nine months ended September 30, 1996 and 1997 are unaudited but
include all adjustments (consisting only of normal recurring adjustments) which,
in the opinion of management, are necessary for a fair statement of the
financial position and the operating results and cash flows for the interim date
and period presented. Results for the interim period are not necessarily
indicative of results for the entire year or future periods.

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,
including the allocation of the purchase price relating to acquired businesses,
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 the estimates.

F-8
<PAGE> 63

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMER

Financial instruments which potentially expose the Company to
concentrations of credit risk are primarily accounts receivable. A substantial
portion of the Company's accounts receivable are from distributors and country
clubs.

The Company generally does not require collateral and provides for
estimated losses on uncollectible accounts at the time of the sale. Such losses
have historically been minimal and within management's expectations.

During 1994 and 1995, sales to a single customer were approximately
$1,200,000 and $507,000, representing 45% and 13% of net sales, respectively.
Amounts receivable from this customer were $118,000 and $99,000 at December 31,
1994 and 1995, representing 26% and 8% of total accounts receivable,
respectively. No customer accounted for more than 10% of net sales for the year
ended December 31, 1996 or the nine months ended September 30, 1996 and 1997.

INVENTORIES

Inventories consist primarily of finished goods and are stated at the lower
of cost (first-in, first-out method) or market.

EQUIPMENT UNDER OPERATING LEASES

Equipment under operating leases is stated at cost. Depreciation is
provided using the straight-line method over seven years, the estimated service
life of the equipment.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided using
the straight-line and accelerated methods over the estimated service lives of
depreciable property and equipment ranging from 3 to 7 years. Equipment under
capital leases is amortized over the shorter of the estimated useful life of the
assets or the lease term and such amortization is included in depreciation in
the accompanying financial statements.

INTANGIBLE ASSETS

Intangible assets represent acquired marketing rights and the excess of the
purchase price over the fair market value of the assets acquired. Intangible
assets are being amortized over a period of 3 to 9 years for acquired marketing
rights and 15 years for the excess of the purchase price over the fair market
value of the assets acquired.

IMPAIRMENT OF ASSETS

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the estimated
undiscounted cash flows to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted the
provisions of SFAS No. 121 effective January 1, 1996. There was no effect of
such adoption on the Company's financial position or results of operations.

F-9
<PAGE> 64

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE AND EXPORT SALES

Proprietary sales revenue is derived from the rental of certain units on a
month to month basis, the sale of microbial products used in those units, and
servicing of the units. Distributed sales revenue is derived primarily from
sales of purchased turf maintenance products. Revenue is recognized upon
delivery of the related products.

Cost of proprietary sales revenues includes depreciation on the rental
units, cost of the microbial products, and the related cost of the service
component. Cost of distributed products revenues is based on the Company's
purchase price.

The Company's export sales totaled $530,000 $598,000 and $543,000 during
1994, 1995 and 1996, respectively, and $201,000 (unaudited) and $2,613,000
(unaudited) during the nine months ended September 30, 1996 and 1997,
respectively.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number
of shares of common stock outstanding during each period. Common stock
equivalents were not included in computing net loss per share since the effect
would have been antidilutive, except that, pursuant to the requirements of the
Securities and Exchange Commission, shares of common stock issued during the
twelve months immediately preceding the initial filing of the registration
statement relating to the Company's initial public offering, plus the number of
common equivalent shares under stock options granted or warrants issued during
such period, have been included in the calculation of the shares used in
computing net loss per share as if they were outstanding through the date of the
Company's IPO for all periods presented (using the treasury stock method).

Supplemental net loss per share has been computed as described above and
also gives effect to the repayment of approximately $5.6 million of the
Company's outstanding indebtedness and resulting reduction of interest expense,
as if a portion of the proceeds from the initial public offering, which became
effective in January 1997 (see Note 10), had been used to repay the debt at the
original dates of issuance and the number of shares of common stock, whose
proceeds are to be used to retire the debt, were outstanding from the same
dates.

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1995 1996
----- -----
<S> <C> <C>
Supplemental net loss per share.............................. $(.29) $(.46)
===== =====
Shares used in computing supplemental net loss per share (in
thousands)................................................. 5,654 7,897
===== =====
</TABLE>

STOCK OPTIONS

The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB 25") and related Interpretations in accounting for its employee stock
options because the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

F-10
<PAGE> 65

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOVERNMENT REGULATIONS

Substantially all of the Company's facilities are subject to federal, state
and local regulations relating to the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the Company
expect such compliance to have, any material effect upon the operations,
financial condition, capital expenditures, or competitive position of the
Company; however, there can be no assurance that compliance with such
regulations would not have a material effect upon the Company's future results
of operations or financial condition. Management believes that its current
practices and procedures for the control and disposition of such wastes comply
with applicable federal and state requirements.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to current
year classifications.

2. ACQUISITIONS

In September 1995, the Company acquired all of the outstanding stock of
Aspen Consulting, Inc. ("Aspen") for 133,667 shares of the Company's common
stock valued at $3.00 per share.

Effective May 31, 1996, the Company acquired all of the outstanding stock
of Turf Specialty, Inc. ("TSI") for $579,000 cash, two promissory notes
totalling $1,000,000 (see Note 4) and 647,650 shares of the Company's common
stock valued at $3.00 per share. The excess of the purchase price over the net
tangible assets acquired includes approximately $118,000 for legal and other
costs incurred associated with the acquisition.

TSI also gave each officer a non-interest bearing loan of $250,000 which
has been recorded as an addition to the excess of purchase price over net
tangible assets. This loan need not be repaid and will be forgiven on July 1,
1999 if the officers continue to be employed by TSI. If employment is terminated
by the Company prior to that date, the officers will be obligated to repay a
portion of the loan pro-rated to the number of days worked from July 2, 1996 to
the effective date of the termination of employment.

Effective May 31, 1996, the Company acquired all of the outstanding stock
of Turf Products, Ltd. ("TPL") for $1,198,000 cash and 374,424 shares of the
Company's common stock valued at $3.00 per share. The excess of the purchase
price over the net tangible assets acquired includes approximately $110,000 for
legal and other costs incurred associated with the acquisition.

In February 1997, the Company acquired the assets of Turfmakers Inc. (dba
Cameron), a turf maintenance product distributor located in Palm Springs,
California for $1,225,000 cash and 25,000 shares of common stock valued at $4.38
per share. The fair market value of the tangible assets acquired was
approximately $525,000 and the excess of the purchase price over the tangible
assets acquired was approximately $810,000.

The results of operations of Aspen, TSI, TPL and Cameron from the
respective dates of acquisition are included in the consolidated financial
statements.

F-11
<PAGE> 66

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

2. ACQUISITIONS (CONTINUED)
Each of the acquisitions was accounted for as a purchase and, accordingly,
the purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair market values at the date of the
acquisition, as follows (in thousands).

<TABLE>
<CAPTION>
ASPEN TURF TURF
CONSULTING, SPECIALTY, PRODUCTS,
INC. INC. LTD. CAMERON
----------- ---------- --------- -------
<S> <C> <C> <C> <C>
Assets acquired:
Cash................................................... $ -- $1,471 $ 185 $ --
Accounts receivable.................................... 134 1,900 1,021 --
Inventories............................................ -- 675 894 484
Prepaid expenses and other current assets.............. 7 31 336 --
Property and equipment................................. 31 164 182 40
Note receivable from stockholders...................... -- 595 -- --
Excess of purchase price over net tangible assets
acquired............................................ 530 3,460 1,780 831
---- ------ ------ ------
Total assets acquired.................................... $ 702 $8,296 $ 4,398 $1,355
==== ====== ====== ======
Liabilities assumed:
Accounts payable....................................... $ 35 $3,261 $ 1,492 $ --
Accrued expenses....................................... 31 895 35 --
Notes payable.......................................... 235 -- 440 --
---- ------ ------ ------
Total liabilities assumed................................ 301 4,156 1,967 --
---- ------ ------ ------
Net assets acquired...................................... $ 401 $4,140 $ 2,431 $1,355
==== ====== ====== ======
</TABLE>

The following unaudited pro forma results assume the TSI and TPL
acquisitions discussed above occurred on January 1, 1995. The results of
operations of Aspen and Cameron prior to its acquisition by the Company were not
material and are not included in the following unaudited pro forma results. The
unaudited pro forma results have been prepared utilizing the historical
financial statements of the Company and the acquired businesses.

PRO FORMA RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Net sales........................................ $17,557 $18,636
Net loss......................................... (1,686) (4,576)
Net loss per share............................... $ (.31) $ (.64)
</TABLE>

The unaudited pro forma results above give effect to pro forma adjustments
related to the amortization of the excess of the purchase price over the fair
market value of the assets acquired, the increase in interest expense to reflect
the notes payable issued to effect the acquisitions, and related income tax
adjustments.

This pro forma information is not necessarily indicative of the actual
results that would have been achieved had the above businesses been acquired on
January 1, 1995, nor is it necessarily indicative of future results.

F-12
<PAGE> 67

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

3. BALANCE SHEET INFORMATION

Equipment under operating leases is generally leased under initial one-year
lease terms with month-to-month renewal options. Accumulated depreciation and
amortization of equipment under operating leases totaled $535,000, $823,000 and
$152,000 at December 31, 1995 and 1996 and September 30, 1997, respectively.

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
<S> <C> <C> <C>
Machinery and equipment..................... $ 204 $ 256 $ 1,131
Vehicles.................................... 317 629 725
Leasehold improvements...................... 56 170 284
Furniture and fixtures...................... 53 130 295
------ ------- -------
630 1,185 2,435
Less accumulated depreciation and
amortization.............................. (370) (529) (1,247)
------ ------- -------
$ 260 $ 656 $ 1,188
====== ======= =======
</TABLE>

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
---- ------ -------------
<S> <C> <C> <C>
Excess of purchase price over fair market
value of assets acquired (Note 2)........... $553 $5,929 $ 6,907
Other intangibles............................. 281 281 329
Accumulated amortization...................... (83) (547) (964)
---- ------ ------
$751 $5,663 $ 6,272
==== ====== ======
</TABLE>

4. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Revolving line of credit with bank for
$5,000; interest payable monthly at the
bank's prime rate plus 1.5% per annum (10%
at September 1997), expiring June 15, 1998;
secured by 75% of eligible accounts
receivable and 35% of the value of
inventory.................................. $ -- $ -- 2,317
10% secured promissory notes issued in
connection with the acquisition of Turf
Specialty, Inc., to its officers; repaid in
February 1997.............................. -- 1,000 --
8% secured subordinated notes to an officer
and shareholders, net of unamortized
discount of $23; interest payable
quarterly, principal due $719 in March
1998....................................... -- 1,006 750
8% secured subordinated debentures to
officers and shareholders; interest payable
quarterly, principal due November 1998..... 700 700 700
</TABLE>

F-13
<PAGE> 68

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revolving line of credit with bank for $500;
repaid in January 1997..................... $ -- $ 500 $ --
9% note payable to a bank; repaid in January
1997....................................... 1,013 263 --
8% unsecured subordinated promissory note to
an officer; interest and principal due upon
demand..................................... -- 250 450
California Export Financing Office (CEFO)
revolving line of credit with bank for
$500; repaid in January, 1997.............. -- 418 --
10% subordinated promissory bridge notes, net
of unamortized discount of $24; $1,904
converted into common stock and the
remaining amount repaid in February
1997....................................... -- 3,671 --
Non-interest bearing unsecured note payable;
due March 1998............................. 180 94 42
10% unsecured subordinated notes; repaid in
August 1997................................ -- 120 --
10% convertible unsecured subordinated
debentures issued to shareholders;
converted into common stock in 1996........ 132 -- --
10% unsecured subordinated debentures; repaid
in August, 1997............................ 290 90 --
Non-interest bearing note payable to purchase
marketing rights; repaid in 1996........... 86 -- --
8% unsecured note payable to a shareholder;
converted into common stock in 1996........ 100 -- --
10% unsecured convertible promissory note;
repaid in January, 1997.................... -- 100 --
10% unsecured subordinated promissory note to
an officer and shareholder; repaid in
March, 1997................................ -- 100 --
10% convertible promissory note; $100 repaid
in March, 1997 and $50 converted to common
stock in April 1997........................ -- 150 --
8% secured promissory note; repaid in January
1997....................................... -- 189 --
Note payable with bank; repaid in March
1997....................................... -- 200 --
10% unsecured subordinated promissory note to
officer and shareholder; repaid in
February, 1997............................. -- 200 --
Other........................................ 113 41 21
------ ------ ------
2,614 9,092 4,280
Less amount due within one year.............. 1,703 7,266 3,568
------ ------ ------
Long-term debt due after one year............ $ 911 $1,826 $ 712
====== ====== ======
</TABLE>

F-14
<PAGE> 69

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)

Aggregate maturities of long-term debt are as follows:

<TABLE>
<S> <C>
Year ending December 31, 1997............................... $ 513
Year ending December 31, 1998............................... 3,767
------
$4,280
======
</TABLE>

Substantially all of the assets of the Company are pledged as collateral as
a result of the debt agreements described above.

The Company's revolving line of credit agreements ("Agreements") contain
certain restrictions and limitations on the Company's operations including
restrictions on capital expenditures, sale of assets, lease liabilities,
mergers, or other forms of business combinations, as well as the prohibition on
the payments of cash dividends. The Agreements also contain certain covenants
which require the Company to maintain minimum levels of net worth, working
capital, and other financial ratios, as defined. In connection with the sale
leaseback of certain BioJect units in September 1997, the Company guaranteed
$3.0 million of debt borrowed by the purchaser of the BioJects. The use of the
line of credit is limited to $5.0 million less the unpaid balance on the
purchaser's debt.

5. SHAREHOLDERS' EQUITY

PREFERRED STOCK

The Board of Directors is authorized, without any action by the Company's
shareholders, to issue up to 5,000,000 shares of undesignated preferred stock
and to fix the powers, preferences, rights and limitations of any such preferred
shares or any class or series thereof. Persons acquiring preferred stock could
have preferential rights with respect to voting, liquidation, dissolution or
dividends over existing shareholders.

STOCK OPTION PLAN

In February 1992, the Company established a Qualified Stock Option Plan
(the "Plan") for employees and consultants which, as amended, provides for the
grant of options to purchase up to 1,100,000 shares of common stock. Options
granted under the Plan have a five-year term and vest ratably over a three-year
period.

A summary of the Company's stock option activity and related information is
as follows:

<TABLE>
<CAPTION>
1995 1996
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding -- beginning of year.................... 210,000 $ 2.00 334,168 $ 2.25
Granted........................................... 126,668 $ 3.00 391,000 $ 3.59
Exercised......................................... (2,500) $ 3.00 (10,000) $ 2.00
Forfeited......................................... -- -- (27,668) $ 2.25
------- -------
Outstanding -- end of year.......................... 334,168 $ 2.25 687,500 $ 2.59
======= =======
Exercisable -- end of year.......................... 242,222 $ 1.96 274,167 $ 2.26
======= =======
</TABLE>

Exercise price for options outstanding as of December 31, 1996 ranged from
$1.50 to $4.00. The weighted average remaining contractual life of those options
is approximately 3.4 years.

F-15
<PAGE> 70

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
At December 31, 1996, options for 197,500 shares were available for future
grant. At December 31, 1996, 900,000 shares of common stock were reserved for
future issuance related to stock options and warrants.

Pro forma information regarding net loss and net loss per share is required
by Statement 123, and has been determined as if the Company has accounted for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using the minimum
value option pricing model with the following weighted average assumptions for
1996 and 1995, respectively: risk-free interest rates of 7%; no dividend yields
expected; and a weighted-average life of the option of 3 years.

The minimum value option pricing model is similar to the Black-Scholes
model which was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options. The
effects of applying Statement 123 for pro forma disclosure purposes are not
likely to be representative of the effects on pro forma net loss or net income
in future years because they do not take into consideration pro forma
compensation expense related to grants made prior to 1995. The Company's pro
forma information follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Pro forma net loss (in thousands).................... $(1,853) $(4,257)
======= =======
Pro forma net loss per share......................... $ (.37) $ (.63)
======= =======
Weighted-average fair value of options granted during $ .57 $ 1.16
the year...........................................
======= =======
</TABLE>

OPTIONS AND WARRANTS

Under separate non-qualified stock option agreements in 1992 and 1993, the
Company granted options to purchase 270,000 shares of common stock at prices
ranging from $1.50 to $2.00 per share to several consultants and employees which
have vesting and exercise provisions consistent with those issued pursuant to
the Plan and expire through 1998. In 1995, 25,000 options were exercised at
$1.50 per share. In 1996, 164,000 options were exercised at $2.00 per share and
26,000 options expired. As of December 31, 1996 all remaining options were
exercisable.

In 1991 and 1992, the Company also granted to four individuals options to
purchase 812,458 shares of the Company's common stock at prices ranging from
$.034 to $2.00 per share. In 1996, 40,000 options were exercised at $.034 per
share. As of December 31, 1996, all remaining options were exercisable and
expire through May 2001.

In connection with the issuance of the 10% subordinated debentures in 1992
and 1993, the Company issued to the holders of the debentures options to
purchase 88,000 shares at $1.50 per share and warrants to purchase 78,000 shares
at $3.00 per share. In 1996, 88,000 options were exercised at $1.50 per share
through the cancellation of related debt of $132,000. Warrants to purchase
78,000 shares were outstanding and exercisable at December 31, 1996 and expire
through February 1998.

F-16
<PAGE> 71

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

5. SHAREHOLDERS' EQUITY (CONTINUED)
In connection with the 1994 repurchase of exclusive marketing rights for
certain products, the Company issued warrants to purchase 30,000 common shares
at $2.50 per share. All warrants were outstanding and exercisable as of December
31, 1996 and expire through 1999.

During 1994, warrants to purchase 350,000 shares at $2.50 per share were
issued to an officer of the Company. Warrants for the purchase of 100,000 shares
of common stock vested ratably through January 1996 and warrants for the
purchase of 250,000 shares of common stock may not be exercised until the
issuance price of common stock exceeds certain prices. Compensation expense
relating to the contingent shares will be recorded when the options vest based
upon the difference between the then fair market value and the exercise price.
At December 31, 1996, 100,000 of these warrants were exercisable.

In accordance with the Company's purchase of Aspen, the previous owner of
Aspen was granted an option to purchase 50,000 shares of the Company's common
stock at $3.00 per share. The option vests over four years if the previous owner
continues employment with the Company and will expire in December 2001. An
additional 150,000 options to purchase the Company's common stock at $3.00 per
share will be granted evenly over the next four years provided employment
continues and contingent upon the level of the pre-tax contribution margin of
Aspen over the next four years. Compensation expense relating to this option
will be recorded when the shares vest based upon the difference between the then
fair market value and the exercise price.

In connection with a new stock option compensation plan for the board of
directors, 30,000 options were granted January 1996 at $3.00 per share. As of
December 31, 1996, 10,000 options were exercisable with the remaining options
vesting over the next two years. These options expire in January 2001.

In connection with various long-term debt financing transactions, the
Company has issued warrants to purchase 1,880,818 shares of common stock at
$3.00 and $4.00 per share. The warrants are generally exercisable through 2003.
In 1996, warrants were exercised for the purchase of 3,666 shares of common
stock. All remaining warrants were outstanding and exercisable at December 31,
1996.

Options and warrants have also been issued to various investment banking
firms, debenture holders and shareholders to purchase 1,195,190 shares of common
stock. These options and warrants are generally exercisable through 2001 at
prices between $1.50 and $4.00 per share. In 1996, options and warrants were
exercised for the purchase of 31,800 shares of common stock.

As of December 31, 1996, an aggregate of 5,000,000 shares of common stock
are reserved for issuance under options and warrants, exclusive of options
granted under the Plan.

6. TPL DEFINED CONTRIBUTION PLAN

Substantially all employees of TPL are covered by a defined contribution
plan sponsored by TPL. TPL makes discretionary contributions up to 15% of
eligible employee compensation on an annual basis. No contributions are made by
the participants. No contributions have been made for the year ended December
31, 1996. Costs of administering the plan are paid by the Company and are not
material.

7. INCOME TAXES

At December 31, 1996, the Company had federal and California tax net
operating loss carryforwards of approximately $12.1 million and $4.7 million,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to the fifty percent limitation on
California loss carryforwards. The federal and California tax loss carryforwards
begin expiring in 2003 and 1998, respectively, unless previously utilized.

F-17
<PAGE> 72

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

7. INCOME TAXES (CONTINUED)
Pursuant to Internal Revenue Code Sections 382 and 383, use of the
Company's net operating loss carryforwards may be limited if a cumulative change
in ownership of more than 50% occurs within any three-year period. The Company's
use of a portion of its income tax net operating loss carryforwards will be
limited since the Company has undergone ownership changes of greater than 50%.

Significant components of the Company's deferred tax assets as of December
31, 1996 and 1995 are shown below. A valuation allowance of $4,636,000, of which
$1,483 relates to 1996, has been recognized to offset the deferred tax assets as
realization of such assets is uncertain.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 3,093 $ 4,530
Other.................................................. 60 106
------ ------
Total deferred tax assets................................ 3,153 4,636
Valuation allowance for deferred tax assets.............. (3,153) (4,636)
------ ------
Net deferred tax assets.................................. $ -- $ --
====== ======
</TABLE>

8. COMMITMENTS

In 1995, the Company entered into a thirty-year licensing agreement for
BioJect Product (as defined). The license called for the Company to pay
royalties of 13% on all product which was evaluated, developed, supplied, or
improved by the licensor, with minimum royalty payments of $100,000 in each of
1996 and 1997. The Company granted the licensor a fully exercisable warrant to
purchase 50,000 shares of the Company's common stock of $3.00 per share which
expires in 2002. Royalty expense for the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1996 and 1997, was $100,000, $153,000,
$79,000 and $0, respectively.

In July 1997, the agreement was revised, whereby the Company obtained an
exclusive, worldwide, royalty-free license to use, sell and distribute BioJect
Product. In addition, the licensor assigned to the Company certain rights to
proprietary materials. Under the revised license and supply agreement, the
Company has agreed to purchase minimum amounts of BioJect Product over a three
year period commencing in March 1997 as follows:

<TABLE>
<S> <C>
March 1997 - February 1998........................................ $210,000
March 1998 - February 1999........................................ $350,000
March 1999 - February 2000........................................ $350,000
</TABLE>

F-18
<PAGE> 73

ECO SOIL SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS
UNAUDITED)

8. COMMITMENTS (CONTINUED)
Annual future minimum lease payments, including equipment under capital
leases as of December 31, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending December 31, 1997.............................. $23 $ 364
Year ending December 31, 1998.............................. -- 336
Year ending December 31, 1999.............................. -- 241
Year ending December 31, 2000.............................. -- 72
Year ending December 31, 2001.............................. -- 69
--- ------
Total minimum lease payments............................... 23 $ 1,082
======
Less amount representing interest.......................... 1
---
Present value of remaining capital lease payments
(including current portion of $22)....................... $22
===
</TABLE>

Rental expense for the years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1996 and 1997 was approximately $102,000,
$107,000, $268,000, $185,000, and $325,000, respectively, including $89,000,
$78,000, $90,000, $65,000, and $113,000, respectively, to a shareholder. The
lease with the shareholder expires in November 1999.

In September 1997, the Company sold approximately $4.0 million of equipment
under operating leases to an unrelated investor group. The Company then leased
the equipment back under a 40-month lease agreement. The equipment is subleased
to end-users, generally under one-year lease terms. The gain of approximately
$300,000 on the sale has been deferred and will be amortized over the 40-month
lease term. Minimum lease payments due under the leaseback are as follows as of
September 30, 1997 (in thousands):

<TABLE>
<S> <C>
Year ending December 31, 1997....................................... $ 500
Year ending December 31, 1998....................................... 1,921
Year ending December 31, 1999....................................... 1,794
Year ending December 31, 2000....................................... 671
Year ending December 31, 2001....................................... 42
------
Total minimum lease payments........................................ $4,928
======
</TABLE>

TSI has entered into employment agreements expiring July 9, 1999 with two
executive officers. The agreements provide for minimum salary levels, adjusted
annually for cost-of-living changes, as well as participation in any incentive
compensation plans sponsored by TSI.

9. RELATED PARTY TRANSACTIONS

As more fully described in Note 4, the Company has various debt
arrangements with officers and shareholders of the Company.

As more fully described in Note 8, the Company leases its facility under an
operating lease which it assumed from two officers of the Company.

F-19
<PAGE> 74

REPORT OF BIGELOW & COMPANY, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Turf Specialty, Inc.
Londonderry, New Hampshire

We have audited the accompanying consolidated statements of income and
retained earnings and cash flows of Turf Specialty, Inc. for the years ended
December 31, 1994 and 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and consolidated disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the results of
operations and cash flows of Turf Specialty, Inc. for the years ended December
31, 1994 and 1995, in conformity with generally accepted accounting principles.

BIGELOW & COMPANY
Certified Public Accountants, P.C.

By: /s/ MARIE C. MCKAY
------------------------------------
Marie C. McKay
Certified Public Accountant
Manchester, New Hampshire
July 19, 1996

F-20
<PAGE> 75

TURF SPECIALTY, INC.

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Net sales................................................................ $4,557 $6,886
Cost of sales............................................................ 3,101 4,929
------ ------
Gross profit........................................................... 1,456 1,957
Operating expenses....................................................... 1,463 1,347
------ ------
Income (loss) from operations............................................ (7) 610
Other income............................................................. 43 4
------ ------
Income before provision for income taxes................................. 36 614
Provision for income taxes............................................... 9 240
------ ------
Net income............................................................... 27 374
Retained earnings at beginning of year .................................. 573 600
------ ------
Retained earnings at end of year......................................... $ 600 $ 974
====== ======
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-21
<PAGE> 76

TURF SPECIALTY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1994 1995
----- -----
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................................................. $ 27 $ 374
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 31 51
Loss on sale of property and equipment.................................... 8 4
Change in operating assets and liabilities:
Accounts receivable.................................................... (109) (940)
Inventory.............................................................. 32 (652)
Income taxes........................................................... (7) 240
Prepaid expenses....................................................... (3) --
Accounts payable....................................................... 63 1,530
Accrued expenses....................................................... 7 (8)
Customer deposits...................................................... 29 11
----- -----
Net cash provided by operating activities.............................. 78 610
INVESTING ACTIVITIES:
Purchase of property and equipment.......................................... (69) (78)
Advances (repayments) on notes receivable from stockholders................. 75 (90)
Proceeds from sale of property and equipment................................ 19 6
----- -----
Net cash provided by (used in) investing activities......................... 25 (162)
----- -----
FINANCING ACTIVITIES:
Principal payments on notes payable......................................... (29) (35)
Repurchase of common stock.................................................. (75) (75)
Proceeds (repayments) of note payable to stockholder........................ 79 (78)
----- -----
Net cash used in financing activities....................................... (25) (188)
Net increase in cash........................................................ 78 260
Cash at beginning of year................................................... 49 128
----- -----
Cash at end of year......................................................... $ 127 $ 388
===== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes.................................................. $ 16 $ 2
===== =====
Cash paid for interest...................................................... $ 13 $ 9
===== =====
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-22
<PAGE> 77

TURF SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Substantially all gross revenues are derived from the purchase and resale
of turfgrass supplies. Most of the Company's business activity is with golf
courses located in New England.

Basis of Consolidation

The consolidated financial statements include the accounts of Turf
Specialty, Inc. (the Company) and its wholly-owned subsidiary, 3MT, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

Allowance for Doubtful Accounts

The Company considers its accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is provided.

Inventories

Inventories consist primarily of finished goods and are valued at the lower
of cost (first-in, first-out) or market value.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using
accelerated methods based on the estimated useful lives of the assets.
Maintenance and repairs are charged to expense when incurred.

Advertising Costs

Advertising costs are charged to the expense as incurred. Advertising costs
were $8,683 and $9,191 for the years ended December 31, 1994 and 1995,
respectively.

Governmental Regulations

Substantially all of the Company's facilities are subject to federal, state
and local regulations relating to the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the Company
expect such compliance to have, any material effect upon the net income,
financial condition, capital expenditures, or competitive position of the
Company. Management believes that its current practices and procedures for the
control and disposition of such wastes comply with applicable federal and state
requirements.

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.

2. CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to
concentrations of credit risk are primarily cash and accounts receivable. The
Company deposits its cash in financial institutions. At times, such

F-23
<PAGE> 78

TURF SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

investments may be in excess of insured limits. To date, the Company has not
experienced any losses on its cash investments. A substantial portion of the
Company's accounts receivable are from distributors and country clubs. The
Company generally does not require collateral and provides for estimated losses
on uncollectible accounts at the time of the sale. Such losses have historically
been minimal and within management's expectations.

3. MAJOR SUPPLIER

Beginning in 1994, the Company has a distributor agreement with a major
supplier. At December 31, 1995, amounts due to that supplier included in
accounts payable were $1,745,381. This agreement has been terminated effective
December 31, 1996.

4. LINE OF CREDIT

The Company has available a $900,000 line of credit at the bank's prime
rate plus 1.5% (10% at December 31, 1995). The line is unsecured and is
personally guaranteed by the stockholders. There were no borrowings outstanding
under this agreement at December 31, 1994 and 1995.

5. RELATED PARTY TRANSACTIONS

The stockholders have personally guaranteed all of the bank debt of the
Company (SEE NOTE 4).

As more fully described in Note 6, the Company leases its facility under an
operating lease which it assumed from its stockholders.

6. OPERATING LEASES

The Company leases its facility under a five-year operating lease which
expires February 1997. The lease agreement was entered into by the stockholders
of the Company. The Company utilizes the premises and has assumed the obligation
and liability under the lease. The lease payment is $3,467 per month and
includes property tax and common area charges which are subject to change. The
Company is also party to a number of operating leases for office equipment.
Rental expense under these leases for the years ended December 31, 1994 and 1995
was $44,789 and $57,688, respectively.

The following is a schedule of minimum future rental payments to be made
under these leases as of December 31, 1995 (IN THOUSANDS):

<TABLE>
<S> <C>
Year ending December 31, 1996.................................. $51
Year ending December 31, 1997.................................. 5
---
$56
===
</TABLE>

7. REPURCHASED STOCK

The Company has repurchased shares of the Company's common stock, as
follows:

<TABLE>
<CAPTION>
NUMBER OF COST OF
SHARES REPURCHASED
REPURCHASED SHARES
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Year ended December 31, 1994....................... 23.82 $ 75
Year ended December 31, 1995....................... 23.84 75
----- ----
47.66 $150
===== ====
</TABLE>

F-24
<PAGE> 79

TURF SPECIALTY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES

A reconciliation of federal and state income taxes computed at current
rates to the amounts provided in the financial statements is as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1994 1995
---- ----
<S> <C> <C>
Federal....................................................... $6 $196
State......................................................... 3 44
-- ----
$9 $240
== ====
</TABLE>

9. PROFIT SHARING PLAN

The Company has a non-contributory profit sharing plan covering
substantially all of its employees. Annual employer contributions to the plan
are set by the Board of Directors. Contributions for the years ended December
31, 1994 and 1995 amounted to $103,275 and $109,155, respectively.

10. SUBSEQUENT EVENT

Effective May 31, 1996, the Company was merged into Eco Specialty, Inc., a
Delaware corporation. Eco Specialty, Inc. was the surviving corporation which
changed its name to Turf Specialty, Inc.

F-25
<PAGE> 80

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

STOCKHOLDER
TURF PRODUCTS, LTD.

We have audited the accompanying statements of income and retained earnings
and cash flows of Turf Products, Ltd. for each of the two years in the period
ended December 31, 1995. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
--------------------------------------
ERNST & YOUNG LLP
San Diego, California
October 3, 1996

F-26
<PAGE> 81

TURF PRODUCTS, LTD.

STATEMENTS OF INCOME AND RETAINED EARNINGS

Operating expenses:
Selling expenses......................................................... 442 523
General and administrative expenses...................................... 1,031 1,224
------ ------
1,473 1,747
------ ------
Operating income........................................................... 162 221

Other income (expense):
Interest expense......................................................... (23) (28)
Interest income.......................................................... 1 1
Other, net............................................................... (1) --
------ ------
(23) (27)
------ ------
Income before income taxes................................................. 139 194
Provision for income taxes................................................. 71 94
------ ------
Net income................................................................. 68 100
Cash dividends............................................................. (50) (25)
Retained earnings at beginning of year..................................... 543 561
------ ------
Retained earnings at end of year........................................... $ 561 $ 636
====== ======
</TABLE>

See accompanying notes.

F-27
<PAGE> 82

TURF PRODUCTS, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................................. $ 68 $100
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 52 65
Provision for doubtful accounts........................................... -- 11
Deferred income taxes..................................................... 6 (27)
Changes in operating assets and liabilities:
Accounts receivable.................................................... (24) 85
Inventories............................................................ (165) (185)
Prepaids and other assets.............................................. (5) 89
Accounts payable and accrued expenses.................................. 102 57
Income taxes payable................................................... 50 31
---- ----
Net cash provided by operating activities................................... 84 226

INVESTING ACTIVITIES
Purchase of property and equipment.......................................... (45) (133)
Premium receivable.......................................................... (21) (30)
---- ----
Net cash used by investing activities....................................... (66) (163)

FINANCING ACTIVITIES
Advances from stockholder................................................... 50 --
Cash dividends paid......................................................... (50) (25)
---- ----
Net cash used by financing activities....................................... -- (25)
---- ----
Increase in cash............................................................ 18 38
Cash at beginning of year................................................... 77 95
---- ----
Cash at end of year......................................................... $ 95 $133
---- ----

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes.............................................................. $ 20 $ 91
==== ====
Interest.................................................................. $ 17 $ 28
==== ====
</TABLE>

See accompanying notes.

F-28
<PAGE> 83

TURF PRODUCTS, LTD.

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Turf Products, Ltd. is a wholesaler/distributor of golf course and
turfgrass supplies. The Company is privately owned and operates in the Greater
Chicago area.

Concentration of Credit Risk

No single customer is large enough to pose a significant financial risk to
the Company. To the extent the Company's customers become delinquent, collection
activities commence. The Company maintains an allowance for losses based on the
expected collectability of accounts receivable. Credit losses historically have
been insignificant and within management's expectations.

Inventories

Inventories consist primarily of finished goods and are stated at the lower
of cost (principally first in, first out method) or market.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by
applying an accelerated method for transportation equipment and a straight-line
method for all other property and equipment based on the estimated useful lives
of the assets. Repairs and maintenance costs are expensed as incurred.

Goodwill

Goodwill resulted from the buyout of certain partners of the original
partnership (the Company was incorporated from a partnership in 1971). The
goodwill is being amortized over 40 years. Amortization of goodwill amounted to
approximately $1,000 for each of the years ended December 31, 1994 and 1995.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs were
$18,938 and $22,690 for the years ended December 31, 1994 and 1995,
respectively.

Government Regulations

Substantially all of the Company's facilities are subject to federal, state
and local regulations relating to the discharge of materials into the
environment. Compliance with these provisions has not had, nor does the Company
expect such compliance to have, any material effect upon the net income,
financial condition, capital expenditures, or competitive position of the
Company. Management believes that its current practices and procedures for the
control and disposition of such wastes comply with applicable federal and state
requirements.

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.

F-29
<PAGE> 84

TURF PRODUCTS, LTD.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. RELATED PARTY TRANSACTIONS

The Company pays life insurance premiums on behalf of the stockholder. For
the years ended December 31, 1994 and 1995, the Company paid $37,696 and $37,336
in life insurance premiums. In the event of the death of the stockholder or
termination of a related collateral assignment agreement, the Company is
entitled to reimbursement of these premiums or ownership of the policies. The
premium receivable recorded in the balance sheet reflects the cash surrender
value of the policies which represents the collateralized portion of the
premiums. Premiums paid since inception of the policies in excess of the cash
surrender values totaled $52,192 at December 31, 1995.

The Company sells Eco Soil Systems, Inc. products to their customers. The
effect on cost of sales, net of commissions, of these transactions for the years
ended December 31, 1994 and 1995 was $0 and $9,500, respectively.

In addition to facilities leased as noted above, the Company occupies a
building owned by a stockholder on which no rent is charged.

3. INCOME TAXES

The components of income tax expense were as follows for the years ended
December 31 (in thousands):

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Current income tax expense:
Federal..................................................... $51 $ 98
State....................................................... 14 23
Deferred income tax expense (benefit):
Federal..................................................... 7 (24)
State....................................................... (1) (3)
--- ----
Total income tax expense...................................... $71 $ 94
=== ====
</TABLE>

A reconciliation from the U.S. federal statutory income tax rate (34
percent) to the effective income tax rate (income tax expense divided by income
before income taxes) is as follows for the years ended December 31 (in
thousands):

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Income tax expense at the statutory rate....................... $47 $66
Effect of:
State income tax expense, net of federal income tax effect... 9 12
Non-deductible expenses...................................... 15 16
Change in tax rates on deferred taxes........................ 7 1
Change in tax due to graduated tax rates..................... (8) (1)
Other, net................................................... 1 --
--- ---
Income tax expense............................................. $71 $94
=== ===
Effective income tax rate...................................... 51% 48%
=== ===
</TABLE>

For the years ended December 31, 1994 and 1995, income tax expense was
affected by the difference between the statutory tax rate of 34% and the
graduated tax rate based on the Company's level of taxable income.

Deferred income taxes are provided for temporary differences between the
carrying amounts of the Company's assets and liabilities for financial statement
purposes and their tax bases. The sources of the

F-30
<PAGE> 85

TURF PRODUCTS, LTD.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

differences that gave rise to the deferred income tax assets and liabilities as
of December 31, 1995, along with the income tax effect of each, were as follows
(in thousands):

<TABLE>
<CAPTION>
1995 DEFERRED
INCOME TAX
----------------------
ASSETS LIABILITIES
------ -----------
<S> <C> <C>
Property and equipment.................................... $ -- $ 5
Bad debts................................................. 4 --
Contributions............................................. 9 --
Differences in revenue and expense recognition............ 28 --
Life insurance............................................ -- 25
--- ---
$ 41 $30
=== ===
</TABLE>

4. COMMITMENTS

Annual future payments under the Company's operating leases as of December
31, 1995 are as follows (in thousands):

<TABLE>
<S> <C>
Year ending December 31, 1996.................................. $54
Year ending December 31, 1997.................................. 23
Year ending December 31, 1998.................................. 3
Year ending December 31, 1999.................................. 2
---
$82
===
</TABLE>

Rental expense for the years ended December 31, 1994 and 1995 was
approximately $200 and $28,500, respectively.

5. DEFINED CONTRIBUTION PLAN

Substantially all employees of the Company were covered by a defined
contribution plan sponsored by Turf Products, Ltd. No contributions are made by
the participants. The Company's contributions aggregated $62,000 for each of the
years ended December 31, 1994 and 1995 and were determined at the Company's
discretion. Costs of administrating the Plan are paid by the Company.

6. SUBSEQUENT EVENT

Effective May 31, 1996, the Company merged with Eco Turf Products, Inc., a
subsidiary of Eco Soil Systems, Inc. The subsidiary is the surviving
corporation. Prior to the closing of this merger, the Company terminated the
defined contribution plan (See Note 5).

F-31
<PAGE> 86

ECO SOIL SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

The following unaudited pro forma condensed consolidated statements of
operations for the years ended December 31, 1996 and 1995 give effect to the
acquisitions of Turf Specialty, Inc. (TSI) and Turf Products, Ltd. (TPL) as if
they were acquired on January 1, 1995.

The pro forma condensed consolidated statements of operations are based on
historical financial statements of Eco Soil Systems, Inc., TSI and TPL, giving
effect to the acquisitions applying the purchase method of accounting and the
assumptions and adjustments as discussed in the accompanying notes to the pro
forma condensed consolidated statements of operations. The unaudited pro forma
condensed consolidated statements of operations should be read in conjunction
with the historical financial statements and notes thereto of Eco Soil Systems,
Inc., TSI and TPL, and narrative sections included elsewhere herein. The pro
forma condensed consolidated statements of operations are presented for
illustrative purposes and are not necessarily indicative of what actual results
of operations would have been for the periods presented had the transactions
occurred on the date indicated and do not purport to indicate the results of
future operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
HISTORICAL
-------------------------------------
ECO SOIL TURF TURF PRO FORMA PRO FORMA
SYSTEMS, SPECIALTY, PRODUCTS, ADJUSTMENTS REFLECTING
INC. INC. LTD. (NOTE 2) ACQUISITIONS
-------- ---------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 3,757 $6,886 $ 6,914 $ -- $ 17,557
Operating expenses................. 5,331 6,263 6,692 349(a) 18,635
------- ------ ------ ----- ----------
Operating income (loss)............ (1,574) 623 222 (349) (1,078)
Interest expense, net.............. (262) (9) (28) (308)(b) (607)
------- ------ ------ ----- ----------
Income (loss) before income
taxes............................ (1,836) 614 194 (657) (1,685)
Provision for income taxes......... -- 240 94 (334)(c) --
------- ------ ------ ----- ----------
Net income (loss).................. $ (1,836) $ 374 $ 100 $(323) $ (1,685)
======= ====== ====== ===== ==========
Net loss per share................. $ (0.31)
==========
Shares used in computing net loss
per share........................ 5,516,000
==========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
HISTORICAL
-------------------------------------
ECO SOIL TURF TURF PRO FORMA PRO FORMA
SYSTEMS, SPECIALTY, PRODUCTS, ADJUSTMENTS REFLECTING
INC. INC. LTD. (NOTE 2) ACQUISITIONS
-------- ---------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 12,116 $3,837 $ 2,683 $ -- $ 18,636
Operating expenses................. 15,245 3,911 2,698 146 22,000
------- ------ ------ ----- ----------
Operating loss..................... (3,129) (74) (15) (146) (3,364)
Interest expense, net.............. (1,064) -- (20) (128)(b) (1,212)
------- ------ ------ ----- ----------
Loss before income taxes........... (4,193) (74) (35) (274) (4,576)
Provision for income taxes......... -- -- 20 (20) (c) --
------- ------ ------ ----- ----------
Net loss........................... $ (4,193) $ (74) $ (55) $(254) $ (4,576)
======= ====== ====== ===== ==========
Net loss per share................. $ (.64)
==========
Shares used in computing net loss
per share........................ 7,118,000
==========
</TABLE>

See accompanying notes to Pro Forma Condensed Consolidated Statements of
Operations.

F-32
<PAGE> 87

ECO SOIL SYSTEMS, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)

NOTE 1.

On May 31, 1996, Eco Soil Systems, Inc. (the "Company") acquired all of the
outstanding common stock of Turf Specialty, Inc. ("TSI") and Turf Products, Inc.
("TPL") in separate transactions. To effect the purchase of TSI, the Company
issued 647,650 shares of its common stock and $1,000,000 in debt and paid
$579,000 in cash. To effect the purchase of TPL, the Company issued 374,424
shares of its common stock and paid $1,198,000 in cash. The stock issued in each
of these transactions was valued at $3.00 per share. Each transactions was
accounted for as a purchase.

The purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed based on their respective fair value on the
date of acquisition as follows:

<TABLE>
<CAPTION>
TURF TURF
SPECIALTY, INC. PRODUCTS, LTD.
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Assets acquired:
Cash............................................ $ 1,471 $ 185
Accounts receivable............................. 1,900 1,021
Inventories..................................... 675 894
Prepaid expenses and other current assets....... 31 336
Property and equipment.......................... 164 182
Note receivable from stockholders............... 595
Excess of purchase price over net tangible
assets acquired.............................. 3,460 1,780
------ ------
Total assets acquired............................. $ 8,296 $4,398
====== ======
Liabilities assumed:
Accounts payable................................ $ 3,261 $1,492
Accrued expenses................................ 895 35
Notes payable................................... -- 440
------ ------
Total liabilities assumed......................... 4,156 1,967
------ ------
Net assets acquired............................... $ 4,140 $2,431
====== ======
</TABLE>

NOTE 2.

The accompanying unaudited pro forma condensed consolidated statements of
operations for the years ended December 31, 1995 and 1996 gives effect to the
acquisitions of TSI and TPL as if they had occurred as of January 1, 1995. For
the periods presented, transactions between these entities were not material.

The pro forma adjustments are summarized as follows:

(a) Increased amortization expense of intangibles for goodwill related to
the acquisitions using the straight line method and a 15 year life.

(b) Increased interest expense on the acquisitions debt of $1 million and
$1.8 million of the bridge notes utilized to complete the acquisitions.
The acquisition debt bears interest at 8% and is due in February 1997,
and the bridge financing bears interest at 10% and is due within 30
days of the date of the completion of the Company's initial public
offering of its common stock.

F-33
<PAGE> 88

ECO SOIL SYSTEMS, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED)

NOTE 3.

Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding during each period. Common stock
equivalents were not included in computing pro forma net loss per share since
the effect would have been antidilutive. Pursuant to the requirements of the
Securities and Exchange Commission, shares of common stock issued during the
twelve months immediately preceding the initial filing of the registration
statement relating tot he Company's initial public offering, plus the number of
common equivalent share under stock options granted or warrants issued during
such period, have been included in the calculation of the shares used in
computing pro forma net loss per share as if they were outstanding for all
periods presented (using the treasury stock method and the estimated public
offering price), except that the shares utilized to effect the purchase of TSI
and TPL were not reduced utilizing the treasury stock method.

The shares used in the pro form calculation are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Shares used in historical calculation........................ 5,207 6,809
Effect of treasury stock assumptions on shares issued in
acquisitions(1)............................................ 309 309
----- -----
Shares used in pro forma calculation......................... 5,516 7,118
===== =====
</TABLE>

- ---------------

(1) Such shares represent the effect of the assumed treasury stock repurchase,
which was utilized in the historical calculation for the shares issued in
connection with the acquisitions. For pro forma purposes, the total of the
shares issued in connection with the acquisitions are treated as outstanding
since January 1, 1995, without any treasury stock repurchase.

F-34
<PAGE> 89

THE BIOJECT SYSTEM
---------------------------------------

[DEPICTION OF BIOJECT SYSTEM]

THE COMPANY'S BIOJECT SYSTEM IS A PROPRIETARY DISTRIBUTION
SYSTEM THAT INTRODUCES BENEFICIAL MICROBES INTO THE SOIL BY
FERMENTING THEM ON SITE AND THEN AUTOMATICALLY DISPENSING THE
MICROBES INTO THE CUSTOMER'S IRRIGATION SYSTEM.

------------------------

THE BIOJECT SYSTEM IS CURRENTLY USED BY A WIDE VARIETY OF GOLF COURSES
THROUGHOUT THE WORLD.

<TABLE>
<S> <C> <C>
[Picture of Pittsburgh [Picture of Spyglass Hill [Picture of Turf Valley
Field Country Club golf course, golf course, hole #1,
Club golf course, hole hole #1, Pebble Beach, CA] Elliott City, MD]
#1,
Pittsburgh, PA] SPYGLASS HILL GOLF COURSE,
HOLE #1, PEBBLE BEACH, CA, TURF VALLEY COUNTRY CLUB
PITTSBURGH FIELD CLUB REPRODUCED BY PERMISSION OF GOLF COURSE, HOLE #1,
GOLF COURSE, HOLE #1, PEBBLE BEACH COMPANY. ELLIOTT CITY, MD
PITTSBURGH, PA
</TABLE>
<PAGE> 90

============================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

---------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................................... 3
Risk Factors.......................................... 6
Use of Proceeds....................................... 13
Price Range of Common Stock........................... 13
Capitalization........................................ 14
Dilution.............................................. 15
Dividend Policy....................................... 15
Selected Consolidated Financial and Operations Data... 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
Business.............................................. 25
Management............................................ 36
Certain Transactions.................................. 43
Principal and Selling Shareholders.................... 46
Description of Securities............................. 47
Shares Eligible for Future Sale....................... 49
Underwriting.......................................... 51
Experts............................................... 52
Legal Matters......................................... 53
Available Information................................. 53
Index to Financial Statements......................... F-1
</TABLE>

============================================================
======================================================

4,105,833 SHARES

LOGO

COMMON STOCK
------------------------

PROSPECTUS
------------------------
CIBC OPPENHEIMER
CRUTTENDEN ROTH
INCORPORATED
, 1997

======================================================
<PAGE> 91

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 21-20,103 through 21-20,111 of the Nebraska Business Corporation
Act provide, in summary, that the directors and officers of the Company may,
under certain circumstances, be indemnified by the Company against all liability
expenses incurred by or imposed upon them as a result of actions, suits or
proceedings brought against them as such directors and officers, or as directors
or officers of any other organization at the request of the Company, if they act
in good faith and in a manner they reasonably believe to be in or not opposed to
the best interests of the Company, and with respect to any criminal action or
proceeding, have no reasonable cause to believe their conduct was unlawful,
except that no indemnification shall be made against expenses in respect of any
claim, issue or matter as to which they shall have been adjudged to be liable to
the Company unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, they are fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper. Sections 21-20,104 and 21-20,108(a) of the Nebraska Business
Corporation Act also provide that directors and officers of the Company are
entitled to such indemnification by the Company to the extent that such persons
are successful on the merits or otherwise in defending any such action, suit or
proceeding to which he or she is a party because of he or she is a director of
officer of the Company.

Pursuant to the terms of the Underwriting Agreement filed as Exhibit 1.1
hereto, the directors and officers of the Company are indemnified against
certain civil liabilities that they may incur under the Securities Act of 1933,
as amended, in connection with this Registration Statement and the related
Prospectus.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth all expenses other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered. All of the amounts shown are estimates,
except for the Securities and Exchange Commission registration fee and the NASD
filing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 8,407
NASD filing fee................................................ 3,273
Nasdaq National Market listing fee............................. 17,500
Legal fees and expenses........................................ 200,000
Accounting fees and expenses................................... 100,000
Printing and engraving expenses................................ 110,000
Blue Sky fees and expenses..................................... 5,000
Transfer agent and registrar fees.............................. 5,000
Miscellaneous.................................................. 50,820
--------
TOTAL................................................ $500,000
========
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Since October 30, 1994, the Company has issued and sold the following
unregistered securities:

1. During the period from December 1994 to February 1995, Mr. Adams
converted $1,200,000 of subordinated notes and shareholder advances into
400,000 shares of Common Stock.

2. In March 1995, Mr. Adams, Mr. Gloff and Heartland Capital, in
conjunction with a credit facility the Company obtained from Imperial Bank,
used collateral they had pledged against the Company's bank loan at
Peninsula Bank to repay the outstanding indebtedness under this credit
line, and in turn the Company issued $750,000 of unsecured subordinated
debentures to Mr. Adams, Mr. Gloff

II-1
<PAGE> 92

and Heartland Capital. These debentures bear interest at the rate of 8%
annually and had an original term of two years, which term was extended on
March 15, 1996 so that the term would expire in March 1998. In connection
with the issuance of the debenturers, the Company issued warrants to
purchase up to 250,000 shares of Common Stock at $3.00 per share.

3. In March and April 1995, the Company secured $400,000 of bridge
loan financing from certain shareholders. Investors in the bridge loan
financing also received warrants to purchase an aggregate of 60,000 shares
of Common Stock, exercisable at $3.00 per share.

4. In July 1995 and in connection with the entering into of a
consulting/licensing agreement, the Company granted to Encore a fully
exercisable warrant to purchase 50,000 shares of Common Stock at $3.00 per
share, which expired in June 2002. In May 1997, Encore surrendered the
warrant and the Company granted to each of Encore and Guy W. Miller
warrants to purchase 25,000 shares of Common Stock at $3.00 per share,
which expire in June 2002. In July 1997, Encore exercised its right to
purchase 12,500 shares of Common Stock at $3.00 per share under the
warrant, surrendered the warrant and received a new warrant from the
Company to purchase 12,500 shares of Common Stock at $3.00 per share, which
expires in June 2002.

5. During the period from August 1995 to December 1995, the Company
sold 720,666 shares of Common Stock at $3.00 per share to various
accredited investors for a total consideration of $2,161,998. The Company
paid $216,199 to R.J. Steichen & Co. in connection with the Company's
initial public offering and issued warrants to R.J. Steichen & Co. to
purchase up to 53,600 shares of Common Stock at $3.00 per share.

6. On November 15, 1995, Mr. Gloff and Heartland Capital each
purchased $200,000 of collateralized subordinated debentures from the
Company. The debentures are secured by the assets of the Company but are
subordinated to any senior indebtedness of the Company. The debentures bear
interest at an 8% annual rate, payable on a quarterly basis, and the entire
principal balance is due on November 15, 1998. On May 15, 1996, Mr. Gloff
converted the entire principal balance of his $200,000 of subordinated
debentures into 100,000 shares of Common Stock.

7. On March 1, 1996, Rugged Rigger, Inc. loaned the Company $100,000.
The loan had an annual interest rate of 8%, payable monthly, and the entire
principal balance was due on March 1, 1997. In connection with this
subordinated unsecured note, warrants were issued to Mr. Potter to purchase
15,000 shares of Common Stock at an exercise price of $3.00 per share.
These warrants expire in March 1, 2001. The loan was prepaid in full with
the proceeds from the sale of the Bridge Notes and the Bridge Warrants.

8. On March 15, 1996, Mr. Adams converted $300,000 of collateral that
was pledged to secure the Company's bank loan at Peninsula Bank into cash
and used the cash to reduce the Company's $1,013,000 principal loan at
Peninsula Bank by this amount. The Company in turn issued Mr. Adams a total
of $300,000 of unsecured debentures, which bear interest at an 8% annual
rate, payable on a quarterly basis, and the entire principal amount is due
on March 15, 1998. In connection with the debentures, Mr. Adams was granted
warrants to purchase up to 100,000 shares of Common Stock at an exercise
price of $3.00 per share for a period of five years.

9. On March 15, 1996, Mr. Gloff and Heartland Capital converted
$250,000 and $200,000, respectively, of collateral that was pledged to
secure the Company's bank loan at Peninsula Bank into cash and used the
cash to reduce the Company's $1,013,000 principal loan at Peninsula Bank by
this amount. The Company in turn issued a $250,000 unsecured debenture to
Mr. Gloff and a $200,000 unsecured debenture to Heartland Capital, each
bearing interest at an 10% annual rate, payable on a quarterly basis, and
the principal amount of each note is due on March 15, 1998. In connection
with the debentures, warrants were issued to Mr. Gloff and Heartland
Capital to purchase up to 83,333 shares and 66,667 shares, respectively, of
Common Stock at an exercise price of $3.00 per share. These warrants expire
upon the earlier of seven years from the date of issuance or one year after
the closing date of the initial public offering.

II-2
<PAGE> 93

10. On March 26, 1996, the Company entered into a $1,000,000 line of
credit agreement with Imperial Bank, $500,000 of which is a revolving line
of credit that expired on April 1, 1997 and $500,000 of which is a
revolving credit line extended to finance exports based on a guarantee
extended the Company by the California Export Finance Organization
("CEFO"). The entire line of credit was personally guaranteed by Mr. Adams.
The term loan portion of the line of credit bore interest at a rate of
prime plus 2%. The CEFO portion of the credit line bears interest at prime
plus 1.5%. CEFO's obligations are in turn guaranteed by Mr. Adams. In
connection with the revolving line of credit, warrants were issued to
Imperial Bank to purchase 20,833 shares of Common Stock at an exercise
price of $3.00 per share. These warrants expire in March 2001.

11. Between March and July 1996, the Company loaned $72,000 to Rugged
Rigger, Inc. to enable it to exercise options to purchase Common Stock. The
loan bore interest at an annual rate of 5%, compounded annually, and was
payable at the earlier of two years or the sale of the underlying Common
Stock.

12. On April 1, 1996, Mr. S. Bartley Osborn loaned the Company
$100,000. The loan had an annual interest rate of 8%, payable monthly, and
the entire principal balance was due on July 1, 1996. In connection with
this note, warrants were issued to Mr. Osborn to purchase 15,000 shares of
Common Stock at an exercise price of $3.00 per share. These warrants expire
in April 2001. The loan was prepaid in full with the proceeds from the sale
of the Bridge Notes and the Bridge Warrants.

13. On May 24, 1996, the Company issued three $50,000 promissory notes
for the purpose of providing short-term financing until the proceeds of the
initial public offering were received, one from each of Mr. Adams, Mr.
Gloff and Heartland Capital. Each note was payable upon demand and bore
interest at an annual rate of 8%. Heartland Capital converted its
promissory note into 15,306 shares of Common Stock. In connection with
these promissory notes, warrants were issued to each of Messrs. Adams and
Gloff and Heartland Capital to purchase 7,500 shares of Common Stock at an
exercise price of $3.00 per share. These warrants expire in May 2001.

14. In July 1996, the Company secured $3,695,000 in bridge loan
financing through a private placement to accredited investors of the Bridge
Notes and the Bridge Warrants. The Bridge Notes and Bridge Warrants were
offered in Units, each Unit consisting of $50,000 principal amount of
Bridge Notes with Bridge Warrants to purchase 10,000 shares of Common
Stock. The Company issued 739,000 Bridge Warrants in connection with the
bridge loan financing. The Bridge Notes bore interest at 10% per annum and
were repayable, with interest, at the earlier of December 31, 1996, or 30
days after completion of the Company's initial public offering. Bridge
Notes in the aggregate principal amount of $1,900,000 were converted by
their holders into a total of 576,823 shares of common stock, and Bridge
Notes in the aggregate principal amount of $1,800,000 were repaid by the
Company. None of the Bridge Notes remain outstanding. The Bridge Warrants
may be exercised to purchase Common Stock at the earlier of the completion
of the Company's initial public offering or December 31, 1996, at 80% of
the Price to Public obtained by the Company if the Company's initial public
offering is effective on or before December 31, 1996, or at $3.00 per share
if such an offering is not effective on or before December 31, 1996. The
Company paid $225,700 to Steichen in connection with the bridge loan
financing.

15. In February 1997, the Company acquired substantially all of the
assets of Turfmakers, Inc. Part of the consideration for such assets was
the issuance of 25,000 shares of Common Stock to Robert C. Maycock, the
sole shareholder of Turfmakers, Inc. Mr. Maycock was an accredited
individual investor.

16. On June 30, 1997, the Company entered into a $5,000,000 line of
credit agreement with Imperial Bank which provides for direct advances up
to $5,000,000. The line provides for advances equal to the sum of 75% of
eligible accounts receivable plus 50% of eligible inventory. Advances
associated with the Company's eligible inventory may not exceed $2.5
million. In connection with the establishment of the line of credit, the
Company issued a warrant to Imperial Bank to purchase 40,000 shares of
Common Stock at an exercise price of $5.25 per share. The warrant expires
on June 30, 2002.

II-3
<PAGE> 94

The sales of securities above were made in reliance upon Section 4(2) and
Regulation D of the Securities Act, which provide exemptions for transactions
not involving a public offering. The purchasers of securities described above
represented that they acquired them for their own account and not with a view to
any distribution thereof to the public. The Company made inquiries of purchasers
of securities in these transactions and obtained representations from such
purchasers to establish that such issuances qualified for an exemption from the
registration requirements. The certificates evidencing the securities bear
legends stating that the shares are not to be offered, sold or transferred other
than pursuant to an effective registration statement under the Securities Act,
or an exemption from such registration requirements.

ITEM 27. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
1.1 (1) Form of Underwriting Agreement
1.2 (1) Form of Representatives' Warrant
3.1 (5) Amended and Restated Articles of Incorporation
3.2 (1) Articles of Correction to Amended and Restated Articles of Incorporation
3.3 (2) Articles of Amendment to Amended and Restated Articles of Incorporation
3.4 (5) Bylaws, as amended
4.1 (3) Form of the Common Stock Certificate
5.1 (2) Opinion of Fitzgerald, Schorr, Barmettler & Brennan, P.C.
10.1 (4) 1992 Stock Option Plan
10.2 (4) 1996 Directors' Stock Option Plan
10.3 (3) Agreement and Plan of Merger, dated as of May 31, 1996, as amended on October 28,
1996, by and among the Company, a wholly owned subsidiary of the Company and Turf
Specialty, Inc.
10.4 (3) Agreement and Plan of Merger, dated as of May 31, 1996, by and among the Company, a
wholly owned subsidiary of the Company and Turf Products, Ltd.
10.5 (4) Employment Agreement, dated May 21, 1991, as amended, November 7, 1996 between the
Company and William B. Adams
10.6 (4) Employment Agreement, dated January 1, 1994, as amended, November 7, 1996 between
the Company and Douglas M. Gloff
10.7 (4) Employment Agreement, dated July 8, 1996, between the Company and Kevin P. Lyons
10.8 (4) Employment Agreement, dated July 8, 1996, between the Company and David W.
Schermerhorn
10.9 (5) Employment Agreement, dated July 10, 1996, between the Company and Walter W. Fuchs
10.10(3) Distribution Agreement, dated August 2, 1996, between the Company and Abbott
Laboratories, Chemical and Agricultural Products Division
10.11(4) Lease Agreement, dated September 1, 1996, between the Company and Arthur P. Arns
10.12(1) Security and Loan Agreement, dated June 30, 1997, between the Company and Imperial
Bank of San Diego
10.13(1) Warrant to Purchase Common Stock dated June 30, 1997 granted by the Company to
Imperial Bank
10.14(1) Option for Xanthomonas Campestris dated June 3, 1997 made by Mycogen Corporation in
favor of the Company
10.15(1) Settlement Agreement dated as of July 6, 1997 by and between the Company and Encore
Technologies, Inc.
10.16(1) Assignment of TX-1 Intellectual Property made as of July 6, 1997 by Encore
Technologies, Inc. to the Company
</TABLE>

II-4
<PAGE> 95

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.17(1) Assignment of Media Intellectual Property made as of July 6, 1997 by Encore
Technologies, Inc. to the Company
10.18(1) License and Supply Agreement dated as of July 6, 1997 by and between the Company
and Encore Technologies, Inc.
11.1 (1) Statement Regarding Computation of Per Share Earnings (Losses)
21.1 (6) List of Subsidiaries
23.1 Consent of Fitzgerald, Schorr, Barmettler & Brennan, P.C. (included in Exhibit 5.1)
23.2 (2) Consent of Ernst & Young LLP, Independent Auditors
23.3 (2) Consent of Bigelow & Company, CPA, P.C., Independent Auditors
24.1 (1) Powers of Attorney
27.1 (1) Financial Data Schedule
</TABLE>

- ---------------

(1) Previously filed.

(2) Filed herewith.

(3) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-15883) filed with the commission on November 8, 1996.

(4) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form SB-2 (File No. 333-15883) filed with the Commission on
January 13, 1997.

(5) Incorporated by reference to Amendment No. 4 to the Company's Registration
Statement on Form SB-2 (File No. 333-15883) filed with the Commission on
January 16, 1997.

(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.

ITEM 27. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(a) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(b) That (1) for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of the Registration Statement as of the time it was declared
effective; and (2) for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 96

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, State of California, on November 21, 1997.

ECO SOIL SYSTEMS, INC.

By: /s/ WILLIAM B. ADAMS
------------------------------------
William B. Adams
Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------

/s/ WILLIAM B. ADAMS Chairman and Chief Executive November 21, 1997
- --------------------------------------------- Officer (Principal executive
William B. Adams officer)
/s/ DOUGLAS M. GLOFF* President, Chief Operating November 21, 1997
- --------------------------------------------- Officer and Director
Douglas M. Gloff

/s/ L. JEAN DUNN, JR.* Chief Financial Officer and November 21, 1997
- --------------------------------------------- Secretary (Principal
L. Jean Dunn, Jr. financial and accounting
officer)

/s/ JEFFREY A. JOHNSON* President and General November 21, 1997
- --------------------------------------------- Manager of Golf Division and
Jeffrey A. Johnson Director

/s/ BRADLEY K. EDWARDS* Director November 21, 1997
- ---------------------------------------------
Bradley K. Edwards

/s/ S. BARTLEY OSBORN* Director November 21, 1997
- ---------------------------------------------
S. Bartley Osborn

/s/ WILLIAM S. POTTER* Director November 21, 1997
- ---------------------------------------------
William S. Potter

*By: /s/ WILLIAM B. ADAMS
- ---------------------------------------------
William B. Adams
Attorney-in-fact
</TABLE>

II-6
<PAGE> 97

EXHIBIT INDEX

<PAGE> 98

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
23.2 (2) Consent of Ernst & Young LLP, Independent Auditors
23.3 (2) Consent of Bigelow & Company, CPA, P.C., Independent Auditors
24.1 (1) Powers of Attorney
27.1 (1) Financial Data Schedule
</TABLE>

- ---------------

(1) Previously filed.

(2) Filed herewith.

(3) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 333-15883) filed with the commission on November 8, 1996.

(4) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form SB-2 (File No. 333-15883) filed with the Commission on
January 13, 1997.

(5) Incorporated by reference to Amendment No. 4 to the Company's Registration
Statement on Form SB-2 (File No. 333-15883) filed with the Commission on
January 16, 1997.

(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.

<PAGE> 1
EXHIBIT 3.3

ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ECO SOIL SYSTEMS, INC.

Pursuant to the provisions of the Nebraska Business Corporation Act,
Section 21-20,121, Eco Soil Systems, Inc. (the "Corporation") hereby adopts the
following Articles of Amendment to its Amended and Restated Articles of
Incorporation:

1. The name of the corporation is Eco Soil Systems, Inc.

2. The following amendment to the Amended and Restated Articles of
Incorporation was adopted by the shareholders of the Corporation and by
the directors at a joint meeting on the 13th day of November, 1996, in
the manner prescribed by the Nebraska Business Corporation Act:

That the first paragraph of Article Four and any amendments thereto
were deleted and amended and restated as follows:

A. Authorized Shares. The total number of shares of stock
which this Corporation is authorized to issue is 30,000,000
shares of a par value of one half cent ($.005) per share, of
which 25,000,000 shares shall be Common Stock and 5,000,000
shares shall be Preferred Stock. Before any of such stock is
issued, it shall be paid for in full in cash or in securities,
property or other equivalent at a price agreeable to the Board
of Directors.

3. The number of shares of the Corporation that were outstanding at the
time of the adoption of the aforesaid amendment was eleven million,
eight hundred sixty eight thousand, five hundred seventy
five (11,868,575) shares, with the same number of shares entitled to
vote.

4. Six million, two hundred ninety three thousand, eighty seven
(6,293,087) shares voted in favor of said amendment and four thousand,
one hundred (4,100) shares voted against said amendment. The number of
votes cast for the amendment by shareholders was sufficient for
approval by such shareholders.

Dated: November 17, 1997

ECO SOIL SYSTEMS, INC.

/s/ DOUGLAS M. GLOFF
---------------------------------------
Name: Douglas M. Gloff
Title: President

<PAGE> 1
EXHIBIT 5.1

November 20, 1997

Board of Directors
Eco Soil Systems, Inc.
10890 Thornmint Road, Suite 200
San Diego, California 92127

Re: Eco Soil Systems, Inc.:
Registration Statement on Form SB-2
Registration No. 333-39399

Ladies and Gentlemen:

This firm has been engaged as special counsel to Eco Soil Systems, Inc., a
Nebraska corporation (the "Company") in connection with the registration of
4,105,833 shares of the common stock of the Company, par value $.005 per share
(the "Shares"), under the Securities Act of 1933, as amended, (the "Act"), on
Form SB-2 filed with the Securities and Exchange Commission (the "Commission")
on November 4, 1997 (the "Registration Statement"). Our representation has been
limited to reviewing the corporate procedural actions in order to determine
compliance with the Business Corporation Act of Nebraska in effect upon the
date hereof.

We have examined such documents and reviewed such questions of law as we have
considered necessary and appropriate for the purposes of our opinion set forth
below. In rendering our opinion, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures
and conformity to authentic originals of all documents submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant
hereto of all natural persons and that such persons had the requisite power and
authority to execute and deliver such documentation and that the signatures
thereon are genuine. We have also assumed such proceedings will be timely
completed in the manner presently proposed and that the Shares will be issued
and sold as described in the Registration Statement.

Our opinion is limited to the laws of the State of Nebraska and we express no
opinion as to matters governed by any laws other than those of the State of
Nebraska nor to any matter not expressly addressed herein.
<PAGE> 2
Board of Directors of
Eco Soil Systems, Inc.
November 20, 1997
- -Page 2-

Based upon the foregoing, we are of the opinion that the Shares being
registered and sold by the Company have been duly authorized and, upon
issuance, delivery and payment therefor in the manner contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable.

The foregoing opinion is subject to the following qualifications and
exceptions:

A. The effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar law of general
application governing creditors' rights; and

B. General principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair
dealing, and other similar doctrines affecting enforceability of
agreements generally.

We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the hearing "Legal
Matters."

Very truly yours,

/S/ FITZGERALD, SCHORR, BARMETTLER
& BRENNAN, P.C.

<PAGE> 1
EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial and Operations Data", and "Experts" and to the use of our
reports dated March 14, 1997, with respect to the financial statements of Eco
Soil Systems, Inc., and October 3, 1996, with respect to the financial
statements of Turf Products, Ltd., in Amendment No. 1 to the Registration
Statement on Form SB-2 and related Prospectus of Eco Soil Systems, Inc. for the
registration of 4,721,708 shares of its common stock.

/s/ ERNST & YOUNG LLP
----------------------
ERNST & YOUNG LLP

San Diego, California
November 20, 1997

<PAGE> 1
EXHIBIT 23.3

CONSENT OF BIGELOW & COMPANY, CPA, P.C., INDEPENDENT AUDITORS

We consent to the reference to our firm in the caption "Experts" and to the
inclusion of our reports dated July 19, 1996 and January 23, 1997, with respect
to the financial statements on Turf Speciality, Inc., as a subsidiary of Eco
Soil Systems, Inc., which financial statements are included in Amendment No. 1
to the Registration Statement on Form SB-2 and related Prospectus of Eco Soil
Systems, Inc., for the registration of its common stock.

BIGELOW & COMPANY
Certified Public Accountants, P.C.

By:

/s/ MARIE McKAY
---------------------------
Marie C. McKay
Certified Public Accountant

Manchester, New Hampshire
November 20, 1997