CONSEP INC, S-1, 1996-09-12

CONSEP INC
S-1, 1996-09-12
MISCELLANEOUS NONDURABLE GOODS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONSEP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
OREGON 2879 93-0874480
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

213 S.W. COLUMBIA STREET
BEND, OREGON 97702
(541) 388-3688
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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VOLKER G. OAKEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONSEP, INC.
213 S.W. COLUMBIA STREET
BEND, OREGON 97702
(541) 388-3688
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

WITH COPIES TO:

<TABLE>
<S> <C>
MICHAEL W. SHACKELFORD, ESQ. BRUCE A. RICH, ESQ.
GREGORY E. STRUXNESS, ESQ. CATHERINE C. HOOD, ESQ.
ATER WYNNE HEWITT DODSON & SKERRITT, LLP REID & PRIEST LLP
222 S.W. COLUMBIA, SUITE 1800 40 WEST 57TH STREET
PORTLAND, OREGON 97201 NEW YORK, NEW YORK 10019
TELEPHONE: (503) 226-1191 TELEPHONE: (212) 603-6780
FACSIMILE: (503) 226-0079 FACSIMILE: (212) 603-2001
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the registration statement number of the earlier
effective registration statement for the same offering. / / ________.

If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
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. / /
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM
AMOUNT PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
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Common Stock, $0.01 par value................ 2,300,000 $2.84375 $6,540,625 $2,255.39
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</TABLE>

(1) Includes 300,000 shares subject to the Underwriters' over-allotment option.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the high and low prices
reported on the Nasdaq National Market on September 6, 1996.

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.
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<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 SEPTEMBER 12, 1996
PROSPECTUS

2,000,000 SHARES

[CONSEP, INC. LOGO]

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

Of the 2,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby, 1,455,563 shares are being sold by Consep, Inc.
("Consep" or the "Company") and 544,437 shares are being sold by the Selling
Shareholder. See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholder.

The Common Stock of the Company is quoted on the National Association of
Securities Dealers, Inc.'s Nasdaq National Market (the "Nasdaq National Market")
under the symbol "CSEP." On September 11, 1996, the last reported sale price of
the Common Stock as reported by the Nasdaq National Market was $2.875 per share.
See "Price Range of Common Stock and Dividend Policy."

SEE "RISK FACTORS" ON PAGES 7-11 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE 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>
<S> <C> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING
SHAREHOLDER
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Per Share....... $ $ $ $
Total........... $ $ $ $
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</TABLE>

(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. In addition, the Company has agreed to pay Value
Investing Partners, Inc., as the representative of the several Underwriters
(the "Representative"), a nonaccountable expense allowance and the Company
has agreed to sell to the Representative, for nominal consideration, a
Warrant to purchase 175,556 shares of the Common Stock at a price equal to
120% of the Price to Public. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated to be $325,000,
including the Representative's nonaccountable expense allowance.

(3) The Company has granted the Underwriters a 45-day over-allotment option to
purchase, in the aggregate, up to 300,000 additional shares on the same
terms and conditions as set forth above. If all such additional shares are
purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discount will be $ , the total
Proceeds to Company will be $ and the total Proceeds to Selling
Shareholder will be $ . See "Underwriting."

The shares of Common Stock are offered by the Underwriters subject to
delivery by the Company and the Selling Shareholder and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Value Investing Partners, Inc., 1853 Post Road East,
Westport, Connecticut, on or about October , 1996.
------------------------

VALUE INVESTING PARTNERS, INC.

The date of this Prospectus is September , 1996.
<PAGE> 3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy or information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy or information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Seven World Trade Center,
13th Floor, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such Web site is http://www.sec.gov. In addition,
reports, proxy statements and other information concerning the Company may be
inspected at the offices of the Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C., on which the Common Stock is quoted.

This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the Commission under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits and schedules for
further information with respect to the Company and the Common Stock offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each such instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules forming a part thereof
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 should also be available for inspection and copying at the
following regional officers of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
------------------------

The following registered trademarks of the Company are used in this
Prospectus: Consep, CheckMate, BioLure and Insectigone. The unregistered
trademarks of the Company, SureFire and Bite Blocker, are also used in this
Prospectus. This Prospectus also includes trademarks of companies other than
Consep.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, (i) all
information in this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised and (ii) references to the "Company" or "Consep"
shall include Consep, Inc. and each of its subsidiaries.

THE COMPANY

Consep is a diversified pest control company with an environmental focus
that provides products and services to the commercial agriculture and consumer
home, lawn and garden markets. The Company's principal proprietary products,
unlike most conventional insecticides, are non-toxic to humans and animals,
leave no harmful residues, do not contaminate soil or groundwater and do not
disrupt beneficial insect populations. In addition to manufacturing non-toxic
pest control products, the Company also owns and operates full-line agrichemical
distributors in major agricultural regions of California and in the Connecticut
River Valley.

The principal commercial agriculture products manufactured by the Company,
which are applied to certain fruit, nut, vegetable and selected row crops,
combine patented controlled release technologies with biorational pest control
agents. Biorational pest control products use naturally occurring agents and
biochemicals, such as synthetic pheromones, to control pest populations.
Synthetic pheromones, the primary biorational agents used in the principal
commercial agriculture products manufactured by the Company, are synthesized
equivalents to compounds emitted by insects as their primary means of
communication. The Company's controlled release technologies enhance the
effectiveness and duration of the synthetic pheromones by protecting them from
natural degradation and controlling their release over planned periods of time.
The synthetic pheromones emitted by these products interfere with the ability of
male insects to locate females of the same species, thereby disrupting mating
and controlling the target insect population within the application area.
Although pheromones have been studied as a means of controlling insects since
the 1960s, the Company believes that their usage was limited due to variability
in performance and the absence of cost-effective delivery systems. The Company
has developed and believes it can continue to develop products and delivery
systems which effectively address these problems.

The commercial agriculture products manufactured by the Company are
marketed through an established distribution system which includes a network of
wholly-owned distributors in North America, and independent distributors in
North and South America, Europe and Africa. The full-line agrichemical
distributors owned and operated by the Company are established dealers who
emphasize the use of environmentally oriented pest control products and
techniques as well as sell a full range of crop protection products. In addition
to selling the Company's commercial agriculture products, the Company's
agrichemical distributors also sell products produced by other manufacturers,
including biorational insect control products, conventional toxic pesticides,
fertilizers and other farm supplies. Additionally, the Company's five
distribution locations in California employ numerous pest control advisors
("PCAs") who are licensed by that state and provide consulting services to
commercial growers. The Company believes the PCAs' advice is an important part
of commercial growers' buying decisions, and therefore focuses much of its
marketing efforts on educating and training PCAs on the uses and advantages of
its products.

The Company sells seven pheromone-based mating disruption products under
its CheckMate label for use in the commercial agriculture market. Six of these
products are registered with the U.S. Environmental Protection Agency (the
"EPA"). In addition, the Company is field testing seven new CheckMate products
or formulations and plans to develop and register additional CheckMate products.
Consep also sells a line of pheromone-based insect traps and lures under its
BioLure label which are used to monitor the degree of insect infestation in a
variety of crops.

For the consumer home, lawn and garden pest control market, Consep
manufactures and distributes non-toxic pest control products that use a variety
of proprietary attractants and technologies, including the

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Company's proprietary controlled release technology, to trap or otherwise
control pests in and around the home without exposing the household to the toxic
effects of conventional pesticides. The Company's consumer products are marketed
in the U.S. under the SureFire label and in Canada under the Insectigone label.
These products are sold through a network of cooperative buying groups and
distributors who in turn resell to lawn and garden centers, hardware stores and
retail chains. The Company's consumer products are also sold directly to
retailers and through mail-order catalogs. The Company will begin distributing
for the 1997 season a line of consumer products, based on natural oils, to repel
biting insects. These insect repellent products, which are manufactured by, and
are the proprietary products of, a third party, will be marketed on an exclusive
basis in the United States, Canada and Mexico under the Company's Bite Blocker
label.

Consep has licensed its core controlled release technologies from, and has
an ongoing research and development relationship with, Bend Research, Inc.
("Bend Research"), an independent research and development firm specializing in
membrane-based controlled release and materials separations technologies. In
addition to conducting its own research and development efforts, Consep's
research and development personnel work with scientists at Bend Research to
define research projects which support the adaptation of licensed technologies
to new products and to new uses of existing products. In general, basic research
related to these projects takes place at Bend Research, and the resulting
technology is transferred to Consep for applied research, product development
and commercialization. Consep has also established joint testing and development
programs with academic, governmental and corporate entities in the United States
and in selected international markets in order to accelerate development,
registration and market acceptance of its products.

Management believes that regulatory limitations on the use, and growing
concern over the safety and effectiveness of conventional toxic insecticides
have created substantial opportunities to expand the use of the Company's
alternative biorational pest control products. The key components of the
Company's strategy include (i) continuing to develop proprietary biorational
pest control products and acquiring complementary product lines, technologies or
businesses; (ii) focusing on selected high-value crops where growers are
generally more concerned with reducing toxic residues and where regulatory costs
of using toxic chemicals are high; (iii) utilizing Company-owned distributors
and their PCA employees to educate commercial growers on the advantages of its
products; (iv) expanding the Company's international sales effort to support the
introduction of its products through established distributors in key
international markets; and, (v) expanding the Company's presence and
distribution channels in the consumer market.

The Company was incorporated in Oregon in 1984. The Company's principal
executive offices are located at 213 S.W. Columbia Street, Bend, Oregon 97702,
and its telephone number is (541) 388-3688.

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RISK FACTORS

Prospective investors should carefully consider the information set forth
herein under the heading "Risk Factors" which discusses, among other things, the
risks associated with: the Company's history of operating losses and uncertainty
of future profitability; seasonal and weather-related fluctuations in the
Company's operating results; market acceptance of the Company's biorational
commercial agriculture products; the highly competitive pest control industry in
which the Company operates; the product testing and introduction cycles to which
the Company's commercial agriculture products are subject; the extensive
regulatory requirements to which the Company's commercial agriculture products
are subject; and the Company's reliance on proprietary rights.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company.................... 1,455,563 shares
Common Stock Offered by the Selling Shareholder........ 544,437 shares
Common Stock to be outstanding after the Offering...... 9,117,837 shares(1)
Use of Proceeds........................................ For working capital, research and
development, capital equipment, new
product introductions, marketing and
other general corporate purposes. In
addition, a portion of the proceeds
may be used for acquisitions related
to the Company's business.
Nasdaq National Market Symbol.......................... CSEP
</TABLE>

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(1) Based on the number of shares outstanding as of August 31, 1996. Excludes
(i) 391,803 shares of Common Stock issuable upon the exercise of options and
warrants outstanding on August 31, 1996, (ii) a maximum of 171,670
contingently issuable shares of Common Stock pursuant to an Agreement and
Plan of Merger entered into in February 1995, (iii) up to 300,000 shares of
Common Stock issuable upon exercise of the Underwriters' over-allotment
option, and (iv) 175,556 shares of Common Stock issuable upon exercise of
warrants to be issued to the Representative. See "Capitalization,"
"Description of Capital Stock" and "Underwriting."
------------------------

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, 1996
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ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........................... $ 678 $ 4,286
Working capital............................................................. 8,896 12,505
Total assets................................................................ 25,938 29,546
Long-term debt, excluding current maturities................................ 1,254 1,254
Total shareholders' equity.................................................. 15,311 18,919
</TABLE>

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(1) Research and development and selling, general and administrative expenses
are allocated to the Company's proprietary product operations.

(2) Distribution expenses consist entirely of selling, general and
administrative expenses of the Company's distribution operations.

(3) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income and pro forma net loss per common and
common equivalent share and weighted average and pro forma weighted average
number of common and common equivalent shares outstanding.

(4) Adjusted to give effect to the sale of the 1,455,563 shares of Common Stock
offered by the Company hereby. See "Use of Proceeds" and "Capitalization."

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RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Investors in the Common Stock should carefully consider the
following risk factors as well as all the other information appearing in this
Prospectus.

HISTORY OF OPERATING LOSSES AND UNCERTAINTY OF FUTURE PROFITABILITY. The
Company has incurred annual operating losses since its inception in 1984. The
Company's recent annual losses resulted in part from the strategic decision made
in 1991 to focus on market expansion of proprietary products. In connection with
this decision, the Company's expense levels, particularly for product
development and marketing, increased significantly through 1994. During November
1994, the Company restructured its operations in an effort to reduce the growth
rate of certain of its operating expenses. While the results of this
restructuring, together with continued revenue growth, contributed to the first
two quarters of 1995 being the Company's first-ever profitable quarters, the
Company incurred an operating loss for the full 1995 year due to the seasonality
of its revenues. While revenues from the sale of the Company's proprietary
products have continued to increase and contributed to the first two quarters of
1996 being profitable, the Company expects to incur an annual operating loss for
the full 1996 year due to the seasonality of its revenues. Losses may continue
beyond 1996 and there can be no assurance that the Company will become
profitable on an annual basis or achieve sustainable profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SEASONAL AND WEATHER-RELATED FLUCTUATIONS IN OPERATING RESULTS. The
Company's business is seasonal, with its highest revenues historically being
recognized in the second quarter of each year and its lowest revenues being
recognized in the fourth quarter of each year. This seasonality coincides with
the commercial agriculture growing season in the Northern Hemisphere and, to a
lesser extent, the consumer home, lawn and garden buying season. The Company
anticipates this profile will continue with a slight shift to third and fourth
quarter revenues as sales to international markets increase. In contrast to
revenues, many of the Company's operating expenses are largely independent of
the quarterly selling cycles. As a result, operating expenses will generally
represent a higher percentage of revenues in the third and fourth quarters as
compared to the first two quarters of the year and the Company may experience a
loss in the third and fourth quarters of an otherwise profitable year. In
addition, many of the Company's products, and the products sold by its
wholly-owned distributors, are dependent upon the emergence of certain pests in
the crops they are designed to protect. To the extent adverse weather conditions
prevent or otherwise interfere with the growth of certain crops or the emergence
of certain pests, the results of the Company's operations could be adversely
impacted. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

MARKET ACCEPTANCE OF BIORATIONAL COMMERCIAL AGRICULTURE PRODUCTS. The
Company's future success will depend in part upon continued market acceptance of
its biorational commercial agriculture products. The Company's objective is to
establish a significant presence in selected markets now dominated by
conventional toxic insecticides. Biorational insect control products, including
the Company's products, can require insect control practices, such as timing and
method of application, which are different from those typically associated with
toxic chemical products. The rate at which growers adopt new insect control
practices will directly affect the market acceptance of the Company's
biorational insect control products. Historically, biorational products have
been characterized by variability in performance, ineffective and unreliable
delivery systems, and limited shelf life. Although the Company has developed and
believes it can continue to develop products and delivery systems which
effectively address these problems and which provide cost competitive insect
control solutions, there can be no assurance that such products will continue to
achieve market acceptance. Failure to continue to achieve market acceptance of
the Company's commercial agriculture products would leave the Company dependent
upon revenues from its proprietary consumer products and its lower-margin
distribution business. See "Business -- Competition."

COMPETITIVE INDUSTRY. The pest control industry is highly competitive and
is dominated by multinational chemical companies that have financial, technical
and marketing resources substantially greater than those of the Company. Many of
these companies are seeking to develop both less environmentally harmful toxic

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pesticides and biorational products. In addition to the large chemical
companies, the Company also competes with a number of companies engaged in the
development and marketing of biorational pest control products and pest
resistant crops. The Company expects competition within the biorational pest
control segment to intensify as regulatory pressures on conventional toxic
pesticides increase and as advances in the biorational field are made and become
more widely known. There can be no assurance that the Company will be able to
compete successfully against its current competitors or that these competitors
or new market entrants will not develop products that compete directly with the
Company's products and are more effective, less expensive or more widely
accepted than those of the Company. See "Business -- Competition."

PRODUCT TESTING AND INTRODUCTION CYCLES. Field testing, regulatory
approval and commercial introduction of the Company's commercial agriculture
products must occur at certain times before and during the growing season.
Unusual weather conditions during field tests may require additional field
testing requirements in subsequent growing seasons, resulting in delays in
product registration submissions and approvals. In addition, failure to receive
regulatory approval prior to the growing season could delay market introduction
of a new product by up to a year. Significant delays in new product development
or commercialization would have a material adverse effect on the Company's
results of operations. See "Business -- Research and Development" and
"-- Government Regulation and Product Registration."

GOVERNMENT REGULATION. The Company's commercial agriculture products are
subject to testing and approval by the EPA and similar regulatory authorities in
certain states and other countries. The process of obtaining required regulatory
approvals can be time-consuming and costly, and there can be no assurance that
such approvals will be granted on a timely basis. Additionally, while the EPA
has in place a registration procedure for biorational insect control products
that is streamlined in comparison to registration procedures for toxic chemical
insecticides, there can be no assurance that additional requirements will not be
added by the EPA which could make the procedures more time-consuming and costly
or require further testing and review of previously registered products. See
"Business -- Government Regulation and Product Registration."

RELIANCE UPON PROPRIETARY RIGHTS. The Company's success will depend in
part on its ability to obtain and maintain protection for patents and other
proprietary rights to the controlled release technologies used in the Company's
principal products. To that end, the Company has acquired licenses from Bend
Research under certain patents and, where appropriate, intends to seek patents
on its own inventions. The process of seeking patent protection can be expensive
and time-consuming, and there can be no assurance that patents will issue from
any applications filed by the Company or Bend Research. There can also be no
assurance that existing patents issued or licensed to the Company or future
patents issued or licensed to the Company will be of sufficient scope or
strength to provide meaningful protection for the Company's technologies.
Moreover, notwithstanding the scope of the patent protection available to the
Company, there can be no assurance that such patent rights will provide a
commercial advantage to the Company as competitors could develop controlled
release technologies which are not covered by the Company's issued or licensed
patents or future patents issued or licensed to the Company. No claims or
litigation against the Company asserting infringement of any third party
proprietary rights are currently threatened or pending. No assurance can be
given that claims or litigation asserting infringement of third party
proprietary rights will not be initiated in the future seeking damages or an
injunction against the sale of the Company's products, that the Company would
prevail in any such litigation or that the Company would be able to obtain any
necessary licenses on reasonable terms or at all. Any such litigation could be
protracted and costly and could have a material adverse effect on the Company's
business, financial condition and results of operations regardless of its
outcome. See "Business -- Proprietary Rights."

DEVELOPMENT OF NEW PRODUCTS; DEPENDENCE ON BEND RESEARCH. The Company's
future success and growth will depend in large part upon its ability to improve
existing products and to develop and obtain regulatory approval for new
products. The Company has licensed its core controlled release technologies
from, and has an ongoing research and development relationship with, Bend
Research. This arrangement allows Consep to participate in jointly funded
efforts to develop both additional controlled release technologies and new
applications for existing technologies. If the Company were to lose the services
of Bend Research for any reason, the Company may experience delays in the
development and introduction of new products and would be required to make
alternative arrangements for the services performed by Bend Research. Any such

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alternative arrangements could delay development efforts, could substantially
increase the cost of the Company's research and development efforts and could
adversely affect the Company's results of operations. See
"Business -- Technology," "-- Research and Development" and "Certain
Transactions and Relationships -- Relationship with Bend Research."

DEPENDENCE UPON KEY PERSONNEL. The Company is dependent upon the efforts
of its executive officers and scientific staff. The loss of certain of these key
employees could materially and adversely affect the Company's business. The
Company does not have employment agreements with any of its employees. The
Company's success will depend on its ability to retain key employees and, if any
depart, to replace them with personnel of comparable scientific and management
capability. See "Management."

PRODUCT LIABILITY. Product liability claims may be asserted with respect
to the Company's proprietary products or with respect to conventional toxic
pesticides and fertilizers produced by other manufacturers and sold by the
Company's distribution subsidiaries. The Company recently received its
first-ever product liability claim with respect to one of its proprietary
products. Although the Company does not expect this claim to result in any
material liability, there can be no assurance that the Company will not
experience product liability claims with respect to its proprietary products in
the future or that such claims will not result in material liability to the
Company. The Company's distribution subsidiaries, from time to time, have been
party to certain product liability lawsuits related to products manufactured by
third parties and/or the manner in which those products have been applied. While
the Company and its subsidiaries maintain product and professional liability
insurance against claims of this nature and have not experienced any material
liability as a result of such claims, there can be no assurance that such
insurance coverage will be adequate for future claims, if any, or that such
coverage will continue to be available on acceptable terms. The Company's
financial condition and results of operations may be adversely affected by
successful product liability claims in excess of or outside its insurance
coverage.

NEED FOR ADDITIONAL CAPITAL. The Company presently expects that the net
proceeds of this offering, together with existing working capital, anticipated
cash flows from operations, and funds available from its existing bank line of
credit will be sufficient to meet its capital and liquidity needs through at
least 1997. However, the Company's capital needs may increase depending upon
several factors, including future acquisitions, changes to planned research and
development activities, expanded manufacturing and commercialization programs,
additional technological, regulatory and competitive developments and the timing
of regulatory approvals for new products. As a result, the Company may need to
raise additional funds. There can be no assurance that additional financing
would be available and, if available, that the terms would be acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

DEPENDENCE UPON SUPPLIERS. The Company has historically relied upon a
limited number of suppliers to provide pheromones for its products. During
February 1995, the Company acquired Farchan Laboratories, Inc. ("Farchan"), a
Florida-based specialty chemicals manufacturer, in order to reduce the cost of
certain pheromones, provide assurance of consistent quality, and provide a
stable supply of these materials. The interruption of certain sources of supply
or the failure of suppliers, including Farchan, to adapt their products to the
Company's changing technological requirements could result in delays in product
shipments, adversely affecting the Company's financial condition and results of
operations. See "Business -- Manufacturing."

RISK OF SALES DECREASES DUE TO SECONDARY PEST INFESTATIONS. From time to
time, secondary pest infestations may occur within specific crops or geographic
markets causing affected growers to alter their customary pest control
practices. Such events may cause growers to temporarily increase their use of
conventional toxic insecticides and reduce or suspend the use of biorational
products, such as those sold by the Company, which could have a material adverse
effect on the Company's results of operations.

CONCENTRATION OF OWNERSHIP. Following this offering, the officers,
directors and principal shareholders of the Company will beneficially own
approximately 15.8% of the outstanding Common Stock (approximately 15.3% if the
Underwriters' over-allotment option is exercised in full). Accordingly, these
shareholders will have the ability to exert considerable influence over the
election of the Company's directors and most other corporate actions. This
concentration may also have the effect of delaying or preventing a change in
control of

9
<PAGE> 11

the Company. The Board of Directors serves as the nominating committee for new
directors. Inasmuch as the Company does not have cumulative voting in the
election of directors, shareholders with a minority interest are not assured of
the ability to elect a representative to the Board of Directors. See "Principal
and Selling Shareholders" and "Description of Capital Stock."

DILUTION. Investors participating in this offering will incur immediate
substantial dilution in the net tangible book value of their shares of Common
Stock in the amount of $1.23 per share. Additional dilution will occur upon the
exercise of certain outstanding stock options, or upon the issuance of a maximum
of 171,670 contingently issuable shares of Common Stock pursuant to an Agreement
and Plan of Merger entered into in February 1995. See "Dilution."

ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Third
Restated Articles of Incorporation ("Restated Articles"), Second Restated Bylaws
("Restated Bylaws") and the Oregon Business Corporation Act (the "OBCA") have
the effect of making it more difficult for a third party to acquire, or
discouraging a third party from attempting to acquire, control of the Company
through either a tender offer or a proxy contest for the election of directors.
For example, the Company is subject to the Oregon Control Share Act (OBCA
sec.sec. 60.801-60.816) (the "Control Share Act") and to the Oregon Business
Combination Act (OBCA sec.sec. 60.825-60.845) (the "Business Combination Act").
The Control Share Act limits the ability of parties who acquire more than 20% of
the voting power of a company from voting such shares in certain circumstances.
The Business Combination Act generally provides that in the event a person or
entity acquires 15% or more of the voting stock of an Oregon corporation (an
"Interested Shareholder"), the corporation and the Interested Shareholder, or
any affiliated entity, may not engage in certain business combination
transactions for a period of three years following the date the person became an
Interested Shareholder. The Control Share Act and the Business Combination Act
have the effect of encouraging any potential acquiror to negotiate with the
Company's Board of Directors and also discourage certain potential acquirors
unwilling to comply with their provisions. In addition, the Company's Restated
Articles and Restated Bylaws contain provisions which (i) classify the Board of
Directors into three classes, with one class being elected each year, (ii)
provide that directors may be removed by shareholders only for cause and only
upon the vote of 75% of the votes then entitled to be cast for the election of
directors and (iii) permit the Board to establish the rights, preferences and
privileges of, and to issue, Preferred Stock without shareholders' approval. The
foregoing provisions may have the effect of lengthening the time required for a
person to acquire control of the Company through a proxy contest or the election
of a majority of the Board of Directors and may deter efforts to obtain control
of the Company. See "Description of Capital Stock -- Common Stock" and
"-- Oregon Control Share and Business Combination Statutes; Certain Provisions
of Restated Articles."

INEXPERIENCED REPRESENTATIVE. This is the first public offering for which
Value Investing Partners, Inc. is acting as the sole Representative of the
Underwriters. Since its formation in January 1992, the Representative has been
involved in, among other things, securities placements, making inter-dealer
markets, research activities and participating as co-manager and a selling group
member in corporate securities offerings and investment banking services. There
can be no assurance that the Representative's limited experience as an
underwriter of public offerings will not adversely affect the proposed public
offering of the Common Stock.

VOLATILITY OF STOCK PRICE. The Company's Common Stock has experienced
substantial price volatility as a result of a number of factors, including
quarter to quarter variations in the actual or anticipated financial results of
the Company, announcements by the Company, its competitors or its customers, and
developments in the industry. In addition, the stock market has experienced
extreme price and volume fluctuations which have affected the market price of
the common stock of other biorational pest control companies in particular and
which have at times been unrelated to operating performance of the specific
companies whose stock is traded. Broad market fluctuations, as well as economic
conditions generally, may adversely affect the market price of the Company's
Common Stock. See "Price Range of Common Stock and Dividend Policy."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Upon completion of
this offering, the Company will have outstanding 9,117,837 shares of Common
Stock, assuming no exercise of options or warrants after August 31, 1996. Of
these shares, the 2,000,000 shares offered hereby (2,300,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration

10
<PAGE> 12

under the Securities Act of 1933, as amended (the "Securities Act"), unless
purchased by "affiliates" of the Company as that term is defined in Rule 144
under the Securities Act ("Rule 144") described below. Approximately 2,232,234
shares of the remaining 7,117,837 shares of Common Stock outstanding upon
completion of this offering are either (i) "restricted securities" as that term
is defined in Rule 144, or (ii) held by "affiliates" within the meaning of Rule
144. Of these, approximately 2,060,563 shares may be sold subject to the volume
and manner of sales restrictions of Rule 144 and the remaining 171,671 shares
may not be sold pursuant to Rule 144 prior to the expiration of two years from
the date of their original issuance. In addition, pursuant to Lock-Up
Agreements, the Company, certain shareholders and holders of outstanding options
and warrants, including all of the Company officers and directors, owning upon
completion of this offering, in the aggregate, approximately 2,152,489 shares of
Common Stock and holding vested options and warrants for, in the aggregate,
approximately an additional 179,189 shares of Common Stock, have agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, grant of any option to purchase or other sale
or disposition) of any shares of Common Stock (including "restricted
securities") or any securities convertible into or exercisable or exchangeable
therefor, for a period of 90 days after the date of this Prospectus without the
prior written consent of Value Investing Partners, Inc., on behalf of the
Underwriters. The Company has filed five Registration Statements on Form S-8
covering an aggregate of approximately 620,000 shares of Common Stock (including
111,003 shares subject to outstanding vested stock options as of August 31,
1996) that have been reserved for issuance under its stock option and stock
purchase plans, thus permitting the resale of such shares in the public market
without restriction under the Securities Act. In addition, 280,800 additional
shares of Common Stock subject to outstanding warrants and vested stock options
as of August 31, 1996 could also be sold, subject in some cases to compliance
with the volume limitations of Rule 144 described above. Beginning 180 days from
the effective date of this offering, the holders of an aggregate of
approximately 2,659,395 shares of Common Stock (including shares purchasable
upon exercise of outstanding warrants) or their transferees are entitled to
certain rights with respect to the registration of such shares under the
Securities Act. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market prices and impair the
Company's ability to raise capital through the sale of equity securities. See
"Shares Eligible for Future Sale" and "Description of Capital Stock --
Registration Rights."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,455,563 shares of
Common Stock offered by the Company hereby are estimated to be $3,608,659 (after
deduction of the underwriting discount and estimated offering expenses payable
by the Company). The principal purpose of this offering is to fund the Company's
operations. Although the Company intends to use the net proceeds for working
capital, research and development, capital equipment, new product introductions,
marketing and other general corporate purposes, the Company currently has no
specific plans for the net proceeds of this offering.

The Company's growth strategy includes the continued acquisition of
agrichemical distributors and complementary proprietary product lines,
technologies or businesses. Consistent with this strategy the Company has, over
the past seven years, acquired eight business entities including four commercial
agrichemical distributors, three complementary consumer product companies and a
specialty chemical manufacturer which supplies the Company with certain
pheromones. In the normal course of business, the Company from time to time
engages in discussions with other companies regarding strategic relationships
and possible acquisitions. A portion of the proceeds from this offering may be
used to fund collaborative arrangements or to acquire additional agrichemical
distributors or complementary product lines, technologies or businesses. In
addition, any such acquisition could be funded in whole or in part by the
issuance of Company stock, which would have the effect of diluting the
percentage ownership of the Company's shareholders. See "Dilution." The Company
does not currently have any agreements or understandings with any party with
respect to any strategic relationships or acquisitions.

Pending the above uses, the Company intends to reduce advances under bank
revolving lines of credit and/or invest the net proceeds from this offering in
investment grade, interest-bearing securities. The Company will not receive any
proceeds from the sale of 544,437 shares of Common Stock by the Selling
Shareholder.

11
<PAGE> 13

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "CSEP." The following table sets forth, for the periods indicated,
the high and low closing sales prices for the Common Stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter (beginning February 9, 1994)....................... $6.250 $4.906
Second Quarter................................................... 5.500 3.750
Third Quarter.................................................... 4.500 2.750
Fourth Quarter................................................... 3.625 2.125
1995
First Quarter.................................................... 3.000 2.125
Second Quarter................................................... 4.125 2.125
Third Quarter.................................................... 4.375 3.000
Fourth Quarter................................................... 3.375 2.375
1996
First Quarter.................................................... 3.750 2.625
Second Quarter................................................... 5.125 3.375
Third Quarter (through September 11, 1996)....................... 4.000 2.625
</TABLE>

On September 11, 1996, the last reported sale price for the Common Stock as
reported by the Nasdaq National Market was $2.875 per share. As of August 31,
1996, there were approximately 169 record holders of the Common Stock and an
estimated additional 1,200 shareholders who held beneficial interests in shares
of Common Stock registered in nominee names of banks and brokerage houses.

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any earnings for future growth
and, therefore, does not anticipate declaring or paying any cash dividends in
the foreseeable future.

12
<PAGE> 14

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 and as adjusted to give effect to the sale by the Company of the
1,455,563 shares of Common Stock in this offering:

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, excluding current maturities.......................... $ 1,254 $ 1,254
-------- --------
Shareholders' equity:
Preferred Stock, par value $0.01 per share, 3,000,000 shares
authorized, none issued and outstanding.......................... -- --
Nonvoting Common Stock, par value $0.01 per share, 657,601 shares
authorized, none issued and outstanding.......................... -- --
Common Stock, par value $0.01 per share, 15,000,000 shares
authorized, 7,652,032 and 9,107,595 shares issued and outstanding
on an actual and as adjusted basis, respectively(1).............. 77 91
Additional paid-in capital.......................................... 39,635 43,229
Accumulated deficit................................................. (24,412) (24,412)
Foreign currency translation adjustment............................. 11 11
-------- --------
Total shareholders' equity.................................. 15,311 18,919
-------- --------
Total capitalization.................................................. $ 16,565 $ 20,173
======== ========
</TABLE>

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

(1) Excludes (i) 301,230 shares of Common Stock issuable upon the exercise of
stock options outstanding as of June 30, 1996 at a weighted average exercise
price of $2.14, (ii) 89,493 shares of Common Stock issuable upon the
exercise of warrants outstanding as of June 30, 1996 at a weighted average
exercise price of $6.42, (iii) a maximum of 171,670 contingently issuable
shares of the Company's Common Stock pursuant to an Agreement and Plan of
Merger entered into in February 1995, (iv) 300,000 shares of Common Stock
issuable upon exercise of the Underwriter's over-allotment option, and (v)
175,556 shares of Common Stock issuable upon exercise of warrants to be
issued to the Representative. See "Capitalization," "Description of Capital
Stock" and "Underwriting."

13
<PAGE> 15

DILUTION

As of June 30, 1996, the Company had a net tangible book value of
$11,436,755 or $1.49 per share of Common Stock. "Net tangible book value" per
share represents the amount of total tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 1,455,563 shares of Common Stock offered by the
Company in this offering and the Company's receipt of the net proceeds
therefrom, the net tangible book value of the Company at June 30, 1996, would
have been $15,045,414 or $1.65 per share of Common Stock. This represents an
immediate increase in net tangible book value of $0.16 per share to existing
shareholders and an immediate dilution of net tangible book value of $1.23 per
share to the new investors purchasing shares of Common Stock in this offering.
The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Public offering price per share...................................... $2.88
Net tangible book value per share before the offering.............. $1.49
Increase per share attributable to the new investors............... 0.16
------
Pro forma net tangible book value per share after the offering....... 1.65
------
Dilution per share to the new investors.............................. $1.23
======
</TABLE>

The following table sets forth on a pro forma basis as of June 30, 1996,
the difference between existing shareholders and the new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)....... 7,652,032 84.0% $42,931,619 91.1% $5.61
New investors(1)............... 1,455,563 16.0 4,184,744 8.9 2.88
--------- ----- -------- -----
Total................ 9,107,595 100.0% $47,116,363 100.0%
========= ===== ======== =====
</TABLE>

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

(1) Sales by the Selling Shareholder in this offering will reduce the number of
shares held by existing shareholders to 7,107,595 or 78.0% of the
outstanding Common Stock (75.6% if the Underwriters' over-allotment option
is exercised in full), and will increase the number of shares purchased by
new investors to 2,000,000 shares or 22.0% of the outstanding Common Stock
(24.4% if the Underwriters' over-allotment option is exercised in full).

The foregoing computations assume (i) no exercise of options or warrants
outstanding as of June 30, 1996, and (ii) no issuance of a maximum of 171,670
contingently issuable shares of the Company's Common Stock pursuant to an
Agreement and Plan of Merger entered into in February 1995. See footnote (1)
under "Capitalization." To the extent these contingently issuable shares are
issued, there will be further dilution to the new investors. In addition, to the
extent certain outstanding options are exercised, there could be further
dilution to the new investors. As of June 30, 1996, 492,626 outstanding stock
options and all outstanding warrants, if exercised, would not have a dilutive
effect on new investors as the corresponding exercise prices of such options and
warrants exceed the pro forma net tangible book value per share after the
offering as presented in the foregoing table illustrating per share dilution.

14
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data presented below as of December 31, 1995 and
1994, and for each of the years in the three-year period ended December 31, 1995
are derived from the consolidated financial statements of the Company which are
included elsewhere in this Prospectus and which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, whose report thereon also
is included herein. The statement of operations data for the years ended
December 31, 1992 and 1991 and the balance sheet data as of December 31, 1993,
1992 and 1991 are derived from audited consolidated financial statements not
included herein. The selected financial data as of and for the six months ended
June 30, 1996 and 1995 have been derived from unaudited consolidated financial
statements of the Company. In the opinion of the Company's management, the
unaudited consolidated financial statements reflect all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the results of
operations for the periods then ended and the financial position of the Company
as of such dates. Operating results for the six months ended June 30, 1996 are
not necessarily indicative of the results that may be achieved for the year
ending December 31, 1996. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Proprietary products................................ $ 7,298 $ 6,652 $ 9,385 $ 5,738 $ 3,827 $ 2,217 $ 2,003
Distribution........................................ 13,595 12,432 21,459 19,382 17,447 15,613 14,513
------- ------- ------- ------- ------- ------- -------
Total revenues................................ 20,893 19,084 30,844 25,120 21,274 17,830 16,516
Cost of revenues:
Proprietary products................................ 4,288 3,840 5,479 3,543 3,127 1,819 1,520
Distribution........................................ 10,908 10,164 17,615 16,273 14,401 12,871 12,160
------- ------- ------- ------- ------- ------- -------
Total cost of revenues........................ 15,196 14,004 23,094 19,816 17,528 14,690 13,680
Gross margin:
Proprietary products................................ 3,010 2,812 3,906 2,195 700 398 483
Distribution........................................ 2,687 2,268 3,844 3,109 3,046 2,742 2,353
------- ------- ------- ------- ------- ------- -------
Total gross margin............................ 5,697 5,080 7,750 5,304 3,746 3,140 2,836
Operating expenses:
Research and development(1)......................... 638 504 1,059 1,726 1,085 1,148 477
Selling, general and administrative(1).............. 2,844 2,366 4,632 4,912 3,722 2,413 1,637
Distribution(2)..................................... 1,658 1,731 3,365 3,632 3,044 2,757 2,731
Restructure costs................................... -- -- -- 866 -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses...................... 5,140 4,601 9,056 11,136 7,851 6,318 4,845
------- ------- ------- ------- ------- ------- -------
Operating income (loss)....................... 557 479 (1,306) (5,832) (4,105) (3,178) (2,009)
Other income (expense), net........................... (97) (44) 20 (18) (21) (79) (340)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............................. $ 460 $ 435 $(1,286) $(5,850) $(4,126) $(3,257) $(2,349)
======= ======= ======= ======= ======= ======= =======
Pro forma net loss per common and common equivalent
share(3)............................................ $ (0.97) $ (1.01)
======= =======
Pro forma weighted average number of common and common
equivalent shares outstanding....................... 6,002 4,096
======= =======
Net loss per common and common equivalent share(3).... $ (0.19)
=======
Net income per common and common equivalent
share(3)............................................ $ 0.06 $ 0.07
======= =======
Weighted average number of common and common
equivalent shares outstanding(3).................... 7,824 6,627 6,762
======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------- ------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................ $ 678 $ 2,206 $ 3,405 $ 762 $ 4,947 $ 172
Working capital.................................................. 8,896 8,784 6,862 1,973 7,435 297
Total assets..................................................... 25,938 21,559 19,653 13,840 16,003 9,251
Long-term debt, excluding current maturities..................... 1,254 951 689 1,273 1,496 1,761
Total shareholders' equity....................................... 15,311 14,681 12,440 6,489 10,636 3,015
</TABLE>

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

(1) Research and development and selling, general and administrative expenses
are allocated to the Company's proprietary product operations.

(2) Distribution expenses consist entirely of selling, general and
administrative expenses of the Company's distribution operations.

15
<PAGE> 17

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

OVERVIEW

Consep derives its revenues from the sale of its proprietary products to
the commercial agriculture and consumer home, lawn and garden markets and from
sales by its distribution subsidiaries of products produced by other
manufacturers, including both biorational insect control products and
conventional toxic pesticides as well as fertilizers and farm supplies. The
Company's primary focus is the development of proprietary products and expansion
of the markets for those products. A significant element of the Company's
strategy for the commercialization of its proprietary commercial agriculture
products has been to acquire distribution operations in key agricultural regions
and to introduce its proprietary products through those operations.

Continued growth in proprietary revenues, together with stable gross
margins during the first six months of 1996, contributed to a bottom line
improvement of approximately $25,000 compared to the first six months of 1995.
The proprietary revenue growth was a result of increased sales of the Company's
consumer products and increased sales of specialty chemicals to third parties by
Farchan Laboratories, Inc. ("Farchan"), the Company's subsidiary acquired in
February 1995.

Since its inception, Consep has funded its growth primarily through equity
financings. Funds from these financings have allowed the Company to build its
organization, develop and register proprietary products for both the commercial
agriculture and consumer home, lawn and garden markets, acquire distribution
operations for the introduction of its commercial agriculture products and
expand its sales efforts through both domestic and international channels of
distribution.

The Company has incurred annual operating losses since its inception in
1984 and expects to incur an annual operating loss in 1996. Losses may continue
beyond 1996. The Company believes its future profitability is dependent upon
continued revenue growth, maintained or strengthened gross margins, and
controlled growth of operating expenses. There can be no assurance that the
Company will achieve sustainable profitability.

The Company's business is seasonal with its highest revenues historically
being recognized in the second quarter of each year and its lowest revenues
being recognized in the fourth quarter of each year. This seasonality coincides
with the commercial growing season in the Northern Hemisphere and, to a lesser
extent, the consumer home, lawn and garden buying season. The Company
anticipates this seasonal profile will continue with a slight shift to third and
fourth quarter revenues as sales to international markets increase. In contrast
to revenues, many of the Company's operating expenses are largely independent of
the quarterly selling cycles. As a result, operating expenses will generally
represent a higher percentage of revenues in the third and fourth quarters as
compared to the first two quarters and the Company may experience a loss in the
third and fourth quarters of an otherwise profitable year.

16
<PAGE> 18

RESULTS OF OPERATIONS

The following table sets forth certain consolidated statement of operations
data as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Proprietary products............................. 34.9% 34.9% 30.4% 22.8% 18.0%
Distribution..................................... 65.1 65.1 69.6 77.2 82.0
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Proprietary products............................. 20.5 20.1 17.8 14.1 14.7
Distribution..................................... 52.2 53.3 57.1 64.8 67.7
----- ----- ----- ----- -----
Total cost of revenues................... 72.7 73.4 74.9 78.9 82.4
----- ----- ----- ----- -----
Gross margin....................................... 27.3 26.6 25.1 21.1 17.6
OPERATING EXPENSES:
Research and development(1)...................... 3.1 2.6 3.4 6.9 5.1
Selling, general and administrative(1)........... 13.6 12.4 15.0 19.5 17.5
Distribution(2).................................. 7.9 9.1 10.9 14.5 14.3
Restructure costs................................ -- -- -- 3.4 --
----- ----- ----- ----- -----
Total operating expenses................. 24.6 24.1 29.3 44.3 36.9
----- ----- ----- ----- -----
Operating income (loss)............................ 2.7 2.5 (4.2) (23.2) (19.3)
Other income (expense), net........................ (0.5) (0.2) 0.0 (0.1) (0.1)
----- ----- ----- ----- -----
Net income (loss):
Proprietary products............................. (2.6) (0.3) (5.6) (20.7) (19.9)
Distribution..................................... 4.8 2.6 1.4 (2.6) 0.5
----- ----- ----- ----- -----
Total net income (loss).................. 2.2% 2.3% (4.2)% (23.3)% (19.4)%
===== ===== ===== ===== =====
</TABLE>

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

(1) Research and development and selling, general and administrative expenses
are allocated to the Company's proprietary product operations.

(2) Distribution expenses consist entirely of selling, general and
administrative expenses of the Company's distribution operations.

SIX MONTHS ENDED JUNE 30, 1996 AND 1995

Revenues. Total revenues for the six months ended June 30, 1996 increased
9.5% to approximately $20.9 million from approximately $19.1 million in the
first six months of 1995. Revenues from the sales of proprietary products
increased 9.7% to $7.3 million in the first six months of 1996 from $6.7 million
in the comparable period of 1995. Revenues from the Company's distribution
operations increased 9.4% during the first six months of 1996 to approximately
$13.6 million from approximately $12.4 million in the corresponding period of
1995.

The growth in proprietary product revenues was a combination of growth in
sales of the Company's consumer products, as well as increased sales of
specialty chemicals to third parties by the Company's Farchan subsidiary. The
acquisition of Farchan occurred during February 1995, and accordingly, results
from the six months ended June 30, 1995 included only five months of Farchan's
operations.

17
<PAGE> 19

Revenues from the sale of commercial agricultural products decreased
approximately $334,000, or 13.8%, for the six months ended June 30, 1996 as
compared to the corresponding period of 1995. The revenue decline was primarily
attributable to (i) a reduction in revenues in Mexico from the sale of the
Company's product to control Tomato Pinworm ("CheckMate TPW"), and (ii) a
reduction in revenues in California from the sale of the Company's product to
control Codling Moth ("CheckMate CM"). The Company believes the decrease in
revenues in Mexico from the sales of CheckMate TPW was due to increased
competition in Mexico and has responded by strengthening its sales organization
in that market. The Company believes the decrease in revenues in California from
the sale of CheckMate CM was due to a delay in receiving registration of a new
warm weather formulation of CheckMate CM from the State of California which
caused the Company to sell its cool weather formulation that did not perform
adequately in the hotter weather experienced in the spring of 1996. As a result,
many growers used alternatives to the Company's cool weather formulation of
CheckMate CM. Applications of the Company's new warm weather formulation of
CheckMate CM were made after registration was received and are performing as
expected.

Revenues from the sale of consumer products from the Company's SureFire
line of products in the United Sates and Insectigone products in Canada
increased by 22.1% in the six months ended June 30, 1996 compared to the same
period of 1995. This growth in consumer product revenues was generated by the
Company's continued efforts to increase the number of retail outlets through
which its products are sold while also increasing the number of products carried
by the individual retail operations.

Farchan, which was acquired in February 1995, contributed approximately
$169,000 to the growth in proprietary product revenues for the six months ended
June 30, 1996 as compared to the corresponding period in 1995.

The revenue increase of 9.4% from the Company's distribution operations
during the six months ended June 30, 1996, as compared to the corresponding
period of 1995, was primarily attributable to continued growth of the Company's
California-based subsidiaries as well as to favorable weather conditions in the
Central Valley of California, the Company's principal distribution market.

Gross Margin. The consolidated gross margin for the Company increased to
27.3% in the first six months of 1996 from 26.6% in the corresponding period of
1995. The margin improvement was primarily attributable to an increase in the
gross margins generated on distribution revenues. During the first half of 1996
the Company changed the timing for the recognition of manufacturers' rebates for
purchases of bulk chemicals to more accurately match the cost of sales of these
products with the revenue generated therefrom, by recognizing such rebates when
earned rather than when received. This change improved distribution margins by
approximately 1.3% in the first six months of 1996.

The gross margin on the sale of all proprietary products decreased to 41.2%
from 42.3%, respectively, for the six months ended June 30, 1996 and 1995. The
gross margins on agricultural proprietary product sales for the six months ended
June 30, 1996 decreased to 41.8% from 45.2% in the corresponding period in 1995.
The decrease was primarily attributable to higher than expected production and
raw material costs incurred in connection with the introduction of the Company's
new warm weather CheckMate CM formulation as well as differences in the product
sales mix. The gross margins on proprietary consumer product sales decreased
slightly to 38.6% from 39.3%, respectively, in the six months ended June 30,
1996 and 1995. Sales of specialty chemicals produced a gross margin of 55.9% in
the six months ended June 30, 1996, up from the 49.5% gross margin reported in
the same period of 1995. The variances in gross margins for consumer products
and specialty chemical sales were the result of differences in the product sales
mix within those product categories.

The gross margins from distribution revenues increased to 19.8% in the
first six months of 1996 from 18.2% in the corresponding period of 1995
primarily as a result of the timing for recognition of manufacturers' rebates as
discussed above. The Company does not anticipate this margin to continue
throughout the remainder of 1996 at the level achieved during the first half of
the year.

Research and Development. For the six months ended June 30, 1996, research
and development costs increased 26.7% from the corresponding period of 1995.
This increase was primarily attributable to increased costs associated with the
development of new, lower cost synthesis routes to be used in the production of

18
<PAGE> 20

pheromone by the Company's Farchan subsidiary, along with increased amortization
relating to technology purchased from Bend Research in 1995. In addition,
research and development costs for the first six months of 1996 include six
months of Farchan operations compared to only five months of Farchan operations
in the corresponding period of 1995.

Selling, General and Administrative. For the six months ended June 30,
1996, selling, general and administrative costs associated with the Company's
proprietary product operations increased 20.2% from the corresponding period of
1995. The principal sources of this increase were (i) 1996 results included a
full six months of Farchan operations while 1995 included only five months of
operating expense for that subsidiary acquired in February 1995; (ii) sales and
marketing costs associated with both proprietary consumer products and
commercial agriculture products increased in the first six months of 1996 due to
increased personnel, increased commissions on higher sales of consumer products
and expanded international operations for commercial agriculture products; and
(iii) additional expenses for complimentary product given to growers in
California who encountered difficulties with the CheckMate CM product described
above.

Distribution. For the six months ended June 30, 1996, operating costs
related to the Company's distribution operations decreased 4.2% from the
corresponding period of 1995. This decrease was attributable primarily to the
reduction of bad debt reserves. During the first six months of 1996, the
Company's distribution operations were able to reduce their bad debt reserves by
approximately $90,000 as a result of improved collections. The Company does not
expect the operating costs from its distribution operations to run below the
1995 level throughout the remainder of 1996.

Other Income and Expense. During the first six months of 1996, the Company
recorded net other expense of approximately $97,000 compared to approximately
$44,000 of net other expense during the corresponding period of 1995. The change
was due primarily to (i) a reversal of an accrued contingent liability which had
a positive impact on the 1995 results and (ii) reduced interest income.

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

Revenues. Total revenues increased to $30.8 million in 1995 from $25.1
million in 1994 and $21.3 million in 1993. Revenues from the Company's
proprietary products increased to $9.4 million in 1995 from $5.7 million in 1994
and $3.8 million in 1993 while revenues from distribution operations increased
to $21.5 million in 1995 to $19.4 million in 1994 and $17.4 million in 1993.

The average annual growth in proprietary product revenues of approximately
57% during 1994 and 1995 was attributable to growth in sales of the Company's
CheckMate and SureFire products, as well as to revenues from the acquisitions of
Chemfree Environment Inc. ("Chemfree"), a Canadian biorational consumer products
company, and Farchan, which occurred during April 1994 and February 1995,
respectively. Revenues from the sale of agricultural products from the Company's
CheckMate line increased $1.2 million, or 71%, in 1995 and $500,000, or 41%, in
1994. This revenue growth was attributable primarily to increased market
penetration of the Company's existing CheckMate products, certain product
enhancements and revenues from the sale of CheckMate products to control the
Peach Twig Borer ("CheckMate PTB"), a new product introduced in 1995.

In 1995, revenues from the sale of consumer products from the Company's
SureFire line increased $640,000, or 21%, from 1994 levels. Revenues from the
sale of SureFire products increased 46%, or $940,000 during 1994 as compared to
1993. The growth in SureFire product revenues was attributable to the addition
of new retail accounts, penetration into additional locations of existing retail
accounts and an increase in the number of the Company's products carried by
certain existing retail accounts.

The Company's April 1994 acquisition of Chemfree and its February 1995
acquisition of Farchan accounted for $430,000 and $1.2 million, respectively, of
proprietary product revenue growth during the year ended December 31, 1995, as
compared to the corresponding period of 1994.

Distribution revenues increased at an approximate average annual growth
rate of 11% during 1995 and 1994. The increase in distribution revenues during
1995 was largely attributable to the May 1994 acquisition of California-based
agrichemical distributor Richard Hunt, Inc., d.b.a. Sierra Ag Chemical ("Sierra
Ag").

19
<PAGE> 21

Revenues from Sierra Ag's distribution operations represented approximately
15.5% of the Company's distribution revenue during 1995 as compared to 11.0% for
1994. The distribution revenue growth in 1994 was also primarily attributable to
the Sierra Ag acquisition, together with increased wholesale sales during 1994
from existing distribution operations. Partially offsetting this revenue growth
in 1994 was a decrease in revenues of approximately $1.5 million attributable to
the Company's cessation of operations at one of its California locations. This
location was focused on fertilizer sales to the rice market in the Northern
Central Valley of California and had historically represented a significant
percentage of annual distribution revenues. The market served by this location
was incompatible with the Company's strategy of using its distribution
operations as a means of penetrating the tree fruit and vegetable markets.

Gross Margin. The consolidated gross margin for the Company increased to
25.1% in 1995 from 21.1% in 1994 and 17.6% in 1993. These increases are
primarily attributable to the increasing percentage of total revenues from
higher-margin proprietary products. During 1995, 1994 and 1993, revenues from
the Company's higher-margin proprietary products represented 30.4%, 22.8% and
18.0% of the Company's total revenues, respectively.

Proprietary gross margins improved to 41.6% in 1995 from 38.3% in 1994. The
gross margin percentage for the Company's commercial agriculture products
decreased to 43.7% in 1995 from 45.1% in 1994. This decrease in margin
percentage was largely attributable to the Company's product mix, whereby its
lower-margin CheckMate CM and PTB products represented a significantly higher
percentage of the Company's commercial agriculture product sales during 1995 as
compared to 1994. In addition, the selling price of CheckMate CM was lowered in
1995 in an effort to further penetrate the market for this product, and
CheckMate PTB, a new product in 1995, was competitively priced to broaden market
acceptance during its introductory year. The 1995 pricing for these two
CheckMate products was also established in contemplation of lower pheromone
costs in the future as a result of supply of such pheromones by Farchan.

Sales of consumer products during 1995 resulted in a corresponding gross
margin of 37.5%, which was an improvement from the 34.8% achieved in 1994. This
increase in consumer gross margin percentage is attributable primarily to 1995
including a full year of Chemfree's higher-margin consumer products.

Proprietary product margins for 1995 were also positively impacted by the
acquisition of Farchan, which achieved margins of 53.0% from the time of
acquisition through December 31, 1995. The results of 1994 did not include this
subsidiary.

Proprietary gross margins improved to 38.3% in 1994 from 18.3% in 1993. The
substantial increase in proprietary margins during 1994 as compared to 1993 was
a result of increased revenue volume, which allowed manufacturing overhead to be
spread over a broader base, subcontracting several non-technical steps in the
production process for certain consumer products, purchasing certain raw
materials from lower-cost suppliers, increasing selling prices of certain
consumer products, and the Chemfree acquisition, which added higher-margin
products to the Company's consumer product line. The gross margin increase was
achieved while prices for two of the Company's agricultural products were
lowered to be more competitive in the marketplace.

The distribution operations' margin was 17.9% for 1995, compared to 16.0%
in 1994 and 17.5% in 1993. The 1994 decline in distribution gross margins was
attributable to increased wholesale sales occurring during that year which,
although contributed to a greater sales volume, carried a lower margin than
retail sales.

Research and Development. During 1995, research and development costs
decreased $667,000, or 38.6%, from the level incurred during 1994. This decrease
is primarily attributable to a reduced research and development spending
commitment during 1995 with Bend Research, tightened control over various
product development field testing programs and the implementation of certain
cost saving measures associated with the Company's 1994 restructuring plan.
Research and development costs increased 59% from 1993 to 1994. This increase
was attributable to expanded research and development and product registration
activity during 1994 as compared to 1993. This increased research and
development and product registration activity allowed the Company to put new
products into registration and added new products to the Company's proprietary
agricultural product line for 1995. In addition, during 1994, the Company
expanded its international

20
<PAGE> 22

registration efforts and obtained various state registrations for certain new
consumer products acquired in conjunction with the acquisition of Chemfree
during the second quarter of 1994.

Selling, General and Administrative. Selling, general and administrative
costs associated with the Company's proprietary product operations decreased
5.7% from 1994 to 1995. This decrease is primarily attributable to the
implementation of cost saving measures associated with the Company's 1994
restructuring plan, partially offset by increased costs due to the acquisitions
of Chemfree and Farchan in April 1994 and February 1995, respectively. In
addition, certain accounting and administrative functions performed by the
Company's distribution operations in 1994 were relocated to corporate
headquarters in January 1995. The impact of this relocation further offset
decreases in selling, general and administrative costs resulting from the 1994
restructuring. Selling, general and administrative costs associated with the
Company's proprietary product operations increased 32% from 1993 to 1994. This
increase was attributable to higher selling costs associated with increased
product volume during 1993 and 1994, increased administrative costs, such as
legal, accounting, and investor relations, associated with being a publicly held
company, and the 1994 second quarter acquisition of Chemfree.

Distribution. Operating costs related to the Company's distribution
operations decreased 7.3% from 1994 to 1995. This decrease is attributable
primarily to the relocation of certain accounting and administrative functions
performed by the Company's distribution operations discussed above. In addition,
the results from the first half of 1994 include approximately $78,000 of
operating costs of a distribution location which is no longer an operation of
the Company, further contributing to the decreased distribution operating costs
in 1995. Partially offsetting these decreases are increased operating costs
associated with the acquisition of Sierra Ag, which occurred in May 1994. Sierra
Ag operating costs totaled 23.5% and 14.6% of total distribution operating costs
for 1995 and 1994, respectively. Operating costs related to the Company's
distribution operations increased 19.3% from 1993 to 1994. This increase was
attributable to higher selling costs associated with increased product volume
during 1994, the 1994 second quarter acquisition of Sierra Ag, and the costs
associated with the installation of a new computer system during 1994 for
certain of the Company's distribution operations.

Restructure Costs. In November 1994, the Company recorded a charge of
approximately $866,000 associated with a restructuring plan aimed at reducing
operating expenses by refocusing Company resources. This charge consisted of
approximately $203,000 in severance costs related to ten employees who held
positions which were eliminated as a result of the restructuring. In addition,
approximately $523,000 of the restructuring charge relates to the write-off of
catalog rights, certain goodwill and purchased technology. This write-off was a
result of the Company's decision to focus the marketing efforts of its consumer
products more directly towards its existing SureFire and Insectigone labels. The
catalog rights, goodwill and purchased technology which were impaired due to the
restructuring were related to product lines which will not be actively marketed
given the Company's tighter marketing focus. Additionally, approximately
$140,000 in inventory related to product lines associated with the impaired
goodwill and purchased technology was written off pursuant to the Company's
restructuring plan. At December 31, 1994, accrued liabilities included $180,000
of accrued restructure costs, all related to severance charges. These severance
liabilities were paid in 1995. In conjunction with the restructuring plan, the
Company also instituted several other cost saving measures, including 10% pay
reductions during 1995 for certain salaried employees, reduced employee benefit
costs including elimination of employer matching contributions to the Company's
401(k) plan, consolidation of certain accounting and administrative functions
for certain of its distribution operations, and reduced marketing and product
development spending. Operating expenses during 1995 were reduced by
approximately $1.5 million as a result of the restructuring.

Other Income and Expense. During 1995, the Company recorded net other
income of approximately $20,000 compared to approximately $18,000 of net other
expense during 1994. The change was due primarily to a gain realized upon the
1995 sale of a warehouse owned by one of the Company's distribution
subsidiaries, together with a charge recorded in 1994 stemming from the
anticipated settlement of a European distribution dispute. Partially offsetting
this increase, interest income was lower in 1995 as compared to 1994 due to
lower average outstanding cash balances during 1995. In addition, the Company
incurred slightly higher interest costs in 1995 due to higher outstanding
borrowings during the year. Net other expense decreased from $21,000

21
<PAGE> 23

in 1993 to $18,000 in 1994. The slight decrease in net other expense during 1994
was attributable to lower interest expense associated with decreased debt as
compared to 1993, and increased interest income associated with the investment
of proceeds received from the Company's February 1994 initial public offering.
These factors were partially offset by 1994 costs associated with the
anticipated settlement of a European distribution dispute and losses on the
disposal of certain equipment.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statement of
operations data for each of the Company's last ten quarters. This quarterly
financial data has been prepared on the same basis as the annual financial
information presented elsewhere in this Prospectus and, in management's opinion,
reflects all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of operations for each such
quarter. The operating results for any quarter are not necessarily indicative of
the results which may be expected for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
JUNE 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31, DEC. 31, SEP. 30, JUNE 30, MAR. 31,
1996 1996 1995 1995 1995 1995 1994 1994 1994 1994
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Proprietary products........ $ 3,723 $3,575 $ 1,272 $1,461 $ 3,366 $3,286 $ 520 $ 898 $2,417 $1,903
Distribution................ 7,961 5,634 2,730 6,297 7,379 5,053 2,824 4,785 6,643 5,130
------- ------ ------- ------ ------ ------ ------- ------- ------ ------
Total revenues........ 11,684 9,209 4,002 7,758 10,745 8,339 3,344 5,683 9,060 7,033
Cost of revenues.............. 8,744 6,452 2,975 6,115 8,090 5,914 2,883 4,846 6,651 5,436
------- ------ ------- ------ ------ ------ ------- ------- ------ ------
Gross margin.......... 2,940 2,757 1,027 1,643 2,655 2,425 461 837 2,409 1,597
Operating expenses(1)......... 2,749 2,391 2,183 2,272 2,377 2,224 3,315 2,579 2,897 2,345
------- ------ ------- ------ ------ ------ ------- ------- ------ ------
Operating income (loss)....... 191 366 (1,156) (629) 278 201 (2,854) (1,742) (488) (748)
Other income (expense), net... (85) (12) (6) 70 (3) (41) (58) 2 40 (2)
------- ------ ------- ------ ------ ------ ------- ------- ------ ------
Net income (loss)..... $ 106 $ 354 $(1,162) $ (559) $ 275 $ 160 $(2,912) $(1,740) $ (448) $ (750)
======= ====== ======= ====== ====== ====== ======= ======= ====== ======
</TABLE>

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

(1) Operating expenses for the three months ended December 31, 1994 include
restructure costs of $866,000.

The Company's business is seasonal, with its highest revenues being
recognized in the second quarter of each year and its lowest revenues being
recognized in the fourth quarter of each year. This seasonality coincides with
the commercial growing season in the Northern Hemisphere and, to a lesser
extent, the consumer home, lawn and garden buying season. The Company
anticipates this seasonal profile to continue with a slight shift to third and
fourth quarter revenues as sales to international markets increase.

In contrast to revenues, operating expenses tend to be largely independent
of the quarterly selling cycles. As a result, operating expenses will generally
represent a higher percentage of revenues in the third and fourth quarters as
compared to the first two quarters of the year, and the Company may experience a
loss in the third and fourth quarters of an otherwise profitable year. In
addition, as previously discussed, the Company recorded a restructuring charge
of approximately $866,000 in the fourth quarter of 1994, causing operating
expenses for this quarter to be higher than would otherwise be expected.

The consolidated quarterly results of operations presented above include
the results of Chemfree and Sierra Ag beginning with the quarter ended June 30,
1994, and Farchan beginning with the quarter ended March 31, 1995.

NEW ACCOUNTING PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock Based
Compensation." This statement defines a fair value based method of accounting
for employee stock options or similar equity instruments. However, this
statement

22
<PAGE> 24

allows an entity to continue to measure compensation costs related to such
equity instruments in accordance with the intrinsic value based method of
accounting prescribed by APB Opinion No. 25. Entities which elect to continue to
apply the provisions of APB Opinion No. 25 will be required to make pro-forma
disclosures of net income and earnings per share as calculated using the fair
value based method of accounting prescribed by SFAS No. 123. The disclosure
requirements of SFAS No. 123 are effective for financial statements for years
beginning after December 15, 1995. The Company has elected to continue to
account for stock based compensation in accordance with APB Opinion No. 25.
Therefore, implementation of this statement will not have a material effect on
the Company's financial position or results of operations.

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This statement specifies when long-lived assets should be
reviewed for impairment, how to determine if such an asset is impaired, and how
to measure an impairment loss. This statement also requires that long-lived
assets held for disposal be valued at the lower or carrying amount or fair value
less the cost to sell the asset, except for assets that constitute part of a
discontinued operation. Adoption of SFAS No. 121 on a prospective basis is
required for fiscal years beginning after December 15, 1995. The Company
believes that implementation of this statement will not have a material effect
on its financial position or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has used funds generated from operations,
equity financings and bank borrowings to fund its research and development,
marketing, acquisition of capital equipment, acquisition of other business
operations and working capital requirements. During the fourth quarter of 1995,
the Company completed a secondary public offering of its Common Stock which
raised approximately $3.1 million net of related offering costs. The amount of
net equity capital raised through financings by the Company since its inception
is approximately $39.7 million through June 30, 1996. During August 1995, the
Company secured a new $5 million line of credit which consolidated the
collateral bases of the Company's two previous lines of credit, providing the
Company greater flexibility in funding the working capital requirements of its
overall operations. This line of credit, which is secured by substantially all
of the Company's current assets, was renewed in September 1996 for a one-year
term. The line of credit continues to provide the Company with a $5 million
credit facility, which will automatically increase to $7.5 million upon the
Company's receipt of at least $2 million in net proceeds from the issuance of
its equity securities.

In January 1996, the Company, through its Farchan subsidiary, acquired land
and a building to facilitate expansion of its specialty chemicals manufacturing
capacity. The facility, which is located in Gainesville, Florida, will be used
to produce additional pheromones to be used in the Company's proprietary
commercial agriculture products, as well as to expand Farchan's capacity to
supply specialty chemicals to third party customers. This facility, which was
acquired for approximately $396,000, was financed primarily by a term loan
secured by Farchan's land and buildings, including the new facility.

At June 30, 1996, the Company had cash, cash equivalents and short-term
investments of approximately $678,000, with excess credit line borrowing
capacity of approximately $1.2 million, and working capital of approximately
$8.9 million. Borrowings under the Company's revolving line of credit were
approximately $2.7 million. The Company believes that cash and cash equivalents
at June 30, 1996, funds generated from operations and funds available from its
existing bank line of credit will be sufficient to fund the Company's operations
through 1996. The Company believes that the net proceeds from this offering,
together with its bank credit line, existing working capital and anticipated
cash flows from operations will be sufficient to meet its capital and liquidity
needs through at least 1997. The Company's capital needs may increase depending
upon several factors, including future acquisitions, changes to planned research
and development activities, expanded manufacturing and commercialization
programs, additional technological, regulatory and competitive developments and
the timing of regulatory approvals for new products. As a result, the Company
may need to raise additional funds. There can be no assurance that additional
financing will be available and, if available, that the terms would be
acceptable to the Company.

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<PAGE> 25

BUSINESS

Consep develops, manufactures and markets environmentally safe pest control
products for the commercial agriculture and consumer home, lawn and garden
markets. The Company also owns and operates full-line agrichemical distributors
located principally in California. Products manufactured by the Company employ
proprietary controlled release technologies to enhance the effectiveness and
duration of biorational pest control agents by protecting them from natural
degradation and controlling their release over planned periods of time.
Biorational pest control products use naturally occurring agents and
biochemicals, such as pheromones, to control pest populations. The Company's
principal commercial agriculture products, marketed under the CheckMate label,
release synthetic pheromones to suppress population levels of insects by
disrupting their mating. Unlike most conventional insecticides, the Company's
products are non-toxic to humans and animals, leave no harmful residues, do not
contaminate soil or groundwater and do not disrupt beneficial insect
populations. The majority of the Company's commercial agriculture products are
sold through independent distributors. In addition, the Company owns and
operates full-line agrichemical distributors in major agricultural regions of
California and in the Connecticut River Valley. In addition to selling the
Company's commercial agriculture products, the Company's agrichemical
distributors also sell products produced by other manufacturers, including
biorational insect control products, conventional toxic pesticides, fertilizers
and other farm supplies. Consep also sells a broad line of non-toxic consumer
pest control products under its SureFire and Insectigone labels through a
network of cooperative buying groups and distributors who in turn resell to lawn
and garden centers, hardware stores and retail chains. The Company will begin
distributing for the 1997 season a line of consumer products, based on natural
oils, to repel biting insects. These insect repellent products, which are
manufactured by, and are the proprietary products of, a third party, will be
marketed on an exclusive basis in the United States, Canada and Mexico under the
Company's Bite Blocker label.

MARKETS

Worldwide sales of insecticides for commercial agriculture were estimated
by SRI International to be $7.7 billion annually in 1990. Management estimates
the current market for insect control products to be $1.5 billion in the United
States alone. Conventional toxic insecticides continue to dominate this market.
However, regulatory limitations on the use, growing concern over the safety and
effectiveness of, and increasing insect resistance to toxic insecticides have
created an increasing demand for alternative insect control products.
Biorational insect control products have significant advantages over
conventional toxic insecticides in several important areas. The principal
problems associated with the use of toxic insecticides and the comparative
advantages of biorational insect control products include:

Regulatory. Under federal law, all insecticide products registered
prior to November 1984 must be re-registered with the EPA by 1997. The cost
of re-registration is high and entails the risk that new testing will lead
to adverse results and mandatory withdrawal of toxic insecticides from the
market. As a result, many insecticides are not being re-registered for
application in specialty crops such as fruits and vegetables. In contrast
to toxic chemicals, biorational products can be registered with the EPA in
less time and at substantially lower costs due to the reduced level of
toxicity testing required. In addition, in 1994 the EPA established its
Biopesticides and Pollution Prevention Division, whereby companies
developing safer and less-toxic alternatives to conventional pesticides are
able to have new products reviewed and registered by a staff dedicated to
this new division.

Residues. Public concern over the adverse environmental and health
consequences of toxic insecticides continues to grow. These chemicals can
leave unacceptable levels of residues in food and can contaminate soil and
groundwater. Biorational insect control products use naturally produced or
occurring compounds and do not leave toxic residues in treated crops, soil
or groundwater.

Resistance. One of the limitations of toxic insecticides is the
tendency of insects to develop resistance to the active compound. Over 500
insect species have developed resistance to one or more classes of toxic
chemical insecticides. When resistance occurs, growers are forced to
increase the amount of toxic insecticide necessary to control the target
insects, which increases environmental and health risks and reduces the
economic viability of the toxic chemical. Insects are less likely to
develop resistance to

24
<PAGE> 26

biorational products, particularly behavior-modifying pheromone-based
products such as those produced by Consep.

Resurgence. Toxic insecticides often destroy beneficial insects which
help to naturally control primary and secondary insect populations. As
beneficial insect populations are suppressed, there are fewer natural
enemies against primary and secondary pests and growers must use escalating
dosages and more frequent applications of toxic insecticides. This
increased application exacerbates environmental and health risks and
decreases the cost-effectiveness of the toxic insecticides. Biorational
products target specific insects and do not adversely affect beneficial
insect populations. As a result, beneficial insects remain in the field and
continue to help control detrimental insect populations.

In response to these concerns regarding conventional toxic insecticides,
commercial growers are increasingly adopting more sophisticated and
environmentally safer methods of pest control which focus on ecosystem
management, collectively identified as Integrated Pest Management ("IPM"), to
control insects in their fields. IPM involves the use of a combination of crop
selection, cultivation practices and biorational pest control measures to reduce
or eliminate toxic chemical applications. The Company's primary focus is on
fruits, nuts, vegetables and selected row crops where growers are generally more
concerned with residues in harvested products or resistance of insects to
chemical insecticides and are thus more likely to adopt biorational insect
control as an alternative to conventional toxic chemicals. The Company's
products are ideally suited to IPM practices because, unlike most conventional
insecticides, the Company's products are non-toxic to humans and animals, leave
no harmful residues, do not contaminate soil or groundwater and do not disrupt
beneficial insect populations. The Company believes that IPM and crop protection
professionals, such as pest control advisors ("PCAs"), have become key factors
in promoting the introduction and distribution of insect control products to the
commercial agriculture market. This trend is most developed in California where
state licensed PCAs are the only individuals who are authorized to recommend the
application of any pesticide, including insect control products.

Management estimates the market in which its consumer pest control and
repellent products compete in the United States and Canada to be approximately
$1 billion. The Company believes that, although biorational products currently
represent less than 30% of this market, consumers are becoming increasingly
aware of the health risks associated with many of the conventional toxic
products used to control pests in and around the home and that non-toxic
products will represent an increasing portion of the consumer pest control
market. In general, non-toxic products for the consumer market do not require a
time-consuming registration process, which permits faster and less expensive
introduction of new products.

STRATEGY

Management believes that regulatory limitations on the use of, and
increasing insect resistance to, conventional toxic pesticides, together with
growing concern over the safety of those products have created substantial
opportunities to expand the use of Consep's alternative biorational pest control
products. The key components of the Company's strategy are set forth below.

Continue to Develop and Acquire Proprietary Biorational Pest Control
Products, Technologies or Businesses. The Company's strategy includes
continuing to develop new products and technologies through both its own
research and development efforts and its relationship with Bend Research. Consep
also intends to continue to acquire complementary product lines, technologies or
businesses to further expand the Company's product lines both in the commercial
agriculture and consumer markets. During the past six years, Consep has
completed eight acquisitions of complementary businesses and product lines.
Management believes such acquisition opportunities will continue.

Focus Commercial Agriculture Products on Selected High-Value Crops. The
Company's primary focus is on selected high-value fruit, nut and vegetable crops
where growers are generally more concerned with residues in harvested products
and are thus more likely to adopt biorational insect control as an alternative
to conventional toxic chemicals. Additionally, given the high cost of
re-registering conventional toxic chemicals with the EPA, the Company believes
market opportunities will expand for biorational products as agrichemical
companies find it uneconomical to re-register their products for these selected
crop markets.

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<PAGE> 27

Utilize Company-Owned Distributors to Introduce and Promote the Company's
Products. The Company believes that owning and operating agrichemical
distributors accelerates the market acceptance and penetration of its
proprietary commercial agriculture products, provides direct access to growers
and field research personnel and facilitates rapid evaluation and introduction
of new products. The Company may acquire additional agrichemical distributors in
strategic locations to facilitate grower adoption of IPM practices and
biorational pest control products.

Expand Presence and Distribution in Selected International Markets. The
Company believes it has the opportunity to significantly expand its
international presence. Management's strategy is to control the registration,
introduction and distribution of its products in selected international markets
and, as a result, retain control over worldwide manufacturing and marketing
rights to its products. To effectively market its products abroad, the Company
is expanding its international sales effort to support the introduction of its
products through established distributors in key international markets.

Expand Presence and Distribution Channels in Consumer Markets. The Company
is focused on expanding its consumer product distribution channels by increasing
its retail account base and penetrating additional locations in existing
accounts. Through a combination of trade show attendance, promoting
relationships with independent manufacturers' representatives and direct selling
efforts, Consep's strategy is to expand into additional co-operative buying
groups, distributors and retail chains, including grocery and drug store chains.
The Company is also focusing on increasing the range of products sold within the
existing retail base through a combination of special display advertising and
co-operative promotional programs. The Company will continue its efforts to
expand its product line through product development, acquisitions and
distribution of biorational products manufactured by other manufacturers.

TECHNOLOGY

The Company believes it is well positioned to take advantage of
opportunities for biorational pest control products as a result of its
proprietary controlled release technologies. The Company's principal commercial
agriculture products combine proprietary controlled release delivery systems
with synthesized pheromones to provide effective biorational pest control.
Consep has devoted considerable resources to investigating the chemical makeup
of pheromones, their reaction with the Company's delivery systems, and their
behavior in a variety of environmental conditions.

Pheromones are natural compounds produced by insects, which, when released
and detected by other insects of the same species, will elicit a specific
response. Over 1,600 insect pheromones have been identified in the scientific
literature and identification of additional insect pheromones continues to
occur. Consep has focused its efforts on one class of pheromones, sex
pheromones, most of which are produced by female insects in order to attract
males of the same species. Males are able to locate the females by using sensors
on their antennae to follow the pheromone trail to its source. These compounds
can be used to control specific insect populations if released in sufficient
quantities to overwhelm the males so that they are unable to locate females.
This system of control, called "mating disruption," produces a substantial
population drop of the target insect. The crop is thereby protected from feeding
larvae, which are the primary source of crop damage.

The key to an efficacious and economically feasible trapping or mating
disruption product is to determine the optimum release rate and to successfully
store, protect, and control the release of pheromones. Most pheromones are
highly unstable compounds which break down quickly when exposed to normal
environmental conditions. The proprietary controlled release systems used in the
Company's products protect the pheromones from the environment and delay their
degradation. The Company designs these devices to release pheromones at a
planned rate over periods ranging from a few weeks to a few months, depending on
the targeted pest and crop. The Company believes that by providing a steady rate
of release over time, the Company's controlled release technologies allow the
Company to use lower quantities of pheromones in its products, as compared to
competitive pheromone products, to achieve the same degree of pest control. The
controlled release technologies used in the Company's products include
membrane-based reservoirs, microporous beads and dispersed (flowable)
microcapsules.

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<PAGE> 28

Membrane-Based Reservoir System. The patented, membrane-based reservoir
system used in certain of the Company's products consists of a reservoir
containing the active ingredient, a rate-controlling membrane through which the
active ingredient diffuses and a protective impermeable backing. By varying the
surface area, membrane thickness and type of membrane materials, the Company is
able to adapt this technology to a variety of applications. Membrane-based
reservoir systems are used in the CheckMate and BioLure product lines, and in
certain products within the SureFire product line. The following drawing
illustrates the Company's disposable membrane-based reservoir system:

[DIAGRAM OF THE COMPANY'S DISPOSABLE MEMBRANE-BASED RESERVOIR SYSTEM
CONSISTING OF A THREE-DIMENSIONAL DRAWING DEPICTING THE PHEROMONE
RESERVOIR COVERED BY A RATE-CONTROLLING MEMBRANE SURROUNDED BY AN
IMPERMEABLE BACKING AND FRONT LAYER.]

MEMBRANE-BASED RESERVOIR SYSTEM

Microporous Bead System. A microporous bead is a polymeric bead with an
internal pore structure encased in a rate-controlling outer surface. The
microporous nature of the beads permits a high loading of active ingredient,
with up to 80% of the bead weight consisting of biorational agents. By
comparison, only 5% to 30% of the weight of conventional micro-encapsulated
systems is represented by biorational agents. The microporous beads are
compatible with a wide range of active ingredients and can be readily mixed with
water and applied by ground or aerial spray equipment. By controlling the size
of the beads and their microporous structure, optimum rates of release can be
achieved. Microporous bead systems are used in certain current and
development-stage CheckMate products. The following illustrates the microporous
bead system:

[DIAGRAM OF THE COMPANY'S MICROPOROUS BEAD SYSTEM CONSISTING OF A
SCANNING ELECTRON MICROGRAPH DEPICTING THE HIGH-LOAD CAPACITY INTERNAL
PORE STRUCTURE OF THE BEAD LOADED WITH PHEROMONE AND SURROUNDED BY A
RATE-CONTROLLING OUTER MEMBRANE.]

SCANNING ELECTRON MICROGRAPH OF A MICROPOROUS BEAD (1,000 MICRON DIAMETER).

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<PAGE> 29

Dispersed (Flowable) Microcapsule System: A dispersed (flowable)
microcapsule system is a method of encapsulating biorational agents by
polymerizing a protective wall around colloidal size particles of the active
agent. The release rate of the active biorational product is adjusted by
controlling the size of the microcapsule as well as the degree of polymer
crosslinking in the capsule wall. Dispersed (flowable) microcapsule systems are
used in certain current and development-stage CheckMate products. The following
drawing illustrates the dispersed (flowable) microcapsule system:

[DIAGRAM OF THE COMPANY'S DISPERSED (FLOWABLE) MICROCAPSULE SYSTEM
CONSISTING OF A THREE-DIMENSIONAL DRAWING DEPICTING THE INTERNAL
AREA OF THE BEAD LOADED WITH PHEROMONE AND SURROUNDED
BY A RATE-CONTROLLING OUTER MEMBRANE]

DISPERSED (FLOWABLE) MICROCAPSULE SYSTEM

PRODUCTS

The Company develops, manufactures and markets three lines of non-toxic
pest control products: (i) pheromone-based mating disruption products used to
control insect populations in commercial agriculture; (ii) pheromone-based traps
used to monitor and trap insects in commercial agriculture; and (iii) consumer
products used to trap, repel or otherwise control pests in homes, lawns and
gardens. The Company's proprietary product line also includes specialty
chemicals produced by its Farchan subsidiary. The Company also owns and operates
full-line agrichemical distributors located principally in California which, in
addition to selling the Company's commercial agriculture products, also sell
products produced by other manufacturers, including biorational insect control
products, conventional toxic pesticides, fertilizers and other farm supplies.

Commercial Mating Disruption Products. The Company's commercial mating
disruption products, marketed under the CheckMate label, are used to suppress
population levels of insects by disrupting their mating cycles. CheckMate
products employ either microporous or microcapsule beads, which are applied by
aerial or ground spray equipment, or membrane-based reservoir dispensers, which
are attached by hand to the branches or stems of plants in crops which they
protect. Consep currently offers mating disruption products for six species of
insects. Revenues from the sale of the Company's commercial mating disruption
products for the six months ended June 30, 1996 and 1995 were $1.8 million and
$2.2 million, or 8.5% and 11.5% of the Company's total revenues for such
periods, respectively. For the years ended December 31, 1995, 1994 and 1993,
revenues from the sale of such products totaled $2.9 million, $1.7 million and
$1.2 million, or 9.5%, 6.8% and 5.7% of the Company's total revenues for such
periods, respectively.

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<PAGE> 30

The following table sets forth the Company's CheckMate products that are
being sold or are under development for sale:

<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
U.S. REGULATORY
PRODUCT INSECT MARKET TECHNOLOGY STATUS(1)
- -------------------------------------------------------------------------------------------------
CheckMate PBW Pink Bollworm Cotton Microporous Bead Registered
System(2)
Dispersed (Flowable) Registered
Microcapsule
System(5)
- -------------------------------------------------------------------------------------------------
CheckMate TPW Tomato Pinworm Tomatoes Membrane-Based Registered
Reservoir System(3)
Dispersed (Flowable) Field Trials
Microcapsule
System(5)
- -------------------------------------------------------------------------------------------------
CheckMate OFM Oriental Fruit Moth Peaches Membrane-Based Registered
Nectarines Reservoir System(3)
- -------------------------------------------------------------------------------------------------
CheckMate CM Codling Moth Apples Membrane-Based Registered
Pears Reservoir System(3)
Walnuts
- -------------------------------------------------------------------------------------------------
CheckMate PTB Peach Twig Borer Stone Fruits Membrane-Based Registered
Almonds Reservoir System(3)
- -------------------------------------------------------------------------------------------------
CheckMate A Aphid Various Membrane-Based Field Trials
Reservoir System(3)
- -------------------------------------------------------------------------------------------------
CheckMate OLR Omnivorous Leafroller Tree Fruits Membrane-Based Field Trials
Grapes Reservoir
System(3)(4)
- -------------------------------------------------------------------------------------------------
CheckMate DBM Diamondback Moth Vegetables Membrane-Based Field Trials
Reservoir System(3)
Dispersed (Flowable) Field Trials
Microcapsule
System(5)
- -------------------------------------------------------------------------------------------------
CheckMate EPSM European Pine Shoot Pine Trees Dispersed (Flowable) Registered(6)
Moth Microcapsule
System(5)
- -------------------------------------------------------------------------------------------------
CheckMate GVM Grape Vine Moth Grapes Membrane-Based Field Trials
Reservoir System(3)
- -------------------------------------------------------------------------------------------------
CheckMate GBM European Grape Berry Grapes Membrane-Based Field Trials
Moth Reservoir System(3)
- -------------------------------------------------------------------------------------------------
</TABLE>

- ---------------
(1) Certain of the Company's products are registered for sale in selected
international markets and it is the Company's policy to pursue international
registration of its products as appropriate.

(2) U.S. patent application pending, which is owned by Bend Research and
licensed to Consep. See "-- Proprietary Rights."

(3) U.S. patent issued to Bend Research (expires 2002) and licensed to Consep.
Not patented outside U.S., other than in Japan by a third party. Neither
Consep nor Bend Research has any rights to the Japanese patent. See
"-- Proprietary Rights."

(4) U.S. patent issued to Consep (expires 2012). See "-- Proprietary Rights."

(5) Not patented in any country.

(6) Registered for sale only in Chile.

Commercial Monitoring and Trapping Products. The Company's monitoring and
trapping products for the commercial agriculture market are sold under the
BioLure label. A monitoring product typically consists of a trap and a lure
loaded with either pheromones or food bait to attract the target insect species.
Growers use monitoring products to identify the emergence of target species,
pinpoint infestation levels, and project insect population size and crop damage,
thereby facilitating more efficient control measures. The monitoring systems

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<PAGE> 31

are used in conjunction with pest control products to correctly time the
application of these control products and to monitor the effectiveness of insect
control programs. The system used in most of the Company's monitoring and
trapping products is a pheromone-based lure which incorporates the Company's
controlled release membrane-based technology to provide for uniform release of
the active ingredient over a longer period of time than competitors' products.
Monitoring and trapping systems which do not incorporate a lure use food bait or
a color spectrum as the attractant. Consep currently offers trapping and
monitoring systems for over 20 species of insects. Revenues from the sale of the
Company's monitoring and trapping products for the six months ended June 30,
1996 and 1995 were $526,000 and $421,000, or 2.5% and 2.2% of the Company's
total revenues for such periods, respectively. For the years ended December 31,
1995, 1994 and 1993, revenues from the sale of such products totaled $621,000,
$462,000 and $405,000, or 2.0%, 1.8% and 1.9% of the Company's total revenues
for such periods, respectively.

Consumer Products. The Company's consumer product line, marketed under the
SureFire and Insectigone labels, is comprised of a broad group of non-toxic
products which trap or otherwise control pests found in and around the home. In
addition, the Company markets, under its SureFire label, hummingbird and
butterfly feeders. Products in the Company's consumer product line generally
incorporate Consep's proprietary technologies, which include the controlled
release of attractants that lure insects into traps, proprietary Teflon-coated
surfaces which prevent insects from crawling across vertical surfaces, and
insecticide powders composed of patented baits and diatomaceous earth, which
kill crawling insects coming into contact with products incorporating this
technology. Consep currently offers pest control products for 20 species of
household and garden pests. The Company will begin distributing for the 1997
season a line of consumer products, based on natural oils, to repel biting
insects. These insect repellent products, which are manufactured by, and are the
proprietary products of, a third party, will be marketed on an exclusive basis
in the United States, Canada and Mexico under the Company's Bite Blocker label.
The Company holds exclusive distribution rights to these insect repellent
products in the United States, Canada and Mexico, subject to certain performance
requirements. Revenues from the sale of the Company's consumer products for the
six months ended June 30, 1996 and 1995 were $4.3 million and $3.5 million, or
20.4% and 18.2% of the Company's total revenues for such periods, respectively.
For the years ended December 31, 1995, 1994 and 1993, revenues from the sale of
such products totaled $4.6 million, $3.6 million and $2.2 million, or 15.0%,
14.2% and 10.4% of the Company's total revenues for such periods, respectively.
The Company currently markets the following SureFire, Insectigone and Bite
Blocker products:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TECHNOLOGY PRODUCT PEST
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Membrane-Based Reservoir System(1) Japanese Beetle Trap Japanese Beetle
Pantry Pest Trap Stored Product Moth
Fruit Tree Pest-Codling Moth Codling Moth
Gypsy Moth Trap Gypsy Moth
Lady Bug Lure Aphid
- -------------------------------------------------------------------------------------------------
Food Baits(2) Diatomaceous Earth Products Various Crawling Insects
Deluxe Yellowjacket Trap Yellowjacket
Yellowjacket Trap Yellowjacket
Fly Scoop Housefly
- -------------------------------------------------------------------------------------------------
Color Spectrum(2) Disposable Aphid/Whitefly Trap Aphid/Whitefly
- -------------------------------------------------------------------------------------------------
Barriers(3) Teflon Insect Barrier Tape Multiple
Teflon Insect Barrier Spray Multiple
- -------------------------------------------------------------------------------------------------
Trap Only(2) The Pit Slug and Snail
The Blackhole Gopher and Rat
Smart Mouse Trap Mice
- -------------------------------------------------------------------------------------------------
Natural Plant Oils and Derivatives Bite Blocker Insect Repellents Mosquito
Black Fly
Fleas and Ticks
Other Biting Insects
- -------------------------------------------------------------------------------------------------
</TABLE>

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

(1) U.S. patent issued to Bend Research (expires 2002) and licensed to Consep.
Not patented outside U.S., other than in Japan by a third party. Neither
Consep nor Bend Research has any rights to the Japanese patent.

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<PAGE> 32

(2) Not patented in the U.S. or in any foreign jurisdiction except for the bait
formulation included in the Company's diatomaceous earth products. The bait
formulation in such diatomaceous earth products is patented in Canada and
Australia. All patents issued to Consep.

(3) Two U.S. patents issued to Consep (both expire 2013) and one Australian
patent issued to Consep (expires 2014). Two U.S. patent applications
pending. Patent applications pending in three foreign jurisdictions, one of
which, if issued, will provide protection in most European countries. All
patents and patent applications owned by Consep.

Specialty Chemicals. In February 1995, the Company acquired Farchan
Laboratories, Inc. ("Farchan"), a Florida-based specialty chemicals manufacturer
which is currently supplying certain pheromones to the Company for use in
certain of its mating disruption products. In addition, Farchan supplies high
quality specialty chemicals, including organic acetylenes, to research
organizations, pharmaceutical companies and the agricultural industry. Revenues
from Farchan's operations (excluding pheromone sales to the Company) were $1.2
million for the year ended December 31, 1995, and $738,000 for the six months
ended June 30, 1996.

Distribution Operations. The Company owns and operates full-line
agrichemical distributors which, in addition to selling the Company's commercial
agriculture products, also sell products produced by other manufacturers,
including biorational insect control products, conventional toxic pesticides,
fertilizers and other farm supplies. Revenues from the Company's distribution
operations (which exclude sales of the Company's proprietary commercial
agriculture products through these distribution operations) for the six months
ended June 30, 1996 and 1995 were $13.6 million and $12.4 million, or 65.1% and
65.1% of the Company's total revenues for such periods, respectively. For the
years ended December 31, 1995, 1994 and 1993, such revenues totaled $21.5
million, $19.4 million and $17.4 million, or 69.6%, 77.2% and 82.0% of the
Company's total revenues for such periods, respectively.

SALES, MARKETING AND DISTRIBUTION

The Company's sales, marketing and distribution strategies differ for each
of the major markets in which its products are sold.

The Company's sales in the commercial agriculture market are made
principally through agrichemical distributors. These distributors employ crop
protection professionals who consult for growers and recommend appropriate
insect control programs. The Company believes that IPM and crop protection
professionals, such as PCAs, have become key factors in promoting the
introduction and distribution of insect control products to the commercial
agriculture market. This trend is most developed in California, where state
licensed PCAs are the only individuals who are authorized to recommend the
application of any pesticide, including insect control products. The Company's
strategy focuses on improving the PCAs' and growers' understanding of IPM and
how the Company's proprietary products can be integrated into insect control
programs. Consep markets its insect control products to this group through the
Company's ten-person technical sales organization.

As part of Consep's strategy to use Company-owned distributors to introduce
and promote its products, the Company has acquired agrichemical distribution
subsidiaries in strategic market locations. These acquisitions, which took place
in 1990 and 1994, have allowed Consep to employ crop protection professionals,
including PCAs, and obtain direct access to growers in order to facilitate the
exchange of information and more effectively introduce IPM practices in general,
and the Company's products in particular. The Company currently operates
agrichemical distribution outlets in five locations in the Central Valley of
California and in one location in the Connecticut River Valley. The Company
believes that these distribution operations, and the 20 PCAs which they employ,
provide a continuous source of valuable information with respect to new product
needs, performance of products in the field and the competitive position of
those products.

The Company supports the sales efforts of the independent and subsidiary
agrichemical distributors through the organization of grower meetings, direct
grower contact and education of other influential groups such as university pest
management specialists and researchers, government agricultural personnel and
independent PCAs. The Company's CheckMate and BioLure product lines are promoted
through the dissemination of brochures, corporate communications and advertising
targeted at product awareness in the

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<PAGE> 33

agricultural trade press, in addition to direct contact with influential groups,
including distributors, retailers, PCAs and growers. Agricultural trade shows
and certain industry conferences, such as the California Agricultural Production
Consultants Conference, are other venues for promotion of the Company's
CheckMate and BioLure product lines.

The Company sells its SureFire, Insectigone and Bite Blocker products
through a network of cooperative buying groups and distributors who in turn
resell to lawn and garden centers, hardware stores and retail chains. These
products are also sold directly to retailers and through mail-order catalogs.
Promotion of the Company's consumer products is achieved primarily by
co-operative advertising, media participation and trade shows. In addition, the
Company intends to use television advertising in 1997 to promote its Bite
Blocker product line. The Company works directly with over 40 independent sales
representatives who are engaged in various sales and marketing activities
related to the Company's consumer product lines. These independent sales
representatives are overseen by the Company's six-person consumer sales group.
The Company's sales and marketing efforts for its consumer products are directed
towards increasing the number of new retail and distribution accounts and
increasing the range of products carried by certain existing retail accounts.

The Company's commercial agriculture and consumer products are also sold
through independent distributors in certain international markets. In addition,
the Company has established joint testing and marketing programs with these
distributors to introduce and sell its commercial agriculture products in
certain international markets. The Company also manufactures and sells products
on a private label basis to customers in the industrial pest control market. The
Company's revenue attributable to export sales and sales occurring outside of
the United States of both commercial agriculture and consumer products for the
six months ended June 30, 1996 and 1995 totaled $1,677,275 and $1,571,484,
respectively. For the years ended December 31, 1995, 1994 and 1993, such
revenues totaled $2,217,266, $1,327,744 and $286,742, respectively. The Company
also sells certain BioLure products to the United States Department of
Agriculture (the "USDA") and various state departments of agriculture.

The Company's business is highly seasonal, with its highest revenues being
recognized in the second quarter of each year and its lowest revenues being
recognized in the fourth quarter of each year. This seasonality coincides with
the commercial growing season in the Northern Hemisphere and, to a lesser
extent, the consumer home, lawn and garden buying season.

MANUFACTURING

The Company manufactures the membrane-based reservoir dispensers,
microporous beads and dispersed (flowable) microcapsules used in its products at
its facility in Bend, Oregon. Products containing diatomaceous earth are
manufactured at the Company's Chemfree facility located in Kirkland, Quebec,
Canada. Specialty chemicals and pheromones used in certain of the Company's
commercial agriculture products are manufactured at the Company's Farchan
facility located in Gainesville, Florida. As of August 31, 1996, Consep employed
39 people in manufacturing and quality control relating to the production of its
proprietary products.

Active ingredients, including pheromones and food baits, are purchased from
specialty chemical supply companies or are produced by Consep. The Company has
historically relied upon a limited number of suppliers to provide pheromones for
its products. In February 1995, the Company acquired Farchan, a Florida-based
specialty chemicals manufacturer, in order to reduce the cost of certain
pheromones, provide assurance of consistent quality, and provide a stable supply
of these materials. The interruption of certain sources of supply or the failure
of suppliers, including Farchan, to adapt their products to the Company's
changing technological requirements could result in delays in product shipments,
adversely affecting the Company's financial condition and results of operations.

Throughout the remainder of 1996 and 1997, the Company anticipates spending
$500,000 to $750,000 for manufacturing equipment and expansion of Farchan's
existing facilities in order to meet anticipated pheromone supply requirements.
The Company expects to finance at least fifty percent of such expenses through
bank loans and/or equipment leasing arrangements. Except for this planned
expansion of Farchan's production capacity, the Company has no current plans to
expand its manufacturing facilities or equipment and believes that it has
adequate production capacity to meet its foreseeable needs.

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<PAGE> 34

RESEARCH AND DEVELOPMENT

Consep believes that considerable investment in new product development
will continue to be necessary to remain competitive in the biorational pest
control market. The Company's product development projects generally begin with
the identification of major insect infestation problems which the Company
believes can be addressed with biorational agents and which provide sufficient
market opportunity. Once a potential product is identified, the Company's
research and development personnel study the intended biorational agent and make
a determination as to whether the Company's existing controlled release
technologies are likely to work with the biorational agent. If it appears that
the controlled release technologies may need to be modified to work effectively
with the intended biorational agent, the Company's research and development
personnel work with scientists at Bend Research to adapt the existing controlled
release technologies to suit the requirements of the particular biorational
agent. Once the controlled release technology has been selected and the active
ingredient has been tentatively formulated, the development effort continues
with laboratory studies and eventual field testing of prototypes in order to
arrive at the final form of the product. Field testing of products is generally
conducted on a collaborative basis with academic, governmental and corporate
entities in the United States, including the USDA and numerous universities. In
international markets, field testing is generally conducted in collaboration
with the Company's international distributors and government researchers.
Through these collaborative efforts, the Company gains access to individuals
within the collaborating organization who have particular expertise in dealing
with the targeted pest and crop and whose opinions are generally widely
accepted. Collaborative field testing also provides independent verification of
product efficacy which is critical to convincing commercial growers to adopt new
biorational products.

In addition to the product development efforts described above, the
Company's research and development personnel also work with scientists at Bend
Research to define research projects which support the adaptation of licensed
technologies to new products and to new uses of existing products. In general,
basic research related to these projects takes place at Bend Research with the
resulting technology being transferred to Consep for applied research, product
development and commercialization. Ongoing projects with Bend Research include
the adaptation of new controlled release systems to existing pheromone products,
application of controlled release technologies to new types of active
ingredients and the identification and refinement of procedures for
manufacturing pheromones used in the Company's product lines.

Pursuant to a license agreement with Bend Research, the Company is able to
participate in joint funding with various government agencies to develop
improvements to existing technologies. The license agreement also provides the
Company with license rights to agricultural applications of Bend Research
technologies, including technologies which are developed by Bend Research
pursuant to third party funded research and development efforts. See
"-- Proprietary Rights." The license agreement also obligates the Company to
request Bend Research to perform research and development services budgeted at
not less than $600,000 a year, at least $400,000 of which must be directed
towards development of biorational products. For 1995, the annual commitment
under the license agreement was reduced from $600,000 to $350,000. For 1996, the
annual commitment under the license agreement was reduced from $600,000 to
$191,500. For years subsequent to 1996, the $600,000 annual commitment will be
reinstated. The license agreement continues until the later of 2012 or the
expiration of the last patent licensed under it. The Company may terminate the
license agreement on sixty days' notice. The license agreement provides that if
it were to be terminated for any reason, the Company would retain rights to all
Bend Research technologies incorporated in then current products and in products
then under development. If the Company were to lose the services of Bend
Research for any reason, the Company may experience delays in the development
and introduction of new products and would be required to make alternative
arrangements for the services performed by Bend Research. Any such alternative
arrangements, if available, could delay development efforts, could substantially
increase the cost of the Company's research and development efforts and could
adversely affect the Company's results of operations.

The Company is currently developing and expanding its CheckMate line of
insect control products. Field testing for the products under development is in
various stages of completion. The Company also plans to develop and introduce
additional products for its SureFire and Insectigone lines of consumer pest
control

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<PAGE> 35

products. Additions to the consumer product lines will occur through new product
development and possible acquisitions of compatible product lines, technologies
or businesses.

GOVERNMENT REGULATION AND PRODUCT REGISTRATION

The pesticide industry is heavily regulated worldwide. In the United
States, the EPA regulates pesticide products under the Federal Insecticide,
Fungicide and Rodenticide Act ("FIFRA"). Pesticides are also subject to state
and foreign regulations. Some states, such as California, have their own
extensive registration requirements, as do certain foreign governments. To
develop and commercialize a pesticide product, detailed and complex procedures
must be completed prior to obtaining approvals through FIFRA, state and foreign
regulatory agencies. Small scale field testing usually can be conducted prior to
product registration to evaluate product efficacy. Unusual weather conditions
during field tests may require additional field testing requirements in
subsequent growing seasons, resulting in delays in product registration
submissions and approvals.

Chemical pesticides require extensive toxicology and environmental testing
to substantiate product safety prior to obtaining a product registration.
Commercial sale of a pesticide requires a product registration for each pest and
crop for which the product is used. Initial EPA registration for a new chemical
pesticide can take seven years or longer, and cost $10 million or more. In
addition, the U.S. Congress has mandated that the EPA require that all pesticide
products registered prior to November 1984 be re-registered by 1997 using
today's stricter testing protocols. In contrast to conventional toxic chemicals,
biorational products have fewer regulatory requirements before commercial use is
permitted. For example, substantially fewer toxicity studies are required for
biorational insect control products than for conventional toxic insecticides.
Due to differences such as this, registration costs for biorational insect
control products are significantly less than for toxic insecticides, and
registration of biorational products requires considerably less time to
complete. However, there can be no assurance that additional requirements will
not be added by the EPA which could make registration procedures more
time-consuming and costly or require further testing and review of previously
registered products.

Government regulations have been enacted in recent years to encourage the
development and introduction of non-toxic alternatives to conventional
insecticides, including the streamlined registration of alternative pest control
products under the EPA's "Safer Pesticide Policy." In September 1993, the EPA,
the FDA and the USDA released a joint summary of the principles guiding their
legislative and regulatory agenda including: (i) a firm commitment to reducing
risks to people and the environment that may be associated with toxic pesticides
while ensuring the availability of cost-effective pest management techniques;
(ii) recognition of the need to work with growers to develop and implement
improved means of pest control, reduce use of higher-risk toxic pesticides and
promote greater use of IPM techniques; and, (iii) implementation of regulatory
reforms and incentives for the development of pesticides that will eliminate or
reduce health and environmental risks. Further, in 1994, the EPA established its
Biopesticides and Pollution Prevention Division, whereby companies developing
safer and less-toxic alternatives to conventional pesticides are able to have
new products reviewed and registered by a staff dedicated to this new division.
Such product reviews and registrations are generally completed over a shorter
time period and at less expense than conventional insecticide reviews and
registrations. Based upon the above actions, coupled with cost and timing
advantages of registering biorational products relative to conventional toxic
chemicals, the Company believes biorational products have significant advantages
in the commercial agriculture insect control market. Field testing, manufacture
and sale of the Company's products outside the United States may be subject to
regulatory approval by other jurisdictions which may be more or less rigorous
than in the United States.

COMPETITION

The pest control industry is highly competitive and is dominated by
multinational chemical companies that have financial, technical and marketing
resources substantially greater than those of the Company. Currently,
biorational products account for only a small fraction of aggregate sales of
pest control products, and can require insect control practices, such as timing
and method of application, which are different from those typically associated
with toxic chemical products. As a result, in order for biorational products to
successfully compete with toxic chemicals, they must not only be cost
competitive but must also provide other

34
<PAGE> 36

advantages over conventional pesticides. The Company believes that its products
are cost competitive with conventional toxic insecticides and, because they are
non-toxic and leave no harmful residue in food, soil or groundwater, provide
sufficient advantages over conventional toxic insecticides to compete
effectively against such products.

The Company believes that many of the large chemical pesticide companies
are developing chemical pesticides which are less-toxic to man and the
environment, as well as new products based upon biorational agents. While Consep
believes that the emphasis of these companies has been on genetic engineering of
micro-organisms and insect-resistant plants and has been primarily directed
towards commodity crops such as wheat, corn, cotton and soybeans, there can be
no assurance that these companies will not direct significant development
resources to either biorational products or less-toxic chemical products that
would compete directly with those of the Company.

In addition to the large chemical pesticide companies, the Company is aware
of at least six other companies using biorational control agents, including
pheromones, to produce alternative insect control products. The Company believes
that other companies are currently developing biorational insect control
products. The Company believes that none of these competing companies has
delivery systems that perform as effectively and efficiently as the proprietary
controlled release membrane-based reservoir, microcapsule and microporous bead
systems used in Consep's CheckMate products and that the Company is therefore in
a strong competitive position with respect to these companies.

The Company expects competition within the biorational pest control segment
to intensify as regulatory pressures on conventional toxic pesticides increase
and as advances in the field are made and become more widely known. There can be
no assurance that the Company will be able to compete successfully against its
current competitors or that these competitors or new market entrants will not
develop products that compete directly with the Company's products and are more
effective, less expensive or more widely accepted than those of the Company.

PROPRIETARY RIGHTS

Proprietary protection of the Company's products is important to its
business. Consep relies upon patents, trade secrets, unpatented know-how and
continuing technological innovation to develop and maintain its competitive
position. The Company maintains a policy of seeking patents on its inventions,
acquiring licenses under selected patents or patent applications from third
parties and entering into invention and proprietary information agreements with
its key employees and consultants with respect to technology which it considers
important to its business.

As more specifically described below, the Company has obtained
manufacturing and marketing rights in agriculture to certain proprietary rights
of Bend Research, including patents, patent applications, trade secrets and
unpatented know-how which relate to existing and development-stage technologies
and products. In addition, the Company has filed patent applications with
respect to its own inventions which relate to existing and development-stage
technologies and products. There can be no assurance that patents will issue
from any pending or future patent applications or, if patents are issued, that
they will be of sufficient scope or strength to provide meaningful protection of
the Company's technologies. In addition, there can be no assurance that any of
the current patents issued or licensed to the Company or future patents issued
or licensed to the Company will not be challenged or circumvented by
competitors, or be found to be invalid or non-infringed in judicial or
administrative proceedings should a dispute arise. Moreover, notwithstanding the
scope of the patent protection available to the Company there can be no
assurance that such patent rights will provide commercial advantage to the
Company as competitors could develop controlled release technologies which are
not covered by the Company's issued or licensed patents or future patents issued
or licensed to the Company.

Pursuant to an agreement with Bend Research, the Company has obtained a
license to all agricultural applications of technologies developed by Bend
Research, other than certain animal health and agricultural applications
unrelated to the Company's current or contemplated products. The license
includes rights to certain patents, patent applications, trade secrets and
unpatented know-how owned by Bend Research, and covers aspects of the Company's
membrane-based reservoir system, microporous bead system and dispersed

35
<PAGE> 37

(flowable) microcapsule system technologies. The license agreement provides the
Company exclusive worldwide rights to all agricultural applications (except as
noted above) of the licensed patents, patent applications, trade secrets and
know-how. The membrane-based reservoir system technology used in many of the
Company's CheckMate, BioLure and SureFire products is the subject of a United
States patent owned by Bend Research expiring in 2002. Such technology is not
patented outside the United States, other than in Japan where the patent is held
by a third party. Neither the Company nor Bend Research has rights with respect
to the Japanese patent. The microporous bead system technology used in certain
current and development-stage CheckMate products is the subject of a pending
United States patent application owned by Bend Research. The license agreement
provides the Company exclusive, worldwide rights to agricultural applications
(except as noted above) of the microporous bead system technology. The dispersed
(flowable) microcapsule system technology used in certain current and
development-stage CheckMate products is not patented in any country. The license
agreement provides the Company exclusive, worldwide rights to agricultural
applications (except as noted above) of the dispersed (flowable) microcapsule
system technology.

The foregoing licenses are royalty-free as to certain of the Company's
existing controlled release products. Certain existing products are, and
products resulting from existing and future development efforts may be, royalty
bearing at rates ranging from 2.5% to 5.0% of the Company's direct gross margin,
as defined in the license agreement, on such products. During January 1995,
royalties related to certain products incorporating technology provided by Bend
Research for the term of the license agreement were prepaid by the Company. Such
prepaid royalties totaled $121,000 and are being amortized as the related
products are sold by the Company. The license agreement continues until the
later of 2012 or the expiration of the last patent licensed under it. The
Company may terminate the license agreement on sixty days' notice. The license
agreement provides that if it were to be terminated for any reason, the Company
would retain rights to all Bend Research technologies incorporated in then
current products and any products then under development.

The Company's Teflon-based barrier technology for control of insects used
in certain current and development-stage SureFire products is the subject of two
United States patents (both expiring in 2013), one Australian patent (expiring
in 2014), two pending U.S. patent applications, and three pending foreign patent
applications. Of the three pending foreign patent applications, one is pending
before the European Patent Office and, if issued, will provide protection in
most European countries. All of these patents and patent applications covering
the Teflon-based barrier technology are owned by the Company. In addition, a
U.S. patent owned by the Company has recently issued, which relates to its
controlled release technology for control of aphids, which technology is
currently under development for use in the Company's CheckMate product line.

The Company's technology relating to its diatomaceous earth products
includes a patented bait formulation. These patents provide protection in Canada
and Australia.

Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of certain scientific and technical
personnel. To protect its rights to its proprietary information and technology,
the Company requires key employees, consultants, advisors and collaborators to
enter into confidentiality agreements which prohibit the disclosure of
confidential information to persons unaffiliated with the Company and require
disclosure and assignment to the Company of ideas, developments, discoveries and
inventions made by such persons. There can be no assurance that these agreements
will prevent disclosure of the Company's confidential information or will
provide meaningful protection for the Company's confidential information if
there is an unauthorized use or disclosure. In the absence of patent protection,
the Company's business may be adversely affected by competitors who develop
substantially equivalent technology.

Proprietary rights litigation, which could result in substantial cost to
and diversion of effort by the Company, may be necessary to enforce patents
issued or licensed to the Company, to protect trade secrets or know-how owned by
the Company or to defend the Company against claimed infringement of the rights
of others and to determine the scope and validity of the proprietary rights of
the Company and others. Adverse determinations in litigation could subject the
Company to significant liabilities to third parties, could require the Company
to seek licenses from third parties and could prevent the Company from
manufacturing, selling

36
<PAGE> 38

or using its products, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is not currently a party to any patent litigation or other litigation regarding
intellectual property rights and is not aware of any challenge to its patents or
proprietary rights.

EMPLOYEES

As of August 31, 1996, Consep had 139 employees, with 16 involved in sales
of proprietary products, 20 employed as PCAs in its distribution subsidiaries,
11 involved in product development and registration, 39 involved in
manufacturing and quality control of proprietary products, 18 involved in
finance and administration and 35 involved in operations at its distribution
subsidiaries.

FACILITIES

The Company is headquartered in Bend, Oregon where it leases a 28,800
square foot facility under a lease that expires in February 2004. In addition to
administrative offices, the headquarters facility contains research and
development, manufacturing, warehouse and sales operations for certain of the
Company's proprietary products. In addition, the Company, through its Chemfree
subsidiary, leases an office, manufacturing, sales, and warehousing facility in
Kirkland, Quebec, Canada under a lease expiring in July 1997. Total lease
expenditures related to all of the Company's proprietary product-related
facilities in 1995 and 1994 were $150,461 and $135,019, respectively. There were
no expenditures for such leases in 1993. The Company also owns, through its
Farchan subsidiary, three buildings with a combined capacity of approximately
11,000 square feet used for this subsidiary's manufacturing, sales, research and
development and warehousing functions. These three buildings are located in
Gainesville, Florida.

The Company, through certain of its distribution subsidiaries, also owns
office and warehousing facilities for its agrichemical distribution operations
in Sacramento, Fresno and Patterson, California. The Company's distribution
operations also lease a sales and distribution facility in Escalon, California,
which expires on December 31, 1999. The Company's distribution operations also
lease sales and distribution facilities in Livingston, California and Chicopee,
Massachusetts on a month-to-month basis. The Company believes that it could
replace these facilities in a timely manner, if required to do so. Total lease
expenditures related to all of the Company's distribution facilities in 1995,
1994 and 1993 were $83,340, $81,540 and $83,607, respectively.

The Company believes that its existing facilities will be adequate to serve
its needs at least through 1997.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings other than various
claims and lawsuits which the Company believes are not individually or
collectively material to its business.

37
<PAGE> 39

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and their ages as of
September 6, 1996, and positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Volker G. Oakey............................ 55 Chairman of the Board, President and Chief
Executive Officer
Larry Katz................................. 41 Vice President, Finance and Chief Financial
Officer
Kenneth C. "Curt" Rymer.................... 44 Vice President, Consumer Products
Steven R. Hartmeier........................ 38 Vice President, Commercial Agriculture
Products
Kelly L. Smith............................. 45 Secretary
Walter C. Babcock(2)....................... 48 Director
Peter H. Gleason(1)(2)..................... 50 Director
Philip E. Barak(1)......................... 44 Director
</TABLE>

- ---------------
(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Volker G. Oakey has been a director of the Company since 1984 and was
appointed Chairman of the Board, President and Chief Executive Officer of the
Company in 1988. From 1986 to 1988, Mr. Oakey was a manager with the investment
banking firm of Brown Brothers Harriman. Prior to that, Mr. Oakey spent fifteen
years at Bethlehem Steel Corporation, serving most recently as Assistant
Treasurer of that company. Mr. Oakey is a member of the Board of Directors of
Bend Research. Mr. Oakey holds an M.B.A. from The Wharton School of Business at
the University of Pennsylvania and a B.A. in Economics from the University of
Maryland.

Larry Katz has been Consep's Vice President, Finance and Chief Financial
Officer since June 1996. Prior to joining Consep, Mr. Katz was Vice President
and Research Analyst at Pacific Crest Securities Inc. from 1992 to 1996. In the
preceding eight years Mr. Katz served in various positions with Gregory Forest
Products, primarily as Vice President of Operations. Mr. Katz also spent two
years from 1982 to 1984 with Arthur Andersen & Co. Mr. Katz holds a B.S. in
Forestry from the University of California and an M.B.A. from the University of
Oregon.

Kenneth C. "Curt" Rymer was named Vice President, Consumer Products and
became an officer of the Company in May 1994. From June 1987 to May 1994, Mr.
Rymer served as the Company's National Sales Manager of Consumer Products. Mr.
Rymer joined the Company in February 1985, as Controller. Prior to joining
Consep, Mr. Rymer served as Controller for Xytec Corporation from February 1983
to January 1985. Prior to joining Xytec Corporation, Mr. Rymer held various
positions with Dean Witter Reynolds, Moss Adams, and Peat, Marwick, Mitchell and
Co. Mr. Rymer holds a B.S. in Business from the University of Northern Colorado.

Steven R. Hartmeier was named Vice President, Commercial Agriculture
Products and became an officer of the Company in September 1996. Mr. Hartmeier
served as the Company's Director, Sales and Marketing, Agriculture Products from
July 1994 to September 1996. From July 1991 to July 1994, Mr. Hartmeier held
various positions in the Company-owned distribution group, Pacoast, Inc., most
recently as Manager of Sales and Marketing. Mr. Hartmeier joined the Company in
July 1991. Prior to joining the Company, Mr. Hartmeier held various sales and
marketing positions with Monsanto Agricultural Company, focusing on both the
agricultural and industrial, turf and ornamental markets. Mr. Hartmeier holds a
B.S. in Plant Science from the University of California, Davis.

38
<PAGE> 40

Kelly L. Smith has served as the Company's Secretary since 1987. Mr. Smith
was a director of the Company from 1984 until May 1992. Mr. Smith is Senior
Fellow, Secretary and a member of the Board of Directors of Bend Research. Mr.
Smith also serves as Treasurer and a member of the Executive Board of the
International Controlled Release Society. Mr. Smith holds an M.S. in Bio-Medical
Engineering from Stanford University.

Dr. Walter C. Babcock has been a director of the Company since it was
formed in 1984. Dr. Babcock is President, Chief Executive Officer and Chairman
of the Board of Directors of Bend Research, where he has been employed since
1976. Dr. Babcock holds a Ph.D. in Physical Chemistry from the University of
Oregon.

Peter H. Gleason has been a director of the Company since May 1992. Mr.
Gleason serves as Managing Director of J.P. Morgan Investment Corporation where
he has been employed since 1991. Prior to that, Mr. Gleason served as Vice
President of J.P. Morgan & Co. Incorporated. Mr. Gleason is also a member of the
Board of Directors of Amerin Corporation. Mr. Gleason holds a B.A. from Harvard
University and an M.B.A. from Columbia University.

Philip E. Barak has been a director of the Company since June 1996. Mr.
Barak is a Special Limited Partner of Nazem & Company III, L.P. and Chief
Financial Officer of Nazem Inc. Prior to joining Nazem Inc. in 1983, Mr. Barak
was the Chief Financial Officer of a privately-held distributor of
petrochemicals. Mr. Barak is a C.P.A. and spent five years in public accounting
with Arthur Andersen & Co. Mr. Barak holds a B.S. from Rider College.

The Company's directors are divided into three classes and serve for terms
of three years, with one class being elected by the shareholders each year. The
terms of the current directors will expire as follows: Mr. Babcock -- 1997; Mr.
Barak -- 1998 and Messrs. Oakey and Gleason -- 1999. There is one additional
directorship in the class expiring in 1997 which became vacant upon the
resignation of Gerard H. Langeler in August 1996. There is one additional
directorship in the class expiring in 1998 which became vacant upon the
resignation of Richard M. Welch, Sr. in June 1996. The Board of Directors is
currently searching for potential candidates to fill these vacant positions and
expects to fill these directorships before the Company's 1997 Annual Meeting of
Shareholders. The Audit Committee, comprised of Messrs. Barak and Gleason,
oversees actions taken by the Company's independent auditors and reviews the
Company's system of internal accounting controls. The Compensation Committee,
comprised of Messrs. Babcock and Gleason, approves the compensation levels and
fringe benefits of the Company's executive officers, including option grants
and/or stock sales under the Company's stock option plans. There are no family
relationships between any of the directors or executive officers of the Company.

Article VI of the Company's Restated Articles, which are filed as an
exhibit to the Registration Statement of which this Prospectus forms a part,
provides that the Company's directors may only be removed for cause, and only by
a vote of seventy-five percent (75%) of the votes entitled to be cast at a
meeting of shareholders called expressly for that purpose.

Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board of Directors.

SCIENTIFIC ADVISORY BOARD

In October 1993, the Company established a Scientific Advisory Board
("SAB") composed of six members with extensive experience in entomology,
chemistry, molecular biology and product formulations. The majority of the SAB
members have been involved with the Company on an ongoing advisory basis. The
SAB meets at least annually with the Company's scientific personnel and
management to discuss matters relating to the Company's present and long-term
research, product development and business activities. SAB members receive
$1,500 per meeting attended and are granted options to purchase 750 shares of
Common Stock on an annual basis under one of the Company's stock option plans.
None of the members of the SAB is employed by the Company and they may have
commitments to, or consulting contracts with, other entities which may limit
their availability to the Company. SAB members have no rights to use the
Company's

39
<PAGE> 41

proprietary rights in their outside employment, nor are they required to share
any confidential outside work product with the Company. The members of the SAB
are as follows:

Dr. Walter C. Babcock is President, Chief Executive Officer and Chairman of
the Board of Bend Research and serves on the Board of Directors of Consep. Dr.
Babcock received his Ph.D. in Physical Chemistry from the University of Oregon.
Dr. Babcock's principal area of expertise includes the research and development
of coupled-transport, reverse osmosis and controlled release membranes. Dr.
Babcock is a member of the American Chemical Society and the North American
Membrane Society.

Dr. Henry H. Hagedorn is Professor of Entomology and Director of the Center
for Insect Science at the University of Arizona. Dr. Hagedorn received a B.S.
and M.S. from the University of Wisconsin and a Ph.D. in Insect Physiology from
the University of California, Davis. Dr. Hagedorn's principal area of research
is endocrinology of insect reproduction with a specific focus on peptide
hormones and hormonal control of gene expression.

Dr. Nanette Newell is Executive Director of the Oregon Biotechnology
Association and Foundation and an independent consultant regarding strategic,
technical and regulatory issues related to biotechnology. Dr. Newell received a
B.S. in Chemistry from Lewis and Clark College, a Ph.D. in Biochemistry from
Johns Hopkins School of Medicine and an M.B.A. from the University of North
Carolina.

Dr. Richard E. Rice is Assistant Entomologist at the California
Agricultural Experiment Station at Kearney, California and is a Lecturer in
Entomology at the University of California, Davis. Dr. Rice received his Ph.D.
in Agricultural Entomology and Insect Ecology, with an emphasis on forest
insects and semiochemicals, from the University of California, Davis. Dr. Rice's
particular areas of research include: IPM and biorational control of insects,
mating disruption and insect monitoring using pheromones and insect and mite
pests in stonefruits and nuts.

Dr. Wendell L. Roelofs is Chairman of the Department of Entomology at
Cornell University and a member of the National Academy of Sciences. Dr. Roelofs
received his Ph.D. in Chemistry from Indiana University and was a postdoctoral
fellow at Massachusetts Institute of Technology ("MIT"). Dr. Roelofs conducts
research on basic biochemical, physiological and behavioral aspects of the
insect pheromone communication system, as well as on methods to manipulate this
system for insect control.

Dr. Anthony J. Sinskey is a Professor of Microbiology, Department of
Biology at MIT and Associate Director of MIT's Biotechnology Process Engineering
Center. Dr. Sinskey's principal area of research deals with metabolic
engineering in microorganisms. Dr. Sinskey's work in establishing recombinant
DNA procedures for microorganisms has led to effective strategies to improve
industrially important amino acid fermentations.

40
<PAGE> 42

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other executive officers of the Company
(the "Executive Officers") (**) for the fiscal years ended December 31, 1993,
1994 and 1995:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION STOCK
------------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS GRANTED COMPENSATION(1)
- ------------------------------------------ ---- -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Volker G. Oakey........................... 1995 $135,000 $ -- 15,000 $ --
President, Chief Executive 1994 150,000 30,000 5,000 4,988
Officer and Chairman of 1993 150,000 -- -- 4,228
the Board of Directors
Howard L. Allred(2)....................... 1995 90,000 -- 13,333 --
Vice President, Finance and 1994 100,000 20,000 3,333 3,775
Chief Financial Officer 1993 100,000 -- -- 750
Janice M. Gillespie(3).................... 1995 81,000 -- 6,000 --
Vice President, Technology 1994 88,466 5,000 30,000 2,804
1993 75,000 -- -- 2,207
Kenneth C. "Curt" Rymer(4)................ 1995 76,500 5,000 10,333 --
Vice President, Consumer 1994 81,405 17,000 22,433 2,879
Products 1993 -- -- -- --
</TABLE>

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

(1) The amounts set forth under All Other Compensation represent matching
amounts contributed on behalf of the named executive officers to the Company
sponsored 401(k) profit sharing plan covering all of the Company's
employees.

(2) Mr. Allred resigned as Vice President, Finance and Chief Financial Officer
in May 1996.

(3) Dr. Gillespie resigned as Vice President, Technology in July 1996 due to her
limited availability to the Company as a result of undergoing medical
treatment. Dr. Gillespie continues to provide consulting services to the
Company on a limited basis.

(4) Mr. Rymer first became an executive officer of the Company in May 1994.

** Mr. Larry Katz, the Company's Vice President, Finance and Chief Financial
Officer, joined the Company on June 3, 1996. In June 1996, Mr. Katz was
granted options to purchase 30,000 shares of the Company's Common Stock. Mr.
Steven R. Hartmeier became the Company's Vice President, Commercial
Agriculture Products, on September 6, 1996. Mr. Hartmeier, who was
previously employed by the Company, holds options to purchase 13,134 shares
of the Company's Common Stock.

41
<PAGE> 43

STOCK OPTIONS

The following table sets forth information concerning options granted to
the Executive Officers during the year ended December 31, 1995 under the
Company's 1993 Stock Incentive Plan:

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM (1)
OPTIONS EMPLOYEES PER EXPIRATION ------------------
NAME GRANTED IN 1995 SHARE DATE 5% 10%
- --------------------------------- ---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Volker G. Oakey.................. 5,000(2) 3.55% $ 2.625 05/26/2005 $ 8,254 $20,918
10,000(3) 7.10 3.000 06/19/2005 18,867 47,812
Howard L. Allred(4).............. 3,333(2) 2.37 2.625 05/26/2005 5,502 13,944
10,000(3) 7.10 3.000 06/19/2005 18,867 47,812
Janice M. Gillespie(5)........... 3,000(2) 2.13 2.625 05/26/2005 4,953 12,551
3,000(3) 2.13 3.000 06/19/2005 5,660 14,344
Kenneth C. "Curt" Rymer.......... 2,833(2) 2.01 2.625 05/26/2005 4,677 11,852
7,500(3) 5.33 3.000 06/19/2005 14,150 35,859
</TABLE>

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

(1) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Common Stock compounded annually for a ten-year
period. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the Common Stock will appreciate at any
particular rate or at all in future years.

(2) Options became exercisable starting July 31, 1995, with one-sixth of the
options becoming exercisable at that time and with an additional one-sixth
of the options becoming exercisable on the last day of each calendar month
thereafter.

(3) Options became exercisable starting June 19, 1996, with one-fifth of the
options becoming exercisable at that time and with an additional one-fifth
becoming exercisable on the second, third, fourth and fifth anniversary
dates of the option grant, respectively.

(4) Mr. Allred resigned as Vice President, Finance and Chief Financial Officer
in May 1996.

(5) Dr. Gillespie resigned as Vice President, Technology in July 1996.

FISCAL YEAR END OPTION VALUES

The following table sets forth, for each of the Executive Officers, the
number and value of unexercised options as of December 31, 1995. None of the
named executive officers acquired any shares upon exercise of options during
1995.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Volker G. Oakey.................................. 102,000 18,000 $ 145,125 $ 8,000
Howard L. Allred(2).............................. 34,666 22,000 30,083 12,000
Janice M. Gillespie(3)........................... 22,400 26,600 12,875 2,000
Kenneth C. "Curt" Rymer.......................... 23,706 24,460 27,891 1,280
</TABLE>

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

(1) The value of unexercised in-the-money options is based on the difference
between $2.75, which was the closing price of the Common Stock on December
31, 1995, and the applicable exercise price.

(2) Mr. Allred resigned as Vice President, Finance and Chief Financial Officer
in May 1996.

(3) Dr. Gillespie resigned as Vice President, Technology in July 1996.

DIRECTOR COMPENSATION

The members of the Company's Board of Directors are not compensated for
their service on the Board, but are reimbursed for out-of-pocket and travel
expenses incurred in attending Board meetings. Nonemployee members of the Board
of Directors participate in the Company's 1993 Stock Option Plan for Nonemployee

42
<PAGE> 44

Directors, under which each eligible nonemployee director receives, after each
annual meeting of shareholders, an option to purchase 2,000 shares of Common
Stock. Options granted to nonemployee directors have an exercise price equal to
the fair market value of the Company's Common Stock as of the date of grant and
are 100% vested on the date of grant. All of the Company's nonemployee directors
are eligible to participate in the Company's 1993 Stock Option Plan for
Nonemployee Directors, except Mr. Gleason, who is prohibited by his employer
from directly owning any equity interest in the Company. Dr. Babcock is also
compensated for his service on the Company's SAB by receiving $1,500 per meeting
attended and an option to purchase 750 shares of Common Stock on an annual basis
under the Company's 1993 Stock Incentive Plan. See "-- Scientific Advisory
Board."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

Mr. Oakey serves as a member of the Compensation Committee of the Board of
Directors of Bend Research, and Dr. Babcock, an executive officer of Bend
Research, serves as a member of the Compensation Committee of the Board of
Directors of the Company. For a description of the transactions and
relationships between the Company and Bend Research see "Certain Transactions
and Relationships."

43
<PAGE> 45

CERTAIN TRANSACTIONS AND RELATIONSHIPS

RELATIONSHIP WITH BEND RESEARCH

The Company has entered into an agreement with Bend Research pursuant to
which the Company has obtained a license to certain technologies and under which
the Company is obligated to (i) pay Bend Research royalties on the sale of
certain of the Company's products and (ii) request Bend Research to perform
research and development services budgeted at not less than $600,000 a year, at
least $400,000 of which must be directed towards development of biorational
products. The Company's agreement with Bend Research was amended for 1995 and
1996 to require the Company to request research and development services from
Bend Research budgeted at not less than $350,000 and $191,500, respectively,
with no specific amount allocated to biorational products. See
"Business -- Research and Development." Payments by the Company to Bend Research
for research and development services provided to the Company totaled
approximately $354,000, $797,000 and $400,000, respectively, during the years
ended December 31, 1995, 1994 and 1993. During 1995, the Company purchased a
paid-up license from Bend Research covering certain technologies that eliminates
future royalty obligations to Bend Research related to those technologies. As of
June 30, 1996, Bend Research held 316,466 shares of the Company's Common Stock.
Walter C. Babcock, President, Chief Executive Officer and Chairman of the Board
of Directors of Bend Research serves as a member of the Company's Board of
Directors and its Scientific Advisory Board. Kelly L. Smith, a member of the
Board of Directors of Bend Research, serves as the Company's Secretary. In
addition, Volker G. Oakey, President, Chief Executive Officer and Chairman of
the Board of Directors of the Company serves as a member of the Board of
Directors of Bend Research.

WARRANT TRANSACTIONS WITH PRINCIPAL SHAREHOLDERS

In December 1993, the Company issued warrants to purchase 50,001 shares of
its Common Stock at an exercise price of $6.00 per share. These warrants were
issued in conjunction with a $3 million loan commitment provided by certain of
the Company's shareholders, including the following holders of more than 5% of
the Common Stock: (i) J.P. Morgan Investment Corporation and (ii) Nazem &
Company III, L.P. J.P. Morgan Investment Corporation and Nazem & Company III,
L.P. were issued commitment-based warrants to purchase up to 23,167 and 7,667
shares, respectively, as a result of their respective loan commitments in the
amounts of $1,390,000 and $460,000. The loan commitment expired unused upon the
closing of the Company's initial public offering in February 1994. The warrants,
all of which are outstanding and none of which have been exercised as of August
31, 1996, expire December 20, 1998.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and its
officers, directors, principal shareholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.

44
<PAGE> 46

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Company's Common Stock as of
August 31, 1996, and as adjusted to reflect the sale of the shares of Common
Stock offered hereby, by (i) the Selling Shareholder, (ii) each person known by
the Company to own beneficially more than five percent (5%) of the Company's
outstanding Common Stock, (iii) each of the Company's directors, (iv) each of
the Executive Officers and (v) all of the Company's directors and Executive
Officers as a group. Except as otherwise indicated, the Company believes that
each of the following shareholders has sole voting and investment power with
respect to the shares beneficially owned by such shareholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE OFFERING(1) NUMBER OF AFTER OFFERING(1)
------------------- SHARES BEING -------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Richard M. Welch, Sr. and Maureen M. Welch.... 544,437 7.1% 544,437 -- *
Spring Oak Farm
6127 Mechanicsville Road
Mechanicsville, PA 18934
Peter H. Gleason(2)........................... 707,773 9.2 -- 707,773 7.7%
J.P. Morgan Investment Corporation(2)......... 707,773 9.2 -- 707,773 7.7
J.P. Morgan & Co. Incorporated(2)............. 707,773 9.2 -- 707,773 7.7
60 Wall Street
14th Floor
New York, NY 10260
Nazem & Company III, L.P.(3).................. 692,470 9.0 -- 692,470 7.6
645 Madison Avenue
12th Floor
New York, NY 10022
Walter C. Babcock(4).......................... 358,139 4.7 -- 358,139 3.9
Volker G. Oakey(5)............................ 361,657 4.7 -- 361,657 3.9
Philip E. Barak............................... -- * -- * *
Howard L. Allred(6)........................... -- * -- -- *
Janice M. Gillespie(7)........................ 13,763 * -- 13,763 *
Kenneth C. "Curt" Rymer(8).................... 29,605 * -- 29,605 *
All directors and executive officers as a
group (7 persons)(9)........................ 1,470,937 18.7 -- 1,470,937 15.8
</TABLE>

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

* Less than 1%.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Shares of Common Stock subject to options or
warrants currently exercisable or exercisable within 60 days after August
31, 1996 are deemed outstanding for computing the percentage ownership of
the person holding such options or warrants, but are not deemed outstanding
for computing the percentage of any other person.

(2) Includes 707,773 shares beneficially owned by J.P. Morgan Investment
Corporation, which includes 23,167 shares issuable upon the exercise of
immediately exercisable warrants. J.P. Morgan & Co. Incorporated is the
parent corporation of J.P. Morgan Investment Corporation and therefore also
beneficially owns shares owned by J.P. Morgan Investment Corporation. Mr.
Gleason is Managing Director of J.P. Morgan Investment Corporation and may
be deemed to share with others the power to vote and dispose of the shares
owned by that corporation. Mr. Gleason disclaims beneficial ownership of the
shares beneficially owned by J.P. Morgan Investment Corporation.

(3) Includes 7,667 shares issuable upon the exercise of immediately exercisable
warrants.

(4) Includes 6,750 shares issuable upon the exercise of immediately exercisable
stock options. Also includes 880 shares beneficially owned by Dr. Babcock's
wife. Also includes 316,466 shares beneficially owned by Bend Research, Dr.
Babcock is President, Chief Executive Officer, a shareholder and a director
of Bend Research. Dr. Babcock disclaims beneficial ownership of (i) the
316,466 shares beneficially owned by Bend Research and (ii) the 880 shares
beneficially owned by Dr. Babcock's wife.

45
<PAGE> 47

(5) Includes 112,000 shares issuable upon exercise of stock options that are
exercisable within 60 days. Also includes 37,685 shares beneficially owned
by Mr. Oakey's wife and children. Mr. Oakey is a director of Bend Research.
Mr. Oakey disclaims beneficial ownership of (i) the 316,466 shares
beneficially owned by Bend Research and (ii) the 37,685 shares beneficially
owned by Mr. Oakey's wife and children.

(6) Mr. Allred resigned as Vice President, Finance and Chief Financial Officer
in May 1996.

(7) Dr. Gillespie resigned as Vice President, Technology in July 1996. Includes
13,400 shares issuable upon exercise of stock options that are exercisable
within 60 days.

(8) Represents 29,605 shares issuable upon exercise of stock options that are
exercisable within 60 days.

(9) Includes 184,922 shares issuable upon exercise of stock options and warrants
that are exercisable within 60 days. Also includes shares that Messrs.
Gleason, Babcock and Oakey, respectively, may be deemed to beneficially own,
but as to which each disclaims beneficial ownership. See notes (2), (4) and
(5).

46
<PAGE> 48

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 15,000,000 shares
of Common Stock, par value $0.01 per share, 657,601 shares of Nonvoting Common
Stock, par value $0.01 per share, and 3,000,000 shares of Preferred Stock, par
value $0.01 per share. The following summary description of the Company's
capital stock does not purport to be complete and is qualified in its entirety
by the provisions of the Company's Restated Articles and Restated Bylaws, which
have been filed as exhibits to the Registration Statement, of which this
Prospectus is a part.

COMMON STOCK

As of August 31, 1996, 7,662,274 shares of Common Stock were outstanding
and held of record by 169 shareholders. After this offering, 9,117,837 shares of
Common Stock will be outstanding. Holders of Common Stock are entitled to
receive such dividends as may from time to time be declared by the Board of
Directors of the Company out of funds legally available therefor. Holders of
Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote and do not have any cumulative
voting rights. Holders of Common Stock have no preemptive, redemption or sinking
fund rights. Certain holders of Common Stock may at their option convert each
share of Common Stock held into one share of Nonvoting Common Stock if any such
holder or its affiliate would otherwise directly or indirectly own, control or
have power to vote a greater quantity of Common Stock than such holder and its
affiliates are permitted to own, control or have the power to vote under any
law, regulation, order, rule or other requirement of any governmental authority
applicable to such holder and its affiliates. See "Nonvoting Common Stock." In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock and Nonvoting Common Stock are entitled to share equally and
ratably in the assets of the Company, if any, remaining after the payment of all
debts and liabilities of the Company and the liquidation preference of any
outstanding shares of Preferred Stock. The outstanding shares of Common Stock
are, and the shares of Common Stock offered by the Company hereby when issued
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to any series of Preferred Stock which the
Company may designate and issue in the future as described below.

NONVOTING COMMON STOCK

As of August 31, 1996, no shares of Nonvoting Common Stock were
outstanding. After this offering, no shares of Nonvoting Common Stock will be
outstanding. The Nonvoting Common Stock is identical to the Common Stock in all
respects except that the holders of Nonvoting Common Stock will have no right to
vote, except as provided by law or the Restated Articles. Each holder of record
of Nonvoting Common Stock is entitled at its option to convert any or all of
such shares into the same number of shares of Common Stock provided that such
conversion would not result in such holder or its affiliates directly or
indirectly owning, controlling or having the power to vote a greater number of
shares of Common Stock than such holder or its affiliates are permitted to own,
control or have the power to vote under any law, regulation, rule, order or
other requirement of any governmental authority applicable to such holder or its
affiliates. The Nonvoting Common Stock is intended to meet the needs of two of
the Company's institutional shareholders whose affiliates are subject to
limitations under the Bank Holding Company Act of 1956 on their ability to hold
more than five percent of the voting stock of the Company. Because shares of
Nonvoting Common Stock are issuable only upon conversion of shares of Common
Stock, the issuance of shares of Nonvoting Common Stock would not increase the
total number of shares of capital stock then outstanding.

PREFERRED STOCK

The Company is authorized to issue up to 3,000,000 shares of Preferred
Stock. The Board of Directors has the authority to issue Preferred Stock in one
or more series and to fix the number of shares constituting any such series, the
voting powers, designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
including the dividend rights, dividend rate, terms of redemption, redemption
price or prices, conversion and voting rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
shareholders of the Company. The

47
<PAGE> 49

issuance of Preferred Stock by the Board of Directors could adversely affect the
rights of holders of Common Stock. For example, issuance of Preferred Stock
could result in a series of securities outstanding that would have preferences
over the Common Stock with respect to dividends and in liquidation and that
could (upon conversion or otherwise) enjoy all of the rights appurtenant to the
Common Stock.

The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage, delay or prevent attempts by others to
obtain control of the Company through merger, tender offer, proxy or consent
solicitation or otherwise by making such attempts more difficult or costly to
achieve. The Board of Directors may issue Preferred Stock without shareholder
approval and with voting rights that could adversely affect the voting power of
holders of Common Stock. There are no agreements or understandings for the
issuance of Preferred Stock, and the Board of Directors has no present intention
of issuing any shares of Preferred Stock.

OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES; CERTAIN PROVISIONS OF
RESTATED ARTICLES

The Company is subject to the Oregon Control Share Act (Oregon Business
Corporation Act ("OBCA") sec.sec. 60.801-60.816) (the "Control Share Act"). The
Control Share Act generally provides that a person (the "Acquiring Person") who
acquires voting stock of an Oregon corporation in a transaction which results in
such Acquiring Person holding more than 20%, 33 1/3% or 50% of the total voting
power of such corporation (a "Control Share Acquisition") cannot vote the shares
it acquires in the Control Share Acquisition ("control shares") unless voting
rights are accorded to such control shares by the holders of a majority of the
outstanding voting shares, excluding the control shares held by the Acquiring
Person and shares held by the Company's officers and inside directors
("interested shares"), and by the holders of a majority of the outstanding
voting shares, including interested shares. The term "Acquiring Person" is
broadly defined to include persons acting as a group.

The Acquiring Person may, but is not required to, submit to the Company an
"Acquiring Person Statement" setting forth certain information about the
Acquiring Person and its plans for acquiring the Company's stock. The Acquiring
Person Statement may also request that the Company call a special meeting of
shareholders to determine whether the control shares will be allowed to retain
voting rights. If the Acquiring Person does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual or special meeting of shareholders that is held more than 60
days after the date of the Control Share Acquisition. If the Acquiring Person's
control shares are accorded voting rights and represent a majority or more of
all voting power, shareholders who do not vote in favor of the restoration of
such voting rights will have the right to receive the appraised "fair value" of
their shares, which may not be less than the highest price paid per share by the
Acquiring Person for the control shares.

The Company is also subject to the Oregon Business Combination Act (OBCA
sec.sec. 60.825-60.845) (the "Business Combination Act"). The Business
Combination Act generally provides that in the event a person or entity acquires
15% or more of the voting stock of an Oregon corporation (an "Interested
Shareholder"), the corporation and the Interested Shareholder, or any affiliated
entity, may not engage in certain business combination transactions for a period
of three years following the date the person became an Interested Shareholder.
Business combination transactions for this purpose include (a) a merger or plan
of share exchange, (b) any sale, lease, mortgage or other disposition of the
assets of the corporation where the assets have an aggregate market value equal
to 10% or more of the aggregate market value of the corporation's assets or
outstanding capital stock, and (c) certain transactions that result in the
issuance of capital stock of the corporation to the Interested Shareholder.
These restrictions do not apply if (i) the Interested Shareholder, as a result
of the transaction in which such person became an Interested Shareholder, owns
at least 85% of the outstanding voting stock of the corporation (disregarding
shares owned by directors who are also officers, and certain employee benefit
plans), (ii) the Board of Directors approves the share acquisition or business
combination before the Interested Shareholder acquires 15% or more of the
corporation's voting stock, or (iii) the Board of Directors and the holders of
at least two-thirds of the outstanding voting stock of the corporation
(disregarding shares owned by the Interested Shareholder) approve the
transaction after the Interested Shareholder acquires 15% or more of the
corporation's voting stock.

48
<PAGE> 50

In addition, the Company's Restated Articles and Restated Bylaws contain
provisions which (i) classify the Board of Directors into three classes as
nearly equal in number as possible, each of which, after an interim arrangement,
will serve for three years with one class being elected each year (the
"Classified Board Provisions") and (ii) provide that directors may be removed by
shareholders only for cause and only upon the vote of 75% of the votes then
entitled to be cast for the election of directors. The Classified Board
Provisions and the availability of Preferred Stock for issuance without
shareholder approval may have the effect of lengthening the time required for a
person to acquire control of the Company through a proxy contest or the election
of a majority of the Board of Directors and may deter any potential unfriendly
offers or other efforts to obtain control of the Company. This could deprive the
Company's shareholders of opportunities to realize a premium for their Common
Stock and could make removal of incumbent directors more difficult. At the same
time, these provisions may have the effect of inducing any persons seeking
control of the Company to negotiate terms acceptable to the Board of Directors.
In addition, the provisions of the Restated Articles regarding removal of
directors will make the removal of any director more difficult even if such
removal is believed by the shareholders to be in their best interests. Since
these provisions make the removal of directors more difficult, they increase the
likelihood that incumbent directors will retain their positions and, since the
Board has the power to retain and discharge management, could perpetuate
incumbent management.

REGISTRATION RIGHTS

Beginning 180 days from the effective date of this offering, the holders of
an aggregate of approximately 2,659,395 shares of Common Stock (including shares
purchasable upon exercise of outstanding warrants) (the "Registrable
Securities") or their transferees are entitled to certain rights with respect to
the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between the Company and the holders of
Registrable Securities. Subject to certain limitations in the agreement, the
holders of at least 50% of the Registrable Securities may require, on two
occasions after 180 days from the effective date of this offering, that the
Company use its best efforts to register the Registrable Securities for public
resale. In addition, if the Company registers any of its Common Stock, the
holders of Registrable Securities are entitled to include their shares in the
registration. A holder's right to include shares in an underwritten registration
is subject to the right of the underwriters to limit the number of shares
included in the offering. The holders of Registrable Securities may also require
the Company on no more than two occasions every 12 months to register all or a
portion of their Registrable Securities on Form S-3 under the Securities Act.
All expenses other than underwriting discounts and commissions incurred in
connection with such registrations (other than a second registration on Form S-3
effected in any 12 month period) must be borne by the Company. See "Shares
Eligible for Future Sale."

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, San Francisco, California.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
9,117,837 shares of Common Stock, assuming no exercise of options or warrants
after August 31, 1996. Of these shares, the 2,000,000 shares offered hereby
(2,300,000 shares if the Underwriter's over-allotment option is exercised in
full) will be freely tradable without restriction or further registration under
the Securities Act, unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act ("Rule 144") described below.
Approximately 2,236,234 shares of the remaining 7,117,837 shares of Common Stock
outstanding upon completion of this offering are either (i) "restricted
securities" as that term is defined in Rule 144, or (ii) held by "affiliates"
within the meaning of Rule 144. Of these, approximately 2,064,563 shares may be
sold subject to the volume and manner of sales restrictions of Rule 144 and the
remaining 171,671 shares may not be sold pursuant to Rule 144 prior to the
expiration of two years from the dates of their original issuances.

49
<PAGE> 51

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner except an affiliate from
whom such shares were purchased) is entitled to sell in "broker's transactions"
or to market makers, within any three-month period, a number of shares that does
not exceed the greater of (i) one percent of the number of shares of Common
Stock then outstanding (approximately 91,178 shares immediately after this
offering) or (ii) generally, the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of Form 144
with respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least three years (including the holding period of
any prior owner other than an affiliate from whom such shares were purchased),
is entitled to sell such shares without having to comply with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Under Rule 701, persons who purchase shares upon exercise of options granted
prior to February 8, 1994, are entitled to sell such shares in reliance on Rule
144, without having to comply with the holding period requirements of Rule 144
and, in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144.

Pursuant to Lock-Up Agreements, the Company, certain shareholders and
holders of outstanding options and warrants, including all of the Company
officers and directors, owning upon completion of this offering, in the
aggregate, 2,156,489 shares of Common Stock and holding vested options and
warrants for, in the aggregate, approximately an additional 179,189 shares of
Common Stock, have agreed not to, directly or indirectly, offer, sell, offer to
sell, contract to sell, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, grant of
any option to purchase or other sale or disposition) of any shares of Common
Stock (including "restricted securities") or any securities convertible into or
exercisable or exchangeable therefor, for a period of 90 days after the date of
this Prospectus without the prior written consent of Value Investing Partners,
Inc., on behalf of the Underwriters.

The Company has filed five Registration Statements on Form S-8 covering an
aggregate of approximately 620,000 shares of Common Stock (including 111,003
shares subject to outstanding vested stock options as of August 31, 1996) that
have been reserved for issuance under its stock option and stock purchase plans,
thus permitting the resale of such shares in the public market without
restriction under the Securities Act. In addition, 280,800 additional shares of
Common Stock subject to outstanding warrants and vested stock options as of
August 31, 1996 could also be sold, subject in some cases to compliance with the
volume limitations of Rule 144 described above.

Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.

50
<PAGE> 52

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Value Investing
Partners, Inc. is acting as the Representative, have severally agreed, subject
to the terms and conditions contained in the Underwriting Agreement, to purchase
from the Company and the Selling Shareholder the respective number of shares of
Common Stock set forth opposite their names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Value Investing Partners, Inc. ...........................................
---------
Total..................................................................... 2,000,000
=========
</TABLE>

The Company and the Selling Shareholder are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.

The Company and the Selling Shareholder have been advised by the
Representative that the Underwriters propose to offer the Common Stock initially
at the public offering price set forth on the cover page of this Prospectus;
that the Underwriters may allow to selected dealers a concession of $
per share; and that such dealers may reallow a concession of $ per
share to certain other dealers. After the initial public offering of the shares
of Common Stock offered hereby, the offering price and the concessions may be
changed by the Representative.

The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase, in the aggregate, up to 300,000
additional shares of Common Stock at the public offering price, less the
underwriting discount, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent that the Underwriters exercise such option, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to 2,000,000.

The Company and the Selling Shareholder have agreed to indemnify the
Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.

The Company and the Selling Shareholder have agreed to pay to the
Representative a non-accountable expense allowance equal to 1% of the gross
proceeds of the offering, $25,000 of which has already been paid to cover some
of the underwriting costs and due diligence expenses relating to the offering.

At the request of the Company, the Representative has reserved during the
period of the offering up to 100,000 shares of the Common Stock offered hereby
for sale at the public offering price to certain officers and other employees of
the Company and to certain other persons designated by the Company who are
directly related to the conduct of the Company's business. All persons who
purchase any of the reserved shares upon the offering must represent that their
purchases are for investment purposes only, and with no present intention to
resell the Shares. The number of Shares available for sale to the general public
will be reduced to the extent these persons purchase reserved Shares. Any
reserved Shares not so purchased will be offered by the Underwriters to the
general public on the same terms as the other Shares offered by this Prospectus.

The Company, its officers and directors, and certain other beneficial
owners of the Company's Common Stock and certain holders of warrants or options
to purchase Common Stock have agreed not to, directly or indirectly, offer,
sell, offer to sell, contract to sell, grant any option to purchase or otherwise
sell or dispose (or announce any offer, sale, offer of sale, contract of sale,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
therefor, for a period of 90 days after the date of this Prospectus without the
prior written consent of Value Investing Partners, Inc., on behalf of the
Underwriters. Any sales by a holder subject to the foregoing restriction during
such 90 day period must be effected through Value Investing Partners, Inc. and
be subject to its customary brokerage commissions.

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<PAGE> 53

The Company has granted the Representative a right of first refusal for a
period of 12 months from the date of this Prospectus with respect to acting as a
broker, dealer or underwriter of any sale of securities for cash to be made by
the Company or any of its present or future subsidiaries.

In connection with this offering, the Company has agreed to sell to the
Representative, for nominal consideration, a warrant to purchase from the
Company 175,556 shares of Common Stock (the "Representative Warrant"). The
Representative Warrant is initially exercisable at a price of $ per
share of Common Stock [120% of the public offering price] for a period of four
years commencing one year from the effective date of this Prospectus and are
restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the date hereof, except to officers and/or employees of the
Representative. The Representative Warrant also provides for adjustment in the
number of shares of Common Stock issuable upon the exercise thereof as a result
of certain subdivisions and combinations of the Common Stock. The Representative
Warrant grants to the holders thereof certain rights of registration for the
securities issuable upon exercise thereof.

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Ater Wynne Hewitt Dodson & Skerritt, LLP, Portland, Oregon.
Certain legal matters will be passed upon for the Underwriters by Reid & Priest
LLP, New York, New York.

EXPERTS

The consolidated financial statements and schedule as of December 31, 1995
and 1994, and for each of the years in the three-year period ended December 31,
1995 appearing herein and elsewhere in the Registration Statement have been
included herein in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing herein and elsewhere, and
upon the authority of said firm as experts in accounting and auditing.

52
<PAGE> 54

CONSEP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Shareholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>

F-1
<PAGE> 55

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Consep, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Consep,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Consep, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations, and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Portland, Oregon
February 2, 1996

F-2
<PAGE> 56

CONSEP, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
JUNE 30, ------------ ------------
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTES 7 AND 8)
Current assets:
Cash and cash equivalents...................... $ 574,506 $ 2,069,595 $ 1,753,785
Short-term investments......................... 103,317 136,501 1,651,364
Accounts receivable, net....................... 8,295,905 3,797,425 3,473,763
Inventories, net (note 4)...................... 8,397,312 8,012,430 5,697,053
Prepaid expenses and other..................... 640,502 416,717 491,887
------------ ------------ ------------
Total current assets................... 18,011,542 14,432,668 13,067,852
Property, plant and equipment, net (note 5)...... 3,810,920 3,215,841 3,066,635
Notes receivable and other assets................ 241,483 71,790 91,827
Intangible assets, net (note 6).................. 1,624,547 1,526,602 1,129,683
Goodwill, net (note 2)........................... 2,249,219 2,311,673 2,296,634
------------ ------------ ------------
Total assets........................... $ 25,937,711 $ 21,558,574 $ 19,652,631
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank lines (note 7)............................ $ 2,718,706 $ 1,710,997 $ 1,376,807
Accounts payable............................... 4,903,346 2,458,120 2,700,529
Current portion of notes payable (note 8)...... 385,218 401,005 618,032
Current portion of obligations under capital
lease (note 12)............................. 36,658 43,420 61,185
Accrued liabilities............................ 1,023,063 584,179 887,365
Customer deposits.............................. 48,241 451,226 562,092
------------ ------------ ------------
Total current liabilities.............. 9,115,232 5,648,947 6,206,010
Notes payable, excluding current portion (note
8)............................................. 1,200,419 879,120 574,787
Obligations under capital lease, excluding
current portion (note 12)...................... 34,180 51,885 95,179
Deferred gain on sale of property (note 12)...... 257,859 277,642 317,209
Mandatory stock warrant obligation (note 9)...... 19,500 19,500 19,500
------------ ------------ ------------
Total liabilities...................... 10,627,190 6,877,094 7,212,685
------------ ------------ ------------
Commitments and contingencies (notes 12, 13 and
14)
Shareholders' equity (note 9):
Preferred stock, $.01 par value. Authorized
3,000,000 shares at 1996, 1995 and 1994; no
shares issued or outstanding................ -- -- --
Common stock, non-voting, $.01 par value.
Authorized 657,601 shares at 1996, 1995 and
1994; no shares issued or outstanding....... -- -- --
Common stock, $.01 par value. Authorized
15,000,000 shares; issued and outstanding
7,652,032, 7,569,537 and 6,263,653 shares at
1996, 1995 and 1994, respectively........... 76,520 75,695 62,636
Additional paid-in capital..................... 39,634,604 39,467,701 35,978,675
Accumulated deficit............................ (24,412,224) (24,872,713) (23,586,234)
Foreign currency translation adjustment........ 11,621 10,797 (15,131)
------------ ------------ ------------
Total shareholders' equity............. 15,310,521 14,681,480 12,439,946
------------ ------------ ------------
Total liabilities and shareholders'
equity............................... $ 25,937,711 $ 21,558,574 $ 19,652,631
============ ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 57

CONSEP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 58

CONSEP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
FOREIGN
PREFERRED STOCK COMMON STOCK ADDITIONAL CURRENCY TOTAL
---------------------- -------------------- PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
---------- -------- --------- ------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1992............ 3,606,700 $ 36,067 382,806 $3,828 $24,206,516 $(13,609,922) $ -- $ 10,636,489
Exercise of
stock
options....... -- -- 4,335 43 7,540 -- -- 7,583
Stock warrant
accretion....... -- -- -- -- (28,103) -- -- (28,103)
Net loss........ -- -- -- -- -- (4,126,477 ) -- (4,126,477)
---------- -------- --------- ------- ----------- ------------ -------- -----------
Balance at
December 31,
1993............ 3,606,700 36,067 387,141 3,871 24,185,953 (17,736,399 ) -- 6,489,492
Common stock
issued in
initial public
offering...... -- -- 2,150,000 21,500 11,179,750 -- -- 11,201,250
Conversion of
preferred
stock upon
initial public
offering...... (3,606,700) (36,067) 3,636,485 36,365 (298) -- -- --
Exercise of stock
options......... -- -- 4,200 42 2,808 -- -- 2,850
Business
acquisitions
(note 3)...... -- -- 85,827 858 610,462 -- -- 611,320
Foreign currency
translation
adjustment.... -- -- -- -- -- -- (15,131) (15,131)
Net loss........ -- -- -- -- -- (5,849,835 ) -- (5,849,835)
---------- -------- --------- ------- ----------- ------------ -------- -----------
Balance at
December 31,
1994............ -- -- 6,263,653 62,636 35,978,675 (23,586,234 ) (15,131) 12,439,946
Common stock
issued in
secondary
public
offering...... -- -- 1,100,000 11,000 3,078,375 -- -- 3,089,375
Exercise of
stock
options....... -- -- 34,213 342 58,297 -- -- 58,639
Business
acquisition
(note 3)...... -- -- 171,671 1,717 352,354 -- -- 354,071
Foreign currency
translation
adjustment.... -- -- -- -- -- -- 25,928 25,928
Net loss........ -- -- -- -- -- (1,286,479 ) -- (1,286,479)
---------- -------- --------- ------- ----------- ------------ -------- -----------
Balance at
December 31,
1995............ -- -- 7,569,537 75,695 39,467,701 (24,872,713 ) 10,797 14,681,480
Exercise of
stock
options....... -- -- 72,332 723 143,249 -- -- 143,972
Common Stock
issued under
Employee Stock
Purchase
Plan.......... -- -- 10,163 102 23,654 -- -- 23,756
Foreign currency
translation
adjustment.... -- -- -- -- -- -- 824 824
Net income...... -- -- -- -- -- 460,489 -- 460,489
---------- -------- --------- ------- ----------- ------------ -------- -----------
Balance at June
30, 1996
(unaudited)..... -- $ -- 7,652,032 $76,520 $39,634,604 $(24,412,224) $ 11,621 $ 15,310,521
========== ======== ========= ======= =========== ============ ======== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 59

CONSEP, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)....................... $ 460,489 $ 435,373 $(1,286,479) $(5,849,835) $(4,126,477)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization......... 512,971 423,854 881,784 815,820 666,815
Provision for bad debts............... (41,039) 48,949 164,544 142,791 292,618
Inventory reserve..................... 44,115 40,470 148,042 156,500 138,833
(Gain) loss on disposal of
equipment........................... 8,667 (238) (50,467) 20,353 10,503
Other non-cash items.................. (5,098) (17,790) (31,507) 630,154 --
Changes in assets and liabilities, net
of amounts acquired:
Short-term investments.............. 33,183 1,514,935 1,514,864 (1,518,032) 1,039,851
Accounts receivable................. (4,819,569) (3,884,065) (244,658) (64,642) (854,260)
Inventories......................... (428,765) (523,295) (2,097,823) (1,449,137) (11,730)
Prepaid expenses and other.......... (223,778) (17,228) 104,301 20,158 (246,384)
Accounts payable.................... 2,444,478 1,870,271 (460,477) (1,366,780) 1,206,368
Accrued liabilities................. 439,947 22,181 (324,627) 264,181 151,613
Other assets........................ (5,000) -- 66,667 586,499 (642,835)
Customer deposits................... (402,985) (493,427) (110,866) 16,323 148,259
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities..................... (1,982,384) (580,010) (1,726,702) (7,595,647) (2,226,826)
----------- ----------- ----------- ----------- -----------
Investing activities:
Acquisition of intangible assets........ (226,200) (137,377) (396,915) (335,068) (223,349)
Acquisition of property, plant and
equipment............................. (468,560) (210,848) (477,404) (719,502) (515,890)
Acquisition of subsidiary companies, net
of cash acquired...................... -- (74,136) (74,136) (982,477) (73,184)
Net proceeds from sale of property,
plant and equipment................... 1,000 11,667 88,050 1,150,755 6,605
Increase in notes receivable, net of
payments received..................... 198,414 (34,051) (34,900) (133,861) (81,436)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (495,346) (444,745) (895,305) (1,020,153) (887,254)
----------- ----------- ----------- ----------- -----------
Financing activities:
Increase (decrease) in bank lines....... 1,007,589 953,538 233,897 (271,203) 748,000
Increase in notes payable............... -- 141,516 141,516 67,596 231,890
Principal payments on notes payable and
capital lease obligations............. (192,887) (269,837) (584,997) (1,262,098) (977,013)
Payment on stock warrant obligation..... -- -- -- -- (41,370)
Proceeds from sale of preferred stock,
net................................... -- -- -- -- --
Proceeds from sale of common stock,
net................................... 167,728 53,390 3,148,014 11,204,100 7,583
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
financing activities........... 982,430 878,607 2,938,430 9,738,395 (30,910)
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash
and cash equivalents.................. 211 (1,231) (613) 2,379 --
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents........... (1,495,089) (147,379) 315,810 1,124,974 (3,144,990)
Cash and cash equivalents at beginning of
period.................................. 2,069,595 1,753,785 1,753,785 628,811 3,773,801
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period.................................. $ 574,506 $ 1,606,406 $ 2,069,595 $ 1,753,785 $ 628,811
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest.............................. $ 139,359 $ 170,488 $ 295,915 $ 290,807 $ 277,729
=========== =========== =========== =========== ===========
Cash paid during the period for taxes... $ 5,399 $ 17,279 $ 12,403 $ 7,542 $ 7,504
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 60

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Cash Equivalents and Short-term Investments

For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. Similar investments with original maturities beyond
three months are considered short-term investments and are carried at cost,
which approximates market value. In May 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 115 (SFAS No. 115),
"Accounting for Certain Investments in Debt and Equity Securities." Effective
January 1, 1994, the Company adopted SFAS No. 115. The adoption of SFAS No. 115
did not materially impact the Company due to fair values of investments held by
the Company being substantially consistent with the underlying costs and
carrying values of such investments.

(b) Principles of Consolidation

The consolidated financial statements include the accounts of Consep, Inc.
and its wholly-owned subsidiaries, Pacoast, Inc. (Pacoast), Valley Green Center,
Inc., Consep de Mexico, S.A. de C.V. (CdM), Chemfree Environment Inc.
(Chemfree), Richard Hunt, Inc., d.b.a. Sierra Ag Chemical (Sierra Ag), Consep
GmbH, and Farchan Laboratories, Inc. (Farchan). All significant intercompany
transactions and balances have been eliminated in consolidation.

The consolidated financial statements at June 30, 1996 and for the six
months ended June 30, 1996 and 1995 are unaudited. In the opinion of the
Company's management, such unaudited financial statements include all
adjustments (consisting only of normal and recurring adjustments) necessary to
present fairly the information set forth therein.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Results for the interim periods are not
necessarily indicative of the results for the entire year.

(d) Accounts Receivable

Accounts receivable are shown net of allowance for doubtful accounts of
$781,641, $834,128 and $681,198 at June 30, 1996, December 31, 1995 and December
31, 1994, respectively. The Company sells its products through agribusiness
distributors, consumer products distributors and retailers and to agricultural
growers, primarily in the Central Valley of California. The Company performs
continuing credit evaluations of its customers and generally does not require
collateral.

(e) Inventories

Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.

F-7
<PAGE> 61

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

(f) Property, Plant and Equipment

Property, plant and equipment are recorded at cost and depreciated using
the straight-line method over the estimated useful lives of the assets ranging
from five to twenty years. Leasehold improvements are amortized over the shorter
of the estimated life of the asset or the term of the related lease.

(g) Patents, Trademarks, Technology and Registrations

Patents are amortized over seventeen years, technology over ten years,
catalog rights over five years, and trademarks and product registrations over
their useful lives, all using the straight-line method.

(h) Goodwill

Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized over periods ranging from ten to
twenty-five years using the straight-line method. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
discounted projected future cash flows of the operations or assets from which
the goodwill arose. Amortization charged to operations was $125,571, $129,740
and $74,191 for the years ended December 31, 1995, 1994 and 1993, respectively.

(i) Income Taxes

Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes." Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

(j) Net Income and Pro Forma Net Loss Per Common and Common Equivalent Share

Pro forma net loss per common and common equivalent share for the years
ended December 31, 1994 and 1993 is presented reflecting the Company's capital
structure as if all outstanding preferred stock had been converted into common
stock as of the beginning of each such period. As a result of the Company's
initial public stock offering which occurred in February 1994, such preferred
stock was converted into common stock.

Net income and pro forma net loss per common and common equivalent share
for all periods presented is computed using the weighted average number of
common and dilutive common equivalent shares assumed to be outstanding for each
such period. Common equivalent shares consist of options and warrants to
purchase shares of the Company's common stock.

Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common and common equivalent shares which were issued or became
issuable during the twelve months immediately preceding the initial public
offering have been included in the calculation as if they were outstanding for
all periods presented prior to the closing of the initial public offering, using
the treasury stock method and the initial public offering price. Subsequent to
the closing of the initial public offering, the weighted average

F-8
<PAGE> 62

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

number of common and common equivalent shares includes only common and dilutive
common equivalent shares outstanding. For the loss periods presented in the
accompanying statements of operations, common equivalent shares outstanding
subsequent to the initial public offering are excluded from the calculation due
to the anti-dilutive effects given the net losses incurred by the Company for
such periods.

(k) Foreign Currency Translation

The Canadian dollar is the functional currency of Chemfree, the Company's
Canadian subsidiary. Assets and liabilities of Chemfree are translated to U.S.
dollars at current exchange rates, and revenues and expenses are translated
using weighted average rates of exchange. Adjustments arising from foreign
currency translation are included as a separate component of shareholders'
equity. Foreign currency transaction gains and losses are included as a
component of other income and expense and arise primarily from U.S.-dollar-based
amounts held by Chemfree and Mexican-peso-based amounts held by CdM, the
Company's Mexican subsidiary. There are no foreign currency translation effects
arising from CdM as the U.S. dollar is the functional currency of this
subsidiary.

(l) Use of Estimates

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.

(m) Reclassifications

Certain reclassifications have been made in the accompanying consolidated
financial statements for 1993 and 1994 to conform with the 1995 presentation.

(2) RESTRUCTURING

In November 1994, the Company recorded a charge of approximately $866,000
associated with a restructuring plan aimed at reducing operating expenses by
refocusing Company resources. This charge consists of approximately $203,000 in
severance costs related to ten employees who held positions which were
eliminated as a result of the restructuring. In addition, approximately $523,000
of the restructuring charge relates to the write-off of catalog rights, certain
goodwill and purchased technology. This write-off was a result of the Company's
decision to focus the marketing efforts for its consumer products more directly
towards its existing SureFire and Insectigone labels. The catalog rights,
goodwill and purchased technology which were impaired due to the restructuring
were related to product lines which will not be actively marketed given the
Company's more direct focus on existing brand names. Additionally, approximately
$140,000 in inventory related to the brand names associated with the impaired
goodwill and purchased technology was written off pursuant to the Company's
restructuring plan. At December 31, 1994, accrued liabilities included $180,000
of accrued restructure costs, all related to severance charges. These severance
liabilities were paid in 1995.

(3) ACQUISITIONS

Effective February 1, 1993, the Company acquired all of the outstanding
shares of Envirosafe Solutions Corporation (Envirosafe) for $75,000 cash. As
part of this transaction, the Company loaned Envirosafe

F-9
<PAGE> 63

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

$360,000 to allow the repayment of an equal amount of debt owed to the previous
shareholders. The purchase price exceeded the fair value of tangible net assets
by $268,000 which the Company has ascribed to the value of technology and patent
applications acquired in the transaction. In conjunction with the November 1994
restructuring more fully described in Note 2 above, approximately $118,000 of
purchased technology related to the Envirosafe acquisition was written off.

Effective April 1, 1994, the Company acquired all of the outstanding
capital stock of Chemfree for approximately $996,000, including approximately
$535,000 in cash and 85,827 shares of the Company's common stock, valued at
approximately $461,000. Chemfree is a manufacturer and distributor of non-toxic
insect control products which are marketed through major retail and commercial
outlets throughout North America. The aggregate purchase price, plus the fair
market value of net liabilities assumed over assets acquired of approximately
$245,000, was recognized as goodwill and is being amortized over 20 years on a
straight-line basis. The operating results of Chemfree are included in the
Company's consolidated results from April 1, 1994.

Effective May 1, 1994, the Company acquired all of the outstanding capital
stock of Sierra Ag, a California-based distributor of agricultural products, for
approximately $908,000, including approximately $558,000 in cash, promissory
notes of $200,000, and $150,000 in guaranteed stock options. The guaranteed
stock options represent options to purchase 12,000 shares of the Company's
common stock at an exercise price of $3.75 per share with a guaranteed per share
value of $16.25. If the fair value of the Company's common stock does not reach
$16.25 prior to May 15, 1998, the Company is obligated to pay the option holder
the difference between the guaranteed price and the fair value of the Company's
common stock at that date. The $150,000 difference between the exercise price
and the guaranteed price of these options has been included in the purchase
price of Sierra Ag as described above. The aggregate purchase price, less the
fair market value of net assets acquired of approximately $396,000, has been
recognized as goodwill and is being amortized over 20 years on a straight-line
basis. The operating results of Sierra Ag are included in the Company's
consolidated results from May 1, 1994.

The pro forma results listed below reflect purchase accounting adjustments
assuming the acquisitions of Chemfree and Sierra Ag occurred as of the beginning
of each of the periods presented.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $26,639,000 $25,397,000
Net loss.......................................... (5,841,000) (4,366,000)
Net loss per share................................ (0.97) (1.04)
</TABLE>

The pro forma results above are not necessarily indicative of what actually
would have occurred had the acquisitions been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results that may be achieved from combined operations.

In February 1995, the Company acquired all of the outstanding capital stock
of Farchan, a Florida-based specialty chemicals manufacturer which is currently
supplying pheromones, a major raw material used in the Company's proprietary
products, to the Company. The purchase price of the acquisition was
approximately $589,000, consisting of 171,671 shares of the Company's common
stock valued at $354,000, a non-competition agreement with the former majority
shareholder of Farchan valued at approximately $161,000, and direct costs of the
acquisition of approximately $74,000.

F-10
<PAGE> 64

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

Pursuant to the Agreement and Plan of Merger, the Company covenants that
the 171,671 shares issued to effect the merger (the "Original Shares") will have
an aggregate market value of at least $1 million (the "Guaranteed Value") for at
least three consecutive trading days during the period from February 1, 1997 to
January 31, 1998. If the Original Shares do not reach the Guaranteed Value
during the period specified, then the following shall apply: (i) if as of
January 31, 1998, the Original Shares have an aggregate market value of less
than the Guaranteed Value but more than $950,000, then the Company shall issue
additional shares of its common stock to the extent necessary to make the
aggregate value of the Original Shares, plus the additional shares, equal to $1
million; (ii) if as of January 31, 1998, the Original Shares have an aggregate
market value of less than $950,000 but more than $500,000, then the Company
shall, at the Company's option, either (a) issue additional shares of its common
stock, up to a maximum of 171,670 additional shares, to the extent necessary to
make the aggregate value of the Original Shares, plus the additional shares,
equal to $1 million, or (b) deliver the acquired Farchan shares to the previous
Farchan shareholders in exchange for the Original Shares; (iii) if as of January
31, 1998, the Original Shares have an aggregate market value of less than
$500,000, then either (a) the Company shall issue an additional 171,670 shares
of its common stock to the previous Farchan shareholders, or (b) if the Company
does not elect to deliver such additional shares by February 15, 1998, then the
previous Farchan shareholders shall have the option to elect between the
remedies provided in (ii)(a) and (ii)(b) above. Such election by the previous
Farchan shareholders must occur before March 1, 1998.

The aggregate purchase price, less the fair market value of net assets
acquired of approximately $482,000, has been recognized as goodwill and is being
amortized over 20 years on a straight-line basis. The operating results of
Farchan are included in the Company's consolidated results from February 1,
1995.

All of the above acquisitions were accounted for as purchases.

(4) INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
JUNE 30, ---------- ----------
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................. $ 1,419,126 $1,760,833 $1,319,941
Work in process............................ 299,256 208,807 --
Finished goods -- proprietary.............. 3,462,012 3,329,485 2,138,394
Finished goods -- distribution............. 3,412,696 2,975,188 2,465,957
---------- ---------- ----------
8,593,090 8,274,313 5,924,292
Less reserve for obsolescence.............. 195,778 261,883 227,239
---------- ---------- ----------
$ 8,397,312 $8,012,430 $5,697,053
========== ========== ==========
</TABLE>

F-11
<PAGE> 65

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

(5) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Land.................................................... $ 432,481 $ 407,481
Buildings............................................... 865,203 727,159
Machinery and equipment................................. 2,410,488 2,079,624
Furniture and fixtures.................................. 957,945 850,566
Vehicles................................................ 775,159 732,073
Leasehold improvements.................................. 180,529 180,529
---------- ----------
5,621,805 4,977,432
Less accumulated depreciation and amortization.......... 2,405,964 1,910,797
---------- ----------
Property, plant and equipment, net............ $3,215,841 $3,066,635
========== ==========
</TABLE>

(6) INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
USEFUL LIVES 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Patents, technology and trademarks........ 5-20 years $ 719,164 $ 489,012
Product registrations..................... 10-20 years 750,909 698,529
Other..................................... 3-10 years 428,153 151,215
---------- ----------
1,898,226 1,338,756
Less accumulated amortization............. 371,624 209,073
---------- ----------
Intangible assets, net.......... $1,526,602 $1,129,683
========== ==========
</TABLE>

(7) BANK LINES

In August 1995, the Company secured a $5 million bank line of credit which
matures July 31, 1996 and is secured by substantially all of the Company's
current assets. Maximum borrowings under the credit line cannot exceed 70% of
eligible accounts receivable and 40% of eligible inventory from certain of the
Company's distribution operations. Interest is payable monthly at the bank's
prime rate (8.5% at December 31, 1995) plus 1.5%. At December 31, 1995, the
Company had $1.6 million outstanding under the line.

In addition to the $5 million bank line of credit, the Company's Farchan
and Chemfree subsidiaries have working capital bank lines of credit which total
approximately $137,000 with interest rates ranging from 9.25% to 10.25%. At
December 31, 1995, approximately $111,000 was outstanding under these lines.

Under the terms of the credit agreements, the Company is required to
maintain certain financial ratios and other financial conditions. At June 30,
1996 and December 31, 1995, the Company was in compliance with, or had obtained
necessary waivers for, all covenants related to these credit agreements.
Subsequent to December 31, 1995, the Company renewed its bank line of credit as
more fully described in Note 17.

F-12
<PAGE> 66

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

(8) NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Mortgages payable at interest rates ranging from prime plus
1.5% to 10%, secured, payable in monthly installments
through July, 2006........................................ $ 443,899 $ 490,793
Various notes payable at interest rates ranging from 6.5% to
12.9%, secured by certain investments, equipment and
vehicles, payable in monthly installments with various
maturity dates through May, 2000.......................... 506,335 447,401
Various notes payable at interest rates ranging from 9% to
10%, unsecured, payable in annual installments or upon
demand, maturity at various dates through December 1996... 40,139 54,625
Notes payable to former shareholders of Sierra Ag and
Farchan, interest ranging from 8% to 9%, payable
semi-monthly or in annual installments with maturity dates
through 2000 (The former shareholders of Sierra Ag and
Farchan are currently employed by those subsidiaries.).... 289,752 200,000
---------- ----------
1,280,125 1,192,819
Less current maturities..................................... 401,005 618,032
---------- ----------
Notes payable, excluding related current
maturities...................................... $ 879,120 $ 574,787
========== ==========
</TABLE>

The aggregate maturities of notes payable for the five years ending after
December 31, 1995 are as follows: 1996 -- $401,005; 1997 -- $202,218;
1998 -- $177,746; 1999 -- $166,965; and 2000 -- $209,256.

(9) SHAREHOLDERS' EQUITY

(a) Common Stock

During February 1994, the Company completed its initial public offering
(IPO) of its common stock. The IPO resulted in net proceeds to the Company of
approximately $11.2 million upon the sale of 2,150,000 shares of common stock.
In conjunction with the IPO, all outstanding shares of preferred stock
automatically converted into common stock.

In October 1995, the Company completed a secondary public offering of its
common stock. This offering resulted in net proceeds to the Company of
approximately $3.1 million upon the sale of 1,100,000 shares of common stock.

(b) Stock Option Plans

Under the Company's 1992 Stock Incentive Plan (the "1992 Plan"), options
may be granted to employees and certain other individuals to purchase a maximum
of 339,267 shares of common stock. Both incentive and nonqualified stock options
may be granted under the 1992 Plan. Options granted pursuant to the 1992 Plan
become exercisable in various increments determined at the time of grant and
generally expire ten years from the date of grant.

F-13
<PAGE> 67

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

Under the Company's 1993 Stock Incentive Plan (the "1993 Plan"), options
may be granted to employees and certain other individuals to purchase a maximum
of 270,000 shares of common stock. Both incentive and nonqualified stock options
may be granted under the 1993 Plan. Options granted pursuant to the 1993 Plan
become exercisable in various increments determined at the time of grant and
generally expire ten years from the date of grant. In March 1996, the Company's
Board of Directors authorized an amendment to the 1993 Plan, subject to
shareholder approval, whereby the number of shares reserved for future issuance
under the 1993 Plan was increased by 100,000.

Under the Company's 1993 Stock Option Plan for Nonemployee Directors (the
"1993 Director Plan"), options are automatically granted to certain nonemployee
directors immediately following the Company's annual shareholders' meetings.
Annually, each eligible nonemployee director receives an option to purchase
2,000 shares of the Company's common stock under the 1993 Director Plan. Options
granted under the 1993 Director Plan are exercisable upon grant and expire ten
years from date of grant. The annual number of shares of common stock for which
options may be granted under the 1993 Director Plan is limited to 24,000.

At December 31, 1995, the Company has reserved an aggregate of 670,854
shares (exclusive of the 100,000 of which are subject to shareholder approval)
of its common stock for future issuance upon exercise of stock options pursuant
to the three plans specified above. Options under the Company's three plans
above are granted at no less than the market value of the Company's common stock
at the date of grant.

Stock options outstanding and transactions involving the Company's stock
option plans are summarized as follows:

<TABLE>
<CAPTION>
AGGREGATE EXERCISE
EXERCISE PRICE PER
NUMBER PRICE SHARE
------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1992................... 296,800 $ 451,650 $0.25 - 5.00
Options granted.............................. 47,800 195,150 1.75 - 10.00
Options canceled............................. (998) (2,500) 2.50
Options exercised............................ (4,335) (7,583) 1.75
------- ---------- -------------
Balance at December 31, 1993................... 339,267 636,717 0.25 - 10.00
Options granted.............................. 191,182 675,572 2.25 - 5.25
Options canceled............................. (96,520) (417,848) 1.75 - 10.00
Options exercised............................ (4,200) (2,850) 0.50 - 1.75
------- ---------- -------------
Balance at December 31, 1994................... 429,729 891,591 0.25 - 5.25
Options granted.............................. 140,749 406,591 2.63 - 3.00
Options canceled............................. (7,900) (22,550) 2.25 - 3.25
Options exercised............................ (34,213) (58,639) 0.25 - 2.25
------- ---------- -------------
Balance at December 31, 1995................... 528,365 $1,216,993 $0.25 - 5.25
======= ========== =============
</TABLE>

At December 31, 1995, exercisable options under the Company's three stock
option plans totaled 333,062.

F-14
<PAGE> 68

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

In 1988, the Company issued warrants for $250,000 to purchase 28,571 shares
of its preferred stock. The warrants carry a mandatory repurchase element which
converts to term debt if the Company is unable to meet the repurchase schedule.
The repurchase price of the warrants exceeded the initial issuance price,
therefore, the difference has been accredited to additional paid-in capital over
the term of the warrants. As of December 31, 1995, the Company has repurchased
25,571 of these warrants. The remaining 3,000 warrants, which were converted
into warrants to purchase common stock in conjunction with the Company's IPO in
February 1994, carry an exercise price of $6.50 per share and are required to be
repurchased by the Company in April 1999 for $19,500.

The Company has also issued warrants to purchase 48,000 shares of its
preferred stock, which were converted into warrants to purchase 48,000 shares of
the Company's common stock upon the closing of the Company's February 1994 IPO.
The exercise price of these warrants is $6.25 per share. Warrants to purchase
19,200 shares of the Company's common stock expired unexercised on February 1,
1995. Of the remaining warrants to purchase 28,800 shares of the Company's
common stock, 16,000 expire October 20, 1999, and 12,800 expire February 1,
2000. All such remaining warrants were exercisable as of December 31, 1995.

In addition, the Company issued warrants to purchase 6,000 shares of its
Series E preferred stock, which were converted into warrants to purchase 7,692
shares of the Company's common stock upon the closing of the Company's February
1994 IPO. These warrants carry an exercise price of $9.75 per share and expire
February 1, 1997. As of December 31, 1995, no such warrants had been exercised
and all were exercisable.

In December 1993, the Company issued warrants to purchase 50,001 shares of
its common stock at an exercise price of $6.00 per share. These warrants were
issued in conjunction with a $3 million loan commitment provided by certain of
the Company's shareholders. The loan commitment expired unused upon the closing
of the Company's IPO in February 1994. The warrants, all of which were
outstanding and none of which had been exercised as of December 31, 1995, expire
December 20, 1998.

(d) Employee Stock Purchase Plan

During 1995, the Company established an employee stock purchase plan (the
"Plan") whereby eligible employees are able to purchase shares of the Company's
common stock at prices no less than 85% of the fair market value of the
Company's common stock determined at specified dates. At December 31, 1995 the
Company has reserved 150,000 shares of its common stock for issuance under the
Plan. In 1996, 20,405 shares were purchased pursuant to the Plan.

(10) INCOME TAXES

As discussed in Note 1, the Company adopted SFAS No. 109 effective January
1, 1993. Prior years' financial statements were not restated to apply the
provisions of SFAS No. 109. There was no cumulative effect with the adoption of
SFAS No. 109.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax

F-15
<PAGE> 69

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

effects of significant items comprising the Company's deferred tax assets and
liabilities at December 31, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Inventories............................................. $ 700,000 $ 576,000
Allowance for doubtful accounts......................... 171,000 311,000
Tax credit carryforwards................................ 224,500 191,000
Net operating loss carryforwards........................ 7,556,000 7,886,000
Valuation allowance..................................... (8,209,500) (8,903,000)
Other................................................... 109,000 211,000
----------- -----------
Total deferred tax assets....................... 551,100 272,000
----------- -----------
Deferred tax liabilities:
Tax basis depreciation and amortization................. 551,000 272,000
----------- -----------
Total deferred tax liabilities.................. 551,000 272,000
----------- -----------
Net deferred tax liabilities.................... $ -- $ --
=========== ===========
</TABLE>

The valuation allowance for deferred tax assets as of January 1, 1994 was
$6,947,000. The net change in total valuation allowance for the years ended
December 31, 1995 and 1994 was a (decrease) increase of ($693,500) and
$1,956,000, respectively.

The Company has available at December 31, 1995 unused investment credits,
research and development tax credits, and operating loss carryforwards, which
may reduce taxable income in future periods and expire as follows:

<TABLE>
<CAPTION>
STATE FEDERAL
------------- ---------------------------------------------
OPERATING RESEARCH AND OPERATING
YEAR OF LOSS INVESTMENT DEVELOPMENT LOSS
EXPIRATION CARRYFORWARDS CREDITS CREDITS CARRYFORWARDS
--------------------------------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
1996-1998........................ $ 2,574,000 $ -- $ -- $ 200,000
1999............................. 2,069,000 600 18,000 1,540,000
2000............................. 180,000 14,000 50,000 1,696,000
2001............................. -- 3,600 31,000 971,000
2002............................. -- -- -- 789,000
2003............................. 394,000 -- -- 1,076,000
2004............................. 1,028,000 -- -- 1,240,000
2005............................. 603,000 -- 39,000 484,000
2006............................. 417,000 -- 16,000 1,614,000
2007............................. 784,000 -- 39,000 2,776,000
2008............................. 1,219,000 4,300 -- 4,074,000
2009............................. 1,133,000 -- -- 3,471,000
2010............................. 212,000 -- 9,000 642,000
----------- ------- -------- -----------
$ 10,613,000 $ 22,500 $202,000 $ 20,573,000
=========== ======= ======== ===========
</TABLE>

F-16
<PAGE> 70

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

A provision of the Tax Reform Act of 1986 required the utilization of net
operating losses and credits be limited when there is a change of more than 50%
in ownership of the Company. Such a change occurred with the sales of preferred
stock in 1988, 1989 and 1992. Accordingly, the utilization of the net operating
loss carryforwards generated from periods prior to March 25, 1988, the period
March 26, 1988 to November 14, 1989 and the period November 15, 1989 to July 15,
1992 is limited; the amounts subject to the limitation are approximately
$4,600,000, $1,500,000 and $5,000,000, respectively.

(11) EMPLOYEE SAVINGS PLAN

The Company sponsors a defined contribution plan (the "Plan") covering all
full-time domestic employees. Employees may contribute up to 15% of their
compensation to the Plan. Through December 31, 1994, the Company matched 50% of
employee contributions up to a maximum of 3% of the employee's total
compensation to the Plan for the year. Company matching contributions vest over
six years. The Company may also make discretionary contributions to the Plan for
the benefit of all eligible employees. Contributions charged to expense were
$83,793 and $51,153 for the years ended December 31, 1994 and 1993,
respectively. Effective January 1, 1995, the Company discontinued its 50%
matching of employee contributions.

(12) LEASES

During 1994, the Company financed the acquisition of certain equipment
totaling $114,129 pursuant to a capital lease line. In addition, the Company
leases certain other assets under various capital leasing arrangements. Included
in property, plant, and equipment in the accompanying consolidated balance
sheets are $136,749 and $179,988 of assets under capital lease at December 31,
1995 and 1994, respectively, net of related accumulated amortization of $72,295
and $29,056, respectively.

Capital lease obligations are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
------- --------
<S> <C> <C>
Lease of certain manufacturing equipment with lease period
expiring in August 1998, at interest of 15.0%................. $77,337 $103,965
Leases of certain office and computer equipment with lease
periods expiring through March 1997, interest ranging from
10.4% to 15.3%................................................ 17,968 52,399
------- --------
Total obligations under capital lease........................... 95,305 156,364
Less current portion............................................ 43,420 61,185
------- --------
Obligations under capital lease, less current portion........... $51,885 $ 95,179
======= ========
</TABLE>

During February 1994, the Company sold and leased back the Company's
headquarters building. The selling price was $1,250,000 and the lease term for
the lease-back is ten years. The sale/lease-back transaction resulted in a
deferred gain of approximately $396,000, which is being amortized as an offset
to operating expenses over the term of the lease on a straight-line basis. The
lease includes annual payments of approximately $140,000 for the initial three
years of the lease, with three percent increases in years four, seven, and ten
of the lease. In conjunction with the sale of the building, the Company retired
debt of approximately $483,000 formerly secured by the building. The Company
also leases certain office and operating facilities, and certain other equipment
under operating leases with remaining terms ranging from one to five years.
Rental expense for all operating leases, net of the deferred gain amortization
related to the

F-17
<PAGE> 71

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

sale/lease-back transaction discussed above, amounted to $296,369, $250,153 and
$83,607 for the years ended December 31, 1995, 1994 and 1993, respectively.

Minimum lease payments under leases expiring subsequent to December 31,
1995 with original terms of one year or more are:

<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------------------------------------------------------- -------- ----------
<S> <C> <C>
1996....................................................... $ 54,260 $ 287,462
1997....................................................... 40,722 257,116
1998....................................................... 18,715 221,645
1999....................................................... -- 218,778
2000....................................................... -- 150,751
Thereafter................................................. -- 463,257
-------- ----------
Total minimum lease payments....................... 113,697 $1,599,009
==========
Less amount representing interest.......................... (18,392)
--------
Present value of net minimum lease payments........ $ 95,305
========
</TABLE>

(13) COMMITMENTS

In November 1993, the Company entered into a License Agreement (the
"Agreement") with Bend Research, Inc. ("Bend Research") whereby the Company will
fund certain research performed by Bend Research and will obtain exclusive
licenses to sell products utilizing the technology developed through the
research provided under the Agreement. Under the terms of the Agreement, the
Company is to fund a minimum of $600,000 of research annually through the term
of the Agreement, which is twenty years. The Agreement can be terminated upon 60
days prior notice by the Company. Bend Research invoiced the Company $375,565,
$542,578 and $431,223 for research and development work performed during the
years ended December 31, 1995, 1994 and 1993, respectively. For certain products
sold by the Company utilizing technology provided under the Agreement, the
Company is required to pay royalties to Bend Research based upon a percentage of
product margins attributable to the provided technology as defined in the
Agreement. During January 1995, royalties for the term of the Agreement related
to certain products incorporating technology provided by Bend Research were
prepaid by the Company. Such prepaid royalties totaled $121,000 and will be
amortized as the related products are sold by the Company. In addition, in
January 1995, Bend Research and the Company agreed to reduce the annual
commitment described above for 1995 from $600,000 to $350,000. During 1996, the
annual commitment was reduced to $191,500. For years subsequent to 1996, the
$600,000 annual commitment will again be in effect.

The Company was incorporated by Bend Research in 1984. Bend Research owns
less than 5% of the Company's common stock as of December 31, 1995. Walter C.
Babcock, the President, Chief Executive Officer, and Chairman of the Board of
Bend Research, is also a director of the Company and serves on the Company's
Scientific Advisory Board. Dr. Babcock is also a shareholder of Bend Research
and the Company. Volker G. Oakey, the President, Chief Executive Officer, and
Chairman of the Board of the Company, is also a director of Bend Research and is
a shareholder of the Company.

F-18
<PAGE> 72

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

During October 1994, the Company entered into a license agreement to make,
use, and sell certain consumer products. Pursuant to this license agreement, the
Company is required to pay the licensor guaranteed minimum royalties of $25,000
per year through September 1999.

In 1993, the Company entered into a non-compete agreement with a previous
shareholder of a business acquired by the Company. Pursuant to this non-compete
agreement, the Company is required to make quarterly payments of $5,000 through
January 2000.

(14) CONTINGENCIES

Various other lawsuits against the Company arise in the ordinary course of
business. In the opinion of management, the disposition of these lawsuits will
not have a materially adverse effect on the financial position of the Company or
the results of its operations.

(15) NON-CASH INVESTING AND FINANCING ACTIVITIES

The following is a summary of non-cash investing and financing activities
for the three years ending December 31, 1995 and for the six months ended June
30, 1996:

JUNE 30, 1996 (unaudited):

During the six months ended June 30, 1996, the Company purchased a building
for $396,055 and acquired vehicles for $77,858 through the issuance of notes
payable. Also during the first six months of 1996, the Company converted
$467,959 of trade accounts receivable to notes receivable.

DECEMBER 31, 1995:

Effective February 1, 1995, the Company acquired all of the outstanding
capital stock of Farchan as follows:

<TABLE>
<S> <C>
Fair value of assets acquired.................................... $1,135,684
Issuance of 171,671 shares of the Company's common stock......... 354,071
Issuance of notes payable in conjunction with non-compete
agreement...................................................... 160,816
Cash paid........................................................ 74,136
----------
Liabilities assumed.............................................. $ 546,661
==========
</TABLE>

During the year ended December 31, 1995, the Company also acquired $103,088
of equipment through the issuance of notes payable. Of this amount,
approximately $40,000 was acquired during the first six months of 1995.

DECEMBER 31, 1994:

In February 1994, 3,606,700 shares of the Company's convertible preferred
stock were converted into 3,636,485 shares of the Company's common stock upon
the closing of the Company's initial public offering.

F-19
<PAGE> 73

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

Effective April 1, 1994, the Company acquired all of the outstanding
capital stock of Chemfree as follows:

<TABLE>
<S> <C>
Fair value of assets acquired.................................... $1,664,112
Issuance of 85,827 shares of the Company's common stock.......... 461,320
Cash paid........................................................ 534,662
----------
Liabilities assumed.............................................. $ 668,130
==========
</TABLE>

Effective May 1, 1994, the Company acquired all of the outstanding capital
stock of Sierra Ag as follows:

<TABLE>
<S> <C>
Fair value of assets acquired.................................... $2,112,519
Issuance of notes payable........................................ 200,000
Issuance of guaranteed stock options............................. 150,000
Cash paid........................................................ 558,441
----------
Liabilities assumed.............................................. $1,204,078
==========
</TABLE>

During 1994, the Company acquired certain equipment totaling $162,641
through capital leasing arrangements and the issuance of certain notes payable.

DECEMBER 31, 1993:

The Company purchased all of the capital stock of Envirosafe. In
conjunction with the acquisition, liabilities were assumed as follows:

<TABLE>
<S> <C>
Fair value of assets acquired..................................... $475,027
Cash paid......................................................... 435,193
--------
Liabilities assumed............................................... $ 39,834
========
</TABLE>

The Company converted certain warrants into notes payable of $369,174 and
issued notes payable of $86,600 for the purchase of a vehicle and equipment.

(16) BUSINESS SEGMENT INFORMATION

The Company's operations have been classified into two business segments:
proprietary products and distribution operations. Proprietary products include
products manufactured by the Company, and distribution operations include the
distribution and sale of agrichemicals and other agricultural products by the
Company's distribution subsidiaries. Proprietary products manufactured by the
Company which are sold through the Company's wholly owned distribution
subsidiaries are included in proprietary products in the following table.

F-20
<PAGE> 74

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

Summarized financial information by business segment for the six months ended
June 30, 1996 and 1995, and for the years ended December 31, 1995, 1994 and 1993
is as follows:

<TABLE>
<CAPTION>
PROPRIETARY DISTRIBUTION
PRODUCTS OPERATIONS TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
June 30, 1996 (unaudited):
Revenues.......................................... $ 7,297,790 $ 13,595,520 $20,893,310
Cost of revenues.................................. 4,287,939 10,907,948 15,195,887
Operating income (loss)........................... (546,042) 1,103,160 557,118
Transfers......................................... 404,743 89 404,832
Total assets...................................... 13,978,943 11,958,768 25,937,711
Depreciation and amortization..................... 336,926 176,045 512,971
Capital expenditures.............................. 806,880 140,282 947,162
June 30, 1995 (unaudited):
Revenues.......................................... $ 6,652,434 $ 12,431,430 $19,083,864
Cost of revenues.................................. 3,839,691 10,163,755 14,003,446
Operating income (loss)........................... (162,524) 641,929 479,405
Transfers......................................... 452,452 385 452,837
Total assets...................................... 12,168,621 11,299,088 23,467,709
Depreciation and amortization..................... 219,098 204,756 423,854
Capital expenditures.............................. 165,978 84,568 250,546
December 31, 1995:
Revenues.......................................... $ 9,385,112 $ 21,458,622 $30,843,734
Cost of revenues.................................. 5,478,827 17,615,237 23,094,064
Operating income (loss)........................... (1,895,442) 589,306 (1,306,136)
Transfers......................................... 485,382 3,957 489,339
Total assets...................................... 12,881,562 8,677,012 21,558,574
Depreciation and amortization..................... 497,191 384,593 881,784
Capital expenditures.............................. 433,111 147,382 580,493
December 31, 1994:
Revenues.......................................... $ 5,737,783 $ 19,381,844 $25,119,627
Cost of revenues.................................. 3,542,715 16,273,273 19,815,988
Operating loss.................................... (5,282,788) (549,031) (5,831,819)
Transfers......................................... 104,084 2,273 106,357
Total assets...................................... 11,406,229 8,246,402 19,652,631
Depreciation and amortization..................... 454,471 361,349 815,820
Capital expenditures.............................. 591,377 290,766 882,143
</TABLE>

F-21
<PAGE> 75

CONSEP, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994

(INFORMATION AS OF JUNE 30, 1996 AND 1995 AND FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 1996 AND 1995 IS UNAUDITED)

<TABLE>
<CAPTION>
PROPRIETARY DISTRIBUTION
PRODUCTS OPERATIONS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
December 31, 1993:
Revenues.......................................... $ 3,826,737 $ 17,447,263 $21,274,000
Cost of revenues.................................. 3,126,929 14,400,892 17,527,821
Operating income (loss)........................... (4,107,904) 2,504 (4,105,400)
Transfers......................................... 111,585 985 112,570
Total assets...................................... 6,504,972 7,335,310 13,840,282
Depreciation and amortization..................... 385,323 281,492 666,815
Capital expenditures.............................. 424,254 178,236 602,490
</TABLE>

During the six months ended June 30, 1996 and 1995, export sales of the
Company's proprietary products and sales of proprietary products occurring
outside of the United States totaled $1,677,275 and $1,571,484, respectively.
During the years ended December 31, 1995, 1994 and 1993, sales of the Company's
proprietary products outside of the United States were $2,217,266, $1,327,744
and $286,742, respectively.

(17) SUBSEQUENT EVENTS

1993 Stock Incentive Plan (unaudited)

In May 1996, the Company's shareholders approved an increase of 100,000
shares to the authorized number of shares which may be issued in conjunction
with option exercises from the Company's 1993 Stock Incentive Plan. This
increases the number of shares authorized for issuance pursuant to this plan to
370,000.

Bank Lines (unaudited)

The Company's $5 million line of credit was renewed in September 1996 for a
one-year term. The line of credit continues to provide the Company with a $5
million credit facility, which will automatically increase to $7.5 million upon
the Company's receipt of at least $2 million in net proceeds from the issuance
of its equity securities.

Commitments (unaudited)

In April 1996, the Company entered into a five-year purchase agreement with
a supplier in exchange for exclusive selling rights of the material in the
United States, Canada and Mexico. The agreement requires the Company to purchase
approximately $200,000 per year in raw materials for five years. The agreement
automatically renews every three years thereafter for an additional three-year
term.

F-22
<PAGE> 76

- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION 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 MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
---------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 11
Price Range of Common Stock and
Dividend Policy..................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 24
Management............................ 38
Certain Transactions and
Relationships....................... 44
Principal and Selling Shareholders.... 45
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

- ------------------------------------------------------
- ------------------------------------------------------
2,000,000 SHARES

[CONSEP, INC. LOGO]

COMMON STOCK

---------------------
PROSPECTUS
---------------------
VALUE INVESTING
PARTNERS, INC.
---------------------
SEPTEMBER , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 77

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, expected to be incurred by the
Registrant in connection with the offering described in this Registration
Statement. All amounts, except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee are estimates.

<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 2,255
NASD Filing Fee........................................................... 1,209
Nasdaq National Market Listing Fee........................................ 17,500
Printing and Engraving.................................................... 50,000
Accounting Fees and Expenses.............................................. 50,000
Legal Fees and Expenses................................................... 100,000
Blue Sky Expenses (including fees of Counsel)............................. 10,000
Transfer Agent and Registrar Fees......................................... 2,500
Miscellaneous............................................................. 34,036
------
Total................................................................ $267,500
======
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

As an Oregon corporation, the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to sec.60.047(2)(d) of the OBCA, Article
V of the Company's Third Restated Articles of Incorporation (the "Articles")
eliminates the liability of the Company's directors to the Company or its
shareholders, except from any liability related to a breach of the duty of
loyalty, actions not in good faith and certain other liabilities. The Articles
require the Company to indemnify its directors and officers to the fullest
extent not prohibited by law.

Sec.60.387, et seq., of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation in which the director or officer was adjudged
liable to the corporation, but may indemnify against the reasonable expenses
associated with such claims. Corporations may not indemnify against breaches of
the duty of loyalty. The OBCA mandates indemnification against all reasonable
expenses incurred in the successful defense of any claim made or threatened
whether or not such claim was by or in the right of the corporation. Finally, a
court may order indemnification if it determines that the director or officer is
fairly and reasonably entitled to indemnification in view of all the relevant
circumstances whether or not the director or officer met the good faith and
reasonable belief standards of conduct set out in the statute.

The OBCA also provides that the statutory indemnification provisions are
not deemed exclusive of any other rights to which directors or officers may be
entitles under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
shareholders or otherwise.

Effective November 1, 1993, the Company entered into indemnity agreements
with Gerard H. Langeler, Walter C. Babcock, Volker G. Oakey and Peter H.
Gleason, each of whom is a member of the Board of Directors (Mr. Oakey is also
an officer of the Company). In addition, effective as of November 1, 1993, the
Company entered into indemnity agreements with Richard M. Welch, Sr. and Fred F.
Nazem, each of whom was then a member of the Board of Directors, but
subsequently resigned from such position. Furthermore, effective as of November
1, 1993, the Company entered into indemnity agreements with Howard L. Allred,

II-1
<PAGE> 78

Janice M. Gillespie and William D. Raven, each of whom was then an officer of
the Company, but has subsequently terminated his or her employment with the
Company. Effective as of September 1, 1994, the Company also entered into an
indemnity agreement with Kenneth C. Rymer, an officer of the Company. In
addition, effective as of November 1, 1993 and September 1, 1994, the Company
entered into an indemnity agreement with Garrard L. Hargrove, who was then an
officer of the Company, but has subsequently terminated his employment with the
Company. Effective June 3, 1996, the Company entered into indemnity agreements
with Philip E. Barak, a member of the Board of Directors, and Larry Katz, an
officer of the Company. Effective September 6, 1996, the Company entered into an
indemnity agreement with Steven Hartneier, an officer of the Company. Each
agreement provides for indemnification of the indemnitee to the fullest extent
allowed by law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Within the last three years, the Company has sold securities without
registration under the Securities Act of 1933, as amended (the "Securities Act")
in the transactions described below. In the case of the exercise of stock
options pursuant to the Company's 1992 Stock Incentive Plan described in
paragraphs (b) through (e), and (g) through (j) below, these transactions were
effected in reliance on Rule 701 promulgated pursuant to authority granted under
Section 3(b) of the Securities Act. In the case of the stock issuances described
in paragraphs (a) and (f) below, these transactions were effected in reliance on
Section 4(2) of the Securities Act as not involving any public offering.

(a) On May 13, 1994, the Company issued 85,827 shares of Common Stock as
partial consideration for the purchase of Chemfree Environment Inc., a
Canadian-based manufacturer and distributor of non-toxic insect control products
("Chemfree"). The Common Stock issued in this transaction was valued at an
aggregate of $461,320 and was issued to the three shareholders of Chemfree.

(b) On June 21, 1994, Stephen Horn, a former employee of the Company,
exercised a previously issued Incentive Stock Option to purchase 600 shares of
Common Stock for an aggregate cash consideration of $1,050.

(c) On November 28, 1994, Alan Guggenheim, a former employee of the
Company, exercised a previously issued Nonqualified Stock Option to purchase
3,600 shares of Common Stock for an aggregate cash consideration of $1,800.

(d) On January 17 and May 10, 1995, William Raven, a former employee of the
Company, exercised previously issued Incentive Stock Options to purchase 20,000
and 10,000 shares of Common Stock, respectively, for an aggregate cash
consideration of $35,000 and $17,500, respectively.

(e) On January 18, 1995, Frank Lesniak, a former employee of the Company,
exercised a previously issued Incentive Stock Option to purchase 280 shares of
Common Stock for an aggregate cash consideration of $490.

(f) On February 6, 1995, the Company issued 171,671 shares of Common Stock
as partial consideration for the purchase of Farchan Laboratories, Inc., a
Florida-based specialty chemicals manufacturer ("Farchan"). The Common Stock
issued in this transaction was valued at an aggregate of $354,071 and was issued
to the four shareholders of Farchan.

(g) On June 9, 1995, Anthony Andersen, an employee of the Company,
exercised a previously issued Nonqualified Stock Option to purchase 1,600 shares
of Common Stock for an aggregate cash consideration of $400.

(h) On May 3 and May 30, 1996, Janice Gillespie, an employee of the
Company, exercised previously issued Incentive Stock Options to purchase 7,800
and 3,200 shares of Common Stock, respectively, for an aggregate cash
consideration of $13,650 and $5,600, respectively.

(i) On May 8, 1996, Mark Landers, an employee of the Company, exercised a
previously issued Nonqualified Stock Option to purchase 2,000 shares of Common
Stock for an aggregate cash consideration of $500.

II-2
<PAGE> 79

(j) On May 13, 1966, Howard Allred, an employee of the Company, exercised
previously issued Incentive Stock Options to purchase 28,000 shares of Common
Stock for an aggregate cash consideration of $49,000.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.

(a) EXHIBITS

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
1.0 Form of Underwriting Agreement*
2.1 Share Purchase Agreement Respecting Chemfree Environment Inc. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1994, filed on August 12, 1994)
2.2 Agreement for Purchase and Sale of Stock of Richard Hunt, Inc. d.b.a. Sierra Ag
Chemical (Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, filed on August 12, 1994)
2.3 Agreement and Plan of Merger with Farchan Laboratories, Inc.**
3.1 Third Restated Articles of Incorporation of Consep, Inc.***
3.2 Amended provisions of Article II of Third Restated Articles of Incorporation of
Consep, Inc.****
3.3 Second Restated Bylaws of Consep, Inc.***
4.0 Form of Stock Certificate***
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt as to the legality of the securities
being registered*
10.1 Form of Indemnity Agreement between Consep, Inc. and each of its executive officers
and directors***
10.2 1992 Stock Incentive Plan***
10.3 1993 Stock Incentive Plan, as amended (Incorporated by reference to the Company's
Registration Statement on Form S-8 dated August 8, 1996, File No. 333-09759)
10.4 1993 Stock Option Plan for Nonemployee Directors***
10.5 Registration Rights Agreement, as amended***
10.6 License Agreement with Bend Research, Inc.***
10.7 Commercial Lease for Bend, Oregon facility****
10.8 Loan and Security Agreement with Silicon Valley Bank, as amended***
10.9 Fourth Amendment to Registration Rights Agreement***
10.10 Fifth Amendment to Registration Rights Agreement****
10.11 Master Equipment Lease Agreement with Financing for Science International, Inc.,
including Rental Schedule No. 1 and Schedules A and B thereto (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, filed on November 14, 1994)
10.12 Amendment to License Agreement with Bend Research, Inc.**
10.13 Amendment No. 2 to License Agreement with Bend Research, Inc., including Paid-Up
License Schedule 1 thereto**
10.14 Loan Modification Agreement with Silicon Valley Bank**
10.15 Schedule to Loan and Security Agreement with Silicon Valley Bank**
10.16 Loan Modification Agreement with Silicon Valley Bank (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995,
filed on August 14, 1995)
10.17 Schedule to Loan Modification Agreement with Silicon Valley Bank (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995, filed on August 14, 1995)
10.18 Sixth Amendment to Registration Rights Agreement (Incorporated by reference to the
Company's Registration Statement on Form S-1 dated September 12, 1995, File No.
33-96002)
10.19 1995 Employee Stock Purchase Plan (Incorporated by reference to the Company's
Registration Statement on Form S-8 dated July 28, 1995, File No. 33-95130)
</TABLE>

II-3
<PAGE> 80

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<S> <C>
10.20 Amendment No. 3 to License Agreement with Bend Research, Inc.
10.21 Seventh Amendment to Registration Rights Agreement
10.22 Loan Modification Agreement with Silicon Valley Bank
10.23 Amended and Restated Schedule to Loan Modification Agreement with Silicon Valley Bank
10.24 Form of Representative Warrant*
11.0 Statement re: Computation of Per Share Earnings*
21.0 List of Subsidiaries of Consep, Inc. (Incorporated by reference to the Company's
Registration Statement on Form S-1 dated September 12, 1995, File No. 33-96002)
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion filed
as Exhibit 5.0)
23.2 Consent of KPMG Peat Marwick LLP (see page II-7)
24.0 Powers of Attorney (included in signature page in Part II of the Registration
Statement
</TABLE>

- ---------------
* To be filed by amendment

** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, filed on March 30, 1995.

*** Incorporated by reference to the Company's Registration Statement on Form
S-1 dated February 3, 1994, File No. 33-71846.

**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, filed on March 30, 1994.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule VIII -- Valuation and Qualifying Accounts

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of the Registration
Statement, 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) The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, 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 shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, 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-4
<PAGE> 81

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Bend, State of Oregon, on
the 11th day of September, 1996.

CONSEP, INC.

By: /s/ VOLKER G. OAKEY

------------------------------------
Volker G. Oakey, President and Chief
Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Volker G. Oakey and Larry Katz, and each of them
singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments and new registration statements pursuant to Rule 462 or otherwise),
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as full to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.

Witness our hands on the date set forth below.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been duly signed by the following persons in the
capacities and on the date indicated.

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

/s/ VOLKER G. OAKEY President and Chief Executive September 11, 1996
- ------------------------------------------ Officer (Principal Executive
Volker G. Oakey Officer), Director

/s/ LARRY KATZ Vice President, Finance and September 11, 1996
- ------------------------------------------ Chief Financial Officer
Larry Katz (Principal Financial and
Accounting Officer)
/s/ WALTER C. BABCOCK Director September 11, 1996
- ------------------------------------------
Walter C. Babcock

/s/ PETER H. GLEASON Director September 11, 1996
- ------------------------------------------
Peter H. Gleason

/s/ PHILIP E. BARAK Director September 11, 1996
- ------------------------------------------
Philip E. Barak
</TABLE>

II-5

<PAGE> 82

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
Consep, Inc.:

The audits referred to in our report dated February 2, 1996, included the
related financial statement schedule as of December 31, 1995, and for each of
the years in the three-year period ended December 31, 1995, included in the
Registration Statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion of this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

We consent to the use of our reports included herein and to the references
to our firm under the heading "Selected Consolidated Financial Data" and
"Experts" in the prospectus.

KPMG PEAT MARWICK LLP

Portland, Oregon
September 11, 1996

II-6
<PAGE> 83

CONSEP, INC.
AND SUBSIDIARIES

SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
OF PERIOD EXPENSES DEDUCTIONS OTHER OF PERIOD
---------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED):
Allowance for doubtful accounts..... $ 834,128 $ (41,039) $ 11,448(1) $ -- $ 781,641
Inventory valuation reserve......... 261,883 44,115 110,220(2) -- 195,778
Product warranty reserve............ 58,292 34,695 57,945(4) -- 35,042
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts..... 681,198 164,566 11,636(1) -- 834,128
Inventory valuation reserve......... 227,239 148,068 113,424(2) -- 261,883
Product warranty reserve............ 82,179 83,494 107,381(4) -- 58,292
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts..... 630,439 142,791 101,359(1) 9,327(3) 681,198
Inventory valuation reserve......... 36,610 296,330 105,701(2) -- 227,239
Product warranty reserve............ 44,397 73,286 35,504(4) -- 82,179
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts..... 345,129 292,618 7,308(1) -- 630,439
Inventory valuation reserve......... 50,000 138,833 152,223(2) -- 36,610
Product warranty reserve............ 14,690 38,701 8,994(4) -- 44,397
</TABLE>

- ---------------
(1) Deductions primarily represent accounts written off during the period.

(2) Deductions primarily represent inventory scrapped during the period.

(3) Represents reserves of companies acquired during the period as of the
respective dates of acquisition.

(4) Deductions primarily represent warranty credits given to customers for
products returned under warranty.

S-1
<PAGE> 84

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.0 Form of Underwriting Agreement*...........................................
2.1 Share Purchase Agreement Respecting Chemfree Environment Inc.
(Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, filed on August 12, 1994)............
2.2 Agreement for Purchase and Sale of Stock of Richard Hunt, Inc. d.b.a.
Sierra Ag Chemical (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1994, filed on August
12, 1994).................................................................
2.3 Agreement and Plan of Merger with Farchan Laboratories, Inc.**............
3.1 Third Restated Articles of Incorporation of Consep, Inc.***...............
3.2 Amended provisions of Article II of Third Restated Articles of
Incorporation of Consep, Inc.****.........................................
3.3 Second Restated Bylaws of Consep, Inc.***.................................
4.0 Form of Stock Certificate***..............................................
5.0 Opinion of Ater Wynne Hewitt Dodson & Skerritt as to the legality of the
securities being registered*..............................................
10.1 Form of Indemnity Agreement between Consep, Inc. and each of its executive
officers and directors***.................................................
10.2 1992 Stock Incentive Plan***..............................................
10.3 1993 Stock Incentive Plan, as amended (Incorporated by reference to the
Company's Registration Statement on Form S-8 dated August 8, 1996, File
No. 333-09759)............................................................
10.4 1993 Stock Option Plan for Nonemployee Directors***.......................
10.5 Registration Rights Agreement, as amended***..............................
10.6 License Agreement with Bend Research, Inc.***.............................
10.7 Commercial Lease for Bend, Oregon facility****............................
10.8 Loan and Security Agreement with Silicon Valley Bank, as amended***.......
10.9 Fourth Amendment to Registration Rights Agreement***......................
10.10 Fifth Amendment to Registration Rights Agreement****......................
10.11 Master Equipment Lease Agreement with Financing for Science International,
Inc., including Rental Schedule No. 1 and Schedules A and B thereto
(Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994, filed on November 14, 1994).....
10.12 Amendment to License Agreement with Bend Research, Inc.**.................
10.13 Amendment No. 2 to License Agreement with Bend Research, Inc., including
Paid-Up License Schedule 1 thereto**......................................
10.14 Loan Modification Agreement with Silicon Valley Bank**....................
10.15 Schedule to Loan and Security Agreement with Silicon Valley Bank**........
10.16 Loan Modification Agreement with Silicon Valley Bank (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed on August 14, 1995)............................
10.17 Schedule to Loan Modification Agreement with Silicon Valley Bank
(Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, filed on August 14, 1995)............
</TABLE>
<PAGE> 85

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
10.18 Sixth Amendment to Registration Rights Agreement (Incorporated by
reference to the Company's Registration Statement on Form S-1 dated
September 12, 1995, File No. 33- 96002)...................................
10.19 1995 Employee Stock Purchase Plan (Incorporated by reference to the
Company's Registration Statement on Form S-8 dated July 28, 1995, File No.
33-95130).................................................................
10.20 Amendment No. 3 to License Agreement with Bend Research, Inc. ............
10.21 Seventh Amendment to Registration Rights Agreement........................
10.22 Loan Modification Agreement with Silicon Valley Bank......................
10.23 Amended and Restated Schedule to Loan Modification Agreement with Silicon
Valley Bank...............................................................
10.24 Form of Representative Warrant*...........................................
11.0 Statement re: Computation of Per Share Earnings*..........................
21.0 List of Subsidiaries of Consep, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-1 dated September 12, 1995,
File No. 33-96002)........................................................
23.1 Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal
opinion filed as Exhibit 5.0).............................................
23.2 Consent of KPMG Peat Marwick LLP (see page II-7)..........................
24.0 Powers of Attorney (included in signature page in Part II of the
Registration Statement....................................................
</TABLE>

- ---------------
* To be filed by amendment

** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, filed on March 30, 1995.

*** Incorporated by reference to the Company's Registration Statement on Form
S-1 dated February 3, 1994, File No. 33-71846.

**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, filed on March 30, 1994.

<PAGE> 1

EXHIBIT 10.20

[BEND RESEARCH INC. LOGO]

March 5, 1996

Mr. Volker G. Oakey
President
Consep, Inc.
213 Southwest Columbia
Bend, Oregon 97702

Re: Reduced R&D Programs obligation under the License Agreement (the
"Agreement") dated November 1, 1993 between Consep, Inc. ("Consep")
and Bend Research, Inc. ("Bend") for the calendar year 1996.

Dear Volker:

Pursuant to Paragraph 4.2 of the Agreement, this letter is to confirm our
mutual agreement regarding Consep's R&D Program obligation, as set forth in
Paragraph 4.1 of the Agreement. Bend agrees with Consep that a reduction in that
obligation is needed to maximize the value of our investment in Consep. The R&D
Program obligation is, therefore, reduced to one hundred ninety one thousand,
five hundred dollars ($191,500) for the calendar year 1996. Also, during 1996
there is no required portion of the R&D Program obligation that must be spent on
biorational products. Except as set forth above, the rights of the parties under
the Agreement shall remain unchanged.

This reduction in Consep's R&D Program obligation does not constitute any
intent to reduce that obligation in any subsequent calendar year or to reduce
any other Consep obligation during 1996 or any subsequent calendar year.

If the above accurately reflects your understanding of our mutual
agreement, please sign and date the enclosed copy of this letter and return it
to me.

Best Regards,

/s/ WALTER C. BABCOCK

Walter C. Babcock

Accepted and agreed to:

CONSEP, INC.

By: /s/ VOLKER OAKEY Date: 3/8/96

<PAGE> 1

EXHIBIT 10.21

SEVENTH AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT

This Seventh Amendment to Registration Rights Agreement is made and entered
into as of the 6th day of September, 1996, by and among Consep, Inc., an Oregon
corporation (the "Company"), and the undersigned holders of outstanding shares
of the Company's Common Stock (the "Holders").

R E C I T A L S

A. The Company, the Holders and certain other parties entered into that
certain Registration Rights Agreement dated May 5, 1992, providing for certain
registration rights with respect to Outstanding Registrable Securities, as
defined in the Registration Rights Agreement, which Registration Rights
Agreement was amended pursuant to a First Amendment of Registration Rights
Agreement dated July 16, 1992, a Second Amendment of Registration Rights
Agreement dated August 28, 1992, a Third Amendment to Registration Rights
Agreement dated October 7, 1993, a Fourth Amendment to Registration Rights
Agreement dated December 20, 1993, a Fifth Amendment to Registration Rights
Agreement dated February 15, 1994, and a Sixth Amendment to Registration Rights
Agreement dated August 1, 1995. The Registration Rights Agreement dated May 5,
1992, as amended by the above-referenced Amendments is referred to herein as the
Registration Rights Agreement.

B. The Company and Holders desire to amend the Registration Rights
Agreement to exempt the Company's currently contemplated secondary public
offering of shares of its Common Stock from the piggyback registration rights
provisions set forth in Section 1.2.

C. Approval by the Company, the holders of at least sixty percent (60%) of
the outstanding shares of the Company's Common Stock acquired upon conversion of
Series F Preferred Stock (including at least three such holders) and by the
holders of at least a majority of the Outstanding Registrable Securities is
required to amend the Registration Rights Agreement. It is intended that a
sufficient number of such holders are executing this Seventh Amendment to the
Registration Rights Agreement (the "Seventh Amendment") to satisfy the foregoing
conditions and by their execution are consenting to and approving this Seventh
Amendment.

1 -- SEVENTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
<PAGE> 2

AGREEMENT

NOW THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto agree as follows:

1. Amendment of Section 1.2.

Section 1.2 of the Registration Rights Agreement is hereby amended in its
entirety to provide as follows:

1.2 Piggyback Registration. If (but without any obligation to do so)
the Company proposes to register any of its stock or other securities under
the Act in connection with the public offering of such securities solely
for cash (other than (i) the currently contemplated secondary public
offering of shares of the Company's Common Stock, provided such offering
closing on or before December 31, 1996, (ii) a registration relating solely
to the sale of securities to participants in a Company stock plan, or (iii)
a registration on any form which does not include substantially the same
information as would be required to be included in a Registration Statement
covering the sale of the Registrable Securities), the Company shall, at
such time, promptly give each Holder notice of such registration. Upon the
written request of a Holder given within twenty (20) days after the giving
of such notice by the Company, the Company shall, subject to the provisions
of Section 1.6, cause to be registered under the Act all of the Registrable
Securities that such Holder has requested to be registered.

2. Counterparts/Governing Law. This Seventh Amendment may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. This Seventh Amendment shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Oregon.

[SIGNATURE PAGES FOLLOW]

2 -- SEVENTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
<PAGE> 3

IN WITNESS WHEREOF, this Seventh Amendment has been executed by the parties
hereto as of the date and year first above written.

COMPANY:

CONSEP, INC.

By: /s/ Volker G. Oakey

----------------------------------
Title: President

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

HOLDERS:

Nazem & Company III, L.P.

By: Nazem & Associates, III, L.P.,

----------------------------------
Its General Partner

By: /s/ Fred F. Nazem

----------------------------------
A General Partner

/s/ Fred F. Nazem

----------------------------------
Fred F. Nazem

J.P. Morgan Investment Corporation

By: /s/ Peter H. Gleason

----------------------------------
Title: Manager and Director

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

[ADDITIONAL SIGNATURE PAGE FOLLOWS]

3 -- SEVENTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
<PAGE> 4

/s/ Richard M. Welch, Sr.
- --------------------------------------
Richard M. Welch, Sr.

/s/ Maureen M. Welch
- --------------------------------------
Maureen M. Welch

/s/ Volker G. Oakey
- --------------------------------------
Volker G. Oakey

/s/ Walter C. Babcock
- --------------------------------------
Walter C. Babcock

Bend Research, Inc.

By: /s/ Walter C. Babcock

----------------------------------
Title: President

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

4 -- SEVENTH AMENDMENT TO REGISTRATION RIGHTS AGREEMENT

<PAGE> 1

EXHIBIT 10.22

LOAN MODIFICATION AGREEMENT

<TABLE>
<S> <C>
BETWEEN: Consep, Inc. ("Consep"), whose address is 213 S.W. Columbia St., Bend, OR
97702-1013; Pacoast Inc. ("Pacoast"), whose address is 213 S.W. Columbia St.,
Bend, OR. 97702-1013; and Richard Hunt, Inc. ("Hunt"), whose address is 2749
East Malaga Avenue, Fresno, CA. 93725.
AND: Silicon Valley Bank ("Silicon") whose address is 3003 Tasman Drive, Santa
Clara, California 95054;
DATE: September 11, 1996.
</TABLE>

This Loan Modification Agreement is entered into on the above date by
Consep, Pacoast and Hunt (collectively, "Borrower") and Silicon.

1. Background. Consep entered into a loan and security agreement with
Silicon dated as of May 25, 1993, which has been modified since that date (as
modified, the "Loan Agreement"). Capitalized terms used in this Loan
Modification Agreement shall, unless otherwise defined in this Agreement, have
the meaning given to such terms in the Loan Agreement.

Silicon, Consep, Pacoast and Hunt are entering into this Agreement to state
the terms and conditions of certain modifications to the Loan Agreement and the
Schedule, as modified prior to the date of this Agreement.

2. Modifications to Loan Agreement and Schedule.

2.1 The Amended and Restated Schedule attached to this Loan Modification
Agreement is a revised and restated Schedule, which modifies certain terms
contained in the Schedule attached to the Loan Agreement. The Schedule attached
to this Loan Modification supersedes in its entirety the Schedule attached to
the Loan Agreement, as modified prior to the date of this Loan Modification
Agreement.

2.2 The term "Obligations", as used in the Loan Agreement, shall
include, without limitation, the obligations of Consep, Pacoast and Hunt to
repay all amounts advanced by Silicon from time to time under the Loan
Agreement, whether such advances were made before or after the date of this
Agreement, and all other obligations described in Section 2.1 of the Loan
Agreement, all of which shall be joint and several obligations of Consep,
Pacoast and Hunt. Each Borrower jointly and severally agrees to repay the Loans
and all other Obligations, and to perform all other covenants in the Loan
Agreement and Schedule, on the terms stated in the Loan Agreement and Schedule.
The occurrence of any of the events described in Section 6.1 of the Loan
Agreement with respect to any Borrower shall constitute an "Event of Default"
for purposes of the Loan Agreement.

2.3 Borrower acknowledges and agrees that all Obligations, as defined
above, including without limitation Borrower's obligation to repay amounts
advanced by Silicon to Borrower on the terms of the Loan Agreement and Schedule
as modified by this Loan Modification Agreement, and all obligations evidenced
by promissory notes made by any Borrower and held by Silicon, are secured by all
liens and security interests granted by any Borrower to Silicon in the Loan
Agreement or by any other document or agreement. As additional security for
repayment of the Obligations, each Borrower grants Silicon a security interest
in all certificates of deposit, including without limitation all uncertificated
certificates of deposit, that are held by Silicon from time to time, and in the
proceeds thereof.

2.4 Each Borrower jointly and severally represents and warrants to
Silicon that the representations and warranties stated in the Loan Agreement and
Schedule are true as of the date of this Agreement, and will continue to be true
during the term of the Loan Agreement, with respect to each Borrower.

1 -- LOAN MODIFICATION AGREEMENT
<PAGE> 2

3. No Other Modifications; No Defenses. Except as expressly modified by
this Loan Modification Agreement, the terms of the Loan Agreement shall remain
unchanged and in full force and effect. Silicon's agreement to modify the Loan
Agreement pursuant to this Loan Modification Agreement shall not obligate
Silicon to make any future modifications to the Loan Agreement or any other loan
document. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of any indebtedness of any Borrower to Silicon. It is the intention
of Silicon and Borrower to retain as liable parties all makers and endorsers of
the Loan Agreement or any other loan document. No maker, endorser, or guarantor
shall be released by virtue of this Loan Modification Agreement. The terms of
this paragraph shall apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements. Borrower agrees that it has
no defenses against the obligations to pay any amounts of the Obligations.

4. Representations and Warranties. Each Borrower represents and warrants
to Silicon that the execution, delivery and performance of this Agreement are
within the Borrower's corporate powers, and have been duly authorized and are
not in contravention of law or the terms of any Borrower's charter, bylaws or
other incorporation papers, or of any undertaking to which any Borrower is a
party or by which it is bound.

BORROWER:
CONSEP, INC.

By: /s/ Volker G. Oakey

------------------------------------
Title: President

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

PACOAST INC.

By: /s/ Volker G. Oakey

------------------------------------
Title: Vice President

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

RICHARD HUNT, INC.

By: /s/ Volker G. Oakey

------------------------------------
Title: President

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

SILICON: SILICON VALLEY BANK

By: /s/ Art Hiemstra

------------------------------------
Title: Senior Vice President

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

2 -- LOAN MODIFICATION AGREEMENT

<PAGE> 1

EXHIBIT 10.23

AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT

CO-BORROWERS: CONSEP, INC., PACOAST INC. AND RICHARD HUNT, INC.

ADDRESS: Consep, Inc.
Pacoast, Inc.
213 SW Columbia Street
Bend, OR 97702
Richard Hunt, Inc.,
dba Sierra Ag Chemical
2749 East Malaga Avenue
Fresno, CA 93725

DATE: September 11, 1996

LINE OF CREDIT

CREDIT LIMIT
(Section 1.1): Subject to the reserves stated below, the Credit
Limit shall be an amount not to exceed the lesser
of: (i) $5,000,000 at any one time outstanding; or
(ii) the sum of (a) 70% of the Net Amount of
Borrower's accounts, which Silicon in its
discretion deems eligible for borrowing, plus (b)
40% of book value of Borrower's eligible inventory,
as defined below, as reported to Silicon on a
monthly basis, up to a maximum advance of
$1,250,000 outstanding at any one time, plus (c)
100% of the amount of any certificate of deposit
owned by Borrower that is in Silicon's possession
and in which Silicon has a first priority security
interest. Notwithstanding the foregoing, however,
the maximum amount of this line of credit as stated
in clause (i) above shall automatically be
increased to $7,500,000 at such time as Borrower
closes an equity financing raising proceeds of
$2,000,000 or more. The amount otherwise available
for borrowing under this line of credit shall be
reduced, dollar for dollar, by the face amount of
all letters of credit issued by Silicon and by an
additional amount of $350,000 with respect to
Silicon's day-light overdraft risk associated with
Borrower's controlled disbursement accounts. In
addition, the outstanding balance of the Secured
Term Loan described below shall reduce, dollar for
dollar, the amount otherwise available for
borrowing under the formula stated above at any
time during the term hereof during which Borrower
fails to comply with the Debt Service Coverage
Ratio stated below. There shall be no outstanding
advances against inventory during a period of
thirty consecutive days each year. "Net Amount" of
an account means the gross amount of the account,
minus all applicable sales, use, excise and other
similar taxes and minus all discounts, credits and
allowances of any nature granted or claimed.

Without limiting the fact that the determination of
which accounts are eligible for borrowing is a
matter of Silicon's discretion, the following will
not be deemed eligible for borrowing: accounts that
are not subject to a first priority perfected
security interest in favor of Silicon, accounts

1 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 2

outstanding for more than 90 days from the invoice
date, (provided, however, that accounts relating to
the following as account debtors are eligible for
up to 30 days past their respective due dates
provided that such accounts are not outstanding for
more than 150 days from the invoice date: Cotter &
Co., Ace Hardware, Frank's Nursery, Servistar
Corp., Commerce/Darbco, US Garden Sales, Agway,
Inc., Hardware Wholesalers, Inc., LG Cook
Distributors, Central Garden, Caldwell Supply,
Arett Sales Corp., J. Mollema & Son, Wetzel Seed
Co., and Payless Drug Northwest), accounts subject
to any contingencies, accounts owing from an
account debtor outside the United States (unless
pre-approved by Silicon in its discretion, or
backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to Silicon),
accounts owing from one account debtor to the
extent they exceed 25% of the total
eligible accounts outstanding, accounts owing from
an affiliate of Borrower, and accounts owing from
an account debtor to whom Borrower is or may be
liable for goods purchased from such account debtor
or otherwise. In addition, if more than 50% of the
accounts owing from an account debtor are
outstanding more than 90 days from the invoice date
or are otherwise not eligible accounts, then all
accounts owing from that account debtor will be
deemed ineligible for borrowing.

Without limiting the fact that the determination of
which inventory is eligible for borrowing is a
matter of Silicon's discretion, the following shall
not be deemed eligible for borrowing: any inventory
other than packaged chemicals (in boxes, bags, cans
or barrels, on which the seal has not been broken)
that are owned by Pacoast or Hunt and located in
Bend, Oregon or another location identified to
Silicon in writing, inventory that is not subject
to a first priority perfected security interest in
favor of Silicon, inventory that is used, obsolete
or returned goods, inventory that is stored at a
location other than the Borrower's Address or any
location owned, leased or rented by Borrower and
previously identified to Silicon, inventory that is
subject to a landlord's lien, and inventory that is
not in the possession of Borrower.

INTEREST RATE
(Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 1.50% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and
it is not necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date there is a
change in the Prime Rate.

LOAN COMMITMENT FEE
(Section 1.3): One quarter of one percent per annum of the maximum
credit limit of $7,500,000. (Any Commitment Fee
previously paid by the Borrower in connection with
this loan for the period through the Maturity Date
stated below shall be credited against this Fee.)

MATURITY DATE
(Section 5.1): September 11, 1997

2 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 3

LETTERS OF CREDIT: Subject to the other terms of the Loan Agreement
and the Schedule, Silicon is willing to issue
letters of credit on the following terms:

LETTER OF CREDIT
SUBLIMIT: The amount of all letters of credit, whether
commercial or standby letters of credit,
outstanding at any one time (including amounts
drawn on letters of credit and not yet reimbursed
by the Borrower) shall not exceed $1,500,000.00 at
any one time. The amount of all letters of credit
issued by Silicon at the request of the Borrower
shall reduce, dollar for dollar, the amount
otherwise available to be borrowed under the
borrowing base formula described in the first
paragraph of this Schedule.

MATURITIES OF LETTERS OF
CREDIT: Letters of credit issued by Silicon shall have an
expiry date of not later than the Maturity Date for
the line of credit as stated above. Not later than
that date, all letters of credit issued by Silicon
shall be satisfied or terminated, with the result
that Silicon shall have no continuing obligations
under such letters of credit, unless Borrower's
obligations to Silicon with respect to such letters
of credit is secured by cash pledged to Silicon and
in Silicon's possession on terms satisfactory to
Silicon, in which case such letters of credit shall
have an expiry date of not later than 90 days after
the Maturity Date for the line of credit as stated
above.

REPAYMENT: The Borrower shall repay on demand any amount drawn
on a letter of credit issued by Silicon. Silicon
may, but is not obligated to, add to the principal
amount outstanding under the line of credit
described above in this Schedule any amount drawn
on a letter of credit issued by Silicon. Any such
amount shall be subject to the terms applicable to
the line of credit described above. For calculating
the interest due from the Borrower, no interest
shall accrue on the amount of any letters of credit
issued by Silicon at the Borrower's request unless
Silicon shall actually makes a payment as a result
of a draw on any such letter of credit, at which
time the amount of the draw shall be deemed an
advance on the line of credit described above and
shall bear interest accordingly.

ISSUANCE: The issuance of any letter of credit under this
Schedule must be in form and content satisfactory
to Silicon and in favor of a beneficiary acceptable
to Silicon. The Borrower shall execute Silicon's
then-current application forms, reimbursement
agreement and related documents as a condition to
Silicon's issuance of any letter of credit.

FEES: The Borrower shall pay Silicon the fees and costs
customarily charged by Silicon (at the time of
issuance of the letter of credit) with respect to
the issuance of letters of credit.

SECURED TERM LOAN

CREDIT LIMIT: An amount not to exceed $215,000 at any one time
outstanding. The Borrower shall not be entitled to
more than one advance with respect to this Secured
Term Loan. The Borrower's indebtedness to Silicon
with respect to this Secured Term Loan shall be
evidenced by this Schedule and the Loan Agreement,
not by a separate promissory note unless required
by Silicon. The unpaid principal balance owing on
this Secured Term Loan at any time may be evidenced
by Silicon's internal records,

3 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 4

including daily computer print-outs (which Silicon
shall provide to Borrower periodically).

INTEREST RATE: The interest rate applicable to the Secured Term
Loan shall be a rate equal to the "Prime Rate" (as
defined above) in effect from time to time, plus
1.5% per annum. Interest calculations shall be made
on the basis of a 360-day year and the actual
number of days elapsed. The interest rate
applicable to the Obligations shall change on each
date there is a change in the Prime Rate.

AMORTIZATION: Borrower shall pay Silicon monthly payments of
interest on the last day each month commencing with
August 1996. In addition, Borrower shall pay
Silicon on the last day of each month, commencing
with August 1996, the amount necessary to repay
fully the amount of the Secured Term Loan in 72
equal monthly payments.

MATURITY DATE: July 31, 2000, at which time all unpaid principal
and accrued but unpaid interest, fees and other
charges shall be due and payable.

COMMITMENT FEE: $1,000, payable at closing. This fee is fully
earned at closing and is non-refundable. (Any
Commitment Fee previously paid by the Borrower in
connection with this loan shall be credited against
this Fee.)

PRIOR NAMES OF
BORROWER
(Section 3.2): Consep Membranes, Inc.

TRADE NAMES OF
BORROWER
(Section 3.2): CheckMate; Biolure; SureFire; Sierra Ag Chemical

OTHER LOCATIONS
AND ADDRESSES
(Section 3.3):

<TABLE>
<S> <C> <C>
Escalon Patterson
P.O. Box 335 P.O. Box 186
20001 McHenry Avenue 105 N. 1st Street
Escalon, CA 95320 Patterson, CA 95363
209-838-2809 209-892-2601
Livingston Sacramento
P.O. Box 165 P.O. Box 292337
11019 Eucalyptus 8120 37th Avenue
Livingston, CA 95334 Sacramento, CA 95824
209-394-7981 916-383-3610
</TABLE>

MATERIAL ADVERSE
LITIGATION
(Section 3.10): None

4 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 5

NEGATIVE COVENANTS --
EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Borrower
may do the following, provided that, after giving
effect thereto, no Event of Default has occurred
and no event has occurred which, with notice or
passage of time or both, would constitute an Event
of Default, and provided that the following are
done in compliance with all applicable laws, rules
and regulations: (i) repurchase shares of
Borrower's stock pursuant to any employee stock
purchase or benefit plan, provided that the total
amount paid by Borrower for such stock does not
exceed $200,000 in any fiscal year, (ii) incur
debt, make loans and incur liability as a guarantor
in the ordinary course of business, (iii) pledge up
to $350,000 in cash or cash equivalents as
collateral for the indebtedness of Chemfree
Environment, Inc. (a subsidiary of Borrower) to
Royal Bank of Canada; and (iv) make additional
advances to Borrower's subsidiaries provided that
the total amount of such additional advances shall
not exceed $250,000 during the term hereof.

FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the following
covenants on a consolidated basis, except as set
forth below. Compliance shall be determined as of
the end of each quarter, except as otherwise
specifically provided below:

QUICK ASSET RATIO: Borrower shall maintain a ratio of "Quick Assets"
to current liabilities of not less than 0.9 to 1.0.

TANGIBLE NET WORTH: Borrower shall maintain a tangible net worth of not
less than $10,000,000, plus 50% of the net proceeds
of any equity financing of Borrower that closes
after the date hereof.

DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall maintain a ratio of total
liabilities to tangible net worth of not more than
1.25 to 1.0.

PROFITABILITY: Borrower shall not incur a loss (after taxes) for
any fiscal quarter in excess of $1,250,000, or in
excess of $1,500,000 in the aggregate for two
consecutive quarters, or a quarterly loss of any
amount in three consecutive quarters.

DEBT SERVICE
COVERAGE RATIO: Borrower shall maintain a Debt Service Coverage
Ratio of not less than 1.4:1.0 as of the end of
each fiscal quarter of Borrower.

DEFINITIONS: "Current assets," and "current liabilities" shall
have the meanings ascribed to them in accordance
with generally accepted accounting principles.

"Debt Service Coverage Ratio" means Earnings Before
Interest, Taxes, Depreciation and Amortization
(EBITDA), divided by the Current Maturities of
Long-Term Debt (CMLTD) plus interest. For quarterly
calculations, quarterly EBITDA is matched against
25% of CMLTD plus interest.

5 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 6

"Tangible net worth" means total shareholders' net
worth, determined in accordance with generally
accepted accounting principles, plus Subordi-
nated Debt (as referred to below), excluding
however restricted cash, receivables owing from
subsidiaries of Borrower, and all assets which
would be classified as intangible assets under
generally accepted accounting principles, including
without limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized
software costs, deferred organizational costs and
franchises.

"Quick Assets" means cash on hand or on deposit in
banks, readily marketable securities issued by the
United States, readily marketable commercial paper
rated "A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating organization),
certificates of deposit and banker's acceptances,
and accounts receivable (net of allowance for
doubtful accounts).

SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness which is
subordinated to the indebtedness to Silicon under a
subordination agreement in form specified by
Silicon or by language in the instrument evidencing
the indebtedness which is acceptable to Silicon.

OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with all of the
following additional covenants:

1. BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking relationship
with Silicon. Borrower shall establish a daily
deposit sweep arrangement with either US Bank or
First Interstate Bank.

2. FINANCIAL STATEMENTS AND REPORTS. The Borrower
shall provide Silicon: (a) within 30 days after the
end of each month, a monthly financial statement
(consisting of a income statement and a balance
sheet) prepared by the Borrower in accordance with
generally accepted accounting principles; (b)
within 20 days after the end of each month, an
accounts receivable aging report, an inventory
report and an accounts payable aging report, in
such form as Silicon shall reasonably specify; (c)
within 20 days after the end of each month, a
Borrowing Base Certificate in the form attached to
this Agreement as Exhibit A, as Silicon may
reasonably modify such Certificate from time to
time, signed by the Chief Financial Officer of the
Borrower; (d) within 30 days after the end of each
quarter, a Compliance Certificate in such form as
Silicon shall reasonably specify, signed by the
Chief Financial Officer of the Borrower, setting
forth calculations showing compliance (at the end
of each such calendar quarter) with the financial
covenants set forth on the Schedule, and certifying
that throughout such quarter the Borrower was in
full compliance with all other terms and conditions
of this Agreement and the Schedule, and providing
such other information as Silicon shall reasonably
request; (e) within five days after filing, all 10Q
and 10K reports and other reports filed with the
Securities Exchange Commission; and (f) within 90
days following the end of the Borrower's fiscal
year, complete annual CPA-audited financial
statements, such audit being

6 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 7

conducted by independent certified public
accountants reasonably acceptable to Silicon,
together with an unqualified opinion of such
accountants.

3. INDEBTEDNESS. Without limiting any of the
foregoing terms or provisions of this Agreement,
Borrower shall not in the future incur indebtedness
for borrowed money, except for (i) indebtedness to
Silicon, and (ii) indebtedness incurred in the
future for the purchase price of or lease of
equipment in an aggregate amount not exceeding
normal course of business at any time outstanding.

4. AMENDMENT TO PRIOR AGREEMENT. This Schedule
amends and restates in its entirety the Schedule to
Loan and Security Agreement dated May 25, 1993
between the Borrower and Silicon, as amended prior
to the date hereof.
BORROWER: CONSEP, INC.

By: /s/ Volker G. Oakey

------------------------------------
Its: President

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

PACOAST INC.

By: /s/ Volker G. Oakey

------------------------------------
Its: Vice President

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

RICHARD HUNT, INC.

By: /s/ Volker G. Oakey

------------------------------------
Its: President

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

SILICON: SILICON VALLEY BANK

By: /s/ Art Hiemstra

------------------------------------
Its: Senior Vice President

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

7 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT
<PAGE> 8

EXHIBIT A

[INSERT BORROWING BASE CERTIFICATE]

8 -- AMENDED AND RESTATED SCHEDULE TO LOAN AND SECURITY AGREEMENT