- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): September 25, 1997
Agri-Nutrition Group Limited
(Exact name of registrant as specified in its charter)
Delaware 0-24312 43-1648680
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
Riverport Executive Center II
13801 Riverport Drive, Suite 111
Maryland Heights, Missouri 63043
(Address of principal executive offices, including zip code)
(314) 298-7330
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
<PAGE>
Mardel Laboratories, Inc.
Index to Financial Statements
Item 7.
Financial Statements
Balance Sheet as of September 25, 1997 (unaudited)....................F-2
Statement of Operations for the Approximate Nine Months Ended
September 30, 1996 and September 25, 1997 (unaudited).............F-3
Statement of Stockholders' Equity for the Approximate Nine
Months Ended September 25, 1997 (unaudited).......................F-4
Statement of Cash Flows for the Approximate Nine Months
Ended September 30, 1996 and September 25, 1997 (unaudited).......F-5
Notes to Financial Statements (unaudited).............................F-6
Report of Dugan & Lopatka.............................................F-7
Balance Sheet as of December 31, 1995 and 1996........................F-8
Statement of Retained Earnings for the Years
Ended December 31, 1995 and 1996.................................F-10
Statement of Operations for the Years Ended
December 31, 1995 and 1996........................................F-11
Statement of Cash Flows for the Years Ended
December 31, 1995 and 1996........................................F-12
Schedule of Operating Expenses for the Years
Ended December 31, 1995 and 1996..................................F-14
Notes to Financial Statements.........................................F-15
Pro Forma Financial Data (unaudited)..................................F-22
Signature.............................................................F-29
Exhibits.
The following exhibit is filed with this report:
Exhibit 23 Independent Auditors' Consent - Dugan & Lopatka
F-1
<PAGE>
Mardel Laboratories, Inc.
Balance Sheet (unaudited)
- --------------------------------------------------------------------------------
September 25, 1997
Assets
Current assets:
Cash and cash equivalents $ 8,930
Accounts receivable, net 390,863
Inventories:
Raw materials 822,242
Finished goods 491,232
Prepaid expenses 157,697
---------------
1,870,964
Property and equipment, net 307,591
Other assets 365,071
---------------
$ 2,543,626
===============
Liabilities and Stockholders' Equity
Current liabilities:
Installment notes, current portion $ 255,929
Line of credit 330,000
Accounts payable 152,377
Accrued expenses 183,318
---------------
921,624
---------------
Long-term portion of installment notes payable 991,424
---------------
Stockholders' equity:
Common stock ($2.00 par value; 5,000 shares
authorized; 500 shares issued and outstanding) 1,000
Retained earnings 629,578
---------------
630,578
---------------
$ 2,543,626
===============
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
Mardel Laboratories, Inc.
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
Approximate
Nine Months Nine Months
Ended Ended
September 30, September 25,
1996 1997
Net sales $ 5,390,738 $ 3,922,015
Cost of goods sold 2,760,551 1,858,037
------------- ------------
Gross profit 2,630,187 2,063,978
Operating expenses 2,799,034 1,857,222
------------- ------------
Income (loss) from operations (168,847) 206,756
Interest expense (102,407) (87,841)
Interest income and other 32 9,740
Gain from sale of assets 102,773
------------- ------------
Net income (loss) $ (271,222) $ 231,428
============= ============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Mardel Laboratories, Inc.
Statement of Stockholders' Equity (unaudited)
- --------------------------------------------------------------------------------
Common Retained
stock earnings Total
Balance, January 1, 1997 $ 1,000 $ 398,150 $ 399,150
Net income (unaudited) 231,428 231,428
-------- --------- ---------
Balance, September 25, 1997 (unaudited) $ 1,000 $ 629,578 $ 630,578
======== ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Mardel Laboratories, Inc.
Statement of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
Approximate
Nine Months Nine Months
Ended Ended
September 30, September 25,
1996 1997
Increase (decrease) in cash
Cash flows from operating activities:
Cash received from customers $ 5,488,796 $ 3,904,133
Cash paid to suppliers and employees (5,670,332) (3,481,716)
Interest paid (102,407) (97,858)
Interest received 48 9,772
Taxes received 984
------------ ------------
Net cash used in operating activities (282,911) 334,331
------------ ------------
Investing activities
Payments for purchase of property and equipment (176,900) (16,470)
Proceeds from sale of assets 280,000
------------ ------------
Net cash used in investing activities (176,900) 263,530
------------ ------------
Financing activities
(Payments) on installment loans (64,027) (316,109)
Net borowings (payments) under line of credit 432,000 (290,000)
------------ ------------
Net cash provided by financing activities 367,973 (606,109)
------------ ------------
Decrease in cash and cash equivalents (91,838) (8,248)
Cash, beginning of period 9,017 17,178
------------ ------------
Cash, end of period $ (82,821) $ 8,930
============ ============
Reconciliation of net income (loss)
to net cash used in operating activities:
Net income (loss) $ (271,222) $ 231,428
------------ ------------
Adjustment to reconcile net income (loss)
to net cash provided (used):
Depreciation and amortization 80,357 103,617
(Gain) on sale (44,564)
Changes in assets and liabilities:
(Increase) decrease in receivables 97,558 (17,882)
Decrease in prepaid expenses and other assets 15,613 21,140
(Increase) decrease in inventory (240,401) 352,862
Increase (decrease) in accounts
payable and accrued expenses 35,184 (312,270)
------------ ------------
Net adjustments (11,689) 102,903
------------ ------------
Net cash used in operating activities $ (282,911) $ 334,331
============ ============
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
1. Unaudited financial statements
The balance sheet as of September 25, 1997 and the statements of
operations, of shareholders' equity and of cash flows for the
approximate nine month periods ended September 30, 1996 and September
25, 1997 have been prepared by Mardel Laboratories, Inc. ("the Company")
without audit. In the opinion of management, all adjustments (which
include only normal, recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at and for
the periods ended September 30, 1996 and September 25, 1997 have been
made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted where inapplicable.
The results of operations for the periods ended September 30, 1996 and
September 25, 1997, respectively, are not necessarily indicative of the
operating results for the full year.
2. Nature of Business
The Company's principal business is the manufacturing and distribution
of pet products to wholesale and retail establishments worldwide. The
Company has general office and manufacturing facilities in Glendale
Heights, Illinois and was incorporated in Delaware on November 21, 1969.
3. Sale of the Company's Stock to Agri-Nutrition Group Limited
On September 25, 1997, the shareholders of Mardel sold all outstanding
stock of the Company to Agri-Nutrition Group Limited, through its
wholly-owned subsidiary, Mardel Acquisition Corporation. The purchase
price for Mardel was (i) $1,000,000 in cash and 852,775 shares of the
Company's restricted common stock, which was paid on the Closing Date;
(ii) $49,000 payable in cash on each of the first, second and third
anniversary of the Closing Date, plus interest at the prime rate as
determined from time to time by the Company's principal lender
compounded monthly; and (iii) $51,000 equivalent value of the Company's
restricted common stock on each of the first, second and third
anniversary of the Closing Date based on the weighted average of the
Company's common stock trading twenty trading days prior to each
anniversary. Subsequent to the acquisition of Mardel's common stock, the
Company merged with and into Mardel Acquisition Corporation.
In September 1997, the Company terminated its lease agreement for the
land and buildings described in Note 5 to the 1996 Mardel financial
statements included elsewhere herein, in conjunction with Mardel
Acquisition Corporation acquiring and merging with the Company as
discussed above and entering into a lease agreement on terms
substantially similar to the Company's lease agreement, but with a
minimum lease term expiring on February 28, 1999.
4. Summary of significant accounting policies
The accounting policies followed by the Company are set forth in Note 1
to the 1996 Financial Statements. The financial statements included
herein should be read in conjunction with the 1996 Financial Statements
and notes thereto included elsewhere in this document.
F-6
<PAGE>
To the Board of Directors of
Mardel Laboratories, Inc.:
We have audited the accompanying balance sheet of Mardel Laboratories,
Inc. (a Delaware corporation) as of December 31, 1996 and 1995, and the related
statements of operations, retained earnings and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mardel Laboratories,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
DUGAN & LOPATKA
Wheaton, Illinois
December 1, 1997
F-7
<PAGE>
MARDEL LABORATORIES, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
A S S E T S (Notes 3 and 4)
1996 1995
------------- ------------
CURRENT ASSETS:
Cash $ 17,178 $ 9,017
Accounts receivable, net of allowance
of $20,000 and $22,860 for 1996 and 1995,
respectively 603,704 777,451
Notes receivable - Employees 1,977 3,168
- Other 24,842 49,602
Inventory - Raw materials (Note 2) 906,123 1,018,273
- Finished goods (Note 2) 522,303 382,314
- Reptiles (Note 10) 237,910 40,889
Prepaid expenses 188,814 187,624
------------ ----------
Total current assets $ 2,502,851 $2,468,338
------------ ----------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements $ 62,849 $ 62,849
Fixtures and equipment 1,139,761 1,043,778
Computers 243,286 236,199
Autos and trucks 171,323 147,007
Breeding stock (Note 10) 295,729 247,507
------------ ----------
$ 1,912,948 $1,737,340
Less - Accumulated depreciation (1,288,703) (1,101,265)
------------ ----------
Net property and equipment $ 624,245 $ 636,075
------------ ----------
OTHER ASSETS:
Non-amortizable assets $ 49,202 $ 49,202
Prepaid consultation fee, net of amortization 4,500 -
Prepaid license, net of accumulated
amortization (Note 9) 47,175 46,347
Deposits 2,604 1,700
------------ ----------
Total other assets $ 103,481 $ 97,249
------------ ----------
$ 3,230,577 $3,201,662
============ ==========
F-8
The accompanying notes are an integral part of this balance sheet.
<PAGE>
MARDEL LABORATORIES, INC.
BALANCE SHEET (continued)
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995
------------- ------------
CURRENT LIABILITIES:
Installment notes, current portion
(Note 3) $ 255,929 $ 90,384
Line of credit (Note 4) 620,000 443,000
Accounts payable 459,683 368,078
Accrued expenses (Note 7) 188,282 263,418
------------ ----------
Total current liabilities $ 1,523,894 $1,164,880
------------ ----------
LONG-TERM LIABILITIES:
Installment notes, net of current
portion shown above (Note 3) $ 1,107,533 $1,019,446
Breeding business - Commitment
(Notes 10 and 11) 200,000 200,000
------------ ----------
Total long-term liabilities $ 1,307,533 $1,219,446
------------ ----------
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $2 par value, 5,000
shares authorized and 500 shares
outstanding $ 1,000 $ 1,000
Retained earnings (Statement of Retained Earnings) 398,150 816,336
------------ ----------
Total shareholders' equity $ 399,150 $ 817,336
------------ ----------
$ 3,230,577 $3,201,662
============ ==========
F-9
<PAGE>
MARDEL LABORATORIES, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
----------- ------------
BALANCE, JANUARY 1 $ 816,336 $ 971,150
NET LOSS (418,186) (154,814)
--------------- ---------------
BALANCE, DECEMBER 31 $ 398,150 $ 816,336
=============== ==============
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
MARDEL LABORATORIES, INC.
STATEMENT OF OPERATIONS FOR
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
---------------- -------------
SALES:
Gross sales $ 7,606,347 $ 7,352,393
Discounts allowed (720,857) (513,438)
Sales returns and allowances (91,019) (51,940)
--------------- --------------
Net sales $ 6,794,471 $ 6,787,015
COST OF GOODS SOLD 3,485,114 3,369,640
--------------- --------------
Gross profit $ 3,309,357 $ 3,417,375
Percent of net sales 48.71% 50.35%
OPERATING EXPENSES (Statement of
Operating Expenses) 3,586,094 3,414,400
--------------- --------------
Income (loss) from operations $ (276,737) $ 2,975
--------------- --------------
OTHER INCOME (EXPENSES):
Interest income $ 48 $ 92
Interest expense (141,497) (98,381)
Lawsuit settlement (Note 7) - (60,000)
--------------- --------------
Net other (expenses) $ (141,449) $ (158,289)
--------------- --------------
Net (loss) before income taxes $ (418,186) $ (155,314)
PROVISION FOR INCOME TAXES - (500)
--------------- --------------
NET (LOSS) $ (418,186) $ (154,814)
=============== ==============
The accompanying notes and the Statement of Operating Expenses are an
integral part of this statement.
F-11
<PAGE>
MARDEL LABORATORIES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
---------------- -------------
INCREASE (DECREASE) IN CASH:
Cash flows from operating activities:
Cash received from customers $ 6,994,169 $ 6,671,729
Cash paid to suppliers and employees (7,106,282) (7,087,199)
Interest paid (134,248) (95,613)
Interest received 48 92
--------------- --------------
Net cash (used in) operating
activities $ (246,313) $ (510,991)
--------------- --------------
Cash flows from investing activities:
Payments for purchase of property and
equipment $ (175,607) $ (145,038)
--------------- --------------
Cash flows from financing activities:
Borrowings on installment loans $ 350,000 $ 350,000
(Payments) on installment loans (96,919) (88,819)
Net borrowings under line of credit 177,000 393,000
--------------- --------------
Net cash provided by
financing activities $ 430,081 $ 654,181
--------------- --------------
Net change in cash $ 8,161 $ (1,848)
Cash at beginning of year 9,017 10,865
--------------- --------------
Cash at end of year $ 17,178 $ 9,017
=============== ==============
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
MARDEL LABORATORIES, INC.
STATEMENT OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET
CASH (USED IN) OPERATING ACTIVITIES:
Net (loss) $ (418,186) $ (154,814)
---------------- ----------------
Adjustments to reconcile net (loss) to net cash used:
Depreciation and amortization $ 142,600 $ 136,358
Change in assets and liabilities:
(Increase) decrease in receivables 199,698 (115,286)
(Increase) in prepaid expenses (7,190) (83,156)
(Increase) in inventory (173,799) (186,863)
(Increase) in prepaid licenses (5,000) (47,000)
(Increase) in deposit (904) (1,700)
Increase (decrease) in accounts payable
and accrued expenses 16,468 (58,030)
(Decrease) in accrued income taxes - (500)
---------------- ----------------
Net adjustments $ 171,873 $ (356,177)
---------------- ----------------
Net cash (used in) operating activities $ (246,313) $ (510,991)
================ ================
</TABLE>
The accompanying notes are an integral part of this statement.
F-13
<PAGE>
MARDEL LABORATORIES, INC.
OPERATING EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
---------------- -------------
Salaries $ 1,387,702 $ 1,257,264
Rent (Note 5) 204,499 218,400
Repairs and maintenance 24,873 27,807
Outside services 54,634 37,990
Insurance 150,390 146,936
Advertising 53,141 24,322
Selling expense 471,614 401,364
Store detail 199,314 172,039
Travel 27,830 26,258
Dues and subscriptions 9,758 20,597
Depreciation (Note 12) 136,930 135,705
Amortization 5,672 653
Licenses 36,207 42,664
Commissions 45,246 46,205
Taxes - Payroll 108,833 96,184
- Real estate 37,018 38,707
- Sales tax 10,333 -
Freight 306,118 354,444
Customs charges 1,357 364
Utilities 38,986 33,776
Telephone 41,454 49,160
Professional fees 56,702 67,648
Supplies 32,436 37,452
Research and development 53,133 84,122
Postage 19,722 15,325
Samples 15,821 15,021
Profit sharing expense (Note 6) 10,500 9,945
Bad debts (recovery) (1,269) 16,996
Other expense 47,140 37,052
-------------- ------------
Total operating expenses $ 3,586,094 $ 3,414,400
============== ============
F-14
<PAGE>
MARDEL LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's principal business is the manufacturing and distribution
of pet products to wholesale and retail establishments worldwide. The Company
has general office and manufacturing facilities in Glendale Heights, Illinois
and was incorporated in Delaware on November 21, 1969.
Inventories -
The Company has adopted the last-in, first-out (LIFO) method of valuing
chemical raw materials and packaging inventories. All other inventories have
been valued at the lower of cost or market using the first-in, first-out (FIFO)
method. The change was made in order to match current costs against current
revenue, thereby reducing the effects of inflation on earnings.
Reptile inventories are stated at the lower of cost or market using the
FIFO method. Costs of raised reptiles include proportionate costs of breeding,
including depreciation of the breeding herd, plus the costs of maintenance to
maturity.
Property and equipment -
Property and equipment are recorded at cost. Breeding animals are
carried at purchase costs or inventory transfer amounts equal to the lower of
accumulated animal maintenance costs or market. Renewals and betterments of
property are accounted for as additions to the asset accounts. Repairs and
maintenance charges are expensed as incurred.
Depreciation -
Depreciation is computed using the straight line method. The cost of
all depreciable property is charged to operations over their estimated useful
lives.
Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates.
Research and development costs -
Research and development costs are charged to expense during the year
in which they occur.
F-15
<PAGE>
Income taxes -
Effective December 31, 1986, the Company elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those provisions,
the Company does not pay corporate income taxes on its taxable income, except
for the state replacement tax. Instead, the shareholders are liable for
individual income taxes on the Company's taxable income.
As an S Corporation, the shareholder may distribute previously taxed
income. There were no distributions for the year ended December 31, 1996 and
1995.
(2) LIFO INVENTORY:
As discussed in Note 1, the last-in, first-out (LIFO) method of valuing
chemical raw materials and packaging inventories has been adopted. Had the
Company used the FIFO (first-in, first-out) method for these items, inventories
would have been $25,780 and $25,845 higher as of December 31, 1996 and 1995,
respectively. Net income before income taxes would have been $2,426 lower and
$23,422 higher than reported as of December 31, 1996 and 1995, respectively.
(3) INSTALLMENT NOTES:
Installment notes payable as of December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
Payable to a shareholder in semi-monthly installments of $2,500,
principal and interest, bearing interest at 8.0%, secured by
receivables, property and equipment, due December, 2009 and
subordinated to the bank notes and line of
credit. $ 487,957 $ 504,830
Payable to a bank in monthly installments of $3,333, principal, plus
interest at prime, secured by receivables, inventory and
equipment, due September, 1999. 110,000 150,000
Payable to a bank in monthly installments of $2,500, principal, plus
interest at prime, secured by receivables, inventory and
equipment, due June, 1999. 75,000 105,000
Payable to a bank in monthly installments of interest only through
November, 1996, then monthly installments of $7,292, principal, plus
interest at prime, secured by receivables, inventory and
equipment, due November, 2000. 335,417 350,000
Payable to a bank in monthly installments of $5,833, principal, plus
interest at prime, secured by receivables, inventory
and equipment, due October, 2001. 338,333 -
Payable to a third party in monthly
installments of $386.45, principal and
interest, bearing interest at 12.38%,
secured by equipment, due October, 2001. 16,755 -
--------------- --------------
$ 1,363,462 $ 1,109,830
Less - Current portion 255,929 90,384
--------------- --------------
Long-term portion $ 1,107,533 $ 1,019,446
=============== ==============
</TABLE>
F-16
<PAGE>
As of December 31, 1996, the long-term portion matures as follows:
1998 $ 254,500
1999 231,893
2000 174,921
2001 92,115
2002 32,916
Thereafter 321,188
(4) LINE OF CREDIT:
At December 31, 1996 and 1995, the Company has a bank line of credit
arrangement that provides for a maximum borrowing of $750,000. The Company had
outstanding borrowings at December 31, 1996 and 1995 of $620,000 and $443,000,
respectively. The loan bears interest at prime, is due April 30, 1997 and is
secured by receivables, inventory and machinery and equipment. In addition, the
Company must meet certain covenants, to include 1) tangible net worth plus
subordinated debt to be equal to or greater than $1,000,000, 2) the ratio of
total liabilities to its total net worth plus subordinated debt to be less than
2.25 to 1, and 3) the ratio of current assets to current liabilities to be
greater than 1.5 to 1. Subordinated debt includes all amounts due to the
majority shareholder. The covenants were not met at December 31, 1996; however,
they were met at December 31, 1995. A waiver was received from the bank on
January 9, 1997.
F-17
<PAGE>
In addition to the above line of credit, the Company has available to
it a purchase money term loan that provides for a maximum borrowing of $900,000.
There were $858,750 and $605,000 in borrowings outstanding at December 31, 1996
and 1995 (Note 3), respectively. The availability of these funds expires on
April 30, 1997.
(5) COMMITMENTS:
The Company leases its office, parking and warehouse facilities from
the majority shareholder. Real estate taxes, insurance, utilities and general
repairs and maintenance are paid by the Company. In addition, in 1996, the
Company entered into a three (3) year lease agreement for space for its breeding
facility with a third party. Insurance, utilities, and general repairs and
maintenance are paid by the Company. Aggregate rentals were $204,499 and
$218,400 for the years ended December 31, 1996 and 1995, respectively.
The future minimum rental commitments as of December 31, 1996 for all
noncancellable leases, are as follows:
1997 $ 247,500
1998 248,475
1999 60,863
(6) PROFIT SHARING PLAN:
On July 1, 1990, the Company established a defined contribution profit
sharing plan (401(k)) covering all full-time employees who have met certain
service requirements. The plan provides for matching contributions and
discretionary contributions by the Company as determined annually by the Board
of Directors, up to the maximum amount permitted under the Internal Revenue
Code. The profit sharing expense for the year ending December 31, 1996 and 1995
is $10,500 and $9,945, respectively.
(7) LITIGATION SETTLEMENT:
During 1995, the Company was named as a defendant in a lawsuit. Prior
to December 31, 1996, the lawsuit was settled for $60,000. This amount has been
paid at December 31, 1996.
F-18
<PAGE>
(8) EMPLOYEE BENEFITS:
The Company has a "Section 125" employee benefits plan, which is also
referred to as a "cafeteria" plan. The employee has an option to receive his
full compensation for any plan year in cash or to have a portion of it applied
by the Company toward the cost of one or more of the following plans on a
pre-tax basis: 1) Dependent Care Assistance Plan 2) Medical Reimbursement Plan
or 3) Group Health Insurance Plan. A new employee is eligible to participate in
the cafeteria plan after meeting certain employment and length of service
requirements.
(9) PREPAID LICENSE:
In July, 1995, the Company entered into a license and sales agreement
with a vendor (Licensor). The agreement grants the Company the exclusive right
to manufacture, use, market, and sell the licensor's product throughout the
United States, its territories and possessions, Canada and Mexico. In April,
1996, the Company amended the original license and sales agreement with the
Licensor. This amendment grants the Company the additional right to sell any
products licensed by or purchased from the Licensor on a non-exclusive basis
outside of North America.
The agreement and its amendment is for a term of 12 years with an
additional five (5) years provided the Licensor obtains a U.S. patent covering
the product licensed to the Company. In the event the Licensor obtains the above
mentioned patent, the Company is obligated to pay an additional $10,000. The
Company may terminate this agreement at any time upon six (6) months written
notice to the Licensor.
The Company is amortizing the license fees over the initial term of 12
years.
Licensor royalty fees vary depending on certain terms and conditions
outlined in the agreement. However, the future minimum royalty commitments, as
of December 31, 1996 are as follows:
Year ended Amount
1997 $ 20,000
1998 25,000
1999 25,000
2000 25,000
2001 25,000
Thereafter 137,500
Royalty expense under the above agreement and other agreements was
$28,303 for the year ended December 31, 1996. There was no royalty expense for
the year ended December 31, 1995.
F-19
<PAGE>
(10) BREEDING BUSINESS - COMMITMENT:
During 1995, the Company entered into an agreement with a third party
for the acquisition of breeding animals and equipment. The liability for these
items will be payable at the option of the Company, starting in the third
calendar year, to the extent earnings from the division permit.
Subsequent to December 31, 1996, the company entered into an Agreement
to sell the breeding animals and equipment to the third party for $280,000. The
selling price of $280,000, representing the Company's basis in the assets, was
financed by the third party with a $30,000 cash payment and a $250,000 note
receivable to the Company. The note receivable is due in fixed monthly
installments of approximately $5,000, including principal and interest at 8%,
through April, 2002.
Concurrent with the Agreement, the Company and the third party
terminated the Breeding Business Agreement and the related liability to the
third party.
(11) SUPPLEMENTAL CASH FLOW INFORMATION:
During 1995, the Company acquired certain assets in exchange for a long
term liability. In addition, during 1996 and 1995, the Company capitalized
depreciation on its breeding animals. The assets and liabilities affected are as
follows:
1996 1995
--------- --------
Inventories $ 51,061 $ 12,021
Fixtures and equipment - 12,170
Breeding animals - 187,830
Depreciation expense (51,061) (12,021)
--------- --------
Breeding business commitment $ - $200,000
========= ========
(12) CAPITALIZED DEPRECIATION:
Depreciation costs incurred on the breeding animals were capitalized.
Depreciation costs capitalized and expensed are as follows:
1996 1995
--------- --------
Depreciation costs incurred $ 187,991 $ 147,726
Less - Capitalized depreciation 51,061 12,021
---------- ---------
Depreciation charged to operations $ 136,930 $ 135,705
========== =========
F-20
<PAGE>
(13) MAJOR CUSTOMERS:
For the year ended December 31, 1996, the Company had one customer that
accounted for approximately 18% of sales. During 1995, the Company had one
customer that accounted for approximately 14% of sales.
(14) BUSINESS CONDITION:
While the Company has experienced net losses of $573,000 over the last
two years, they continue to meet their cash requirements. The Company's cash
reserves have been reduced as a result of the current year operating loss and
debt service, but it has not affected the Company's ability to operate. Trade
suppliers continue to extend credit to the Company on normal terms, since the
Company is meeting all trade and other obligations as they become due.
To meet current trade and debt obligations, management's plan is to use
cash generated from the sale of its breeding business (Note 10). In addition,
the Company is focusing on reducing expenses, which included a reduction in the
labor force.
(15) SUBSEQUENT EVENT:
Subsequent to year end, the shareholders of the Company sold 100% of
their shares to a third party. The effective date of the sale was September 28,
1997.
F-21
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Unaudited Combined Financial Information
- --------------------------------------------------------------------------------
The following unaudited pro forma combined financial statements give effect to
the acquisition of Mardel Laboratories, Inc. in a transaction accounted for as a
purchase. The unaudited pro forma combined balance sheet is based on the
individual unaudited balance sheets of Agri-Nutrition Group Limited ("the
Company") as of July 31, 1997 and Mardel Laboratories, Inc. ("Mardel") as of
September 25, 1997 appearing elsewhere in this document, and has been prepared
to reflect the acquisition by the Company of Mardel as of July 31, 1997. The
unaudited pro forma combined statements of operations are based on the
individual statements of operations of the Company and Mardel, and combine the
results of operations of the Company for the fiscal year ended October 31, 1996
and the nine months ended July 31, 1997, and of Mardel for the year ended
December 31, 1996 and the approximate nine months ended September 25, 1997, as
if the acquisition of Mardel occurred on November 1, 1995. The financial data
may not be indicative of the results that actually would have occurred if the
transactions and adjustments described in the accompanying notes had occurred on
the dates assumed and do not project the Company's financial position or results
of operations at any future date. The unaudited pro forma combined financial
statements should be read in conjunction with the historical consolidated
financial statements of the Company, and the related notes thereto, which are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1996 and the Company's Quarterly Report on Form 10-Q, for the nine
months ended July 31, 1997, and the historical financial statements of Mardel,
and the related notes thereto, presented elsewhere in this Current Report on
Form 8-K/A-1.
On September 25, 1997 (the "Closing Date") the Company acquired all of the
outstanding common stock of Mardel through its wholly-owned subsidiary, Mardel
Acquisition Corporation. The purchase price for Mardel was (i) $1,000,000 in
cash and 852,775 shares of the Company's restricted common stock with a fair
value of $1,100,000, which was paid on the Closing Date; (ii) $49,000 payable in
cash on each of the first, second and third anniversary of the Closing Date,
plus interest at the prime rate as determined from time to time by the Company's
principal lender compounded monthly; and (iii) $51,000 equivalent value of the
Company's restricted common stock on each of the first, second and third
anniversary of the Closing Date based on the weighted average of the Company's
common stock trading twenty trading days prior to each anniversary. The
acquisition has been accounted for under the purchase method of accounting and
was financed primarily with proceeds from the Company's initial public offering
of common stock and with unissued common stock of the Company. The purchase
price has been preliminarily allocated to the assets and liabilities acquired
based on their estimated fair value at the Closing Date. The excess of purchase
price over the estimated fair value of net assets acquired has been recorded as
goodwill and will be amortized over 30 years.
F-22
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Combined Balance Sheet (Unaudited)
July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Combined Balance Sheet (Unaudited)
Pro Forma
------------------------------------
Acquisition
Agri-Nutrition Adjustments
Group Limited (1) Mardel (2) (Note 1) Combined
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 1,271,070 $ 8,930 $ (979,467) a $ 300,533
Accounts receivable 4,318,446 390,863 (50,000) b 4,659,309
Inventories 4,972,889 1,313,474 (224,220) c 6,062,143
Prepaid expenses and other assets 1,071,455 157,697 1,229,152
-------------- ---------- ------------- ----------
11,633,860 1,870,964 (1,253,687) 12,251,137
Property, plant and equipment, net 4,922,008 307,591 442,411 b 5,672,010
Goodwill 6,219,792 1,968,662 d 8,188,454
Other assets 1,004,137 365,071 (178,176) a 1,191,032
-------------- ---------- ------------- ----------
$ 23,779,797 $2,543,626 $ 979,210 $27,302,633
============== ========== ============= ===========
Liabilities and shareholders'
equity
Current portion of long-term
debt and notes payable $ 304,769 $ 488,338 $ (488,338) e $ 304,769
Notes payable to affiliates 97,591 100,000 f 197,591
Accounts payable 1,423,950 152,377 1,576,327
Accrued expenses 763,105 183,318 285,856 g 1,232,279
-------------- ---------- ------------- -----------
2,491,824 921,624 (102,482) 3,310,966
Long-term debt and notes payable 6,919,126 622,981 488,338 e 8,030,445
Notes payable to Seller 368,443 123,932 h 492,375
Shareholders' equity
Agri-Nutrition Group Limited 14,849,201 1,100,000 i 15,949,201
Mardel 1,000 (1,000) j
Retained earnings (deficit) (480,354) 629,578 (629,578) j (480,354)
-------------- ---------- ------------- -----------
$ 23,779,797 $2,543,626 $ 979,210 $27,302,633
============== ========== ============= ===========
</TABLE>
(1) Reflects unaudited amounts as of July 31, 1997, as previously reported.
(2) Reflects approximate unaudited results as of September 25, 1997, as reported
elsewhere herein.
See Note 1 on page F-24 for discussion of pro forma adjustments.
F-23
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Combined Balance Sheet (Unaudited)
July 31, 1997
- --------------------------------------------------------------------------------
Note 1 - The pro forma combined balance sheet has been prepared to reflect the
acquisition of Mardel by Agri-Nutrition Group Limited, as if it had been
consummated on July 31, 1997, for an aggregate price of (i) $1,000,000 in cash
and 852,775 shares of the Company's restricted common stock, which was paid on
the Closing Date; (ii) $49,000 payable in cash on each of the first, second and
third anniversary of the Closing Date, plus interest at the prime rate as
determined from time to time by the Company's principal lender compounded
monthly; and (iii) $51,000 equivalent value of the Company's restricted common
stock on each of the first, second and third anniversary of the Closing Date
based on the weighted average of the Company's common stock trading twenty
trading days prior to each anniversary.
Pro forma adjustments are made to reflect:
a. the initial cash payments of $1,000,000 for the acquisition of Mardel, net
of certain payments to and from Mardel's shareholders related to
obligations existing at the Closing Date, and related expenses;
b. adjustment to record the net assets of Mardel at estimated fair value at
the Closing Date;
c. adjustment to record inventory at estimated fair value at the Closing
Date, including elimination of the LIFO reserve in order to restate
inventory on a FIFO basis consistent with the Company's accounting
policies;
d. the excess of acquisition cost over the fair value of net assets
acquired (goodwill);
e. amount reclassified to long-term debt in conjunction with the repayment
of Mardel's bank debt utilizing borrowings from the Company's amended
line of credit agreements;
f. the obligation for $147,000 of cash payments and issuance of the
Company's common stock valued at $153,000, to be paid to Mardel's
shareholders over the three years subsequent to the Closing Date,
$100,000 of which is classified in current liabilities;
g. accrued liabilities primarily reflects estimated expenditures to be
incurred in the fiscal year ending October 31, 1998 related to the
integration of Mardel into the Company's operations, including severance
payments related to the merger of certain operations and functions of
Mardel with the Company;
h. record $200,000 long-term portion of amounts due to Mardel shareholders
as discussed in f. above, net of approximately $100,000 of Mardel
long-term obligations owed to a former Mardel shareholder and other
amounts due to/from Mardel shareholders that were settled in conjunction
with the acquisition;
i. reflects issuance of 852,775 shares of the Company's common stock to
acquire Mardel; and
j. the elimination of the common shareholders' equity accounts of Mardel.
F-24
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
---------------------------------
Acquisition
Agri-Nutrition Adjustments
Group Limited (1) Mardel (2) (Note 2) Combined
<S> <C> <C> <C> <C>
Net sales $ 28,661,307 $ 6,794,471 $ 35,455,778
Cost of sales 20,783,847 3,485,114 $ (43,000) a 24,225,961
------------- ------------ ----------- ------------
Gross profit 7,877,460 3,309,357 43,000 11,229,817
Selling, general and administrative
expenses 7,830,061 3,586,094 65,600 b 11,481,755
------------- ------------ ----------- ------------
Operating income (loss) 47,399 (276,737) (22,600) (251,938)
Interest expense and other 437,182 141,449 84,000 c 662,631
------------- ------------ ----------- ------------
Pre-tax loss from continuing
operations (389,783) (418,186) (106,600) (914,569)
Tax benefit 146,948 202,000 d 348,948
------------- ------------ ----------- ------------
Income (loss) from continuing
operations (242,835) (418,186) 95,400 (565,621)
Income from discontinued
operations 115,415 -- -- 115,415
------------- ------------ ----------- ------------
Net income (loss) $ (127,420) $ (418,186) $ 95,400 $ (450,206)
============= ============ =========== ============
Primary net loss per share $ (.02) $ (.05)
============= ============
Primary common and common
equivalent shares outstanding 8,397,686 852,775 9,250,461
============= =========== ============
Fully diluted net loss per share $ (.02) $ (.05)
============= ============
Fully diluted common and common
equivalent shares outstanding 8,397,686 852,775 9,250,461
============= =========== ============
</TABLE>
(1) Reflects audited results for the year ended October 31, 1996, as previously
reported.
(2) Reflects audited results for the year ended December 31, 1996, as reported
elsewhere herein.
See Note 2 on page F-26 for discussion of pro forma adjustments.
F-25
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
Year Ended October 31, 1996
- --------------------------------------------------------------------------------
Note 2 - The pro forma combined statement of operations gives effect to the
following pro forma adjustments necessary to reflect the acquisition as if it
had occurred on November 1, 1995:
a. decreased annual depreciation resulting from increased basis of property
and equipment acquired and adjusted useful lives;
b. amortization of goodwill on a straight-line basis over 30 years;
c. reduction in interest income related to the cash utilized by the Company
for the acquisition and elimination of forgiveness of interest related
to a note payable to a former shareholder of Mardel which was settled in
connection with the Company's acquisition of Mardel; and
d. estimated income tax effect of pro forma adjustments during the period.
For Mardel, the adjustment includes the effect of Mardel becoming a
taxable corporate entity. Prior to its acquisition by the Company,
Mardel had elected to be taxed as an S-Corporation for federal and state
income tax purposes; accordingly, Mardel neither paid nor incurred
federal and state income taxes as an S-Corporation.
F-26
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
Nine Months Ended July 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
---------------------------------
Acquisition
Agri-Nutrition Adjustments
Group Limited (1) Mardel (2) (Note 3) Combined
<S> <C> <C> <C> <C>
Net sales $ 23,423,827 $ 3,922,015 $ 27,345,842
Cost of sales 17,329,393 1,858,037 $ (32,250) a 19,155,180
-------------- ------------ ---------- ------------
Gross profit 6,094,434 2,063,978 32,250 8,190,662
Operating expenses 5,410,320 1,857,222 49,200 b 7,316,742
-------------- ------------ ---------- ------------
Operating income (loss) 684,114 206,756 (16,950) 873,920
Interest expense and other (629,128) (78,069) (63,000) c (770,197)
Gain from sale of assets 102,773 (102,773) d
-------------- ------------ ---------- ------------
Pre-tax income (loss) from
continuing operations 54,986 231,460 (182,723) 103,723
Tax provision (20,828) (32) (19,073) e (39,933)
-------------- ------------ ---------- ------------
Income (loss) from continuing
operations 34,158 231,428 (201,796) 63,790
Income from discontinued
operations 14,659 -- -- 14,659
-------------- ------------ ---------- ------------
Net income (loss) $ 48,817 $ 231,428 $ (201,796) $ 78,449
============== ============ ========== ============
Primary net income per share $ .01 $ .01
============== ============
Primary common and common
equivalent shares outstanding 8,570,765 852,775 9,423,540
============== ========== ============
Fully diluted net income per
share $ .01 $ .01
============== ============
Fully diluted common and common
equivalent shares outstanding 8,570,765 852,775 9,423,540
============== ========== ============
</TABLE>
(1) Reflects unaudited results for the nine months ended July 31, 1997, as
previously reported.
(2) Reflects unaudited results for the approximate nine months ended
September 25, 1997, as reported elsewhere herein.
See Note 3 on page F-28 for discussion of pro forma adjustments.
F-27
<PAGE>
Agri-Nutrition Group Limited
Acquisition of Mardel Laboratories, Inc.
Pro Forma Combined Statement of Operations (Unaudited)
Nine Months Ended July 31, 1997
- --------------------------------------------------------------------------------
Note 3 - The pro forma combined statement of operations gives effect to the
following pro forma adjustments necessary to reflect the acquisition as if it
had occurred on November 1, 1996:
a. decreased annual depreciation resulting from increased basis of property
and equipment acquired and adjusted useful lives;
b. amortization of goodwill on a straight-line basis over 30 years;
c. reduction in interest income related to the cash utilized by the Company
for the acquisition and elimination of forgiveness of interest related
to a note payable to a former shareholder of Mardel which was settled in
connection with the Company's acquisition of Mardel;
d. elimination of non-recurring gain related to the sale of certain assets
related to reptile breeding operations; and
e. estimated income tax effect of pro forma adjustments during the period.
For Mardel, the adjustment includes the effect of Mardel becoming a
taxable corporate entity. Prior to its acquisition by the Company,
Mardel had elected to be taxed as an S-Corporation for federal and state
income tax purposes; accordingly, Mardel neither paid nor incurred
federal and state income taxes as an S-Corporation.
F-28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Agri-Nutrition Group Limited
By: /s/ Robert J. Elfanbaum
Robert J. Elfanbaum
Chief Financial Officer
Date: December 8, 1997
F-29
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-86880,
33-86892, 33-93340, and 333-3192) of Agri-Nutrition Group Limited of our report
dated December 1, 1997 appearing on page F-7 of this Current Report on Form
8-K\A-1.
DUGAN & LOPATKA
Wheaton, Illinois
December 8, 1997
