UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ____________ to __________
Commission File Number 33-89714
RED OAK HEREFORD FARMS, INC.
(Exact name of small business issuer as specified in its
charter)
NEVADA 84-1120614
(State or other jurisdiction (IRSEmployer Identification No.)
of incorporation or organization)
2010 Commerce Drive, Red Oak, Iowa 51566
(Address of principal executive offices)
(712) 623-9224
(Issuer's Telephone Number)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
At June 30, 1997, there were 13,398,726 shares of common
stock of the registrant outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No x
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INDEX
Page No.
PART I_FINANCIAL INFORMATION
Item 1. Financial Statements F-1
Item 2. Management's Discussion and Analysis 3
PART II_OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3 Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 9
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages F-1 to F-7 attached.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
STATEMENTS
The matters discussed in this Form 10-QSB contain forward-
looking statements that involve risks and uncertainties
including risk of changing market conditions with regard to
livestock supplies and demand for products of Red Oak
Hereford Farms, Inc. (the "Company"), domestic and
international regulatory risks, competitive and other risks
over which the Company has little or no control.
Consequently, future results may differ from management's
expectations. Moreover, past financial performance should
not be considered a reliable indicator of future
performance.
GENERAL
Midland Acquisition. The Company acquired Midland Cattle
Company, Inc., ("Midland") as a wholly owned subsidiary of
the Company, on May 19, 1997 as reported in the Form 8-K,
Current Report, dated May 19, 1997. The following
discussion regarding the results of operations include the
results of operations for Midland for the periods indicated.
Midland is engaged in buying and selling feeder cattle in
wholesale markets. Midland brings a wide customer base to
the Company and management believes costs of on-going
acquisitions of CHB will be mitigated as consistently strong
relationships are developed between Midland and CHB
producers and feeders.
Beef America Contract. As of this reporting period, Red Oak
has not met the quota specified in its contract with Beef
America and is technically in default of the agreement.
However, Beef America has not terminated the agreement and
is willing to work with the company as the CHB market
develops. Further, should Beef America terminate the
contract, numerous processing and packing plant facilities
are available to Red Oak and should the need arise, the
company can establish a new relationship without serious
consequence to production of CHB.
MediaComm Marketing / Gemsbok Programming Inc. Subsequent
to the quarter ended June 30, 1997, the agreement between
Red Oak Hereford Farms, Inc. and MediaComm Marketing expired
July 1997. To continue to increase market exposure, the
Company entered into a new agreement in July 1997, with
Gemsbok Programming, Inc., ("Gemsbok") for financial public
relations services. Gemsbok will perform services for a
term of three months at which time the agreement then
transfers into a month-to-month term, unless terminated by
either party. The Company will submit $2,000 as a retainer
and will be obligated for expenses and fees for various
financial public relations services. Gemsbok will maintain
the Company's website (www.redoakfarms.com) and service
investor requests at the Company's 800 number.
3
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had a consolidated cash
balance of $55,000.
On March 27, 1997, the Company commenced a private offering
relying upon Section 4(2) of the Securities Act of 1933 and
Rule 506 promulgated thereunder. As of June 30, 1997, the
Company has raised gross proceeds of approximately
$3,115,000 from the private offering. The Company is
investigating filing a registration statement with the
Securities and Exchange Commission to register currently
issued and outstanding warrants and the common shares
underlying those warrants.
For the period ending June 30, 1997, of the 400,000 shares
allocated and granted pursuant to the Company's 1995 Stock
Option Plan, options for 199,930 shares been exercised at a
price of $3.00 per share and the Company recognized $599,790
in gross proceeds. Options for 200,070 shares remain
granted but unexercised and the Company believes these
options will be exercised before year-end. Pursuant to the
1997 Stock Option Plan, options for 681,500 shares have been
granted to date. As of June 30, 1997, none of the options
granted pursuant to the 1997 Stock Option Plan have been
exercised.
Cash flows for the Company from financing activities
increased from providing $1,375,978 in the first six months
of 1996 to cash provided of $3,510,039 in the first six
months of 1997. The majority of the increase is due to
stock sales from the private offering and exercise of stock
options.
Cash used by investing activities changed from $(39,553) in
usage during the first six months of 1996 to $48,029
provided in the first six months of 1997. During the first
six months of 1997, the Company made no major purchases of
equipment and made no capital improvements, while during the
first six months of 1996, the Company completed furnishing
its office space with furniture, a computing system and a
telephone system.
AHA Contract. Red Oak Farms is under contract with the
American Hereford Association and has exclusive license to
market Certified Hereford Beef ("CHB"). As of the reporting
date the Company has not met the pro-rata volume commitment
necessary for the royalty liability; however, the Company
has accrued an amount representative of the pro-rata
liability as of the reporting date. The 1997 obligation is
for $500,000. The Company believes that sufficient funds
will be available to meet this obligation from proceeds of
stock sales and product sales revenue.
IDED Loan. Red Oak Farms, Inc. is current on its long term
loan obligation with the Iowa Department of Economic
Development (IDED) and as of June 30, 1997, the principal
balance remaining on this loan was approximately $487,000.
Management believes that proceeds from capital raising
activities and product sales revenue will be adequate to
continue meeting this obligation.
Moormans Loan. Red Oak Farms, Inc. is in technical non-
compliance on its loan agreement with Moormans, the
4
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Company's feed supplier, which gives Moormans the right to
call the loan. However, Moormans has given no indication of
any intention to call this obligation. The loan amount of
$1,000,000 is due October 2001 with interest only payable
monthly at approximately $9,000 per month. The Company is
currently meeting the payment obligations from proceeds of
capital raising activities and believes additional stock
sales and revenue from product sales will be sufficient to
satisfy this obligation.
Revolving Lines of Credit. The Company, through its
subsidiaries, has revolving lines of credit that provide for
borrowings up to $4 million for Red Oak Farms and $2.5
million for Midland. These lines bear a floating rate of
interest equal to 2% and 1.5%, respectively, above the
lender's prime rate of interest (10.50% and 10.00% as of
June 30, 1997). The subsidiaries pay the lender a fee of
.25% of the unused credit lines, payable quarterly. These
lines of credit expire June 30, 1997. As of June 30, 1997,
the Company is in the process of renegotiating these
agreements and does not anticipate any problems securing
revolving lines of credit on similar terms as in the past.
Capital Expenditures. The Company has no commitments for
any significant capital expenditures in the immediate
future.
Inflation. The Company does not believe that inflation has
had a material effect on its results of operations. However,
there can be no assurance that the Company's business will
not be affected by inflation in the future.
The Company believes that, along with the acquisition of
Midland, through its marketing strategy and customer
acquisition plan it will recognize a growth in the retail
account base, increased CHB sales and a broader CHB product
mix. With increased sales of CHB, along with proceeds from
the private offering and the availability of credit, the
Company believes there will be adequate funds to meet the
Company's obligations.
RESULTS OF OPERATIONS
Comparison for the three months ended June 30, 1997 and the
three months ended June 30, 1996 and comparison for the six
months ended June 30, 1997 and the six months ended June 30,
1996.
Red Oak Farms
For the six months ended June 30, 1997, Red Oak Farms
realized net losses in the amount of $1,851,797, compared to
$1,636,005 in net loss for the same period in 1996. These
losses as a percentage of net sales measured 3.7% in 1997
versus 3.6% in the first six months of 1996. For the three
months ended June 30, 1997, the Company realized $1,156,357
of losses. This represents 5.1% of net sales for the
period. For the same period in 1996, the Company incurred
losses of $598,601, an amount representing 3.2% of sales.
Management attributes the net loss to the current product
mix, in which bulk beef sales continues to be the dominant
revenue source. During the second quarter, however, the
company made some advances in the retail sector for premium
CHB by adding 5 new retail customers which represents 28 new
retail stores, with a total store base at quarter end of 35.
5
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While adding new retail accounts in the second quarter 1997
improved the product mix, generated higher average sales and
slightly improved margins, additional retail growth must be
attained to reach profitability. Red Oak Farms is in
various stages of business development with numerous new
retail prospects and it is anticipated that several of these
potential buyers will participate in the CHB program.
During the first six months of 1997, Red Oak Farms sales to
eight major customers approximated 40% of Red Oak Farm's net
sales. Sales for the first six months of 1997 decreased
34.8%, from $25,309,097 in 1996 to $16,511,147 in 1997,
which resulted from a combination of market factors and the
loss of a large customer in January 1997. With the addition
of 28 new retail stores over the second quarter, Red Oak
Farms has significantly reduced its risk of dependency on
one or two large customers.
For Red Oak Farms, the decline in sales resulted in reduced
inventory and production needs. As a consequence, the cost
of goods sold decreased from $26,128,774 in 1996 to
$17,625,318 in 1997, a decrease of 32.5% in the first six
months of 1997 as compared to the first six months of 1996.
Selling, general and administrative expense at Red Oak Farms
for the first six months of 1997 was $671,640 compared to
$455,776 for the same period in 1996. This is a 47.4%
increase from the first six months of 1996 and is a result
of increase in personnel and personnel related expenses.
During the first six months of 1997, Red Oak Farms realized
$502,970 in sales to Korea, with an increase in the second
quarter. There were no Korean sales were made in the first
six months of 1996. The Company is also continuing to
pursue CHB export opportunities in China and Japan.
Midland Cattle Company
For the six months ended June 30, 1997, Midland Cattle
Company ("Midland") had net income in the amount of $17,497,
compared to $301,977 in net loss for the same period in
1996. Income as a percentage of sales measured less than
1%. The loss in 1996 represented 1.5% of total sales for
the six month period. For the three months ended June
30,1997, Midland recognized a loss of $41,905, an amount
equal to less than 1% of total sales for the period. For
the same three month period in 1996, Midland recognized a
loss of $65,228, an amount equal to less than 1% of total
sales for the period. Management attributes the improvement
in 1997 to increases in volume due to better availability of
cattle. Midland anticipates volume to continue to expand as
the CHB program continues to grow.
Midland has seen revenue growth for the first six months of
1997. For the six months ended June 30, 1997, Midland had
net sales of $33,462,511 versus $20,250,662 for the same
period in 1996. This represents an increase of 65.2% from
1996 to 1997. Midland has a wide customer base that is
continually expanding through networking and marketing
efforts in anticipation of the continued growth of the CHB
program.
6
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For Midland, as a result of the increase in sales, cost of
goods sold for the first six months of 1997 increased to
$32,737,964 versus cost of goods sold for the first six
months of 1996 of $19,944,530. This represents an increase
of 64.1% between the two periods.
Selling, general and administrative expenses at Midland for
the first six months of 1997 was $619,514 compared to
$528,525 for the same period in 1996. This represents a
17.2% increase from the first six months of 1996 and is a
result of the increase in sales volume for 1997.
7
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PART II_OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
In reliance upon Section 4(2) of the Securities Act of 1933
and Rule 506 promulgated thereunder, the Company offered
1,500,000 Units of which 160,000 Units were sold during the
first quarter and 540,334 Units were sold during the quarter
ended June 30, 1997. Each Unit consisted of one share of
the Company's common stock and a warrant to purchase one
share of the Company's common stock. This offering was made
exclusively to persons who met the suitability standards
established by the Company. The Company had engaged the
services of Clark Burns to act as its finder for this
private offering. Mr. Burns agreement was terminated in
June 1997. Under the Finder's Agreement, Mr. Burns received
a fee equal to 5% of the purchase price of the securities
sold for those transactions in which he was the finder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
On April 25, 1997, the Company held an annual meeting for
the purpose of electing directors to serve until the next
annual meeting. The detailed information regarding the
shareholder vote is incorporated herein by reference to the
Company's Form 10-QSB for the period ended March 31, 1997,
filed with the Commission.
ITEM 5. OTHER INFORMATION
None.
8
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as a part of this report.
Exhibit No. SEC Reference Title Location
10 10 Gemsbok Agreement Attached
22 22 Published report *Incorporated
regarding matters by reference
submitted to vote
of security holders
27 27 Financial Data Attached
Schedule
*Incorporated by reference to the Company's Form 10-QSB for
the period ended March 31, 1997 as filed with the Commission, SEC
file number 33-89714.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K
during the second quarter of 1997:
(1) Current Report on Form 8-K , dated May 19, 1997,
reporting Midland acquisition.
(2) Current Report on Form 8-K/A, dated July 25,
1997, amending the May 19, 1997 8-K report to
include financial statements from Midland and pro
forma financial information.
9
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SIGNATURES
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 thereunto duly
authorized.
RED OAK HEREFORD FARMS, INC.
August 13, 1997 By:_______________________________
Gordon Reisinger,President
August 13, 1997 By:_______________________________
Ellen DeWitt, Chief
Financial Officer
& Treasurer
10
<PAGE>
SIGNATURES
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 thereunto duly
authorized.
RED OAK HEREFORD FARMS, INC.
August 13, 1997 By: /s/Gordon Reisinger
_______________________________
Gordon Reisinger, President
August 13, 1997 By: /s/Ellen DeWitt
______________________________
Ellen DeWitt, Chief
Financial Officer
& Treasurer
11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 55,000
Accounts receivable 4,316,810
Inventory 1,297,639
Prepaid expenses 204,281
___________
Total Current Assets 5,873,730
PROPERTY AND EQUIPMENT, At cost
Building & Leasehold improvements 281,844
Vehicles & Equipment 188,914
___________
470,758
Less: Accumulated depreciation (189,132)
___________
281,626
OTHER ASSETS 56,003
___________
TOTAL ASSETS $ 6,211,359
___________
See Note to Condensed Consolidated Financial Statement
F-1
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 755,450
Accrued expenses 238,133
Note payable - Bank 1,276,701
Current maturities of long-term debt 1,018,816
___________
Total Current Liabilities 3,289,100
LONG-TERM DEBT 468,047
DEFERRED PAYABLE 1,000,000
DEFERRED INCOME 300,000
___________
TOTAL LIABILITIES 5,057,147
___________
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
authorized 50,000,000 shares,
issued and outstanding 13,389,726 shares 13,398
Common stock subscribed, 338,000 shares 338
Additional paid-in capital 2,544,279
Retained earnings (deficit) (1,403,803)
___________
TOTAL STOCKHOLDERS' EQUITY 1,154,212
___________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,211,359
___________
See Note to Condensed Consolidated Financial Statement
F-2
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RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six months and three months ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
_____ _____ _____ _____
Net Sales $ 22,579,192 $ 18,975,412 $ 49,973,658 $ 45,559,759
Cost of Goods Sold 22,928,217 19,059,117 50,363,282 46,073,303
___________ __________ __________ ___________
Gross Profit (Loss) (349,025) (83,705) (389,624) (513,544)
Operating Expenses 774,485 427,040 1,287,017 938,073
___________ __________ __________ ___________
Loss from
Operations (1,123,510) (510,745) (1,676,641) (1,451,617)
Other Income
(Expense)
Interest Income 3,668
Interest Expense (32,847) (87,856) (178,824) (184,388)
Net Loss (1,156,357) (598,601) (1,851,797) (1,636,005)
___________ __________ __________ ___________
Earnings (Loss)
Per Share $ (0.09) $ (0.05) $ (0.14) $ (0.13)
___________ __________ __________ ___________
Weighted Average Shares
Outstanding 13,153,566 12,498,462 12,835,900 12,498,462
___________ __________ __________ ___________
See Notes to Condensed Consolidated Financial Statement
F-3
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RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
_____ _____
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,851,797) $ (1,636,005)
Items not requiring cash:
Depreciation and amortization 41,517 20,601
Changes in:
Accounts receivable 176,794 (945,369)
Inventories (241,030) (464,474)
Prepaid expenses (127,413) (29,360)
Accounts payable and accrued
expenses 46,102 1,337,851
Other assets (1,380) 5,653
Checks outstanding in excess
of bank balance (1,545,861) 1,767,689
____________ ____________
Net cash provided by (used in)
operating activities (3,503,068) 56,586
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and
equipment (11,798) (39,553)
Proceeds on sale of equipment 59,827
____________ ____________
Net cash used in investing
activities 48,029 (39,553)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of note
payable 125,000 778,500
Net borrowings on line of credit 430,483 659,299
Payments on long-term debt (133,847)
Proceeds from issuance of
common stock 2,700,792
Proceeds from subscription
of common stock 1,014,000
Payment of stock
issuance costs (534,930)
Purchase of treasury stock (31,000)
Distributions paid (60,459) (61,821)
____________ ____________
Net cash provided by (used in)
financing activities 3,510,039 1,375,978
____________ ____________
INCREASE IN CASH 55,000 1,404,970
CASH, BEGINNING OF PERIOD 0 1,143,666
____________ ____________
CASH, END OF PERIOD $ 55,000 $ 2,536,677
____________ ____________
F-4
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RED OAK HEREFORD FARMS, INC. AND PREDECESSOR
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1997
Red Oak Hereford Farms, Inc. (the Company) is a Nevada
corporation (previously named Wild Wings, Inc.) that is
engaged in the business of selling premium, branded, fresh
beef to retail and food service markets, through its wholly-
owned subsidiary, Red Oak Farms, Inc. (Red Oak), an Iowa
corporation, and is engaged in buying and selling feeder
cattle in the wholesale markets through its wholly owned
subsidiary, Midland Cattle Company, Inc. (Midland). The
Company extends unsecured credit to customers predominantly
located in the Southwest and Midwest United States.
In February 1997, Red Oak Farms, Inc. was formed with the
members of Mid-Ag, Inc., an LLC, contributing the assets and
liabilities of Mid-Ag to Red Oak in exchange for all of the
outstanding stock of Red Oak. On March 14, 1997, all of the
outstanding stock of Red Oak was issued to the Company in
exchange for 10,000,000 restricted common shares of the
Company plus options to purchase an additional 3,000,000
shares of the Company. As a result of this transaction, Red
Oak became a wholly owned subsidiary of the Company. For
accounting purposes, Red Oak is deemed to be the acquiring
corporation and, therefore, the transaction is being
accounted for as a reverse acquisition of the Company by Red
Oak. Prior to March 14, 1997, the Company operated a
hunting club and had insignificant operations.
On May 19, 1997 the Company acquired Midland in a stock for
stock transaction. In exchange for all of the outstanding
stock of Midland the Company issued 1,538,462 restricted
shares of the Company to the former shareholders of
Midland. Additionally, a deferred payment of $1,000,000 is
due and payable to the former Midland shareholders. The
payment will be made at the rate of 25% of Midland's profits
until the $1,000,000 is reached. As a result of this
transaction Midland became a wholly owned subsidiary of the
Company. For accounting purposes, the Company and Midland
were deemed to be under common control and, therefore, the
transaction is being accounted for in a manner similar to
pooling of interest, whereby assets and liabilities are
reported at historical values.
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries,
Red Oak Farms, Inc. and Midland Cattle Company. All
significant intercompany accounts and transactions have been
eliminated in consolidation. Earnings per share are
calculated using the weighted average shares outstanding
and as if the shares of the Company at June 30, 1997 had
been outstanding for all periods presented.
The condensed consolidated financial statements do not
include all footnotes and certain financial information
normally presented annually under generally accepted
F-5
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accounting principles and, therefore, should be read in
conjunction with the Company's December 31, 1996 year-end
financials found in the Company's Form 8-K (File No. 033-
89714), dated March 14, 1997 and the Company's Form 8-K
dated May 19, 1997 and Form 8-K/A dated July 25, 1997
(amending the May 19, 1997 8-K report to include financial
statements from Midland and pro forma financial
information). Accounting measurements at interim dates
inherently involve greater reliance on estimates than at
year-end. The results of operations for the six months ended
June 30, 1997 are not necessarily indicative of results that
can be expected for the full year.
The condensed consolidated financial statements included
herein are unaudited; however, they contain all adjustments
(consisting of normal accruals) which, in the opinion of
the Company, are necessary to present fairly its
consolidated financial position at June 30, 1997, and its
consolidated results of operations and cash flows for the
interim periods shown. The results of operations for the
interim periods shown are not necessarily indicative of the
results for the entire fiscal year ending December 31, 1997.
The Company entered into a revised agreement on March 21,
1997, with the American Hereford Association (the "AHA") for
the exclusive license and right to process, distribute and
sell Certified Hereford Beef ("CHB") under the CHB
Trademark. The agreement expires December 31, 1999. The
agreement automatically renews for a three-year period
beginning January 1 of each calendar year commencing on
January 1, 2000, provided the terms of the agreement are
met. The revised agreement also includes various operating
standards and requirements of the Company as well as minimum
royalty fees of $500,000, $725,000 and $850,000 for 1997,
1998 and 1999, respectively. As of the reporting date the
Company has not met the pro-rata volume commitment necessary
for the royalty liability; however, the Company has accrued
an amount representative of the pro-rata liability as of the
reporting date.
Beginning in March 1997, the Company began a private
placement to issue up to 1,500,000 units comprising
1,500,000 common shares and 1,500,000 common stock purchase
warrants for $3.00 per unit. The common stock purchase
warrants are callable at $.001 per share on 30 days notice
and grant the holder the right to purchase common stock at
$5.00 per share. As of June 30, 1997, 700,334 units have
been sold and 338,000 subscribed.
The Company is also authorized to issue up to $5,000,000
worth of preferred stock.
The Company has granted options to purchase 3,000,000 shares
of stock between March 17, 1997 and March 17, 2002. The
shares are exercisable by the former shareholders of Wild
Wings as follows:
# of Shares Exercise Price Per Share
_____________ ________________________
1,000,000 $ 8.00
1,000,000 $10.00
1,000,000 $12.00
F-6
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In addition to the warrants issued with the private
placement, the Company has three series of warrants
outstanding as follows:
Series # of Shares Exercise Price Per Share
______ ___________ ________________________
A 960,000 $4.00
B 960,000 $4.50
C 960,000 $5.00
These warrants are not exercisable until a registration
statement is filed with the Securities and Exchange
Commission and in effect for the stock underlying the
warrants. The warrants may be exercised for a period of two
years after the date of the registration statement.
The Company currently has allocated and issued options for
400,000 shares of the Company's common stock, exercisable at
$3.00 per share, pursuant to the 1995 Stock Option Plan. Of
these options, 199,930 have been exercised as of June 30,
1997.
The Company has also adopted the 1997 Stock Option Plan and
has allocated 1,000,000 shares of common stock to the Plan.
To date, options for 681,500 shares of common stock of the
Company, exercisable at $5.00 per share, have been granted
under the 1997 Stock Option Plan, none of which have been
exercised.
At the time of the conversion of Mid-Ag to Red Oak, total
liabilities exceeded total assets by $517,500. This deficit
was recorded as excess of par value over contributed assets.
As capital has been raised during the six months ended June
30, 1997, the amount of capital in excess of par value was
credited to this deficit account with the remaining amount
being credited to additional paid-in capital.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going
concern. However, the Company has incurred losses and
deficit cash flows since its inception as Mid-Ag due to its
start-up nature in establishing a premium branded Hereford
beef product. The Company has not yet been successful in
establishing profitable operations. These factors raise
substantial doubt about the ability of the Company to
continue as a going concern. In this regard, management is
proposing to raise additional funds through the re-
negotiation of loan agreements, completion of the private
placement offering, and increase product awareness through
marketing efforts to attain a positive gross profit. There
is no assurance that the Company will be successful in
raising this additional capital or achieving profitable
operations. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
F-7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(Columnar Dollars in Thousands Except Per Share Data)
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FIRST QUARTER 1997 FORM 10-QSB OF RED OAK
HEREFORD FARMS, INC., AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FINANCIAL STATEMENTS CONTAINED THEREIN.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 55,000
<SECURITIES> 0
<RECEIVABLES> 4,316,810
<ALLOWANCES> 0
<INVENTORY> 1,297,639
<CURRENT-ASSETS> 5,873,730
<PP&E> 470,758
<DEPRECIATION> 189,132
<TOTAL-ASSETS> 6,211,359
<CURRENT-LIABILITIES> 3,289,100
<BONDS> 1,768,047
0
0
<COMMON> 13,736
<OTHER-SE> 1,140,476
<TOTAL-LIABILITY-AND-EQUITY> 6,211,359
<SALES> 49,973,658
<TOTAL-REVENUES> 49,977,326
<CGS> 50,363,282
<TOTAL-COSTS> 50,363,282
<OTHER-EXPENSES> 1,287,017
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (178,824)
<INCOME-PRETAX> (1,851,797)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,851,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,851,797)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> 0
</TABLE>
SERVICES AGREEMENT
SERVICE AGREEMENT (the "Agreement") made as of the 30th day
of June, 1997 by and between Red Oak Hereford Farms
("Client") and Gemsbok Programming, Inc. (the "Consultant"
or "Gemsbok").
WITNESSETH:
WHEREAS, the Consultant is engaged in providing investor
communications services and data regarding corporations;
WHEREAS, the Client's stock is publicly traded over the
counter;
WHEREAS, in order to enhance the efficiency with which
investor and shareholder inquiries are handled, Client
desires to engage the Consultant to provide certain investor
communications services and the Consultant desires to accept
such engagement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
ARTICLE 1
SERVICES OF THE CONSULTANT
1.1 Engagement and Acceptance. Clients hereby engages the
Consultant as the provider of investor and shareholder
communications of the Client and the Consultant hereby
accepts such engagement.
1.2 Consulting Services. During the term of Consultant's
engagement hereunder, the Consultant shall provide to Client
the services set forth on Schedule A attached hereto and
incorporated by reference herein. The parties may from time
to time add or delete such services required of the
Consultant by reflecting such addition or deletion on a
Schedule A-1 in the form attached hereto. Any such
amendment shall become effective when a Schedule A-1 is
executed by each of the parties hereto.
1.3 Compliance with Securities Laws. The Consultant shall
take all necessary and appropriate action to comply with
applicable securities laws and regulations of the United
States and the several states and to comply with the
applicable rules and regulations of the NASD.
1
<PAGE>
ARTICLE 2
OBLIGATIONS OF THE CLIENT
2.1 Information. Client shall supply, at Clients' sole cost
and expense, the Consultant with all data and information
about the Client, its management, its products and its
operations ("Information") in written form suitable for
distribution ("Materials"). Client shall promptly notify
Consultant of any change in the Information and supply
Consultant with updated Materials.
2.2 Materials. The Client shall promptly supply the
Consultant with:
(a) full and complete copies of all filings of
documents filed with federal and state securities
agencies;
(b) full and complete copies of all stockholder reports
and press releases;
(c) all data and information supplied to any analyst,
broker-dealer, market maker or other member of the
financial community; and
(d) all product or services brochures, sales materials
of similar Materials that describe Client's products or
services.
2.3 Quiet Period. Client shall, contemporaneously with any
such filing, notify the Consultant of the filing of any
registration statement for the sale of securities and of any
other event which imposes any restrictions on publicity.
2.4 Reliance. The Client shall be deemed to make a
continuing representation of the accuracy of any and all
Information and Materials that it supplies to the
Consultant. Client acknowledges that the Consultant will
rely on such continuing representation in disseminating such
information and otherwise performing its duties hereunder.
2.5 Indemnification. Client agrees to indemnify, hold
harmless and defend Gemsbok, its shareholders, officers,
directors, agents and employees (each an "Indemnified
Party") against any and all claims that may be made against
any Indemnified Party as direct or indirect result of any
inaccuracy or incompleteness or the availability or
dissemination of Information or Materials supplied to the
Consultant by the Client.
ARTICLE 3
FEES
3.1 Compensation. In consideration for the services
rendered by Consultant during the term of its engagement
2
<PAGE>
hereunder, Client shall pay Consultant the compensation
described on Schedule A attached hereto, as the same may be
amended from time to time by execution of a Schedule A-1.
3.2 Retainer. Contemporaneously with the execution of this
Agreement, Client shall pay a retainer of Two Thousand
Dollars ($2,000) to the Consultant. Fees and Expenses due
hereunder shall be charged against the retainer.
3.3 Expenses. The Consultant shall be reimbursed by Client
for all expenses incurred by Consultant in connection with
the performance of its duties hereunder except that the
Consultant shall bear the costs of its overhead and the
salaries or other compensation of its own officers and
employees (such reimbursable expenses shall hereinafter be
referred to as the "Expenses"). The Expenses shall include,
but are not limited to, expenses for telephone toll charges,
postage, copies and other mutually limited, agreed upon
expenses. The Expenses shall be paid within five (5)
business days of delivery of an invoice for the same.
ARTICLE 4
TERM
4.1 Term. The term of the consultant's engagement hereunder
shall commence as of June __, 1997 and, unless sooner
terminated as hereinafter provided, shall continue for a
period of three (3) months. After the Initial Term, this
Agreement shall continue form month to month unless either
party provides the other with notice of termination of at
least thirty (30) days.
ARTICLE 5
TERMINATION
5.1 Termination With Cause. The Consultant's engagement
hereunder may be terminated by either party upon written
notice to the other party in the event of a material breach
of any provision of this Agreement by such other party which
remains uncured for thirty (30) days following notice
thereof, except that Client shall have only five (5)
business days from the applicable due date to cure its
failure to meet any payment obligation under Article 3
hereof.
5.2 Effect of Termination. Within fifteen (15) days
following the effective date of any termination described in
this Article 5, the Consultant shall submit a final
statement reflecting the compensation due to the Consultant
pursuant to Article 3 hereof, through the effective date of
termination, Client shall make the final payment to the
Consultant.
3
<PAGE>
ARTICLE 6
RELATIONSHIP OF PARTIES
6.1 Independent Relationship. It is mutually understood and
agreed that the Consultant is at all times acting and
performing as an independent contractor hereunder. Except
to the extent required by law or as the parties shall
otherwise mutually agree, neither party's employees shall be
entitled to participate in any fringe benefits or programs
available to the other party's employees, including, without
limitation, worker's compensation, unemployment, medical
insurance, retirement, profit-sharing, stock option, bonus,
vacation or other benefits. Client is interested only in
the results obtained under this Agreement, the manner and
means by which the Consultant performs its services
hereunder, including the determination of the time, energy
and skill devoted thereto, shall be under the Consultant's
sole control. Accordingly, Client shall have no right to
exercise any control, direction or supervision over the
manner and means by which the Consultant's employees
discharge the Consultant's services hereunder.
ARTICLE 7
GENERAL PROVISIONS
7.1 Systems and Methods of Consultant. It is expressly
understood that the systems, methods, procedures and
controls employed by Consultant in the performance of this
Agreement are proprietary in nature and shall remain the
property of the Consultant and shall at no time be utilized,
distributed, copies or otherwise employed, acquired or
disclosed by Client to or for the benefit of any third
party.
7.2 Assignment. Neither party shall assign its rights or
delegate its duties under this Agreement without the prior
written consent of the other party.
7.3 Modification. There are no other agreements or
understandings, written or oral, between the parties
regarding this Agreement other than as set forth herein.
This Agreement shall not be modified or amended except by a
written document executed by both parties to this Agreement
and any such written modification shall be attached hereto.
7.4 Notices. All notices or communications required or
permitted by this Agreement shall be in writing and shall be
deemed to have been given when personally delivered or
deposited in the United State mail, by certified or
registered mail, return receipt requested, postage prepaid
and addressed to the parties at the following addresses:
To Consultant: Gemsbok Programming, Inc.
Post Office Box 568403
Orlando, Florida 32856
Attn: Mark Robinson
4
<PAGE>
To Client: Red Oak Hereford Farms
Post Office Box 456
Red Oak, Iowa 51566
Attn:_____________________
7.5 Binding on Successors. This Agreement shall be binding
upon the parties hereto, and their respective successors,
assigns and legal representatives.
7.6 Waiver of Provisions. Any waiver of any terms and
conditions hereof must be in writing and signed by the
parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof or a waiver
of any preceding or succeeding breach of this Agreement.
7.7 Litigation Costs. In the event that it becomes
necessary for any party to initiate litigation for the
purpose of enforcing any of its rights hereunder or for the
purpose of seeking damages for any violation hereof, then,
in addition to all other judicial remedies that may be
granted, the prevailing party shall be entitled to recover
reasonable attorneys' fees and all other costs that may be
sustained by it in connection with such litigation.
7.8 Governing Law. The validity, interpretation and
performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of
Florida.
7.9 Severability. The provisions of this Agreement shall be
deemed severable and if any portion shall be held invalid,
illegal or unenforceable for any reason, the remainder of
this Agreement shall be effective and binding upon the
parties.
7.10 Additional Documents. Each of the parties hereto
agrees to execute any document or documents that may be
requested from time to time by the other party to implement
or complete such party's obligations pursuant to this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first written above.
GEMSBOK PROGRAMMING, INC.
/S/ Mark Robinson
__________________
By: Mark Robinson
Its: President
RED OAK HEREFORD FARMS
/S/ Gordon Reisinger
____________________
By: Gordon Reisinger
Its: President
5
<PAGE>
SCHEDULE A
CONSULTING SERVICES
Gemsbok shall provide the services set forth below, in
addition to any services set forth in the Agreement. This
Schedule may be amended by the parties by executing a
Schedule A-1 (in the form attached hereto in accordance with
Article 1, Section 1.2 of the Agreement.
(a) The Consultant shall establish and maintain a
toll free number that answers in the Client's name
and shall use a script provided by the Client when
answering calls. The Consultant will promptly
supply callers with the information requested;
provided, however, that the Consultant shall only
supply Information and Materials provided by
Client.
(b) The Consultant will prepare a summary of all
inquiries received by the Consultant in a month
that resulted in Information or Materials being
provided to a caller (a "Summary") by the 15th of
day of the month immediately following the month
for which the Summary was prepared. The Summary
may, in the Consultant's sole discretion, be in
written or electronic format. All Summaries will
distinguish between calls made by broker-dealers,
financial media personnel and individual
investors.
For such services, Client shall pay to the Consultant Five
Hundred Dollars ($500) per month on the first day of each
month during the term of the Consultant's engagement.
In addition to the Expenses listed in Article 3, Section
3.3, Client shall pay to the consultant Fifty Dollars ($50)
as a fee to activate the toll free number and shall also pay
to the Consultant a minimum monthly charge of Fifty Dollars
($50) for charges for calls made to the toll free number.
6
<PAGE>
SCHEDULE A-1
To the Services Agreement
between
GEMSBOK PROGRAMMING, INC.
and
RED OAK HEREFORD FARMS
Schedule A of the foregoing Agreement is hereby amended as
follows:
Except as hereby amended, Schedule A of the Agreement
remains in full force and effect.
This the 30th day of June, 1997
GEMSBOK PROGRAMMING, INC.
/S/
By:
Its:
RED OAK HEREFORD FARMS
/S/ Gordon Reisinger
By: Gordon Reisinger
Its: President
7
<PAGE>
