<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ____________________ to __________________.
Commission File Number 033-89714
-------------
RED OAK HEREFORD FARMS, INC.
--------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 84-1120614
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2010 Commerce Drive, Red Oak, Iowa 51566
--------------------------------------------------------------------------------
(Address of principal executive offices)
(712) 623-9224
--------------------------------------------------------------------------------
(Registrant'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 ____
The number of shares outstanding of the Registrant's common stock as of November
15, 2000 was as follows:
Common Stock, $.001 par value: 16,025,165 shares
================================================================================
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Financial Statements Contents
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets, as of September 30, 2000 and
December 31, 1999 3-4
Condensed Consolidated Statements of Operations, for the three months
and nine months ended September 30, 2000 and 1999 5-6
Condensed Consolidated Statements of Cash Flows, for nine months
ended September 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8-11
</TABLE>
2
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
CURRENT ASSETS 2000 1999
------------- ------------
<S> <C> <C>
Cash $ 118,415 $ 17,067
Restricted cash 401,174 415,295
Accounts receivable
Trade, less allowance for doubtful accounts of $10,000 2,186,913 790,363
Related parties 100,122 364,372
Receivable due from factor 282,547 171,756
Receivable due from stock subscriptions -- 277,000
Inventories 4,902,748 3,142,825
Prepaid expenses and other assets 440,462 69,799
----------- -----------
TOTAL CURRENT ASSETS 8,432,381 5,248,477
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Buildings & leasehold improvements 294,974 294,974
Vehicles and equipment 479,157 384,635
----------- -----------
774,131 679,609
Less: accumulated depreciation (397,570) (334,475)
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 376,561 345,134
----------- -----------
OTHER ASSETS
Receivables, noncurrent 192,591 192,591
Investment in partnership 24,600 24,600
Other assets 110,785 246,242
----------- -----------
TOTAL OTHER ASSETS 327,976 463,433
----------- -----------
TOTAL ASSETS $ 9,136,918 $ 6,057,044
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
CURRENT LIABILITIES 2000 1999
------------- -------------
<S> <C> <C>
Checks in excess of bank balance $ 1,450,014 $ 258,054
Accounts payable
Trade 2,052,768 538,177
Related parties 419,509 1,599,583
Accrued expenses 398,367 457,783
Notes payable 2,250,000 1,615,000
Current maturities of long-term debt 356,679 2,421,484
Current maturities of deferred income -- 100,000
------------- -------------
TOTAL CURRENT LIABILITIES 6,927,337 6,990,081
------------- -------------
LONG-TERM LIABILITIES
Deferred income -- 200,000
Long-term debt, less current maturities 4,295,698 2,471,360
------------- -------------
TOTAL LONG-TERM LIABILITIES 4,295,698 2,671,360
------------- -------------
TOTAL LIABILITIES 11,223,035 9,661,441
MINORITY INTERESTS IN SUBSIDIARIES (7,080) (223,288)
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, authorized 100,000,000 shares;
issued and outstanding 16,025,165 shares for September 30,
2000 and 16,025,415 shares for December 31, 1999 16,025 16,025
Cumulative preferred stock, series B, $0.001 par value, authorized
1,200,000 shares; issued and outstanding 1,200,000 shares for
September 30, 2000 and 678,450 for December 31, 1999 1,200 678
Preferred stock, series C, $0.001 par value, authorized
2,000,000 shares; issued and outstanding 370,956 shares for
September 30, 2000 and 13,201 for December 31, 1999 371 13
Preferred stock, series D, $0.001 par value, authorized
1,000,000 shares; issued and outstanding 17,000
shares for September 30, 2000 17 --
Additional paid-in capital 16,359,624 10,899,605
Retained deficit (18,456,274) (14,297,430)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (2,079,037) (3,381,109)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,136,918 $ 6,057,044
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September
30
-----------------------------------------------------------------
NET SALES 2000 1999 2000 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Boxed beef and consumer beef products $ 9,477,275 $ 12,853,324 $ 29,022,345 $ 37,476,178
Cattle trading 4,292,731 6,051,754 13,481,088 14,678,881
Cattle trading sales to related parties 1,272,459 456,841 2,222,609 1,955,997
----------------------------------------------------------------
15,042,465 19,361,919 44,726,042 54,111,056
----------------------------------------------------------------
COST OF GOODS SOLD
Cattle purchased for processing 3,786,672 5,083,018 13,847,650 16,923,970
Cattle purchased for processing from related parties 2,627,642 4,405,640 7,364,420 14,760,145
Cattle purchased for trading 5,297,120 6,101,523 14,982,324 15,632,165
Cattle purchased for trading from related parties 17,284 38,931 65,354 105,120
Other processing costs 2,737,662 2,450,379 7,058,693 4,374,296
Other trading costs 3,441 20,328 76,202 102,110
----------------------------------------------------------------
14,469,821 18,099,819 43,394,643 51,897,806
----------------------------------------------------------------
GROSS PROFIT 572,644 1,262,100 1,331,399 2,213,250
----------------------------------------------------------------
OPERATING EXPENSES
Selling and distribution 1,048,321 829,634 2,437,062 2,177,393
General and administrative 801,815 580,860 2,457,026 1,640,416
----------------------------------------------------------------
1,850,136 1,410,494 4,894,088 3,817,809
----------------------------------------------------------------
LOSS FROM OPERATIONS (1,277,492) (148,394) (3,562,689) (1,604,559)
----------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 6,782 4,948 16,531 6,651
Interest expense (226,940) (166,736) (593,004) (450,465)
Loss on sale of accounts receivable (33,258) (69,481) (103,474) (193,986)
Losses from cattle feeding joint venture - 45 - (16,217)
Reduction in value of intangible (147,500) - (147,500) -
Elimination of debt 147,500 - 147,500 -
Grant income recognized 300,000 - 300,000 -
----------------------------------------------------------------
46,584 (231,224) (379,947) (654,017)
----------------------------------------------------------------
LOSS BEFORE MINORITY INTERESTS (1,230,908) (379,618) (3,942,636) (2,258,576)
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS BEFORE MINORITY INTERESTS (1,230,908) (379,618) (3,942,636) (2,258,576)
MINORITY INTERESTS - 26,530 (27,507) 72,250
------------------------------------------------------------------------
NET LOSS (1,230,908) (353,088) (3,970,143) (2,186,326)
PREFERRED STOCK DIVIDEND REQUIREMENT (61,333) - (170,430) -
------------------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON STOCKHOLERS $ (1,292,241) $ (353,088) $ (4,140,573) $ (2,186,326)
========================================================================
BASIC AND DILUTED LOSS PER SHARE $ (0.08) $ (0.02) $ (0.26) $ (0.14)
========================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,023,385 16,010,415 16,020,993 15,346,459
========================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
RED OAK HEREFORD FARMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
----------- -----------
<S> <C> <C>
Net Loss $(3,970,143) $(2,186,326)
Items not requiring (providing) cash:
Depreciation and amortization 83,027 78,381
Loss from partnership -- 16,217
Services rendered in exchange for common stock -- 7,874
Minority interest in loss of subsidiary 27,507 (72,250)
Reduction of intangible 147,500 --
Elimination of debt (147,500) --
Grant income recognized (300,000) --
Changes in:
Accounts receivable (1,243,090) (872,435)
Inventories (1,759,923) (1,580,670)
Prepaid expenses (370,663) (184,984)
Accounts payable and accrued expenses 156,921 352,820
Checks in excess of bank balance 1,191,960 3,057,547
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (6,184,404) (1,383,826)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (94,521) (63,602)
Change in restricted cash 14,121 (41,553)
Change in other assets (31,976) 6,959
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (112,376) (98,196)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock 5,737,915 --
Net borrowings on line of credit 1,335,000 295,000
Proceeds from issuance of note payable 200,000 1,269,985
Repayment of notes payable (1,000,000) --
Proceeds from issuance of long-term debt 1,923,933 19,181
Payments on long-term debt (1,798,720) (55,459)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,398,128 1,528,707
----------- -----------
INCREASE IN CASH 101,348 46,685
CASH, BEGINNING OF PERIOD 17,067 16,079
----------- -----------
CASH, END OF PERIOD $ 118,415 $ 62,764
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(1) Nature of Operations and Principles of Consolidation
The condensed consolidated financial statements do not include all
footnotes and certain financial information normally presented annually under
generally accepted accounting principles and, therefore, should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year-ended December 31, 1999. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year-end. The results of operations for the nine months ended September
30, 2000 and 1999 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 September 30, 2000 and December 31, 1999, and
its consolidated results of operations and cash flows for the interim periods
September 30, 2000 and 1999.
The condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries Red Oak Farms, Inc. ("ROF"),
Midland Cattle Company ("Midland"), Red Oak Feeders, LLC ("Feeders"), My
Favorite Jerky ("MFJ"), Red Oak Farms Europe B.V., Red Oak BioSource, Inc., and
its 80% owned subsidiary, Here's The Beef Corp. ("HTB"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
(2) Related Party Transactions
The Company sells cattle to certain companies, which are owned by
members of the Company's management or Board of Directors. The Company also
purchases cattle and feed from these same entities. Additionally, both Midland
and ROF utilize trucking companies that are owned by members of the Company's
management or Board of Directors.
The activity between the Company and these related parties at and for
the nine months ended September 30, 2000 and 1999 and at December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
------------- ------------ -------------
<S> <C> <C> <C>
Sales $2,222,609 $ 1,995,997
Purchases 7,429,777 14,865,265
Accounts receivable 100,122 $ 364,372 317,086
Accounts payable 419,509 1,599,583 2,190,650
</TABLE>
Cattle financed by a related party for the Company under a financing
agreement totaled $0 and $255,535 for the quarter ended September 30, 2000 and
1999, and $236,451 and $592,598 for the nine months ended September 30, 2000 and
1999, respectively.
The Company has notes payable to stockholders totaling $3,720,790 and
$3,393,290 at September 30, 2000 and December 31, 1999, respectively. In
addition, the Company has notes payable to joint venture partners totaling
$323,604 and $1,976,103 at September 30, 2000 and December 31, 1999,
respectively.
8
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(3) Factoring Agreement
The Company continues to sell selected accounts receivable without
recourse to KBK Financial, Inc. ("KBK"). The Company received $6,170,893 and
$15,533,026 in proceeds from the transfer of its receivables during the three
and nine months ended September 30, 2000, respectively. For the three and nine
months ended September 30, 1999, the Company received $9,264,133 and $25,864,800
in proceeds from the transfer of its receivables. The reserve for delinquencies
and claims held by KBK at September 30, 2000 was $282,547. The Company has paid
$33,258 and $69,481 for the quarters ended September 30, 2000 and 1999,
respectively, and $103,474 and $193,986 for the nine months ended September 30,
2000 and 1999, respectively, for fixed discounts on sold accounts.
(4) Inventories
Inventories at September 30, 2000 and December 31, 1999 consisted of
the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Boxed Beef $ 1,360,239 $ 1,029,808
Beef Precooked Products 2,514,988 -
Packaged Jerky and Sticks 132,840 -
Cattle 364,430 1,938,114
Other 530,251 174,903
------------- ------------
$ 4,902,748 $ 3,142,825
============ ===========
</TABLE>
(5) Contingency
A complaint has been brought against the Company concerning the export
and international shipment of beef products. The Company believes there is no
factual basis for this complaint and intends to request dismissal or file a
counter-suit. In the interim, the Company may be at risk in the collection of an
account receivable in the amount of $1,001,853. The Company currently considers
this amount a collectible sale.
(6) Stockholders' Equity
During the nine months ended September 30, 2000, the Company received
$2,884,750 in proceeds from the sale of 576,950 shares of Series B 4% cumulative
convertible preferred stock. The total number of shares offered and sold under
the Series B private placement that closed on January 29, 2000, was 1,200,000
preferred stock shares with a total of $6,000,000 in proceeds.
During the nine months ended September 30, 2000, the Company received
$2,683,165 in proceeds from the sale of 357,755 shares of Series C convertible
preferred stock private placement. The total number of shares offered and sold
under the Series C private placement that closed on March 22, 2000 was 370,956
preferred stock shares with a total of $2,782,175 in proceeds.
During the nine months ended September 30, 2000, the Company received
$170,000 in proceeds from the sale of 17,000 shares of Series D convertible
preferred stock. The total number of shares offered and sold under the Series D
private placement that closed on October 18, 2000 was 17,000 preferred stock
shares with a total of $170,000 in proceeds.
On May 22, 2000, the shareholders approved the authorization of
100,000,000 shares of Red Oak Hereford Farms, Inc. common stock and 10,000,000
shares of preferred stock in anticipation of obtaining new equity for future
capital requirements.
9
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(7) Reportable Segments
Reportable segment profit or loss and segment revenues for the three
months ended September 30, 2000, were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Boxed Cattle Cattle Beef All
Beef Trading Feeding Jerky Others Totals
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $9,474,585 5,565,190 - 2,690 15,042,465
customers -
Intersegment revenues - - - - - -
Segment profit (loss) $ (887,567) 43,283 (17,320) (152,675) (216,629) (1,230,908)
</TABLE>
Reconciliation of segment profit or loss for the three months ended
September 30, 2000, were as follows:
<TABLE>
<S> <C>
Profit or loss
Total profit or loss for reportable segments $ (1,014,279)
Other profit or loss (216,629)
------------
Income before income taxes and extraordinary items $ (1,230,908)
============
</TABLE>
Reportable segment profit or loss and segment revenues for the nine
months ended September 30, 2000, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Boxed Cattle Cattle Beef All
Beef Trading Feeding Jerky Others Totals
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $28,979,957 15,703,697 - 42,388 - $44,726,042
customers
Intersegment revenues - - - - - -
Segment profit (loss) $(2,775,258) 131 (48,659) (433,031) (713,326) (3,970,143)
</TABLE>
Reconciliation of segment profit or loss for the nine months ended
September 30, 2000, were as follows:
<TABLE>
<S> <C>
Profit or loss
Total profit or loss for reportable segments $ (3,256,817)
Other profit or loss (713,326)
-------------
Income before income taxes and extraordinary items $ (3,970,143)
=============
</TABLE>
10
<PAGE>
RED OAK HEREFORD FARMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
(7) Reportable Segments (Continued)
Reportable segment profit or loss and segment revenues for the three
months ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Boxed Cattle Cattle Beef All
Beef Trading Feeding Jerky Others Totals
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $12,814,081 6,508,595 - 39,243 - 19,361,919
customers
Intersegment revenues - - - - - -
Segment profit (loss) $ (152,375) 54,225 9,502 (132,649) (131,791) (353,088)
</TABLE>
Reconciliation of segment profit or loss for the three months ended
September 30, 1999, were as follows:
<TABLE>
<S> <C>
Profit or loss
Total profit or loss for reportable segments $ (221,297)
Other profit or loss (131,791)
------------
Income before income taxes and extraordinary items $ (353,088)
============
</TABLE>
Reportable segment profit or loss and segment revenues for the nine
months ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Boxed Cattle Cattle Beef All
Beef Trading Feeding Jerky Others Totals
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external $37,404,925 16,634,878 - 71,253 - 54,111,056
customers
Intersegment revenues 10,495 61,740 - - - 72,235
Segment profit (loss) $(1,538,503) 67,186 (56,452) (359,953) (298,604) (2,186,326)
</TABLE>
Reconciliation of segment profit or loss for the nine months ended
September 30, 1999, were as follows:
<TABLE>
<S> <C>
Profit or loss
Total profit or loss for reportable segments $ (1,887,722)
Other profit or loss (298,604)
--------------
Income before income taxes and extraordinary items $ (2,186,326)
==============
</TABLE>
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
This Form 10-Q contains forward-looking statements that involve risks
and uncertainties including, without limitation, uncertainties concerning the
Company's ability to continue to raise capital sufficient for the execution of
its business plan, 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, and 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.
Current Quarter Developments
The Company continues implementation of its strategy of using its
premium fresh beef program, Red Oak Farms' Premium Hereford Beef ("PHB"), as a
foundation from which to become a branded, premium marketer of consumer food
products.
Brand equity development, as part of this strategy, continues in the
transition from Certified Hereford Beef ("CHB") to PHB. Although this transition
has required approximately one year, the Company during the third quarter is
stabilizing and restoring sales by attracting hotel, restaurant and
institutional ("HRI") and retail supermarket customers to effectively operate
the PHB program. Customers of Red Oak Farms ("ROF") consist primarily of quality
and value-oriented upscale retail supermarket stores, food-service outlets,
high-end restaurants and export accounts.
During the third quarter 2000, there was continued acceptance by
retailers and distributors of the first four ROF precooked beef entrees as the
Company commenced shipments to several prominent national and regional accounts.
As customers increase reorders and product distribution expands by adding
additional stores in new regions, ROF moves one step closer to national
distribution for these high quality consumer convenient Red Oak Farms products.
On April 1, 2000, the Company increased its ownership of "My Favorite
Jerky" ("MFJ") from 80% to 100%. The Company has completed development of its
4-oz. bag "MFJ". The Company plans to commence shipment to the retail
supermarket and mass retail trade classes during the latter part of the fourth
quarter.
Royal Salmon of Norway, for which the Company has exclusive
distribution rights in the United States, will be sold in Europe on a
non-exclusive basis by Red Oak's European subsidiary, Red Oak Farms Europe B.V.
("ROFE"). The Company will commence shipment of the smoked and marinated,
farm-raised salmon products during the fourth quarter of 2000 in Europe.
12
<PAGE>
ROFE has commenced manufacturing beef sticks and precooked entrees. It
anticipates increases in volume and geographic area distribution with its'
European network during the fourth quarter.
Red Oak continues its efforts to implement plans following the
formation of Red Oak BioSource, Inc. These include establishing quotas for the
maintenance of exclusive rights, testing of the products for various Company
applications including cattle feeding, ag-effluent remediation and farming
applications which would be consistent with reduced chemical inputs. The full
program however has substantial capital requirements and the Company plans to
implement it as those requirements become satisfied.
The Company closed three preferred stock offerings during the nine
months ended September 30, 2000. This, as well as ongoing equity raising
activities, has improved the Company's financial position. Product development
and introduction activity for precooked products was funded through this
additional equity. The Company will require additional funding during the
continued rollout of Red Oak's precooked line and launch of, "MFJ", and Beef
Sticks. The Company received approval from its asset based lenders in July 2000
to increase the accounts receivable purchase facility and the revolving
inventory notes to levels that will accommodate the Company's planned sales
growth. Additional working capital support from strategic suppliers has also
contributed to the product development and current growth of the Company.
However, as mentioned above, the Company will require additional equity to
provide the working capital to support this growth.
Liquidity and Capital Resources
As of September 30, 2000 and December 31, 1999, the Company had
consolidated cash and cash equivalents balances of $118,415 and $17,067
respectively.
Liquidity and Capital Resources Data:
As of September 30, 2000 and December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
------- -------- --------
<S> <C> <C> <C>
Working Capital (Deficit) $ 1,505 186.4% $(1,742)
Restricted Cash 401 (3.4)% 415
Increase in Cash 101 10157.9% 1
Cash Beginning of Period 17 6.1% 16
Cash End of Period 118 593.8% 17
Stock and Additional Paid-In Capital $16,377 50.0% $10,916
</TABLE>
13
<PAGE>
To help meet its capital requirements, management continues with the
private placement of restricted securities, issuance of debt instruments,
utilizing the accounts receivable purchase facility, and the revolving inventory
notes. Working Capital has also been expanded through extended terms and support
of manufactures and suppliers. Management believes the Company can move into
profitability through several planned steps as follows:
o Obtain additional equity to fund marketing and distribution systems,
o Achieve region and then national distribution of its precooked products
and "My Favorite Jerky" products;
o Add premium fresh beef accounts;
o Achieve sales in Europe of the Euro Beef Sticks, Royal Salmon of Norway
and precooked beef entrees;
o Continue to manage gross margins through aggressive cost control and
product mix management;
o Minimize product sold into the commodity boxed beef trade.
Cash Flows from Operating Activities
The Company's cash flows from operating activities required cash of
$6,184,404 and $1,383,826 for the nine months ended September 30, 2000 and 1999,
respectively.
Operational losses and increases in accounts receivable, inventories,
prepaid and other assets, less increases in accounts payable and accrued
expenses required cash to continue operations for the nine months ended
September 30, 2000.
The following activities influenced operational performance:
o The Company's continued expansion and development of precooked consumer
beef products required operating expenses that were not offset with
anticipated increases in sales. Several customers have deferred the
timing of product placement in retail stores to the fourth quarter.
o Competition required pricing concessions during the third quarter as
the Company continued its expansion of the PHB program. Continued focus
on the growth of this PHB sales volume and a focus on branded premium
pricing reflect an opportunity for favorable results.
o Growth of retail sales of PHB boxed beef at premium prices is required
for profitability. Several anticipated customers have deferred the
timing on placement of Red Oak Farms PHB product in their retail
stores.
14
<PAGE>
Boxed beef customer demand continues to require increases in
receivables and inventories. On September 30, 2000 accounts receivable was
$2,569,582 compared to $1,326,491 at December 31, 1999. Inventories increased
from $3,142,825 at December 31, 1999 to $4,902,748 at September 30, 2000.
Prepaid expenses and Other Assets increased from $69,799 at December 31, 1999 to
$240,462 at September 30, 2000. Other Assets include packaging development and
start up costs for Red Oak Farms Europe B.V. to be allocated over the remainder
of 2000.
The Iowa Department of Economic Development determined the Company has
completed grant obligations, and has accordingly agreed in the third quarter to
eliminate related obligations, resulting in grant income to the Company of
$300,000. A reduction in the value of a patent totaling $147,500 also occurred
during the third quarter.
Selected Cash Flow Data:
For the Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % change 1999
---------- -------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (3,970) - $ (2,186)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation & amortization 83 5.9% 78
Services for common stock - (100.0)% 16
Loss from partnership - (100.0)% 8
Minority interest in subsidiaries 28 (138.1)% (72)
Reduction in value of intangible 148 - -
Elimination of debt (148) - -
Grant income recognized (300) - -
Changes in:
Accounts receivable (1,243) 42.5% (872)
Inventories (1,760) 11.3% (1,581)
Prepaid expenses (371) 100.4% (185)
Accounts payable and accrued expenses 157 (55.5)% 353
Checks in excess of bank balance 1,192 (61.0)% 3,058
---------- -------- ----------
Net Cash Used in Operating Activities $ (6,184) 77.6% $ (1,384)
</TABLE>
15
<PAGE>
Cash Flows from Investing Activities
Investing activities required cash of $112,376 and $98,196 for the
first nine months of 2000 and 1999, respectively. The Company invested $200,000
in Red Oak Farms Europe, B.V. during the first nine months of 2000. However,
this amount was eliminated in the financial consolidation.
Selected Cash Flow Data:
For the Nine Months Ended September 30, 2000 and 19999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
------ -------- ------
<S> <C> <C> <C>
Cash Flows from Investing Activities:
Purchases of equipment $ (95) 48.6% $ (64)
Restricted cash 14 (134.0)% (42)
Changes in other assets (32) (559.5)% 7
------ -------- ------
Net Cash Used in Investing Activities $ (112) 14.4% $ (98)
</TABLE>
Cash Flows from Financing Activities
Financing activities provided cash of $6,398,128 and $1,528,707 for the
first nine months of 2000 and 1999, respectively.
The Company continues to receive an asset-based line of credit, which
provides borrowings up to $2.0 million based on eligible inventory.
Substantially all of ROF assets and personal guarantees of the Company's
president and a director collateralize the line of credit. The Company is in
technical non-compliance on certain financial conditions on this loan. On August
14, 2000, the lender renewed the promissory note and the inventory line of
credit for $2,050,000 through September 15, 2000. With growth in sales, the
Company has obtained approval to increase this line during the fourth quarter.
Affiliates and stockholders are continuing to extend credit to ROF
until such time as the Company secures adequate funding through the issuance of
preferred stock to accredited investors and expands the asset-based lending to
continue the development and growth of the Company.
On December 28, 1999 the Company entered into a settlement agreement to
restructure the Company's outstanding indebtedness to a supplier, and guarantees
on notes due the supplier from the Company's president and a related party. The
note is subordinated to the asset lender of ROF. $1,500,000 of this obligation
was paid during the first nine months of 2000. Monthly principal payments of
$24,050 plus 8.5% interest beginning March 1, 2000 through February 1, 2001 are
due on the agreed note.
A director, through a long-term convertible note, has recently loaned
the Company $1,540,000 as of August 14, 2000 including $500,000 during the third
quarter ended September 30, 2000. The Company raised $5,737,915 in the aggregate
from accredited investors during the nine months ended September 30, 2000,
including $145,000 during the third quarter ended September 30, 2000.
16
<PAGE>
The Company continues to finance operations through new equity, the
sale of accounts receivable and the asset-based loan. Capital formation is
critical for the continuation of daily operations, for continued growth and
development of premium branded beef products, and for the marketing and
distribution of other quality synergistic products under development by the
Company.
Selected Cash Flow Data:
For the Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- --------- -------
Cash Flows from Financing Activities:
<S> <C> <C> <C>
Proceeds from issuance of preferred stock $ 5,738 - $ -
Net borrowing on line of credit 1,335 352.5% 295
Proceeds from issuance of Notes Payable 200 (84.3)% 1,270
Repayment of notes payable (1,000) - -
Proceeds from long-term debt 1,924 9930.4% 19
Payments on long-term debt (1,799) 3143.3% (55)
-------- --------- -------
Net Cash Provided by Financing Activities $ 6,398 318.5% $ 1,529
</TABLE>
Market Risk
The Company continues to be exposed to the impact of changes in
interest rates, foreign exchange rates, and commodity prices. The Company
manages such exposures through the use of contracts at fixed rates when deemed
prudent.
Current financing is predominately fixed or related to U.S. prime
interest rates. As the performance of the Company improves, the risk premium
paid above prime on asset-based lending will be negotiated to lower levels.
Conversely, continued losses will continue the risk premium.
All exported products are currently sold in U.S. Dollars to U.S.
Trading Companies for export.
As the Company continues to nurture a selective and strategic customer
base, it must maintain a defensive position for the potential loss of any key
customer(s) to Red Oak's competition in the marketplace. The decision to move
away from the CHB program with Red Oak's own branded product, PHB, creates a
competitive opportunity for those distributors and packers who may choose to
participate in the CHB program. As the Company grows the sales base of its own
branded product, PHB, the risk that a competitor might use its proprietor PHB
brand is lessened.
In the development of added-value branded consumer products, the
Company must invest significant management and capital resources for successful
supply chain development and management. Product rollouts also require marketing
and distribution support essential to ensure success and the achievement of
suitable or acceptable product margins. This process will require additional
capital and asset-based loans. There is risk that the Company may not receive
sufficient funding for these product developments.
17
<PAGE>
Cattle purchased by Midland and ROF for further marketing, processing,
and distribution is exposed to the impact of changing commodity prices.
Commodity risk is present at various levels of the Company's business cycle
including procurement, production, processing, and distribution of the ROF beef
products. The procurement of yearlings and calves, reselling of the qualified
animals to feeders, purchasing of the fat cattle for processing, the related
dressed cattle on the rail and related by-products, the fabricated boxed
primals, and several of the subsequent value-added consumer products are all
affected by commodity market risk.
ROF periodically utilizes hedging and contract purchases for cattle to
minimize market risk and to ensure that adequate supply of qualified Hereford
cattle is available to meet the current and growing sales demand.
ROF pays a market premium to the feeder for producing qualified cattle
with certain genetic, diet, weight, and grading specifications. This premium
above market generates market risk, as this additional cost must be passed on to
the distributor and ultimately to the consumer. While developing its brand,
consumer demand, and consumer loyalty, ROF has been investing in market
penetration through pricing initiatives, which provide lower than preferred
margins.
Results of Operations
Comparison of the three months and nine months ended September 30, 2000 and
1999.
Revenues-Net Sales
Three Months. Net sales of $15.0 million and $19.4 million were
generated by the Company for the three months ended September 30, 2000 and 1999,
respectively. A net sales decrease of 22.3% from 1999 to 2000 was primarily
attributable to a 26.3% decrease in boxed meat sales resulting from the loss of
customers prior to year-end to CHB competitors. However, late third quarter is
realizing momentum in the growth of the PHB program through refined market
initiatives. The transition from CHB to PHB has required approximately one year.
Benefits from the PHB program should be realized in the fourth quarter as volume
growth continues. Cattle trading is continuing to be de-emphasized as management
focuses on Red Oak Farms added value Branded Products.
Three Months Ended September 30,
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
--------- -------- ---------
Net Sales:
<S> <C> <C> <C>
Boxed beef/Consumer Beef Products $ 9,477 (26.3)% $ 12,853
Percentage of sales 63.0% 66.4%
Cattle trading sales 4,293 (29.1)% 6,052
Percentage of sales 28.5% 31.3%
Cattle trading sales-related parties 1,272 178.5% 457
Percentage of sales 8.5% 2.4%
--------- -------- ---------
Total Net Sales $ 15,042 (22.3)% $ 19,362
Percentage of sales 100.0% 100.0%
</TABLE>
18
<PAGE>
Nine Months. Net sales of $44.7 million and $54.1 million were
generated by the Company for the nine months ended September 30, 2000 and 1999,
respectively. A net sales decrease of 17.3% from 1999 to 2000 was primarily
attributable to the 22.6% decrease in boxed meat sales resulting from the loss
of customers prior to year-end to CHB competitors.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(in thousands)
2000 % chg 1999
--------- -------- ---------
Net Sales:
<S> <C> <C> <C>
Boxed beef/Consumer Beef Products $ 29,022 (22.6)% $ 37,476
Percentage of sales 64.9% 69.2%
Cattle trading sales 13,481 (8.2)% 14,679
Percentage of sales 30.1% 27.2%
Cattle trading sales-related parties 2,223 13.6% 1,956
Percentage of sales 5.0% 3.6%
--------- -------- ---------
Total Net Sales $ 44,726 (17.3)% $ 54,111
Percentage of sales 100.0% 100.0%
</TABLE>
19
<PAGE>
Cost of Goods Sold.
Three Months. Cost of goods sold of $14.5 million and $18.1 million
were generated by the Company for the three months ended September 30, 2000 and
1999, respectively. A cost of goods sold decrease of 20.1% from 1999 to 2000 was
attributable to a 23.3% decrease in cattle purchases for boxed beef and related
changes in inventories, and a 13.7% decrease in cattle trading activities for
the three-month period. This reflects a reduction in boxed beef activities from
the transition into PHB branded consumer product marketing. Cattle trading is
continuing to be de-emphasized as management focuses on Red Oak Farms added
value Branded Products.
Live cattle prices increased approximately 1.1% and related boxed beef
prices decreased 1.3%, respectively for the three months ended September 30,
2000 versus the comparable period of 1999, based on USDA and National
Cattlemen's Beef Association Cattle-fax.
Three Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- -------- ---------
Cost of Goods Sold:
<S> <C> <C> <C>
Cattle purchased for processing 3,787 (25.5)% $ 5,083
Percentage of sales 25.2% 26.3%
Cattle purchased for processing-RP 2,628 (40.4)% 4,406
Percentage of sales 17.5% 22.8%
Cattle purchased for trading 5,297 (13.2)% 6,102
Percentage of sales 35.2% 31.5%
Cattle purchased for trading-RP 17 (55.6)% 39
Percentage of sales 0.1% 0.2%
Other processing costs 2,738 11.7% 2,450
Percentage of sales 18.2% 12.7%
Other trading costs 3 (83.1)% 20
Percentage of sales 0.0% 0.1%
-------- -------- ---------
Total Cost of Goods Sold 14,470 (20.1)% $ 18,100
Percentage of sales 96.2% 93.5%
</TABLE>
Note: RP equals Related Parties
20
<PAGE>
Nine Months. Cost of goods sold was $43.4 million and $51.9 million for
the nine months ended September 30, 2000 and 1999, respectively. A cost of goods
sold decrease of 16.4% from 1999 to 2000 was attributable to a 21.6% decrease in
cattle purchases for boxed beef and related changes in inventories and a 4.5%
decrease in cattle trading activities for the nine-month period.
Live cattle prices and related boxed beef prices increased
approximately 7.0% and 7.4% for the nine months ended September 30, 2000, versus
the comparable periods of 1999, based on USDA and National Cattlemen's Beef
Association Cattle-fax. These commodity market based increases have improved the
market values for boxed beef products in 2000.
Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Cost of Goods Sold:
Cattle purchased for processing $ 13,848 (18.2)% $ 16,924
Percentage of sales 31.0% 31.3%
Cattle purchased for processing-RP 7,364 (50.1)% 14,760
Percentage of sales 16.5% 27.3%
Cattle purchased for trading 14,982 (4.2)% 15,632
Percentage of sales 33.5% 28.9%
Cattle purchased for trading-RP 65 (37.8)% 105
Percentage of sales 0.2% 0.2%
Other processing costs 7,059 61.4% 4,374
Percentage of sales 15.8% 8.1%
Other trading costs 76 (25.4)% 102
Percentage of sales 0.2% 0.2%
--------- -------- ---------
Total Cost of Goods Sold $ 43,395 (16.4)% $ 51,898
Percentage of sales 97.0% 95.9%
</TABLE>
Note: RP equals Related Parties
21
<PAGE>
Gross Profit
Decreases in branded boxed meat sales resulting from the transition to
PHB from CHB and increased costs in the development of precooked and other
value-added products placed pressure on gross profit for the three-months and
nine months ended September 30, 2000, resulting in a reduction from the
comparable 1999 periods.
Three Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- --------- --------
<S> <C> <C> <C>
Gross Profit $ 573 (54.6)% $ 1,262
Percentage of sales 3.8% 6.5%
</TABLE>
Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- --------- --------
<S> <C> <C> <C>
Gross Profit $ 1,331 (39.8)% $ 2,213
Percentage of sales 3.0% 4.1%
</TABLE>
22
<PAGE>
Operating Expenses
Three Months Selling and Distribution Expenses. Selling and
distribution expenses for the three months ended September 30, 2000 and 1999,
were 7.0% and 4.3% of net sales, respectively.
The Company has made a transition from an internal sales staff to a top
mass retail and club store marketer for added-value products. This has generated
a favorable expense strategy, with related selling and distribution expenses
proportionate to sales. However, minimum fees must be absorbed until such time
as additional sales revenues are generated from the national based system.
Three Months General and Administrative Expenses. General and
administrative expenses for the three months ended September 30, 2000 and 1999,
were 5.3% and 3.0% of net sales, respectively.
Administrative expenses included corporate expenses for product
development, startup of the European market through Red Oak Farms Europe, B.V.
and for the private placement of securities.
Three Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- ------- -------
Operating Expenses:
<S> <C> <C> <C>
Selling and distribution $ 1,048 26.4% $ 830
Percentage of sales 7.0% 4.3%
General and administrative 802 38.0% 581
d administrative
Percentage of sales 5.3% 3.0%
-------- ------- -------
Total Operating Expenses $ 1,850 31.2% $ 1,410
Percentage of sales 12.3% 7.3%
</TABLE>
Nine Months Selling and Distribution Expenses. Selling and distribution
expenses for the nine months ended September 30, 2000 and 1999, were 5.5% and
4.0% of net sales, respectively.
Selling and distribution expenses are somewhat variable. Marketing and
product development of the new added-value product line are included.
The Company has made a transition from an internal sales staff to a top
mass retail and club store marketer for added-value products. This has generated
a favorable expense strategy, with related selling and distribution expenses
proportionate to sales.
23
<PAGE>
Nine Months General and Administrative Expenses. General and
administrative expenses for the nine months ended September 30, 2000 and 1999,
were 5.5% and 3.0% of net sales, respectively.
Administrative expenses include corporate expenses for product
development, startup of the European market through Red Oak Farms Europe, B.V.
and for the private placement of securities.
Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
------- ------- --------
<S> <C> <C> <C>
Operating Expenses:
Selling and distribution $ 2,437 11.9% $ 2,177
Percentage of sales 5.5% 4.0%
General and administrative 2,457 49.8% 1,640
Percentage of sales 5.5% 3.0%
------- ------- --------
Total Operating Expenses $ 4,894 28.2% $ 3,818
Percentage of sales 10.9% 7.1%
</TABLE>
Three Months Loss from Operations. Loss from operations of $1,277,492
and $148,394 for the three months ended September 30, 2000, and the comparable
period in 1999, increased by 760.9%.
Although investments related to the transition to PHB branded products,
development of added-value precooked products, and the expansion into Europe
adversely impacted gross revenue and margins in the third quarter, management
believes that the Company is positioned for improvement in the volume of both
boxed beef and added-value precooked products. Late third quarter the Company is
realizing momentum in the growth of the PHB program through refined market
initiatives. The transition from CHB to PHB has required approximately one year.
Benefits from the PHB program should be realized in the fourth quarter as volume
growth continues. However, until the Company achieves profitable sales volume
levels, the Company continues to require additional funds to support current
operations, marketing, development of distribution channels, and to meet trade
receivable and inventory requirements.
Three Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
----------- -------- --------
<S> <C> <C> <C>
Loss from operations $ (1,277) 760.9% $ (148)
Percentage of sales (8.5)% (0.7)%
</TABLE>
24
<PAGE>
Nine Months Loss from Operations. Loss from operations of $3,562,689
and $1,604,559 for the nine months ended September 30, 2000, and the comparable
period in 1999, increased by 122.0%.
Although investments related to the transition to PHB branded products,
development of added-value precooked products, and the expansion into Europe
adversely impacted gross revenue and margins in the first months, management
believes that the Company is positioned for improvement in the volume of both
boxed beef and added-value precooked products. However, until the Company
achieves profitable sales volume levels, the Company continues to require
additional funds to support current operations, marketing, development of
distribution channels, and to meet trade receivable and inventory requirements.
Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
--------- ------- ---------
<S> <C> <C> <C>
Loss from operations $ (3,563) 122.0% $ (1,605)
Percentage of sales (8.0)% (3.0)%
</TABLE>
Other Income and Expense. Interest expense of $226,940 and $166,736 for
the three months ended September 30, 2000, and the comparable period in 1999,
increased by 36.1%. Interest expense of $623,279 and $450,465 for the nine
months ended September 30, 2000 and the comparable period in 1999 increased by
38.4%. Increases in interest expense resulted from higher borrowing levels for
finished goods inventory.
Loss on sale of accounts receivable of $33,258 and $69,481 for the
three months ended September 30, 2000, and the comparable period of 1999,
decreased by 38.9% as fewer export related sales were sold to the factoring
service. Loss on sale of accounts receivable of $103,474 and $193,986 for the
nine months ended September 30, 2000 and comparable period in 1999 decreased
46.7%. The loss on sale of accounts receivable represents fixed discounts on the
accounts sold to the factoring service.
The Iowa Department of Economic Development determined the Company has
completed Grant obligations, and has accordingly agreed in the third quarter to
eliminate related obligations, resulting in Grant income to the Company of
$300,000.
25
<PAGE>
Three Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- --------- --------
<S> <C> <C> <C>
Other Income (Expenses):
Interest income $ 7 37.1% $ 5
Percentage of sales 0.05% 0.03%
Interest expense (227) 36.1% (167)
Percentage of sales (1.51)% (0.86)%
Loss on sale of accounts receivable (33) (52.1)% (69)
Percentage of sales (0.22)% (0.36)%
Loss from joint venture - (100.0)% -
Percentage of sales 0.0% 0.0%
Reduction in value of intangible (148) - -
Percentage of sales (0.98)% 0.0%
Elimination of debt 148 - -
Percentage of sales 0.98% 0.0%
Grant income recognized 300 - -
Percentage of sales 1.99% 0.0%
-------- --------- --------
Total Other Income (Expenses) $ 47 (120.1)% $ (231)
Percentage of sales 0.31% (1.19)%
</TABLE>
Nine Months Ended September 30, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 % chg 1999
-------- --------- --------
<S> <C> <C> <C>
Other Income (Expenses):
Interest income $ 17 148.5% $ 7
Percentage of sales 0.04% 0.01%
Interest expense (593) 31.6% (450)
Percentage of sales (1.33)% (0.83)%
Loss on sale of accounts receivable (103) (46.7)% (194)
Percentage of sales (0.23)% (0.36)%
Loss from joint venture - (100.0)% (16)
Percentage of sales 0.0% (0.03)*%
Reduction in value of intangible (148) - -
Percentage of sales (0.33)% 0.0%
Elimination of debt 148 - -
Percentage of sales 0.33% 0.0%
Grant income recognized 300 - -
Percentage of sales 0.67% 0.0%
--------------- ---------------
Total Other Income (Expenses) $ (380) (41.9)% $ (654)
Percentage of sales (0.85)% (1.21)%
</TABLE>
26
<PAGE>
Net Loss and Loss per Share
Three Months Ended September 30, 2000 and 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 % chg 1999
--------- --------- ---------
<S> <C> <C> <C>
Loss before minority interests $ (1,231) 224.2% $ (380)
Percentage of sales (8.2)% (2.0)%
Minority interests - (100.0)% 27
--------- --------- ---------
Net loss (1,231) 248.6% (353)
Percentage of sales (8.2)% (1.8)%
Preferred stock dividend requirement (61) - -
Percentage of sales (0.4)% 0.0%
--------- --------- ---------
Net loss applicable to common (1,292) 266.0% (353)
Percentage of sales (8.6)% (1.8)%
========= ========= =========
Basic and diluted loss per share $ (0.081) 265.6% $ (0.022)
========= ========= =========
Weighted Average Shares Outstanding 16,023 0.1% 16,010
========= ========= =========
</TABLE>
Nine Months Ended September 30, 2000 and 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
2000 % chg 1999
--------- -------- ----------
<S> <C> <C> <C>
Loss before minority interests $ (3,943) 74.6% $ (2,259)
Percentage of sales (8.8)% (4.2)%
Minority interests (28) (138.1)% 72
--------- -------- ----------
Net loss (3,970) 81.6% (2,186)
Percentage of sales (8.9)% (4.0)%
Preferred stock dividend requirement (170) - -
Percentage of sales (0.4)% 0.0%
--------- -------- ----------
Net loss applicable to common (4,141) 89.4% (2,186)
Percentage of sales (9.3)% (4.0)%
========= ======== ==========
Basic and diluted loss per share $ (0.258) 81.4% $ (0.143)
========= ======== ==========
Weighted Average Shares Outstanding 16,021 4.4% 15,346
========= ======== ==========
</TABLE>
Inflation
While inflation has not had a material effect on the Company's
operations in the past, there can be no assurance that the Company will be able
to continue to offset the effects of inflation on the costs of its products
through price increases to its customers. Without experiencing a reduction in
the demand for its products or that inflation will not have an overall effect on
the beef market that would have a material effect on the Company.
27
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Lee Enterprises has brought a complaint against the defendant Red Oak
Farms, Inc. and Red Oak Farms, Inc. President Gordon Reisinger on October 20,
2000 alleging certain mislabeling issues, concerning the export and
international shipment of beef products. This complaint was brought in the
district Court County of Arapahoe, Englewood, Colorado. The Company believes
there is no factual basis for this complaint and intends to request dismissal
and, in the alternative, file a counter-suit. In the interim, the Company may be
at risk in the collection of a portion of the Lee Enterprise account receivable
which now totals $1,001,853.
ITEM 2. Recent Sales of Unregistered Securities
For the nine months ended September 30, 2000, the Company sold 576,950
units, with each unit consisting of one share of Series B 4% Cumulative
Convertible Preferred Stock. Each unit was priced at $5.00 per unit resulting in
net proceeds of $2,884,750. The total number of units sold under the Series B
private placement that closed on January 29, 2000, was 1,200,000 preferred stock
shares with a total of $6,000,000 in proceeds. The units were sold in a private
placement pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
under the Securities Act of 1933, as amended. Each investor was an "accredited
investor" as defined in Regulation D.
For the nine months ended September 30, 2000, the Company sold 357,755
units, with each unit consisting of one share of Series C Convertible Preferred
Stock. Each unit was priced at $7.50 per unit resulting in net proceeds of
$2,683,165. The total number of units sold under the Series C private placement
that closed on March 22, 2000, was 373,757 preferred stock shares with a total
of $2,683,165 in proceeds. The units were sold in a private placement pursuant
to Section 4(2) and Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended. Each investor was an "accredited investor" as defined
in Regulation D.
For the nine months ended September 30, 2000, the Company sold 17,000
units, with each unit consisting of one share of Series D Convertible Preferred
Stock. Each unit was priced at $10.00 per unit resulting in net proceeds of
$170,000 under the Series D private placement. The total number of units sold
under the Series D private placement that closed on October 18, 2000 was
17,000 preferred stock shares with a total of $170,000 in proceeds. The units
were sold in a private placement pursuant to Section 4(2) and Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended. Each
investor was an "accredited investor" as defined in Regulation D.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Results of Votes of Security Holders
None
ITEM 5. Other Information
None.
28
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Financial data.
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended
September 30, 2000.
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.
November 20, 2000 By: /s/ Gordon Reisinger
---------------------------
Gordon Reisinger
President
November 20, 2000 By: /s/ Harley Dillard
---------------------------
Harley Dillard
Chief Financial Officer
29
