-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUQdmH7bNal1BMyZ4gnVaUY83vt/nunA4Kk8bM0XwjK1a1l8uvfhYMVn15Kw3Cqo Ue1UECefPpvRuBUGTnVqCA== 0001011034-96-000103.txt : 19961031 0001011034-96-000103.hdr.sgml : 19961031 ACCESSION NUMBER: 0001011034-96-000103 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960329 ITEM INFORMATION: Changes in control of registrant FILED AS OF DATE: 19961030 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISCOVERY TECHNOLOGIES INC /KS/ CENTRAL INDEX KEY: 0000857949 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 363526027 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-18606 FILM NUMBER: 96650396 BUSINESS ADDRESS: STREET 1: 1299 FOURTH ST STREET 2: STE 400 CITY: SAN RAFAEL STATE: CA ZIP: 94901 BUSINESS PHONE: 4154573442 MAIL ADDRESS: STREET 2: 1507 PINE STREET CITY: BOULDER STATE: CO ZIP: 80302 FORMER COMPANY: FORMER CONFORMED NAME: DISCOVERY SYSTEMS INC DATE OF NAME CHANGE: 19900613 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 29, 1996 DISCOVERY TECHNOLOGIES, INC. ---------------------------- (Exact name of registrant as specified in its charter) KANSAS 0-18606 36-3526027 - -------------------- --------------------- ----------------- State or other jurisdiction Commission file number IRS Employer of incorporation or Identification No. organization 24 Tejon Street, Colorado Springs, CO 80901 ------------------------------------------------------------ (Address of principle executive offices) (Zip Code) Registrant's telephone number, including area code: (719) 575-0503 ---------------------------------------------------------------------- ------------------------------------------------------------ (Former name or former address, if changed since last report) ITEM 1: CHANGE IN CONTROL OF REGISTRANT - ----------------------------------------- (a) Pursuant to the Closing on March 29, 1996 of a Definitive Agreement and Plan of Reorganization (the "Agreement"), a change in control of the Registrant occurred (the "Reorganization") in connection with the Registrant's acquisition of one hundred percent (100%) of the issued and outstanding shares of common stock of Rocky Mountain Taco, Inc., a Colorado corporation, and the Colorado Taco Corporation, a Colorado corporation, (collectively referred to as "ZuZu (registered) Colorado"). Pursuant to the terms of the Reorganization, the Company exchanged 2,800,000 shares of its Common Stock for a combined total of 1,159,049 shares of ZuZu (registered) Colorado's issued and outstanding common stock. Additionally, warrants exercisable to acquire up to 124,000 shares of RMT common stock at an exercise price of $2.50 per share were exchanged for warrants exercisable to purchase 124,000 shares of the Company's Common Stock at an exercise price of $1.04 per share, which warrants expire December 31, 1998. For accounting purposes, the Reorganization has been accounted for as a reverse acquisition whereby Discovery was considered to have been acquired by ZuZu (registered) Colorado. As part of the Reorganization, the Company transferred 100% of the outstanding Common Stock of the Company's wholly-owned subsidiary, Innovative Financial Strategies, Inc. ("Innovative") to the Company's then Chairman and principal shareholder, Don McCrea-Hendrick. In conjunction with the foregoing transaction, the Company entered into a separation agreement with Mr. McCrea-Hendrick effective December 31, 1995, whereby Mr. McCrea-Hendrick resigned as President/CEO of the Company (the "Separation Agreement"). In May, 1996 Mr. McCrea-Hendrick resigned as a Director of the Company. Pursuant to the terms of the Separation Agreement, the Company and Mr. McCrea-Hendrick agreed, among other things, to release each other from all obligations under McCrea-Hendrick's employment agreement with the Company. As part of the Reorganization, Mr. D. William Hill was appointed Chairman/CEO and Mr. David W. Hill was made President/COO and a Director of the Company. Mr. Craig Rogers remained to serve as the Company's CFO. The executive officers and members of the Board of Directors of the Registrant following consummation of the Reorganization, and their respective ages and terms, are as follows:
Name(1) Age Position ------ --- -------- D. William Hill 50 Chairman, CEO, since January 1, 1996 David W. Hill 30 President, COO, Treasurer, and Director since January 1, 1996 Craig T. Rogers 34 Secretary, CFO, and Director since July, 1993
The foregoing persons will serve in their respective capacities as officers of the Registrant until the next regular annual meeting of the Registrant's Board of Directors, and until their successors are elected and qualified. Information with respect the Messrs. Hill and Rogers is set forth below: D. WILLIAM HILL Mr. Hill currently serves as Chairman of the Board of Directors and CEO of the Company. From July 1994 until December 31, 1995 Mr. Hill was Chairman and Director of Rocky Mountain Taco, Inc. and Colorado Taco Corporation. Prior to this, he spent 21 years in the semiconductor industry. From October 1990 until July 1994 he served as Chief Operating Officer and Executive Vice President of Simtek Corp., and was involved in Simtek's initial and secondary public stock offerings. Mr. Hill was employed by United Technologies as Wafer Fab Manager from June 1989 through October 1990. He was employed by Advanced Micro Devices from July 1987 until June 1989 as Engineering Manager and held various positions at Texas Instruments from June 1973 until July 1987. Mr. Hill received a Bachelor of Science Degree in Mathematics from Texas A&M, West Texas in 1973. DAVID W. HILL Mr. Hill currently serves as President, Treasurer, and Director of the Company. From March 1993 until December 31, 1995, Mr. Hill was President, Treasurer and Director of Rocky Mountain Taco, Inc. and Colorado Taco Corporation. During this tenure, Mr. Hill built the first ZuZu (registered) Handmade Mexican Food restaurant outside of Dallas, Texas and secured the development rights for the state of Colorado. Additionally, Mr. Hill orchestrated the development, construction, and introduction of four additional ZuZu (registered) Handmade Mexican Food restaurants in the state of Colorado. Mr. Hill has been instrumental in the evolution of the ZuZu (registered) concept by developing a number of unique product offerings and promotions. From August 1992 to January 1994, Mr. Hill was a partner in a financial services company offering mortgage consulting, property assessment, investment strategies, and mortgage financing services. From August 1989 to August 1992, Mr. Hill served as a corporate officer of NationsBank coordinating the nationwide consolidation of banking institutions as well as developing, tracking and coordinating retail home mortgage lending practices. Mr. Hill received an MBA in August 1989 from Baylor University's Hankamer School of Business (ATTENDED ON FULL ACADEMIC SCHOLARSHIP) and a BS in Economics from Texas Tech University in 1987. From 1982 to 1989, Mr. Hill developed a significant background in the food services industry serving as a head- waiter, chef, and restaurant manager. Mr. Hill will appear at the upcoming NATION'S RESTAURANT NEWS MUFSO (Multi-Unit Food Service Operators) convention to speak on "Managing Growth". CRAIG T. ROGERS Mr. Rogers has been a Director and officer of the Company since July, 1993. Mr. Rogers had been Chief Executive Officer, President and Director of Intelligent Financial Corporation from June 30, 1991 until its merger with Cell Robotics on February 23, 1995. Mr. Rogers was Chief Operating Officer of Rockies Fund, Inc., a Colorado business development company, from July, 1993, to October 1, 1996. Mr. Rogers also serves as Chief Financial Officer, Secretary/Treasurer, and Director of Cell Robotics International, Inc., a developer and manufacturer of scientific and medical laser products. From April 1988 to June 1991, he served as Chief Financial Officer for DMA Computer Solutions, a general partnership operating four Connecting Point franchise stores. He served as President of DMA Financial Corporation from inception until its merger into Intelligent Financial Corp. in September, 1991. Previously, Mr. Rogers was Assistant Vice-President of Century Bank and he was a Commercial Loan Officer with Colorado National Bank - Exchange in Colorado Springs, Colorado. Mr. Rogers received a Bachelor of Arts Degree in Business/Economics from Colorado College in 1984. He was a Boettcher Scholar, graduated summa cum laude, Phi Beta Kappa and co-valedictorian. EMPLOYMENT CONTRACTS A written employment agreement with Mr. Rogers provides for the payment of a base salary of $36,000 per year as well as the payment of incentive compensation conditioned upon the Company achieving certain minimum thresholds of after-tax net income. The Employment Agreement also grants to Mr. Rogers the right to receive salary continuation for a period of three (3) years in the event the Company terminates the Agreement without cause prior to its expiration. The agreement expires December 31, 1996. No employment contracts exist between the Company and Messieurs Hill. BENEFICIAL SHAREHOLDERS The following table sets forth, as of the date of the Report, the stock ownership of (i) each person known by the Company to be the beneficial owner of five (5%) percent or more of the Company's Common Stock, (ii) all Directors individually, (iii) all Officers, individually, and (iv) all Directors and Officers as a group. Each person has sole voting and investment power with respect to the shares shown, except as noted.
NAME & ADDRESS SHARES BENEFICIALLY OWNED ------------------------- OF BENEFICIAL OWNER NUMBER PERCENT - ------------------------ ------ ------- OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS - ---------------------- Don McCrea-Hendrick(2) 334,987 8.7% 75 Capilano Dr. Novato, CA 94949 Craig T. Rogers(3) 133,131 3.5% 4465 Northpark Drive Colorado Springs, CO 80907 D. William Hill 678,849 18.1% 24 Tejon Street Colorado Springs, CO 80901 David W. Hill 487,064 13.0% 24 Tejon Street Colorado Springs, CO 80901 Fred M. Seed Annuity Trust(4) 646,596 16.9% One Citizens Plaza Providence, RI 02903 Deborah Salzman(5) 257,650 6.9% 538 Garden Of The Gods Road Colorado Springs, CO 80907 All current Directors and Officers as a group (3 persons) 1,291,044 33.6%
- --------------- (1) Shares not outstanding but deemed beneficially owned by virtue of the individual's right to acquire them as of October 1, 1996, or within 60 days of such date, are treated as outstanding when determining the percent of the class owned by such individual and when determining the percent owned by the group. (2) Includes Common Stock Purchase Warrants exercisable to acquire up to 95,833 shares of Common Stock at an exercise price of $3.00 per share. (3) Includes 5,804 shares owned by Mr. Rogers personally; and 24,327 shares owned of record by R.O.I., Inc., a Colorado corporation of which Mr. Rogers is an officer, director and fifty percent shareholder. Also includes Common Stock Purchase Warrants exercisable to acquire up to 90,000 shares of Common Stock at an exercise price of $1.00 per share, and Common Stock Purchase Warrants exercisable to acquire up to 5,000 additional shares of Common Stock at an exercise price of $3.00 per share. Includes Common Stock Purchase Warrants exercisable to acquire up to 8,000 shares of Common Stock at an exercise price of $1.04 per share owned of record by R.O.I., Inc. Mr. Rogers disclaims beneficial ownership of fifty percent (50%) of the shares and warrants owned by R.O.I., Inc. for purposes of Section 16 of the Securities Exchange Act of 1934, as amended. (4) Includes Common Stock Purchase Warrants exercisable to acquire up to 80,000 shares of Common Stock at an exercise price of $1.04 per share. (5) Includes 48,316 shares jointly owned with her husband, Harry Salzman. ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS - ----------------------------------------------- (a) Acquisition ----------- As more fully set forth in Item 1 above, on March 29, 1996 the Registrant consummated the reverse acquisition of Rocky Mountain Taco, Inc., a Colorado corporation, and the Colorado Taco Corporation, a Colorado corporation. The acquisition was structured in a manner calculated to qualify as a tax-free reorganization under Section 368 (a)(1)(B) of the Internal Revenue Code of 1986, as amended. Pursuant to the terms of the Reorganization, the Company exchanged 2,800,000 shares of its Common Stock for a combined total of 1,159,049 shares of ZuZu (registered) Colorado's issued and outstanding shares of Common Stock, which shares constituted one hundred percent (100%) of the issued and outstanding shares of RMT and CTC on the effective date of the Reorganization. Additionally, warrants exercisable to acquire up to 124,000 shares of RMT common stock at an exercise price of $2.50 per share were exchanged for warrants exercisable to purchase 124,000 shares of the Company's Common Stock at an exercise price of $1.04 per share, which warrants expire December 31, 1998. For accounting purposes, the Reorganization has been accounted for as a reverse acquisition whereby Discovery was considered to have been acquired by ZuZu (registered) Colorado. ZuZu (registered) Colorado maintains its principal offices in Colorado Springs, Colorado. The Company is the exclusive developer and operator of ZuZu (registered) Handmade Mexican Food in the state of Colorado. ZuZu (registered), Inc. is a Dallas, Texas based franchisor of ZuZu (registered) Handmade Mexican Food restaurants. RMT and CTC collectively hold the exclusive traditional and non-traditional development rights to ZuZu (registered) Handmade Mexican Food restaurants for the state of Colorado and are today, collectively, the largest ZuZu (registered) franchisee. As of the date of this report, RMT and CTC collectively operate five ZuZu (registered) restaurants. (b) Disposition ----------- As more fully set forth in Item 1 above, and as part of the Reorganization, the Company transferred 100% of the outstanding Common Stock of the Company's wholly-owned subsidiary, Innovative Financial Strategies, Inc. ("Innovation") to Don McCrea-Hendrick. As consideration for the transfer, Mr. McCrea-Hendrick returned to the Company 126,221 shares of the Company's Common Stock. In addition, Mr. McCrea-Hendrick forgave $175,000 in past due salary obligations. Innovative and Mr. McCrea-Hendrick also assumed and agreed to pay all of the outstanding liabilities and obligations of the Company which were incurred and/or accrued prior to January 1, 1996, save and except for $52,000 of liabilities which were retained by the Company. As further consideration, the Company granted Mr. McCrea-Hendrick options exercisable to acquire up to 85,833 shares of the Company's common stock at an exercise price of $3.00 per share. ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND - ------------------------------------------------------------------- EXHIBITS -------- (a) Financial Statements -------------------- (i) Filed herewith are the Report of Independent Certified Public Accountants; the audited Balance Sheets as of December 31, 1993, 1994 and 1995; the audited Statements of Operations for the period November 3, 1993 (inception) through December 31, 1993 and for the years ended December 31, 1994 and 1995; the audited Statements of Stockholder's Equity for the period November 3, 1993 (inception) through December 31, 1993 and for the years ended December 31, 1994 and 1995; and the audited Statements of Cash Flows for the period November 3, 1993 (inception) through December 31, 1993 and for the years ended December 31, 1994 and 1995, of Rocky Mountain Taco, Inc., together with the notes thereto. (ii) Filed herewith are the Report of Independent Certified Public Accountants; the audited Balance Sheets as of December 31, 1994 and 1995; the audited Statements of Operations for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995; the audited Statements of Stockholder's Equity for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995; and the audited Statements of Cash Flows for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995, of The Colorado Taco Corporation, together with the notes thereto. (b) ProForma Combined, Condensed Financial Information -------------------------------------------------- Filed herewith are the unaudited ProForma Combined Condensed Financial Information of Discovery Technologies, Inc. ("DTI"), Rocky Mountain Taco, Inc. ("RMT") and The Colorado Taco Corporation ("CTC"), (RMT and CTC shall collectively be referred to as "ZuZu (registered) Colorado"), consisting of the unaudited proforma combined, condensed Balance Sheet for DTI and ZuZu (registered) Colorado as of December 31, 1995; unaudited proforma combined, condensed Statements of Operations for DTI and ZuZu (registered) Colorado for the year ended December 31, 1995; unaudited proforma combined, condensed Statements of Cash Flows for DTI and ZuZu (registered) Colorado as of December 31, 1995, with adjustments. FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ROCKY MOUNTAIN TACO, INC. DECEMBER 31, 1993, 1994 and 1995 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 FINANCIAL STATEMENTS BALANCE SHEETS 4 STATEMENTS OF OPERATIONS 6 STATEMENTS OF STOCKHOLDER'S EQUITY 7 STATEMENTS OF CASH FLOWS 8 NOTES TO FINANCIAL STATEMENTS 11 Report of Independent Certified Public Accountants -------------------------------------------------- Board of Directors Rocky Mountain Taco, Inc. We have audited the accompanying balance sheets of Rocky Mountain Taco, Inc. as of December 31, 1993, 1994 and 1995, and the related statements of operations, stockholder's equity, and cash flows for the period November 3, 1993 (inception) through December 31, 1993 and the years ended December 31, 1994 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rocky Mountain Taco, Inc. as of December 31, 1993, 1994 and 1995, and the results of its operations and its cash flows for the period November 3, 1993 (inception) through December 31, 1993 and the years ended December 31, 1994 and 1995, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $1,878, $96,598 and $285,128 for the period November 3, 1993 (inception) through December 31, 1993 and for the years ended December 31, 1994 and 1995, respectively, and has significant debt service requirements and restaurant development obligations as of December 31, 1995. The Company's ability to generate sufficient cash flows to meet these obligations, as discussed in Note B, cannot be determined at this time. These uncertainties raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Colorado Springs, Colorado April 23, 1996, except notes J and L which are April 30, 1996 Rocky Mountain Taco, Inc. BALANCE SHEETS December 31,
1993 1994 1995 -------- -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents (inclusive of certificates of deposits) (note A3) $202,827 $ 47,760 $ 41,577 Receivable - related party (note I) - 6,453 - Inventories (notes A4 and C) - 5,004 10,355 Prepaid expenses - 1,500 2,278 ----------- ----------- ----------- Total current assets 202,827 60,717 54,210 ----------- ----------- ----------- PROPERTY AND EQUIPMENT, AT COST (notes A5, D and E) Leasehold improvements 3,391 166,879 362,011 Furniture and fixtures - 31,062 38,445 Equipment 6,495 219,363 305,172 ----------- ----------- ----------- 9,886 417,304 705,628 Less accumulated depreciation and amortization 90 23,876 113,244 ----------- ----------- ----------- 9,796 393,428 592,384 ----------- ----------- ----------- OTHER ASSETS Franchise fees - at cost, less accumulated amortization of $0 in 1993, $1,333 in 1994 and $2,833 in 1995 (note A6) 15,000 21,167 34,667 Development rights - at cost, less accumulated amortization of $0 in 1993, $5,000 in 1994 and $10,000 in 1995 (note A6) 75,000 70,000 65,000 Organizational costs - at cost, less accumulated amortization of $40 in 1993, $1,006 in 1994 and $2,210 in 1995 (note A6) 3,045 5,007 5,795 Deposits 3,052 13,853 42,746 Prepaid expenses - 7,266 11,502 -------- -------- -------- 96,097 117,293 159,710 -------- -------- -------- Total assets $308,720 $571,438 $806,304 ======== ======== ======== The accompanying notes are an integral part of these statements. Rocky Mountain Taco, Inc. BALANCE SHEETS December 31, (Continued) 1993 1994 1995 -------- -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current maturities of long-term debt (note E) $ - $ 30,505 $ 32,359 Current portion of leases payable (note F) - 21,052 37,015 Note payable (note D) - - 30,000 Accounts payable 598 87,660 86,505 Salaries - 8,970 8,903 Franchise fees - - 15,000 Royalties - 2,805 - Related party payable (note I) - - 225 Other - 3,399 6,765 -------- -------- -------- Total current liabilities 598 154,391 216,772 -------- -------- -------- LONG-TERM DEBT, less current maturities (note E) - 2,879 259,100 -------- -------- -------- LEASES PAYABLE, less current portion (note F) - 112,644 159,036 -------- -------- -------- COMMITMENTS (notes F and K) - - - -------- -------- -------- STOCKHOLDER'S EQUITY (note J) Common stock - authorized, 1,000,000 shares of no par value; issued, 481,429 shares in 1993, 571,429 shares in 1994 and 695,429 shares in 1995 310,000 400,000 555,000 Accumulated deficit (1,878) (98,476) (383,604) -------- -------- -------- 308,122 301,524 171,396 -------- -------- -------- Total liabilities and stockholder's equity $308,720 $571,438 $ 806,304 ======== ========= ==========
Rocky Mountain Taco, Inc. STATEMENTS OF OPERATIONS
Period November 3, 1993 (inception) through Year ended December 31, ------------------------ December 31, 1993 1994 1995 ------------------- -------- -------- Net sales $ - $383,658 $ 951,487 Cost of sales - 295,596 771,658 -------- -------- -------- Gross margin - 88,062 179,829 Operating expenses General and administrative 1,878 177,611 415,047 -------- -------- -------- Loss from operations (1,878) (89,549) (235,218) -------- -------- -------- Other income (expenses) Interest income - - 269 Interest expense - (7,049) (50,179) -------- -------- -------- Total other expenses, net - (7,049) (49,910) -------- -------- -------- Net loss $ (1,878) $(96,598) $(285,128) ========= ========= ==========
The accompanying notes are an integral part of these statements. Rocky Mountain Taco, Inc. STATEMENTS OF STOCKHOLDER'S EQUITY For the period November 3, 1993 (inception) through December 31, 1993 and the years ended December 31, 1994 and 1995
Common Stock Accumulated ------------------ Shares Amount Deficit Total -------- -------- ------------ --------- Balance November 3, 1993 - $ - $ - $ - Sale of common stock 481,429 310,000 - 310,000 Net loss for the period November 3, 1993 (inception) through December 31, 1993 - - (1,878) (1,878) --------- --------- --------- --------- Balance December 31, 1993 481,429 310,000 (1,878) 308,122 Sale of common stock 90,000 90,000 - 90,000 Net loss for the year ended December 31, 1994 - - (96,598) (96,598) --------- --------- --------- --------- Balance December 31, 1994 571,429 400,000 (98,476) 301,524 Sale of common stock 124,000 155,000 - 155,000 Net loss for the year ended December 31, 1995 - - (285,128) (285,128) --------- --------- --------- --------- Balance December 31, 1995 695,429 $555,000 $(383,604) $ 171,396 ========= ========= ========== =========
The accompanying notes are an integral part of these statements. Rocky Mountain Taco, Inc. STATEMENTS OF CASH FLOWS
Period Nov. 3, 1993 (inception) Year ended ---------- through Dec. 31, ---------- Dec. 31, 1993 1994 1995 --------------- -------- -------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $ (1,878) $ (96,598) $(285,128) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 130 31,085 97,072 Change in assets and liabilities Increase in inventories - (5,004) (5,351) Increase in prepaid expenses - (8,766) (5,014) Increase (decrease) in accounts payable - 87,062 (1,155) Increase in accrued and other liabilities - 15,174 494 ---------- ---------- ---------- Net cash provided by (used in) operating activities (1,748) 22,953 (199,082) ---------- ---------- ---------- Cash flows from investing activities Acquisition of property and equipment (9,886) (266,968) (207,538) Payments of franchise fees (15,000) (7,500) - Payments of development rights (75,000) - - Payments of organizational costs (2,487) (2,928) (1,767) Increase in deposits (3,052) (10,801) (28,893) (Increase) decrease in related party receivable - (6,453) 6,453 ---------- ---------- ---------- Net cash used in investing activities (105,425) (294,650) (231,745) ---------- ---------- ---------- Cash flows from financing activities Proceeds on long-term debt - 33,851 277,754 Principal payments on long-term debt - (467) (19,679) Proceeds from note payable - - 30,000 Principal payments on capital leases - (6,754) (18,431) Proceeds from issuance of common stock 310,000 90,000 155,000 ---------- ---------- ---------- Net cash provided by financing activities 310,000 116,630 424,644 ---------- ---------- ---------- Rocky Mountain Taco, Inc. STATEMENTS OF CASH FLOWS (Continued) Period Nov. 3, 1993 (inception) Year ended ---------- through Dec. 31, ---------- Dec. 31, 1993 1994 1995 --------------- -------- -------- Net increase (decrease) in cash and cash equivalents 202,827 (155,067) (6,183) Cash and cash equivalents at beginning of period - 202,827 47,760 ---------- ---------- ---------- Cash and cash equivalents at end of period $ 202,827 $ 47,760 $ 41,577 ========== ========== ========== Cash paid during the year for interest: $ - $ 7,050 $ 48,375 ========== ========== ==========
The accompanying notes are an integral part of these statements. Rocky Mountain Taco, Inc. STATEMENTS OF CASH FLOWS - CONTINUED Noncash investing and financing activities: As of December 31, 1993, organizational costs of $598 have been accrued and are included in accounts payable in the balance sheet. During 1994, the Company acquired $140,450 of equipment through capital leases. As of December 31, 1995, franchise fees of $15,000 have been accrued and are included in franchise fees payable in the balance sheet. Additionally, $225 of organizational costs was paid by a related party (note I) and the related payable is included in related party payables as of December 31, 1995. Also during 1995, the Company acquired $80,786 of equipment through capital leases. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. NATURE OF OPERATIONS The Company, a Colorado corporation, is the franchisee of three ZuZu Handmade Mexican Food restaurants, two of which are in Colorado Springs, Colorado and the third is located in Boulder, Colorado. In January 1996, a fourth restaurant was opened which is located in Colorado Springs. Under the terms of a 1993 development agreement with the franchiser, the Company has the right and obligation to develop a total of ten restaurants within the Colorado counties of El Paso, Boulder and Larimer. Revenues of the Company are derived principally from the sale of freshly- prepared, authentic, handmade Mexican food and other products in quick- service restaurants under the mark ZuZu Mexican Food. Effective December 31, 1995, under the terms of an agreement and plan of reorganization, 100% of the Company's outstanding common stock was acquired by Discovery Technologies, Inc. in exchange for 1,680,000 shares of common stock of Discovery Technologies, Inc., a public company (note J). 2. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 4. INVENTORIES Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued 5. PROPERTY, PLANT AND EQUIPMENT Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, either five or seven years, using the straight-line method. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. 6. DEVELOPMENT RIGHTS, FRANCHISE FEES, AND ORGANIZATIONAL COSTS Development rights and franchise fees paid to the franchisor (ZuZu Franchising Corporation) are stated at cost less amortization computed on the straight-line method principally over fifteen years. Organizational costs are stated at cost less amortization computed on the straight-line method principally over five years. The franchise agreements have an initial term of ten years with an option by the franchisee to renew the franchise for an additional ten years subject to compliance with the franchise agreement's terms. Upon termination of the franchise agreement, all rights granted under the agreement shall terminate. 7. Income taxes The Company follows the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Taxes are provided on all revenue and expense items included in the statement of operations, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. NOTE B - GOING CONCERN The Company's continued existence as a going concern is ultimately dependent upon its ability to generate sufficient cash flows to meet operating requirements, debt service requirements and restaurant development obligations (notes A1, K and L). Management believes that its marketing plan will produce increased revenues in fiscal 1996 which will improve cash flow from operations. Additionally, the Company's parent, Discovery Technologies, Inc. (note J) plans to raise additional capital Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE B - GOING CONCERN - Continued through a contemplated public offering of common stock in 1996 and interim financing through short-term financing prior to the public offering which will be used in part to support the operations and meet the commitments of the Company. NOTE C - INVENTORIES Inventories consist of the following as of December 31,
1993 1994 1995 -------- -------- -------- Food items $ - $ 2,502 $ 4,703 Beverages - 431 1,539 Finished products - 448 1,044 Other - 1,623 3,069 -------- -------- -------- $ - $ 5,004 $ 10,355 ======== ======== ========
NOTE D - NOTE PAYABLE The Company entered into a $30,000 revolving line of credit with a bank in 1995 which was originally due March 30, 1996. Subsequent to December 31, 1995 the line of credit was extended until September 30, 1996. Interest is payable monthly beginning October 30, 1995 at 2.25% over the bank's current index rate. The line of credit is collateralized by equipment, general intangibles and fixtures and is guaranteed by certain stockholders of the Company. As of December 31, 1995, $30,000 was outstanding on the line of credit and the interest rate was 10.75%. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE E - LONG-TERM DEBT Long-term debt consists of the following as of December 31,:
1993 1994 1995 -------- -------- -------- Note payable to a bank, guaranteed by the U.S. Small Business Administration, principal and interest of $4,981 payable monthly, interest (11.00% as of December 31, 1995) at 2.25% above lowest New York prime, due February 2002,collateralized by leasehold improvements, equipment, machinery and inventory, guaranteed by certain stockholders $ - $ - $281,377 Note payable to a bank,interest only monthly payments beginning October 1994, principal payable monthly at $2,500 per month beginning December 1994, interest at 3.00% over prime, collateralized by equipment, machinery and inventory, guaranteed by certain stockholders - 30,000 - Notes payable to a financing corporation, principal and interest payable monthly at $81 per month as of December 31, 1994 and at $246 per month as of December 31, 1995, interest rates from 9.50% - 10.20%, due through July 2000, collateralized by equipment - 3,384 10,082 ---------- ---------- ---------- - 33,384 291,459 Less current maturities - (30,505) (32,359) ---------- ---------- ---------- $ - $ 2,879 $259,100 ========== ========== ==========
Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE E - LONG-TERM DEBT - Continued Aggregate maturities of long-term debt are as follows as of December 31, 1995:
Year ending December 31, ------------ 1996 $ 32,359 1997 36,081 1998 40,230 1999 44,617 2000 47,774 Thereafter 90,398 -------- Total $291,459 ========
NOTE F - LEASES The Company conducts its operations in leased facilities under noncancelable operating leases expiring at various dates through January 2016. At the end of the lease terms, most of the leases are renewable for additional periods of up to ten years. The rental payments for several of the leases are based on a minimum annual rental plus a percentage of sales in excess of specified amounts. Additionally, certain signage and other equipment is leased under noncancelable operating leases expiring at various dates through December 2000. Most of such leases have provisions which allow for the continuation of such leases at the option of the Company. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE F - LEASES - Continued The minimum rental commitments under operating leases are as follows as of December 31, 1995:
Year ending December 31, ------------ 1996 $ 188,618 1997 190,448 1998 192,407 1999 185,944 2000 106,196 Thereafter 1,495,545 ---------- $2,359,158 ==========
Rental expense for all operating leases for the period from November 3, 1993 (inception) through December 31, 1993 and for the years ended December 31, 1994 and 1995 is as follows:
1993 1994 1995 -------- -------- -------- Minimum rentals $ - $ 37,447 $137,322 ======== ======== ========
No contingent rentals have been paid through December 31, 1995. The Company also leases certain equipment under five year capital leases with expiration dates through June 2000. Equipment under capital leases as of December 31, 1994 and 1995 was $140,450 and $221,236, respectively, with accumulated amortization of $10,612 and $51,221, respectively. Commitments under capital leases are as follows as of December 31, 1995: Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE F - LEASES - Continued
Year ending December 31, ------------ 1996 $ 64,763 1997 64,763 1998 64,763 1999 50,961 2000 19,955 --------- Total minimum lease payments 265,205 Less amount representing interest (69,154) Current portion of capital lease obligations (37,015) --------- Present value of long-term obligations under capital leases $159,036 =========
NOTE G - INCOME TAXES Deferred tax assets consist of the following as of December 31,:
1993 1994 1995 -------- -------- -------- Deferred tax assets: Net operating loss $ - $ 10,940 $ 99,450 Leasehold improvements amortization - 1,040 7,540 Pre-opening cost amortization 734 26,425 42,648 ---------- ---------- ---------- 734 38,405 149,638 Less valuation allowance (734) (38,405) (149,638) ---------- ---------- ---------- Net deferred tax assets $ - $ - $ - ========== ========== ==========
The Company has a net operating loss carryforward of $255,000 as of December 31, 1995 that expires through 2010. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE H - FINANCIAL INSTRUMENTS Included below is information about estimated fair values of financial instruments as required by FASB Statement 107. Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in that statement and does not purport to represent the aggregate net fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value. CASH AND CASH EQUIVALENTS The balance sheet carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM DEBT It is the opinion of management that the carrying value of long-term debt approximates fair value. NOTE I - RELATED PARTY TRANSACTIONS The Chief Executive Officer and the President of the Company are each partners of D&D Enterprises, owner of 171,429 shares of the Company's common stock prior to the acquisition by Discovery Technologies, Inc. (Discovery) (note J). D&D Enterprises also owned 50% of The Colorado Taco Corporation's common stock prior to the acquisition by Discovery. The Colorado Taco Corporation is a Colorado corporation and franchisee of one ZuZu Handmade Mexican Food restaurant in Denver, Colorado. D&D Enterprises had management contracts with both the Company and The Colorado Taco Corporation for management services performed by these individuals prior to December 31, 1995. For the year ended December 31, 1995, the Company paid D&D Enterprises $39,000 related to the management contract. As of December 31, 1994, the Company had a receivable from The Colorado Taco Corporation of $6,453 relating to certain of The Colorado Taco Corporation's costs paid by the Company. The expenses included legal fees, architectural fees, and lease expense. As of December 31, 1995, the Company had a payable to The Colorado Taco Corporation for $225 for legal fees paid by The Colorado Taco Corporation for the Company's expense. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE J - REORGANIZATION Pursuant to the terms of an agreement and plan of reorganization made and entered into effective December 31, 1995, by and between the Company, Discovery Technologies, Inc., (Discovery) (a Kansas corporation) and The Colorado Taco Corporation (CTC), Discovery acquired all of the issued and outstanding shares of common stock of the Company and CTC in exchange for 2,800,000 shares of common stock of Discovery, split 1,680,000 shares to Company stockholders and 1,120,000 shares to CTC stockholders. Also, 124,000 warrants to purchase the Company's common stock at $2.50 per share, issued during 1995, were exchanged by the holders for warrants to purchase Discovery voting common stock for $1.04 per share. The Discovery warrants expire on December 31, 1998. Additionally, a consent to reorganization agreement was entered into on April 30, 1996 (note L) whereby ZuZu Franchising Corporation (franchiser) approved of the acquisition. Terms of the consent to reorganization agreement provide for the payment by the Company, Discovery and CTC, to the franchiser of $75,000 of development rights and $45,000 of franchise fees, of which, $7,500 has been accrued by the Company as of December 31, 1995 with the remaining $112,500 accrued by CTC as of December 31, 1995. NOTE K - COMMITMENTS Under the terms of the development agreement discussed in note A1, the Company has the right and obligation to develop ten restaurants within the geographic area and development period prescribed within the agreement. Failure by the Company to adhere to the development schedule set forth in the agreement shall constitute a material event of default under the agreement which could result in automatic termination of all rights granted therein. However, no default under the agreement shall constitute a default under any franchise agreement between the parties unless the default is also a default under the terms of such franchise agreement. Rocky Mountain Taco, Inc. NOTES TO FINANCIAL STATEMENTS NOTE L - SUBSEQUENT EVENTS As part of the consent to reorganization agreement discussed in note J, the parties also agreed to the following: - Payment of the development rights and franchise fees of $120,000 discussed in note J will be made pursuant to a promissory note issued in favor of the franchiser in the principal amount of $120,000 and dated April 30, 1996 with Discovery, CTC and the Company as co-makers of the note. The note is due September 1, 1996 with interest payable monthly at 8.25%. - Extension of the development schedules in the development agreements of CTC and the Company (note K) to include the development of thirty-one restaurants by the Company and CTC through December 31, 1998. FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS THE COLORADO TACO CORPORATION DECEMBER 31, 1994 AND 1995 C O N T E N T S Page REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3 FINANCIAL STATEMENTS BALANCE SHEETS 4 STATEMENTS OF OPERATIONS 6 STATEMENTS OF STOCKHOLDER'S EQUITY 8 STATEMENTS OF CASH FLOWS 9 NOTES TO FINANCIAL STATEMENTS 10 Report of Independent Certified Public Accountants -------------------------------------------------- Board of Directors The Colorado Taco Corporation We have audited the accompanying balance sheets of The Colorado Taco Corporation as of December 31, 1994 and 1995, and the related statements of operations, stockholder's equity, and cash flows for the period November 23, 1994 (inception) through December 31, 1994 and the year ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Colorado Taco Corporation as of December 31, 1994 and 1995, and the results of its operations and its cash flows for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $2,970 and $155,142 for the period November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995, respectively, and has significant debt service requirements and restaurant development obligations as of December 31, 1995. The Company's ability to generate sufficient cash flows to meet these obligations, as discussed in Note B, cannot be determined at this time. These uncertainties raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Colorado Springs, Colorado April 10, 1996, except notes I and K which are April 30, 1996 The Colorado Taco Corporation BALANCE SHEETS December 31,
1994 1995 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents (note A3) $ 401,090 $ 89,702 Receivable - related party (note H) - 225 Inventories (notes A4, C and D) - 3,764 Prepaid expenses - 4,615 ---------- ---------- Total current assets 401,090 98,306 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST (notes A5 and D) Furniture and fixtures - 6,679 Equipment - 64,043 Leasehold improvements 1,518 243,296 ---------- ---------- 1,518 314,018 Less accumulated depreciation and amortization 76 25,864 ---------- ---------- 1,442 288,154 ---------- ---------- OTHER ASSETS Development rights - at cost, less accumulated amortization of $1,167 n 1994 and $12,625 in 1995 (note A6) 28,833 174,875 Franchise fees - at cost, less accumulated amortization of $0 in 1994 and $2,458 in 1995 (note A6) - 35,042 Organizational costs - at cost, less accumulated amortization of $0 in 1994 and $441 in 1995 (note A6) 2,118 2,636 Loan costs - at cost, less accumulated amortization of $0 in 1994 and $98 in 1995 (note A6) - 11,650 Deposits - 6,121 ---------- ---------- 30,951 230,324 ---------- ---------- Total assets $ 433,483 $ 616,784 ========== ========== The Colorado Taco Corporation BALANCE SHEETS December 31, (Continued) 1994 1995 -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Current maturities of long-term debt (note D) $ - $ 34,332 Accounts payable - 32,366 Development and franchise fees payable (note I) - 112,500 Related party payables (note H) 36,453 - Refunds payable 25,000 - Other - 10,616 ---------- ---------- Total current liabilities 61,453 189,814 ---------- ---------- LONG-TERM DEBT, less current maturities(note D) - 210,082 ---------- ---------- COMMITMENTS (notes E and J) - - ---------- ---------- STOCKHOLDER'S EQUITY (note I) Common stock - authorized, 10,000,000 shares without par value; issued and outstanding, 463,620 shares 375,000 375,000 Accumulated deficit (2,970) (158,112) ---------- ---------- 372,030 216,888 ---------- ---------- Total liabilities and stockholder's equity $ 433,483 $ 616,784 ========== ==========
The accompanying notes are an integral part of these statements. The Colorado Taco Corporation STATEMENTS OF OPERATIONS
Period November 23, 1994 (inception) through Year ended December 31, 1994 December 31, 1995 ------------------- ------------------ Net sales $ - $ 58,566 Cost of sales - 55,698 ---------- ---------- Gross margin - 2,868 Operating expenses General and administrative 4,060 162,283 ---------- ---------- Loss from operations (4,060) (159,415) ---------- ---------- Other income (expenses) Interest expense - (2,462) Interest income 1,090 6,735 ---------- ---------- Total other income, net 1,090 4,273 ---------- ---------- Net loss $ (2,970) $(155,142) ========== ==========
The accompanying notes are an integral part of these statements. The Colorado Taco Corporation STATEMENTS OF STOCKHOLDER'S EQUITY For the period November 23, 1994 (inception) through December 31, 1994 and the year ended December 31, 1995
Common Stock Accumulated ------------------ Shares Amount deficit Total -------- -------- ----------- --------- Balance November 23, 1994 - $ - $ - $ - Issuance of common stock 463,620 375,000 - 375,000 Net loss for the period November 23, 1994 (inception) through December 31, 1994 - - (2,970) (2,970) ---------- ---------- ---------- ---------- Balance December 31, 1994 463,620 375,000 (2,970) 372,030 Net loss for the year ended December 31, 1995 - - (155,142) (155,142) ---------- ---------- ---------- ---------- Balance December 31, 1995 463,620 $375,000 $(158,112) $ 216,888 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. The Colorado Taco Corporation STATEMENTS OF CASH FLOWS
Period November 23, 1994 (inception) through Year ended December 31, 1994 December 31, 1995 ------------------- ----------------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $ (2,970) $ (155,142) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,243 40,243 Change in assets and liabilities Increase in inventories - (3,764) Payment of loan costs - (11,748) Increase in accounts payable - 19,180 Increase in other current liabilities - 10,616 Increase (decrease) related party payables 2,817 (2,817) Increase in prepaid expenses - (4,615) ---------- ---------- Net cash provided by (used in) operating activities 1,090 (108,047) ---------- ---------- Cash flows from investing activities Acquisition of property and equipment - (300,384) Payment of development rights - (82,500) Payment of organizational costs - (114) Increase in deposits - (6,121) ---------- ---------- Net cash used in investing activities - (389,119) ---------- ---------- Cash flows from financing activities Proceeds from long-term debt - 244,414 Proceeds from issuance of common stock 375,000 - Increase (decrease) in refunds payable 25,000 (25,000) Decrease in related party payables - (33,636) ---------- ---------- Net cash provided by financing activities 400,000 185,778 ---------- ---------- Net increase (decrease) in cash and cash equivalents 401,090 (311,388) Cash and cash equivalents at beginning of year - 401,090 ---------- ---------- Cash and cash equivalents at end of year $ 401,090 $ 89,702 ========== ========== The Colorado Taco Corporation STATEMENTS OF CASH FLOWS (Continued) Period November 23, 1994 (inception) through Year ended December 31, 1994 December 31, 1995 ------------------- ----------------- Cash paid during the year for interest $ - $ 2,462 ========== ==========
Noncash investing and financing activities: Certain stockholders of the Company paid development rights of $30,000 on behalf of the Company in 1994. The $30,000 is presented in the balance sheet as development rights and as a related party payable as of December 31, 1994. Additionally, in 1994 leasehold improvements of $1,518 and organizational costs of $2,118 were paid by a related party (note H) and the related payable of $3,636 is included in related party payables as of December 31, 1994. As of December 31, 1995, development rights of $75,000 and franchise fees of $37,500 have been accrued and are included in development and franchise fees payable in the balance sheet. Additionally, $845 of organizational costs, $225 of receivable-related party and $12,116 of leasehold improvements are included in accounts payable as of December 31, 1995. The accompanying notes are an integral part of these statements. The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. NATURE OF OPERATIONS The Company, a Colorado corporation, is the franchisee of one ZuZu Handmade Mexican Food restaurant located in Denver, Colorado which opened in October 1995. Under the terms of a 1995 development agreement with the franchiser, the Company has the right and obligation to develop a total of twenty-five restaurants within the State of Colorado except for El Paso County, Boulder County, Larimer County and at Denver International Airport in Denver, Colorado (notes J and K). Revenues of the Company are derived principally from the sale of freshly- prepared, authentic, handmade Mexican food and other products in quick- service restaurants under the mark ZuZu Mexican Food. Effective December 31, 1995, under the terms of an agreement and plan of reorganization, 100% of the Company's outstanding common stock was acquired by Discovery Technologies, Inc. in exchange for 1,120,000 shares of common stock of Discovery Technologies, Inc., a public company (note I). 2. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 4. INVENTORIES Inventories are stated at the lower of cost or market; cost is determined using the first-in, first-out method. The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued 5. PROPERTY, PLANT AND EQUIPMENT Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, either five or seven years, using the straight-line method. Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. 6. DEVELOPMENT RIGHTS, FRANCHISE FEES, ORGANIZATIONAL COSTS AND LOAN COSTS Development rights and franchise fees paid to the franchisor (ZuZu Franchising Corporation) are stated at cost less amortization computed on the straight-line method principally over fifteen years. Organizational costs are stated at cost less amortization computed on the straight-line method principally over five years. Loan costs are stated at cost less amortization computed on the straight-line method, which approximates the interest method, over the life of the loan. The franchise agreements have an initial term of ten years with an option by the franchisee to renew the franchise for an additional ten years subject to compliance with the franchise agreement's terms. Upon termination of the franchise agreement, all rights granted under the agreement shall terminate. 7. INCOME TAXES The Company follows the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Taxes are provided on all revenue and expense items included in the statement of operations, regardless of the period in which such items are recognized for income tax purposes, except for items representing a permanent difference between pretax accounting income and taxable income. The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE B - GOING CONCERN The Company's continued existence as a going concern is ultimately dependent upon its ability to generate sufficient cash flows to meet operating requirements, debt service requirements and restaurant development obligations (notes A1, J and K). Management believes that its marketing plan will produce increased revenues in fiscal 1996 which will improve cash flow from operations. Additionally, the Company's parent, Discovery Technologies, Inc. (note I) plans to raise additional capital through a contemplated public offering of common stock in 1996 and interim financing through short-term financing prior to the public offering which will be used in part to support the operations and meet the commitments of the Company. NOTE C - INVENTORIES Inventories consist of the following as of December 31,:
1994 1995 -------- -------- Food items $ - $ 1,617 Beverages - 265 Finished products - 553 Other - 1,329 -------- -------- $ - $ 3,764 ======== ========
NOTE D - LONG-TERM DEBT Long-term debt consists of the following as of December 31,:
1994 1995 -------- -------- $450,000 draw note payable to Heller First Capital, Corp., guaranteed by the U.S. Small Business Administration, four monthly interest only payments after first disbursement, principal and interest of $6,444 payable monthly thereafter, interest (11.25% as of December 31, 1995) adjusted monthly at 2.75% above lowest New York Prime, due November 2005, collateralized by equipment, machinery and inventory, guaranteed by certain stockholders $ - $244,414 Less current maturities - (34,332) ---------- ---------- $ - $210,082 ========== ==========
The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE D - LONG-TERM DEBT - Continued Aggregate maturities of long-term debt are as follows as of December 31, 1995:
Year ending December 31, ------------ 1996 $ 34,332 1997 56,550 1998 63,251 1999 70,745 2000 19,536 ---------- Total $244,414 ==========
NOTE E - LEASES The Company conducts its operations in leased facilities under a noncancelable operating lease expiring January 31, 2000. At the end of the lease term, the lease is renewable for additional periods of up to ten years. Additionally, certain signage is leased under a noncancelable operating lease expiring October 1, 2000. This lease has provisions which allow for the continuation of the lease at the option of the Company. The minimum rental commitments under operating leases are as follows as of December 31, 1995:
Year ending December 31, ------------ 1996 $ 61,406 1997 61,406 1998 61,406 1999 61,406 2000 9,637 ---------- Total $255,261 ==========
Rental expense for all operating leases for the period from November 23, 1994 (inception) through December 31, 1994 and for the year ended December 31, 1995 was $0 and $51,769, respectively. The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE F - INCOME TAXES Deferred tax assets consist of the following as of December 31, 1994 and 1995:
1994 1995 -------- -------- Deferred tax assets: Net operating loss $ - $ 4,430 Leasehold improvements amortization 18 3,787 Pre-opening cost, net of amortization 1,583 53,447 ---------- ---------- 1,601 61,664 Less valuation allowance (1,601) (61,664) ---------- ---------- Net deferred tax assets $ - $ - ========== ==========
The Company has a net operating loss carryforward of $11,358 as of December 31, 1995 that expires in 2010. NOTE G - FINANCIAL INSTRUMENTS Included below is information about estimated fair values of financial instruments as required by FASB Statement 107. Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in that statement and does not purport to represent the aggregate net fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. CASH AND CASH EQUIVALENTS The balance sheet carrying amount approximates fair value because of the short maturity of these instruments. LONG-TERM DEBT It is the opinion of management that the carrying value of long-term debt approximates fair value. The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE H - RELATED PARTY TRANSACTIONS The Chief Executive Officer and the President of the Company are each partners of D&D Enterprises, owner of 231,810 shares of the Company's common stock prior to the acquisition by Discovery Technologies, Inc. (Discovery) (note I). D&D Enterprises also owned 24.65% and the Chief Executive Officer owned individually 7.19% of Rocky Mountain Taco, Inc.'s common stock prior to the acquisition by Discovery. Rocky Mountain Taco, Inc. is a Colorado corporation and franchisee of four ZuZu Handmade Mexican Food restaurants in El Paso County and Boulder County, Colorado. D&D Enterprises had management contracts with both the Company and Rocky Mountain Taco, Inc. for management services performed by these individuals prior to December 31, 1995. For the year ended December 31, 1995, the Company paid D&D Enterprises $45,000 related to the management contract. As of December 31, 1994, the Company had a payable to Rocky Mountain Taco, Inc. for $6,453 relating to certain of the Company's costs paid by Rocky Mountain Taco, Inc. The expenses included legal fees, architectural fees and lease expense. The Company also had a payable to the two officers discussed above for $30,000 as of December 31, 1994 relating to development fees paid by these individuals. As of December 31, 1995 the Company had a receivable from Rocky Mountain Taco, Inc. of $225 for legal fees paid by the Company for Rocky Mountain Taco, Inc.'s expense. NOTE I - REORGANIZATION Pursuant to the terms of an agreement and plan of reorganization made and entered into effective December 31, 1995, by and between the Company, Discovery Technologies, Inc., (Discovery) (a Kansas corporation) and Rocky Mountain Taco, Inc. (RMT), Discovery acquired all of the issued and outstanding shares of common stock of the Company and RMT in exchange for 2,800,000 shares of common stock of Discovery, split 1,120,000 shares to Company stockholders and 1,680,000 shares to RMT stockholders. In connection with the reorganization, the Company's original 975,000 shares of common stock were reduced to 463,620 shares in a reverse stock split. All references to the number of common shares have been restated retroactively to reflect the reverse split. The Colorado Taco Corporation NOTES TO FINANCIAL STATEMENTS NOTE I - REORGANIZATION - Continued Additionally, a consent to reorganization agreement was entered into on April 30, 1996 (note K) whereby ZuZu Franchising Corporation (franchiser) approved of the acquisition. Terms of the consent to reorganization agreement provide for the payment by the Company, Discovery and RMT, to the franchiser of $75,000 of development rights and $45,000 of franchise fees, of which, all but $7,500 has been accrued by the Company as of December 31, 1995 with the remaining $7,500 accrued by RMT as of December 31, 1995. NOTE J - COMMITMENTS Under the terms of the development agreement discussed in note A1, the Company has the right and obligation to develop twenty-five restaurants within the geographic area and development period prescribed within the agreement. Failure by the Company to adhere to the development schedule set forth in the agreement shall constitute a material event of default under the agreement which could result in automatic termination of all rights granted therein. However, no default under the agreement shall constitute a default under any franchise agreement between the parties unless the default is also a default under the terms of such franchise agreement. NOTE K - SUBSEQUENT EVENTS As part of the consent to reorganization agreement discussed in note I, the parties also agreed to the following: - Payment of the development rights and franchise fees of $120,000 discussed in note I will be made pursuant to a promissory note issued in favor of the franchiser in the principal amount of $120,000 and dated April 30, 1996 with Discovery, RMT and the Company as co-makers of the note. The note is due September 1, 1996 with interest payable monthly at 8.25%. - Extension of the development schedules in the development agreements of RMT and the Company (note J) to include the development of thirty-one restaurants by the Company and RMT through December 31, 1998. DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET UNAUDITED
HISTORICAL -------------------------------- ROCKY THE DISCOVERY PRO PRO MOUNTAIN COLORADO TECHNO- FORMA FORMA TACO, TACO LOGIES ADJUST- COMBINED INC. CORP. MENTS ASSETS CURRENT ASSETS: Cash and cash equivalents $ 41,577 89,702 316 (316) 131,279 Receivables 0 225 37,959 (37,959) 225 Unbilled Receivables 0 0 3,183 (3,183) 0 Inventories 10,355 3,764 0 0 14,119 Notes Receivable 0 0 200,000 (200,000) 0 Other Assets 0 0 5,467 (5,467) 0 Prepaid expense 2,278 4,615 0 0 6,893 ---------- ---------- ---------- ---------- ---------- Total current assets 54,210 98,306 246,925 (246,925) 152,516 ---------- ---------- ---------- ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Leasehold improvements 362,011 243,296 0 0 605,307 Furniture and fixtures 38,445 6,679 40,106 (40,106) 45,124 Equipment 305,172 64,043 0 0 369,215 ---------- ---------- ---------- ---------- ---------- 705,628 314,018 40,106 (40,106) 1,019,646 Less accumulated depreciation and amortization 113,244 25,864 0 0 139,108 ---------- ---------- ---------- ---------- ---------- 592,384 288,154 40,106 (40,106) 880,538 ---------- ---------- ---------- ---------- ---------- OTHER ASSETS Franchise fees - at cost, less accumulated amort 34,667 35,042 0 0 69,709 Development rights - at cost, less accumulated amort 65,000 174,875 0 0 239,875 Organizational costs - at cost, less accumulated amort 5,795 2,636 0 0 8,431 Loan costs - at cost, less accumulated amort 0 11,650 0 0 11,650 Deposits 42,746 6,121 0 0 48,867 Prepaid expenses 11,502 0 0 0 11,502 ---------- ---------- ---------- ---------- ---------- 159,710 230,324 0 0 390,034 ---------- ---------- ---------- ---------- ---------- Total assets $806,304 $616,784 $287,031 ($287,031) $1,423,088 ========== ========== ========== ========== ========== LIABILITIES AND STOCK HOLDERS' EQUITY DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET UNAUDITED (CONTINUED) CURRENT LIABILITIES Current maturities of long-term debt $32,359 34,332 211,924 (211,924) 66,691 Current portion of leases payable 37,015 0 0 0 37,015 Note payable 30,000 0 97,362 (97,362) 30,000 Accounts payable 86,505 32,366 211,282 (159,282) 170,871 Salaries 8,903 0 0 0 8,903 Development and franchise fees payable 15,000 112,500 0 0 127,500 Royalties 0 0 0 0 0 Related Party Payable 225 0 0 0 225 Accrued liabilities 0 0 237,822 (237,822) 0 Other 6,765 10,616 0 0 17,381 ---------- ---------- ---------- ---------- ---------- Total current liabilities 216,772 189,814 758,390 (706,390) 458,586 ---------- ---------- ---------- ---------- ---------- LONG-TERM DEBT, less current maturities 259,100 210,082 5,742 (5,742) 469,182 ---------- ---------- ---------- ---------- ---------- LEASES PAYABLE, less current portion 159,036 0 0 0 159,036 ---------- ---------- ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock 555,000 375,000 774,221 1,743,779 3,448,000 Contributed Capital 0 0 170,140 (170,140) 0 Discount on Common Stock (2,570,000)(2,570,000) Accumulated deficit (383,604) (158,112)(1,421,462) 1,421,462 (541,716) ---------- ---------- ---------- ---------- ---------- 171,396 216,888 (477,101) 425,101 336,284 ---------- ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity $806,304 $616,784 $287,031 $(287,031) $1,423,088 ========== ========== ========== ========== ==========
DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
HISTORICAL -------------------------------- ROCKY THE DISCOVERY PRO PRO MOUNTAIN COLORADO TECHNO- FORMA FORMA TACO, TACO LOGIES ADJUST- COMBINED INC. CORP. MENTS Net sales $ 951,487 58,566 483,604 (483,604) 1,010,053 Cost of sales 771,658 55,698 0 0 827,356 ---------- ---------- ---------- ---------- ---------- Gross margin 179,829 2,868 483,604 (483,604) 182,697 Operating expenses - General and administrative 415,047 162,283 1,009,230(1,009,230) 577,330 ---------- ---------- ---------- ---------- ---------- Profit/Loss from operations (235,218) (159,415) (525,626) 525,626 (394,633) ---------- ---------- ---------- ---------- ---------- Other income (expenses) Interest income 269 6,735 5,283 (5,283) 7,004 Interest expense(50,179) (2,462) (34,107) 34,107 (52,641) Gain on sale of fixed asset 0 0 (732) 732 0 ---------- ---------- ---------- ---------- ---------- Total other income (expenses), net (49,910) 4,273 (29,556) 29,556 (45,637) ---------- ---------- ---------- ---------- ---------- Provision (Benefit) for income taxes (1,600) 1,600 0 Net loss (285,128) (155,142) (556,782) 556,782 (440,270) ========== ========== ========== ========== ==========
DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
HISTORICAL -------------------------------- ROCKY THE DISCOVERY PRO PRO MOUNTAIN COLORADO TECHNO- FORMA FORMA TACO, TACO LOGIES ADJUST- COMBINED INC. CORP. MENTS Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss (285,128) (155,142) (556,782) 556,782 (440,270) Adjustments to reconcile net loss to net cash Depreciation and amortization 97,072 40,243 32,422 (32,422) 137,315 Allowance for doubtful accounts 0 0 (10,000) 10,000 0 Gain on sale of property and equipment 0 0 732 (732) 0 Change in assets and liabilities Increase in inventories (5,351) (3,764) 22,500 (22,500) (9,115) Increase in prepaid expenses (5,014) (4,615) 18,201 (18,201) (9,629) Payment of loan costs 0 (11,748) (11,748) Increase in accounts payable (1,155) 19,180 48,993 (48,993) 18,025 Increase (decrease) in related party payables 0 (2,817) (2,817) Accounts Receivable 44,435 (44,435) 0 Unbilled receivables 232,966 (232,966) 0 Other assets 29,161 (29,161) 0 Increase in accrued & other liabilities 494 10,616 274,236 (274,236) 11,110 ---------- ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities (199,082) (108,047) 136,864 (136,864) (307,129) ---------- ---------- ---------- ---------- ---------- DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (CONTINUED) Cash flows from investing activities Loans from officers and affiliates 156,169 (156,169) 0 Payment to officers and affiliates (238,696) 238,696 0 Payments on long term debt (55,074) 55,074 0 Acquisition of property and equipment (207,538) (300,384) 0 0 (507,922) Payments of franchise fees 0 0 0 0 0 Payments of development rights 0 (82,500) 0 0 (82,500) Payments of organizational costs (1,767) (114) 0 0 (1,881) (Increase) decrease in related party receivable 6,453 0 0 0 6,453 Increase in accounts payable (28,893) (6,121) 0 0 (35,014) ---------- ---------- ---------- ---------- ---------- Net cash used in investing activities (231,745) (389,119) (137,601) 137,601 (620,864) ---------- ---------- ---------- ---------- ---------- Cash flows from financing activities Proceeds on long-term debt 277,754 244,414 244,414 (244,414) 522,168 Principal payments on long-term debt (19,679) 0 0 0 (19,679) Proceeds from note payable 30,000 0 0 0 30,000 Principal payments on capital leases (18,431) 0 0 0 (18,431) Proceeds from issuance of common stock 155,000 0 0 0 155,000 Changes in related party payables 0 (33,636) (33,636) 33,636 (33,636) Changes in refunded payables 0 (25,000) (25,000) 25,000 (25,000) ---------- ---------- ---------- ---------- ---------- Net cash provided by financing activities 424,644 185,778 0 0 610,422 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivs. (6,183) (311,388) (737) 737 (317,571) Cash and cash equivalents at beginning of period 47,760 401,090 1,053 (1,053) 448,850 ---------- ---------- ---------- ---------- ---------- DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (CONTINUED) Cash and cash equivalents at end of period 41,577 89,702 316 (316) 131,279 ---------- ---------- ---------- ---------- ---------- Cash paid during the year for interest 48,375 2,462 12,177 (12,177) 50,837 ---------- ---------- ---------- ---------- ----------
DISCOVERY TECHNOLOGIES, INC. (DTI) AND ZUZU (REGISTERED) - COLORADO - ------------------------------------------------------------------- NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following is a description of the pro forma adjustments that have been made: (a) Accounts Payable adjusted $52,000 to reflect exercise of warrants on behalf of IFS. INDEPENDENT AUDIT OF ROCKY MOUNTAIN TACO, INC. ---------------------------------------------- AND THE COLORADO TACO CORPORATION (COLLECTIVELY) ------------------------------------------------ ZUZU - COLORADO --------------- The following consolidated financial information is based solely on audited financial statements for year ended December 31, 1995 of Rocky Mountain Taco, Inc. and the Colorado Taco Corporation. Please referenced the attached independent auditors report and notes to the above referenced financial statements provided by Grant Thornton LLP. DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
DEC. 31, 1995 DEC. 31, 1995 ROCKY COLORADO CONSOLIDATED MOUNTAIN TACO TACO CORP. Net sales $ 951,487 58,566 1,010,053 Cost of sales 771,658 55,698 827,356 ---------- ---------- ---------- Gross margin 179,829 2,868 182,697 Operating expenses - General and administrative 415,047 162,283 577,330 ---------- ---------- ---------- Profit/Loss from operations (235,218) (159,415) (394,633) ---------- ---------- ---------- Other income (expenses) Interest income 269 6,735 7,004 Interest expense (50,179) (2,462) (52,641) ---------- ---------- ---------- Total other expenses, net (49,910) 4,273 (45,637) ---------- ---------- ---------- Net income (loss) (285,128) (155,142) (440,270) ========== ========== ==========
DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET
DEC. 31, 1995 DEC. 31, 1995 ROCKY COLORADO CONSOLIDATED MOUNTAIN TACO TACO CORP. ASSETS CURRENT ASSETS: Cash and cash equivalents $ 41,577 89,702 131,279 Inventories 10,355 3,764 14,119 Prepaid expense 2,278 4,615 6,893 ---------- ---------- ---------- Total current assets 54,210 98,081 152,291 ---------- ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Leasehold improvements 362,011 243,296 605,307 Furniture and fixtures 38,445 6,679 45,124 Equipment 305,172 64,043 369,215 ---------- ---------- ---------- 705,628 314,018 1,019,646 Less accumulated depreciation and amortization 113,244 25,864 139,108 ---------- ---------- ---------- 592,384 288,154 880,538 OTHER ASSETS Franchise fees - at cost, less accumulated amort 34,667 35,042 69,709 Development rights - at cost, less accumulated amort 65,000 174,875 239,875 Organizational costs - at cost, less accumulated amort 5,795 2,636 8,431 Loan costs - at cost, less accumulated amort 0 11,650 11,650 Deposits 42,746 6,121 48,867 Prepaid expenses 11,502 0 11,502 ---------- ---------- ---------- 159,710 230,324 390,034 ---------- ---------- ---------- Total assets $806,304 $616,559 $1,422,863 ========== ========== ===========
DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (CONTINUED)
DEC. 31, 1995 DEC. 31, 1995 ROCKY COLORADO CONSOLIDATED MOUNTAIN TACO TACO CORP. LIABILITIES AND STOCK HOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $32,359 34,332 66,691 Current portion of leases payable 37,015 0 37,015 Note payable 30,000 0 30,000 Accounts payable 86,505 32,366 170,871 Salaries 8,903 0 8,903 Development and franchise fees payable 15,000 112,500 127,500 Royalties 0 0 0 Other 6,765 10,616 17,381 ---------- ---------- ---------- Total current liabilities 216,547 189,814 458,361 ---------- ---------- ---------- LONG-TERM DEBT, less current maturities 259,100 210,082 469,182 ---------- ---------- ---------- LEASES PAYABLE, less current portion 159,036 0 159,036 ---------- ---------- ---------- COMMITMENTS AND CONTINGENCIES 0 0 0 ---------- ---------- ---------- STOCKHOLDERS' EQUITY Preferred stock, authorized, 1,000,000 shares of $0.01 par value issuable in series, none issued 0 Common stock - authorized, 40,000,000 shares of $1 0 555,000 375,000 930,000 Discount on common stock 0 Accumulated deficit (383,604) (158,112) (541,716) ---------- ---------- ---------- 171,396 216,888 388,284 ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $806,079 $616,784 $1,422,863 ========== ========== ===========
DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
DEC. 31, 1995 DEC. 31, 1995 ROCKY COLORADO CONSOLIDATED MOUNTAIN TACO TACO CORP. Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss (285,128) (155,142) (440,270) Adjustments to reconcile net loss to net cash Depreciation and amortization 97,072 40,243 137,315 Change in assets and liabilities Increase in inventories (5,351) (3,764) (9,115) Increase in prepaid expenses (5,014) (4,615) (9,629) Payment of loan costs (11,748) (11,748) Increase in accounts payable (1,155) 19,180 18,025 Increase in accrued & other liabilities 494 10,616 11,110 ---------- ---------- ---------- Net cash provided by (used in) operating activities (199,082) (105,230) (304,312) ---------- ---------- ---------- Cash flows from investing activities Acquisition of property and equipment (207,538) (300,384) (507,922) Payments of franchise fees 0 Payments of development rights (82,500) (82,500) Payments of organiza- tional costs (1,767) (114) (1,881) Increase in deposits (28,893) (6,121) (35,014) ---------- ---------- ---------- Net cash used in investing activities (238,198) (389,119) (627,317) ---------- ---------- ---------- Cash flows from financing activities Proceeds on long- term debt 277,754 244,414 522,168 Principal payments on long-term debt (19,679) (19,679) Proceeds from note payable 30,000 30,000 Principal payments on capital leases (18,431) (18,431) Proceeds from issuance of common stock 155,000 155,000 Changes in related party payables (33,636) (33,636) Changes in refunded payables (25,000) (25,000) ---------- ---------- ---------- DISCOVERY TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED) Net cash provided by financing activities 424,644 185,778 610,422 ---------- ---------- ---------- Net increase (decrease) in cash and cash equivs. (12,636) (308,571) (321,207) Cash and cash equivalents at beginning of period 47,760 401,090 448,850 ---------- ---------- ---------- Cash and cash equivalents at end of period 41,577 89,702 131,279 ---------- ---------- ---------- Cash paid during the year for interest 48,375 2,462 50,837 ---------- ---------- ----------
SIGNATURE Pursuant to the requirements of the securities exchange act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DISCOVERY TECHNOLOGIES, INC. Date: October 30, 1996 By: --------------------- ----------------------- D. William Hill, Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----