[NAME] CONSOLIDATED GROWERS AND PROCESSORS, INCORPORATED
[STATE-OF-INCORPORATION] DE
[IRS-NUMBER] 77-0462311
[NEW-BUSINESS-ADDRESS]
[STREET1] 6350 LAUREL CANYON BLVD.
[STREET2] SUITE 406
[CITY] NORTH HOLLYWOOD
[STATE] CALIFORNIA
[ZIP] 91606
[PHONE] 818-752-9990
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
CONSOLIDATED GROWERS AND PROCESSORS, INCORPORATED
FORM 10SB REGISTRATION STATEMENT
DESCRIPTION OF BUSINESS
REG. 228.101 (ITEM 101)
Consolidated Growers and Processors, Incorporated (hereinafter "CGP" or "the
Company"), OTC BB: CGPR, was formed and incorporated in Delaware on June 10,
1997 for the principal purpose of engaging in the large scale
commercialization of alternative industrial crop products, primarily
industrial hemp, through the development and / or acquisition of new and
advanced technologies. The Company was funded through a Reg 504D offering
and listed on the OTC market as of Oct. 27, 1997. In Oct. 1997, the Company
acquired a minority interest in a German company, Badische
Naturfaseraufbereitung ("BaFa"). In 1998, the Company furthered its
international operations through the formation of its wholly-owned Canadian
subsidiary, Consolidated Growers and Processors (CGP) Canada Limited
("CGP Canada"), NAWARO GmbH ("NAWARO") and CGP Europe AG ("CGP Europe"). In
June 1998, the Company also acquired a 100% interest in a Swiss corporation,
Werner Zoellig AG & Glulam Lumber Mfg. ("Zoellig"). The Company has
subsequently restructured its European holdings: it has increased its
investment in BaFa and has sold Zoellig to focus on its core business,
the agriculture and processing of industrial hemp. At present, the Company
employs nine people.
CGP has created an integrated, global strategy to become the lowest cost
producer and preeminent supplier of industrial hemp raw material products in
key market segments such as: nutraceuticals and pharmaceuticals from hemp
plant compounds through biotechnological development; nutraceutical and
generic food products with nutritional advantages; fine fiber for
biocomposites and substitution of toxic petrochemical and
synthetic products; other eco-friendly products.
Until recently, industrial hemp played a vital role in world commerce for
over 2,000 years, during which it had been relied upon to supply humanity
with a wide range of essential commodities. However, after World War II,
since petroleum was in abundant supply and inexpensive, petroleum
technologies advanced with new age synthesis facilitating the replacement of
natural, industrial crop products in Western developed countries. Sixty
years later, the industrialized world is living with the two major
consequences of pollution and economic dependence on unreliable external
parties. Furthermore, the world is now also facing a major fiber crisis in
the coming decade. There is an ever-increasing need for fiber in paper and
building materials. In the USA alone, the demand for fiber could be as great
as the combined demand for steel and plastic products. For these reasons and
consequences, people and governments of major developed countries are
returning to industrial hemp.
New crops will be vital to the sustainability and profitability of our
natural resources. The French began hemp development in 1969. Since 1994,
Germany, The Netherlands and Austria have taken the lead with France in
starting the revitalization of industrial hemp. Most manufacturers,
particularly in the automotive and packaging sectors, have increased demand
for natural fibers to enhance the recyclable content of their products.
More recently, CGP has facilitated the process in Canada and Australia,
including 18,200 acres growing under contract in Canada in 1999. Total
industrial hemp sales worldwide have increased exponentially from
approximately $5 million USD in 1993 to a projected $500 million for 1999 and
$750 million by 2001. In Europe, the move toward recycling has created an
urgent need to replace petrochemical products / materials with recyclable
and / or biodegradable alternatives. Notwithstanding the impressive growth
trends, the industrial hemp industry in developed countries is fragmented and
still in the early stages of development, whereas the Asian production is
targeted primarily towards textiles.
Technological development of equipment to maximize harvesting and
processing capabilities has been adequately examined by CGP. Our German
subsidiary, BaFa, has made progress in these areas in
recent years, but total capacity levels remain too low to create large user
demand. The industry has begun to attract the interest of large
multinational companies seeking alternative raw material sources. Now,
substantially higher planting acreage and more processing facilities are
required to develop potential large markets for major customers
in certain industrial hemp products.
UNIQUENESS OF BUSINESS / PRODUCTS
Industrial hemp is an invaluable bioresource. In 1938, Popular Mechanics
magazine stated "Over 25,000 products can be manufactured from hemp.".
Unique features of the industrial hemp crop, and of particular importance to
the Company's strategy are as follows: excellent healing and nutritional
properties; serves as an eco-friendly alternative to large use toxic
materials and products; can remediate certain contaminants in soil and
water; generates significant agronomic benefits, such as weed control, soil
enhancement and crop rotation, increasing profitability to the farm economy;
versatility - it is more versatile than the soybean, cotton plant and the
Douglas fir combined; provides superior yield (e.g., yields 4X cotton) and
valuable seed for oil production.
CGP has acquired and / or developed advanced technologies to maximize these
attributes. The Company will build new processing facilities and has commenced
its molecular biology research and development program.
OPPORTUNITY
Industrial hemp is "The Earth's Premier Renewable Resource." The unique
attributes of industrial hemp provide the potential to move the global and USA
economies toward a more sustainable direction - one that is more
environmentally and socially responsible, as well as profitable. The
Company's management believes that natural, agricultural industrial crops,
particularly industrial hemp and its derivative products, will once again
become a principal source of wealth in the global economy. Knowledge and use
of industrial hemp and its products will spread to homes and businesses
throughout the world. Today the opportunity exists to virtually create the
industry for the world's premiere bioresource. The Company's global integrated
strategy has brought together experienced and recognized industry leaders to
our team to develop the markets for important, natural and technologically
advanced industrial hemp products. CGP is investing in the future of the world
through profitable product development of nature's preeminent renewable
resource, industrial hemp.
PRODUCTS
All industrial hemp products originate from one of the four parts of the plant:
(1) Seed (2) Grain (3) Stalk / Straw (4) Chaff and Leaf (previously
considered harvest waste). CGP intends to process all parts of the industrial
hemp plant to produce and / or develop major raw material (and possibly
certain end use) products as follows:
Novel nutraceuticals and pharmaceuticals from phytochemical industrial hemp
plant compounds;
Patents for new proprietary varieties, particularly for traits that will
increase fiber content in crop biomass, increase oil yields and completely
eliminate THC;
High quality nutraceuticals and nutritional human foods such as: edible oils,
nuts and protein powder;
Fine fibers for biocomposites; for example, in automotive parts, building
insulation and matting materials;
Fibers for pulp to make "tree-free," regular and specialty (e.g., security)
paper products, building materials (e.g. particle board) and / or
"eco-friendly plastics;"
Hurd for animal bedding, building materials, consumer products and industrial
absorbents;
Industrial hemp products offer many unique, beneficial features to the
marketplace that can be readily identifiable as follows:
Health and Nutritional Properties:
Cannabinoids and other phytochemical compounds of the plant have proven to be
neuroprotective antioxidants, natural analgesics and anti-inflammatory
facilitators;
Edible oil, nut, protein powder and cake contain the "perfect" natural profile
of essential fatty acids for the human body;
Edible oil, nut and cake contain a high quality and concentration of protein,
and a high protein efficiency ratio;
Hemp nut and protein powder contains all eight essential amino acids;
Hemp grain products are closest to "organic quality" - nearly free of
pesticides, herbicides and artificial fertilizers;
Hemp oil in cosmetics can penetrate skin three layers deep, improving effect.
Environmental Benefits:
Fiber is natural and an eco-friendly alternative to various petrochemical
products in composites, plastics and synthetic fibers (e.g., fiberglass);
Fiber is a substitute for wood products, such as pulp for paper, positively
impacting forest conservation;
Plant has the unusual characteristics to remediate the soil and water of
certain hazardous waste contaminants;
Plant requires less herbicides / insecticides (than other crops with comparable
uses) avoiding groundwater and other contamination.
GENERAL
Hemp is more versatile than a combination of other alternative industrial crops
in product application and the fiber is stronger and more durable than other
industrial crops. The Company has been aggressive in its pursuit of
technological advancements that would benefit from the use of industrial hemp.
Management has concluded an Exclusive Agreement with NTech Corporation, a
company involved in atomic and molecularly
assembled substances, for the use of hemp fiber in combination with other
compounds to produce recyclable / biodegradable products to compete with
certain plastics and metal products. The Company anticipates completion of
formal product application tests to occur during 2000, after which the
Company will pursue the most profitable production and marketing strategies.
The Company has also acquired the exclusive license for a phytoremediation
process technology for all applications that would utilize industrial hemp as
the plant. Phytoremediation is a natural process utilized to remediate
polluted sites such as radioactive soil and water, as well as metals,
pesticides, hydrocarbons, etc., from weapons facilities or landfills. Plants
break down or degrade organic pollutants and stabilize metal contaminants by
acting as filters or traps. Industrial hemp is proving itself to be one of
the best plants available for this process.
Although planting seed is the critical raw material for all of the Company's
products, it is also a saleable product to create another revenue stream. Of
significant importance to the seed supply is the Company's relationship with
The Bast Institute, Glukhiv, Ukraine. There are several types of seed
varieties with different natural origins presently in use. The Bast
Institute, the leading agronomic research institute for industrial hemp and
flax, excels at breeding the lowest level THC cultivars available, which is a
critical factor for both planting certification (licensing) and crop
processing. The Company owns the exclusive rights for The Bast Institute
Ukrainian seed sales and development (breeding) for North America, important
growing countries in Europe and South America, as well as Australia.
RESEARCH
Research efforts will continue to focus on agronomic studies in Africa and
Canada to find the optimum growing conditions to maximize yields of industrial
hemp fiber and seed. The Company has already received a $60,000 (CND) Grant in
Canada to conduct such agronomic studies, and is in the process of negotiations
for other government grants and research programs for industrial hemp. The
Company will also focus on continued research into the production of "hemp
metals" and "hemp plastics" as naturally produced materials to compete with
today's common metals and plastics. Also, the Company has a contract with
Phytomedics, Inc. to study the nutraceutical and pharmaceutical potential of
industrial hemp. The Company's work at Rutgers University will be initially
to develop completely THC (drug) free varieties of industrial hemp.
GOVERNMENT REGULATION
The Company's activities are at present subject to federal regulations
controlling the right to grow industrial hemp commercially in each respective
country in which it currently and / or plans to do business in. In addition,
some of the products that the Company currently may produce, such as
industrial hemp oil, may be subject to regulation by the United States Food
and Drug Administration ("FDA") or other similar governmental bodies in other
countries. However, CGP's primary research will be to develop non-narcotic
varieties of industrial hemp that have superior seed and fiber yields without
diminishing any nutritional value or compromise the positive attributes of the
hemp fiber. CGP's scientific staff will maintain the strictest internal
controls to meet the compliance of all government testing protocols.
DEPENDENCE UPON KEY PERSONNEL
The Company relies greatly in its efforts on the services and expertise of its
current senior officers: Susan M. Brana, Chairman of the Board, CGP Inc.;
Dr. Werner Thelen, President, NAWARO; Hansjorg Spoerri, President, CGP Europe;
Mark Kaeller, Chief Operating Officer, CGP Inc. and; Darrell McElroy, Senior
Vice President, Agriculture, CGP Canada. The operation and future success of
the Company could be adversely affected in the event that the above key
personnel were incapacitated or the Company were to lose their services.
OPERATIONS
The Company reported a loss of ($544,410) for its first year of operations
ended June 30, 1998 and a loss of approximately ($1,912,707) for its second
year of operations ended June 30, 1999.
The Company maintains its main offices at: 6350 Laurel Canyon Blvd., Suite 406
North Hollywood, California 91606.
MANAGEMENT AND OWNERSHIP
The strategic business affairs of the Company are managed by the Board of
Directors, which presently consists of five members. It is anticipated that
the current members will continue to serve until the next annual meeting of the
shareholders. At that meeting, new members will be elected for staggered
one-three year terms. Daily operations of the Company are the responsibility
of its executive officers. The officers, who are appointed by the Board, are
under contract for the specific term of their respective employment agreements.
It is anticipated that each of the officers will remain for the foreseeable
future, and one or more will be elected to the Board.
PROFESSIONAL SERVICES / ADVISORS
The Company has retained the following firms as advisors of record:
Program & Construction
Management Dugan & Associates Construction Management
Auditor Kevin G. Breard, C.P.A.
International Attorneys Loyens and Volkmaar
These highly qualified advisors will support management and the Board of
Directors in making strategic and certain operational decisions.
MARKET RESEARCH AND ANALYSIS
GENERAL MARKET DATA
The demand for industrial hemp and industrial hemp products is rapidly
increasing. A 1997 story in the Wall Street Journal found that the demand
should triple from $75 million to greater than $250 million by 1999. A recent
ABC TV news story shows that worldwide hemp sales will reach an estimated
$500 million this year. Research indicates exponential growth of worldwide
individual sales increased from approximately $5 million in 1993 to a projected
$750 million for 2001.
Based upon discussions between CGP management and executives of major
multinationals, demand for raw materials from hemp (e.g., fiber, pulp) would be
significantly greater if planned supply quantities were sufficiently large for
a major company to make a long term commitment to its use. Although worldwide
global market data by market segment is difficult to ascertain, the University
of Kentucky completed a study of the "Economic Impact of Industrial Hemp in
Kentucky" (July 1998) that includes conservative estimates of market size by
category for the USA domestic markets only. In summary, the study concludes
that potential domestic markets exist for:
- - 300,000 tons of industrial hemp hurd for horse bedding;
- - 112,000 tons of industrial hemp fiber for other products as follows:
- - 80,000 tons: Paper
- - 19,000 tons: Auto parts
- - 7,000 tons: Fiberglass
- - 2,500 tons: Textiles
- - 3,500 tons: Capreting
The study also found that the potential domestic markets exist for:
- -36,000 tons of industrial hemp grain meal
- -18,000 tons of industrial hemp oil (for edible and other uses)
The total estimate for the domestic market is approximately 466,000 tons / year
based upon conservative figures used and an assumption of 10-20 percent market
penetration.
MARKET SEGMENTS
Nutraceuticals
The nutraceutical / herbal food supplements industry has worldwide sales of
more than $17 billion and a 15-20 percent annual growth rate. Nutraceuticals
are food substances with health / medical benefits, primarily derived from
plants. The industry is, to a large extent, self-regulated, although the
predominant trend and consumer demand is for proven efficacy, safety and
increased standardization of products. Consumers, particularly those of the
"baby boomer" generation, are showing dramatically increased interest in these
products as they search for new means to prolong health and well being.
Oil
The market for edible oil at present is approximately 6.9 million metric tons.
The food industry generally serves as an indicator of demand. For this reason,
food companies are stressing new product introductions. "Functional foods and
nutraceuticals" are two relatively new terms in the industry to describe foods
containing significant levels of biologically active components that impart
health benefits or desirable physiological effects beyond basic nutrition.
Consumers are showing continued strong interest in reduced calories and less
detrimental fats in food products.
Personal Care Products
Personal care products, encompassing personal soaps, skin care products, hair
care products, cosmetics and other toiletries, is a primary consumer end use
market for fats and oils and their derivatives. Demand for personal care
products is dependent upon demographic and consumer spending patterns, and tends
to be highly income elastic. Personal care product shipments are projected to
advance 4.3 percent annually to $28 billion in the year 2000, based on new
product introductions and an aging population. Consumer preferences for
value-priced, environmentally-responsible and better performing products are
increasing. Environmental regulations and narrower profit margins have driven
personal care products manufacturers' research and development efforts. The
economic downturn of the early 1990's sparked renewed consumer interest in
value-priced products, such as better performing multifunctional hair care
formulations incorporating shampoo, conditioner and other specialty additives.
Another important trend in the personal care products market is growing
consumer preference for environmentally compatible products. In addition, the
aging population will also influence trends in the use of personal care product
consumption. As the baby-boomer population grows older, the group will continue
to demand new, better performing products based on advancing technologies and
materials to offset signs of aging. In
addition, this demographic trend will also provide opportunities for milder,
more effective formulations of many personal care products.
Nuts
The North American market for nuts is in excess of $10 billion annually of
which the non-peanut segment is approximately $1.3 billion. Nuts with a high
nutritional content profile are sold in "health stores" as a nutraceutical
food, as well as in mainstream markets, where consumers seek healthier
alternatives to peanuts.
Protein Powder
The health food market for high quality whey protein has been dramatically
increasing due to its benefits in building lean muscle mass, weight loss and
nutritional content. At present, soy based whey protein is the leading
product. The market in North America for whey protein was in excess of
150,000 MT in 1998.
Animal Feed
Flax meal used to serve this market in North America has declined significantly
to 159,000 tons annually, since customers have begun to switch to "higher
protein" soy meal, particularly due to noted health improvements in horses.
Horse Bedding (Hurd)
The market for bedding in the USA alone is approximately 3 million tons ($400+
million) annually. Most of this market is served presently by bedding made from
straw, wood chips, and to a lesser extent, composition mats.
Natural Fibers
Natural fibers have proven to be eco-friendly substitutes for hydrocarbon (e.g.
petrochemical products) and wood in diverse product categories. Different
qualities of fiber are better suited for different product categories. The
global markets for these products easily exceed $20 billion annually. The
product categories include: paper, automotive parts, building materials,
non-wovens, plastics, etc.
Phytoremediation
This is an alternative natural process to remediate various types of polluted
sites from radioactive, chemical and hydrocarbon contaminants. The USA market
alone exceeds $230 billion according to the USA Department of Energy.
COMPETITION
The Company faces competition from numerous companies in each of its targeted
market segments. For example:
Hemp fiber - competition from other agricultural, wood and synthetic fibers and
petrochemical products.
Hemp oil - competition from other edible oils such as soy, canola, flax or
olive, and also from coconut, palm oils, sunflower etc. used in cosmetics.
Hemp nuts - competition from walnuts, cashews, almonds, peanuts, etc.
Most of the competitors in the above-named product markets are more
established, benefit from market recognition and have greater financial,
production and marketing resources than the Company. Management believes that,
due to the large number of companies that operate in its diverse product
markets, it has no single or group of competitors. Notwithstanding the extent
of competition and available products that serve its target markets, the
Company's products shall successfully penetrate and compete in these markets
based upon the following principal factors:
Agronomic, environmental and economic advantages from growing hemp that will
increase supply to enable market development;
CGP's advanced processing technology will generate efficient production of all
parts of the industrial hemp plant to facilitate both supply and competitive
pricing;
The potential to develop valuable nutraceuticals and pharmaceuticals from
process waste / by-product that contain proven medical benefits;
Optimum health and nutritional profiles of food products for the nutraceutical
and mainstream food markets;
Proven ability of hemp oil to penetrate three layers of skin, improving the
effects in cosmetic uses;
Biodegradability and higher absorbency of horse bedding product;
Fine fiber that is stronger, more flexible, safer, eco-friendly and lower cost
than existing petrochemical products or synthetic fibers used in automobile
parts, insulation, etc.;
Raw fiber to serve as a "tree-free" fiber for making paper;
Unusual capability of industrial hemp to remediate certain hazardous materials
in soil and water.
All of these qualities distinguish industrial hemp from existing products
currently serving large volume and revenue markets.
DESCRIPTION OF PROPERTY
REG. 228.102 (ITEM 102)
As of June 30, 1999 the Company did not own any real property.
The investment policies of the Company are left to the discretion of the quorum
of the Board of Directors. Resolutions can be passed by the Board of Directors
to allow input from security holders as required.
LEGAL PROCEEDINGS
REG. 228.103 (ITEM 103)
As of the date of this filing, the Company is not a party to any legal
proceeding.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
REG. 228.201 (ITEM 201)
Market Information
The registrant's securities are traded on the Over-The-Counter Bulletin Board
(OTC-BB) operated by the National Association of Securities Dealers, Inc. under
the symbol CGPR. The registrant's securities began trading on the OTC-BB on
October 27, 1997.
Holders
As of 6/30/99, there were 197 shareholders of Common Stock in the Company, and
32,173,802 shares of Common Stock outstanding.
Dividends
There have been no cash dividends declared on any shares of common equity in
the company since the inception of the Company to present.
DESCRIPTION OF SECURITIES
REG. 228.202 (ITEM 202)
Common Stock
Warrants - At present, there are no outstanding warrants to purchase common
equity in the Company.
Options - At present, there are no options outstanding that can be exercised to
purchase equity in the company.
Convertible Stock - At present, there is no convertible stock.
Selling Security Holders - There are no securities to be registered for the
account of any security holders.
MANAGEMENT'S DISCUSSION AND ANALYSIS
REG. 228.303 (ITEM 303)
OVERVIEW
Consolidated Growers and Processors, Incorporated (the "Company") is a
multinational industrial hemp company. The Company's primary business
objectives are to provide financing, technical, and marketing expertise to the
farming, processing, and marketing of products made from industrial hemp and
other industrial crops. From June 10, 1997 (inception) to June 30, 1998, the
Company's operations were in the development stage. On July 1, 1998 the
Company began to receive revenue from hemp products. The Company's activities
primarily have been related to raising capital, establishing or acquiring key
subsidiaries, performing market analysis, sponsoring research, developing
technology, developing products, establishing a grower base, and recruiting
employees. The Company's operations primarily have been funded by the sale of
common stock and warrants.
In October 1997, the Company signed an agreement with the Ukrainian Academy of
Academy of Agricultural Sciences / Institute of Bast Crops (the "Institute").
The Institute has granted the Company exclusive licensing rights for certain
registered industrial hemp seed varieties which were bred by the Institute. In
addition, the Company has exclusive rights for seed production / multiplication
in North America, Central America, South America, Africa, Australia, New
Zealand, and Asia (excluding the countries of the former Soviet Union). The
Company believes this agreement with the Institute is key to its being a leader
in industrial hemp as the Institute's industrial hemp seed varieties have the
lowest THC content of any industrial hemp seed varieties available. The
availability of low THC industrial hemp seed varieties has opened up the
commercial growing of industrial hemp in Canada. A comprehensive seed
multiplication program has been established by the Company to multiply seeds
for planting in Canada, Europe, Australia, and South Africa. Most governments,
including the Canadian Government, have imposed strict THC requirements for the
commercial cultivation of industrial hemp. The Company's exclusive rights to
these low THC industrial hemp seed varieties in North America gives it a
strategic advantage to build business in the key North American markets.
In November 1997, the Company established an agreement with NTECH Corporation,
which had developed a coded microparticle known as StuffDust. This agreement
gives the Company the worldwide license for this product for use in various
paper products. The Company believes that use of this microparticle will allow
it to introduce industrial hemp fiber into the specialty and security paper
markets.
The Company also increased its ownership in Badische Naturfaseraufbereitung
("BaFa") from 15% to 75%. BaFa is the first modern grower and processor of
industrial hemp in Germany. BaFa has the ability to produce very fine fibers
from industrial hemp, which can and are being used by automotive manufacturers
in automotive panels and insulation.
The Company continued to develop operations of its strategic subsidiaries in
Canada (CGP Canada, Ltd.), Germany (NAWARO GmbH), and Switzerland
(CGP Europe AG) to facilitate the development of worldwide markets for
industrial hemp and other industrial crops.
In December 1998, the Company sold a subsidiary (Werner Zoellig AG and Glulam
Lumber Manufacturing Corporation) to be able to focus on development of
industrial hemp products and increase its ownership and control of BaFa.
The Company has successfully planted, for the second consecutive year, several
hectares of industrial hemp in Chernobyl, Ukraine. While this project has not
generated revenue to the Company, the Company has garnered great scientific
repute and numerous, high profile speaking engagements at international
conferences within the agricultural and scientific communities.
The Company executed a research agreement with Rutgers University for the
research and development of the biotech, nutraceutical and pharmaceutical
properties of industrial hemp. A primary research project will be to
completely eliminate THC (or the psychoactive component) of the industrial hemp
plant.
The Company was engaged as the official editor for industrial hemp for the
UN / FAO internet site, disseminating fundamental and scientific information
about industrial hemp throughout the world.
RESULTS OF OPERATIONS
Because the Company was in the developmental stage from inception through
June 30, 1998, and only began to receive income in July of 1998, only limited
revenues were recognized since inception. The amount of these revenues was
$1,108,297 for the fiscal year ending on June 30, 1998 and $1,181,865 for the
fiscal year ending on June 30, 1999. Revenue from BaFa is not included in
these amounts since the increase in ownership in BaFa above the level at which
CGP may reflect BaFa's operations as other than an "investment" occurred on the
last day of the fiscal year. Although BaFa has been in operation for 4 years,
overall, the Company has a limited operating history, and its prospects are
subject to the risks, expenses and difficulties frequently encountered by
companies in an evolving market, in this case industrial crops. To address
these risks, the Company must, among other things, continue to respond to
competitive developments, attract, retain and motivate qualified personnel, and
successfully market the use of industrial hemp as an alternative to timber and
petroleum based products. There can be no assurance that the Company will be
successful in addressing these risks. As of June 30, 1999, the Company had an
accumulated deficit of $2,457,117. The Company had a negative cash flow from
operations of $2,270,298 and used $206,977 of cash in investing activities,
but financing activity provided $2,422,787 of cash infusion for the Company.
As a result of the Company's limited operating history, the Company does not
have historical financial data for any significant period of time on which to
base planned operating expenses. The limited operating history of the Company
makes the prediction of future results of operations difficult. The Company's
expense levels are based in part on its expectations concerning future
revenue. The Company's operating expenses have increased significantly since
the Company's inception. This trend reflects the costs associated with
formation of the Company, development of infrastructure, and increased efforts
in the research and development and marketing of industrial hemp products. The
Company anticipates marketing expenses to increase in future periods as it
pursues an aggressive marketing campaign through a well-established pubic
relations firm and established distribution channels.
Product development costs consist primarily of the development of hemp fiber,
hemp oil products, "hemp plastics," a material the Company will market to
replace traditional plastics, and "hemp metals," a material the Company will
market to replace certain metal products.
General and Administrative expenses have consisted primarily of compensation
and fees for salaries and professional consulting services.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. These factors include the acceptance by businesses and consumers of
industrial hemp, the availability of industrial hemp, the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or
competitors, pricing changes in the industry, or general economic conditions
and economic conditions specific to industrial crops and / or non-wood fibers.
As a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing or marketing decisions or
acquisitions that could have a material adverse effect on the Company's
business, results of operations, and financial condition.
As part of the production process, the Company has established a network of
independent distributors in Canada and entered into multi-year contracts to
sell its seed to Canadian farmers. These exclusive contracts also provide for
the Company to purchase the crop at harvest time. The Company had
approximately 730 acres under contract in Canada in 1998. The 1998 Canadian
crop had a higher yield than predicted based on typical yields experienced in
Europe. The Company purchased the 1998 crop from the Growers in accordance
with the Grower contracts. The stalk portion of the 1998 crop is currently in
storage awaiting construction of a fiber processing facility. A portion of the
1998 seed crop has been sold under long term agreements. The remainder of the
1998 seed harvest (approximately 140 MT) also remains in storage pending
completion of a temporary seed processing facility which is scheduled to
commence operations in January 2000.
In 1999, 13,400 acres of industrial hemp were planted for commercial production
in Canada. This crop is growing in accordance with expectations. The Company
anticipates its second Canadian harvest to be completed in October 1999 and is
preparing plans for a Spring 2000 planting. Additionally, 4,800 acres were
planted in Canada for seed multiplication, which will be harvested by October
1999 for the spring 2000 planting season.
During October 1999, the Company anticipates commencing growing trials in
Australia.
INFLATION AND CHANGING PRICES
To date, the impacts of inflation and changing prices on the Company's
operations have been minimal.
GOING CONCERN QUALIFICATIONS
The auditors of the consolidated financial statements of the Company have
stated that the financial statements have been prepared on a going-concern
basis for the year ended June 30, 1999. That basis of accounting contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of conducting business operations. As shown in the consolidated
financial statements, operations for the year ended June 30, 1999 resulted in a
net loss of $1,912,707. The Company's future is dependent on its ability to
continue to obtain additional capital and realize a level of sales adequate to
support its operations.
CAPITAL RESOURCES AND LIQUIDITY
The need for sustained funding of the current operations drives the Company's
efforts to raise additional capital from qualified investors. The Company
expects to privately place additional common stock and / or conduct an
additional public offering of equity securities. The proceeds used from any
offering are expected to fund the Company's general working capital needs and
provide for construction of physical processing facilities. The Company has no
significant commitments for equipment purchases, product manufacturing, or
marketing efforts at present.
The Company's Canadian subsidiary, CGP Canada, Ltd., is leasing a facility
under a contract terminating in January 2001. The monthly expense is
approximately $1,375 US Dollars ($1,926 Canadian Dollars).
FINANCIAL STATEMENTS
REG. 228.310 (ITEM 310)
The selected financial data presented below has been derived from the financial
statements of the Company. The following table summarizes certain financial
information and should be read in conjunction with "Management's Discussion and
Analysis" and the Financial Statements and related notes included elsewhere in
this Registration Statement. The information below may not be indicative of
the Company's future results of operations.
JUNE 30, 1998 JUNE 30, 1999
Statement of Operations Data:
Revenue $ 1,108,297 $ 1,181,865
Operating Expenses $ 1,024,433 $ 2,843,988
Net Loss $ (544,410) $ (1,912,707)
Net Loss per Share $ (.08) $ (.09)
Balance Sheet Data:
Current Assets $ 4,034,412 $ 982,373
Total Assets $ 21,246,651 $ 1,527,508
Total Stockholders Equity $ 12,663,517 $ 1,166,101
CASH CONTRIBUTIONS
Upon organization of the Company, there was an initial $200 paid in capital.
In exchange for these funds, the company issued 6,123,000 shares to the
founders, which were dispersed as follows:
Susan M. Brana (1) 3,541,500 shares
Martin Moravcik 581,500 shares
Gero Leson 2,000,000 shares
(1) Susan M. Brana is the beneficial owner. The owner of record is GAIN
Integrated Systems, Inc.
The following is a list of cash contributions made by officers, directors,
promoters, and affiliated persons made subsequent to the organization of the
company, and made for the purpose of acquiring common equity in the company:
Shareholder Cash Contribution No. of Shares Issued
Susan M. Brana (1) $1,364,967 9,257,333
Mark Kaeller $ 295,367 1,275,000
Aries Capital Management (2) $ 250,000 100,000
(1) Susan M. Brana is the beneficial owner. The owner of record is GAIN
Integrated Systems, Inc.
(2) Aries Capital Management is affiliated with Sierra Brokerage, Inc.,
the Company's market maker.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
REG. 228.401 (ITEM 401)
Directors
Susan M. Brana; 46 years old; Chairman of the Board since July 1997
Susan Brana is an entrepreneur in technology companies. Ms. Brana also has
broad experience in securities compliance and commercial / investment banking.
Hansjorg Spoerri; 53 years old; President, CGP Europe; Director since December
1997
Hansjorg Spoerri is managing director of Papierfabrik, Netstal, Switzerland and
has morethan 25 years experience in the innovative development and production
of paper in Europe, and consequently, brings expertise and relationships in the
pulp and paper industry.
Dr. Werner Thelen; 43 years old; President, NAWARO; Director since September
1998
Dr. Werner Thelen is an accomplished, independent attorney in Cologne, Germany,
specializing in banking, finance and corporate law. Dr. Thelen has been
instrumental in the investment in and development of BaFa.
Alan Cade; 43 years old; Director since July 1998
Alan Cade is Senior Vice President of Dugan & Associates, a highly regarded
construction management company in Los Angeles, CA. Dugan & Associates will
manage the construction of all planned, state-of-the-art, integrated
straw / fiber and seed processing facilities.
Mark Kaeller; 32 years old; Chief Operating Officer; Director effective 9/99
Mark Kaeller has ten years of commercial banking management and operations
experience. Mr. Kaeller was a A.V.P. of Sanwa Bank and Wells Fargo Bank.
Executive Officers
Susan M. Brana Chairman of the Board and Secretary, CGP Inc.
Hansjorg Spoerri President, CGP Europe AG
Dr. Werner Thelen President, NAWARO GmbH
Dr. Slavik Dushenkov Executive Vice President, Research and Development,
CGP Inc.
Mark Kaeller Senior Vice President, Chief Operating Officer,
CGP Inc.
Darrell McElroy Senior Vice President, Agriculture, CGP Canada Ltd.
Dr. Slavik Dushenkov, who has been a consultant to the Company, has over 20
years of innovative research experience that includes agricultural molecular
biology, plant physiology and bioremediation. He is co-inventor on three US
patents, and has authored / co-authored numerous books and articles. Dr.
Dushenkov will direct the Company's biotechnology and breeding research and
development programs.
Darrell McElroy has over 23 years as an independent pedigree seed grower in
cereals, canola and flax. He was one of the first growers in 1998 to plant a
commercial plot of industrial hemp in Western Canada.
EXECUTIVE COMPENSATION
REG. 228.402 (ITEM 402)
Following is the amount of cash and stock compensation for executives of the
Company since inception to 6/30/99:
Dr. Slavik Dushenkov - $9,999.30; 13,000 shares of Common Stock
Dr. Werner Thelen - $22,000.00; 200,000 shares of Common Stock
Hansjorg Spoerri - 600,000 shares of Common Stock
Mark Kaeller - $40,500; 1,695,000 shares of Common Stock
Darrell McElroy - $15,333.33; 10,000 shares of Common Stock
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
REG. 228.403 (ITEM 403)
The following table sets forth the Common Stock ownership of each person known
by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, each director individually, and all officers and
directors of the Company as a group. Each person has sole voting and
investment power with respect to the shares of Common Stock shown, and all
ownership is of record and beneficial:
Title Name and address Amount and nature Percent
of class of beneficial owner of beneficial ownership of Class
Common Susan M. Brana (1) 12,953,183 36.82%
Stock 1015 Gayley Ave.
No. 387
Los Angeles, CA. 90024
Common Mark G. Kaeller 1,970,000 5.60%
Stock P.O Box 572285
Tarzana, CA. 91357
Common Meekin Holdings Ltd. 3,000,000 8.53%
Stock
Common Avoriaz Holdings Ltd. 4,000,000 11.37%
Stock
All Officers 16,633,183 47.29%
Directors as
a Group
(1) Susan M. Brana is the beneficial owner of 12,953,183 shares. The owner of
record is GAIN Integrated Systems, Inc.
Note: Shareholder records with the Company's transfer agent as of June 30, 1999
show Werner Zoellig AG with 3,000,000 shares outstanding. These shares are
to be considered returned to the Company as part of its sale of Zoellig as of
June 30, 1999, but were not cancelled on record by the transfer agent until
after June 30, 1999.
PRINCIPAL SHAREHOLDERS AND DIRECTORS
A total of 32,174,802 shares of Common Stock were issued and 32,173,802 were
outstanding as of June 30, 1999. The authorized capital stock of the Company
constitutes 50 million shares of common stock at $0.0001 par value. The
holders of Common stock are entitled to one vote per share on all matters to be
voted by the shareholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REG. 228.404 (ITEM 404)
Management has concluded an Exclusive Agreement with NTech Corporation, a
company involved in atomic and molecularly assembled substances, for the use of
hemp fiber in combination with other compounds to produce r
ecyclable / biodegradable products to compete with certain plastics and metal
products. The Company anticipates completion of formal product application
tests to occur during 1999, after which the Company will pursue the most
profitable production and marketing strategies. Susan M. Brana, Chairman of
the Board of CGP, is also the Chairman of the Board of NTech Corporation. As
of June 30, 1999, the Company had a note receivable of $24,200 due from NTech
Corporation that is unsecured, non-interest bearing and due on demand
Instruments defining the rights of Securityholders, including indentures.
Not applicable.
Voting trust agreements and amendments thereto.
Not applicable.
Company subsidiaries
All of the following companies are 100% wholly-owned subsidiaries of
Consolidated Growers and Processors, Inc.:
Consolidated Growers and Processors (CGP) Canada Limited
93 Lombard Ave., Suite 205
Winnipeg, Manitoba
R3B 3B1 Canada
CGP Canada Ltd. is incorporated in Winnipeg, Manitoba, Canada, and operates
under the name Consolidated Growers and Processors (CGP) Canada Limited.
CGP Europe AG
Industrie Strasse 1
CH 6304 Zug, Switzerland
CGP Europe AG is incorporated in Baar, Switzerland, and operates under the name
CGP Europe AG.
NAWARO GmbH
Kattenbug 18-24
50667
Cologne, Germany
NAWARO GmbH is incorporated in Cologne, Germany, and operates under the name
NAWARO GmbH.
The following company is owned 75% by NAWARO GmbH:
Badische Naturfaseraufbereitung (BaFa)
Stephanstrasse 2
76316 Malsch Germany
Badische Naturfaseraufbereitung is incorporated in Malsch, Germany, and
operates under the name BaFa.
Contacts
Transfer Agent
Interwest Transfer Company, Inc.
Lorraine Brighton-Smith
P.O. Box 17136
1981 E. 4800 S.
Suite 100
Salt Lake City, CA. 84117-5126
(801) 272-9294 Tel.
(801) 277-3147 Fax
Market Maker
Sierra Brokerage
Merv Roland or Jeff Richardson
2000 Bethel Rd.
Columbus, OH. 43220
(614) 442-9400 Tel.
(614) 442-9486 Fax
Certified Public Accountant
Kevin G. Breard
9010 Corbin Ave.
Suite 7
Northridge, CA. 91324
(818) 886-0940 Tel.
(818) 886-1924 Fax
RECENT SALES OF UNREGISTERED SECURITIES
Upon organization, the management of the Company created incentive stock
options covering a total of 1,000,000 shares and exercisable at $.01 per
share. These options were granted to either new or existing officers or
directors at any time through the fiscal year ending June 30, 1998. In
November 1997, all 1,000,000 of these options were exercised at $.01 per share;
thus, the Company received $10,000 for the exercising of these options.
In July 1997 (pursuant to Reg. 504 of the Securities Act of 1933), the Company
sold 195,000 "units," whereby each unit consisted of one share of Common Stock
and two warrants. Each unit was sold at $.10 per unit. Each warrant was
exercisable by the holder thereof to purchase one common share of the Company
at an exercise price of $2.50 per share. The warrants were immediately
detachable from the common shares for separate transfer and were exercisable
from the date of the offering circular (July 1, 1997) for a period of twelve
months thereafter. At the discretion of the board of directors of the Company,
and on thirty days prior written notice to warrant holders, the exercise period
of the warrants could be extended, or the exercise price of the warrants could
be reduced. At any time during the exercise period of the warrants, or any
extension thereof, the Company could, on thirty days prior written notice, call
the warrants for redemption at a price of $.0001 per warrant. The warrants
would expire and become void on conclusion of their exercise period or any
extension thereof, if applicable. Of the original 390,000 warrants issued,
286,743 warrants were exercised (total $716,857.50).
Since inception to present, the Company has issued "restricted" shares of
Common Stock to various parties. The following is a list of the amount of
"restricted" shares issued for cash to 6/30/99, the price in which they were
issued at, and the consideration received:
Number of "restricted" shares sold Price per share Consideration received
600,000 $ .08 $ 50,000
4,605,000 $ .10 $ 95,000
1,300,000 $ .12 $161,831
819,000 $ .14 $114,660
1,725,000 $ .20 $345,000
3,500,000 $ .24 $850,000
1,000,000 $ .31 $310,000
275,000 $ .50 $137,500
55,000 $ 1.00 $ 55,000
62,700 $ 2.00 $125,400
With respect to these shares of Common Stock issued by the Company, the Company
believes that these transactions did not involve any public offering, in as
much as all these shares were issued to the Company's Officers, Directors and
others, who purchased the shares for investment purposes only and not with a
view to further public distribution. Further, no commissions were paid to any
persons in connection with such sales, no advertising of any nature was made in
connection with the sale of said shares, all Company information was made
available to said purchasers, and said purchasers were required to execute a
subscription agreement restating the aforementioned, among other things.
Accordingly, the Company believes that the aforementioned transactions were
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended.
Since inception to 6/30/99, the Company has issued 12,466 "restricted" shares
of Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $2.50 per share (total consideration $31,165). Since
inception to 6/30/99, the Company has issued 10,000 "restricted" shares of
Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $2.00 per share (total consideration $20,000). Since
inception to 6/30/99, the Company has issued 1,100 "restricted" shares of
Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $1.00 per share (total consideration $1,100). Since
inception to 6/30/99, the Company has issued 2,556,500 "restricted" shares of
Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $.05 per share (total consideration $127,825). Since
inception to 6/30/99, the Company has issued 121,600 "restricted" shares of
Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $.01 per share (total consideration $1,216). Since
inception to 6/30/99, the Company has issued 6,838,000 "restricted" shares of
Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $.0001 per share (total consideration $683.80).
Since inception to 6/30/99, the Company has issued 41,293 "restricted" shares
of Common Stock to various growers for the purchase of their harvest, at a Fair
Market Value of $1.00 per share (total consideration $41,293).
In November 1997, the Company entered into an agreement with Minus 9, Inc., a
Nevada Corporation which developed a coded microparticle product known as
StuffDust. This agreement gives the worldwide license in regard to this
product to the Company, which allows for the use of the particle in the
manufacture of various paper products. As payment for this license, the
Company issued 125,000 "restricted" shares of common stock. These shares were
issued at a Fair Market Value of $.05 per share (total consideration $6,250).
See notes to Consolidated Financial Statements for more specifics.
In May 1998, the Company entered into an agreement to acquire 100% of the net
assets of Werner Zoellig AG and Glulam Lumber Mfg. For 3,000,000 shares of
Common Stock. The stock was valued at $4.00 per share. See the notes to
Consolidated Financial Statements for more specifics. The Company has since
sold this subsidiary to focus on their core business, i.e., industrial hemp
cultivation and processing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
REG. 228.702 (ITEM 702)
The Company's Certificate of Incorporation states the following:
"No director of the corporation shall have personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty or
loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware Corporation Law, or (d) for any
transaction from which the director derived an improper personal benefit."
The Company's BY-LAWS, Section 7.4, Indemnity, states the following:
"The corporation shall indemnify its directors, officers and employees to the
fullest extent allowed by law, provided, however, that it shall be within the
discretion of the Board of Directors whether to advance any funds in advance of
disposition of any action, suit or proceeding, and provided further that
nothing in this section 7.4 shall be deemed to obviate the necessity of the
Board of Directors to make any determination that indemnification of the
director, officer or employee is proper under the circumstances because he has
met the applicable standard of conduct set forth in subsections (a) and (b) of
Section 145 of the Delaware General Corporation Law."
At the present time, the Company is in the process of obtaining D & O
(Directors and Officers) insurance.
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Financial Statements
June 30, 1999
(Audited)
KEVIN G. BREARD, C.P.A.
AN ACCOUNTANCY CORPORATION
To the Board of Directors
Consolidated Growers & Processors, Incorporated
Monterey, California
Independent Auditor's Report
I have audited the accompanying consolidated balance sheet of Consolidated
Growers & Processors, Incorporated and Subsidiaries as of June 30, 1999 and
the related consolidated statements of operations and retained earnings, and
changes in cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. 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. I believe that my audit provides a reasonable basis
for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consolidated
Growers & Processors, Incorporated and Subsidiaries as of June 30, 1999, and
the results of its operations and its cash flows for the year then ended 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 discussed in Note 1 to the
consolidated financial statements, the Company's operations to date have
resulted in a substantial net loss of $1,912,707 during the year ended
June 30, 1999. The sole reason for the positive equity balance is the
continuing effort of company personnel to sell common stock. There is no
certainty they will be able to continue to do so, however management plans to
rely on product sales to sustain operations. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Kevin G. Breard, CPA
Kevin G. Breard, CPA
Northridge, California
September 25, 1999
NORTHRIDGE OFFICE PLAZA,
9010 CORBIN AVENUE, SUITE 7
NORTHRIDGE, CALIFORNIA 91324
(818) 886-0940 FAX (818) 886-1924
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Balance Sheet
June 30, 1999
Assets
Current assets
Cash and cash equivalents $ 88,683
Accounts receivable, net 731,351
Inventories 156,583
Prepaid expenses and other current assets 5,756
Total current assets 982,373
Other assets
Property, plant and equipment, net 167,414
Note receivable related party 24,200
Investments 353,521
Total other assets 545,135
Total assets $ 1,527,508
Liabilities & Stockholders' Equity
Current liabilities
Accounts payable $ 259,504
Current portion of long term debt 25,476
Total current liabilities 284,980
Long-term liabilities
Note payable, net of current portion 76,427
Total long-term liabilities 76,427
Total liabilities 361,407
Stockholders' equity
Common stock, $0.0001 par value,
50,000,000 shares authorized,
32,174,802 shares issued,
32,173,802 outstanding 3,217
Common stock to be issued 35,778
Additional paid-in capital 3,632,349
Accumulated deficit during the development stage (2,457,117)
Accumulated other comprehensive income (44,926)
Treasury stock, at cost, 1,000 shares (3,200)
Total stockholders' equity 1,166,101
Total liabilities & stockholders' equity $ 1,527,508
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Operations
For the Year Ended June 30, 1999
Revenue
Hemp seeds, grains and by-products $ 1,181,865
Total revenue 1,181,865
Costs and expenses
Costs of hemp seeds, grains, and transportation 790,830
General and administrative expenses 1,894,168
Research and development 158,990
Total costs and expenses 2,843,988
Net ordinary income (1,662,123)
Other income and expenses
Other income $ 14,277
Other expenses (55,944)
Total other income and expenses (41,667)
Income (loss) before provision for taxes (1,703,790)
Provision for income taxes -
Income (loss) from continuing operations (1,703,790)
Discontinued operations:
Income from operations of Werner Zoellig AG
& Glulam Lumber Mfg. 205,457
Loss on disposal of Werner Zoellig AG
& Glulam Lumber Mfg., net of tax (414,374)
Income loss from discontinued operations (208,917)
Net income (loss) $(1,912,707)
Income (loss) from continuing
operations per share $ (0.08)
Net income (loss) per share $ (0.09)
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
For the Year Ended June 30, 1999
Cash flows from operating activities
Net income (loss) $ (1,912,707)
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation $ 36,205
Foreign currency translation (35,452)
Issuance of common stock for
goods and services 922
Issuance of additional paid-in
capital for goods and services 104,737
Income from Zoellig operations (255,457)
Loss on sale of investment in Zoellig 414,374
(Increase) decrease in:
Accounts receivable (731,351)
Inventory (68,920)
Prepaid expenses and other
current assets (4,898)
Other assets 25,400
(Decrease) increase in:
Accounts payable 156,849
Total adjustments (357,591)
Net cash used by operating activities (2,270,298)
Cash flow from investing activities
Purchase of investment in BaFa (183,832)
Purchase of property and equipment (28,150)
Additional investment in Zoellig 5,005
Net cash used in investing activities (206,977)
Net cash flows from financing activities
Net (increase) loans to related parties (24,200)
Net increase in short term debt 25,476
Net increase in long term debt 76,427
Proceeds from issuance of common stock 1,157
Proceeds from additional
paid-in capital 2,311,349
Proceeds from common stock
to be issued 35,778
Purchase treasury stock (3,200)
Net cash provided by financing activities 2,422,787
Net decrease in cash and cash equivalents (54,488)
Cash and cash equivalents
at the beginning of the year 143,171
Cash and cash equivalents at the end of the year $ 88,683
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
For the Year Ended June 30, 1999
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ -0-
Income taxes $ -0-
Noncash investing and financing transactions
Issuance of common stock for $105,659 in goods and outside services
Common stock $ 922
Additional paid-in capital 104,737
Total $ 105,659
The Company sold back the acquired assets and liabilities of Werner Zoellig AG
and Glulam Lumber Mfg. ("Zoellig"). This was a noncash transaction. The stock
given in exchange for the net asset and liabilities was returned to the Company
and canceled. The stock given in the initial purchase was worth $12,000,000,
the value of Zoellig. When the Company disposed of Zoellig on December 31,
1998, the book value of the Company was $12,414,374. The book value of Zoellig
appreciated $414,374, but when the Company disposed of Zoellig, no
consideration was received for the increased value. Accordingly, a noncash
loss of $414,374 was recorded in the Statement of Operations.
The accompanying notes are an integral part of these financial statements
<TABLE>
<CAPTION>
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Changes in Stockholder's Equity
For the Year Ended June 30, 1999
</CAPTION>
Accumulated
Common Common Additional Other Stock
Stock Stock Paid-in Compehensive To Be Accumulated Treasury
Shares Amount Capital Income Issued Deficit Stock Totals
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances
as of
June 30, 1998 14,527,251 $ 1,138 $ 845,885 $ (9,474) $12,370,378 $ (544,410) $- $ 12,663,517
Reclassification
of stock to be
issued at
June 30, 1998 - 315 12,370,063 - (12,370,378) - - -
Sale of subsidiary
(Zoellig) back to
stockholders (3,000,000) (300) (11,999,700) - - - - (12,000,000)
Issuance of stock
for services 9,224,459 922 104,737 - - - - 105,659
Issuance of stoc 11,423,092 1,142 2,311,364 - - - - 2,312,506
Foreign currency
translation adjustment - - - (35,452) - - - (35,452)
Stock subscribed,
stock to be issued - - - - 35,778 - - 35,778
Treasury Stock (1,000) - - - - - (3,200) (3,200)
Net income (loss) - - - - - (1,912,707) - (1,912,707)
Balances as of
June 30, 1999 32,173,802 $ 3,217 $ 3,632,349 $(44,926) $ 35,778 $(2,457,117) $(3,200) $ 1,166,101
The accompanying notes are an integral part of these financial statements
</TABLE>
Consolidated Growers & Processors, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
For the Year Ended June 30, 1999
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
General
Consolidated Growers & Processors, Incorporated was incorporated under the laws
of the State of Delaware on June 10, 1997 for the primary purpose of providing
financing, technical and marketing expertise to the farming, processing and
marketing of products from industrial hemp and other industrial crops. The
Company in the prior period was in the development stage, but has commenced
operating activities as of July 1, 1998. The accompanying consolidated
financial statements include the accounts of Consolidated Growers & Processors,
Incorporated (the Parent) and its wholly owned Subsidiaries Consolidated
Growers & Processors, Canada Ltd. (CGP Canada), NAWARO Beteiligungsgesellschaft
mbH (NAWARO), and its 98% owned subsidiary Consolidated Growers & Processors,
Europe (CGP Europe) (collectively, the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Summary of Significant Accounting Policies
The presentation 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Parent and the Subsidiaries have allowed borrowing and lending on an
interest free basis.
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and equipment are recorded at cost. Depreciation of property and
equipment is recorded on the straight-line method over the respective useful
lives of the assets.
Inventory is valued at the lower of cost or market. Inventory will be recorded
on a first-in first-out basis.
Research and development expenditures are expensed as incurred.
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of the foreign subsidiaries
are translated into U.S. dollars at year-end exchange rates. Income and
expense items are translated at the average rates of exchange prevailing during
the year. The adjustments resulting from translating the financial statements
of the foreign subsidiary are reflected in stockholders' equity.
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS on the face of all statements of operations issued
after December 15, 1997 for all entities with complex capital structures.
Adoption of SFAS No. 128 had no effect on the Company's financial statements.
Basic EPS is computed as net income (loss) divided by the weighted averaged
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares that may be issued
through stock options, warrants, and other
convertible securities.
Loss per share is computed using the weighted average number of common shares
outstanding (22,429,496) at that date. The computation of loss per share does
not include common stock equivalents because the Company does not carry these
instruments.
NOTE 2: ACCOUNTS RECEIVABLE, NET
The accounts receivable are trade contracts with growers for the production of
industrial hemp. The Company will receive the receivable balance over two
installment periods: November 30, 1999 and January 31, 2000. No material
amounts were provided for an allowance for doubtful accounts at June 30, 1999.
NOTE 3: INVENTORIES
Inventories consist of:
Grain $ 134,947
Planting seed 11,061
Straw bales 10,575
Total $ 156,583
NOTE 4: INVESTMENT
The Company purchased 15% ownership interest in Badische Naturfaseraufbereitung
GmbH ("BaFa") for $169,689 for the year ended June 30, 1998. On June 30, 1999,
the Company purchased another 60% of BaFa for $183,832. At June 30, 1999 the
Company owns 75% of BaFa, carried at cost for $353,521. The primary reason for
the investment in BaFa is that BaFa has represented to the Company that it
possesses the required skills to operate as a mechanical processing facility
for industrial hemp crops. BaFa then would provide industrial hemp fiber to
the Company, as ordered, at the prevailing fair market wholesale prices.
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Depreciable
Lives
Machinery & equipment $ 198,557 5 years
Furniture & fixtures 5,513 7 years
Total property, plant and equipment 204,070
Accumulated depreciation (36,656)
Total property, plant and
equipment, net $ 167,414
Depreciation expense for the year ended June 30, 1999 was $36,205.
NOTE 6: NOTE RECEIVABLE-RELATED PARTY
The note is unsecured, non-interest bearing, and due on demand. The related
party is NTech Corporation. A majority shareholder in the Company is also a
majority shareholder in NTech.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Effective on October 1, 1997, the Company signed an agreement with the
Ukrainian Academy of Agricultural Sciences/Institute of Bast Crops (the
"Institute") whereby the Institute exclusively licensed to the Company certain
industrial hemp registered seed varieties, which were bred by the Institute.
Under the terms of this agreement, the Institute will provide seed production
services for the Company on an exclusive basis for certain specified seed
varieties in the following geographic territories: North America, Central
America, South America, Africa, Australia, New Zealand and Asia (excluding the
countries of the former Soviet Union).
The Company is committed to pay a royalty of 5% of the gross sales price
(excluding the costs of packaging, insurance, taxes, duties, transportation or
other non-production expenses) of these seed varieties to the Institute.
This agreement will continue in effect until canceled by either party upon
providing three years notice to the other party.
On November 15, 1997, the Company entered into an agreement with Minus 9 Inc.,
a Nevada Corporation, which had developed a coded micro particle product known
as Stuff Dust. This agreement gives the worldwide license in regard to this
product to the Company, which allows the use of the particle in the manufacture
of various paper products.
As payment for this license, the Company issued 125,000 shares of common stock
in 1997, and is committed to pay Minus 9 Inc. royalties on net revenues derived
from the sales of this product. Royalties range from 4% of net revenues to
7.5%, depending upon such factors as user application and volume of sales.
Regardless of net revenues derived from the sale of particle products, the
Company is committed to pay the following annual minimum advance royalties:
Year Amount
1999 $ -0-
2000 100,000
2001 100,000
2002 and thereafter 100,000
Minimum advance royalty payments will be credited against royalties due based
upon actual sales.
This license agreement will terminate upon the expiration of the last-to-expire
patent relating to the licensed product.
NOTE 8: RELATED PARTY TRANSACTIONS
Related party transactions are summarized as follows:
1) 8,474,000 shares of common stock was issued to the chairman of the board for
$1,309,169. The value of the shares ranged from $0.10 to $0.249671.
2) 1,625,000 shares of common stock was issued to the chief financial officer
for $252,231. The value of the shares ranged from $0.0001 to $0.249671.
NOTE 9: INCOME TAXES
No provision for income taxes have been provided. The Company incurred a loss
for the year. The Company has elected to carry forward the loss to offset
future taxable income. The Company conservatively have not valued the tax
benefit as the amount and date of realization is uncertain.
NOTE 10: DISPOSITION
On May 31, 1998, the Company purchased the net assets of Werner Zoellig AG. &
Glulam Lumber Mfg. The purchase was accomplished via issuing 3,000,000 shares
of stock at $4.00 per share.
On December 31, 1998, after seven (7) months, the Company decided to sell the
subsidiary back to it's prior shareholder. The Company took back the issued
shares of stock, and the ownership reverted back to it's prior ownership.
This transaction qualifies as a disposal of a business segment. This
subsidiary had a separate product line of glue laminated wooden beams.
NOTE 11: SEGMENT INFORMATION
Industry Segment Data
The Company will have one business segment: industrial hemp fiber, seeds, oil,
and by-products. No revenues have been received from imports. The Canadian
sales are exclusively within Canada.
Consolidated Growers & Processors, Incorporated (the Parent) employs two (2)
people, Consolidated Growers & Processors, Canada Ltd. employs five (5) people,
Consolidated Growers & Processors, Europe employs one (1)
person and NAWARO Beteiligungsgesellschaft mbH employs one (1) person.
Geographic Area Data
June 30, 1999 Adjustments
United and
Revenues States Canada Europe Eliminations Consolidated
Unaffiliated
customers $ -0- $1,181,865 $ -0- $ - $ 1,181,865
Transfers
between
geographic
areas - - - - -
Total
revenues -0- 1,181,865 -0- - 1,181,865
Earnings
before
income
taxes (1,865,877) 5,788 (52,618) - (1,912,707)
Identifiable
assets 1,464,743 938,682 498,304 (1,374,221) 1,527,508
Net
assets 1,342,905 (64,870) (66,863) (45,071) 1,166,101
SUSAN M. BRANA
CHAIRMAN OF THE BOARD OF DIRECTORS
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