As filed with the Securities and Exchange Commission on February , 1999
Registration No. 333-51977
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
AMENDMENT NO. 2
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------------
AGRI BIO-SCIENCES, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant specified in charter)
Delaware 6159 76-0481583
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(State of (Primary Industrial (I.R.S. Employer
Incorporation) Classification) I.D.#)
AGRI BIO-SCIENCES, INC.
7806 OXFORDSHIRE DRIVE
SPRING, TEXAS 77379
TEL: (281) 320-7541
FAX: (281) 251-2643
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(Address, including zip code of principal place of
business and telephone number, including area code of
Registrant's principal executive offices.)
LESTER H. STEPHENS, PRESIDENT
AGRI BIO-SCIENCES, INC.
7806 OXFORDSHIRE DRIVE
SPRING, TEXAS 77379
TEL: (281) 320-7541
FAX: (281) 251-2643
(Name and address of Agent for Service)
Approximate date of commencement date or proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ ].
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate Amount of
registered registered price per share offering price registration fee
<S> <C> <C> <C> <C>
Common Stock 100,000 $.00646(1) $646.00 $ .20(2)
($.001 par value
per share)
</TABLE>
(1) Based upon book value solely for purposes of calculating the
registration fee pursuant to Rule 457(f)(2).
(2) This fee has previously been paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED FEBRUARY , 1999
AGRI BIO-SCIENCES, INC.
COMMON STOCK PAR VALUE $.001 PER SHARE
This Prospectus covers 100,000 shares of common stock, par value $.001
per share ("Common Stock"), of Agri Bio-Sciences, Inc., a Delaware corporation
(the "Company"). This Prospectus is being furnished to the stockholders of GS
Financial Services, Inc., a Delaware corporation ("GS Financial"), in connection
with the distribution (the "Distribution") to GS Financial's stockholders of the
100,000 shares of Common Stock covered by this Prospectus, pursuant to the terms
of a Consulting and Distribution Agreement dated as of March 12, 1998 by and
between GS Financial and the Company (the "Distribution Agreement").
One share of Common Stock will be distributed for each 9/10th of a
share of common stock of GS Financial, par value $.001 per share (the "GS
Financial Common Stock"), issued and outstanding on the date established by the
Board of Directors of GS Financial for determining stockholders of record
entitled to receive Common Stock in the Distribution (the "Record Date").
No consideration will be paid by GS Financial's stockholders for the
shares of Common Stock to be received by them in the Distribution. There is
currently no public trading market for the shares of Common Stock and there can
be no assurance that such a market will develop after completion of the
Distribution. The Company intends to apply to a member of the National
Association of Securities Dealers, Inc. to make a market in the Common Stock and
provide a quotation on the NASD inter-dealer Electronic Bulletin Board under the
trading symbol "AGBI."
STOCKHOLDERS OF GS FINANCIAL SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE _____ HEREOF WITH RESPECT TO
THE SECURITIES BEING OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY
-----------------------------------------------------------------------
<S> <C> <C> <C>
Per share... $.00646(1) $ -0- $ -0-(2)
-----------------------------------------------------------------------
Total... $646.66(1) $ -0- $ -0-(2)
-----------------------------------------------------------------------
</TABLE>
(1) Based upon the book value of the Company as of December 31, 1997.
(2) The shares are owned by GS Financial Services, Inc. ("GS Financial")
and are being distributed pro rata to the shareholders of GS Financial
as a dividend. See "THE DISTRIBUTION." No consideration will be
received by the Company from the GS Financial shareholders who receive
stock in the Distribution. The expenses of the Distribution are
estimated to be $33,000 and will be paid by the Company in their
entirety.
The date of this Prospectus is ___________________ _____, 1999.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock described in this Prospectus. This
Prospectus, which is a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement or the exhibits and
schedules thereto, certain portions having been omitted pursuant to the rules
and regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract or other document are not necessarily complete with
respect to each such contract or other document filed with the Commission as an
exhibit to the Registration Statement. Reference is made to such exhibits for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected and copied (at prescribed rates) at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Such Registration Statement and the
exhibits and schedules thereto have been filed electronically with the
Commission and can be reviewed through the Commission's web site that contains
reports, proxy and information statements and other information of registrants
that file electronically with the Commission. The address of the web site is
http://www.sec.gov.
In connection with the Distribution covered by this Prospectus, the
Company is registering as a reporting company under the Securities Exchange Act
of 1934 (the "Exchange Act"). As a consequence, the Company will file with the
Commission Annual Reports on Form 10-KSB, which will contain audited financial
statements. After they are filed, these Annual Reports and audited financial
statements can be inspected at, and copies downloaded from, the Commission's
World Wide Web site at the Internet address stated in the previous paragraph.
These Annual Reports and audited financial statements can also be inspected, and
copies thereof may be obtained at prescribed rates, at the office of the
Commission at the address also stated in the previous paragraph.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY AGRI OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES MADE UNDER THIS PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION ...........................................................................................4
PROSPECTUS SUMMARY ..............................................................................................6
RISK FACTORS ....................................................................................................8
USE OF PROCEEDS ................................................................................................13
THE DISTRIBUTION ...............................................................................................13
CERTAIN FEDERAL INCOME TAX CONSEQUENCES .......................................................................15
BUSINESS .......................................................................................................18
PLAN OF OPERATION ..............................................................................................23
DIVIDEND POLICY ................................................................................................24
MANAGEMENT OF THE COMPANY ......................................................................................24
CERTAIN TRANSACTIONS ...........................................................................................28
PRINCIPAL STOCKHOLDERS .........................................................................................29
DESCRIPTION OF CAPITAL STOCK ...................................................................................30
SHARES ELIGIBLE FOR FUTURE SALE ................................................................................35
LEGAL MATTERS ..................................................................................................36
EXPERTS ........................................................................................................36
INDEX TO FINANCIAL STATEMENTS .................................................................................F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere
in this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in this Prospectus.
Prospective shareholders are urged to read carefully this Prospectus in its
entirety.
Company Agri Bio-Sciences, Inc., formerly known as Agri Environmental Sciences,
Inc.(the "Company"), was formed on May 30, 1995 as a Texas corporation.
On December 22, 1997, the Company was reincorporated as a Delaware
corporation by means of a migratory merger. The Company produces a
fertilizer known as "Micro Min." Micro Min is produced by blending
micronutrients (such as zinc, manganese, iron, copper, cobalt,
molybdenum and boron) with montmorillonite (an agricultural clay) so
as to electrochemically bond the micronutrients to the montmorillonite
to produce a blended fertilizer. The resulting fertilizer allows the
bond between the micronutrients and the montmorillonite to be dissolved
during a time when the micronutrients are most required by plants. As
a blended fertilizer comprised completely of micronutrients and an
inert material, Micro Min is believed to be unique to the world market.
See "BUSINESS." The Company has entered into a exclusive sale and
purchase agreement with Global Farm Sciences, Inc., a corporation
affiliated with the Company ("Global"), to market Micro Min in certain
geographical areas of the world. See "BUSINESS - SALES AND MARKETING."
Global's initial target market for Micro Min will be the country of
Mexico. Secondary target markets are expect to include Central
and South America and the Middle East. See "BUSINESS - SALES AND
MARKETING." The business office of the Company is 7806 Oxfordshire
Drive, Spring, Texas 77379. Its telephone number is 281.320.7541 and
its fax number is 281.320.9026
Distri- GS Financial Services, Inc., a Delaware corporation.
buting
Company
Primary To enable the Company to become a publicly traded corporation and
Purposes realize the benefits resulting therefrom.
of
Distri-
ution
Securi- 100,000 shares of the Common Stock, par value $.001 per share
ies
to be
Distri-
uted
Distri- Each stockholder of GS Financial will receive one share of Common
ution Stock for each 9/10ths of share of GS Financial Common Stock owned on
Ratio the Record Date.
Fract- Fractional shares will not be issued. Any share of Common Stock to
ional be distributed otherwise constituting a fractional share will be
Shares rounded up to one whole share of Common Stock.
Record Close of business on ____________________ _____, 1999.
Date
Deli- Certificates representing the shares of Common Stock to which GS
very Financial stockholders are entitled are being delivered to GS Financial
of stockholders simultaneously with this Prospectus.
Certi-
ficates
Tax The Distribution is not being structured on a basis tax-free to GS
Conse- Financial stockholders, and management believes that the Distribution
quences could not be structured on such a basis. Management believes that shares
of Common Stock comprising the Distribution and received by GS
Financial's stockholders will be taxable to such stockholders upon
receipt in accordance with tax law governing dividends and returns
of capital. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
4
<PAGE>
Trad- There is no current public trading market for the shares of Common
ing Stock. Subject to the market sponsorship of a market maker, shares of
Common Stock will be traded in the over-the-counter market on the
OTC Electronic Bulletin Board.
Trans- The transfer agent and registrar for the Common Stock is Atlas Stock
Agent Transfer Corporation, with offices at 5899 South State Street, Salt Lake
& Regi- City, Utah 84107.
strar
Divid- The payment and amount of cash dividends on the Common Stock after the
end Distribution will be at the discretion of the Company's Board of
Policy Directors. The Company has not heretofore paid any dividends, and the
Company does not currently anticipate paying any dividends on its
Common Stock. The Company's dividend policy will be reviewed by the
Company's Board of Directors at such future times as may be
appropriate, and payment of dividends will depend upon the Company's
financial position, capital requirements and such other factors as the
Company's Board of Directors believes relevant.
Use of The Company will not receive any proceeds from the Common Stock
Proc- comprising the Distribution.
ceeds
Risk Stockholders should carefully consider the matters discussed under the
Factors section entitled "RISK FACTORS" in this Prospectus. The Company has
onlya limited operating history and is subject to all of the inherent
risks of a developing business enterprise. The Company has no constant
and continual flow of revenues.
5
<PAGE>
RISK FACTORS
This Prospectus contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995 (the "Litigation Reform Act"). These forward-looking
statements reflect the Company's views with respect to future events and
financial performance. Section 27A(b)(2)(D) of the Securities Act and Section
21E(b)(2)(D) of the Exchange Act, as promulgated by the Litigation Reform Act,
expressly state that the safe harbor for forward-looking statements does not
apply to statements made in connection with an initial public offering.
When used in this Prospectus with respect to the Company the words
"estimate," "project," "intend," "expect," "believe," "anticipate," "plan," and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including, but not limited to,
changes in political and economic conditions, regulatory conditions, integration
of acquisitions and competitive pricing pressures, all as detailed from time to
time in the filings of the Company and GS Financial made with the Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. Such risks and uncertainties
include those risks, uncertainties and risk factors identified in this
Prospectus under the headings "RISK FACTORS," "THE DISTRIBUTION," "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES," and "BUSINESS." The Company does not undertake
any obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company
before making any investment decisions with respect to the Common Stock to be
received in the Distribution. To the extent it relates to the Mexican government
or Mexican macroeconomic data, the following information has been extracted from
official publications of the Mexican government and has not been independently
verified.
LACK OF OPERATIONS; HISTORY OF LOSSES; WORKING CAPITAL DEFICIT; ANTICIPATION OF
NEGATIVE CASH FLOW; NO ASSURANCE OF FUTURE PROFITABILITY.
The Company is engaged in research and development and has not
commenced commercial production. For the fiscal year ended December 31, 1997 the
Company incurred a net loss of $199,266 As of December 31, 1997, the Company had
an accumulated deficit of $378,832 and a working capital deficit of $18,118. The
Company anticipates having a negative cash flow from operating activities in
future quarters and years. The Company expects to incur further operating losses
in future quarters and years and until such time, if ever, as there is a
substantial increase in orders for the Company's product and product sales
generate sufficient revenue to fund its continuing operations. There can be no
assurance that sales of the Company's product will ever generate significant
revenue, that the Company will ever generate positive cash flow from its
operations or that the Company will attain or thereafter sustain profitability
in any future period. See "BUSINESS - SALES AND MARKETING."
CAPITAL REQUIREMENTS
The Company does not expect to have large capital requirements that it
will not be able to meet from cash flow from operations. The Company has only
minimal overhead, which has thus far been financed through amounts advanced by a
director of the Company. To address the variable costs associated with
production, management intends to require down payments on purchase orders in
amounts equal to 50% of the purchase prices of the purchase orders. Such down
payments are expected to cover all direct costs of producing the related
product. As a result of the preceding facts and arrangements, the Company does
not believe that it will need any financing over the next 12 months or in the
foreseeable future. Nevertheless, while the director who has financed the
Company's overhead has indicated that he intends to continue to do so, he is
under no legal obligation to do so and may cease at any time. Moreover, there
can be no assurance that the Company will be successful in requiring 50% down
payments on purchase orders. Without continued advances for overhead and 50%
down payments on purchase orders, the Company would be required to seek
alternative sources of financing, and there can be no assurance that the Company
would be successful in obtaining alternative sources of financing on acceptable
terms or at all for that matter.
6
<PAGE>
MEXICAN GOVERNMENTAL, POLITICAL, ECONOMIC AND SOCIAL FACTORS
The Company's initial sales efforts will take place in Mexico, and
approximately 90% of its revenues in 1999 are expected to result from sales
generated within Mexico. Accordingly, the economic environment within Mexico,
which is significantly affected by actions taken by the Mexican government, can
be expected to have a significant impact on the Company's business, financial
condition and results of operations.
Beginning in December 1994, Mexico experienced an economic crisis
characterized by exchange rate instability, high inflation, high domestic
interest rates, negative economic growth and reduced consumer purchasing power.
The Noon Buying Rate rose from Ps. 3.4662 per U.S. $1.00 on December 19, 1994 to
Ps. 5.000 per U.S. $1.00 on December 31, 1994, Ps. 7.7400 per U.S. $1.00 on
December 31, 1995, Ps. 7.8810 per U.S. $1.00 on December 31, 1996 and Ps. 7.8870
per U.S. $1.00 on July 15, 1997. See "RISK FACTORS - Peso Devaluation; Exchange
Controls." Mexican Gross Domestic Product declined by 6.2% in 1995, grew by 5.1%
during 1996 and grew at an annualized rate of 5.1% in the first quarter of 1997.
The annual rate of inflation, as measured by changes in the Mexican National
Consumer Price Index (Indice Nacional de Precios al Consumidor or the "INPC"),
was 52.0% and 27.7% in 1995 and 1996, respectively, after having been only 7.1%
in 1994. For the first quarter of 1997, the non-annualized inflation rate was
5.9%. Concerns over the Mexican economy also led to sharply higher interest
rates in 1995 and 1996, both domestically and externally, on Mexican public and
private sector debt and to sharply reduced opportunities for refinancing or
refunding maturing debt issues (including the Company's indebtedness). Mexican
interest rates, which had reached a low of 8.8% per annum for 28-day Cetes
(Mexican treasury bills) in February 1994, rose through most of 1994 and
increased substantially in 1995, when interest rates on 28-day Cetes averaged
48.3%. Interest rates on 28-day Cetes averaged 31.3% in 1996. On September 30,
1997, the interest rate on 28-day Cetes was 16.65%. In response to the economic
situation, the Mexican government entered into an international economic
recovery package and announced a series of measures which initially limited and
may in the future limit the growth of the Mexican economy.
These economic conditions substantially reduced the purchasing power of
the Mexican population and, as a consequence, may have a material adverse effect
on the Company's financial condition and results of operations. While the
Mexican economy has begun to recover, complete recovery has not yet been
achieved and may not result, in a significant improvement in consumer purchasing
power, which may adversely affect the Company. There can be no assurance that
the economic recovery will continue or that the economy will return to the
growth levels existing prior to the crisis. There is a risk that any political,
economic or social responses to the economic situation, over which the Company
has no control (and which could include, among other things, social unrest and
labor disruptions), may impair the Company's business, financial condition and
results of operations and adversely affect the Company's ability to access
credit, refinance its existing indebtedness and finance its growth.
On July 6, 1997, Mexico held elections for, among other offices, all
members of the Mexican Chamber of Deputies, 32 members of the Mexican Chamber of
Senators and the mayor of Mexico City. As a result of these elections, for the
first time in seven decades, the Partido Revolucionario Institucional will not
hold a majority of the seats in the Mexican Chamber of Deputies or the office of
mayor of Mexico City. Management cannot predict the impact these elections will
have on Mexican economic, regulatory and social policy or the consequences
thereof on the business, financial condition and results of operations of the
Company.
7
<PAGE>
PESO DEVALUATION; EXCHANGE CONTROLS
While the Company's sales are expected to be almost entirely
denominated in Pesos, the vast majority of its obligations are denominated in
U.S. dollars, and the Company is therefore exposed to Peso devaluation risk. The
Peso has been subject to substantial devaluation against the U.S. dollar in the
past, particularly since December 1994, and may be subject to further
significant devaluation in the future. The Company does not currently have in
place and does not intend to enter into hedging transactions with respect to
this risk. Therefore, further declines in the value of the Peso relative to the
U.S. dollar could adversely affect the Company's ability to meet its U.S.
dollar-denominated obligations and finance its growth.
The Mexican economy has experienced balance of payment deficits and
shortages in foreign exchange reserves. While the Mexican government does not
currently restrict the ability of Mexican or foreign persons or entities to
convert Pesos to foreign currencies generally, and U.S. dollars in particular,
it has done so in the past and no assurance can be given that the Mexican
government will not institute a restrictive exchange control policy in the
future. Any such restrictive exchange control policy could prevent or restrict
the Company's access to U.S. dollars to meet its U.S. dollar obligations and
could also have a material adverse effect on the Company's business, financial
condition and results of operations. The impact of any such measures adopted by
the Mexican government on the Mexican economy cannot be accurately predicted.
UNCERTAINTY OF PRODUCT ACCEPTANCE; LIMITED NUMBER OF PRODUCTS.
To date, the Company has received no meaningful revenue from the sale
of its product. While the Company believes that its product is commercially
viable, developing products for the agricultural marketplaces is inherently
difficult and uncertain. There can be no assurance that significant market
demand for the Company's product will ever develop. See "BUSINESS - SALES AND
MARKETING. Moreover, the Company currently intends to manufacture only one
product for the foreseeable future. At the present, the success of the Company
depends entirely upon the Company's ability to manufacture, and cause this
single product to be sold, all on a profitable basis. This lack of product
diversification may make the results of the Company's operations more volatile
than they would be if the Company manufactured more than one product.
RELIANCE ON THIRD PARTY AND RELATED PARTY TRANSACTIONS.
The Company expects that it will entirely depend upon Global to
generate sales of the Company's product, and the ability of Global to sell the
Company's product is unpredictable. The Company has entered into a exclusive
sale and purchase agreement with Global (the "Global Agreement") in this
connection. See "BUSINESS SALES AND MARKETING." The Company will have limited
control over Global's selling activities. There can be no assurance that Global
will be successful in selling the Company's product. If Global's selling efforts
are not successful, the Company's business, results of operations and financial
condition will be materially adversely affected. Moreover, the Global Agreement
was not the result of arms-length negotiations. Accordingly, there can be no
assurance that the terms and conditions of this agreement are as favorable to
the Company as those that could have been obtained from unaffiliated third
parties. There can be no assurance that the sales efforts to be exerted by
Global under the Global agreement will be exerted at the level of quality the
Company expects, or that such agreement will not be modified in the future.
Moreover, Global is a thinly capitalized corporation, and there can be no
assurance that the Company could meaningfully enforce its agreement with Global.
Also, see "BUSINESS - SALES AND MARKETING - Exclusive Sale and Purchase
Arrangement."
RISKS OF LIMITED PROTECTION FOR COMPANY'S INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS AND INFRINGEMENT OF THIRD PARTIES' RIGHTS
The Company regards various features and design aspects of its product
as proprietary and relies primarily on a combination of trademark, copyright and
trade secret laws and employee and third-party nondisclosure agreements to
protect its proprietary rights. The Company has been issued one copyright
covering its soil testing software, has applied for a patent covering the
blended micronutrient fertilizer product and intends to continue to apply for
patents, as appropriate, for its future technologies and product. There are few
barriers to entry into the market for the Company's product, and there can be no
assurance that any patents applied for by the Company will be granted or that
the scope of the Company's patent or any patents granted in the future will be
broad enough to protect against the use of similar technologies by the Company's
competitors. There can be no assurance, therefore, that any of the Company's
competitors, some of whom have far greater resources than the Company, will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology. Further, the Company intends to distribute its
product in a number of foreign countries. The laws of those countries may not
protect the Company's proprietary rights to the same extent as the laws of the
United States.
8
<PAGE>
The Company may be involved from time to time in litigation to
determine the enforceability, scope and validity of any proprietary rights of
the Company or of third parties asserting infringement claims against the
Company. Any such litigation could result in substantial costs to the Company
and diversion of efforts by the Company's management and technical personnel.
See "BUSINESS - PROPRIETARY RIGHTS."
COMPLIANCE WITH GOVERNMENT REGULATION
The terms of the license granted by the Minister of Agriculture of
Mexico, pursuant to which the Company has the right to import and sell its
micronutrient fertilizer in Mexico, are subject to government regulation. There
can be no assurance that additional licenses to import products similar to or
the same as those granted or expected to be granted by the Company will not be
granted to potential competitors, or that the value of the Company's licenses
will not otherwise be affected by government action.
DEPENDENCE ON KEY PERSONNEL
For the foreseeable future, the Company will place substantial reliance
upon the personal efforts and abilities of M.M. Kalish, a founding shareholder,
and his son Robert A. Kalish. The loss of the services of either of these
individuals may have a material adverse effect on the business, operations,
revenue and business prospects of the Company. The Company maintains key man
life insurance on M.M. Kalish in the amonut of $1.0 million, but does not
maintain key man life insurance on Robert A. Kalish. Neither of Messrs. Kalish
and Kalish devotes full time to the business of the Company. See "MANAGEMENT OF
THE COMPANY."
COMPETITION
To the best of its knowledge, management believes there is no direct
competition with the Company's product and services at this time in the blended
micronutrient fertilizer market. However, there can be no assurance that the
Company will not in the future be required to compete directly with other,
larger companies having greater financial, marketing and production capabilities
than the Company. See "BUSINESS - COMPETITION."
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, working capital
and earnings, if any, will be retained for use in the Company's business
operations and in the expansion of its business. See "DIVIDEND POLICY" AND
"DESCRIPTION OF CAPITAL STOCK."
TRADING OF COMPANY COMMON STOCK; RESTRICTIONS ON RESALE
The Company will attempt to qualify the Common Stock on the NASD
inter-dealer Electronic Bulletin Board. There can be no assurance that the
Company will be successful in this attempt. The liquidity of the Common Stock
may be adversely affected, and purchasers of the Common Stock may have
difficulty selling the Common Stock, if the Company is unsuccessful in
qualifying the Common Stock for trading in a suitable trading market. The Common
Stock received pursuant to the Distribution will be freely transferable under
the Securities Act, except for shares of Common Stock received by any person who
may be deemed to be an "affiliate" of the Company within the meaning of Rule 144
promulgated under the Securities Act. Persons who may be deemed to be affiliates
of the Company after the Distribution generally include individuals or entities
that control, are controlled by, or are under common control with the Company,
and may include the directors and executive officers of the Company. Persons who
are affiliates of the Company will be permitted to sell their Common Stock
received pursuant to the Distribution only pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act. The Registration Statement of
which this Prospectus is a part will not cover resales of Common Stock by
affiliates of the Company. See "SHARES ELIGIBLE FOR FUTURE SALE."
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CONTROL BY EXISTING STOCKHOLDERS
As of the date hereof, the officers and directors of the Company (and
their affiliates) own an aggregate of 8,701,500 shares of Common Stock.
Immediately upon completion of the Distribution, the officers and directors of
the Company will own or control the voting of 83% of the Company's issued and
outstanding voting Common Stock. Moreover, pursuant to the Bylaws, holders of
25% of all outstanding shares of Common Stock entitled to vote shall constitute
a quorum and the holders of a majority of such quorum may control the vote. The
officers and directors of the Company, as holders of the Company's securities,
will therefore have the ability to significantly influence the election of the
Board of Directors, to potentially control the outcome of any corporate action
requiring less than a majority of the outstanding voting securities entitled to
vote, and consequently, to significantly influence the business and affairs of
the Company. See "MANAGEMENT OF THE COMPANY," "CERTAIN TRANSACTIONS" AND
"PRINCIPAL STOCKHOLDERS."
INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Certain provisions of the Company's Certificate of Incorporation and
By-Laws and certain agreements that the Company has entered into with certain of
its directors and officers provide that the Company shall indemnify any
director, officer, agent and/or employee as to those liabilities and on those
terms and conditions as are specified in the General Corporation Law of Delaware
or in such agreements. Further, the Company may purchase and maintain insurance
on behalf of any such persons whether or not the Company would have the power to
indemnify such person against the liability insured against. The foregoing could
result in substantial expenditures by the Company and prevent any recovery from
such officers, directors, agents and employees for losses incurred by the
Company as a result of their actions. Further, the Commission takes the position
that indemnification against liability under the Securities Act is against the
public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
ANTI-TAKEOVER PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and By-Laws may have the effect of delaying or preventing a change
in control or acquisition of the Company. The Company's Certificate of
Incorporation and By-Laws include provisions for a classified Board of
Directors, "blank check" preferred stock (the terms of which may be fixed by the
Board of Directors without stockholder approval), a prohibition on stockholder
action by written consent in lieu of a meeting, and certain procedural
requirements governing stockholder meetings. See "DESCRIPTION OF COMMON
STOCK--DEFENSES AGAINST HOSTILE TAKEOVERS."
NO ASSURANCE OF A PUBLIC MARKET AND LIKELIHOOD OF A VOLATILE MARKET.
There is presently no public market for the Common Stock, and there is
no assurance that a public market for such securities will develop after
completion of the Distribution, or, if one develops, that it will be sustained.
It is likely that any market that develops for the Common Stock, should it
develop, will be highly volatile and that the trading volume in such market will
be limited.
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RISK OF LOW-PRICE ("PENNY") STOCKS
Management believes that the trading price of the Common Stock is
likely to start below $5.00 per share. If the trading price of the Common Stock
were to start and remain below $5.00 per share, trading in the Common Stock
would be subject to the requirements of certain rules promulgated under the
Exchange Act which require additional disclosure by broker-dealers in connection
with any trades generally involving any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in the Common Stock
affected, which could severely limit the market liquidity of the Common Stock.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE SHARES COVERED
BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. STOCKHOLDERS SHOULD BE AWARE
OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS.
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USE OF PROCEEDS
Pursuant to the Distribution, GS Financial will provide consulting
services to the Company and receive from the Company 100,000 shares of Common
Stock. Such shares of Common Stock will be distributed to GS Financial
stockholders as of the Record Date, and no consideration will be paid by such
stockholders in the Distribution.
Therefore, there will be no proceeds from the issuance of the Common Stock.
THE DISTRIBUTION
The following information describes certain aspects of the proposed
Distribution as well as certain contractual arrangements that will exist between
the Company and GS Financial following the completion of the Distribution.
REASONS FOR THE DISTRIBUTION
After research into other possible alternatives, the management of the
Company determined that the Distribution presented the fastest and least
expensive method of accessing the United States public capital markets and
providing the most desirable corporate vehicle for conducting its business
operations. The criteria applied by the board was to obtain trading status for
the shares held by the Company's shareholders and to seek to raise additional
capital in order to expand its business operations while utilizing its existing
infrastructure, management and knowledge of its industry, at the least cost to
shareholders measured in terms of capital expended and dilution. Further, the
management of the Company believed that the distribution of shares of Common
Stock to the stockholders of GS Financial in the Distribution will provide the
basis for the creation of a public market for the Common Stock and that the
existence of such a public market will benefit the Company and GS Financial
stockholders. No assurance can be given, however, that a market will develop for
the Common Stock or, if it develops, that it will be sustained. See "RISK
FACTORS - NO ASSURANCE OF A PUBLIC MARKET AND LIKELIHOOD OF A VOLATILE MARKET."
TERMS OF THE DISTRIBUTION AGREEMENT
The Distribution Agreement provides that the Distribution will be
effected by distributing to each holder of GS Financial Common Stock
certificates representing one share of Common Stock for each 9/10th of a share
of GS Financial Common Stock held by such holder as of the Record Date. See "THE
DISTRIBUTION -- Manner of Effecting the Distribution." GS Financial's Board of
Directors is causing GS Financial to distribute shares of Common Stock herewith
to GS Financial Stockholders as of the Record Date. Fractional shares will not
be issued. Any share of Common Stock to be distributed otherwise constituting a
fractional share will be rounded up to one whole share of Common Stock.
MANNER OF EFFECTING THE DISTRIBUTION
GS Financial's transfer agent, Continental Stock Transfer & Trust
Company, will act as the Distribution Agent for the Distribution and is
delivering certificates for Common Stock with this Prospectus to holders of
record of GS Financial Common Stock as of the close of business on the Record
Date on the basis of one share of Common Stock for every 9/10th of a share of GS
Financial Common Stock held on the Record Date. All shares of Common Stock will
be fully paid and nonassessable and the holders thereof will not be entitled to
preemptive rights. See "DESCRIPTION OF THE COMPANY CAPITAL STOCK."
YOU WILL NOT BE REQUIRED TO PAY ANY CASH OR OTHER CONSIDERATION FOR THE
SHARES OF COMMON STOCK RECEIVED IN THE DISTRIBUTION NOR WILL YOU NEED TO
SURRENDER YOUR GS FINANCIAL COMMON STOCK CERTIFICATES IN ORDER TO RECEIVE SHARES
OF COMMON STOCK IN THE DISTRIBUTION. THE DISTRIBUTION AGENT IS SENDING YOU YOUR
AGRI STOCK CERTIFICATES WITH THIS PROSPECTUS.
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EFFECTS OF DISTRIBUTION
Immediately following the completion of the Distribution, the Company
will be an independent, publicly-owned company, and it is contemplated that the
shares of Common Stock will be quoted on the Electronic Bulletin Board under the
trading symbol "AGBI." See "RISK FACTORS - Listing of Common Stock; Restrictions
on Resale."
LISTING OF COMMON STOCK; RESTRICTIONS ON RESALE
The Company intends to apply to a member of the National Association of
Securities Dealers, Inc. to make a market in the Common Stock and provide a
quotation on the NASD inter-dealer Electronic Bulletin Board under the trading
symbol "AGBI." The Common Stock received pursuant to the Distribution will be
freely transferable under the Securities Act, except for shares of Common Stock
received by any person who may be deemed to be an "affiliate" of the Company
within the meaning of Rule 144 promulgated under the Securities Act. Persons who
may be deemed to be affiliates of the Company after the Distribution generally
include individuals or entities that control, are controlled by, or are under
common control with the Company, and may include the directors and executive
officers of the Company. Persons who are affiliates of the Company will be
permitted to sell their Common Stock only pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from the
registration requirements of the Securities Act. The Registration Statement of
which this Prospectus is a part will not cover resales of Common Stock by
affiliates of the Company. See "SHARES ELIGIBLE FOR FUTURE SALE."
TREATMENT OF INDEBTEDNESS
The Distribution Agreement provides that neither GS Financial nor the
Company will assume or be responsible for any debts or obligations of the other.
EXPENSES
In accordance with the terms of the Distribution Agreement, the Company
shall bear all expenses incurred in connection with the Distribution, including,
without limitation, the preparation, execution and the performance of the
Distribution Agreement and the transactions contemplated thereby, and all fees
and expenses of investment bankers, finders, brokers, agents, representatives,
counsel and accountants. Expenses incurred in printing, mailing and filing
(including without limitation, SEC filing fees, fees related to any state
securities or "blue sky" laws and listing application fees as to this Prospectus
and related Registration Statement) shall be paid by the Company. The Company
estimates that the transaction expenses will approximate $33,000.
INDEMNIFICATION AND INSURANCE
The Distribution Agreement provides that from and after the
Distribution Date (as defined therein), GS Financial will indemnify, defend and
hold harmless the Company and its subsidiaries, as well as the directors and
officers of the Company and the various the Company subsidiaries (collectively,
the "the Company Indemnitees") from and against all losses arising out of or
relating to (i) any breach, whether before or after the Distribution Date, by GS
Financial of any provision of the Distribution Agreement, (ii) any claims
arising out of this Prospectus or the Registration Statement pertaining thereto,
except to the extent that such claims result from information given by the
Company Indemnitees for inclusion in this Prospectus or such Registration
Statement, and (iii) liabilities related to the operation of GS Financial.
The Distribution Agreement also provides that from and after the
Distribution Date, the Company will indemnify, defend and hold harmless GS
Financial and its subsidiaries, as well as the directors and officers of GS
Financial and the various GS Financial subsidiaries from and against all losses
arising out of or relating to (i) any breach, whether before or after the
Distribution Date, by the Company of any provision of the Distribution
Agreement, (ii) any claims arising out of this Prospectus or the Registration
Statement pertaining thereto due to information given by the Company Indemnitees
for inclusion in this Prospectus or such Registration Statement,and (iii)
liabilities related to the operation of the Company.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary description of the material federal income tax
consequences of the Distribution is based upon the opinion of Sonfield &
Sonfield, federal tax counsel for the Company ("Tax Counsel"). This summary is
for general informational purposes only and is not intended as a complete
description of all of the tax consequences of the Distribution and does not
discuss tax consequences under the laws of state or local governments or of any
other jurisdiction. The Company has not requested a ruling from the Internal
Revenue Service (the "Service") with respect to these matters. Accordingly, no
assurance can be given as to the Service's interpretation with respect to these
matters. Moreover, the tax treatment of a stockholder may vary depending upon
his, her or its particular situation. In this regard, certain stockholders
(including (i) insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, and persons who are not citizens or residents of
the United States or who are foreign corporations, foreign partnerships or
foreign trusts or estates as defined for United States federal income tax
purposes, and (ii) stockholders that hold shares as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for United
States federal income tax purposes and stockholders with a "functional currency"
other than the United States dollar) may be subject to special rules not
discussed below. In addition, this summary applies only to shares which are held
as capital assets. The following discussion may not be applicable to a
stockholder who acquired his or her shares pursuant to the exercise of stock
options or otherwise as compensation. There can be no assurance that there will
not be differences of opinion as to the interpretation of applicable law.
Tax opinions are not binding on the Service or any court. Moreover, the
tax opinions are based upon, among other things, certain representations as to
factual matters made by GS Financial, which representations if incorrect or
incomplete in certain material respects, would jeopardize the conclusions
reached in the opinions.
This information is directed to stockholders who acquire shares in the
initial distribution thereof, who are citizens or residents of the United
States, including domestic corporations and partnerships, and who hold the
shares as "capital assets" within the meaning of Section 1221 of the Code.
Taxpayers and preparers of tax returns (including those filed by any partnership
or other company) should be aware that under applicable Treasury regulations a
provider of advice on specific issues of law is not considered an income tax
return preparer unless the advice is (i) given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to the
consequences of contemplated actions, and (ii) is directly relevant to the
determination of an entry on a tax return. Accordingly, taxpayers should consult
their own tax advisors and tax return preparers regarding the preparation of any
item on a tax return, even where the anticipated tax treatment has been
discussed herein.
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF
THE CODE, TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE WHICH MAY OR MAY NOT
BE RETROACTIVE, AND ANY SUCH CHANGES COULD AFFECT THE TAX CONSEQUENCES DESCRIBED
HEREIN.
SEE "POSSIBLE FUTURE LEGISLATION" BELOW.
EACH STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE TRANSACTION
DESCRIBED HEREIN, INCLUDING, THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
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TAXATION OF STOCK AS A DIVIDEND
Dividends paid on common stock are subject to tax as ordinary income to
the extent of the company's current or accumulated earnings and profits as
computed for federal income tax purposes. To the extent that the amount of the
dividend paid on the common stock exceeds the company's current and accumulated
earnings and profits for federal income tax purposes, such dividend will be
treated first as a nontaxable return of capital which will be applied against
and reduce the adjusted tax basis of the common stock of the holder. Any amount
in excess of the holder's adjusted tax basis would then be taxed as capital
gain, and will be long-term capital gain if the holder's holding period for the
common stock exceeds one year. For purposes of the remainder of this discussion
of federal income tax consequences, the term "dividend" refers to a distribution
out of current or accumulated earnings and profits and taxed as ordinary income
as described above, unless the context indicates otherwise.
The 70% (and in some cases, 80%) dividends received deduction may be
available with respect to dividends paid by the company to holders which are
corporations. However, a corporate holder that disposes of shares within 45 days
of their date of acquisition cannot claim the dividends received deduction for
dividends on such shares. (These time periods are extended for periods during
which the taxpayer's risk of loss with respect to such shares is diminished, for
example, by an offsetting position.) In addition, under section 246A of the
Code, if a corporation incurs indebtedness for the purpose of making or carrying
a portfolio stock investment (which would include the common stock), the 70% (or
in some cases, 80%) deduction for dividends received will generally be
disallowed with respect to the dividends on that portion of such stock which was
acquired or carried by means of such indebtedness
Section 1059 of the Code imposes a special basis reduction rule that
requires a corporate shareholder to reduce its basis (but not below zero) for
stock owned by it to the extent of the nontaxed portion of any extraordinary
dividend if as of the earliest of the date on which the corporation declares,
announces or agrees to the amount or payment of such dividend the corporate
shareholder has not held such stock for more than two years. Generally, the
nontaxed portion of an extraordinary dividend is the amount excluded from income
under section 243 of the Code (relating to the deduction for dividends received
by corporations). An extraordinary dividend is generally defined as a dividend
equaling or exceeding a prescribed threshold percentage (5% for bonds and 10%
for common stock) of the corporate shareholder's adjusted basis in such stock.
Under certain circumstances the corporate shareholder may elect to use fair
market value rather than adjusted basis in computing the threshold percentage
for determining whether an extraordinary dividend has been received. In
addition, a corporate shareholder shall recognize, in the year such stock is
sold or otherwise disposed of, as gain from the sale or exchange of stock, an
amount equal to the aggregate nontaxed portions of any extraordinary dividends
with respect to such stock which did not reduce the basis of such stock by
reason of the limitation on reducing basis below zero
TAXPAYER RELIEF ACT
The Taxpayer Relief Act of 1997 ("TRA 1997") was signed into law on
August 5, 1997. TRA 1997 contains certain restrictions involving a distribution
or "spin off" to stockholders of portions of a business enterprise, accompanied
by a merger or acquisition of a specific unit of the business enterprise
involving a third party acquiror. The Distribution is not affected by the
restrictions imposed by TRA 1997.
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BACKUP WITHHOLDING
United States information reporting requirements and backup withholding
at the rate of 31% may apply with respect to dividends paid on, and proceeds
from the taxable sale, exchange or other disposition of GS Financial Common
Stock, unless the stockholder (i) is a corporation or comes within certain other
exempt categories, and, when required, demonstrates these facts, or (ii)
provides a correct taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not supply
GS Financial with his, her or its correct taxpayer identification number may be
subject to penalties imposed by the Service. Any amount withheld under these
rules will be refunded or credited against the stockholder's federal income tax
liability. Stockholders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. If information reporting requirements apply to a
stockholder, the amount of dividends paid with respect to such shares will be
reported annually to the Service and to such stockholder.
These back-up withholding tax and information reporting rules currently
are under review by the United States Treasury Department and proposed Treasury
Regulations issued on April 15, 1996 would modify certain of such rules
generally with respect to payments made after December 31, 1997. Accordingly,
the application of such rules may be changed.
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BUSINESS
OVERVIEW
Agri Bio-Sciences, Inc. (the "Company") was formed on May 30, 1995 as a
Texas corporation under the name "Agri Environmental Sciences, Inc." The Company
changed its corporate name to its current name about October 1997. On December
22, 1997, the Company was reincorporated as a Delaware corporation by means of a
migratory merger. The Company is in a developmental stage and has not yet
commenced full-scale sales, marketing and production activities.
The Company has developed a fertilizer known as "Micro Min." Micro Min
is produced by blending micronutrients (such as zinc, manganese, iron, copper,
cobalt, molybdenum and boron) with montmorillonite (an agricultural clay) so as
to electrochemically bond the micronutrients to the montmorillonite to produce a
blended fertilizer. The resulting fertilizer allows the bond between the
micronutrients and the montmorillonite to be dissolved during a time when the
micronutrients are most required by plants. As a blended fertilizer comprised
completely of micronutrients and an inert material, Micro Min is believed to be
unique to the world market.
Micro Min has been in the process of development and refinement for
over the past 25 years by the Company and a couple of predecessor companies. The
rights to Micro Min, and the Company's plant and certain of its equipment, were
acquired by a stockholder of the Company in 1995 from Anvil Mineral Mining
Corporation ("AMMC"), which was then in a liquidation bankruptcy proceeding. The
acquired items were subsequently contributed to the Company. Management believes
AMMC failed due to internal problems of its shareholders rather than the merits
of Micro Min. AMMC had acquired the rights to Micro Min in the early 1980's from
Mack Ravenhorst, who developed Micro Min and had tried for a number of year to
exploit it commercially without any meaningful success. Part of the delay in the
full-scale exploitation of Micro Min has resulted from the extended period of
time it takes to qualify a product in a particular foreign country and to
develop the marketing relationships necessary to sell a product in that country.
After an extended period of time and a concerted effort, the Company has
qualified Micro Min in Mexico, Columbia and Spain, and believes that it now has
the necessary marketing relationships to exploit Micro Min on a full-scale
basis.
The Company has decided not to sell and market Micro Min itself. This
decision was based on the Company's desire not to bear the risk that selling
expenses might offset a large portion of (or in fact exceed) revenues from sales
and the related risks resulting from possible exchange rate fluctuations that
may result from sales in a foreign country for foreign currencies. Instead, the
Company will concentrate solely on the manufacture of Micro Min. The Company has
decided to engage another company to sell Micro Min and thus bear the risk of
selling and any risks resulting from possible exchange rate fluctuations.
Therefore, the Company has entered into a exclusive sale and purchase agreement
(the "Global Agreement") with Global Farm Sciences, Inc., a corporation
affiliated with the Company ("Global"), to market Micro Min in certain
geographical areas of the world. See "BUSINESS - SALES AND MARKETING."
The initial target market for Micro Min will be the country of Mexico.
Secondary target markets are expected to include Central and South America and
the Middle East. Mexico was selected as the initial target market due to the
extensive agricultural needs of the country and the fairly extensive contacts
that management has had with the country over the years.
In connection with the registration of the 100,000 shares of Common
Stock covered by this Prospectus, GS Financial is distributing to its
stockholders such 100,000 shares of Common Stock on the basis of one share of
Common Stock for each 9/10th of a share of common stock of GS Financial issued
and outstanding on the Record Date. This Distribution is being undertaken so
that the Company will henceforth be an independent publicly traded corporation.
While the Company's public company status is expected to benefit the Company in
the future for a variety of reasons (such as providing greater ease in raising
capital), the Distribution and such status is not expected to have any immediate
effect on the business of the Company.
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THE PRODUCT
Micro Min is a formula of micronutrients blended with montmorillonite
(an agricultural clay). The blending process electrochemically bonds the
micronutrients to the montmorillonite. The bond between the micronutrients and
the montmorillonite is dissolved during times when the micronutrients are most
required by plant life. Management believes that the time-released
characteristic of Micro Min gives it an inherent advantage over other forms of
micronutrients fertilizers, which could be toxic to crops if excess quantities
were applied directly to them. Over the years, Micro Min has been developed in
an increasingly more concentrated form. Management believes that Micro Min is
the only blended fertilizer composed of micronutrient and an inert material on
the world market today. However, Micro Min is not now being produced, nor has it
ever been sold, in commercial quantities.
Micro Min is expected to be packaged in 10 kilogram bags, placed on
pallets and stretch wrapped and then placed in inventory at the Company's plant
site. See "BUSINESS - MANUFACTURING FACILITY." Once produced, Micro Min can be
moved in containerized shipments of 19 metric tons each or placed in railroad
freight cars containing 50 metric tons each, depending on where the product is
to be shipped.
Since the early 1980's, with the assistance of various governmental
agencies in Mexico, many test plots involving Micro Min were started in and
around the state of Tlaxcala, Mexico. All of these plots were organized and
supervised by state agronomists using their normal application of fertilizers
and adding Micro Min in certain predetermined areas. The results of this testing
seemed to indicate the following:
(1) Farmers experienced between 10% and 15% more crop production;
(2) Crops contained higher protein averages than without Micro Min
(3) Second season lab reports seem to indicate that farmers
achieved healthier and more manageable soils requiring less
fertilization each succeeding growing period; and
(4) The resulting increase in crop production and the savings on
macronutrients more then offset the costs of the Micro Min.
Despite the testing described above, the Company has spent only a minimal amount
on research and development over the past two years.
Because of the effectiveness of Micro Min, the Minister of Agriculture
of Mexico awarded to the Company the only existing license to import and sell
micronutrient fertilizer in every state of Mexico. Micro Min has also been
endorsed by the chief of all laboratories operated by the Minister of
Agriculture. After receiving the Company's product license from Mexico, the
Company proceeded with similar field tests in Colombia and Spain. During these
tests, Micro Min proved to be a successful fertilizer for their area soils.
After the conclusion of these field tests, product licenses were issued by both
of these countries for the importation of Micro Min.
The Company has produced and holds in its inventory 250 metric tons of
Micro Min product. Of this inventory, 128 metric tons are now held at the
Company's plant site and 122 metric tons are being held in Mexico for the
commencement of the Company's full-scale sales and marketing efforts.
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MANUFACTURING FACILITY
The Company owns a plant facility situated on a seven-acre tract of
land located on Dicky Ware Street, in downtown Bay Springs, Mississippi. The
plant is not now being operated on an on-going commercial basis. However, the
Company intends to activate on-going commercial production in the immediate
future, and the Company does not now foresee any problem in doing so.
The plant facility consists of a metal building containing about 15,000
square feet under roof. The roof of this building was recently renovated. During
this renovation, the Company removed a 5,000 square foot section of the covered
area of the plant during August 1997 and inserted a completely new metal
building directly inside the present structure, thereby fortifying the complete
plant facility. The roof of the plant was also repaired in those areas that
required attention. The equipment in the plant consists primarily of a 40'x8'
dryer for the montmorillonite, a blender and a bagging machine. All equipment in
the plant is in good repair and completely ready for production of the Company's
micronutrient product Micro Min. The plant has a 75 foot railroad spur and truck
loading capabilities for 20 metric ton containers. The rail spur allows product
to be moved by rail to any United States port for containerized or palletized
shipment by sea to any foreign port.
During testing and operating with a three man team, the plant proved
capable of manufacturing 20 metric tons of Micro Min during an eight-hour shift.
If needed, the plant could have two eight-hour shifts per day manufacturing
product and one eight-hour shift devoted solely to building and equipment
maintenance. Management anticipates that the plant could operate 22 days per
month, 12 months per year. With three shifts working for the foregoing periods
of time, the plant could produce 10,560 metric tons annually. The Company
expects to install a California Pellet Mill pelletizer into the plant facility
if Global reaches its sales projections in 1999. Such pelletizers are able to
produce 20 metric tons of pelletized product per hour which will provide the
plant with the expected product manufacturing capability of 84,480 metric tons
annually, based on the Company's assumptions regarding its levels of operations.
Under the terms of the Global Agreement, Global will purchase a metric
ton of Micro Min at a price of $620.00 (FOB). Management believes that the
direct cost of producing a metric ton of Micro Min will be approximately $315,
thus yielding upon sale a direct profit of approximately $305 per metric ton.
Pursuant to the Global Agreement, Global must purchase at least 2,000 metric
tons of Micro Min in 1999 and 2000 and 3,000 metric tons of Micro Min in each of
the succeeding years. Management actually expects that purchases under the
Global Agreement will exceed the minimum required purchases, but there can be no
assurance in this regard. The Global Agreement was intended to free the Company
of any and all cost factors originating outside its plant facility in Bay
Springs, Mississippi. All costs incurred in all sales efforts by Global will be
paid by Global. Moreover, all freight charges to anywhere in the product sales
territory assigned to Global will be strictly Global's responsibility. In
addition, all sales personnel and their expenses will likewise be paid by
Global. The Global Agreement was structured to ensure that the Company would
realize a profit from the Global Agreement.
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SALES AND MARKETING
Overview
The Company's initial sales and marketing plan focused on the
establishment of relationships with critical governmental and
quasi--governmental agencies in the Company's target markets. The Company
intended to demonstrate to these agencies the effectiveness of Micro Min and the
benefits that farmers would realize by its use and application. In this
connection, the Company intended to establish a network of laboratories to
provide soil, plant and water testing and recommendations to farmers. Because it
was believed that the farmers of the third world have generally not applied
micronutrients to their fields, the Company expected to find deficiencies with
regard to micronutrients in the soils that were tested. The Company could then
recommend (with the expected endorsement of a governmental or
quasi--governmental agency) that the farmers use Micro Min to remedy these
deficiencies. After careful consideration, the Company decided not to pursue
sales and marketing in the United States initially due to the costs believed
necessary to penetrate the United States market adequately.
In connection with its initial sales and marketing plan, the Company
developed plans and specifications for computerized soil, plant and water
analysis laboratories, one of which was actually installed in the Dominican
Republic. The Company's laboratory designs range from that of a very
computerized emission spectrophotometry laboratory down to a portable field kit
of the quality a soil chemist would require. All designs, however, would offer
the farmer, cattleman, technician and cooperative, a professional analytic
service programmed to deliver analytic reports with fertilizer recommendations,
methods of application and commentaries, all in common sense Kilogram/acre
terms. These laboratories were specifically designed for mass sample analysis
using the most advanced technology available. To complete the laboratory
packages, the Company wrote complete testing protocols to be used by every
instrument in these laboratories.
The Company also developed a proprietary computer software program for
use in the laboratories. This software has the capability of rendering final and
definitive reports on soil, water, and plants from samples submitted for
testing. The Company's laboratories would be capable of analyzing soil, plant
and water samples and immediately transmitting raw data to an on-line computer,
which mathematically extrapolates the data and scans the computer's programmed
memory for an exact fertilizer recommendation. Within days, the programmed
computer is able to provide farmers written reports containing the complete
results of the analyses of their samples and a complete fertilizer
recommendation. To offer further assistance to the farmers, the computer is
programmed with the latest technical data concerning local soils, rainfall, and
temperatures. The information obtained during the testing is also retained in
the computer's on-line data base to be compared, managed, and accessed over and
over again for further use by authorized entities, and for comparison in the
retesting by farmers of these same soils at any later date. Also, the data base
will retain the name, address and any other pertinent data on each farmer
registered at a laboratory. This will enable sales efforts to plot continuous
sales strategies in any given farming community.
Because of an agreement that the Company has reached in principle with
Intertek Testing Services, a laboratory testing company ("ITS"), the Company
does not now intend to pursue its laboratory programs. See "BUSINESS -- SALES
AND MARKETING - Intertek Testing Services." However, as discussed below, the
Company will license its software to ITS. In addition, the Company will no
longer focus on the establishment of relationships with critical governmental
and quasi--governmental agencies in its target markets. Instead, the Company has
entered into an exclusive sale and purchase agreement with Global Farm Sciences,
Inc., which will act as the exclusive purchaser and reseller of the Company's
product.
20
<PAGE>
Exclusive Sale and Purchase Arrangement
Global Farm Sciences, Inc., a Texas corporation ("Global"), was formed
in December 1997 by Lester H. Stephens, M. Manny Kalish and Patrick N. Morgan
(founders and board members of the Company) for the purpose of selling the
Company's product to foreign entities. On August 27, 1998, the Company signed a
five-year exclusive product sales agreement with Global. This Agreement requires
Global to purchase 2,000 metric tons of Micro Min during the year 1999 and 2000
and thereafter purchase 3,000 metric tons of Micro Min during each succeeding
year. Global must pay $620.00 per metric ton in United States dollars, FOB the
Company's plant facility in Bay Springs, Mississippi. Global must remit 50% of
the purchase price with each purchase order for Micro Min forwarded to the
Company. (This initial amount provides the Company with adequate funds to
produce one metric ton of product and thereby provides the Company with the
necessary funds to keep the plant in operation). Thereafter, Global must remit
the remaining 50% payment of its purchase order to the Company within ninety 90
days of their receipt of the product FOB the plant. The Global agreement may be
terminated prior to its five-year term upon the occurrence of certain customary
termination events, such as breach of contract or bankruptcy. For the
foreseeable future, Global intends to rely on its relationship with The National
College of Agricultural Engineers for purposes of generating sales of Micro Min.
The National College of Agricultural Engineers
The National College of Agricultural Engineers (the "College") is an
association of graduates of various agricultural colleges mandated by Article 3
of the Constitution of Mexico. The College is charged with the formation of
programs that will benefit the farmers of Mexico. Each of Mexico's 32 states
also has a College of Agricultural Engineers organization, and these state
colleges are also recognized by the federal government. The primary purpose of
these state Colleges is to assist farmers in the various states with the
operation of their farms. Each of the state colleges has 10 branch office, each
having approximately 50 persons engaged in the business of selling agricultural
products as members of the state college for a total of approximately 16,000
member salespersons throughout the entire college system.
On July 28, 1998, Ing. Sergio Samaniego, president-elect of the
College, met in Mexico City with the presidents of the 32 state colleges. The
Company's proposed program of laboratory testing and fertilization was brought
to the floor by Samaniego and explained in great detail. Many of the engineers
present know of Global's operation in Mexico and of the Company's computer
software advantage. Samaniego presented the Company's proposed program as a
program that each of the state colleges could embrace for the years 1998-1999.
Samaniego brought the matter to the floor for a vote and the project was
accepted unanimously as a "body of work" for all 32 state colleges and the
national College. It was decided that the national College would manage the
program and work directly with each president of each state college. Samaniego
also volunteered to start with an eight-state area at the outset and expand to
include every state in Mexico in soil, water and plant testing for farmers. The
state colleges at all levels would sell the farmers whatever fertilizers they
would require under this program. Samaniego informed Global that he intends to
work with the farmers in the eight-state initial sales target area and to use
farm credits extended to the farmer by the Mexico federal government to finance
purchases by them of Micro Min and other fertilizers and farm implements. The
College intends to invite the farmers in the initial targeted eight-state
targeted sales area to use their farm credits for such purchases.
The Company has not entered into any legally binding, definitive
agreement with the College regarding their relationship, although it is
currently negotiating with the College in an attempt to do so.
21
Intertek Testing Services
On August 31, 1998, the Company reached an agreement in principle with
Intertek Testing Services ("ITS") whereby (for nominal consideration) the
Company will license to ITS the Company's computer software programs and testing
protocols for 102 different crops. ITS has 14 laboratories located in various
states of Mexico and numerous laboratories in 102 countries worldwide. ITS is
highly recognized as one of the leaders in the world of third party inspectors.
ITS has all instruments and personnel necessary to do soil, water and plant
testing in conjunction with the Company's computer software and testing
protocols. As discussed above, the Company expects that the soils of Mexican and
other third world farmers will generally be deficient in micronutrients. Because
the Company has the only blended micronutrient fertilizer on the world market,
the Company expects that it will greatly benefit from fertilizer recommendations
made as a result of ITS's soil, plant and water testing. Because of its
agreement in principle with ITS, the Company does not now intend to pursue its
previously planned laboratory programs. The Company has not entered into any
legally binding, definitive agreement with ITS regarding their relationship,
although it is currently negotiating with ITS in an attempt to do so.
PROPRIETARY RIGHTS
The Company regards various features and design aspects of its product
as proprietary and relies primarily on a combination of trademark, copyright and
trade secret laws and employee and third-party nondisclosure agreements to
protect its proprietary rights. The Company has been issued one copyright
covering its soil testing software, has applied for a patent covering the
blended micronutrient fertilizer product and intends to continue to apply for
patents, as appropriate, for its future technologies and products. There are few
barriers to entry into the market for the Company's product, and there can be no
assurance that any patents applied for by the Company will be granted or that
the scope of the Company's patent or any patents granted in the future will be
broad enough to protect against the use of similar technologies by the Company's
competitors. There can be no assurance, therefore, that any of the Company's
competitors, some of whom have far greater resources than the Company, will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology. Further, the Company intends to distribute its
product in a number of foreign countries. The laws of those countries may not
protect the Company's proprietary rights to the same extent as the laws of the
United States.
The Company may be involved from time to time in litigation to
determine the enforceability, scope and validity of any proprietary rights of
the Company or of third parties asserting infringement claims against the
Company. Any such litigation could result in substantial costs to the Company
and diversion of efforts by the Company's management and technical personnel.
See "RISK FACTORS - Risks of Limited Protection for Company's Intellectual
Property and Proprietary Rights and Infringement of Third Parties' Rights."
COMPETITION
Management believes there are no other commercial blended micronutrient
fertilizers available in the market place. Therefor, management believes there
is no direct competition as of the date of this Prospectus. However, there can
be no assurance that the Company will not in the future be required to compete
directly with other, larger companies having greater financial, marketing and
production capabilities. The Company does not regard other fertilizer companies
as direct (or even indirect) competitors because the products offered by them
are complementary to and not competitive with the product offered by the
Company. The Company's primary challenge lies not in head-to-head competition
with similar products, but in educating farmers as to the need to use the
micronutrient products of the Company as well as the macronutrient products more
widely-accepted historically.
EMPLOYEES
As of the date of this Prospectus, the Company has only one full time
employees who serves as the manager of the Company's plant. All other business
and corporate functions are performed by the officers and directors without
compensation.
22
<PAGE>
LEGAL PROCEEDINGS
The Company is not a party to any litigation and no provision has been
reflected in the Company's financial statements for any litigation.
PLAN OF OPERATION
The Company currently remains in a developmental stage. It has not yet
commenced full-scale sales, marketing or production activities, has not
generated any revenue from operations and will not generate revenue from
operations until it commences sales of its product. There can be no assurance
that the Company will be able to generate meaningful revenue or achieve
profitable operations. The following is a summary of the Company's plan of
operation over the next 12 months.
Global Farm Sciences, Inc., the affiliate responsible for selling the
Company's product, has established a relationship with the Mexican National
College of Agricultural Engineers (the "College"). The College is an association
of graduates of various agricultural colleges mandated by Article 3 of the
Constitution of Mexico. Each of Mexico's 32 states also has a College of
Agricultural Engineers organization. Each of the state colleges has 10 branch
office, each having approximately 50 member salespersons for a total of
approximately 16,000 member salespersons throughout the entire College. Top
officials with the College have adopted the Company's proposed program of
laboratory testing and fertilization as their national program for the period
1998-1999. This program would include (among other things) laboratory testing
provided by Intertek Testing Services ("ITS") and the recommendation to farmers
of the use of Micro Min. Global and the College are currently negotiating a
definitive agreement regarding their relationship, and Global and ITS are also
currently negotiating a definitive agreement regarding their relationship. One
of the Company's primary goals in the immediate future is to complete these
definitive agreements. There can be no assurance that definitive agreements will
be entered into or that the relationships between Global and the College, and
Global and ITS, will continue. If these relationships fail to continue, the
Company intends to resume its original sales and marketing plan described above.
See "BUSINESS SALES AND MARKETING - Overview."
In addition, Global has entered into an informal agreement with a
INTAGRO, a company based in Veracruz, Mexican. INTAGRO has been in business for
over 15 years and has 50 offices throughout Mexico and approximately 450
salespersons. Most of these salespersons is a graduate in agricultural, is a
member of his state college of agriculture, has been employed by INTAGRO for a
considerable period of time, and is very familiar with the farmers in his sales
territory. INTAGRO has pledged to have its salespersons begin preliminary
efforts to sell the Company's products by March 1, 1999. These preliminary
efforts will consist of sales contacts and soil samplings. Each INTAGRO
salesperson is expected to contact approximately 45 farmer per week with regard
to the Company's products.
The Company will have little participation in the sales program. The
Company intends for the College's program and INTAGRO's efforts to be the
primary, if not exclusive, means to market the Company's product over the next
12 months.
The Company does not believe that it will need any financings over the
next 12 months. Management believes that the Company will be able to finance its
operations through its receipt of downpayments in the amount of 50% of the
purchase price of each purchase order. Such downpayments are expected to cover
all direct costs of producing the related product. The Company has only minimal
overhead, which has thus far been financed through amounts advanced by M. Manny
Kalish, a director of the Company. Mr. Kalish has indicated that he intends to
continue to provide limited financing of overhead, but he is under no legal
obligation to do so and may cease at any time.
Moreover, the Company does not intend to conduct any further research
and development over the next 12 months. However, if Global meets its sales
expectations, the Company expects to add (during the next 12 months) a
California Pellet Mill pelletizer and 10 additional employees to meet the demand
for additional production.
23
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and it does
not anticipate that it will pay dividends or alter its dividend policy in the
foreseeable future. The payment of dividends by the Company on the Common Stock
will depend on its earnings and financial condition, and such other factors as
the Board of Directors may consider relevant.
MANAGEMENT OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the identities of the directors, executive officers
and significant employees of the Company and a brief account of their business
experience, especially during the last 5 years, including their principal
occupations and employment during that period and the names and principal
businesses of any corporations or organizations in which such occupations and
employment was carried on. All offices with the Company have been held since
December 1997 and expire in December 1999.
<TABLE>
<CAPTION>
NAME TITLE AGE
<S> <C> <C>
Leslie L. Lemak, M.D. Chairman of the Board of Directors 80
Lester H. Stephens President and Director 71
Anthony A. Mierzwa Director 85
Patrick N. Morgan Secretary, Treasurer and Director 80
M. Manny Kalish Director 70
Vernon L. Medlin, M.D. Director 66
Robert A. Kalish Vice President 49
</TABLE>
Leslie L. Lemak, M.D. has been a practicing physician in the state
of Texas for more than twenty years and is now retired.
Lester H. Stephens is retired from EXXON where he served as an
executive Geophysicist for 35 years. After retiring, Mr. Stephens accepted a
professorship of Geophysics at the University of South Carolina. Mr. Stephens
has taken charge of this corporation's plant facility in Bay Springs,
Mississippi, and literally transformed it into an assembling line type of
production facility prepared to meet the most demanding amount of product
scheduling.
Anthony A. Mierzwa is retired from a 40 year career as a real estate
developer in the Houston area.
Patrick N. Morgan has been a real estate developer in the Houston area
for the past 50 years. Mr. Morgan was responsible for the land development of
the Champion's area of Houston and was personally involved in the development of
the Champion's Golf Course and club house. Mr. Morgan is semi retired today but
spends time as the secretary of the Champion's Golf Club, Houston, Texas, as
well as a member of the board of the corporation.
M. Manny Kalish has spent the past ten years developing this the
Company's unique agricultural program for the Mexican, Colombian and Egyptian
market place. It was this research and development that Robert A. Kalish
successfully used as the platform to develop a very unique software program for
the proprietary soil, water and plant testing laboratory. Robert has installed
one of these unique laboratories in the Dominican Republic under the sponsorship
of the USDA; and has recently installed a laboratory in the state of Tlaxcala
(Mexico) under the sponsorship of the University of Tlaxcala, the secretary of
agriculture of the state, and this corporation.
Vernon L. Medlin, M.D. practices radiology in Corpus Christi, Texas
Robert Alexander Kalish has been a Technical Consultant, Secretaria de
Fornento Agropecuario, Tlaxcala, Tlaxcala, Mexico since 1996 and Technical
Director, Laboratory, Department of AgroBiology, University of Tlaxcala,
Tlaxcala, Mexico since 1995. From 1993 to 1995 Mr. Kalish was Director,
Agricultural/Environmental Laboratory; Director, Asgrow national seed production
program; Medco Egypt Co., Cairo, Egypt. From 1991 through 1993 Mr. Kalish was
Chief of Party, USAID National Agricultural-Environmental Laboratory
Installation Project #517-0189-03G, Santo Domingo, Dominican Republic and
Instructor, Agrophysics, School of Soil Sciences, Department of Agronomy, Cairo
University, Cairo, Egypt from 1989 to 1990. From 1990 on he has been VP Agri
Technologies, Inc (Research & Development) and from 1986 through 1988 Mr. Kalish
was Director of Analytic Services, Anvil Micronutrients Corp., Houston, Texas.
From 1980 through 1983 he served as Director of Analytic Services, Anvil Mineral
Mining Corporation, Bay Springs, Mississippi (Mexican Gov't
agricultural-environmental laboratory installation project) and from 1973 to
1978 he was Asst. Technical Director, Anvil Mineral Mining Corporation, Bay
Springs, Mississippi. In 1972 Mr. Kalish served as Instructor, Mathematical
Logic, San Francisco State University, San Francisco, California and from 1971
to 1972 he was Director, Logic Laboratory, San Francisco State University, San
Francisco, California.
24
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The officers and directors of the Company are receiving no compensation
for their services for the Company. No compensation is proposed to be paid to
any officer or director of the Company prior to the commencement of operations.
After the commencement of operations, the present officers and directors shall
continue as officers and directors of the Company. There are no present plans,
arrangements, or understandings concerning any change in compensation for any of
the officers or directors.
STOCK INCENTIVE PLAN
The Board of Directors of the Company has approved and adopted by
written consent, the Agri Bio-Sciences, Inc. Stock Incentive Plan (the "Stock
Incentive Plan"). The purpose of the Stock Incentive Plan is to provide deferred
stock incentives to certain key employees and directors of the Company who
contribute significantly to the long-term performance and growth of the Company.
The following description of the Stock Incentive Plan is qualified by the Stock
Incentive Plan itself.
General Provisions of the Stock Incentive Plan. The Stock Incentive
Plan will be administered by the Board of Directors or a committee of the Board
of Directors duly authorized and given authority by the Board of Directors to
administer the Stock Incentive Plan (the Board of Directors or such designated
Committee as administrator of the Stock Incentive Plan shall be hereinafter
referred to as the "Board"). The Board will have exclusive authority to
administer the Stock Incentive Plan including without limitation, to select the
employees to be granted awards under the Stock Incentive Plan, to determine the
type, size and terms of the awards to be made, to determine the time when awards
will be granted, and to prescribe the form of instruments evidencing awards made
under the Stock Incentive Plan. The Board will be authorized to establish, amend
and rescind any rules and regulations relating to the Stock Incentive Plan as
may be necessary for efficient administration of the Stock Incentive Plan. Any
Board action will require a majority vote of the members of the Board.
Three types of awards are available under the Stock Incentive Plan: (i)
nonqualified stock options or incentive stock, (ii) stock appreciation rights,
and (iii) restricted stock. An aggregate of 2,500,000 shares of Common Stock may
be issued pursuant to the Stock Incentive Plan, subject to adjustment to prevent
dilution due to merger, consolidation, stock split or other recapitalization of
the Company.
The Stock Incentive Plan will not affect the right or power of the
Company or its stockholders to make or authorize any major corporate transaction
such as a merger, dissolution or sale of assets. If the Company is dissolved,
liquidated or merged out of existence, each participant will be entitled to a
benefit as though he became fully vested in all previous awards to him
immediately prior to or concurrently with such dissolution, liquidation or
merger. The Board may provide that an option or stock appreciation right will be
fully exercisable, or that a share of restricted stock will be free of such
restriction upon a change in control of the Company.
The Stock Incentive Plan may be amended at any time and from time to
time by the Board of Directors but no amendment which increases the aggregate
number of shares of Common Stock that may be issued pursuant to the Stock
Incentive Plan will be effective unless it is approved by the stockholders of
the Company. The Stock Incentive Plan will terminate upon the earlier of the
adoption of a resolution by the Board of Directors terminating the Stock
Incentive Plan, or ten years from the date of the Stock Incentive Plan's
approval by the Board of Directors December 1, 1997.
25
<PAGE>
Stock Options and Stock Appreciation Rights. Stock Options and Stock
Appreciation Rights Stock options are rights to purchase shares of Common Stock.
Stock appreciation rights are rights to receive, without payment to the Company,
cash and/or shares of Common Stock in lieu of the purchase of shares of Common
Stock under the stock option to which the stock appreciation right is attached.
The Board may grant stock options in its discretion under the Stock Incentive
Plan. The option price shall be determined by the Board at the time the option
is granted and shall not be less than the par value of such shares.
The Board will determine the number of shares of Common Stock to be
subject to any option awarded. The option will not be transferable by the
recipient except by the laws of descent and distribution. The option period and
date of exercise will be determined by the Board and may not exceed ten years.
The option of any person who dies may be exercised by his executors,
administrators, heirs or distributors if done so within one year after the date
of that person's death with respect to any Common Stock as to which the decedent
could have exercised the option at the time of this death. Upon exercise of an
option, the participant may pay for Common Stock so acquired in cash, with
Common Stock (the value of which will be the fair market value at the date of
exercise), in a combination of both cash and Common Stock, or, in the discretion
of the Board, by promissory note. For purposes of determining the amount, if
any, of the purchase price satisfied by payment with Common Stock, fair market
value is the mean between the highest and lowest sales price per share of Common
Stock on a given day on the principal exchange upon which the stock trades or
some other quotation source designated by the Board.
The Board may, in its discretion, attach a stock appreciation right to
an option awarded under the Stock Incentive Plan. A stock appreciation right is
exercisable only to the extent that the option to which it is attached is
exercisable. A stock appreciation right entitles the optionee to receive a
payment equal to the appreciated value of each share of Common Stock under
option in lieu of exercising the option to which the right is attached. The
appreciated value is the amount by which the fair market value of a share of
Common Stock exceeds the option exercise price for that share of Common Stock. A
holder of a stock appreciation right may receive cash, Common Stock or a
combination of both upon surrendering to the Company the unexercised option to
which the stock appreciation right is attached. The Company must elect its
method of payment within fifteen business days after the receipt of written
notice of an intention to exercise the stock appreciation right.
Any person granted an incentive stock option under the Stock Incentive
Plan who makes a disposition, within the meaning of 425(c) of the Internal
Revenue Code of 1986, as amended ("Code"), and the regulations promulgated
thereunder, of any shares of Common Stock issued to him pursuant to his exercise
of an option within two years from the date of the granting of such option or
within one year after the date any shares are transferred to him pursuant to the
exercise of the incentive stock option must within ten days of the disposition
notify the Company and immediately deliver to the Company any amount of federal
income tax withholding required by law.
A person to whom a stock option or stock appreciation right is awarded
will have no rights as a stockholder with respect to any shares of Common Stock
issuable pursuant to the stock option or stock appreciation rights until actual
issuance of a stock certificate for Common Stock.
Restricted Stock. The Board may in its discretion award Common Stock
that is subject to certain restrictions on transferability. This restricted
stock issued pursuant to the Stock Incentive Plan may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by the laws
of descent and distribution, for a period of time as determined by the Board,
from the date on which the award is granted. The Company will have the option to
repurchase the shares of restricted Common Stock at such price as the Board
shall have fixed, in its sole discretion, when the award was made, which option
will be exercisable at such times and upon the occurrence of such events as the
Board shall establish when the restricted stock award is granted. The Company
may also exercise its option to repurchase the restricted Common Stock if prior
to the expiration of the restricted period, the participant has not paid to the
Company amounts required to be withhold pursuant to federal, state or local
income tax laws. Certificates for restricted stock will bear an appropriate
legend referring to the restrictions. A holder of restricted stock may exercise
all rights of ownership incident to such stock including the right to vote and
receive dividends, subject to any limitations the Board may impose.
26
<PAGE>
Tax Information. A recipient of an incentive stock option or a
non-qualified stock option will not recognize income at the time of the grant of
the option. On the exercise of a non-qualified stock option, the amount by which
the fair market value of Common Stock on the date of exercise exceeds the option
price will generally be taxable to the holder as ordinary income, and will be
deductible for tax purposes by the Company. The disposition of Common Stock
acquired upon exercise of a non-qualified option will ordinarily result in
capital gain or loss. In the case of officers who are subject to the
restrictions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the date for measuring the amount of ordinary income to be
recognized upon the exercise of a non-qualified stock option will generally be
six months after exercise rather than the date of exercise.
On the exercise of an option that qualifies as an "incentive stock
option" within the meaning of the Code, the holder will not recognize any income
and the Company will not be entitled to a deduction for tax purposes. However,
the difference between the exercise price and the fair market value of Common
Stock received on the date of the exercise will be treated as an "item of tax
preference" to the holder that may be subject to the alternative minimum tax.
The disposition of Common Stock acquired upon exercise of an incentive stock
option will ordinarily result in capital gain or loss, however if the holder
disposes of Common Stock acquired upon the exercise of an incentive stock option
within two years after the date of grant or one year after the date of exercise
(a "disqualifying disposition"), the holder will recognize ordinary income, and
the Company will be entitled to a deduction for tax purposes in the amount of
the excess of the fair market value of the shares of Common Stock on the date
the option was exercised over the option price (or, in certain circumstances,
the gain on sale, if less). Otherwise, the Company will not be entitled to any
deduction for tax purposes upon disposition of such Common Stock. Any excess of
the amount realized by the holder on the disqualifying disposition over the fair
market of Common Stock on the date of exercise of the option will be capital
gain.
If an incentive option is exercised through the use of Common Stock
previously owned by the holder, such exercise generally will not be considered a
taxable disposition of the previously owned Common Stock and thus no gain or
loss will be recognized with respect to such Common Stock upon exercise.
However, if the previously owned Common Stock was acquired by the exercise of an
incentive stock option or other tax qualified stock option and the holding
period requirements for Common Stock were not satisfied at the time the
previously owned Common Stock was used to exercise the incentive option, such
use would constitute a disqualifying disposition of such previously owned Common
Stock resulting in the recognition of ordinary income (but, under proposed
Treasury regulations, not any additional gain in capital gain) in the amount
described above.
The amount of any cash or the fair market value of any Common Stock
received upon the exercise of stock appreciation rights under the Stock
Incentive Plan will be subject to ordinary income tax in the year of receipt and
the Company will be entitled to a deduction for such amount. However, if the
holder receives Common Stock upon the exercise of stock appreciation rights and
is then subject to the restrictions of Section 16(b) of the Exchange Act; unless
the holder elects otherwise, the amount of ordinary income and deduction will be
measured at the time such restrictions lapse.
27
<PAGE>
Generally, a grant of restricted stock under the Stock Incentive Plan
will not result in taxable income to the employee or deduction to the Company in
the year of the grant. The value of Common Stock will be taxable to the employee
and compensation income in the years in which the restrictions on Common Stock
lapse. Such value will be the fair market value of Common Stock on the dates the
restrictions terminate, less any amount the recipient may have paid for Common
Stock at the time of the issuance. An employee, however, may elect to treat the
fair market value of Common Stock on the date of such grant (less restricted
stock), provided the employee makes the election within thirty days after the
date of the grant. If such an election is made and the employee later forfeits
Common Stock to the Company, the employee will not be allowed to deduct at a
later date the amount he had earlier included as compensation income. In any
case, the Company will receive a deduction corresponding in amount and time to
the amount of compensation included in the employee's income in the year in
which that amount is so included.
As of the date of this Prospectus, 1,750,000 incentive stock options
have been granted to officers and directors at an exercise price of $.50 per
share under the Stock Incentive Plan.
LIMITATIONS OF LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that directors will
not be personally liable for monetary damages for breach of their fiduciary
duties, except for breaches of the duty of loyalty, acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
unlawful dividends or transactions involving an improper personal benefit.
Moreover, if Delaware law were to change in the future to permit the further
elimination or limitation the personal liability of directors, the liability of
a director of the Company would be eliminated or limited to the fullest extent
permitted by Delaware law, as so amended.
CERTAIN TRANSACTIONS
In March, 1997, the Company opened a $150,000 credit line with Sterling
Bank, collateralized by a $150,000 certificate of deposit owned by the remaining
founding shareholder. This loan is payable upon demand, with interest at 6.9%
and fluctuating with prime rate. This credit line was paid in full on March 5,
1998 from additional shareholder capital contributions.
In August, 1996 M. Manny Kalish and Leonard Krawczyk, founding
shareholders of the Company, contributed to the Company the Bay Springs,
Mississippi plant site and 250 tons of bagged fertilizer at their combined
original cost of $200,000, for 4,000,000 and 6,000,000 shares of stock,
respectively, and a note payable for $100,000. In late 1996, the total
outstanding shares of Mr. Krawczyk were repurchased for $300,000 cash and a
second note for $200,000. This second note was paid off in 1997. The original
$100,000 note, bearing no interest, is still outstanding. Imputed interest at
10% is added for 1996 and 1997 as a shareholder contribution of capital.
In late 1996, the Company retired 760,000 shares of the 6,160,000
originally issued to the founding shareholder. During the first six months of
1997, this shareholder sold another 1,225,000 shares to other shareholders for
$245,000.
28
<PAGE>
In connection with the issuance of common stock, 1,500,000 options were
issued to five directors and shareholders in January 1997 with an exercise price
of $.50. An additional 250,000 options were issued to the remaining director and
shareholder in April 1998 with an exercise price of $.50. The options expire
September 18, 2000.
The Company has entered into a five-year exclusive sale and purchase
agreement with Global Farm Sciences, Inc., an affiliate of the Company
("Global"), for the purpose of selling the Company's product to foreign
entities. This agreement requires Global to purchase 2,000 metric tons of Micro
Min during the year 1999 and 2000 and thereafter purchase 3,000 metric tons of
Micro Min during each succeeding year. Global must pay $620.00 per metric ton in
United States dollars, FOB the Company's plant facility in Bay Springs,
Mississippi. Global must remit 50% of the purchase price with each purchase
order for Micro Min forwarded to the Company. Thereafter, Global must remit the
remaining 50% payment of its purchase order to the Company within ninety 90 days
of their receipt of the product FOB the plant. The Global agreement may be
terminated prior to its five-year term upon the occurrence of certain customary
termination events, such as breach of contract or bankruptcy. For more
information about Global and this Agreement, see "BUSINESS - SALES AND MARKETING
Exclusive Sale and Purchase Arrangement."
PRINCIPAL STOCKHOLDERS
The shares of Common Stock held by GS Financial represent less than 5%
of the outstanding shares of Common Stock prior to the Distribution. All the
Common Stock owned by GS Financial will be distributed to shareholders of GS
Financial in connection with the Distribution, and the Company knows of no owner
of Common Stock who is also an owner of shares of GS Financial. Therefore, the
tables assumes that each of the persons named below own no shares of GS
Financial Common Stock and no options to acquire GS Financial Common Stock
exercisable within 60 days of such date.
The following table sets forth as of October 9, 1998, the amount of
Common Stock beneficially owned by (i) each person known by the Company to own
beneficially 5% or more of its outstanding shares of Common Stock prior to the
Distribution, (ii) each Director, (iii) each executive officer, and (iv) all
Directors and executive officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares, subject to community property
laws where applicable.
29
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER PERCENTAGE OF
BENEFICIAL OWNER OF SHARES SHARES OUTSTANDING(1)
<S> <C> <C> <C>
M.M. Kalish 4,897,500(2) 38.1%
7806 Oxfordshire Drive
Spring, Texas 77379
Lester H. Stephens 1,440,000(3) 11.2%
5211 Court of York
Houston, Texas 77069
Vernon L. Medlin, M.D. 1,368,000(4) 10.6%
1242 Sandpiper
Corpus Christi, Texas 78412
Leslie L. Lemak, M.D. 1,243,000(5) 9.7%
5457 Sugar Hill
Houston, Texas 77056
Patrick N. Morgan 767,000(6) 6.0%
819 Hedwig Way
Houston, Texas 77024
Anthony A. Mierzwa 793,000(7) 6.2%
1323 South Boulevard
Houston, Texas 77006
Officers and Directors as a Group 10,508,500(1) 81.8% ________________________
</TABLE>
(1) Includes 1,750,000 shares issuable in connection with options or
warrants exercisable within 60 days of this Prospectus. The numbers and
percentages of shares outstanding both before and after the
Distribution will remain the same.
(2) Includes 500,000 shares issuable in connection with options or
warrants exercisable within 60 days of this Prospectus.
(3) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus, 900,000 shares owned of
record by the Stephens Family Trust and 250,000 shares owned of record
by Stephens family members to which Mr. Stephens disclaims any
interest.
(4) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus, 625,000 shares owned of
record by Black Cloud Partners, LLP and 125,000 shares owned of record
by Medlin family members to which Dr. Medlin disclaims any interest.
(5) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus, 300,000 shares owned or
record by Lemak family members to which Dr. Lemak disclaims any
interest.
(6) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus.
(7) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus, 100,000 shares owned of
record by a member of the Mierzwa family to which Mr. Mierzwa disclaims
any interest.
30
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 20 million shares of common stock,
$0.001 par value, and 5 million shares of preferred stock. The presently
outstanding shares of Common Stock are fully paid and nonassessable.
There are no shares of preferred stock issued and outstanding.
COMMON STOCK
The authorized Common Stock consists of 20,000,000 shares, $.001 par
value, of which 10,350,000 shares were issued and outstanding as of December 31,
1997. The holders of Common Stock are entitled to one vote per share on the
election of directors and on all other matters submitted to a vote of
stockholders. Shares of Common Stock do not have preemptive rights or cumulative
voting rights. The Company's Certificate of Incorporation, as amended, provides
that the board of directors shall be divided into three classes, as nearly equal
in number as possible, and that at each annual meeting of stockholders all of
the directors of one class shall be elected for a three-year term. The
affirmative vote of not less than 75% of the outstanding shares of Common Stock
is required to approve a merger or consolidation, a transfer of substantially
all the assets, certain issuances and transfers of the Company's securities to
other entities or a dissolution of the Company, unless the Board of Directors of
the Company has approved the transaction. Additionally, certain business
combinations involving the Company and any holder of 15% or more of the
Company's outstanding voting stock must be approved by at least 66.67% of such
voting stock, exclusive of the stock owned by the 15% stockholders, unless
approved by a majority of the directors not affiliated with such holder or
certain price and procedural requirements are met. These provisions, together
with the authorization to issue preferred stock on terms designated by the Board
of Directors, described above, could be used as anti-takeover devices.
The holders of Common Stock are entitled to receive dividends ratably
when, as and if declared by the Board of Directors, and upon liquidation are
entitled to share ratably in the Company's net assets. Payment of dividends on
the Common Stock may be subject to restrictions contained in any future
agreement in connection with the issuance of Preferred Stock. The decision to
pay dividends is subject to any agreements with holders of preferred stock
issued in the future and such other financial considerations as the Board of
Directors of the Company may deem relevant. No assurance can be given as to the
timing or amount of any dividend that the Company may declare on the Common
Stock.
The Company's By-Laws provide that, subject to certain limitations
discussed below, any stockholder entitled to vote in the election of directors
generally may nominate one or more persons for election as directors at a
meeting. The Company's By-Laws also provide that a stockholder must give written
notice of such stockholder's intent to make such nomination or nominations,
either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company not later than (i) with respect to an election to be
held at an Annual Meeting of Stockholders, 90 days prior to the anniversary date
of the date of the immediately preceding Annual Meeting, and (ii) with respect
to an election to be held at a Special Meeting of Stockholders for the election
of directors, the close of business on the tenth day following the date on which
a written statement setting forth the date of such meeting is first mailed to
stockholders provided that such statement is mailed no earlier than 120 days
prior to the date of such meeting. Notwithstanding the foregoing, if an existing
director is not standing for re-election to a directorship which is the subject
of an election at such meeting or if a vacancy exists as to a directorship which
is the subject of an election, whether as a result of resignation, death, an
increase in the number of directors, or otherwise, then a stockholder may make a
nomination with respect to such directorship at any time not later than the
close of business on the tenth day following the date on which a written
statement setting forth the fact that such directorship is to be elected and the
name of the nominee proposed by the Board of Directors is first mailed to
stockholders. Each notice of a nomination from a stockholder shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the Exchange Act
and the rules and regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations); and (e) the consent of each nominee to serve as
a director of the Company if so elected. The presiding officer of the meeting
may refuse to acknowledge the nomination of any person not made in compliance
with the foregoing procedure.
31
<PAGE>
DEFENSES AGAINST HOSTILE TAKEOVERS
Introduction. While the following discussion summarizes the reasons
for, and the operation and effects of, certain provisions of the Company's
Certificate of Incorporation which management has identified as potentially
having an anti-takeover effect, it is not intended to be a complete description
of all potential anti-takeover effects, and it is qualified in its entirety by
reference to the Company's Certificate of Incorporation and By-Laws, copies of
which are available from the Company, which should be reviewed for more detailed
information.
In general, the anti-takeover provisions in Delaware law and the
Company's Certificate of Incorporation are designed to minimize the Company's
susceptibility to sudden acquisitions of control which have not been negotiated
with and approved by the Company's Board of Directors. As a result, these
provisions may tend to make it more difficult to remove the incumbent members of
the Board of Directors. The provisions would not prohibit an acquisition of
control of the Company or a tender offer for all of the Company's capital stock.
The provisions are designed to discourage any tender offer or other attempt to
gain control of the Company in a transaction that is not approved by the Board
of Directors, by making it more difficult for a person or group to obtain
control of the Company in a short time and then impose its will on the remaining
stockholders. However, to the extent these provisions successfully discourage
the acquisition of control of the Company or tender offers for all or part of
the Company's capital stock without approval of the Board of Directors, they may
have the effect of preventing an acquisition or tender offer which might be
viewed by stockholders to be in their best interests.
Tender offers or other non-open market acquisitions of stock are
usually made at prices above the prevailing market price of a company's stock.
In addition, acquisitions of stock by persons attempting to acquire control
through market purchases may cause the market price of the stock to reach levels
which are higher than would otherwise be the case. Anti-takeover provisions may
discourage such purchases, particularly those of less than all of the company's
stock, and may thereby deprive stockholders of an opportunity to sell their
stock at a temporarily higher price. These provisions may therefore decrease the
likelihood that a tender offer will be made, and, if made, will be successful.
As a result, the provisions may adversely affect those stockholders who would
desire to participate in a tender offer. These provisions may also serve to
insulate incumbent management from change and to discourage not only sudden or
hostile takeover attempts, but any attempts to acquire control which are not
approved by the Board of Directors, whether or not stockholders deem such
transactions to be in their best interests.
Authorized Shares of Capital Stock. The Company's Certificate of
Incorporation authorizes the issuance of up to 5,000 shares of serial preferred
stock. Shares of the Company's serial preferred stock with voting rights could
be issued and would then represent an additional class of stock required to
approve any proposed acquisition. This preferred stock, together with authorized
but unissued shares of Common Stock (the Certificate of Incorporation authorizes
the issuance of up to 20,000 shares), could represent additional capital stock
required to be purchased by an acquiror. Issuance of such additional shares may
dilute the voting interest of the Company's stockholders. If the Board of
Directors of the Company determined to issue an additional class of voting
preferred stock to a person opposed to a proposed acquisition, such person might
be able to prevent the acquisition single-handedly.
32
<PAGE>
Stockholder Meetings. Delaware law provides that the annual stockholder
meeting may be called by a corporation's board of directors or by such person or
persons as may be authorized by a corporation's certificate of incorporation or
By-Laws. The Company's Certificate of Incorporation provides that annual
stockholder meetings may be called only by the Company's Board of Directors or a
duly designated committee of the Board. Although the Company believes that this
provision will discourage stockholder attempts to disrupt the business of the
Company between annual meetings, its effect may be to deter hostile takeovers by
making it more difficult for a person or entity to obtain immediate control of
the Company between one annual meeting as a forum to address certain other
matters and discourage takeovers which are desired by the stockholders. The
Company's Certificate of Incorporation also provides that stockholder action may
be taken only at a special or annual stockholder meeting and not by written
consent.
Classified Board of Directors and Removal of Directors. The Company's
Certificate of Incorporation provides that The Company's Board of Directors is
to be divided into three classes which shall be as nearly equal in number as
possible. The directors in each class serve for terms of three years, with the
terms of one class expiring each year. Each class currently consists of
approximately one-third of the number of directors. Each director will serve
until his successor is elected and qualified.
A classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of the Company's outstanding
stock, to force an immediate change in the composition of a majority of the
Board of Directors. Since the terms of only one-third of the incumbent directors
expire each year, it requires at least two annual elections for the stockholders
to change a majority, whereas a majority of a non-classified Board may be
changed in one year. In the absence of the provisions of the Company's
Certificate of Incorporation classifying the Board, all of the directors would
be elected each year. The provision for a staggered Board of Directors affects
every election of directors and is not triggered by the occurrence of a
particular event such as a hostile takeover. Thus a staggered Board of Directors
makes it more difficult for stockholders to change the majority of directors
even when the reason for the change would be unrelated to a takeover.
The Company's Certificate of Incorporation provides that a director may
not be removed except for cause by the affirmative vote of the holders of 75% of
the outstanding shares of capital stock entitled to vote at an election of
directors. This provision may, under certain circumstances, impede the removal
of a director and thus preclude the acquisition of control of the Company
through the removal of existing directors and the election of nominees to fill
in the newly created vacancies. The supermajority vote requirement would make it
difficult for the stockholders of the Company to remove directors, even if the
stockholders believe such removal would be beneficial.
Restriction of Maximum Number of Directors and Filling Vacancies on the
Board of Directors. Delaware law requires that the board of directors of a
corporation consist of one or more members and that the number of directors
shall be set by the corporation's By-Laws, unless it is set by the corporation's
certificate of incorporation. The Company's Certificate of Incorporation
provides that the number of directors (exclusive of directors, if any, to be
elected by the holders of preferred stock) shall not be less than five or more
than 15, as shall be provided from time to time in accordance with the Company
By-Laws. The power to determine the number of directors within these numerical
limitations and the power to fill vacancies, whether occurring by reason of an
increase in the number of directors or by resignation, is vested in the
Company's Board of Directors. The overall effect of such provisions may be to
prevent a person or entity from quickly acquiring control of the Company through
an increase in the number of the Company's directors and election of nominees to
fill the newly created vacancies and thus allow existing management to continue
in office.
33
<PAGE>
Stockholder Vote Required to Approve Business Combinations with Related
Persons. The Company's Certificate of Incorporation generally requires the
approval of the holders of 75% of the Company's outstanding voting stock (and
any class or series entitled to vote separately), and a majority of the
outstanding stock not beneficially owned by a related person (as defined) (up to
a maximum requirement of 85% of the outstanding voting stock), to approve
business combinations (as defined) involving the related person, except in cases
where the business combination has been approved in advance by two-thirds of
those members of the Company's Board of Directors who were directors prior to
the time when the related person became a related person. Under Delaware law,
absent these provisions, business combinations generally, including mergers,
consolidations and sales of substantially all of the assets of the Company must,
subject to certain exceptions, be approved by the vote of the holders of a
majority of the Company's outstanding voting stock. One exception under Delaware
law to the majority approval requirement applies to business combinations (as
defined) involving stockholders owning 15% of the outstanding voting stock of a
corporation for less than three years. In order to obtain stockholder approval
of a business combination with such a related person, the holders of two-thirds
of the outstanding voting stock, excluding the stock owned by the 15%
stockholder, must approve the transaction. Alternatively, the 15% stockholder
must satisfy other requirements under Delaware law relating to (i) the
percentage of stock acquired by such person in the transaction which resulted in
such person's ownership becoming subject to the law, or (ii) approval of the
board of directors of such person's acquisition of the stock of the Delaware
corporation. Delaware law does not contain price criteria. The supermajority
stockholder vote requirements under the Certificate of Incorporation and
Delaware law may have the effect of foreclosing mergers and other business
combinations which the holders of a majority of the Company's stock deem
desirable and place the power to prevent such a transaction in the hands of a
minority of the Company's stockholders
Under Delaware law, there is no cumulative voting by stockholders for
the election of the Company's directors. The absence of cumulative voting rights
effectively means that the holders of a majority of the stock voted at a
stockholder meeting may, if they so choose, elect all directors of the Company,
thus precluding a small group of stockholders from controlling the election of
one or more representatives to the Company's Board of Directors.
Advance Notice Requirements for Nomination of Directors and Proposal of
New Business at Annual Stockholder Meetings. The Company's Certificate of
Incorporation generally provides that any stockholder desiring to make a
nomination for the election of directors or a proposal for new business at a
stockholder meeting must submit written notice not less than 30 or more than 60
days in advance of the meeting. This advance notice requirement may give
management time to solicit its own proxies in an attempt to defeat any dissident
slate of nominations, should management determine that doing so is in the best
interests of stockholders generally. Similarly, adequate advance notice of
stockholder proposals will give management time to study such proposals and to
determine whether to recommend to the stockholders that such proposals be
adopted. In certain instances, such provisions could make it more difficult to
oppose management's nominees or proposals, even if the stockholders believe such
nominees or proposals are in their interests. Making the period for nomination
of directors and introducing new business a period not less than 10 days prior
to notice of a stockholder meeting may tend to discourage persons from bringing
up matters disclosed in the proxy materials furnished by the Company and could
inhibit the ability of stockholders to bring up new business in response to
recent developments.
34
Limitations on Acquisitions of Capital Stock. The Company's Certificate
of Incorporation generally provides that if any person were to acquire
beneficial ownership of more than 20% of any class of the Company's outstanding
Common Stock, each vote in excess of 20% would be reduced to one-hundredth of a
vote, with the reduction allocated proportionately among the record holders of
the stock beneficially owned by the acquiring person. The limitation on voting
rights of shares beneficially owned in excess of 20% of the Company's
outstanding Common Stock, would discourage stockholders from acquiring a
substantial percentage of the Company's stock in the open market, without
disclosing their intentions, prior to approaching management to negotiate an
acquisition of the Company's remaining stock. The effect of these provisions is
to require amendment of the Certificate of Incorporation, which requires Board
approval, before a stockholder can acquire a large block of the Company's Common
Stock. As a result, these provisions may deter takeovers by potential acquirors
who would have acquired a large holding before making an offer for the remaining
stock, even though the eventual takeover offer might have been on terms
favorable to the remaining stockholders.
Supermajority Voting Requirement for Amendment of Certain Provisions of
the Certificate of Incorporation. The Company's Certificate of Incorporation
provides that specified provisions contained in the Certificate of Incorporation
may not be repealed or amended except upon the affirmative vote of the holders
of not less than seventy-five percent of the outstanding stock entitled to vote.
This requirement exceeds the majority vote that would otherwise be required by
Delaware law for the repeal or amendment of the Certificate of Incorporation.
Specific provisions subject to the supermajority vote requirement are (i)
Article X, governing the calling of stockholder meetings and the requirement
that stockholder action be taken only at annual or special meetings, (ii)
Article XI, requiring written notice to the Company of nominations for the
election of directors and new business proposals, (iii) Article XII, governing
the number and terms of the Company's directors, (iv) Article XIII, governing
the removal of directors, (v) Article XIV, limiting acquisitions of 20% or more
of the Company's stock, (vi) Article XV, governing approval of business
combinations involving related persons, (vii) Article XVI, relating to the
consideration of various factors in the evaluation of business combinations,
(viii) Article XVII, providing for indemnification of directors, officers,
employees and agents, (ix) Article XVIII, limiting directors' liability, and (x)
Articles XIX and XX, governing the required stockholder vote for amending the
By-Laws and Certificate of Incorporation, respectively. Article XX is intended
to prevent the holders of less than 75% of the Company's outstanding voting
stock from circumventing any of the foregoing provisions by amending the
Certificate of Incorporation to delete or modify one of such provisions. This
provision would enable the holders of more than 25% of the Company's voting
stock to prevent amendments to the Certificate of Incorporation or By-Laws even
if they were favored by the holders of a majority of the voting stock. PREFERRED
STOCK
The Board of Directors of the Company is authorized by its Certificate
of Incorporation, without any action on the part of stockholders, to issue
preferred stock in one or more series, with such voting powers, full or limited
but not to exceed one vote per share, or without voting powers, and with such
designations, preferences, limitations, descriptions and terms thereof,
including the extent, if any, to which the holders of the shares of any such
series will be entitled to vote as a class or otherwise with respect to the
election of directors or otherwise, all as shall, to the extent permitted under
the laws of the State of Delaware, be determined by the Board of Directors of
the Company. Thus, the Board of Directors, without stockholder approval, may
authorize the issuance of preferred stock which could make it more difficult for
another company to effect certain business combinations with the Company.
35
<PAGE>
COMMON STOCK OPTIONS
In connection with the issuance of common stock, 1,500,000 options were
issued to 5 directors and shareholders in January, 1997 with an exercise price
of $.50. An additional 250,000 options were issued to the remaining director and
shareholder in April, 1998 with an exercise price of $.50. The options expire
September 18, 2000.
REGISTRAR AND TRANSFER AGENT
The transfer agent for the Common Stock is Atlas Stock Transfer
Corporation, Salt Lake City, Utah.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Distribution, there has been no trading market for the
Common Stock. The Company will attempt to have the Common Stock quoted on the
NASD OTC the Electronic Bulletin Board. However, there can be no assurance that
any active trading market for the Common Stock will develop and, if developed,
will continue after the Distribution. The quotation of the Common Stock on the
Electronic Bulletin Board is conditioned upon the Company meeting certain
requirements with respect to the availability of public information and a
broker-dealer making a market in the Common Stock. See "RISK FACTORS - Risk of
Low-Price ("Penny") Stocks." No broker-dealer has agreed to make a market in the
Common Stock, there can be no assurance that any broker-dealer will make a
market in the Common Stock or, if so, that it will continue for any specific
period of time. See "RISK FACTORS Absence of Prior Trading Market."
Upon completion of the Distribution, the Company will have 10,450,000
shares of Common Stock outstanding, of which 8,701,500 are held by "affiliates"
of the Company. The remaining 1,748,500 shares, which includes the 100,000
shares acquired in the Distribution, will be freely tradable without restriction
or further registration under the Securities Act. Shares held by "affiliates" of
the Company, will be subject to the limitations of Rule 144 promulgated under
the Securities Act.
In general, under Rule 144, a person (or persons whose shares are
required to be aggregated), including any affiliate of the Company, who
beneficially owns "restricted shares" for a period of at least one year is
entitled to sell within any three month period, shares equal in number to the
greater of (i) 1% of the then outstanding shares of Common Stock (approximately
104,500 shares immediately after the Distribution); or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
filing of the required notice of sale with the Commission. In addition, any
person (or person whose shares are aggregated) who is not, at the time of the
sale or during the preceding three months, an affiliate of the Company, and who
has beneficially owned restricted shares for at least two years, can sell such
shares under Rule 144 without regard to the notice, manner of sale, public
information or volume limitations described above. Following the Distribution,
approximately 1.75 million shares of Common Stock will be issuable upon the
exercise of options held by Directors of the Company.
36
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Distribution will be
passed upon for Agri Bio-Sciences, Inc. by Sonfield & Sonfield, Houston, Texas.
EXPERTS
The audited financial statements of Agri Bio-Sciences, Inc. at December
31, 1997, appearing in this Prospectus and elsewhere in the Registration
Statement have been audited by Malone & Bailey, PLLC, independent public
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon the authority of such firm as experts in
giving such report.
37
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Index ..............................................................................................F - 1
Audited Financial Statements:
Report of Independent Public Accountants ...........................................................F - 2
Balance Sheets as of December 31, 1997 .............................................................F - 3
Statements of Expenses for the Years Ended
.........December 31, 1997 and 1996 and the
.........Period from May 30, 1995 (Date of
Inception) to December 31, 1997 ...........................................................F - 4
Statements of Stockholders' Equity for the
Years Ended December 31, 1997 and 1996
and the Period from May 30, 1995
(Date of Inception) to December 31, 1997 ..................................................F - 5
Statements of Cash Flow for the Years Ended
December 31, 1997 and 1996 and the Period from
May 30, 1995 (Date of Inception) to
December 31, 1997 ..........................................................................F - 6
Notes to Financial Statements .......................................................................F - 8
Interim Financial Statements:
Balance Sheet as of September 30, 1998 .............................................................G - 1
Statement of Expenses for the Nine Months Ended
September 30, 1998 ........................................................................G - 2
Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1998 ......................................................G - 3
Statement of Cash Flow for the Nine Months Ended
September 30, 1998 .........................................................................G - 4
Notes to Financial Statements .......................................................................G - 5
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Agri Bio-Sciences, Inc.
Houston, Texas
We have audited the accompanying balance sheet of Agri Bio-Sciences, Inc. (a
Delaware corporation) as of December 31, 1997 and 1996, and the related
statements of expenses, stockholders' equity, and cash flows for the years then
ended and for the period from inception (May 30, 1995) to December 31, 1997.
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 audit.
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 audit provides 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 Agri Bio-Sciences, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the initial period then ended in conformity with generally accepted
accounting principles.
February 2, 1998, (except for Note 2,
as to which the date is March 5, 1998)
MALONE & BAILEY, PLLC
Houston, Texas
F-2
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Cash $ 7,597 $ 78,777
Inventory - packaged fertilizer 100,000 100,000
Other current assets 7,500
Fertilizer plant and equipment, net 173,136 107,807
Deposits 12,500 12,500
------ ------
TOTAL ASSETS $300,733 $299,084
======== ========
LIABILITIES
Note payable to Sterling Bank $128,210
Accrued expenses 5,705
Due to former stockholder 100,000 $300,000
------- --------
TOTAL LIABILITIES 233,915 300,000
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000
shares authorized, 10,350,000 and
9,065,000 issued and outstanding 10,350 9,065
Paid in capital 435,300 169,585
Deficit Accumulated During the
Development Stage (378,832) (179,566)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 66,818 ( 916)
------ --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $300,733 $299,084
======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statements of Expenses
Years Ended December 31, 1997 and 1996,
and the Period from May 30, 1995 (Date of Inception)
to December 31, 1997
<TABLE>
<CAPTION>
May 30, 1995
(Inception) to
December 31,
1997 1996 1997
<S> <C> <C> <C>
EXPENSES
Fees paid for services
by stockholders $ 30,250 $ 38,150 $168,400
Other administrative expenses 154,671 31,416 186,087
Interest 13,595 10,000 23,595
Depreciation 750 750
-------- ------ -------
NET (DEFICIT) $(199,266) $(179,566) $(378,832)
========= ========= =========
(Loss) per common share $(.02) $(.02)
Weighted average
shares outstanding 9,707,500 7,315,000
</TABLE>
See notes to financial statements.
F-4
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statements of Stockholders' Equity
Years Ended December 31, 1997 and 1996,
and the Period from May 30, 1995 (Date of Inception)
to December 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid in Development
Shares $ Capital Stage Totals
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995 0 0 $ 0 $ 0 $ 0
Shares issued in exchange
for fertilizer plant
site contributed
at inception 4,000,000 400 99,600 100,000
Shares issued for services
to founding shareholder 5,565,000 5,565 50,085 55,650
to consultants 2,500,000 2,500 500,500 503,000
Imputed interest on note
due to former shareholder 10,000 10,000
Shares repurchased for
cash and note payable (4,000,000) ( 400) (499,600) (500,000)
Net (deficit) (179,566) (179,566)
----------- -------- --------- ---------- ----------
Balances,
December 31, 1996 9,065,000 9,065 169,585 (179,566) ( 916)
Shares issued for cash 1,275,000 1,275 253,725 255,000
Shares issued for
services 10,000 10 1,990 2,000
Imputed interest on
note due to former
shareholder 10,000 10,000 10,000
Net (deficit) (199,266) (199,266)
----------- -------- --------- --------- ---------
Balances,
December 31, 1997 10,350,000 $10,350 $435,300 $(378,832) $ 66,818
========== ======= ======== ========= ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statements of Cash Flow
Years Ended December 31, 1997 and 1996, and
the Period from May 30, 1995 (Date of Inception)
to December 31, 1997
<TABLE>
<CAPTION>
May 30, 1995
(Inception) to
December 31,
1997 1996 1997
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(199,266) $(179,566) $(378,832)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Common stock issued for services 2,000 65,650 67,650
Contribution of imputed interest 10,000 10,000 20,000
Increase in other current assets ( 7,500) ( 7,500)
Increase in accrued expenses 5,705 5,705
----- ------- -------
NET CASH USED BY
OPERATING ACTIVITIES 189,061) (103,916) (292,977)
CASH FLOWS FROM INVESTING ACTIVITIES
Plant site construction and equipment
purchases ( 65,329) ( 7,807) ( 73,136)
Additions to deposits ( 12,500) ( 12,500)
-------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES ( 65,329) ( 20,307) ( 85,636)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock for cash 255,000 503,000 758,000
Reduction of debt owed to a former
shareholder (200,000) (200,000)
Proceeds from (payments to) a bank 128,210 128,210
Cash paid to repurchase shares from
a founding shareholder (300,000) (300,000)
-------- -------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 183,210 203,000 386,210
------- ------- -------
NET INCREASE (DECREASE) IN CASH $( 71,180) $ 78,777 $ 7,597
========== ========== ===========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statements of Cash Flow
Years Ended December 31, 1997 and 1996,
and the Period from May 30, 1995 (Date of Inception)
to December 31, 1997
<TABLE>
<CAPTION>
May 30, 1995
Inception) to
December 31,
1997 1996 1997
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
(from previous page) $( 71,180) $ 78,777 $ 7,597
CASH AT BEGINNING OF PERIOD 78,777
--------- -------- ---------
CASH AT END OF PERIOD $ 7,597 $ 78,777 $ 7,597
SUPPLEMENTAL DISCLOSURES
Interest paid $ 2,395 $ 0 $ 0
Non-cash investing and
financing activities
Contribution of plant site at inception 100,000 100,000
Purchase of bagged fertilizer for note payable 100,000 100,000
</TABLE>
See notes to financial statements.
F-7
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
Notes to Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Incorporation. Agri Bio-Sciences, Inc. (AGRI) (formerly Agri Environmental
Sciences, Inc.) was formed May 30, 1995 as a Texas corporation. On December 22,
1997, a separate company with the same name was incorporated in Delaware and the
Texas corporation merged into the Delaware corporation. There was no activity
during 1995.
A sister corporation, Agri Financial Group, Inc. (AFS), was formed by seven AGRI
shareholders in March 1997 for the purpose of financing a joint venture soil
analysis laboratory in Tlaxcala, Mexico with a Mexican university. This sister
corporation was merged with AGRI in August 1997 by exchanging 340,000 shares of
AGRI for 100% of the outstanding stock of AFS. This exchange of shares was
accounted for as a reorganization of entities under common control using the
pooling of interests method.
The financial statements are presented as if the Company has operated as a
single continuous company.
Nature of Business. AGRI was formed to manufacture clay-based commercial
agricultural fertilizer and sell it to markets in third world countries. As of
February 2, 1998, there were negotiations with agricultural agencies in Mexico
for pending shipments. There have been no sales or shipments of fertilizer to
date.
Inventory consists of about 220 tons of packaged fertilizer remaining from the
plant's previous operational period ending in 1994. It is valued at $100,000
which is the price paid by a founding shareholder, including travel and other
acquisition costs. The estimated selling price net of freight is $175,000.
Other current assets as December 31, 1997 consists of prepaid freight for the
pending fertilizer shipments, prepaid legal fees and an advance to a Mexican
agent pending performance of requested services.
Deposits consists of two credit card advance deposits.
F-8
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
Notes to Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fertilizer Plant. The fertilizer plant consists of a 24,000 square foot
production and storage building located on 7 acres of land in Bay Springs,
Mississippi. The plant was acquired by AGRI in 1996 as a contribution from a
founding shareholder and is valued at the $100,000 cash price paid by the
founding shareholder in 1993. The plant has not operated since its former owner
filed for bankruptcy in 1992. Beginning in 1996, AGRI began construction
modifications to make the plant operational again. The plant was pronounced
operational in fall, 1997, with operations to begin when sales occur.
NOTE 2 - NOTE PAYABLE TO STERLING BANK
In March, 1997, AGRI opened a $150,000 credit line with Sterling Bank,
collateralized by a $150,000 certificate of deposit owned by the remaining
founding shareholder. This loan is payable upon demand, with interest at 6.9%
and fluctuating with prime rate. This credit line was paid in full on March 5,
1998 from additional shareholder capital contributions.
NOTE 3 - PAYMENTS TO FOUNDING SHAREHOLDERS
In August, 1996 a founding shareholder contributed the Bay Springs, Mississippi
plant site and 250 tons of bagged fertilizer at his combined original cost of
$200,000, for 4,000,000 shares of stock and a note payable for $100,000. In late
1996, the total outstanding shares of this founding shareholder were repurchased
for $300,000 cash and a second note for $200,000. This second note was paid off
in 1997. The original $100,000 note, bearing no interest, is still outstanding.
Imputed interest at 10% is added for 1996 and 1997 as a shareholder contribution
of capital.
F-9
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
Notes to Financial Statements
NOTE 4 - INSIDER COMMON STOCK RE-SALES
In late 1996, AGRI retired 760,000 shares of the 6,160,000 originally issued to
the founding shareholder. During the first 6 months of 1997, this shareholder
sold another 1,225,000 shares to other shareholders for $245,000.
NOTE 5 - COMMON STOCK OPTIONS
In connection with the issuance of common stock, 1,500,000 options were issued
to 5 shareholders in January, 1997 with an exercise price of $.50. The options
expire September 18, 1998.
NOTE 6 - SISTER SALES CORPORATION
In December 1997 Global Farm Sciences, Inc., a Texas corporation, was formed by
a Company founder and board member for the purpose of selling the Company's
fertilizer product to foreign companies. As of February 2, 1998, no
capitalization or business activity has occurred.
F-10
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Balance Sheet
September 30, 1998
UNAUDITED
<TABLE>
<S> <C>
ASSETS
Cash $ 3,830
Inventory - packaged fertilize 100,000
Fertilizer plant and equipment, net of $4,500
accumulated depreciation 169,386
Deposits 12,500
------
TOTAL ASSETS
$285,716
========
LIABILITIES
Accounts payable $ 9,432
Due to current majority stockholder 52,000
Due to former stockholder 100,000
-------
TOTAL LIABILITIES 161,432
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 20,000,000
shares authorized, 10,900,000 issued and
outstanding 10,900
Paid in capital 572,250
Deficit Accumulated During the Development Stage (458,866)
--------
TOTAL STOCKHOLDERS' EQUITY 124,284
-------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $285,716
========
</TABLE>
G-1
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statement of Expenses
9 Months Ended September 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
May 30, 1995
(Inception) to
September 30,
1998 1998
<S> <C> <C>
EXPENSES
Fees paid for services by stockholders $ 168,400
Other administrative expenses $ 73,574 259,661
Interest 2,710 26,305
Depreciation 3,750 4,500
----- -----
NET (Deficit) $( 80,034) $(458,866)
========= =========
(Loss) per common share $(.01)
Weighted average shares outstanding 10,777,778
</TABLE>
G-2
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statement of Stockholders' Equity
9 Months Ended September 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid in Development
Shares $ Capital Stage Totals
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1997 10,350,000 $ 10,350 $435,300 $(378,832) $ 66,818
Shares issued for cash 550,000 550 136,950 137,500
Net (deficit) ( 80,034) ( 80,034)
----------- -------- -------- ---------- ---------
Balances,
September 30, 1998 10,900,000 $ 10,900 $572,250 $(458,866) $124,284
========== ======== ======== ========= ========
</TABLE>
G-3
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
(A Development Stage Company)
Statement of Cash Flows
9 Months Ended September 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
May 30, 1995
(Inception) to
September 30,
1998 1998
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $( 80,034) $(458,866)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,750 4,500
Common stock issued for services 67,650
Contribution of imputed interest 20,000
Changes in:
Other current assets 7,500
Accounts payable 4,927 9,432
Accrued expenses ( 1,200)
----------- --------
NET CASH USED BY OPERATING ACTIVITIES ( 65,057) (357,284)
CASH FLOWS FROM INVESTING ACTIVITIES
Plant site construction and equipment
purchases ( 73,886)
Additions to deposits ( 12,500)
--------
NET CASH USED FOR INVESTING ACTIVITIES ( 86,386)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock for cash 137,500 895,500
Purchase of stock from a former
shareholder (500,000)
Proceeds from the current major
shareholder 52,000 52,000
Repayment of bank credit line (128,210)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 61,290 447,500
------ -------
NET INCREASE (DECREASE) IN CASH ( 3,767) 3,830
CASH AT BEGINNING OF PERIOD 7,597
--------- --------
CASH AT END OF PERIOD $ 3,830 $ 3,830
======== ========
</TABLE>
G-4
<PAGE>
AGRI BIO-SCIENCES, INC.
(formerly Agri Environmental Sciences, Inc.)
Notes to Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They include all adjustments which in the opinion of management are
necessary in order to make the financial statements not misleading. The
financial statements contained herein should be read in conjunction with the
audited financial statements of the Company. Accordingly, footnote disclosure
which would substantially duplicate the disclosure in those statements has been
omitted.
NOTE 2 - INSIDER COMMON STOCK RE-SALES
From time to time, the founding and largest single shareholder sells a portion
of his personal stock to third parties. He then loans these monies to the
Company. During the first 9 months of 1998, he sold 60,000 shares to other
shareholders for $15,000. During this same period, he loaned the Company
$52,000, which is repayable one year from issue date with 8% interest.
NOTE 3 - COMMON STOCK OPTIONS
In connection with the issuance of common stock, 1,500,000 options were issued
to 5 shareholders in January, 1997 with an exercise price of $.50. The options
expiration date has been extended to September 18, 2000.
G-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under Delaware Law. Section 145 of the
General Corporation Law of Delaware provides that:
(a) A corporation may indemnify any person, including officers
and directors, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of another corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation under the same
conditions, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Article XV of the Certificate of Incorporation of the Registrant
provides, in effect, that subject to certain limited circumstances, the Company
will indemnify its officers and directors to the extent permitted by Delaware
Law. The Company is not insured for liabilities it may incur pursuant to Article
XV of its Certificate of Incorporation relating to the indemnification of
officers and directors of the Company and its subsidiaries or affiliates.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
ITEM AMOUNT
<S> <C>
Registration fees ........................................................................................$ ______
Stock transfer agent's fee .................................................................................._____
Printing and engraving .....................................................................................5,000*
Postage ....................................................................................................1,000*
Legal .....................................................................................................15,000
Accounting .................................................................................................5,000
TOTAL .....................................................................................................$ ______
</TABLE>
* Estimate
- --------------------
ITEM 26..RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of the transactions by the Company during the
past three years involving sales of its securities that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"):
In April 1998 the Registrant issued 100,000 shares of its Common Stock to
GS Financial Services, Inc., a Delaware corporation in consideration of
consulting services rendered by GS Financial Services, Inc. The securities were
not registered under the Securities Act of 1933 in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act and Regulation
D thereunder.
In December, 1997 the Registrant issued 10,350,000 shares pro rata to the
shareholders of Agri Bio-Sciences, Inc., a Texas corporation, in exchange for
the same number (100%) of the issued and outstanding shares of capital stock of
the Texas corporation. The shares were issued for the sole purpose of
reincorporation in Delaware without registration under the Securities Act in
reliance on Section 4(2) of such Act as a transaction not involving a public
offering. In addition, the recipients of the shares represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates.
.........ITEM 27. EXHIBITS.
.........(A) EXHIBITS:
<TABLE>
<S> <C>
2.1 - Consulting and Distribution Agreement.*
3.1 - Certificate of Incorporation.*
3.2 - By-Laws.*
4.1 - Form of Common Stock certificate.*
5.1 - Opinion of Sonfield & Sonfield with respect to legality of the securities.*
8.1 - Opinion of Sonfield & Sonfield with respect to tax matters (included as part of
Exhibit 5.1).*
10.1 - Indemnification Agreement between the Company and Lester H. Stephens.*
10.2 - Indemnification Agreement between the Company and M.M. Kalish.*
10.3 - Indemnification Agreement between the Company and Patrick N. Morgan.*
10.4 - Indemnification Agreement between the Company and Anthony A. Mierzwa.*
10.5 - Indemnification Agreement between the Company and Leslie L. Lemak, M.D.*
10.6 - Indemnification Agreement between the Company and Vernon L. Medlin, M.D.*
10.7 - Agri Bio-Sciences, Inc. Stock Incentive Plan.*
10.8 - Marketing Agreement with Global Farm Sciences, Inc.*
10.9 - Product License covering the Republic of Mexico.*
23.1 - Consent of Sonfield & Sonfield (included as part of Exhibit 5.1).*
23.2 - Consent of Malone & Bailey, PLLC*
-------------------------
</TABLE>
* Previously filed.
<PAGE>
UNDERTAKINGS
The undersigned registrant will:
(d) Provide to the Transfer Agent upon the effective date of the
Distribution Agreement certificates in such denominations and registered in such
names as required by the Transfer Agent to permit prompt delivery to each GS
Financial shareholder.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 24 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(f) The undersigned registrant will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SPRING, STATE OF TEXAS, ON THE RESPECTIVE DATES SET
OPPOSITE THE SIGNATURES HEREINBELOW.
AGRI BIO-SCIENCES, INC.
By: /s/Lester H. Stephens
Lester H. Stephens,
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Leslie L. Lemak, M.D. Chairman of the Board of Directors February 3, 1999
Leslie L. Lemak, M.D.
/s/Lester H. Stephens Director, President & Chief Executive February 3, 1999
Lester H. Stephens Officer
/s/Vernon L. Medlin, M.D. Director February 3, 1999
Vernon L. Medlin, M.D.
/s/M.M. Kalish Director February 3, 1999
M. M. Kalish
/s/Patrick N. Morgan Director and Secretary February 3, 1999
Patrick N. Morgan
Director, Chief Financial Officer and
Anthony A. Mierzwa Chief Accounting Officer
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
2.1 - Consulting and Distribution Agreement.*
3.1 - Certificate of Incorporation.*
3.2 - By-Laws.*
4.1 - Form of Common Stock certificate.*
5.1 - Opinion of Sonfield & Sonfield with respect to legality of the securities.*
8.1 - Opinion of Sonfield & Sonfield with respect to tax matters (included as part of
Exhibit 5.1).*
10.1 - Indemnification Agreement between the Company and Lester H. Stephens.*
10.2 - Indemnification Agreement between the Company and M.M. Kalish.*
10.3 - Indemnification Agreement between the Company and Patrick N. Morgan.*
10.4 - Indemnification Agreement between the Company and Anthony A. Mierzwa.*
10.5 - Indemnification Agreement between the Company and Leslie L. Lemak, M.D.*
10.6 - Indemnification Agreement between the Company and Vernon L. Medlin, M.D.*
10.7 - Agri Bio-Sciences, Inc. Stock Incentive Plan.*
10.8 - Marketing Agreement with Global Farm Sciences, Inc.*
10.9 - Product License covering the Republic of Mexico.*
23.1 - Consent of Sonfield & Sonfield (included as part of Exhibit 5.1).*
23.2 - Consent of Malone & Bailey, PLLC*
-------------------------
</TABLE>
Previously filed.
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
We consent to the use in this Amended Registration Statement of Agri
Bio-Sciences, Inc. on Form SB-2 of our report dated February 2, 1998 (except for
Note 2, as to which the date is March 5, 1998) relating to the financial
statement schedules appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts".
MALONE & BAILEY, PLLC
Houston, Texas
February 2, 1999
