As filed with the Securities and Exchange Commission on April 12, 2000
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AGRI BIO-SCIENCES, INC.
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(Exact name of Registrant specified in charter)
Delaware 6159 76-0512613
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(State of (Primary Industrial (I.R.S. Employer
Incorporation) Classification) I.D.#)
5211 Court of York
Houston, Texas 77069
(281) 580-8765
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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 With a copy to:
President Randall W. Heinrich
5211 Court of York Gillis & Slogar, L.L.P.
Houston, Texas 77069 1000 Louisiana, Suite 6905
Tel: (281) 580-8765 Houston, Texas 77002
(Name, address, including zip code (713) 951-9100
and telephone number, including
area code 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 this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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 1,000,000 $1.00 $1,000,000 $264.00
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</TABLE>
* To be offered at the then current market price, which for purposes of fee
calculation is estimated to be $1.00 per share.
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.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 12, 2000
AGRI BIO-SCIENCES, INC.
5211 Court of York
Houston, Texas 77069
(281) 580-8765
1,000,000 Shares of Common Stock
--------------------------
We are a developmental stage company formed to produce a proprietary,
blended micronutrient fertilizer known as "Micro Min." We have not yet commenced
commercial production of Micro Min. However, we believe that we have completed
all necessary preliminary work to commence production of Micro Min on a
full-scale basis, and we expect to commence such production in the near future.
The initial and secondary target markets for Micro Min will be Mexico, Central
and South America and the Middle East.
This prospectus relates to up to 1,000,000 shares of our Common Stock,
par value $.001 per share. These shares have been issued to security holders
named under the "SELLING STOCKHOLDERS" section. We will not receive any of the
proceeds from the sale of these shares by such stockholders.
Our Common Stock has not yet commenced public trading. We are currently
seeking to procure an initial market maker for our Common Stock so that trading
in our Common Stock may commence on the OTC Electronic Bulletin Board under the
trading symbol "AGBI."
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You should consider carefully the Risk Factors beginning on page 2 of
this Prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The date of this Prospectus is _________________
_____, 2000.
<PAGE>
RISK FACTORS
The securities covered by this Prospectus involve a high degree of
risk. Accordingly, they should be considered extremely speculative. You should
read the entire Prospectus and carefully consider, among the other factors and
financial data described herein, the following risk factors:
Our extremely limited operating history and lack of commercial production make
an evaluation of us and our future extremely difficult.
The Company was incorporated as a Texas corporation on May 30, 1995 and
was reincorporated as a Delaware corporation on December 22, 1997. We remain in
a developmental stage. Since the Company's formation, we have been engaged in
research and development with regard to "Micro Min," our proprietary, blended
micronutrient fertilizer. We have not yet commenced commercial production of
Micro Min. However, we believe that we have completed all necessary preliminary
work to commence production of Micro Min on a full-scale basis, and we expect to
commence such production in the near future. In view of the length of our
operating history, you may have difficulty in evaluating us and our business and
prospects. To date, we have received no meaningful revenue from the sale of our
product. While we believe that our 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 our
product will ever develop. You must consider our business and prospects in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stage of development. These risks include:
* Our inability to produce our product on a commercial basis in
a profitable manner
* The inability of our product to gain market acceptance and ou
inability to achieve adequate sales levels
* Our inability to continue procuring financing to develop our
business
* Our inability to sustain any continuing losses from operations
* Our inability to implement and successfully execute our
business and marketing strategy
* Our inability to respond adequately to competitive pressures
and developments
* Our inability to respond adequately to technological
developments in our industry
* Our inability to manage growth in our operation if such growth
is rapid
There can be no assurance that we will be successful in addressing these risks.
Our failure to address successfully the risks we face as a developmental stage
company could materially and adversely affect our business, prospects, financial
condition and results of operations.
Since our incorporation, we have had a history of operating losses, and we
expect to have future operating losses until sales of our product achieve
certain levels.
For our fiscal year ended December 31, 1999, we incurred a net loss of
$116,663. As of December 31, 1999, we had an accumulated deficit of $717,411
and a deficit in stockholders' equity of $94,261. We anticipate having a
negative cash flow from operations in future quarters and years until such time
(if ever) as product sales generate sufficient revenue to fund our continuing
operations. There can be no assurance that
* sales of our product will ever generate significant revenue;
* we will ever generate positive cash flow from our operations; or
* we will attain or thereafter sustain profitability in any future
period.
We have only one product, and our success depends on the success of this single
product.
We currently intend to manufacture only one product for the foreseeable
future. At the present, our success depends entirely upon our ability to
manufacture this single product, and cause it to be sold, on a profitable basis.
Our lack of product diversification may make the results of our operations
riskier and more volatile than they would be if we manufactured more than one
product.
We intend to focus on Mexico as our initial target market, and Mexico has
experienced a recent economic crisis, which could lead to political uncertainty
and change.
Our initial sales efforts will focus on Mexico. Accordingly, the
economic environment within Mexico can be expected to have a significant impact
on our 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 agricultural and consumer purchasing power. Reduced
agricultural and consumer purchasing power in Mexico could materially adversely
affect our financial condition and results of operations. While the Mexican
economy has begun to recover, complete recovery has not yet been achieved. 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. Like any
continuing economic crisis, the one experienced by Mexico creates an environment
in which political changes could be more likely. The likelihood of any such
changes, or the nature of such changes and the effect upon us (if such changes
were to occur), is now uncertain. However, we will have no control over any
political, economic or social responses to the economic situation. These
responses could include (among other things) social unrest and labor
disruptions. Any political, economic or social response to the economic
situation materially adversely our business, financial condition and results of
operations.
Our future capital needs may require the procurement of additional financing,
and there can be no assurance that we will be able to procure such financing.
We currently have no constant and continual flow of revenues. We have
only minimal overhead, which has thus far been financed through amounts advanced
by our directors. To address the variable costs associated with production, we
intend 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 ordered product. As a result, we do not
believe that we will need any financing over the next 12 months or in the
foreseeable future. Nevertheless, while the director who has financed our
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 we will be successful in obtaining 50% down payments on purchase
orders. Without continued advances for overhead and 50% down payments on
purchase orders, we would be required to seek alternative sources of financing.
There can be no assurance that we would be successful in obtaining alternative
sources of financing on acceptable terms or at all for that matter. Furthermore,
debt financing (if available and undertaken) may involve restrictions limiting
our operating flexibility. Moreover, if we issue equity securities to raise
additional funds, the following results will or may occur:
* The percentage ownership of our existing stockholders will be reduced
* Our stockholders may experience additional dilution in net book value
per share * The new equity securities may have rights, preferences or
privileges senior to those of the holders of our
Common Stock.
To generate sales of our product, we expect to rely exclusively on an affiliated
third party over whom we will have little control, and this arrangement involves
certain risks.
We have entered into an exclusive sale and purchase agreement (the
"Global Agreement") with an affiliate of ours, Global Farm Sciences, Inc.
("Global"), to market Micro Min in certain geographical areas of the world. See
"BUSINESS - SALES AND MARKETING - Exclusive Sale and Purchase Arrangement."
Until recently, we expected to depend entirely upon Global to generate sales of
our product. 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 us as those that could have
been obtained from unaffiliated third parties. In addition, Global has failed to
purchase the minimum volume of Micro Min for 1999 as provided for in the Global
Agreement. Moreover, the Company is now contemplating having Ciencias Agro
Ambientales, S.A. de C.V. ("Ciagam"), another affiliate of ours, assume the role
of exclusive reseller of Micro Min in Mexico, our initial target market. Whether
Global continues as our exclusive reseller of Micro Min in Mexico or Ciagam
assumes such role, there can be no assurance that the sales efforts to be
exerted by Global or Ciagam (as the case may be) will be exerted at the level of
quality we expect, that the Global Agreement will not be modified in the future,
or that any agreement that we reach with Ciagam will be on terms acceptable to
our stockholders. Moreover, Global and Ciagam are thinly capitalized
corporations. There can be no assurance that we could meaningfully enforce the
Global Agreement or any agreement that we reach with Ciagam if either Global or
Ciagam were to fail to honor its agreement with us. In any event, the ability of
either Global and Ciagam to sell our product is unpredictable, and we will have
limited control over either of their selling activities. There can be no
assurance that either Global or Ciagam will be successful in selling our
product. The failure of the selling efforts of Global or Ciagam (as the case may
be) would materially adversely affect our business, results of operations and
financial condition.
Our success depends to a great extent on our ability to protect our intellectual
property, and our ability to protect our intellectual property is uncertain.
We regard various features and design aspects of our product as
proprietary and rely primarily on a combination of trademark, copyright and
trade secret laws and employee and third-party nondisclosure agreements to
protect our proprietary rights. We have been issued one copyright covering our
soil testing software, have applied for a patent covering our blended
micronutrient fertilizer product and intend to continue to apply for patents, as
appropriate, for our future technologies and products. Nonetheless, there can be
no assurance that we will be able to protect against the use of similar
technologies by our competitors. Therefore, there can be no assurance that one
or more of our competitors, most of whom have far greater resources than we do,
will not independently develop technologies that are substantially equivalent or
superior to our technology. Our inability to respond to technological advances
on a timely and cost-effective basis could materially adversely affect our
business, results of operations and financial condition. Moreover, our current
and future competitors or others may adopt product or service names similar to
our trademarks, thereby impeding our ability to build brand identity and
possibly leading to customer confusion. Our inability to protect our patents,
copyrights, trademarks, trade names and other intellectual property might
materially and adversely affect our business, results of operations and
financial condition. In addition, in the future third parties may claim certain
aspects of our business infringe their intellectual property rights. While we
are not currently subject to any such claim, any future claim (with or without
merit) could result in one or more of the following:
* Significant litigation costs
* Diversion of resources, including the attention of management
* Our agreement to certain royalty and licensing arrangements
Any of these developments could materially and adversely affect our business,
results of operations and financial condition. In the future, we may also need
to file lawsuits to enforce our intellectual property rights, to protect our
trade secrets, or to determine the validity and scope of the proprietary rights
of others. Such litigation, whether successful or unsuccessful, could result in
substantial costs and diversion of resources. Such costs and diversion could
materially and adversely affect our business, results of operations and
financial condition. Further, we intend to distribute our product in a number of
foreign countries. The laws of those countries may not protect our proprietary
rights to the same extent as the laws of the United States.
We rely heavily upon certain of our directors and officers, the loss of certain
of whom could materially adversely affect us.
For the foreseeable future, we substantially rely 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 materially
adversely affect our business, operations, revenue and business prospects. We
maintain key man life insurance on Robert A. Kalish in the amount of $1.0
million, but do not maintain key man life insurance on M.M. Kalish. Neither of
Messrs. Kalish and Kalish devotes full time to our business. Moreover, neither
of Messrs. Kalish and Kalish has entered into any employment or non-compete
agreements with us. See "MANAGEMENT."
Our current management resources may not be sufficient for the future, and we
have no assurance that we can attract additional qualified personnel.
There can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform. Our success in attracting additional qualified personnel
will depend on many factors, including our ability to provide them with
competitive compensation arrangements, equity participation and other benefits.
There is no assurance that we will be successful in attracting highly qualified
individuals in key management positions.
Our obligation to indemnify our officers and directors could prevent our
recovery for losses caused by them.
Certain provisions of our Certificate of Incorporation and By-Laws and
certain agreements that we have entered into with certain of our directors and
officers provide that we 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, we may purchase and maintain insurance on behalf of any such persons
whether or not we would have the power to indemnify such person against the
liability insured against. The foregoing could result in substantial
expenditures by us and prevent any recovery from such officers, directors,
agents and employees for losses we incurred as a result of their actions.
Further, the United States Securities and Exchange Commission takes the position
that indemnification against liability under the Securities Act of 1933 is
against the public policy as expressed in such act, and is, therefore,
unenforceable.
We could face intense competition from competitors with much greater financial,
marketing and production capabilities.
To the best of our knowledge, we believe there is no direct competition
with our product and services at this time in the blended micronutrient
fertilizer market. However, there are few barriers to entry into the
agricultural fertilizer industry. Accordingly, there can be no assurance that we
will not in the future be required to compete directly with other, larger
companies having greater financial, marketing and production capabilities than
we have. See "BUSINESS - COMPETITION." To a great extent, we intend to rely on
exclusive import licenses issued by foreign countries as hedges against
competition.
We intend to rely on import licenses issued by foreign countries, and we have no
assurances that our current licenses will not be revoked or that licenses
regarding additional countries will be issued.
The terms of the license granted by the Minister of Agriculture of
Mexico, pursuant to which we have the right to import and sell our micronutrient
fertilizer in Mexico, are subject to government regulation. While the terms of
our license does not provide for its revocation and we know of no revocation of
any license granted by a Mexican federal agency, a revocation of our license
remains a possibility, particularly if broad political change occurs in Mexico.
Even if not revoked, there can be no assurance that other action taken by the
Mexican government will not impair or adversely affect the value of our license.
Moreover, there can be no assurance that we will obtain additional licenses to
import our product in other countries that we believe to be attractive markets.
Finally, there can be no assurance that import licenses similar to or the same
as those now or hereafter granted to us will not be granted to potential
competitors in the same markets.
Our Common Stock is not now being actively traded, and the future of its trading
market involves considerable uncertainty.
There is presently no public market for our Common Stock. We are
currently seeking to procure an initial market maker for our Common Stock so
that trading in our Common Stock may commence on the OTC Electronic Bulletin
Board. There is no assurance that we will be successful in procuring an initial
market maker, that a public market for our Common Stock will ever develop, or
that (if one develops) it will be sustained. The liquidity of our Common Stock
may be adversely affected, and holders of our Common Stock may have difficulty
selling it, if a suitable trading market fails to develop and continue. Any
market for our Common Stock that does develops is likely to be highly volatile
and could be characterized by limited trading volume. Prices at which our Common
Stock may trade may fluctuate fairly widely on a percentage basis. There can be
no assurance as to the prices at which our Common Stock will trade in the
future. Prices for our Common Stock will be determined in the marketplace and
may be influenced by many factors, including the following:
* The depth and liquidity of the markets for our Common Stock
* Investor perception of us and the industry in which we
participate
* General economic and market conditions
Potential future sales by affiliates could depress the market price for our
Common Stock.
Approximately 11,150,000 shares of Common Stock are issued and
outstanding. We believe that nearly all of these shares are "restricted
securities" as that term is defined in Rule 144 promulgated under the Act. Rule
144 provides in general that a person (or persons whose shares are aggregated)
who has satisfied a one-year holding period, may sell within any three month
period, an amount which does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume during
the four calendar weeks before such sale. Nearly all of the restricted shares
have been outstanding for over one year and thus are eligible for sale under
Rule 144. Rule 144 also permits the sale of shares, under certain circumstances,
without any quantity limitation, by persons who are not affiliates of ours and
who have beneficially owned the shares for a minimum period of two years. Hence,
the possible sale of these restricted shares may, in the future dilute an
investor's percentage of freely tradeable shares and may depress the price of
our Common Stock. Also, if substantial, such sales might also adversely affect
our ability to raise additional equity capital. However, most of the shares
believed to be "restricted securities" are held by affiliates of ours and must
(by law) be sold subject to the volume limitations of Rule 144 described above,
thus restraining the number of shares that can sold in any period of time.
A low trading price of our Common Stock would entail additional regulatory
requirements, which could negatively affect such trading price.
We believe that the trading price of the Common Stock is likely to
start below $5.00 per share. If the trading price of our 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 Securities
and Exchange Act of 1934 that 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
our Common Stock affected, which could severely limit the market liquidity of
our Common Stock.
Certain current stockholders of the Company control the Company, and cumulative
voting and preemptive rights are denied to stockholders.
As of April 12, 2000, the six founding stockholders of the Company
collectively owned 71.5% of our outstanding Common Stock. Cumulative voting in
the election of Directors is not provided for. Accordingly, the holder or
holders of a majority of our outstanding shares of Common Stock (currently the
founding stockholders) may elect all of our Board of Directors. There are no
preemptive rights in connection with our Common Stock. Thus, the percentage
ownership of existing stockholders may be diluted if we issue additional shares
in the future.
The Company's authorized preferred stock exposes stockholders to certain risks.
Our Certificate of Incorporation authorizes the issuance of Preferred
Stock. No shares of Preferred Stock were issued as of April 12, 2000. The
authorized Preferred Stock constitutes what is commonly referred to as "blank
check" preferred stock. This type of preferred stock allows the Board of
Directors to divide the Preferred Stock into series, to designate each series,
to fix and determine separately for each series any one or more relative rights
and preferences and to issue shares of any series without further stockholder
approval. While the Board of Directors of the Company must exercise its
fiduciary duties in connection with the creation and issuance of any Preferred
Stock, any Preferred Stock hereafter created could feature rights and
preferences adverse to the holders of our Common Stock.
We may not be able to manage properly future growth that we experience.
We believe that, given the right business opportunities, we may expand
our operations rapidly and significantly. If rapid growth were to occur, it
could place a significant strain on our management, operational and financial
resources. To manage any significant growth of our operations, we will be
required to undertake the following successfully:
* Expand existing operations
* Improve on a timely basis existing and implement new
operational, financial and inventory systems, procedures and
controls, including improvement of our financial and other
internal management systems
* Train, manage and expand our employee base
Further, we will be required to maintain control over our strategic direction.
If we are unable to manage growth effectively, our business, results of
operations and financial condition could be materially adversely affected.
Future acquisitions could expose us to numerous risks.
As part of our business strategy, we may acquire complementary
companies, products, services or technologies. Any acquisition would be
accompanied by the risks commonly encountered in an transaction. Such risks
include the following;
* Difficulty of assimilating the operations and personnel of the
acquired companies
* Potential disruption of our ongoing business
* Inability of management to maximize our financial and strategic
position through the successful incorporation of acquired
businesses and technologies
* Additional expenses associated with amortization of acquired
intangible assets
* Maintenance of uniform standards, controls, procedures and
policies
* Impairment of relationships with employees, customers, vendors and
advertisers as a result of any integration of new management
personnel
* Potential unknown liabilities associated with acquired businesses
There can be no assurance that we would be successful in overcoming these risks
or any other problems encountered in connection with such acquisitions. Due to
all of the foregoing, any future acquisition may materially and adversely affect
our business, results of operations, financial condition and cash flows. We may
be required to obtain additional financing if we choose to use cash for
acquisitions in the future. There can be no assurance that such financing will
be available on acceptable terms. In addition, if we issue stock to complete any
future acquisitions, existing stockholders will experience further ownership
dilution.
Stockholders have no guarantee of dividends.
We have not paid any dividends on our Common Stock since our
incorporation. We anticipate that, for the foreseeable future, working capital
and earnings (if any) will be retained for use in our business operations and in
the expansion of our business.
For all of the aforesaid reasons and others set forth herein, the shares covered
by this Prospectus involve a high degree of risk. You should be aware of these
and other factors set forth in this Prospectus.
<PAGE>
USE OF PROCEEDS
The shares covered by this Prospectus may be sold by the Selling
Stockholders from time to time at their discretion, and the Company will not
receive any proceeds from the sale of the shares.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock, and the
Company presently intents to retain earnings to finance the expansion of its
business. Payment of future dividends, if any, will be at the discretion of the
Board of Directors after taking into account various factors, including the
Company's financial condition, results of operations, current and anticipated
cash needs and plans for expansion.
PRICE RANGE OF COMMON STOCK
Trading in the Common Stock not yet commenced. The Company is currently
seeking to procure an initial market maker for the Common Stock so that trading
in the Common Stock may commence on the OTC Electronic Bulletin Board under the
trading symbol "AGBI." As of April 12, 2000, the Company had approximately 103
holders of record
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. While there can
be no assurance that the Company will be able to generate meaningful revenues or
achieve profitable operations, the Company has received its first purchase order
for Micro Min and expects to receive additional purchase orders in the near
future.
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, Colombia 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. The Global Agreement and the Company's
continued use of Global as the Company's exclusive reseller in Mexico is
currently under review and is subject to possible modification. 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.
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, in July 1997 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, 130 metric tons are now held at the
Company's plant site and 120 metric tons are being held in Mexico for the
commencement of the Company's full-scale sales and marketing efforts.
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 near 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 has
plans to install a California Pellet Mill pelletizer into the plant facility
once sales reach an appropriate level. 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 is required to 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. 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. However, Global did not purchase the
required 2,000 metric tons of Micro Min in 1999. The Global Agreement and the
Company's continued use of Global as the Company's exclusive reseller in Mexico
is currently under review and is subject to possible modification. See "SALES
AND MARKETING" immediately below.
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.
At one point, the Company intended to forego the actual establishment,
ownership and operations of laboratories and instead license the Company's
software to Intertek Testing Services, a prominent international laboratory
testing company ("ITS"), for use in ITS's existing and future laboratories. The
Company and ITS never reached a definitive agreement in this regard. Now the
Company plans to license its software to affiliated entities, which will be
responsible for the actual establishment, ownership and operations of the
laboratories. 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 (the "Global Agreement") with Global Farm Sciences, Inc.
("Global"), which initially has acted as the exclusive purchaser and reseller of
the Company's product. The Global Agreement and the Company's continued use of
Global as the Company's exclusive reseller in Mexico is currently under review
and is subject to possible modification. See "Exclusive Sale and Purchase
Arrangement" immediately below.
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 years 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 operate the plant.) Thereafter, Global must remit the
remaining 50% payment of its purchase order to the Company within ninety 90 days
of its 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. Global did not
purchase the required 2,000 metric tons of Micro Min in 1999, and Global and the
Company are currently discussing an extension for such purchase and perhaps an
even broader modification of the Global Agreement.
During the quarter ended September 30, 1999, the Company and Global
realized that the success of Global's business activities in Mexico was limited
due to Global's status as a foreign corporation in that country. Accordingly,
with the knowledge and consent of the Company, Global has been employing Ciences
Agro Ambientales, S.A. de C.V. ("Ciagam") to undertake the sales-related
activities that Global was originally to undertake. Ciagam is indirectly owned
by certain members of the Company's Board of Directors, and is a registered
Mexican corporation fully authorized under Mexican corporate law. Although the
future relationship among the Company, Global and Ciagam is now under review and
is uncertain, such relationship is likely to assume one of the following three
alternatives: (1) Global's continued use of Ciagam for sales-related activities
for the foreseeable future, (2) a formal assignment to Ciagam of Global's rights
and obligations under the Global Agreement, or (3) a termination of the Global
Agreement, and the completion with Ciagam of a formal, written agreement similar
to the Global Agreement or an informal sale and purchase agreement on an
open-account, order-by-order basis.
Current Marketing Plan.
For some time, Global had been holding discussions with various
governmental, quasi--governmental and industry parties, who would serve as the
primary distributor of Micro Min in Mexico. These parties have included
Fertilizantes Nacionales, S.A. de C.V., the Mexican federal and state Colleges
of Agricultural Engineers, and INTAGRO, a company based in Veracruz, Mexican.
These discussions failed to produce a definitive agreement. Because of the delay
in establishing a formal relationship with any large sales force, Ciagam
(assuming the role previously undertaken by Global) has been making sales calls
on critical governmental and quasi-governmental agencies as well as private
businesses. Currently, Ciagram is involved in serious discussions with
AGROFERMEX, a Mexican fertilizer distributor having 250 offices, regarding
AGROFERMEX's serving as a predominant (though non-exclusive) distributor of
Micro Min in Mexico. These discussions have not yet produced a definitive
agreement, and the ultimate outcome of these discussions can not now be
determined.
In addition to Ciagam's current discussions with AGROFERMEX, Ciagam
received an initial purchase order for 290 metric tons of Micro Min from
Asesoria Integral Agrupecuaria, S.A. de C.V. ("ASIA"), a fertilizer distributor
in Mexico. The Micro Min ordered is to be delivered as soon as practical. One
hundred twenty (120) metric tons of Micro Min are already located in warehouses
in Mexico. Another 130 metric tons of Micro Min are located at the Company's
plant facility in Bay Springs, Mississippi, bagged and ready to be shipped. The
Company is now in the process of filling ASIA's order, and the Company expects
to reactivate its plant facility in Bay Springs, Mississippi in the near future
in order to produce the remaining Micro Min needed to fill the order. As a
result of the ASIA purchase order, the Company expects to realize revenues in
the near future. Management believes that Ciagam (or another primary distributor
in Mexico) will receive additional purchase orders from ASIA in the future,
although there can be no assurance in this regard.
Moreover, the Company is also working with approximately 800 farmers in
the state of Guanajuato, Mexico who have indicated a desire to form a
co-operative and have the Company install a laboratory on their behalf. On the
average, each of these farmers has approximately 700 hectares, for a total of
approximately 560,000 hectares or approximately 1,400,000 acres. At a bag of
Micro Min per acre, approximately 14,000 metric tons of Micro Min would be
required to serve the co-operative. At a profit of $305 per metric ton, the
Company would realize an aggregate profit of approximately $4,270,000. The
Company expects that an affiliated entity will establish, own and operate a
laboratory for the benefit of the co-operative. This project is in a very
preliminary stage, and there can be no assurance that this project will ever be
completed in the scope currently being contemplated, if at all.
Finally, Ciagam has recently established a relationship with the Banco
de Mexico, the national bank of Mexico. The Banco de Mexico has indicated a
desire to establish a credit line sufficient for Mexican farmers to purchase
certain items of agriculture necessary for crop production. Although Ciagam and
the Banco de Mexico have not agreed upon definitive terms nor entered into
definitive agreements regarding the line of credit, current discussions are
revolving around certain terms. First, the line of credit is expected to have a
total amount ranging from $425,000 to $1.2 million. This amount of funding is
expected to service adequately an eight-state targeted area in Mexico. In
addition, amounts advanced on the line of credit to farmers will be due and
payable approximately 90 days after the advance. Moreover, as is customary, the
line of credit would require the farmers to place their land in trust as
collateral against the amounts advanced. Finally, Ciagam is expected to be
required to guarantee a comparatively small portion of each advance on the line
of credit. Despite the current status of the negotiations regarding the line of
credit, there can be no assurance that Ciagam will successfully conclude such
negotiations and establish a line of credit with the Banco de Mexico or any
other lender.
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 "BUSINESS - RISK FACTORS - Our success depends to a great extent on our
ability to protect our intellectual property, and our ability to protect our
intellectual property is uncertain."
COMPETITION
Management believes there are no other commercial blended micronutrient
fertilizers available in the market place. Therefore, 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. To a great extent, the Company intends to rely on
exclusive import licenses issued by foreign countries as hedges against
competition.
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.
LEGAL PROCEEDINGS
On July 30, 1999, Lavaca Financial Corporation filed a lawsuit in the
234th Judicial District Court, Harris County, Texas (case no. 1999-39733)
against the Company, Global, three of the Company's directors (namely, Pat
Morgan, M. Manny Kalish, and Lester H. Stephens), and Robert A. Kalish, the
Company's Vice President. This lawsuit seems to allege that the defendants
breach a purported agreement that they had with Lavaca Financial for the payment
of certain amounts if certain business transactions were concluded. On January
21, 2000, the defendants in this lawsuit filed general denials of all matters
contained in Lavaca Financial's petition. Although this lawsuit is in its very
early stages, the Company believes it is without merit, and the Company intends
to defend vigorously against all claims asserted in this lawsuit.
Available Information
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 and exhibits relating
thereto (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Act"), of which this Prospectus is a part. This Prospectus does
not contain all the information set forth in the Registration Statement.
Reference is made to such Registration Statement for further information with
respect to the Company and the securities of the Company covered by this
Prospectus. Statements contained herein concerning the provisions of documents
are necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the related document filed with the
Commission.
The Company has registered 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, Quarterly Reports on
Form 10-QSB, and Current Reports on Form 8-K. The Annual Reports on Form 10-KSB
will contain audited financial statements. After they are filed, these reports
can be inspected at, and copies thereof may be obtained at prescribed rates, at
the Commission's Public Reference Room located at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further
information on the Public Reference Room. The Commission maintains a World Wide
Web site that contains reports, proxy statements and information statements and
other information (including the Registration Statement) regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov. The Company's reports can be inspected at, and copies
downloaded from, the Commission's World Wide Web.
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. While there can be no
assurance that the Company will be able to generate meaningful revenues or
achieve profitable operations, the Company has received its first purchase order
for Micro Min and expects to receive additional purchase orders in the near
future. The following is a summary of the Company's plan of operation over the
next 12 months.
The Company (through Ciagam) intends to continue to pursue sales of
Micro Min in Mexico and possibly complete broad product sales agreements with
AGROFERMEX and other firms or organizations having a large sales force. In
addition, the Company would like to begin exploring (through Global) the
possibility of establishing a sales program in Colombia. The Company already has
a product license for Micro Min in that country as well as associates and
relationships with important agricultural institutions and organizations. Ciagam
is currently planning on a possible visit to Colombia in the year 2000 to
explore more closely the possibility of establishing a sales program in
Colombia. The Company will have little participation in the sales program.
The Company does not believe that it will need any financings over the
next 12 months for the reasons stated in the remainder of this paragraph. The
Company intends to require purchasers of Micro Min to pay one-half of the
aggregate purchase price of a purchase order as a downpayment at the time that
the purchase order is placed. Based on the Company's estimates, the downpayment
will be sufficient to cover all direct costs associated with the fulfillment of
the purchase order. Accordingly, the risk of inadequate production funding is
negligible. However, if there is a small shortfall, members of management have
indicated that they will be willing to advance the amount of the shortfall,
although they are under no legal obligation and may not be legally compelled to
do so. The Company has only minimal overhead, which has thus far been financed
through amounts advanced by the directors of the Company. Certain of the
Company's directors have indicated that they intend to continue to provide
limited financing of overhead, but they are under no legal obligation and may
not be legally compelled 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, the Company anticipates the
possible need to add (during the next 12 months) a California Pellet Mill
pelletizer and additional employees once sales reach an appropriate level.
MANAGEMENT
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 five 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 2000.
<TABLE>
<CAPTION>
NAME TITLE AGE
<S> <C> <C>
Leslie L. Lemak, M.D. Chairman of the Board of Directors 82
Lester H. Stephens President and Director 73
Anthony A. Mierzwa Director 87
Patrick N. Morgan Secretary, Treasurer and Director 82
M. Manny Kalish Director 72
Vernon L. Medlin, M.D. Director 68
Robert A. Kalish Vice President 51
</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 the Company'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 Company.
M. Manny Kalish has spent the past ten years developing 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 the Company.
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 government
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.
The authorized number of directors of the Company is presently fixed at
six. Each director serves for a term of one year that expires at the following
annual stockholders' meeting. Each officer serves at the pleasure of the Board
of Directors and until a successor has been qualified and appointed. Currently,
directors of the Company receive no remuneration for their services as such, but
the Company will reimburse the directors for any expenses incurred in attending
any directors meeting.
Other than for the father-son relationship between M. Manny Kalish and
Robert A. Kalish, there are no family relationships between or among any of the
directors or executive officers. Moreover, there are no arrangements or
understandings between any director and any other person pursuant to which such
director was selected to serve as such.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation
The officers and directors of the Company are receiving no compensation
for their services for the Company. There are no present plans, arrangements, or
understandings concerning the payment of any compensation for any of the
officers or directors.
Stock Option Grants
The Company did not grant any stock options during the fiscal year
ended December 31, 1999.
Option Exercises/Value of Unexercised Options
The following table sets forth the number of securities underlying
options exercisable at December 31, 1999. No SAR's of any kind have been
granted.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values (1)
<TABLE>
<CAPTION>
(a) (d)
Number of Securities
Underlying Unexercised
Options at December 31,
1999 (Numbers of Shares)
Name Exercisable
<S> <C> <C>
M.M. Kalish 500,000(2)
Lester H. Stephens 250,000(2)
Vernon L. Medlin, M.D. 250,000(2)
Leslie L. Lemak, M.D. 250,000(2)
Patrick N. Morgan 250,000(2)
Anthony A. Mierzwa 250,000(2)
- ---------------------
</TABLE>
(1) The Columns designated by the SEC for the reporting of the number of
shares acquired on exercise, the value realized, and the number and
value of unexercisable options have been eliminated as no options were
exercised and no unexercisable options existed during the fiscal year
covered by the table. The Column designated by the SEC for the
reporting of the value of exercisable in-the-money options has been
eliminated because the Company's Common Stock has not been actively
traded and thus has no ascertainable market value.
(2) The per-share exercise price for each of these option shares is $.50.
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.
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.
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.
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.
Other Plans
The Company has no other deferred compensation, pension or retirement
plans in which executive officers participate.
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 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 deferred payment now owed to Mr. Kalish in the original
amount of $100,000. The Company and Mr. Kalish have not expressly agreed upon
the accrual of interest on this deferred payment, although Mr. Kalish takes the
position that it accrues interest at a rate of eight percent per annum for a
total outstanding accrued interest of $19,287.67 as of February 11, 2000. In
late 1996, the total outstanding shares of Mr. Krawczyk were repurchased for
$300,000 cash and a promissory note payable in the original principal amount of
$200,000. This promissory note was paid off in 1997. The original $100,000
deferred payment owed to Mr. Kalish is still outstanding. In addition to such
amount, Mr. Kalish has loaned various amounts to the Company from time to time.
These loans are represented by promissory notes, each of which is due and
payable within either six or twelve months after it is executed and each being
interest at a rate of eight percent per annum. The aggregate original principal
amount of these promissory notes is $101,500 with accrued interest of $12,050.41
as of February 11, 2000. All of these promissory notes (except for one in the
original principal amount of $10,000) is now due and payable. Mr. Kalish has
expressed no indication that he intends to take any action against the Company
to collect on the promissory notes now due and payable.
The Company has entered into a five-year exclusive sale and purchase
agreement (the "Global Agreement") with Global Farm Sciences, Inc., an affiliate
of the Company ("Global"), for the purpose of selling the Company's product to
foreign entities. The Global Agreement and the Company's continued use of Global
as the Company's exclusive reseller in Mexico is currently under review and is
subject to possible modification. For more information about Global and the
Global Agreement, see "BUSINESS - SALES AND MARKETING Exclusive Sale and
Purchase Arrangement."
DETERMINATION OF OFFERING PRICE
The shares covered by this Prospectus may be offered for sale from time
to time by the Selling Stockholders. Such sales may be on the OTC Bulletin
Board, elsewhere in the over-the-counter market, in negotiated transactions or
otherwise at prices and at terms then prevailing or at prices related to the
then-current market prices or at such other prices as the Selling Stockholders
may determine in negotiated transactions.
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 12, 2000 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, (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.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER PERCENTAGE OF
BENEFICIAL OWNER OF SHARES(1) SHARES OUTSTANDING
<S> <C> <C> <C>
M.M. Kalish 4,718,500(2) 40.9%
7806 Oxfordshire Drive
Spring, Texas 77379
Lester H. Stephens 1,408,000(3) 12.4%
5211 Court of York
Houston, Texas 77069
Vernon L. Medlin, M.D. 1,193,000(4) 10.5%
1242 Sandpiper
Corpus Christi, Texas 78412
Leslie L. Lemak, M.D. 943,000(5) 8.3%
5457 Sugar Hill
Houston, Texas 77056
Patrick N. Morgan 767,000(6) 6.7%
819 Hedwig Way
Houston, Texas 77024
Anthony A. Mierzwa 693,000(7) 6.1%
1323 South Boulevard
Houston, Texas 77006
Officers and Directors as a Group 9,722,500(8) 75.4%
- ------------------------
</TABLE>
(1) Includes shares issuable in connection with options or warrants exercisable
within 60 days of this Prospectus.
(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 and 1,118,000 shares owned of
record by the Stephens Family Trust.
(4) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus and 625,000 shares owned of record
by Black Cloud Partners, LLP.
(5) Includes 250,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus.
(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.
(8) Includes 1,750,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Prospectus.
SELLING STOCKHOLDERS
The following table sets forth certain information as of April 12, 2000
pertaining to the beneficial ownership of Common Stock by the Selling
Stockholders. Each of the Selling Stockholders is a director of the Company,
except for th Stephens Family Trust, which is controlled by Lester H. Stephens
(a director and the President of the Company).
<TABLE>
<CAPTION>
Beneficial Number of Beneficial Percentage
Ownership Shares Ownership Ownership
Prior to Being After After
Offering Offered Offering (1) Offering
--------------------------------------------------------------
<S> <C> <C> <C> <C>
M.M. Kalish 4,718,500(2) 500,000 4,218,500(2) 36.2%
Stephens Family Trust 1,408,000(3) 100,000 1,308,000(3) 11.5%
Vernon L. Medlin, M.D. 1,193,000(4) 100,000 1,093,000(4) 9.6%
Leslie L. Lemak, M.D. 943,000(5) 100,000 843,000(5) 7.4%
Anthony A. Mierzwa 693,000(6) 100,000 593,000(6) 5.2%
Patrick N. Morgan 767,000(7) 100,000 667,000(7) 5.9%
- ------------------------
(1) Assumes the offer and sale of all shares being registered.
(2) Includes 500,000 shares issuable in connection with options or warrants exercisable within 60 days of this Prospectus.
(3) Includes 40,000 shares owned of record by Lester H. Stephens, a trustee of the Stephens Family Trust, and 250,000 shares
issuable in connection with options or warrants granted in Mr.
Stephen's name, exercisable within 60 days of this Prospectus.
(4) Includes 250,000 shares issuable in connection with options or warrants exercisable within 60 days of this Prospectus and
625,000 shares owned of record by Black Cloud Partners, LLP.
(5) Includes 250,000 shares issuable in connection with options or warrants exercisable within 60 days of this Prospectus.
(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.
</TABLE>
PLAN OF DISTRIBUTION
The shares covered by this Prospectus are being registered for the
account of the Selling Stockholders and donees and pledgees selling shares
received from a Selling Stockholder after the date of this prospectus. Such
shares may be sold in (a) ordinary brokerage transactions and transactions, in
the over-the-counter market or (if in the future the Common Stock should be
listed on a national exchange) on such national exchange, in which the
broker-dealer solicits purchases, (b) face-to-face transactions between sellers
and purchasers without a broker-dealer, (c) in connection with pledge to secure
debts and other obligations, (d) in connection with short sales of shares of
Common Stock, or (e) in connection with the writing of non-traded and
exchange-traded call options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter option. Such shares may also be
transferred as gifts. In effecting sales, brokers or dealers engaged by the
selling stockholders may arrange for other brokers or dealers to participate.
The brokers or dealers may receive commissions or discounts from the selling
stockholders in amounts to be negotiated. Such shares may be offered for sale
from time to time at market prices prevailing at the time of sale or at
negotiated prices. The Company will not receive any proceeds from the resale of
common stock by the selling stockholders.
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 11,150,000 shares were issued and outstanding as of April 12,
2000. 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.
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.
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.
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.
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.
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.
SHARES ELIGIBLE FOR FUTURE SALE.
There has been no trading market for the Common Stock. The Company will
attempt to have the Common Stock quoted on the NASD OTC 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. 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 - A low trading price of our Common Stock would entail additional
regulatory requirements, which could negatively affect such trading price." 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 -
Our Common Stock is not now being actively traded, and the future of its trading
market involves considerable uncertainty."
The Company has approximately 11,150,000 shares of Common Stock
outstanding, of which 7,972,500 are held by "affiliates" of the Company. Most of
the remaining shares 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
111,500 shares); 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. Approximately 1.75 million shares of Common Stock are issuable
upon the exercise of options held by Directors of the Company.
EXPERTS
The financial statements and schedules of Agri Bio-Sciences, Inc. as of
December 31, 1999 and for the fiscal year then ended and for the fiscal year
ended December 31, 1998 have been included herein and in the registration
statement in reliance upon the report of Malone & Bailey, PLLC, independent
certified public accountants, included herein, and upon the authority of said
firm as experts in accounting and auditing.
<PAGE>
AGRI BIO-SCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Index ...............................................................................................F - 1
Audited Financial Statements:
Report of Independent Public Accountants............................................. F - 2
Balance Sheet as of December 31, 1999................................................ F - 3
Statements of Expenses for the Years Ended December 31, 1999
and 1998 and the Period from May 30, 1995
(Date of Inception) to December 31, 1999 .................................................F - 4
Statements of Stockholders' Equity for the Years Ended
December 31, 1999 and 1998 and the Period from May 30,
1995 (Date of Inception) to December 31, 1999 ............................................F - 5
Statements of Cash Flow for the Years Ended December 31, 1999
and 1998 and the Period from May 30, 1995
(Date of Inception) to December 31, 1999 ..................................................F - 6
Notes to Financial Statements........................................................ F - 7
</TABLE>
<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, 1999, and the related statements of
expenses, stockholders' equity, and cash flows for the two years then ended and
for the period from inception (May 30, 1995) to December 31, 1999. 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, 1999, and the results of its operations and its cash flows for the
two years and the initial period then ended in conformity with generally
accepted accounting principles.
January 28, 2000
MALONE & BAILEY, PLLC
Houston, Texas
<PAGE>
AGRI BIO-SCIENCES, INC.
(A Development Stage Company)
Balance Sheet
December 31, 1999
<TABLE>
ASSETS
<S> <C>
Cash $ 16,679
Fertilizer plant and equipment, net 163,136
--------
TOTAL ASSETS $ 179,815
=========
LIABILITIES
Accounts payable 15,300
Accrued expenses 10,776
Due to current stockholders 148,000
Due to former stockholder 100,000
--------
TOTAL LIABILITIES 274,076
--------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value,
5,000,000 shares authorized,
0 shares issued and outstanding
Common stock, $.001 par value,
20,000,000 shares authorized,
11,000,000 issued and outstanding 11,000
Paid in capital 612,150
Deficit Accumulated During the
Development Stage (717,411)
--------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 94,261)
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $179,815
========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
AGRI BIO-SCIENCES, INC.
(A Development Stage Company)
Statements of Expenses
Years Ended December 31, 1999 and 1998,
and the Period from May 30, 1995 (Date of Inception)
to December 31, 1999
<TABLE>
<CAPTION>
May 30, 1995
(Inception) to
December 31,
1999 1998 1999
----------- ------------- --------
EXPENSES
<S> <C> <C> <C>
Fees paid for services
by stockholders $ 20,000 $ 188,400
Other administrative expenses 73,980 $ 102,421 362,488
Inventory writedown 100,000 100,000
Interest 17,683 14,495 55,773
Depreciation 5,000 5,000 10,750
--------- --------- ---------
NET (DEFICIT) $(116,663) $(221,916) $(717,411)
========= ========= =========
(Loss) per common share $(.01) $(.02)
Weighted average
shares outstanding 10,916,667 10,808,333
</TABLE>
See notes to financial
statements.
F-3
<PAGE>
AGRI BIO-SCIENCES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid in Development
Shares $ Capital Stage Totals
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 1,010,000 1,010 10,990 12,000
Shares issued for cash 3,775,000 3,775 754,225 758,000
Imputed interest on note
due to former shareholder 20,000 20,000
Shares repurchased for
cash and note payable (4,000,000) ( 400) (499,600) (500,000)
Net (deficit) $(378,832) (378,832)
- -----------------------------------------------------------------------------------------------------------------------
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
Imputed interest on
note due to former
shareholder 10,000 10,000
Net (deficit) (221,916) (221,916)
-------------------------- -------------------------------- -----------------
Balances,
December 31, 1998 10,900,000 10,900 582,250 (600,748) ( 7,598)
Shares issued for
Services 100,000 100 19,900 20,000
Imputed interest on
note due to former
shareholder 10,000 10,000
Net (deficit) (116,663) (116,663)
----------------------------------------------------- -----------------
Balances,
December 31, 1999 11,000,000 $11,000 $ 612,150 $(717,411) $( 94,261)
============ ======== ========= ========= =========
</TABLE>
See notes to financial
statements.
F-4
<PAGE>
AGRI BIO-SCIENCES, INC.
(A Development Stage Company)
Statements of Cash Flow
Years Ended December 31, 1999 and 1998, and
the Period from May 30, 1995 (Date of Inception)
to December 31, 1999
<TABLE>
<CAPTION>
May 30, 1995
(Inception) to
December 31,
1999 1998 1999
------------ ----------- ----------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $(116,663) $(221,916) $(717,411)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 5,000 5,000 10,750
Writedown of inventory 100,000 100,000
Common stock issued for services 20,000 87,650
Contribution of imputed interest 10,000 10,000 40,000
Decrease in other current assets 7,500
Decrease in deposits 12,500
Increase in accounts payable 7,387 3,408 15,300
Increase in accrued expenses 2,966 6,610 10,776
---------------------------------------------
NET CASH USED BY
OPERATING ACTIVITIES ( 71,310) ( 76,898) (452,935)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Plant site construction and
equipment purchases ( 73,886)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock for cash 137,500 895,500
Advances by a founding shareholder 72,000 72,000
Proceeds from (payments to) a bank (128,210)
Cash paid to repurchase shares
from a founding shareholder (500,000)
Advances by other shareholders 76,000 76,000
------- --------------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 76,000 81,290 543,500
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH $ 4,690 $ 4,392 $ 16,679
</TABLE>
See notes to financial
statements.
F-5
<PAGE>
AGRI BIO-SCIENCES, INC.
(A Development Stage Company)
Statements of Cash Flow
Years Ended December 31, 1999 and 1998,
and the Period from May 30, 1995 (Date of Inception)
to December 31, 1999
<TABLE>
<CAPTION>
(Inception) to
December 31,
1999 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
(from previous page) $ 4,690 $ 4,392 $ 16,679
CASH AT BEGINNING OF PERIOD 11,989 7,597
--------- --------- ------------
CASH AT END OF PERIOD $ 16,679 $ 11,989 $ 16,679
========= ========= =========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 0 $ 2,710 $ 0
Non-cash investing and
financing activities:
Contribution of plant site at inception 100,000
Purchase of bagged fertilizer for note payable 100,000
</TABLE>
See notes to financial
statements.
F-6
<PAGE>
AGRI BIO-SCIENCES, INC.
Notes to Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Incorporation. Agri Bio-Sciences, Inc. (Company) (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
Company 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 the Company in August 1997 by exchanging
340,000 shares of the Company 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. The Company was formed to manufacture clay-based commercial
agricultural fertilizer and sell it to markets in third world countries. The
Company has been negotiating 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 was initially valued at
$100,000 which was the price paid by a founding shareholder, including travel
and other acquisition costs. Inventory was written down to zero in 1998 after no
sales had occurred in 1996, 1997 or 1998. Management still believes the bagged
fertilizer to be effective and plans no changes in its formula.
F-7
<PAGE>
AGRI BIO-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 the Company 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, the Company began construction
modifications to make the plant operational again. The plant was pronounced
operational in fall, 1997, with operations to begin when sales occur.
Depreciation is currently being provided on the automobile used by a Company
agent in Mexico in connection with current lab testing and marketing. No
depreciation will be taken on the plant until it begins producing fertilizer.
Estimates and assumptions that affect amounts reported are used by management to
prepare these financial statements and accompanying footnotes in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
Income taxes are not provided since the Company has no income since inception.
Substantially all losses to date are available to offset future income. $378,832
in losses occurring in 1997 and 1996 are available to offset income for 15 years
from those periods, and $116,663 and $221,916 in losses occurring in 1998 are
available to offset income for 20 years from those periods.
Loss per common share is calculated by dividing the net loss by the weighted
average shares outstanding.
F-8
<PAGE>
AGRI BIO-SCIENCES, INC.
Notes to Financial Statements
NOTE 2 - 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 each of 1996, 1997, 1998 and 1999 as a
shareholder contribution of capital.
NOTE 3 - INSIDER COMMON STOCK RE-SALES
In late 1996, the Company 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.
During 1998, the founding and largest single shareholder sold 60,000 shares of
his Company stock to third parties for $15,000. Also during 1998, he loaned the
Company $72,000, which is repayable one year from issue date with 8% interest.
During 1999, the note was extended and several other shareholders advanced
$76,000 to the Company, for a total owed to shareholders of $148,000 as of
December 31, 1999.
NOTE 4 - 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, 2000. Additionally, 148,000 options at the issue price of
$.50 per share were issued to shareholders who had advanced $74,000 of funds to
the Company. The options expire in September 2000. Upon exercise of the options,
the debt will be extinguished.
No options have been exercised to date.
F-9
<PAGE>
AGRI BIO-SCIENCES, INC.
Notes to Financial Statements
NOTE 5 - 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 12, 2000, no
capitalization or business activity has occurred.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
RISK FACTORS .....................................................................................................2
USE OF PROCEEDS ..................................................................................................9
DIVIDEND POLICY ..................................................................................................9
PRICE RANGE OF COMMON STOCK ......................................................................................9
BUSINESS .........................................................................................................9
PLAN OF OPERATION ...............................................................................................16
MANAGEMENT ......................................................................................................16
CERTAIN TRANSACTIONS ............................................................................................22
DETERMINATION OF OFFERING PRICE..................................................................................23
PRINCIPAL STOCKHOLDERS ..........................................................................................23
SELLING STOCKHOLDERS ............................................................................................24
PLAN OF DISTRIBUTION ............................................................................................25
DESCRIPTION OF CAPITAL STOCK ....................................................................................25
EXPERTS .........................................................................................................31
</TABLE>
UNTIL ___________________ _____, 2000, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that, to the
fullest extent authorized by the Delaware Law, the Company shall indemnify each
person who was or is made a party or is threatened to be made a party to or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding") because he is or was a director
or officer of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses,
liabilities and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by him in connection with such Proceeding.
Under Section 145 of the Delaware Law, a corporation may indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed Proceeding (other than an action by or in the right of the
corporation) if he acted in good faith and in a manner which 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. In the case of an action brought by or in the
right of the corporation, the corporation may indemnify a director, officer,
employee or agent of the corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of any threatened, pending or completed action or suit 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, 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 a
court determines upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
The Company's Certificate of Incorporation also provides that expenses
incurred by a person in his capacity as director of the Company in defending a
Proceeding may be paid by the Company in advance of the final disposition of
such Proceeding as authorized by the Board of Directors of the Company in
advance of the final disposition of such Proceeding as authorized by the Board
of Directors of the Company upon receipt of an undertaking by or on behalf of
such person to repay such amounts unless it is ultimately determined that such
person is entitled to be indemnified by the Company pursuant to the Delaware
Law. Under Section 145 of the Delaware Law, a corporation must indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees) actually and reasonably incurred in by him in
connection with the defense of a Proceeding if he has been successful on the
merits or otherwise in the defense thereof.
The Company's Certificate of Incorporation provides that a director of
the Company shall not be personally liable to the Company of its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for breach of a director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware Law for the willful or negligent unlawful payment of dividends,
stock purchase or stock redemption or (iv) for any transaction from which a
director derived an improper personal benefit.
The Company may attempt to procure directors' and officers' liability
insurance which insures against liabilities that directors and officers of the
Company may incur in such capacities.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND OFFERING. The estimated expenses set
forth below, will be borne by the Company.
<TABLE>
<CAPTION>
Item Amount
<S> <C>
SEC Registration Fee ...............................................................................$ 264
Legal Fees and Expense .............................................................................$1,500
Accounting Fees and Expenses .......................................................................$1,000
Printing ...........................................................................................$1,000
Total ..............................................................................................$3,764
</TABLE>
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 this connection, the Company relied primarily upon Rule 504 of
Regulation D, although the Company also believes that such issuance qualifies
under each of Rule 505 and 506 of Regulation D as well. The Company been
informed that GS Financial Services, Inc. is both accredited and sophisticated.
In addition, the Company gave to GS Financial Services, Inc. an opportunity to
review any and all information about the Company as it cared to review.
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
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Certificate of Incorporation is incorporated herein by reference from
the Company's Registration Statement on Form SB-2 (SEC File No.
333-51977) filed May 6, 1998, Item 27, Exhibit 3.1.
3.2 By-Laws are incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May
6, 1998, Item 27, Exhibit 3.2.
4.1 Form of Common Stock certificate is incorporated herein by reference
from the Company's Registration Statement on Form SB-2 (SEC File No.
333-51977) filed May 6, 1998, Item 27, Exhibit 4.1.
5.1 Opinion and Consent of Randall W. Heinrich, Of Counsel to Gillis &
Slogar, as to the legality of securities being registered.
10.1 Indemnification Agreement between the Company and Lester H. Stephens is
incorporated herein by reference from the Company's Registration
Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.1.
10.2 Indemnification Agreement between the Company and M.M. Kalish is incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.2.
10.3 Indemnification Agreement between the Company and Patrick N. Morgan is incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.3.
10.4 Indemnification Agreement between the Company and Anthony A. Mierzwa is
incorporated herein by reference from the Company's Registration
Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item
27, Exhibit 10.4.
10.5 Indemnification Agreement between the Company and Leslie L. Lemak, M.D. is incorporated herein by reference from the
Company's Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.5.
10.6 Indemnification Agreement between the Company and Vernon L. Medlin, M.D. is incorporated herein by reference from the
Company's Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.6.
10.7 Agri Bio-Sciences, Inc. Stock Incentive Plan is incorporated herein by
reference from the Company's Registration Statement on Form SB-2 (SEC
File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.7.
10.8 Marketing Agreement with Global Farm Sciences, Inc. is incorporated herein by reference from Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (SEC File No. 333-51977) filed October 20, 1998, Item 27, Exhibit 10.8.
10.9 Product License covering the Republic of Mexico is incorporated herein by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed October 20, 1998, Item 27, Exhibit 10.9.
23.1 Consent of Randall W. Heinrich, Of Counsel to Gillis & Slogar, (included as part of Exhibit 5.1).
23.2 Consent of Malone & Bailey, PLLC
</TABLE>
ITEM 28. UNDERTAKINGS
A. The undersigned Registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to include
any prospectus required by section 10(a)(3) of the Securities Act, reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement, and include
any additional or changed material information on the plan of distribution.
(2) For the purpose of determining any liability under the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of such securities at that
time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
B. (1) 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 small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer 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.
(2) In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person of the small
business issuer 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 small business issuer 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 Act and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirement for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas on April 12, 2000.
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 April 12, 2000
- -------------------------
Leslie L. Lemak, M.D.
/s/Lester H. Stephens Director, President, Principal Executive Officer, April 12, 2000
- ------------------------
Lester H. Stephens Principal Financial Officer & Principal
Accounting Officer
/s/Vernon L. Medlin, M.D. Director April 12, 2000
- ---------------------------
Vernon L. Medlin, M.D.
/s/M.M. Kalish Director April 12, 2000
- -------------------------
M. M. Kalish
/s/Patrick N. Morgan Director April 12, 2000
- ---------------------------
Patrick N. Morgan
/s/Anthony A. Mierzwa Director April 12, 2000
- -----------------------
Anthony A. Mierzwa
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
<S> <C>
3.1 Certificate of Incorporation is incorporated herein by reference from
the Company's Registration Statement on Form SB-2 (SEC File No.
333-51977) filed May 6, 1998, Item 27, Exhibit 3.1.
3.2 By-Laws are incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May
6, 1998, Item 27, Exhibit 3.2.
4.1 Form of Common Stock certificate is incorporated herein by reference
from the Company's Registration Statement on Form SB-2 (SEC File No.
333-51977) filed May 6, 1998, Item 27, Exhibit 4.1.
5.1 Opinion and Consent of Randall W. Heinrich, Of Counsel to Gillis & Slogar, as to the legality of securities being
registered.
10.1 Indemnification Agreement between the Company and Lester H. Stephens is incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.1.
10.2 Indemnification Agreement between the Company and M.M. Kalish is incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.2.
10.3 Indemnification Agreement between the Company and Patrick N. Morgan is incorporated herein by reference from the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.3.
10.4 Indemnification Agreement between the Company and Anthony A. Mierzwa is
incorporated herein by reference from the Company's Registration
Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item
27, Exhibit 10.4.
10.5 Indemnification Agreement between the Company and Leslie L. Lemak, M.D. is incorporated herein by reference from the
Company's Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.5.
10.6 Indemnification Agreement between the Company and Vernon L. Medlin, M.D. is incorporated herein by reference from the
Company's Registration Statement on Form SB-2 (SEC File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.6.
10.7 Agri Bio-Sciences, Inc. Stock Incentive Plan is incorporated herein by
reference from the Company's Registration Statement on Form SB-2 (SEC
File No. 333-51977) filed May 6, 1998, Item 27, Exhibit 10.7.
10.8 Marketing Agreement with Global Farm Sciences, Inc. is incorporated herein by reference from Amendment No. 1 to the
Company's Registration Statement on Form SB-2 (SEC File No. 333-51977) filed October 20, 1998, Item 27, Exhibit 10.8.
10.9 Product License covering the Republic of Mexico is incorporated herein by reference from Amendment No. 1 to the Company's
Registration Statement on Form SB-2 (SEC File No. 333-51977) filed October 20, 1998, Item 27, Exhibit 10.9.
23.1 Consent of Randall W. Heinrich, Of Counsel to Gillis & Slogar, (included as part of Exhibit 5.1).
23.2 Consent of Malone & Bailey, PLLC
</TABLE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Agri Bio-Sciences, Inc.
on Form SB-2 of our report dated January 28, 2000 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
April 12, 2000
