UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999 Commission File Number 000-25557
AGRI BIO-SCIENCES, INC.
(Name of small business issuer in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
76-0512613
(I.R.S. Employer Identification No.)
5211 Court of York
Houston, Texas 77069
(281) 580-8765
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $.001 Par Value
Indicate by check mark whether registrant (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer had no revenues for the fiscal year ended December 31, 1999.
The registrant's Common Stock, $.001 par value, has not been and is not now
traded publicly. Accordingly, the voting stock held by non-affiliates of the
registrant has no ascertainable market value. The number of shares outstanding
of the registrant's Common Stock, $.001 par value, as of February 21, 2000 was
11,150,000.
Transitional Small Business Disclosure format (Check one): YES [ ] NO [X]
<PAGE>
INDEX
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Page Number
PART I.
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Items 1. & 2. Business and Properties. _____
Item 3. Legal Proceedings. _____
Item 4. Submission of Matters to a Vote of Security Holders. _____
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. _____
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations. _____
Item 7. Financial Statements. _____
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. _____
PART III.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act. _____
Item 10. Executive Compensation. _____
Item 11. Security Ownership of Certain Beneficial Owners and
Management. _____
Item 12. Certain Relationships and Related Transactions. _____
PART IV.
Item 13. Exhibits and Reports on Form 8-K. _____
</TABLE>
<PAGE>
ITEMS 1 and 2. BUSINESS AND PROPERTIES.
INTRODUCTION
Agri Bio-Sciences, Inc. (the "Company") was formed on May 30, 1995 as a
Texas corporation under the name "Agri Environmental Sciences, Inc." The Company
changed its corporate name to its current name about October 1997. On December
22, 1997, the Company was reincorporated as a Delaware corporation by means of a
migratory merger. The Company is in a developmental stage and has not yet
commenced full-scale sales, marketing and production activities. The Company was
formed to produce a proprietary, blended micronutrient fertilizer known as
"Micro Min." On November 3, 1999, the Company became publicly-held through the
distribution by GS Financial Services, Inc. ("GS Financial") of certain of its
shares of the Company's common stock (the "Common Stock") to GS Financial's
stockholders. The address of the Company is 5211 Court of York, Houston, Texas,
and its telephone number is 281/580-8765
RISK FACTORS
In addition to the other information in this Annual Report, the
following risk factors, among others, should be considered carefully in
evaluating the Company and its business.
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 our
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 growt
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 $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
"ITEMS 1 and 2. BUSINESS AND PROPERTIES - 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
Ciencia 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 "ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT."
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 "ITEMS 1 and 2. BUSINESS AND PROPERTIES - 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 February 21, 2000, the six founding stockholders of the Company
collectively owned 69.5% 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 February 21, 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.
<PAGE>
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 "ITEMS 1 and
2. BUSINESS AND PROPERTIES - 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 "ITEMS 1 and 2. BUSINESS AND PROPERTIES - 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 "ITEMS 1 and 2. BUSINESS AND PROPERTIES - 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 Annual Report. 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 Annual Report, 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There has been no trading market for the Company's common stock (the
"Common Stock"). The Company is currently seeking to procure an initial market
maker for the Common Stock so that trading in the Common Stock may commence in
the near future on the Electronic Bulletin Board under the symbol "AGBI." As of
February 17, 2000, the Company had approximately 103 holders of record. The
Company has never paid cash dividends, and has no intentions of paying cash
dividends in the foreseeable future.
ITEM 6. 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 first quarter of
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, management has 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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of Company's Independent Auditors appear at Page F-1 hereof,
and the Financial Statements of the Company appear at Page F-2 through F-10
hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers and directors, and person
who own more than ten percent of a registered class of the Company's equity
securities, file reports of ownership and changes in ownership with the
Securities and Exchange Commission and furnish the Company with copies of all
such Section 16(a) forms. Based solely on its review of the copies of such forms
received by it and written representations from certain reporting person, the
Company believes that, during fiscal 1999, each of its officers, directors and
greater than ten percent stockholders complied with all such applicable filing
requirements.
ITEM 10. EXECUTIVE COMPENSATION.
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)
(a) (d)
<TABLE>
<CAPTION>
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 Columns designated by the SEC for the
reporting of the value of exercisable in-the-money options have 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of February 21, 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 prior to the
Distribution, (ii) each Director, (iii) each executive officer, and (iv) all
Directors and executive officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole voting
and investment power with respect to such shares, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER PERCENTAGE OF
BENEFICIAL OWNER OF SHARES(1) SHARES OUTSTANDING
<S> <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 Annual Report. (2) Includes 500,000 shares issuable in
connection with options or warrants exercisable within 60 days of this Annual
Report. (3) Includes 250,000 shares issuable in connection with options or
warrants exercisable within 60 days of this Annual Report 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 Annual Report 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 Annual Report. (6) Includes 250,000 shares
issuable in connection with options or warrants exercisable within 60 days of
this Annual Report. (7) Includes 250,000 shares issuable in connection with
options or warrants exercisable within 60 days of this Annual Report. (8)
Includes 1,750,000 shares issuable in connection with options or warrants
exercisable within 60 days of this Annual Report.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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 "ITEMS 1 and 2. BUSINESS AND PROPERTIES - SALES AND
MARKETING Exclusive Sale and Purchase Arrangement."
PART IV.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
<TABLE>
1. Audited Financial Statements:
<S> <C>
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>
2. Financial Statement Schedules:
None
3. Exhibits:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
Exhibit
No. Description
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.
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.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant filed no report on Form 8-K during the last
quarter of its 1999 fiscal year.
<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>
May 30, 1995
(Inception) to
December 31,
1999 1998 1999
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH
<S> <C> <C> <C>
(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.
F-10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Agri Bio-Sciences, Inc. has duly caused this annual report
on Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.
March 7, 2000 AGRI BIO-SCIENCES, INC.
By /s/ Lester H. Stephens
Lester H. Stephens, President,
Principal Executive Officer,
Principal Financial Officer & Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C>
/s/Leslie L. Lemak Chairman of the Board of Directors March 7, 2000
- ------------------
Leslie L. Lemak, M.D.
/s/ Lester H. Stephens Director March 7, 2000
- ----------------------
Lester H. Stephens
Director March 7, 2000
- -------------------------------------
Vernon L. Medlin, M.D.
/s/ M. M. Kalish Director March 7, 2000
- ----------------
M. M. Kalish
/s/ Partick N. Morgan Director and Secretary March 7, 2000
- ---------------------
Patrick N. Morgan
/s/ Anthony A. Mierzwa Director March 7, 2000
- ----------------------
Anthony A. Mierzwa
</TABLE>
<PAGE>
EXHIBITS INDEX
Exhibit
No. Description
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.
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.
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Financial Data Schedule contains summary information extracted from
Item 7 of Form 10K-SB for the year ended December 31, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001060212
<NAME> Agri Bio-Sciences, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
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<TOTAL-ASSETS> 179815
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0
0
<COMMON> 11000
<OTHER-SE> (105261)
<TOTAL-LIABILITY-AND-EQUITY> 179815
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<NET-INCOME> (116663)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
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