AMENDMENT # 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10 - SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
MICROBEST, INC.
(Name of Small Business Issuer in its charter)
MINNESOTA 41-1864003
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
751 Park of Commerce Drive, Suite # 122
Boca Raton, FL 33487-3623
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 995-9770
Securities to be registered pursuant to Section 12 (b) of the Act
NONE
Securities to be registered pursuant to Section 12 (g) of the Act.
COMMON STOCK
(Title of class)
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MICROBEST, INC.
FORM 10 - SB
TABLE OF CONTENTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS...............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............8
ITEM 3. DESCRIPTION OF PROPERTY..............................................12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......13
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......14
ITEM 6. EXECUTIVE COMPENSATION...............................................15
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................15
ITEM 8. DESCRIPTION OF SECURITIES............................................16
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS..............................17
ITEM 2. LEGAL PROCEEDINGS....................................................17
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS........................18
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.............................18
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...........................19
PART F/S
FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEARS ENDED DECEMBER 31 1998
AND 1997 AND INDEPENDENT AUDITORS' REPORT....................................F-1
UNAUDITED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998.................................................F-15
PART III
ITEM 1. INDEX TO EXHIBITS..................................................20
ITEM 2. DESCRIPTION OF EXHIBITS............................................20
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ITEM 1. DESCRIPTION OF BUSINESS.
MISSION STATEMENT
Microbest seeks to become the leader in developing cleaning products through
applied biotechnology that are effective, environmentally responsible and
user-safe.
Microbest's successful application of fundamental biological processes, such as
the natural decomposition of organic wastes by harmless bacteria found in our
soil systems, has led to the development of its highly effective BioCleansing
Systems(R).
Through this breakthrough in applied biotechnology, cleaning more effectively,
responsibly and safely than ever before is now a reality. This technology, while
providing benefits management believes have never before been achieved, is
clearly the solution to the cleaning and disposal of waste grease/oil and
organic materials throughout the waste water stream, from the source on floors
and industrial surfaces to the improvement of processing efficiencies at waste
water treatment facilities.
CONCEPT
Microbest makes and markets its innovative, biologically based cleaning
products, named BioCleansing(R) Systems, for the domestic institutional
(including hospitality, health care, education and government markets) and
industrial (including manufacturing, food processing, transportation, refining
and waste treatment) cleaning products industry, representing combined markets
estimated to be $5 billion based on management's review of industry trend data.
The growing awareness of environmental pressures, manifested by tightening
government restrictions and regulations such as the recent Presidential
Executive Order 13101 mandating the use of "environmentally preferable" products
by all sectors of the government, has added additional focus on the features and
benefits of Microbest's innovative products.
Initial development focused on grease trap remediation in restaurants. It was
quickly found that the desired biological process resulting in the reduction of
collected fats and greases by the digestive action of selected bacterial
cultures was hampered by the daily usage and disposal of the restaurant's
caustic floor and hard surface cleaning products. The benefit of creating
alternative cleaning products that would support the biological process, not
hinder it, drove further development. The revolutionary Microbest BioCleansing
Systems(R) emerged as powerful, high performance, cost effective,
environmentally safe cleaning systems that outperform traditional floor and hard
surface cleaners in foodservice, industrial, institutional, and commercial
applications.
Microbest BioCleansing Systems(R) feature all the elements that are popular
among users of industrial cleaners and include features such as pre-portioned
packaging, high-tech dispensing of bulk concentrate and advanced
biodegradability. In addition, the products are designed to be more responsible
and safer for the marketplace, targeting current users of industrial grade
cleaners who are concerned about the environment and risk management issues
relating to employee slip-fall accidents as well as those looking for powerful,
cost effective, efficient means of waste grease/oil removal and odor abatement.
BACKGROUND
Michael J. Troup, the inventor/innovator responsible for the BioCleansing
System(R), introduced the proprietary products in 1993 after initial research,
development, and evaluation. Although early testing focused on grease trap
remediation, successive development resulted in the
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expansion of the Microbest product line, customer base, and market. The business
goals evolved to focus on creating more effective and more responsible
alternative cleaning products for floors and hard surfaces, which additionally
support the biological process of remediation, producing substantial reductions
in waste volumes.
The business was started as Microbest Products, Inc. a Florida corporation that
was incorporated on January 1, 1993, and subsequently merged into Microbest,
Inc., a Minnesota corporation on April 17, 1997. Microbest, Inc. had been
incorporated on December 3, 1996, as Emerald Shade, Inc. Microbest's common
stock commenced public trading in May 1997 and was approved for trading on the
OTC/BB in April 1998.
The trademark registration of the Microbest name and logo design was approved in
1994 (Registration # 1,862,215). Registration of "BioCleansing Systems(R)" was
approved in 1997.
The Company is highly dependent upon the efforts and abilities of Mr. Troup, its
Chief Executive Officer and Chairman. As founder of the Company, he continues to
be the person most responsible for the development of the Microbest product line
and market focus.
Mr. Troup holds both a B.S. in Psychology, with minors in chemistry and biology,
and an M.A. in Educational Psychology from the University of Toledo. He spent 5
years as an educator, 4 years as a corporate technical sales executive and 19
years as an entrepreneur in the areas of commercial real estate brokerage,
development, construction and building products sales. The experiences he
developed from these fields as a trainer, team manager and product developer are
invaluable components of the contributions he has made to Microbest to date.
The Company anticipates that it will continue to be dependent on Mr. Troup and
that the loss of his services would have a material adverse effect on the
Company. The Company currently maintains a key man life insurance policy on the
life of Mr. Troup in the amount of $1 million, at a cost of approximately $2,345
per annum.
PRODUCTS
In the opinion of management Microbest's proprietary BioCleansing Systems(R)
provide the most effective and cost-saving approach to floor and hard surface
cleaning that exists in the present market. By comparison, traditional cleaners
are obsolete. This unique system provides biological alternatives to traditional
harsh and ineffective chemicals while protecting the user's employees,
clientele, physical assets and our environment. This revolutionary technology
produces powerful, top-quality cleaning products that are environmentally safe
yet deliver a wide range of fully guaranteed benefits beyond cleaning itself,
including substantial reduction in slip-fall occurrences and the elimination of
odors.
BIOCLEANSING SYSTEMS(R) BY MICROBEST(R), INC.
Biologically enhanced, powerful CLEANING AND REMEDIATION Systems designed to
eliminate food service and industrially generated fats, greases and waste oils
resulting in grease-free, odor free areas, slip resistant floor surfaces,
trouble free drain lines and reductions in grease trap pumping. Environmental
and user-safe components replace traditional harsh, caustic cleaning products;
are biodegradable, safe and effective; Presidential Executive Order 13101
Compliant as "Environmentally Preferable".
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FLOORWASH(TM) OSHA - HMIS RATING of
"0" IN USE
--------------------------------------------------------------------------
Highly concentrated (160:1) liquid cleanser together with selected
microbial cultures generates powerful no rinse, slip resistant floor
cleaner that keeps drain lines open and reduces grease trap pumping.
Continuous microbial action cleans and maintains grout lines. Eliminates
sour mop heads. Biodegradable, non-caustic, available in portion pouches
or bulk for dispensing systems. Applications include kitchens and
associated areas, restrooms (degrades urine: eliminating odors).
--------------------------------------------------------------------------
MULTIPURPOSE CLEANER/DEGREASER OSHA - HMIS RATING OF
"0" IN USE
--------------------------------------------------------------------------
Replaces butyl and caustic degreasers while supporting BioCleansing
System(R) overall effectiveness. General purpose liquid cleaner (27:1),
biodegradable, non-caustic, available in portion pouches or bulk for
dispensing systems.
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GLASS & SURFACE CLEANER OSHA - HMIS
RATING OF "0" IN USE
--------------------------------------------------------------------------
Ammonia free, non-scented cleaner that excels on stainless steel,
Plexiglas, counters and table tops, glass and other hard surfaces at
dilution ratio of 32:1. Supports BioCleansing System(R), biodegradable,
non-caustic and available in portion pouches or bulk for dispensing
systems.
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BIODEODORIZER(TM) OSHA - HMIS RATING of
"0" IN USE
--------------------------------------------------------------------------
Powerful blend of microbial cultures degrades the source of odors without
"masking". At 4:1, BioDeodorizer treats garbage areas, drains, bathrooms,
bar areas, carpets, tile, upholstery. Digests proteins, urine, feces,
vomit. Supports BioCleansing System(R), biodegradable, non-caustic,
available in quarts or bulk for dispensing systems.
--------------------------------------------------------------------------
IBC INDUSTRIAL BIOCLEANSER(TM) OSHA - HMIS
RATING OF "0" IN USE
--------------------------------------------------------------------------
Concentrated (40:1 for routine; 32:1 for heavy soil applications) liquid
BioCleanser(TM) together with selected microbial cultures (MHD) generates
powerful cleaner for floors, walls and equipment in and around industrial
facilities where oil, grease, and petroleum waste is a problem. No rinse,
slip resistant for floors. Excellent for floor scrubber machines.
Biodegradable, non-caustic, non-corrosive, eliminates "oil dry" for
incidental oil spills, available in bulk for dispensing systems.
Listed below are the relative contribution to sales for each of the products for
the two years 1998 and 1999:
FloorWash (83% of sales) BioDeodorizer (2% of sales)
Factory FloorWash (6% of sales) Surface & Glass Cleaner (3% of sales)
MultiPurpose Degreaser (4% of sales)
All products are manufactured for Microbest by third parties under protective
agreements according to Microbest's proprietary specifications and in compliance
with government regulations and guidelines. Biological components are produced
for the Company by one vendor in their ISO 9000 facility with strict adherence
to prevailing USDA Laboratory Guidelines. In addition to conventional bulk
packaging for dilution and dispensing systems, the Microbest product line
utilizes new, convenient, pre-portioned pouch packaging designed for easy use,
enhanced control and less packaging materials. Pouches are also an effective
sampling vehicle.
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MARKET
The current industrial and institutional cleaning market is fractionated,
comprised of multiple suppliers, various channels of distribution, and a wide
range of end-users. Microbest is focused on the spectrum of foodservice and
industrial opportunities where cleanliness and risk management are critical and
waste grease and oil residue is a problem.
The majority of cleaning product companies try to compete on price or service,
rather than focusing on quality. Microbest's products demonstrate so well on the
first use that the remarkable quality and effectiveness are immediately evident.
In addition to cleaning, continued tightening of government restrictions and
regulations regarding waste disposal provides for new sub-markets within the
cleaning industry, creating what is virtually an untapped opportunity for
effective and economical biological cleaning alternatives that reduce waste
volumes.
With pricing integral to driving the business, the pricing strategy is to
deliver to the marketplace not only the substantial benefits of the BioCleansing
Systems(R) but also aggressive, competitive pricing. Cost-effective
manufacturing and low company overhead support this pricing strategy as volumes
increase. As current sales continue to expand to match anticipated volumes on
which initial pricing strategies were based, the Company is moving successfully
toward achieving its projected cost effectiveness. Pricing itself is further
enhanced by the range of additional benefits delivered by the BioCleansing
Systems(R), such as reduction in slip-fall accidents, elimination of tile and
grout erosion, and elimination of odors.
Marketplace experience shows that once the product is used, loyalty and
repurchase are reinforced through the recognition of obtaining high quality at a
competitive price together with significant labor reduction and savings achieved
in the other areas identified above.
MARKETING AND SALES
The Company is focused on aggressive sales expansion through direct sales to
regional chains, national accounts and government agencies. Sales through
distributors are supported by corporate sales staff together with national
coverage provided by over 40 manufacturer's reps.
The innovative Microbest "Distributor Pull-Through Program" approaches
distributor sales growth by "pulling" products through distribution with faxing,
sampling and phone sales to obtain initial orders direct by Microbest staff to
the distributors' customers on behalf of the distributor. The "Pull-Through
Program" has led to record third quarter 1999 sales in excess of 48% ahead of
the same period in 1998 and an increase in year-to-date sales of 27% over 1998.
Expansion of the existing MICROBEST.NET web site, when completed in the first
quarter of 2000, will enable interactive distributor support and training as
well as e-commerce for on-line purchasing.
With over 100 stocking distributors in place, national presence is supported by
conventional wholesaler systems in foodservice, janitorial/sanitation,
paper/chemical, and industrial markets. While Microbest has sales agency
agreements with ten independent manufacturer's reps. the Company does not
consider any one of these to be material contracts.
End-users consist of major national chain and franchisee restaurant groups,
regional restaurant chains, independent restaurants, hotels, school systems,
universities, US Military, health care facilities, salons, contract cleaning
companies, machine shops, industrial facilities and municipal wastewater
treatment systems.
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Encouraged by the success of its initial market penetration in the food service
industry, the Company is marketing to industrial factories where hydrocarbon oil
and grease are a problem, auto repair and maintenance facilities, including auto
dealers, USDA food processing facilities, and the pet industry.
Recent restructuring in the USDA and the elimination of its "product
authorization program" opens the food processing market to the BioCleansing
Systems(R). Second generation product development will see movement into such
areas as waste water treatment products, residential septic tank treatments,
gray water treatment for ships, boats and motor homes, diesel boat bilge
treatment and odor control and cleaning products for the veterinarian market.
COMPETITION
The Company competes with large and small companies engaged in the development,
marketing and sales of cleaning products. Many of these competitors have
significant financial, research and development, marketing and sales resources.
The Company is not aware of any competitor that markets biologically-based
cleaning products similar to the Company's products. These competitors include
companies such as Ecolab, S. C. Johnson, Spartan Chemical as well as
distributors who private label competitor products such as Sysco Corp., Alliant
Foodservice, Inc. and Gordon Food Service.
The Company believes that its ability to compete effectively with these
competitors will depend on (1) the talents and abilities of Mr. Troup and his
management team, (2) its ability to develop and maintain strategic relationships
within the industries that will have a strong demand for its unique
biologically-based cleaning products, and (3) its ability to establish strong
consumer preference for the use of the Company's cleaning products.
REGULATION
The Company knows of no current or pending forms of regulation, legislation or
laws intended to prohibit or limit the application of its technology, products
or any of the components inherent in its formulations.
The Microbest BioCleansing Systems(R) bring users of the Systems into compliance
with hazardous materials regulations and environmental laws.
PATENT/PROPRIETARY PRODUCT PROTECTION
The Company's existing proprietary product line is not protected under U.S. or
foreign patents. The Company relies on proprietary trade secrets and
confidentiality agreements to protect the formulae of its products. This
strategy was embraced to eliminate formulation disclosure under patent
application and the potential expense of patent defense in the courts. While
"reverse engineering" is a possibility, after six years the Company's products
have not been duplicated. Several formidable competitors have shown an interest
in having the Microbest product line available to them on a licensed or private
label basis, however no such arrangements have been consummated nor are any
presently pending.
The Company believes that its existing products do not infringe upon the
intellectual property rights of any other person or entity.
SOURCE, MANUFACTURE AND AVAILABILITY OF COMPANY'S PRODUCTS
The Company out-sources the majority of its manufacturing and fulfillment
services. This strategy has been very successful to date in providing
flexibility to service markets from a variety
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of locations while eliminating the capital expenditures and fixed overhead
required in maintaining additional Company operated locations.
The Company has relationships with three major vendors with which it has
non-compete/non-disclosure agreements and that it considers significant to the
production of its products. One of these blends the Company's cleaning
solutions, at its plant in Dallas, TX, in accordance with formuli provided by
the Company another produces the Company's microbial products at its ISO 9000
facility in Houston, TX from formuli provided by the Company and a third
packages the Company's products in pouches at its plant in Atlanta, GA. While
each of these vendors is material to the production of the Company's product,
management of the Company is familiar with other vendors which are capable of
providing the same service without any serious disruption of production and does
not consider any of these to be strategic relationships. The Company has not
experienced any significant delays from any of these vendors since it has been
doing business with them.
EMPLOYEES
As of December 31, 1999, the company employed 10 full time employees and 2 part
time employees. The Company believes it has satisfactory relations with its
employees.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following Management's Discussion and Analysis should be read in conjunction
with the financial statements and related notes thereto that appear elsewhere
herein.
BACKGROUND AND FINANCIAL HISTORY
Although Microbest has been in existence since 1993, the company has not yet
developed its operating plan to the place where it can sustain profitable
operations. Prior to a merger on April 17, 1997 (see note 1 to notes to
financial statements and Part 11. Item 4), the company was essentially involved
in product development and market testing. Starting in 1997 the company began
concentrating its marketing efforts in the food service industry, with a view to
developing a presence for its products in that market.
The Company has not been able to generate sufficient cash flow from operations
throughout its history to fund operations, including its marketing development
plans and the concentration of marketing efforts in the food service industry.
For the 33 month period through September 30, 1999, the company generated
$971,000 in net revenues. During this same period the company recorded net cash
used in its operating activities of $1,820,860. The Company raised $2,004,306 in
investor capital during this period to fund the shortfall in working capital. Of
the total raised $1,654,306 was from the sale of the company's common stock and
$350,000 in promissory notes. During 1998 the Company received $200,000 in
advances from Matthew J. Bruderman, a related party (see items 4, 5 & 7 and note
11 to notes to financial statements). The advances were repaid from the proceeds
of the convertible promissory notes as indicated below.
On September 1, 1999 the Company issued $200,000 of Convertible Promissory
Notes, which bear interest at 8 3/4% and mature in two years, with interest due
at maturity. After 15 months and until maturity, the outstanding balance of
principal and interest shall be convertible, at the option of the holder, into
shares of the Company's common stock at a conversion price 20% below the average
closing bid prices of the
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common stock for the prior 90 days. The notes are unsecured. See Exhibit 5 notes
to the interim financial statements.
Also on September 1, 1999, the Company issued a $150,000 promissory note, due in
one year which bears interest at 12 1/2%. Interest is due at maturity. The
holder of the note also received 50,000 shares of the Company's common stock.
The note is unsecured. See Exhibit 5 and notes to the interim financial
statements.
The business of developing, marketing and selling the Company's biological
cleaning products is capital intensive. The Company intends to continue its
selling and marketing efforts and will require additional capital in order to
continue operating at the current level, to expand its business, and to fund
production and development costs. Management of the Company believes it has
access to sufficient sources of working capital to fund continuing operations.
The Company is unable to assure that additional capital financing will be
available. Without such financing, the Company will not be able to continue at
its present operational level or fully implement its business strategy.
In August 1999 management of the Company arranged for $500,000 of additional
financing through the private sale of restricted shares of its common stock to
several unrelated Accredited Investors who are familiar with the Company, its
mission and its products. The shares are being offered without registration in
reliance on Section 4 (2) of the Securities Act of 1933, as 144 restricted
shares. The price for the shares to be sold will be at a discount of 25% to the
average closing bid price as reported on the Over the Counter Bulletin Board for
the five days prior to the date of sale. Management of the company believes this
financing will meet the working capital needs of the Company through the balance
of 1999. As of January 31, 2000 the Company has received $500,000 from the sale
of 2,150,000 shares of common stock under these arrangements. The Company will
require additional financing, not yet arranged, to fund operations into the New
Year and is presently negotiating financial commitments for an additional
$250,000.
Additionally, the Company is seeking financial commitments from individual
accredited investors, friendly to and familiar with the Company, to assist in
meeting the potential $450,000 put option in April 2000 related to the Simray
Settlement. (See Note 6 Loan Payable). At the date of this filing, the Company
does not have the cash resources to meet this put obligation, and it anticipates
that it may need to default on such put, if it were to occur.
As indicated above, the Company raised $1,654,306 of its invested funds through
the private sales of its common stock relying on exemptions from registration
under the Securities Act of 1933. To continue such sales of its common stock has
recently become more costly to the Company because of the recent decline in the
market price of the Company's common stock on the OTC/BB. The low bid price
dropped from $.75 in the first quarter of 1999 to $.187 in October 1999. After
being removed from the OTC/BB on January 20, 2000 because of Rule 6530 the
shares have traded as low as $0.10 per share. If the Company is unable to raise
capital through the sale of its common stock or is unable to find alternative
sources of investor funds, the Company's ability to continue its present level
of operations will be in jeopardy.
The following table summarizes the Company's condensed financial position and
condensed operating results for the two year and nine month period through
September 30, 1999:
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($ IN THOUSANDS)
(UNAUDITED)
-------------------------------------------
YEAR ENDED DEC.31 9 MO ENDED SEPT. 30
------------------- -------------------
1998 1997 1999 1998
------- ------- ------- -------
BALANCE SHEET DATA
Working Capital (Deficit) ...... ($ 467) ($ 122) ($ 382) ($ 113)
Total Assets ................... $ 213 $ 60 $ 249 $ 248
Total Liabilities .............. $ 622 $ 169 $ 709 $ 380
Redeemable Common Stock ........ -- -- $ 356 --
Stockholders Equity (Deficit) .. ($ 409) ($ 109) ($ 817) ($ 132)
STATEMENT OF OPERATIONS DATA
Net Sales ...................... $ 377 $ 190 $ 404 $ 297
Gross Profit (Loss) ............ $ 50 ($ 10) $ 165 $ 85
Expenses
Salaries Wages & Benefits .... $ 589 $ 167 $ 449 $ 345
Occupancy Costs .............. 205 52 134 126
Travel ....................... 161 116 47 118
Professional Fees ............ 35 145 130 15
Marketing Expenses ........... 191 75 63 89
Interest Expense ............. 19 6 19 2
Total Expenses ................. $ 1,200 $ 561 $ 842 $ 695
Net Income (Loss) .............. ($1,150) ($ 571) ($ 676) ($ 610)
FINANCIAL CONDITION
The Company's financial position deteriorated in 1998 as accounts payable and
short term financing increased at a greater rate than the growth in accounts
receivable and inventory. Accordingly, negative working capital increased to
$467,000 at the end of 1998 from $122,000 at the end of 1997. Total liabilities
at the end of 1998 include an increase, from a year earlier, of $238,000 in
short term financing and $160,000 in accounts payable and accrued expenses. At
the end of September 1999 negative working capital increased to $382,000
compared with $113,000 at the end of September 1998, reflecting the
aforementioned increases in notes and accounts payable.
The Company's accumulated deficit is directly attributable to the inability to
increase sales quickly enough to fund the marketing efforts that, in the opinion
of management, are necessary to realize the required level of revenues to attain
profitable operations. The financial shortfall of this strategy is that it
requires the continuous infusion of investor capital to keep the Company running
and creates an environment where ongoing commitments (including payroll and
operating expenses) are met on a month-to-month basis. The danger is that the
Company may run out of funds to continue sales and marketing efforts before it
can achieve a sustaining level of sales. The Company has no plans to further
increase the number of employees, or for significant capital expenditures, until
sufficient investor capital is raised or until revenues increase substantially.
OPERATING RESULTS
Early in 1997 the Company started its marketing campaign in the food service
industry and experienced an abnormally high level of sales returns generating a
loss for the year at the gross line. The increase in sales from 1997 to 1998 and
from the nine months in 1998 to the nine months in 1999 reflect the company's
ongoing marketing efforts.
Prior to the installation of a computerized accounting system on January 1,
1999, the Company's accounting records were deficient. In the summer of 1998 the
Company engaged William J. Breslin, CPA (the company's present CFO) on a
consulting basis to assist in upgrading the accounting records and to prepare
for the initial audits of financial statements for the two years ended December
31, 1998.
Before Mr. Breslin's arrival Mr. Cioffi, the former president, whom the Company
dismissed (see "Part II, Item 2. Legal Proceedings") was responsible for
financial matters in 1998 and attempted to install a computerized accounting
system. He lost control of the project and it was abandoned. Additionally, Mr.
Cioffi followed unacceptable accounting procedures in that he allowed customers
to be billed for products that were never shipped, allowed customers to be
billed for samples as if they were sales, did not correct accounts receivable
and inventory for these errors and did not maintain adequate internal control
over the shipping, billing and returned goods operations. This situation was
further compounded by the lack of adequate inventory records. As a result of
this situation a number of adjustments were made to the accounting records for
the year 1998 as part of the clean up process and in preparation for its initial
audit. These included a $108,331 charge to correct for overstated sales and
accounts receivable for the year.
In 1997 the company took a charge to cost of sales for $70,000 for defective
inventory that could not be sold nor repaired. The problem was caused by a bad
production run and the situation has since been corrected. In 1998 the Company
took a charge to cost of sales for $36,391 in connection with the Simray
settlement (see note 6).
The freight cost associated with the above items also adversely impacted gross
margins. The actual production costs of the Company's products have remained
consistent for all the periods presented and the gross profit rate for 1999 more
accurately reflects normal profit levels.
Mr. Breslin was appointed CFO of the Company on January 1, 1999. Under his
direction a totally integrated computerized accounting system was installed on
January 1, 1999 together with an acceptable system of internal accounting
controls thereby correcting the previously existing weaknesses in the Company's
accounting system.
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In 1997 and 1998 the Company increased its operating expenses significantly to
support the marketing expansion plan initiated at the beginning of 1997. The
Company had only two full time employees at the beginning of the year, by the
end of the year there were four employees. This increased to six employees early
in 1998, to 10 by the end of that year and to 12 full time employees in
September 1999. The majority of this staff is involved with sales and marketing.
The increase in salaries wages & benefits in 1998, in addition to the added
sales staff include a $35,000 increase in Mr. Troup's salary and $103,000 in
compensation to Patrick Cioffi, the former president of the Company who joined
the Company in November 1997 and was terminated in December 1998. The increase
in the nine-month period reflects the two additional sales staff, increased
commissions paid on higher sales, plus the salary for Mr. Breslin who joined the
Company as CFO on January 1, 1999.
The Company moved into expanded office facilities early in 1998, thereby
increasing office occupancy expenses and related expenses of supporting the
expanded sales and marketing staff. The increase in occupancy costs in 1998
includes rent, local and long distance telephone, utilities, lease of computers
and office equipment as well as added office supplies and expenses.
Travel expenses were higher in 1998 primarily because of two business trips Mr.
Troup made to Japan. Travel was curtailed in 1999 as a cost cutting move.
Marketing expenses were unusually high in 1998 as the Company revised much of
its hard copy advertising materials at a one time cost approximating $80,000.
Professional fees were higher in 1997 because of the consulting fees associated
with the merger and in 1999 because of legal and accounting fees associated with
the Form 10 filing.
The change in 1998, expanding to multiple distributors instead of a single
reseller resulted in increased selling and marketing expenses, which were offset
by improvements at the gross profit level. Ultimately, the change results in
greater exposure for the Company's products to a larger number of potential
customers.
The Company increased its allowance for doubtful accounts to $8,540 at the end
of 1998 and to $11,540 as of September 30, 1999 because it is extending credit
to a larger number of customers and to increases in past due balances with
several of its distributors.
Interest expense increased from $5,725 in 1997 to $18,753 in 1998 primarily due
to adjustments made to a disputed loan payable (see Note 6 Loan Payable), and
for interest due on past due sales and payroll taxes. Interest expense in 1999
results from the capital lease, short-term borrowings, and the promissory notes
issued on September 1, 1999.
The Company also recorded as redeemable common stock the 300,000 shares issued
as part of the settlement of the disputed loan payable at the $0.75 market value
at the date of settlement. Additionally, the difference between the $225,000
recorded value and the $450,000 put option is being accreted as additional
redeemable stock over the life of the option.
The Company is currently involved in litigation with a former officer. See Part
II, Item 2, titled "Legal Proceedings" and Note 9 Litigation, for a description
and management's belief that the outcome will be in its favor.
PLAN OF OPERATION
The Company's financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business. The Company has incurred
losses for the last three years and has an accumulated deficit of $2,495,211 at
September 30, 1999. Management recognizes that the
11
<PAGE>
Company must generate additional financial resources to enable it to continue
operations and is presently working on receiving financing commitments in this
regard.
The realization of assets and the satisfaction of liabilities in the normal
course of business is dependent upon the Company obtaining additional equity
capital and ultimately achieving profitable operations. However, no assurances
can be given that the Company will be successful in these activities. Should any
of these events not occur, the accompanying financial statements will be
materially affected.
The Company plans to continue its current strategy of developing a presence for
its products in the food service industry. Additionally, work needs to continue
on rounding out the product line and expanding penetration into other target
markets. This strategy will continue to require additional ongoing investor
financing. While management of the Company believes it will be able to arrange
the necessary financing to support its plan, if it is unable to, there is
substantial doubt that the Company will be able to continue current marketing
efforts.
As described above the Company's expenditures to date have greatly exceeded its
revenues even though those revenues have shown growth from year to year (sales
for the year 1999 will approximate $500,000 compared with $377,000 in 1998). The
company anticipates continued sales growth in the coming year and anticipates
that expenditures will continue at or near the current level. Based on this
scenario, it is anticipated that beginning in April 2000 the Company's need for
additional investor capital will begin to decrease each month as the Company's
plan develops.
"Y2K" ISSUE
Management of the Company believes it is in full compliance with the "Y2K"
issue. The Company operates an internal Local Area Network for all of its
computer operations and all the software and substantially all the hardware in
use passed successfully into the new year without disruption. Based on
discussions with its major vendors, the Company believes there will be no
interruption from its vendors that will interfere with the Company's operations.
Management of the Company believes that the "Y2K" issue will not have a material
effect on the Company's business, results of operations or financial condition.
ITEM 3. DESCRIPTION OF PROPERTY.
All of the operations of the Company are conducted from premises leased from
unaffiliated landlords.
Pursuant to a lease agreement with Triad Properties, the company leases
approximately 3,000 square feet of usable space located at 751 Park of Commerce
Drive, Suite 122, Boca Raton, Florida as its principal executive offices, as
well as marketing, administration and product development facilities. The lease
runs through March 2003, with annual rental of approximately $26,000. This is a
modern CBS and Steel, class B building in a major Boca Raton office park, with
2500 square feet of office space and a 500 square foot warehouse.
The company also leases approximately 2,400 square of usable space under a
short-term rental agreement with Henry Colombi, at 4301 Oak Circle Drive, Boca
Raton, Florida. This facility is used as a temporary warehouse and distribution
facility at a monthly rental of $1,696. This is a
12
<PAGE>
CBS and steel warehouse, with 500 square feet of office space in a strategically
located industrial section of Boca Raton, convenient to transportation.
The company considers its current leased facilities adequate for its operations.
In the event either of these leases was terminated or not renewed, management
believes adequate alternative space is available under comparable terms and
conditions.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth as of January 31, 2000 the beneficial ownership
of the Company's 15,110,750 outstanding shares of common stock and 40,040
outstanding shares of preferred stock by any persons who own of record or are
known to own, beneficially, more than 5% of the Company's common or preferred
stock and each director and executive officer of the Company and all directors
and officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock ............................... Michael J. Troup 1,803,907 11.9%
Preferred Stock ............................ Michael J. Troup 36,200 90.4%
1117 Island Dr.
Delray Beach, FL 33483
Common Stock ............................... Matthew J. Bruderman 250,000(2) 1.7%
1 World Trade Center
Suite 1153
New York, NY 10048
Common Stock ............................... Carter Reames 155,000 1.0%
6440 Tanacrest Ct. N. W.
Atlanta, GA 30328
Common Stock ............................... William J. Breslin 127,500(3) .8%
1764 N. W. 88 Way
Coral Springs, FL 33071
Common Stock ............................... All officers and directors 2,336,407 15.5%
Preferred Stock ............................ as a group (4) 36,200 90.4%
</TABLE>
All of the above are directors of the company. Mr. Troup is the Chairman of the
Board and the C.E.O. of the company. Mr. Breslin is secretary, treasurer and the
C.F.O. of the Company.
- --------------------
1. Includes 1,443,236 shares issued to the Michael J. Troup Trust, 76,333
shares issued to Lindsey Troup and 72,333 shares issued to Peter Troup with
respect to which Mr. Troup claims beneficial ownership. Lindsey and Peter
Troup are Mr. Troup's children.
2. Mr. Bruderman provides financial consulting services to the Company.
13
<PAGE>
3. Includes 5,000 shares issued to Heather A. Breslin and 5,000 shares issued
to Holly A. Breslin with respect to which Mr. Breslin claims beneficial
ownership. Heather and Holly Breslin are Mr. Breslin's daughters.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and executive officers of the company are:
NAME Age POSITION
- ---- --- --------
Michael J. Troup 56 Chairman of the Board and
Chief Executive Officer
William J. Breslin 62 Director and secretary, treasurer and
Chief Financial Officer
Matthew J. Bruderman 28 Director
Carter Reames 62 Director
MICHAEL TROUP, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER provided the
concept, initial investment capital and entrepreneurial drive necessary to bring
the Microbest proprietary products to market. The holder of an undergraduate
degree in Psychology, with minors in chemistry and biology, and an M.A. in
Educational Psychology from The University of Toledo, Mr. Troup brings to the
management team more than 25 years of experience in manufacturing, marketing and
concept development. Mr. Troup has been employed full time by the Company since
January 1993 as its C.E.O.
WILLIAM J. BRESLIN, DIRECTOR AND CHIEF FINANCIAL OFFICER brings over 35 years of
diversified financial experience to Microbest. Mr. Breslin began his career with
Price Waterhouse where he developed specialities in corporate finance, business
development, and acquisitions and mergers. He spent 15 years in corporate
financial management as a senior financial executive with such companies as
Hartz Mountain Corporation, The Washington Post Corporation and The Zondervan
Publishing Company. For the last 10 years Mr. Breslin has been an independent
consultant to emerging growth companies in his areas of specialty. Mr. Breslin
is a Certified Public Accountant in the states of New York and Florida. He holds
an undergraduate degree from Iona University with a major in accounting. Mr.
Breslin joined the company as CFO on January 1, 1999 and became a Director on
April 8, 1999.
MATTHEW J. BRUDERMAN, DIRECTOR is President and CEO of M. J. Bruderman &
Company, Inc., an international money management firm based in New York. Mr.
Bruderman, who represents the third generation of Bruderman family presence on
Wall Street, brings to Microbest his experience in financing developing
companies, and his relationships in the investment banking community. Mr
Bruderman has been in his present position for the past five years. Mr.
Bruderman became a director of the Company on June 22, 1998.
CARTER REAMES, DIRECTOR Chief Executive Officer of Reames Realty Advisors, a
firm based in Atlanta and specializing in commercial real estate advisory
services and acquisitions. Prior to his real estate investment activities, Mr.
Reames held technical and management positions in the
14
<PAGE>
chemical manufacturing industry, and brings an array of engineering and
entrepreneurial talents to the Microbest Board. Mr. Reames became a director of
the company on October 8, 1998.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth the total compensation paid to the Company's
chief executive officer for the last three completed fiscal years. No other
executive officer of the Company received compensation of $100,000 or more in
any year the Company has been in existence.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Michael J. Troup, C.E.O ......... 1998 $105,000 None $ 10,000(1)
1997 $ 70,000 None None
1996 $ 60,000 None None
Patrick Cioffi, President(2) ..... 1998 $ 87,950 None $ 15,985
William J. Breslin(3) ............ 1998 None None $ 16,500
</TABLE>
- --------------------
1. Includes $6,500 in lease payments on a vehicle the Company provides to
Mr. Troup and $3,500 in health club dues the Company pays for his
benefit.
2. Mr. Cioffi joined the Company as its president on November 3, 1997 and
served in that capacity until December 8, 1998 when he was terminated
for cause. As a result of his dismissal the agreement between the
Company and Mr.Cioffi was deemed void and the stock compensation
arrangement with him was cancelled. See Part 11, Item 2. Legal
proceedings.
3. Mr. Breslin joined the company as its CFO on January 1, 1999 at an
annual salary of $78,000. Prior to that he worked as an independent
consultant to the company performing the services of the CFO on a
part-time basis.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
A financial services company, Protective Group Securities Corp., received
commissions customary in the industry for assisting the Company sell its initial
offering of Rule 504 common stock.
Performance Financial Services Inc., a financial consulting company assisted the
Company in connection with the merger of MPI into ESI. In addition, during 1996
and 1997 Performance loaned the Company $261,856. The Company did not have the
capital to repay the loans and negotiated with Performance for the payment of
the loans with shares of the Company's common stock. The parties agreed on a
purchase price of $1 per share. The funds advanced during 1996 are included in
equity under the caption, "funds advanced for subsequently issued stock".
In June 1998 Microbest, Inc. engaged Mr. Bruderman to perform a variety of
financial consulting services over an extended period of time. The services
performed by Mr. Bruderman included the following:
o Assistance in developing the Company's business plan
o Introducing management to potential investors
o Recruiting potential Board members
o Assistance with executive recruitment
o Assistance in developing the Company's marketing plans
o Assistance with financial public relations
As compensation for these services the Company accrued $40,000 of consulting
expense in each of 1998 and 1999.
15
<PAGE>
The parties mutually agreed that the company issue 250,000 shares of Microbest
Restricted-common stock to Mr. Bruderman in recognition of his financial
consulting efforts and related out of pocket expenses. These shares were issued
in January 2000. (See Note 11.)
ITEM 8. DESCRIPTION OF SECURITIES.
Common Stock
The Company is authorized to issue 100,000,000 shares of common stock, $.001 par
value. As of September 30, 1999 there were 14,238,909 shares issued and
outstanding, all of which are validly issued, fully paid and nonassessable. The
Company has not declared nor paid any dividends since its inception, and it is
not likely that any dividends will be declared at any time in the near future.
Any dividends will be subject to the discretion of the company's Board of
Directors, and will depend upon, among other things, the operating and financial
condition of the company, its capital requirements and general business
conditions.
All common shares have one vote per share on all matters to be voted upon by the
shareholders. Cumulative voting in the election of directors is not allowed and
a quorum for shareholder meetings result when a majority of issued and
outstanding shares are present in person or by proxy.
The Company previously issued 300,000 shares of its common stock in settlement
of a dispute. Through April 2000, the company has the option to repurchase the
shares at a price of $2.25, if the Company has not so acted by that date then
the creditor for a ten day period has the right to "put" the shares to the
Company at a price of $1.50 per share.
On March 25, 1999, the Company's Board of Directors approved a qualified
incentive stock option plan and reserved 1,000,0000 shares of common stock for
options to be granted under the plan. As of November 12, 1999 no options have
been granted under the plan.
Preferred Stock
The Company is authorized to issue 50,000,000 shares of preferred stock, $.01
par value. As of September 30, 1999 there were 40,040 preferred shares issued
and outstanding. The preferred stock is convertible into common stock at a ratio
of 10 common shares for each preferred share, at a conversion price of $.10 per
share. The conversion period expires April 17, 2002. Prior to conversion, each
preferred share has 10 votes. The preferred stock is not registered with the
Securities and Exchange Commission.
Promissory Notes
On September 1, 1999, the Company issued $200,000 of Convertible Promissory
Notes, which bear interest at 8 3/4% and mature in two years, with interest due
at maturity. After 15 months and until maturity, the outstanding balance of
principal and interest shall be convertible, at the option of the holder, into
shares of the Company's common stock at a conversion price 20% below the average
closing bid prices of the common stock for the prior 90 days. The notes are
unsecured. See notes to the interim financial statements.
16
<PAGE>
Also on September 1, 1999, the Company issued a $150,000 promissory note, due in
one year, to a fund controlled by Mr. Bruderman. (see Items 4 and 5 above). The
note bears interest at 12 1/2%. Interest is due at maturity. The holder of the
note also received 50,000 shares of the Company's common stock. The note is
unsecured. See Note_ to notes to the interim financial statements.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company has not paid any dividends on shares of its common or preferred
stock since inception and the Board of Directors of the Company does not
anticipate declaring or paying any dividends on the common or preferred stock in
the foreseeable future. The Company currently intends to utilize any positive
cash flow it may achieve for the development of its business and ongoing working
capital needs.
The Company's common stock traded on the NASD OTC Bulletin Board since March 2,
1998, using the symbol MBST. The following table sets forth the range of high
and low bid quotations for the periods indicated as reported by National
Quotation Bureau, Inc. Such quotations reflect prices between dealers, without
retail mark-up, markdown or commission and may not represent actual
transactions.
HIGH BID LOW BID
-------- -------
March 2, 1998 through March 31, 1998 ..................... none none
April 1, 1998 through June 30, 1998 ...................... $ 1.75 $ 1.125
July 1, 1998 through September 30, 1998 .................. $ 1.375 $ 0.42
October 1, 1998 through December 31, 1998 ................ $ 2.06 $ 0.58
January 1, 1999 through March 31, 1999 ................... $ 1.50 $ 0.75
April 1, 1999 through June 30, 1999 ...................... $ 1.19 $ 0.625
July 1, 1999 through September 30, 1999 .................. $ 0.875 $ 0.187
October 1, 1999 through December 31, 1999 ................ $ 0.43 $ 0.15
ITEM 2. LEGAL PROCEEDINGS
On December 8, 1998 the Company terminated for cause the employment of Mr.
Patrick Cioffi, Jr. its former president. The Company alleges that Mr. Cioffi
misappropriated Company assets, sexually harassed a female employee and lied to
the Company by submitting false information on his resume to induce the Company
to enter into an Employment Contract. Subsequent to his termination, the Company
filed suit against Mr. Cioffi in the Palm Beach County Circuit Court in January
1999, alleging "fraud in the inducement of contract," "nine counts of breach of
contract," and seeking "Rescission, damages and trial by jury." Specific charges
include:
o Lying about his educational background and professional credentials
o Sexually harassing a female employee (suit settled by Microbest)
o Giving himself an unauthorized salary increase
o Receiving a kickback from a vendor
o Manipulating financial records for his own benefit
o Issuing false financial and sales reports to the Board of Directors
Coinciding with his dismissal, Microbest deemed Mr. Cioffi's employment
agreement void due to "fraud in the inducement," thereby rescinding the
agreement and the benefits thereunder which included a stock compensation
package. Counsel to the Company advised management that these actions were
appropriate.
Mr. Cioffi filed a claim in Arbitration, staying the Circuit Court action, based
on an arbitration clause in the Employment Agreement. This arbitration action
against the Company claims damages for the loss of 500,000 shares of Microbest
common stock and approximately $450,000 for lost wages and benefits. The Company
filed a counter-demand for arbitration similar to its pending lawsuit. Within
Arbitration, the parties have exchanged "written discovery" and while Mr.
Cioffi's counsel has set and cancelled several scheduled depositions, no
depositions have been held by either party to date.
The Company recently filed a memorandum of law and motion to abate arbitration
with the Circuit Court supported by an "Affidavit in Support of Motion to Abate
Arbitration" believed to be sufficient to motivate the Court to schedule a
hearing to address the matter of "fraud in the inducement." Counsel believes
Microbest will be successful in returning the case to Circuit Court as a result
of this hearing.
Management intends to prosecute its action against Mr. Cioffi to the greatest
extent possible under the law for damages related to his actions. It is the
position of the Company and its legal counsel that the claims of Mr. Cioffi are
entirely without merit and both strongly believe that the Company will prevail
at final hearing.
17
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS.
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following provides information concerning all sales of securities that the
Company sold within the past three years relying on exemptions from registration
under the Securities Act of 1933.
On December 31, 1996 the Company issued 3,965,625 shares of common stock for
$10,000 cash without registration under the Securities Act of 1933 pursuant to
an exemption under Rule 504 of Regulation D.
Effective April 17, 1997 the Company issued 3,950,500 shares of common stock and
40,000 shares of preferred stock to the former shareholders of Microbest
Products, Inc., and others, in connection with the merger of that entity into
the Company, all after giving effect to the cancellation of common shares and
the reverse stock split of preferred shares in November 1997. (see note 2 to
notes to financial statements). These shares were issued in reliance upon
Section 4 (2) of the Securities Act of 1933. We have included as Exhibit 4, a
list of the shareholders of the two entities prior to the merger and a list of
the shareholders of the Company immediately after the merger.
As part of the merger 3,840 shares of preferred stock were issued to the
founders of ESI and 36,200 shares of preferred stock were issued to Mr. Troup,
the founder of MPI.
From March 1, 1997 through December 31, 1997 the Company issued 851,000 shares
of common stock for cash of $219,072 without registration pursuant to an
exemption from registration under Rule 504. Includes 169,773 shares issued in
settlement of $92,709 advanced to the Company prior to 1997.
Between May 7, 1997 and October 10, 1997 the Company also issued 561,856 shares
of common stock for cash of $47,500 and services of $140,000 without
registration in reliance on Section 4 (2) of the Securities Act of 1933. The
Company has received subscription agreements from the purchasers of Section 4
(2) shares acknowledging they are sophisticated investors who have had access to
the Company's management and financial records.
From January 20, 1998 through December 15, 1998 the Company issued 2,004,102
shares of common stock for cash of $630,150 without registration pursuant to an
exemption from registration under rule 504.
Between April 1, 1998 and December 14, 1998 the Company also issued 702,500
shares of common stock for cash of $220,500 without registration in reliance
upon section 4 (2) of the Securities Act of 1933, as 144 restricted shares.
From the period January 1, 1999 through September 30, 1999 the company issued
56,275 shares of common stock for cash of $42,500 without registration pursuant
to an exemption from registration under rule 504, and also issued, 842,426
shares for $494,584 without registration in reliance upon section 4(2) of the
Securities Act of 1933, as 144 restricted shares.
18
<PAGE>
The following is a tabular presentation of the sales of common shares listed
above:
CASH OR
TYPE OF NUMBER OF SERVICES
DATES OF ISSUE EXEMPTION SHARES RECEIVED
- --------------- ----------- ----------- -----------
December 31, 1996 .......... 504 3,971,250 $ 10,000
April 17, 1997 ............. 4 (2) 3,950,500 --
During 1997 ................ 504 851,000 $ 219,072
During 1997 ................ 4 (2) 561,856 $ 187,500
----------- -----------
Total through 1997 ......... 9,334,606 $ 416,572
During 1998 ................ 504 2,004,102 $ 630,150
During 1998 ................ 4 (2) 702,500 $ 220,500
----------- -----------
Total through 1998 ......... 12,041,208 $ 1,267,222
----------- -----------
During 1999 ................ 504 56,275 $ 42,500
During 1999 ................ 4 (2) 841,426 $ 494,584
----------- -----------
Total through 9/30/99 ...... 12,938,909 $ 1,804,306
----------- -----------
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850 of the Florida Business Corporation Act provides that officers
and directors may be indemnified by the Company for any liability incurred by
them while acting within the scope of their duties as officers and directors of
the Company, except for acts of intentional misconduct or unlawfulness. The
Company's Bylaws provide that the Company shall indemnify all officers and
directors to the fullest extent provided by Florida law. The Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and is unenforceable.
The Company has not purchased a policy of errors or omissions liability
insurance to cover its indemnification obligations.
PART F/S
THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED HEREIN:
AUDITED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
BALANCE SHEETS AS OF DECEMBER 31, 1998, 1997 AND 1996
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1997
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTES TO FINANCIAL STATEMENTS
UNAUDITED INTERIM FINANCIAL STATEMENTS
19
<PAGE>
BALANCE SHEETS AS OF SEPTEMBER 30, 1999 AND 1998
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998
STATEMENTS OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
NOTES TO INTERIM FINANCIAL STATEMENTS
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
Number 1 Plan of Merger (previously submitted)
Number 2 Articles of Incorporation (previously submitted)
Number 3 By - Laws (previously submitted)
Number 4 Shareholder Reconciliation
Number 5 Promissory Notes (previously submitted)
Number 6 $500,000 Additional Financing (previously
submitted)
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICROBEST, INC.
BY_______________________________
MICHAEL J. TROUP,
CHIEF EXECUTIVE OFFICER/Chairman
20
<PAGE>
MICROBEST, INC.
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT...................................F-2
FINANCIAL STATEMENTS
Balance Sheets.........................................F-3
Statements of Operations...............................F-4
Statements of Changes in Stockholders' Deficit.........F-5
Statements of Cash Flows...............................F-6
NOTES TO FINANCIAL STATEMENTS.....................F-7 through F-14
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Microbest, Inc.
We have audited the accompanying balance sheets of Microbest, Inc. (the
"Company") as of December 31, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Microbest, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a deficit in working capital and has suffered
cumulative losses from operations since inception. This raises substantial doubt
about the Company's ability to continue as a going concern. Management's plan in
regard to these matters is also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Ahearn, Jasco + Company, P.A.
--------------------------------------
AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
May 12, 1999, except for paragraph four of
Note 11, for which the date is January 7, 2000
F-2
<PAGE>
MICROBEST, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 56,554 $ 6,362
Accounts receivable, net of allowances of $8,540
in 1998 and $1,654 in 1997 .................... 41,681 17,522
Inventories, net ............................... 42,457 23,200
----------- -----------
TOTAL CURRENT ASSETS ..................... 140,692 47,084
PROPERTY AND EQUIPMENT, net ....................... 67,594 8,087
OTHER ASSETS ...................................... 4,875 4,875
----------- -----------
TOTAL .................................... $ 213,161 $ 60,046
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses .......... $ 305,799 $ 105,708
Current portion of capital lease obligation .... 1,981 --
Loan payable ................................... 100,000 63,609
Advances from a related entity ................. 200,000 --
----------- -----------
TOTAL CURRENT LIABILITIES ................ 607,780 169,317
----------- -----------
LONG-TERM PORTION - Capital lease obligation ...... 13,884 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, 50,000,000 shares authorized,
at stated value ............................... 400 400
Common stock, 100,000,000 shares authorized,
at stated value ............................... 12,041 9,335
Additional paid-in capital ..................... 1,397,490 549,546
Deficit ........................................ (1,818,434) (668,552)
----------- -----------
STOCKHOLDERS' DEFICIT, NET ............... (408,503) (109,271)
----------- -----------
TOTAL .................................... $ 213,161 $ 60,046
=========== ===========
See accompanying notes to financial statements.
F-3
<PAGE>
MICROBEST, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
------------ ------------
SALES ......................................... $ 376,602 $ 190,636
COST OF SALES ................................. 327,087 200,803
------------ ------------
GROSS MARGIN (LOSS) .................. 49,515 (10,167)
ADMINISTRATIVE EXPENSES ....................... 1,180,644 555,486
------------ ------------
LOSS FROM OPERATIONS ................. (1,131,129) (565,653)
INTEREST EXPENSE .............................. 18,753 5,725
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,149,882) (571,378)
PROVISION FOR INCOME TAXES .................... -- --
------------ ------------
NET LOSS ............................. $ (1,149,882) $ (571,378)
============ ============
LOSS PER COMMON SHARE:
Basic and diluted .......................... $ (0.106) $ (0.067)
============ ============
Weighted average common shares outstanding . 10,847,026 8,579,214
============ ============
See accompanying notes to financial statements.
F-4
<PAGE>
MICROBEST, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK FUNDS
-------------------------- -------------------------- ADDITIONAL ADVANCED FOR
STATED VALUE STATED VALUE PAID-IN SUBSEQUENTLY
# OF SHARES $.01 PER SHARE # OF SHARES $.001 PER SHARE CAPITAL ISSUED STOCK
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY (DEFICIT),
December 31, 1996................... 40 $ 1 3,971,250 $ 3,971 $ 56,028 $ 92,709
Stock issued pursuant to a merger and
recapitalization (see Note 2) ...... 40,000 399 3,950,500 3,951 (4,350) --
Issuance of common stock for cash ... -- -- 1,012,856 1,013 358,268 (92,709)
Issuance of common stock for services -- -- 400,000 400 139,600 --
Net loss for the year ended
December 31, 1997 .................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1997 .................. 40,040 400 9,334,606 9,335 549,546 --
Issuance of common stock for cash ... -- -- 2,706,602 2,706 847,944 --
Net loss for the year ended
December 31, 1998 .................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1998 .................. 40,040 $ 400 12,041,208 $ 12,041 $ 1,397,490 $ --
=========== =========== =========== =========== =========== ===========
</TABLE>
STOCKHOLDERS'
EQUITY
DEFICIT (DEFICIT), NET
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT),
December 31, 1996................... $ (97,174) $ 55,535
Stock issued pursuant to a merger and
recapitalization (see Note 2) ...... -- --
Issuance of common stock for cash ... -- 266,572
Issuance of common stock for services -- 140,000
Net loss for the year ended
December 31, 1997 .................. (571,378) (571,378)
----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1997 .................. (668,552) (109,271)
Issuance of common stock for cash ... -- 850,650
Net loss for the year ended
December 31, 1998 .................. (1,149,882) (1,149,882)
----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1998 .................. $(1,818,434) $ (408,503)
=========== ===========
See accompanying notes to financial statements.
F-5
<PAGE>
MICROBEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................... $(1,149,882) $ (571,378)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ............................... 9,756 2,120
Common stock issued for services ........... -0- 140,000
Interest accrued on loan payable ........... 36,391 --
Changes in certain assets and liabilities:
Accounts receivable ..................... (24,159) 132,699
Inventories ............................. (19,257) (8,000)
Accounts payable and accrued expenses ... 200,091 53,148
Other ................................... -- (4,875)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ... (947,060) (256,286)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITY - Acquisition
of property and equipment ....................... (53,398) (4,475)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock sales ..................... 850,650 266,572
Advances from a related entity ................ 200,000 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,050,650 266,572
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 50,192 5,811
CASH AND CASH EQUIVALENTS, Beginning of year ..... 6,362 551
----------- -----------
CASH AND CASH EQUIVALENTS, End of year ........... $ 56,554 $ 6,362
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash ......................... $ 700 $ --
=========== ===========
Income taxes paid in cash ..................... $ -- $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In December 1998, the Company entered into a capital lease obligation for
$15,865 for telephone equipment.
See accompanying notes to financial statements.
F-6
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF ENTITY AND BASIS OF PRESENTATION
Microbest, Inc. is the entity resulting from the April 17, 1997 merger
of an entity previously named Emerald-Shade, Inc. ("ESI") and Microbest
Products, Inc. ("MPI"). This merger is described further in Note 2. MPI
began operations in 1993. ESI was incorporated in Minnesota on December 3,
1996, but had no operations prior to the merger other than the issuance of
its common stock. Hereinafter, the post-merger entity will be referred to as
the "Company" and the pre-merger entities will be referred to as ESI and
MPI. The Company is engaged in making and marketing a biologically-based,
environmentally safe system of cleaning products for the industrial and
institutional cleaning products industry.
The Company's financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
The Company incurred a net loss of $1,149,882 and $571,378 for the years
ended December 31, 1998 and 1997, respectively, and has an accumulated
deficit of $1,818,434 and a working capital deficit of $467,088 at December
31, 1998. Management recognizes that the Company must generate additional
resources to enable it to continue operations. Management is planning to
obtain additional capital through the sale of equity securities and has
hired an investment banker to assist in raising capital. The realization of
assets and satisfaction of liabilities in the normal course of business is
dependent upon the Company obtaining additional equity capital and
ultimately obtaining profitable operations. However, no assurances can be
given that the Company will be successful in these activities. Should any of
these events not occur, the accompanying consolidated financial statements
will be materially affected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION AND CREDIT RISKS
Revenue is recognized at the time the goods are shipped. Accounts
receivable are primarily with restaurants and food service companies located
nationwide. The Company sells its products to various customers spread over
a wide geographic area, therefore, the Company believes that it does not
have an abnormal concentration of credit risk within any one market or any
one geographic area.
For the year ended December 31, 1997, one customer accounted for 80%
of the Company's total sales. This customer was a distributor for the
Company's products, who resold the products to numerous secondary customers.
Beginning in 1998, the Company started selling its products directly to the
former distributor's customers. For 1998, no single customer accounted for
more than 10% of the Company's sales.
INVENTORIES AND PRODUCT COSTS
The Company's proprietary products are produced under contract by
independent third parties for resale and distribution by the Company.
Inventories, therefore, substantially consist of the proprietary products
and are recorded at the lower of cost (first-in, first-out method) or
market. Products purchased with the intent to use as samples or for
promotional purposes are expensed as acquired. Inventories are presented net
of allowances. The Company also maintains an accrual for possible future
charges for customer claims for damaged goods or warranty claims and this
accrual is determined based on management's estimate of possible future
claims based on historical experience.
F-7
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at acquisition cost and depreciated
using the straight-line method over the estimated useful lives of the
assets. Useful lives range from five to seven years. Expenditures for
routine maintenance and repairs are charged to expense as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with the Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes," which requires the recognition of deferred tax liabilities and
assets at currently enacted tax rates for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that is more likely than not to be
realized.
NET LOSS PER COMMON SHARE
The Company has adopted SFAS No. 128, "Earnings Per Share." SFAS 128
requires companies with complex capital structures or common stock
equivalents to present both basic and diluted earnings per share ("EPS") on
the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as previously prescribed by Accounting
Principles Board Opinion No. 15, "Earnings Per Share." The effect of common
shares issuable under the terms of the Company's preferred stock outstanding
are excluded from the calculation of diluted EPS since the effect is
antidilutive. The adoption of SFAS 128 did not have an impact on the
Company's reported results.
ADVERTISING
The costs of advertising, promotion, and marketing programs are
expensed as incurred. Amounts charged to operations in 1998 and 1997 were
$182,820 and $39,512, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 and 131 are effective for fiscal years
beginning after December 15, 1997. Adoption of these standards in 1998 had
no material impact on the Company's results of operations. A statement of
comprehensive income is not presented since the Company had no items of
other comprehensive income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments
purchased with an original maturity of three months or less. The Company
occasionally maintains cash balances in financial institutions in excess of
the federally insured limits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, and accounts payable and accrued expenses
are reflected in the financial statements at cost, which approximates fair
value because of the short-term maturity of those instruments. The fair
value of the Company's loan payable, as disclosed in Note 6, cannot be
estimated as the debt is in dispute. The fair value of the advances from a
related entity cannot be estimated because of the unique nature of this
related party obligation.
F-8
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 2 - MERGER OF ESI AND MPI
On April 17, 1997, a merger transaction was effected between ESI and
MPI and its shareholders. Prior to the closing of the merger, ESI had
3,971,250 shares outstanding. To complete the merger, ESI issued 7,900,000
new shares of its common stock and 2,000,000 shares of preferred in exchange
for all of the outstanding stock (1,000 shares of common stock) of MPI.
These share amounts are before giving effect to a November 1997 adjustment,
which included a 1 for 50 reverse capital split of the preferred stock and a
cancellation of 3,950,500 common shares. These shares originally issued for
the merger in April 1997 were then reduced to conform to the request of the
OTC Compliance Unit of the NASD as part of that unit's approval of the
initial 15 c 2-11 filing by the Company. The following table summarizes the
shares originally issued, the adjustments made thereto and the net shares
issued all as if they had taken place at the date of the merger.
PREFERRED COMMON
SHARES SHARES
--------- ---------
Shares issued pursuant to the original
merger Agreement .......................... 2,000,000 7,900,000
One for fifty share reverse split of
preferred shares pursuant to NASD
direct request............................. (1,960,000) --
Cancellation of common shares, pursuant
to NASD direct request .................... -- (3,949,500)
--------- ---------
Net shares issued .......................... 40,000 3,950,500
As part of the merger 3,840 shares of preferred stock were issued to the
founders of ESI and 36,200 shares of preferred stock were issued to Mr.
Troup, founder of MPI.
As a result of this merger, the business of MPI will be conducted within the
legal entity ESI. Prior to the merger, ESI was a non-operating entity with
publicly traded common stock pursuant to a December 1996 Regulation D, Rule
504 offering. At the date of the merger, ESI had no significant assets or
liabilities.
Although ESI (renamed Microbest, Inc.) is the legal surviving
corporation, for accounting purposes, the merger is treated as a purchase
business acquisition of ESI by MPI (commonly called a reverse acquisition)
and a recapitalization of MPI. MPI is the acquirer for accounting purposes
because, at the original merger date, the former MPI stockholders received
the larger portion of the common stockholder interests and voting rights in
the combined enterprise when compared to the common stockholder interests
and voting rights retained by the former ESI stockholders. As a result of
this accounting treatment, the Company is recapitalized for accounting
purposes to reflect the authorized stock of the legal surviving entity.
Pro forma information has not been presented for this merger. Such
information would not be meaningful since ESI had no operations prior to the
merger.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998
and 1997:
1998 1997
-------- --------
Leasehold improvements ..................... $ 20,067 $ --
Office and computer equipment .............. 62,037 12,841
Less: Accumulated depreciation ............. (14,510) (4,754)
-------- --------
Property and equipment, net ................ $ 67,594 $ 8,087
======== ========
Depreciation expense for the years ended December 31, 1998 and 1997
was $9,756 and $2,120, respectively.
NOTE 4 - CAPITAL LEASE OBLIGATION
In December 1998, a telephone system was acquired through a capital
lease transaction. The lease calls for payments of $350 for 60 months with
the first payment due in January 1999. Imputed interest over the life of the
lease is $5,158 for a total recorded obligation at December 31, 1998 of
$15,865. The gross amount of assets recorded at December 31, 1998 is also
$15,865. No depreciation was recorded in 1998, as the asset was not placed
in service prior to year-end.
F-9
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1998 and 1997
consist of the following:
1998 1997
-------- --------
Accounts payable ................................... $ 45,335 $ 64,379
Accrued liabilities:
Product replacement and warranty ................ 25,000 10,000
Payroll, vacation pay, and related taxes ........ 90,961 10,000
Consulting fees (related party) ................. 40,000 -0-
Interest payable (Note 6) ....................... 29,503 11,450
Sales tax, professional fees, and other ......... 75,000 9,879
-------- --------
Total .................................... $305,799 $105,708
======== ========
NOTE 6 - LOAN PAYABLE
At December 31, 1997, the Company had a loan payable to Simray for
which it recorded an amount due for principal of $63,609, and accrued
interest payable of $11,450. Simray was a shareholder/creditor of MPI and a
former distributor of the Company's products. This loan payable arose as
follows: over a several year period ending in 1996, Simray (as a
distributor) and the Company were involved in a series of advances for
product, and shipments of product against the advances, which terminated
when Simray went out of business. The net balance due to Simray on the
Company's books at termination was $63,609, which the Company recorded as a
note. Simray made a formal demand for payment in June 1998 that was
originally in excess of $119,000. After lengthy negotiations relating to the
disputed loan amount (which arose from recordkeeping differences) and the
level of participation in MPI, both prior to and subsequent to the merger,
all of which were intertwined, the Company increased the recorded amount of
principal due to $100,000 (through a change to cost of sales) and adjusted
accrued interest payable by $18,053 (see Note 5). The matter was settled in
1999 for the payment of $100,000 and the issuance of 150,000 shares of
common stock to each of the principals individually and an agreement that
applies to 300,000 shares of common stock issued to the principals jointly,
as follows: through February 2000, the Company has the option to repurchase
the shares at a price of $2.25; in the event that the Company has not
purchased these shares by April 2000, then for a limited period of ten days,
the principals have the right to force a sale to the Company of any or all
of these shares at a price of $1.50 per share.
NOTE 7 - INCOME TAXES
A summary of the provision for income taxes for the years ended
December 31, 1998 and 1997 is as follows:
1998 1997
--------- ---------
Currently payable ............................ $ -- $ --
Deferred tax benefit ......................... 385,200 191,400
Less: Valuation allowance ................... (385,200) (191,400)
--------- ---------
Provision for income taxes ......... $ -- $ --
========= =========
F-10
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 7 - INCOME TAXES (continued)
Net deferred tax assets at December 31, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Available net operating loss carryovers ........ $ 609,200 $ 224,000
Less: Valuation allowance ..................... (609,200) (224,000)
--------- ---------
Net deferred tax assets .............. $ -- $ --
========= =========
The Company has used a combined estimated federal and state tax rate
of approximately 33.5% for all deferred tax computations. A rate
reconciliation has not been provided since it is not meaningful in the
circumstances. There are no significant deferred tax liabilities.
The Company has recorded a valuation allowance in accordance with the
provisions of SFAS No. 109 to reflect the estimated amount of deferred tax
assets which may not be realized. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
future taxable income during the periods in which temporary differences
and/or carryforward losses become deductible.
The Company has available tax net operating loss carryovers ("NOLs")
as of December 31, 1998 of approximately $1,581,000. The NOLs expire
beginning in 2008. Certain provisions of the tax law may limit the net
operating loss carryforwards available for use in any given year in the
event of a significant change in ownership interest. There have already been
significant changes in stock ownership; however, management believes that an
ownership change has not yet occurred which would cause the net operating
loss carryover to be limited.
NOTE 8 - STOCKHOLDERS' EQUITY
COMMON STOCK
The holders of the common stock are entitled to one vote per share and
have non-cumulative voting rights. The holders are also entitled to receive
dividends when, as, and if declared by the Board of Directors. Additionally,
the holders of the common stock do not have any preemptive right to
subscribe for, or purchase, any shares of any class of stock.
See Note 6 for a description of the terms of 300,000 shares of common
stock subject to possible redemption.
PREFERRED STOCK
The preferred stock, designated as Class A Preferred, is convertible
to common stock at a ratio of 10 shares of common for every share of
preferred stock. Prior to conversion, each preferred share has ten votes.
The conversion period expires five years from the date of the preferred
issuance, or April 2002. In November 1997, when a one for 50 reverse split
of the stock was effected, the shareholders agreed to adjust the conversion
terms so the ratio for conversion remained at 10 shares of common for each
share of preferred.
NASD APPROVAL
In April 1997, the Company submitted an application to be listed on
the NASD OTC Bulletin Board under rule 15c2-11 of the Securities Exchange
Act of 1934. On March 2, 1998, the Company's shares were approved for public
trading under the symbol MBST.
F-11
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its office space under a lease expiring in March
2003, as well as certain other equipment. Future minimum lease payments
under these operating leases are approximately as follows:
YEAR ENDING
DECEMBER 31,
-------------
1999 $ 25,272
2000 26,088
2001 26,928
2002 24,476
2003 5,703
--------
$108,467
========
During the year ended December 31, 1997, a shareholder was providing a
facility to the Company without charge. The value accrued to the Company for
this facility use was de minimis. Total rental expense incurred during 1998
was $29,349.
LITIGATION
From time to time, the Company is exposed to claims and legal actions in the
normal course of business, some of which are initiated by the Company. One of
these matters relates to the termination of its former president.
On December 8, 1998 the Company terminated for cause the employment of Mr.
Patrick Cioffi, Jr. its former president. The Company alleges that Mr. Cioffi
misappropriated Company assets, sexually harassed a female employee and lied to
the Company by submitting false information on his resume to induce the Company
to enter into an Employment Contract. Subsequent to his termination, the Company
filed suit against Mr. Cioffi in the Palm Beach County Circuit Court in January
1999, alleging "fraud in the inducement of contract," "nine counts of breach of
contract," and seeking "Rescission, damages and trial by jury." Specific charges
include:
o Lying about his educational background and professional credentials
o Sexually harassing a female employee (suit settled by Microbest)
o Giving himself an unauthorized salary increase
o Receiving a kickback from a vendor
o Manipulating financial records for his own benefit
o Issuing false financial and sales reports to the Board of Directors
Coinciding with his dismissal, Microbest deemed Mr. Cioffi's employment
agreement void due to "fraud in the inducement," thereby rescinding the
agreement and the benefits thereunder which included a stock compensation
package. Counsel to the Company advised management that these actions were
appropriate.
Mr. Cioffi filed a claim in Arbitration, staying the Circuit Court action, based
on an arbitration clause in the Employment Agreement. This arbitration action
against the Company claims damages for the loss of 500,000 shares of Microbest
common stock and approximately $450,000 for lost wages and benefits. The Company
filed a counter-demand for arbitration similar to its pending lawsuit. Within
Arbitration, the parties have exchanged "written discovery" and while Mr.
Cioffi's counsel has set and cancelled several scheduled depositions, no
depositions have been held by either party to date.
The Company recently filed a memorandum of law and motion to abate arbitration
with the Circuit Court supported by an "Affidavit in Support of Motion to Abate
Arbitration" believed to be sufficient to motivate the Court to schedule a
hearing to address the matter of "fraud in the inducement." Counsel believes
Microbest will be successful in returning the case to Circuit Court as a result
of this hearing.
Management intends to prosecute its action against Mr. Cioffi to the greatest
extent possible under the law for damages related to his actions. It is the
position of the Company and its legal counsel that the claims of Mr. Cioffi are
entirely without merit and both strongly believe that the Company will prevail
at final hearing.
At December 31, 1998, management has recorded reserves for legal fees to cover
anticipated future expenses for this and other matters and believes that this
and any other such outstanding issues will be resolved without significant
additional liability to the Company.
NOTE 10 - NET LOSS PER COMMON SHARE
For the years ended December 31, 1998 and 1997, weighted average
common shares include only common shares outstanding. The inclusion of
common share equivalents would be anti-dilutive and, as such, they are not
included. The common stock equivalents consist of the Class A Preferred
shares, which if converted to common shares, would have increased common
shares outstanding at December 31, 1998 and 1997 by 400,400 in each year.
F-12
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 10 - NET LOSS PER COMMON SHARE
For 1997, the number of shares of MPI were restated to the beginning of the
year to reflect the number of shares received in the merger with ESI as if a
stock split had occurred. The shares subsequently canceled in November 1997
and the reverse split of the preferred shares relating to the merger were
also restated to the beginning of the year.
A reconciliation of the number of common shares shown as outstanding
in the consolidated financial statements with the number of shares used in
the computation of weighted average common shares outstanding is shown
below:
1998 1997
---------- ---------
Common shares outstanding at December 31st............. 12,041,208 9,334,606
Effect of weighting.................................... (1,194,182) (755,392)
---------- ---------
Weighted average common shares outstanding......... 10,847,026 8,579,214
========== =========
NOTE 11 - RELATED PARTY TRANSACTIONS
A financial services company, Protective Group Securities, who was
also a shareholder, received commissions during 1997, which is customary in
the industry for helping the Company sell its common stock. These
commissions totaled approximately $12,000.
Performance Financial Services, a financial consulting company,
assisted the Company in connection with the merger of MPI into ESI. In
addition, during 1996 and 1997, Performance Financial Services loaned
$261,856 to the Company to meet working capital requirements. The Company
did not have the capital to repay the loans and, in 1997, the Company
negotiated with Performance Financial Services for the settlement of the
loans with shares of the Company's common stock. The parties agreed on a
purchase price of $1 per share. The funds advanced during 1996 are included
in equity under the caption, "funds advanced for subsequently issued stock."
In 1997, the Company issued 200,000 shares of its common stock to an
officer in conjunction with his employment agreement and 200,000 shares to
two consultants for services performed. The stock was recorded at $0.35 per
share, which was its then fair market value as determined by management.
On June 12, 1998, the Company entered into a two-year agreement with
Matthew J. Bruderman, who owns and operates an SEC registered investment
advisory firm, M.J. Bruderman & Company (the "firm"), to provide financial
consulting services, including but not limited to, the raising of investment
capital for the Company. During 1998 and 1999, the Company recorded $80,000
of expense relating to services performed pursuant to this agreement. As
payment for such services, on January 7, 2000 the Company issued 250,000
shares of its common stock to Mr. Bruderman, making him a related party
through common ownership. At December 31, 1998, the firm has advanced the
Company $200,000 of funds on a non-interest bearing, due on demand basis;
this advance was settled on September 1, 1999.
F-13
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENTS
STOCK OPTION PLAN
On March 25, 1999, the Board of Directors approved the creation of an
incentive stock option plan (the "plan"), a qualified plan in accordance
with the rules and regulations of the Internal Revenue Code, and reserved
1,000,000 shares of the Company's common stock for options to be granted
under the plan. To conform with the Internal Revenue Code, the plan must be
approved by a majority of the Company's stockholders within one year of its
effective date.
F-14
<PAGE>
MICROBEST, INC.
UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
TABLE OF CONTENTS
PAGE
----
FINANCIAL STATEMENTS
Balance Sheets...................................... F-16
Statements of Operations............................ F-17
Statements of Changes in Stockholders' Deficit...... F-18
Statements of Cash Flows............................ F-19
NOTES TO FINANCIAL STATEMENTS............................... F-20
F-15
<PAGE>
MICROBEST, INC.
BALANCE SHEETS (Unaudited)
SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents .................................... $ 13,999 $ 26,820
Accounts receivable, net of allowances of $11,540
in 1999 and $8,540 in 1998 .................................. 95,834 85,384
Inventories, net ............................................. 52,391 94,480
----------- -----------
TOTAL CURRENT ASSETS ................................... 162,224 206,684
PROPERTY AND EQUIPMENT, net ..................................... 69,719 36,172
DEBT ISSUANCE COST .............................................. 11,000 --
OTHER ASSETS .................................................... 5,635 4,875
----------- -----------
TOTAL .................................................. $ 248,578 $ 247,731
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses ........................ $ 392,256 $ 256,503
Current portion of capital lease obligation .................. 1,981 --
Loan payable ................................................. -- 63,609
Promissory note .............................................. 150,000 --
----------- -----------
TOTAL CURRENT LIABILITIES .............................. 544,237 320,112
----------- -----------
LONG-TERM PORTION - Capital lease obligation .................... 12,205 --
----------- -----------
ADVANCES FROM RELATED ENTITY .................................... -- 60,000
----------- -----------
CONVERTIBLE PROMISSORY NOTES .................................... 153,333 --
----------- -----------
REDEEMABLE COMMON STOCK ......................................... 356,250 --
----------- -----------
STOCKHOLDERS' DEFICIT:
Preferred stock, 50,000,000 shares authorized, at stated value 400 400
Common stock, 100,000,000 shares authorized, at stated value . 12,939 11,113
Additional paid-in capital ................................... 1,664,425 1,134,647
Deficit ...................................................... (2,495,211) (1,278,541)
----------- -----------
STOCKHOLDERS' DEFICIT, NET ............................. (817,447) (132,381)
----------- -----------
TOTAL .................................................. $ 248,578 $ 247,731
=========== ===========
</TABLE>
See accompanying notes to financial statements (unaudited).
F-16
<PAGE>
MICROBEST, INC.
STATEMENTS OF OPERATIONS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
------------ ------------
SALES ............................................. $ 403,943 $ 296,676
COST OF SALES ..................................... 238,604 211,264
------------ ------------
GROSS MARGIN ............................. 165,339 85,412
ADMINISTRATIVE EXPENSES ........................... 822,979 693,437
------------ ------------
LOSS FROM OPERATIONS ..................... (657,640) (608,025)
INTEREST EXPENSE .................................. 19,137 1,964
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES ... (676,777) (609,989)
PROVISION FOR INCOME TAXES ........................ -- --
------------ ------------
NET LOSS ................................. $ (676,777) $ (609,989)
============ ============
LOSS PER COMMON SHARE:
Basic and diluted .............................. $ (0.046) $ (0.086)
============ ============
Weighted average common shares outstanding ..... 13,709,646 10,295,375
============ ============
See accompanying notes to financial statements (unaudited)
F-17
<PAGE>
MICROBEST, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- --------------------------- ADDITIONAL
STATED VALUE STATED VALUE PAID-IN
# OF SHARES $.01 PER SHARE # OF SHARES $.001 PER SHARE CAPITAL
----------- ----------- ----------- ----------- -----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCKHOLDERS' DEFICIT, January 1, 1999 .............. 40,040 $ 400 12,041,208 $ 12,041 $ 1,397,490
Increase attributable to beneficial conversion
feature of convertible promissory notes ............ -- -- -- -- 50,000
Issuance of common stock ............................ -- -- 1,197,701 1,198 572,885
Reclassify redeemable common stock .................. -- -- (300,000) (300) (224,700)
Accrue redeemable put option ........................ -- -- -- -- (131,250)
Net loss for the nine months ended September 30, 1999 -- -- -- --
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1999 ........... 40,040 $ 400 12,938,909 $ 12,939 $ 1,664,425
=========== =========== =========== =========== ===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT, January 1, 1998 .............. 40,040 $ 400 9,334,606 $ 9,335 $ 549,546
Issuance of common stock ............................ -- -- 1,777,859 1,778 585,101
Net loss for the nine months ended September 30, 1998 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1998 ........... 40,040 $ 400 11,112,461 $ 11,113 $ 1,134,647
=========== =========== =========== =========== ===========
</TABLE>
STOCKHOLDERS'
DEFICIT DEFICIT, NET
----------- -----------
-------------------------
STOCKHOLDERS' DEFICIT, January 1, 1999 .............. $(1,818,434) $ (408,503)
Increase attributable to beneficial conversion
feature of convertible promissory notes ............ -- 50,000
Issuance of common stock ............................ -- 574,083
Reclassify redeemable common stock .................. -- (225,000)
Accrue redeemable put option ........................ -- (131,250)
Net loss for the nine months ended September 30, 1999 (676,777) (676,777)
----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1999 ........... $(2,495,211) $ (817,447)
=========== ===========
-----------
STOCKHOLDERS' DEFICIT, January 1, 1998 .............. $ (668,552) $ (109,271)
Issuance of common stock ............................ -- 586,879
Net loss for the nine months ended September 30, 1998 (609,989) (609,989)
----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1998 ........... $(1,278,541) $ (132,381)
=========== ===========
See accompanying notes to financial statements (unaudited).
F-18
<PAGE>
MICROBEST, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................ $(676,777) $(609,989)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................. 10,000 8,000
Interest accrued on loan payable ............. -- --
Changes in certain assets and liabilities:
Accounts receivable ....................... (30,024) (67,862)
Inventories ............................... (9,934) (71,280)
Accounts payable and accrued expenses ..... 86,457 150,795
Other ..................................... 2,764 --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES ..... (617,514) (590,336)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITY - Acquisition
of property and equipment ......................... (12,125) (36,085)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock sales ....................... 537,084 586,879
Loan repayment .................................. (100,000) --
Advances from a related entity .................. (200,000) 60,000
Proceeds from promissory note ................... 350,000 --
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES . 587,084 646,879
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ..................... (42,555) 20,458
CASH AND CASH EQUIVALENTS, Beginning of year ....... 56,554 6,362
--------- ---------
CASH AND CASH EQUIVALENTS, End of year ............. $ 13,999 $ 26,820
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid in cash ........................... $ -- $ --
========= =========
Income taxes paid in cash ....................... $ -- $ --
========= =========
See accompanying notes to financial statements (unaudited).
F-19
<PAGE>
MICROBEST, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
- --------------------------------------------------------------------------------
NOTE 1 - GENERAL
The accompanying financial statements of Microbest, Inc. have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The financial statements as of and for the periods ended
September 30, 1999 and 1998 are unaudited. The results of operations for the
interim periods shown in this report are not necessarily indicative of the
results of operations to be expected for the fiscal year. These interim
financial statements should be read in conjunction with the annual financial
statements and footnotes for the year ended December 31, 1998 included in the
Company's Form 10-SB.
NOTE 2 - CONVERTIBLE PROMISSORY NOTES
On September 1, 1999, the Company issued $200,000 of Convertible Promissory
Notes, which bear interest at 8 3/4% and mature in two years, with interest due
at maturity. After 15 months and until maturity, the outstanding balance of
principal and interest shall be convertible, at the option of the holder, into
shares of the Company's common stock at a conversion price 20% below the average
closing bid prices of the common stock for the prior 90 days. The notes are
unsecured.
The value of the beneficial conversion feature at issuance was computed to be
$50,000 based on the 20% discount applied to the current market value of the
stock. This amount is included as additional paid-in capital and as a reduction
of the promissory note at issuance, and the $50,000 is being accreted to
interest expense, over the 16-month term until the feature can be utilized.
Also on September 1, 1999, the Company issued a $150,000 promissory note, due in
one year which bears interest at 12 1/2%. Interest is due at maturity. The note
is unsecured. The holder of the note also received 50,000 shares of the
Company's common stock. The shares have been recorded into equity at
management's estimate of their fair market value and charged to debt issuance
cost to be amortized over the 12-month term of the loan beginning on September
1, 1999.
NOTE 3 - REDEEMABLE COMMON STOCK
In March 1999 the Company has recorded as Redeemable Common Stock (at the
current market value of $0.75 per share the price at which the company was then
selling restricted stock) the 300,000 shares of common stock issued in
connection with the settlement in 1999 with a shareholder/creditor and former
distributor of the Company's products. Through February 2000, the Company has
the option to repurchase the shares at a price of $2.25. In the event the
Company has not purchased the shares by April 2000, then for a limited period of
ten days, the holders of the shares have the right to force a sale to the
Company of any or all of the shares at a price of $1.50 per share. The Company
is accruing, as an addition to Redeemable Common Stock the difference between
the value the shares were recorded at and the value of the potential forced
sale, over the twelve month period at $18,750 per month by a charge to paid in
capital.
NOTE 4 - PRIVATE PLACEMENT FINANCING
In August 1999 the Company arranged for $500,000 of financing through the
private sale of restricted common shares to several Accredited Investors. These
shares are being offered without registration in reliance on Section 4(2) of the
Securities Act of 1933, as 144 restricted shares. The price of the shares being
sold is at a discount of 25% to the average closing trading price of the shares
for the five days prior to the sale. As of January 31, 2000 the Company has
received $500,000 from the sale of 2,150,000 shares of common stock through
these arrangements.
F-20
SHAREHOLDER RECONCILIATION EXHIBIT 4
<TABLE>
<CAPTION>
BEFORE MERGER ESI: BEFORE MERGER MPI: AFTER MERGER MI:
AS PRESENTED TO NASD:
SHAREHOLDER NAME SHARES SHAREHOLDER NAME SHARES SHAREHOLDER NAME SHARES
- ---------------- ------- --------------------- ------ --------------------- -------
<S> <C> <C> <C> <C> <C> <C>
John H. Picken 581561 Michael J. Troup 336 William J. Breslin MPI 100000
Timothy Harvey 337500 Harold Faske 124 Capital Formation Trust 50000
Lykle Kuipers 510475 Robert Moody 19 Capital Strategies Group 50000
Jack Powell 517764 David Walbert 171 John Picken 462561
Michael Moinichen 337500 Simray 350 Harry Gelbard MPI 250000
James T. Nordvik 75000 ---- Timothy Harvey 337500
Wallace Norman 337500 total shares: 1000 Lykle Kuipers MPI 260475
Norman Olson 337500 ---- John P Kelleter MPI 500000
David Paul 337500 Microbest, Inc. MPI 1550000
Albert Peterson 675 Jack Powell 492799
Art Price 675 Michael Moinichen 337500
James Smerdon 675 James T. Nordvik 75000
James Thomas 253125 Wallace Norman 337500
Robert Van Hoef 675 Norman Olson 337500
Windsor Knight 5625 David Paul 337500
Jon Yoder 337500 Performance Financial MPI 297590
------- Albert Peterson 675
total shares: 3971250 Art Price 675
------- James Smerdon 675
James Thomas 253125
Michael J. Troup Trust (MPI) MPI 4999500
Robert Van Hoef 675
Baldescu Victor MPI 250000
Mark Wiener MPI 250000
Windsor Knight 2500
Jon Yoder 337500
--------
11871250
--------
<CAPTION>
AFTER MERGER MI: TOTAL
AFTER NASD ADJUSTMENT: MPI
SHAREHOLDER NAME SHARES SHARES
- ----------------------- ------- -------
<S> <C> <C> <C>
William J. Breslin MPI 0 0
Capital Formation Trust 50000 0
Capital Strategies Group 0 0
John Picken 462561 0
Harry Gelbard MPI 250000 250000
Timothy Harvey 337500 0
Lykle Kuipers MPI 260475 260475
John P Kelleter MPI 250000 250000
Microbest, Inc. MPI 0 0
Jack Powell 492799 0
Michael Moinichen 337500 0
James T. Nordvik 75000 0
Wallace Norman 337500 0
Norman Olson 337500 0
David Paul 337500 0
Performance Financial MPI 297590 297590
Albert Peterson 675 0
Art Price 675 0
James Smerdon 675 0
James Thomas 253125 0
Michael J. Troup Trust (MPI) MPI 3000000 3000000
Robert Van Hoef 675 0
Baldescu Victor MPI 250000 250000
Mark Wiener MPI 250000 250000
Windsor Knight 2500 0
Jon Yoder 337500 0
------- -------
7921750 4558065
------- -------
58%
</TABLE>
