AMENDMENT # 1
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
projected to be $5 billion by Kline and Business Trend Analyst. 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).
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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.Item4), 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 expended
$3,539,000 to cover operating expenses, salaries and wages, cost of materials
sold and capital expenditures. The Company raised $2,168,614 in investor capital
during this period to fund the shortfall in working capital. Of the total
raised, $1,818,614 was from the sale of the Company's common stock and $350,000
was in the form of 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 promissory notes as indicated below.
On October 21, 1999 the Company issued $200,000 of Convertible Promissory Notes,
with an effective date of September 1, 1999. The notes 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 October 21, 1999, the Company issued a $150,000 promissory note, due in
one year with an effective date of September 1, 1999. The note bears interest at
121/2%. 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 December 31, 1999 the Company has received $400,000 from the sale
of 1,650,524 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 seeking financial commitments for an additional $200,000.
As indicated above, the Company raised $2,139,000 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 $.187 in October 1999. If the
Company is unable to raise capital through the sale of its common stock or is
unable to find alternative sources of investor funds, the Company's ability to
continue its present level of operations will be in jeopardy.
The following table summarizes the Company's condensed financial position and
condensed operating results for the two year and nine month period through
September 30, 1999:
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($ IN THOUSANDS)
(UNAUDITED)
-------------------------------------------
YEAR ENDED DEC.31 9 MO ENDED SEPT. 30
------------------- -------------------
1998 1997 1999 1998
------- ------- ------- -------
BALANCE SHEET DATA
Working Capital (Deficit) ...... ($ 427) ($ 122) ($ 302) ($ 93)
Total Assets ................... $ 213 $ 60 $ 249 $ 248
Total Liabilities .............. $ 582 $ 169 $ 705 $ 360
Stockholders Equity (Deficit) .. ($ 369) ($ 109) ($ 456) ($ 112)
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 ............ 295 25 90 295
Marketing Expenses ........... 191 75 63 89
Interest Expense ............. 19 6 19 2
Total Expenses ................. $ 1,460 $ 441 $ 802 $ 975
Net Income (Loss) .............. ($1,410) ($ 451) ($ 637) ($ 890)
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
$427,000 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 $302,000
compared with $93,000 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. At the end of 1998 cost of sales were adjusted for
$80,000 of inventory previously returned that was considered to be unsalable.
The actual production costs, of the Company's products has remained consistent
for all the periods presented. The unusual swings in gross profits rates are all
attributable to product returns the freight costs associated therewith and
related inventory adjustments. The gross profit for the nine months in 1999
reflects a more normal level of operation without these kinds of adjustments.
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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 1999 because of the litigation with a former
executive, and legal and accounting fees related to the Form 10-SB filing. In
1998 they include $250,000 of consulting fees for financial services.
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 to the 1998 financial
statements), 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 effective September 1, 1999.
The Company also recorded as redeemable common stock the shares issued as part
of the settlement of the disputed loan payable.
The Company is currently involved in litigation with a former officer. See Part
II, Item 2, titled "Legal Proceedings", for a description.
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 $2,595,211 at
September 30, 1999. Management recognizes that the
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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 $550,000 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 January 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 December 31, 1999 the beneficial ownership
of the Company's 14,566,909 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 1,901,638(1) 12.8%
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) .9%
1764 N. W. 88 Way
Coral Springs, FL 33071
Common Stock ............................... All officers and directors 2,434,138 16.4%
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 1,492,628 shares issued to the Michael J. Troup Trust, 20,000
shares issued to Lindsey Troup and 19,000 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 53 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. Mr. Cioffi has filed an action
against the Company, claiming damages. The company has initiated a
counterclaim against Mr. Cioffi for breach of contract. 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 for which he would
be compensated with 1 million shares of Microbest restricted-common stock.
Subsequently, a wide variety of services were performed by Mr. Bruderman.
However, many of the initially contemplated services were not
15
<PAGE>
performed and due to the substantial change in the scope of services, 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 from the commencement of
his services through December 1999.
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 October 21, 1999, the Company issued $200,000 of Convertible Promissory
Notes, with an effective date of September 1, 1999. The notes 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 October 21, 1999, the Company issued a $150,000 promissory note, due in
one year with an effective date of September 1, 1999, 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 has been trading 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 among other things
that Mr. Cioffi misappropriated Company assets, sexually harassed a female
employee and lied to the Company regarding his credentials before being hired.
As a result of the dismissal and for the reasons behind it, Mr. Cioffi's
employment agreement was deemed void and his stock compensation arrangement was
cancelled. Counsel to the Company has advised management that its actions are
appropriate in the circumstances. Mr. Cioffi has filed an arbitration action
against the Company claiming damages. The Company has initiated a counterclaim
against him for "breach of contract" and "fraud in the inducement" and plans to
vigorously and aggressively defend the claims against the Company and to
prosecute him for his improper and unlawful behavior to the greatest extent
possible.
The matter is presently pending before the American Arbitration Association. The
parties are in the process of exchanging written discovery and depositions of
the non-party witnesses have been scheduled by Microbest. It is the position of
Microbest that the claim of Mr. Cioffi lacks merit and that the Company should
prevail at final hearing. As of this date the final hearing has not been set nor
have any of the parties been deposed.
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.
On 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
(see 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.
Prior to the merger 40 shares of preferred stock were issued to the founders of
ESI. During the merger 3,800 shares were issued to the founders of ESI and
36,200 shares were issued to Mr. Troup.
From March 1, 1997 through December 31, 1997 the Company issued 526,000 shares
of common stock for cash of $301,381 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 886,856 shares
of common stock for cash of $107,500 and services of $20,000 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 December15, 1998 the Company issued 1,658,102
shares of common stock for cash of $757,150 without registration pursuant to an
exemption from registration under rule 504.
Between April 1, 1998 and December 14, 1998 the Company also issued 1,298,500
shares of common stock for cash of $93,000 and services of $300,000 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
1,197,701 shares of common stock for cash of $549,083. Of the shares issued,
56,275 were issued pursuant to rule 504 and 1,141,426 were issued pursuant to
section 4(2).
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 ................ 504 877,856 $ 301,381
During 1997 ................ 4 (2) 535,000 $ 127,500
----------- -----------
Total through 1997 ......... 9,334,606 $ 438,881
During 1998 ................ 504 1,658,102 $ 757,650
During 1998 ................ 4 (2) 1,298,500 $ 393,000
----------- -----------
Total through 1998 ......... 12,291,208 $ 1,589,531
----------- -----------
During 1999 ................ 504 56,275 $ 42,500
During 1999 ................ 4 (2) 1,141,426 $ 506,583
----------- -----------
Total through 9/30/99 ...... 13,488,909 $ 2,138,614
----------- -----------
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
Number 6 $500,000 Additional Financing
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 .......... $ 265,799 $ 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 ................ 567,780 169,317
----------- -----------
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 ............................... 12,291 9,335
Additional paid-in capital ..................... 1,577,240 429,546
Deficit ........................................ (1,958,434) (548,552)
----------- -----------
STOCKHOLDERS' DEFICIT, NET ............... (368,503) (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 ....................... 1,440,644 435,486
------------ ------------
LOSS FROM OPERATIONS ................. (1,391,129) (445,653)
INTEREST EXPENSE .............................. 18,753 5,725
LOSS BEFORE PROVISION FOR INCOME TAXES (1,409,882) (451,378)
PROVISION FOR INCOME TAXES .................... -- --
------------ ------------
NET LOSS ............................. $ (1,409,882) $ (451,378)
============ ============
LOSS PER COMMON SHARE:
Basic and diluted .......................... $ (0.128) $ (0.059)
============ ============
Weighted average common shares outstanding . 11,034,527 7,591,589
============ ============
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 19,600 --
Net loss for the year ended
December 31, 1997 .................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1997 .................. 40,040 400 9,334,606 9,335 429,546 --
Issuance of common stock for cash ... -- -- 2,706,602 2,706 847,944 --
Issuance of common stock for services -- -- 250,000 250 299,750 --
Net loss for the year ended
December 31, 1998 .................. -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1998 .................. 40,040 $ 400 12,291,208 $ 12,291 $ 1,577,240 $ --
=========== =========== =========== =========== =========== ===========
</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 -- 20,000
Net loss for the year ended
December 31, 1997 .................. (451,378) (451,378)
----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1997 .................. (548,552) (109,271)
Issuance of common stock for cash ... -- 850,650
Issuance of common stock for services -- 300,000
Net loss for the year ended
December 31, 1998 .................. (1,409,882) (1,409,882)
----------- -----------
STOCKHOLDERS' DEFICIT,
December 31, 1998 .................. $(1,958,434) $ (368,503)
=========== ===========
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 ...................................... $(1,409,882) $ (451,378)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ............................... 9,756 2,120
Common stock issued for services ........... 300,000 20,000
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 ... 160,091 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 $1,409,882 and $451,378 for the years
ended December 31, 1998 and 1997, respectively, and has an accumulated
deficit of $1,958,434 and a working capital deficit of $427,088 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
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.
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. To complete the merger, ESI issued 3,950,000 new
shares of its common stock and 40,000 shares of preferred stock to the
shareholders of MPI in exchange for all of the outstanding stock (1,000
shares of common stock) of MPI. (These share amounts are after giving effect
to a November 1997 adjustment to the merger, which included a reverse
capital split of the preferred stock and a cancellation of common shares.)
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 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.
The shares outstanding of MPI, as well as other share and per share
amounts, have been restated to December 31, 1996 to reflect the subsequent
recapitalization as if a stock split had occurred and to reflect the
November 1997 adjustment to the merger transaction.
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
Interest payable (Note 6) ....................... 29,503 11,450
Sales tax, professional fees, and other ......... 75,000 9,879
-------- --------
Total .................................... $265,799 $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. Simray, a
shareholder/creditor of MPI and a former distributor of the Company's
products, made a formal demand for payment in June 1998. After lengthy
negotiations relating to the disputed loan amount 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 and adjusted accrued interest payable accordingly
(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 ......................... 373,820 157,983
Less: Valuation allowance ................... (373,820) (157,983)
--------- ---------
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 ........ $ 565,813 $ 191,993
Less: Valuation allowance ..................... (565,813) (191,993)
--------- ---------
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. 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, among other things, that Mr. Cioffi misappropriated Company assets,
sexually harassed a female employee, and lied to the Company regarding his
credentials before being hired. As a result of the dismissal and for the
reasons behind it, Mr. Cioffi's employment agreement was deemed void and his
stock compensation arrangement was cancelled. Counsel to the Company has
advised management that its actions are appropriate in the circumstances.
Mr. Cioffi has filed an arbitration action against the Company claiming
damages. The Company has initiated a counterclaim against him for "breach of
contract" and "fraud in the inducement" and plans to vigorously and
aggressively defend the claims against the Company and to prosecute him for
his improper and unlawful behavior to the greatest extent possible. The
matter is presently pending before the American Arbitration Association. The
parties are in the process of exchanging written discovery and depositions
of the non-party witnesses have been scheduled by MPI. It is the position of
MPI that the claim of Mr. Cioffi lacks merit and that the Company should
prevail at final hearing. As of this date, the final hearing has not been
set nor have any of the parties been deposed. 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 subsequently canceled 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............. 12,291,208 9,334,606
Effect of weighting.................................... (1,256,681) (1,743,017)
---------- ---------
Weighted average common shares outstanding......... 11,034,527 7,591,589
========== =========
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 its then
fair market value as determined by management, less discounts for
restrictions and lack of transferability.
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. This agreement was amended on January 7, 2000,
retroactive of June 12, 1998. As compensation for such services, the Company
issued 250,000 shares of its common stock to the firm, making the firm a
related party through common ownership. Concurrent with the execution of the
agreement, Mr. Bruderman and the firm have made a commitment to assist the
Company in raising working capital through June 11, 2000. At December 31,
1998, the firm has advanced the Company $200,000 of funds on a non-interest
bearing, due on demand basis.
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 ........................ $ 312,256 $ 236,503
Current portion of capital lease obligation .................. 1,981 --
Loan payable ................................................. -- 63,609
Promissory note .............................................. 150,000 --
----------- -----------
TOTAL CURRENT LIABILITIES .............................. 464,237 300,112
----------- -----------
LONG-TERM PORTION - Capital lease obligation .................... 12,205 --
----------- -----------
ADVANCES FROM RELATED ENTITY .................................... -- 60,000
----------- -----------
CONVERTIBLE PROMISSORY NOTES .................................... 153,333 --
----------- -----------
REDEEMABLE COMMON STOCK ......................................... 75,000 --
----------- -----------
STOCKHOLDERS' DEFICIT:
Preferred stock, 50,000,000 shares authorized, at stated value 400 400
Common stock, 100,000,000 shares authorized, at stated value . 13,189 11,363
Additional paid-in capital ................................... 2,125,425 1,314,397
Deficit ...................................................... (2,595,211) (1,438,541)
----------- -----------
STOCKHOLDERS' DEFICIT, NET ............................. (456,197) (112,381)
----------- -----------
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 ........................... 782,979 973,437
------------ ------------
LOSS FROM OPERATIONS ..................... (617,640) (888,025)
INTEREST EXPENSE .................................. 19,137 1,964
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAXES ... (636,777) (889,989)
PROVISION FOR INCOME TAXES ........................ -- --
------------ ------------
NET LOSS ................................. $ (636,777) $ (889,989)
============ ============
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 12,291,208 $ 12,291 $ 1,577,240
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) (74,700)
Net loss for the nine months ended September 30, 1999 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1999 ........... 40,040 $ 400 13,188,909 $ 13,189 $ 2,125,425
=========== =========== =========== =========== ===========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT, January 1, 1998 .............. 40,040 $ 400 9,334,606 $ 9,335 $ 429,546
Issuance of common stock ............................ -- -- 2,027,855 2,028 884,851
Net loss for the nine months ended September 30, 1998 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1998 ........... 40,040 $ 400 11,362,461 $ 11,363 $ 1,314,397
=========== =========== =========== =========== ===========
</TABLE>
STOCKHOLDERS'
DEFICIT DEFICIT, NET
----------- -----------
-------------------------
STOCKHOLDERS' DEFICIT, January 1, 1999 .............. $ (1,958,434) $ (368,503)
Increase attributable to beneficial conversion
feature of convertible promissory notes ............ -- 50,000
Issuance of common stock ............................ -- 574,083
Reclassify redeemable common stock .................. -- (75,000)
Net loss for the nine months ended September 30, 1999 (636,777) (636,777)
----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1999 ........... $(2,595,211) $ (456,197)
=========== ===========
-------------------------
STOCKHOLDERS' DEFICIT, January 1, 1998 .............. $ (548,552) $ (109,271)
Issuance of common stock ............................ -- 886,879
Net loss for the nine months ended September 30, 1998 (889,989) (889,989)
----------- -----------
STOCKHOLDERS' DEFICIT, September 30, 1998 ........... $(1,438,541) $ (112,381)
=========== ===========
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 ........................................ $(636,777) $(889,989)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ................................. 10,000 8,000
Common stock issued for services ............. -- 300,000
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 ..... 46,457 130,795
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 .................. -- 60,000
Proceeds from promissory note ................... 150,000 --
--------- ---------
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
- --------------------------------------------------------------------------------
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.
CONVERTIBLE PROMISSORY NOTES
On October 21, 1999, the Company issued $200,000 of Convertible Promissory
Notes, with an effective date of September 1, 1999. The notes 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; this amount is included as additional paid-in capital and as a
reduction of the promissory note at issuance, and the $50,000 will be accreted
to interest expense over the 15-month term until the feature can be utilized
beginning on September 1, 1999.
Also on October 21, 1999, the Company issued a $150,000 promissory note, due in
one year with an effective date of September 1, 1999. The note 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.
REDEEMABLE COMMON STOCK
The Company has recorded as Redeemable Common Stock (at the current market value
of $0.25 per share) 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.
F-20
EXHIBIT 4
SHAREHOLDER RECONCILIATION
<TABLE>
<CAPTION>
BEFORE MERGER (ESI): BEFORE MERGER (MPI): AFTER MERGER (MI):
SHAREHOLDER NAME SHARES SHAREHOLDER NAME SHARES SHAREHOLDER NAME SHARES
- ---------------- ------ ---------------- ------ ---------------- ------
<S> <C> <C> <C> <C> <C>
John H. Picken 182766 Michael J. Troup 336 Capital Formation Trust 50000
Harry Gelbard 250000 Harold Faske 124 Harry Gelbard 250000
Timothy Harvey 337500 Robert Moody 19 Timothy Harvey 337500
Lykle Kuipers 260475 David Walbert 171 Lykle Kuipers 260475
Jack Powell 118969 Simray 350 John P. Kelleter(MPI) 250000
Michael Moinichen 337500 --- John H. Picken 462561
James T. Nordvik 75000 total shares: 1000 Jack Powell 492799
Wallace Norman 337500 Michael Moinichen 337500
Norman Olson 337500 James T. Nordvik 75000
David Paul 337500 Wallace Norman 337500
Performance Financial Services Corp. 297590 Norman Olson 337500
Albert Peterson 675 David Paul 337500
Art Price 675 Performance Financial Services Corp. 297590
James Smerdon 675 Albert Peterson 675
James Thomas 253125 Art Price 675
Robert Van Hoef 675 James Smerdon 675
Baldescu Victor 250000 James Thomas 253125
Mark Wiener 250000 Michael J. Troup Trust(MPI) 2631639
Windsor Knight 5625 Harold Faske(MPI) 142592
Jon Yoder 337500 Robert Moody(MPI) 23765
------ David Walbert(MPI) 202004
total shares: 3971250 Robert Van Hoef 675
Baldescu Victor 250000
Mark Wiener 250000
Windsor Knight 2500
Jon Yoder 337500
------
total shares: 7921750
</TABLE>
Notes
The 3,971,250 ESI shares outstanding prior to the merger do not include 700,500
shares issued to two of the founders of ESI prior to the merger but not recorded
until after the merger. These shares were included in the 3,950,500 shares
issued pursuant to the merger and recapitalization described in Note 2 to the
Notes to Financial Statements.
The shares outstanding after the merger do not include any shares for Simray,
one of the shareholders of MPL See Note 6 to the Notes to Financial Statements
for details.
EXHIBIT 5
MICROBEST, INC.
PROMISSORY NOTES
Convertible Promissory Note Dorothy Smith $100,000
Convertible Promissory Note Douglas Leuthold $ 75,000
Convertible Promissory Note Calvin Decoursey $ 25,000
Promissory Note The Shark Fund, LLC $150,000
<PAGE>
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED
EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT
OF A NO ACTION LETTER FROM THE U.S. SECURITIES AND EXCHANGE COMMISSION.
MICROBEST, INC.
(A MINNESOTA CORPORATION)
CONVERTIBLE PROMISSORY NOTE
$100,000.00 Boca Raton, Florida
September 1, 1999
FOR VALUE RECEIVED, the undersigned, Microbest Inc., a Minnesota
corporation (the "Company"), at 751 Park of Commerce Drive, Suite 122, Boca
Raton, Florida 33487, hereby promises to pay to the order of Dorothy Smith, (the
"Lender") residing at 1516 Florida Drive, Loveland, California 80538, the
principal sum of One Hundred Thousand Dollars ($100,000) on or prior to the
September 1, 2001 (the "Maturity Date"), together with interest at the rate of
eight and three-quarters percent (8 3/4%) per annum, but in no event shall the
rate of interest exceed the maximum rate if any, allowable under applicable law.
Interest shall commence with the date hereof and shall continue on the unpaid
principal until paid in full.
The outstanding principal balance of, and accrued interest on, this
Note shall be convertible at any time after December 31, 2000, at the option of
the Lender, into shares of the Company's Common Stock (the "Common Stock"),
$.001 stated value per share at a conversion price equal to twenty (20%) percent
discount off the ninety (90) day average daily closing bid price, as reported on
the Over the Counter Bulletin Board (the exchange on which the Common Stock is
listed and traded), for the ninety (90) days immediately preceding the
applicable Conversion Date (the "Conversion Date").
In connection with the conversion of this Note as herein above
provided, the Lender shall deliver this Note to the Company, together with the
Notice of Conversion attached hereto as Exhibit A, pursuant to which the Lender
shall confirm its election to convert and shall indicate to the Company the
amount of principal and accrued interest under this Note it is electing to
convert. Any election to convert all or a portion of this Note must include all
of the accrued interest hereunder up to and including the date of conversion.
The balance of unconverted principal of this Note remaining, if any, immediately
following any such conversion shall be reflected in a new Company promissory
note in favor of the Lender in the principal amount of such balance, bearing
interest at eight and three-quarters percent (8 3/4%) per annum, having the same
Maturity Date and which shall be convertible on the same terms and conditions as
this Note.
The Company's failure to pay timely any of the principal or interest
due under this Note on the date same becomes due and payable shall constitute a
default hereunder.
1
<PAGE>
If not converted on or prior to September 1, 2001, principal and
interest due hereunder shall be paid in lawful money of the United States in
immediately available funds or the equivalent at the address of Lender set forth
above or at such other address as Lender may designate. All payments made
hereunder shall first be applied to interest then due and payable and any excess
payment shall then be applied to reduce the principal amount payable on this
Note.
This Note may be prepaid in whole or in part at any time without
penalty; provided, however, that in the event that the Company shall desire to
pre-pay all or a portion of the principal balance outstanding under this Note,
the Company shall provide ten (10) days' advance written notice thereof to the
Lender at the address indicated above, during which period, the Lender shall
have the option to convert all or a portion of this Note under the terms and
conditions herein provided.
The provisions of this Note shall inure to the benefit of and be
binding on any successor to the Company and shall extend to any pennitted holder
hereof. This Note, as well as the rights and obligations hereunder, may not be
assigned by the Lender without the prior written consent of the Company, which
consent shall be granted or denied in the Company's sole and complete
discretion.
The Company hereby waives presentment, protest, notice of protest,
notice of nonpayment, notice of dishonor and any and all other notices or
demands relative to this Note and the benefit of any statute of limitations with
respect to any action to enforce this Note. This Note shall be governed by and
construed in accordance with the laws of the State of Florida, without regard to
the choice of law provisions thereof.
(The remainder of this page has been left blank intentionally.)
2
<PAGE>
No amendment or waiver of any provision of this Note shall be
effective unless the same shall be in writing and signed by either the Company
or the Lender, as the case may be depending on which is the party against whom
enforcement of the amendment or waiver is sought and then such waiver or
amendment, as the case may be, shall only be effective for the specific
purpose(s) for which it is given.
MICROBEST, INC.,
a Minnesota corporation
By: /s/ MICHAEL J. TROUP
-----------------------------
Name: MICHAEL J. TROUP
Title: CEO
A Duly Authorized Signatory
WITNESS:
/s/ WILLIAM BRESLIN
- ------------------------------
Name: WILLIAM BRESLIN
Title: CFO
3
<PAGE>
EXHIBIT A
ELECTION TO CONVERT
The undersigned, Dorothy Smith, who is the holder of a certain promissory
note dated September 1, 1999 (the "Note") in the principal amount of one hundred
thousand dollars ($100,000) in its favor from Microbest, Inc., a Minnesota
corporation, as maker, hereby elects to convert all of the accrued and unpaid
interest to date outstanding under the Note and in the amount of $___________
and $___________ in unpaid principal together which total $__________ thereof
into ____________ shares of the Company's common stock, $.001 stated value per
share ("Common Stock") based on a conversion price equal to a twenty (20%)
percent discount off the ninety (90) day average closing bid price as reported
on the Over the Counter Bulletin Board (the exchange on which the Common Stock
is listed and traded), for the ninety (90) trading days immediately preceding
the applicable Conversion Date ("Conversion Date").
Dated:_____________, 20__
By:_________________________
Name: Dorothy Smith
4
<PAGE>
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED
EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT
OF A NO ACTION LETTER FROM THE U.S. SECURITIES AND EXCHANGE COMMISSION.
MICROBEST, INC.
(A MINNESOTA CORPORATION)
CONVERTIBLE PROMISSORY NOTE
$75,000.00 Boca Raton, Florida
September 1, 1999
FOR VALUE RECEIVED, the undersigned, Microbest Inc., a Minnesota
corporation (the "Company"), at 751 Park of Commerce Drive, Suite 122, Boca
Raton, Florida 3 _3 )487, hereby promises to pay to the order of Douglas
Leuthold,(the "Lender") residing at 8074 Tanger Woods Court, West Chester, Ohio
45069, the principal sum of Seventy Five Thousand Dollars ($75,000) on or prior
to the September 1, 2001 (the "Maturity Date"), together with interest at the
rate of eight and three-quarters percent (8 3/4%) per annum, but in no event
shall the rate of interest exceed the maximum rate if any, allowable under
applicable law. Interest shall commence with the date hereof and shall continue
on the unpaid principal until paid in full.
The outstanding principal balance of, and accrued interest on, this
Note shall be convertible at any time after December 31, 2000, at the option of
the Lender, into shares of the Company's Common Stock (the "Common Stock"),
$.001 stated value per share at a conversion price equal to twenty (20%) percent
discount off the ninety (90) day average daily closing bid price, as reported on
the Over the Counter Bulletin Board (the exchange on which the Common Stock is
listed and traded), for the ninety (90) days immediately preceding the
applicable Conversion Date (the "Conversion Date").
In connection with the conversion of this Note as herein above
provided, the Lender shall deliver this Note to the Company, together with the
Notice of Conversion attached hereto as Exhibit A, pursuant to which the Lender
shall confirm its election to convert and shall indicate to the Company the
amount of principal and accrued interest under this Note it is electing to
convert. Any election to convert all or a portion of this Note must include all
of the accrued interest hereunder up to and including the date of conversion.
The balance of unconverted principal of this Note remaining, if any, immediately
following any such conversion shall be reflected in a new Company promissory
note in favor of the Lender in the principal amount of such balance, bearing
interest at eight and three-quarters percent (8 3/4%) per annum, having the same
Maturity Date and which shall be convertible on the same terms and conditions as
this Note.
The Company's failure to pay timely any of the principal or interest
due under this Note on the date same becomes due and payable shall constitute a
default hereunder.
1
<PAGE>
If not converted on or prior to September 1, 2001, principal and
interest due hereunder shall be paid in lawful money of the United States in
immediately available funds or the equivalent at the address of Lender set forth
above or at such other address as Lender may designate. All payments made
hereunder shall first be applied to interest then due and payable and any excess
payment shall then be applied to reduce the principal amount payable on this
Note.
This Note may be prepaid in whole or in part at any time without
penalty; provided, however, that in the event that the Company shall desire to
pre-pay all or a portion of the principal balance outstanding under this Note,
the Company shall provide ten (10) days' advance written notice thereof to the
Lender at the address indicated above, during which period, the Lender shall
have the option to convert all or a portion of this Note under the terms and
conditions herein provided.
The provisions of this Note shall inure to the benefit of and be
binding on any successor to the Company and shall extend to any permitted holder
hereof. This Note, as well as the rights and obligations hereunder, may not be
assigned by the Lender without the prior written consent of the Company, which
consent shall be granted or denied in the Company's sole and complete
discretion.
The Company hereby waives presentment, protest, notice of protest,
notice of nonpayment, notice of dishonor and any and all other notices or
demands relative to this Note and the benefit of any statute of limitations with
respect to any action to enforce this Note. This Note shall be governed by and
construed in accordance with the laws of the State of Florida, without regard to
the choice of law provisions thereof.
(The remainder of this page has been left blank intentionally.)
2
<PAGE>
No amendment or waiver of any provision of this Note shall be
effective unless the same shall be in writing and signed by either the Company
or the Lender, as the case may be depending on which is the party against whom
enforcement of the amendment or waiver is sought and then such waiver or
amendment, as the case may be, shall only be effective for the specific
purpose(s) for which it is given.
Microbest, Inc.
a Minnesota corporation
By: /s/ MICHAEL J. TROUP
-----------------------------------
Name: MICHAEL J. TROUP
Title: CEO
A Duly Authorized Signatory
WITNESS:
/s/ WILLIAM BRESLIN
- --------------------------------
Name: WILLIAM BRESLIN
Title: CFO
3
<PAGE>
EXHIBIT A
ELECTION TO CONVERT
The undersigned, Douglas Leuthold, who is the holder of a certain
promissory note dated September 1, 1999 (the "Note") in the principal amount of
seventy five thousand dollars ($75,000) in its favor from Microbest, Inc., a
Minnesota corporation, as maker, hereby elects to convert all of the accrued and
unpaid interest to date outstanding under the Note in the amount of $__________
and $___________ in unpaid principal together which total $ ________ thereof
into shares of the Company's common stock, $.001 stated value per share ("Common
Stock") based on a conversion price equal to a twenty (20%) percent discount off
the ninety (90) day average closing bid price as reported on the Over the
Counter Bulletin Board (the exchange on which the Common Stock is listed and
traded), for the ninety (90) trading days immediately preceding the applicable
Conversion Date ("Conversion Date").
Dated:_______________ , 20__
By:_______________________________
Name: Douglas Leuthold
4
<PAGE>
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR DISPOSITION MAY BE EFFECTED
EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT
OF A NOACTION LETTER FROM THE U.S. SECURITIES AND EXCHANGE COMMISSION.
MICROBEST, INC.
(A MINNESOTA CORPORATION)
CONVERTIBLE PROMISSORY NOTE
$25,000.00 Boca Raton, Florida
September 1, 1999
FOR VALUE RECEIVED, the undersigned, Microbest Inc., a Minnesota
corporation (the "Company"), at 751 Park of Commerce Drive, Suite 122, Boca
Raton, Florida 33487, hereby promises to pay to the order of Calvin Decoursey,
(the "Lender") residing at 14310 Rancheros Drive, Reno, Nevada 89511, the
principal sum of Twenty Five Thousand Dollars ($25,000) on or prior to the
September 1, 2001 (the "Maturity Date"), together with interest at the rate of
eight and three-quarters percent (8 3/4%) per annum, but in no event shall the
rate of interest exceed the maximum rate if any, allowable under applicable law.
Interest shall commence with the date hereof and shall continue on the unpaid
principal until paid in full.
The outstanding principal balance of, and accrued interest on, this
Note shall be convertible at any time after December 31, 2000, at the option of
the Lender, into shares of the Company's Common Stock (the "Common Stock"),
$.001 stated value per share at a conversion price equal to twenty (20%) percent
discount off the ninety (90) day average daily closing bid price, as reported on
the Over the Counter Bulletin Board (the exchange on which the Common Stock is
listed and traded), for the ninety (90) days immediately preceding the
applicable Conversion Date (the "Conversion Date").
In connection with the conversion of this Note as herein above
provided, the Lender shall deliver this Note to the Company, together with the
Notice of Conversion attached hereto as Exhibit A, pursuant to which the Lender
shall confirm its election to convert and shall indicate to the Company the
amount of principal and accrued interest under this Note it is electing to
convert. Any election to convert all or a portion of this Note must include all
of the accrued interest hereunder up to and including the date of conversion.
The balance of unconverted principal of this Note remaining, if any, immediately
following any such conversion shall be reflected in a new Company promissory
note in favor of the Lender in the principal amount of such balance, bearing
interest at eight and three-quarters percent (8 3/4%) per annum, having the same
Maturity Date and which shall be convertible on the same terms and conditions as
this Note.
The Company's failure to pay timely any of the principal or interest
due under this Note on the date same becomes due and payable shall constitute a
default hereunder.
1
<PAGE>
If not converted on or prior to September 1, 200 1, principal and
interest due hereunder shall be paid in lawful money of the United States in
immediately available funds or the equivalent at the address of Lender set forth
above or at such other address as Lender may designate. All payments made
hereunder shall first be applied to interest then due and payable and any excess
payment shall then be applied to reduce the principal amount payable on this
Note.
This Note may be prepaid in whole or in part at any time without
penalty; provided, however, that in the event that the Company shall desire to
pre-pay all or a portion of the principal balance outstanding under this Note,
the Company shall provide ten (10) days' advance written notice thereof to the
Lender at the address indicated above, during which period, the Lender shall
have the option to convert all or a portion of this Note under the terms and
conditions herein provided.
The provisions of this Note shall inure to the benefit of and be
binding on any successor to the Company and shall extend to any permitted holder
hereof. This Note, as well as the rights and obligations hereunder, may not be
assigned by the Lender without the prior written consent of the Company, which
consent shall be granted or denied in the Company's sole and complete
discretion.
The Company hereby waives presentment, protest, notice of protest,
notice of nonpayment, notice of dishonor and any and all other notices or
demands relative to this Note and the benefit of any statute of limitations with
respect to any action to enforce this Note. This Note shall be governed by and
construed in accordance with the laws of the State of Florida, without regard to
the choice of law provisions thereof.
(The remainder of this page has been left blank intentionally.)
2
<PAGE>
No amendment or waiver of any provision of this Note shall be
effective unless the same shall be in writing and signed by either the Company
or the Lender, as the case may be depending on which is the party against whom
enforcement of the amendment or waiver is sought and then such waiver or
amendment, as the case may be, shall only be effective for the specific
purpose(s) for which it is given.
MICROBEST, INC.,
a Minnesota corporation
By: /s/ MICHAEL J. TROUP
---------------------------
Name: MICHAEL J. TROUP
Title: CEO
A Duly Authorized Signatory
WITNESS
/s/ WILLIAM BRESLIN
- ------------------------------
Name: WILLIAM BRESLIN
Title: CFO
3
<PAGE>
EXHIBIT A
ELECTION TO CONVERT
The undersigned, Calvin Decoursey, who is the holder of a certain
promissory note dated September 1, 1999 (the "Note") in the principal amount of
twenty five thousand dollars ($25,000) in its favor from Microbest, Inc., a
Minnesota corporation, as maker, hereby elects to convert all of the accrued and
unpaid interest to date outstanding under the Note in the amount of $_________
and $__________ in unpaid principal together which total $_________ thereof into
shares of the Company's common stock, $.001 stated value per share ("Common
Stock") based on a conversion price equal to a twenty (20%) percent discount off
the ninety (90) day average closing bid price as reported on the Over the
Counter Bulletin Board (the exchange on which the Common Stock is listed and
traded), for the ninety (90) trading days immediately preceding the applicable
Conversion Date ("Conversion Date").
Dated: _____________, 20__
By:____________________________
Name: Calvin Decoursey
4
<PAGE>
PROMISSORY NOTE
$150,000.00 Boca Raton, Florida
September 1, 1999
FOR VALUE RECEIVED, MICROBEST, INC., a Minnesota corporation,
currently having its principal place of business located at 751 Park of Commerce
Drive, Suite 122 Boca Raton, Florida 33487 (hereinafter the "Debtor"), hereby
promises to pay to THE SHARK FUND, LLC, currently having its principal place of
business located at One World Trade Center, Suite 115 3, New York, New York
10048 (hereinafter referred to as the "Creditor"), the principal sum of ONE
HUNDRED FIFTY THOUSAND DOLLARS AND 00/100 ($150,000.00) together with interest
thereon calculated at the rate of twelve and one-half percent (12.5%) per annum,
upon the earlier to occur of- (a) September 1, 2000, or (b) the successful
completion of a private equity financing of the Debtor, resulting in proceeds to
the Debtor of not less than the unpaid principal amount hereof plus accrued
interest hereunder at the time of the completion of such private equity
financing.
1. PAYMENTS.
Payment hereunder shall be made by the Debtor's check to such place
as the Creditor or Creditor's agent may designate to Debtor orally or in
writing.
2. PREPAYMENT.
The Debtor may prepay all or any portion of the unpaid principal
amount under this Note at any time by prepaying (i) all of the accrued and
unpaid interest outstanding under this Note up to the date of prepayment,
together with (ii) such portion of the unpaid principal amount hereunder that
the Debtor wishes to pre-pay. In the event of any prepayment of only a portion
of the outstanding principal amount of this Note, the principal amount due and
owing hereunder shall automatically be adjusted downward in the amount of such
prepayment. Debtor shall not be subject to any penalty in the event of
prepayment.
3. EVENT OF DEFAULT; NOTICE TO CURE.
If default shall be made in the due and punctual payment of the
principal and interest of this Note when and as the same shall become due and
payable, and if such default shall continue uncured for a period of thirty (30)
days after written notice thereof to the Debtor, then Creditor may proceed to
enforce the payment of this Note or to enforce any other legal or equitable
right it may possess.
<PAGE>
4. REMEDY.
No remedy conferred upon Creditor is intended to be exclusive of any
other remedy and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder now or hereafter existing at law
or in equity by statute or otherwise. No course of dealing between Debtor and
Creditor or any delay in exercising any rights hereunder shall operate as a
waiver of any rights of Creditor.
5. AMENDMENTS, CONSENTS AND WAIVERS.
(a) Any term, covenant, agreement or condition of this Note may be
amended only by a written instruction or instrument executed by Debtor and
Creditor. Any amendment shall be endorsed upon this Note and Debtor and Creditor
shall be bound thereby.
(b) Any term, covenant, agreement, or condition of this Note to be
performed or satisfied by Debtor may be waived only in writing by Creditor.
(c) No waiver of any breach of any warranty, representation,
covenant or other term or provision of this Note shall be deemed a waiver of any
preceding or succeeding breach of the same or any other warranty,
representation, covenant, term or provision. No extension of time for
performance of any obligations or act shall be deemed to be an extension of the
time for performance of any other obligation or any other act.
6. APPLICABLE LAW.
The rights and obligations of the parties hereunder shall be
construed and interpreted in accordance with the laws of the State of New York.
7. COLLECTION EXPENSES.
The Debtor shall pay all Creditors' costs and expenses of every kind
incurred in connection with the collection of any amounts due hereunder,
including all reasonable attorneys fees and disbursements. All such costs and
expenses shall be added to the principal amount hereof and shall be repaid
together with the principal hereunder.
8. NO ASSIGNMENT OR TRANSFER.
The Creditor may not sell, assign, pledge, exchange, encumber,
dispose of or otherwise transfer this Note, the right to receive payments
hereunder or any other interest herein, without the express written consent of
the Debtor, which consent shall be in the Debtor's sole discretion and may be
unreasonably withheld.
2
<PAGE>
9. HEADINGS.
All titles and sections in this Note are inserted for convenience of
reference only and shall not affect the meaning or interpretation hereof.
10. WAIVER OF PRESENTMENT, ETC.
Except as otherwise herein specifically provided to the contrary,
Debtor waives the right of presentment, demand for payment, notice of dishonor,
notice of protest, protest and all other notices or demands of any kind in
connection with the delivery, acceptance, performance, default, endorsement or
guarantee of this instrument.
IN WITNESS WHEREOF, this Note has been signed by Debtor on 9/1/99, 1999.
MICROBEST, INC.
A Minnesota corporation
By: /s/ MICHAEL J. TROUP
-----------------------------
Name: MICHAEL J. TROUP
Title: CEO
A Duly Authorized Signatory
WITNESS:
/s/ WILLIAM BRESLIN
- ------------------------------
Name: WILLIAM BRESLIN
Title: CFO
3
EXHIBIT 6
MICROBEST, INC.
$500,000 ADDITIONAL FINANCING
COMMITMENTS
Melange Trade Limited, Inc. ................................ $200,000
Income Partnership of America .............................. $200,000
David H. Siegel Irrevocable Trust .......................... $100,000
--------
$500,000
--------
STOCK PURCHASE AGREEMENTS
August 31, 1999 Melange Trade Limited, Inc. ................. $150,000
September 30, 1999 Income Partnership of America ............... $150,000
November 16, 1999 David H. Siegel Irrevocable Trust ........... $ 50,000
December 1, 1999 Melange Trade Limited, Inc. ................. $ 50,000
--------
$400,000
--------
<PAGE>
FINANCIAL COMMITMENT
This will confirm our commitment to support the Microbest, Inc., mission with
our financial resources.
Based on our discussions and the material you have made available to us we have
confidence in you and Microbest and the impressive list of products that
comprise the Microbest BioCleansing System.
Particularly, I want to acknowledge our commitment to stand by you with our
financial resources to the extent of $ 200,000.
This commitment is an agreement to purchase Microbest common stock to be offered
without registration in reliance on Section 4 (2) of the Securities Act of 1933,
as 144 restricted shares. These shares are not being purchased for subdivision
with any one else, nor is there an intent to sell or otherwise dispose of the
shares.
It is understood that there is no present market for these shares and the shares
are being purchased as a long term investment.
The price for the shares to be purchased will be at a discount of 25% to the
average closing bid price as reported on the Over the Counter Bulletin Board
(the exchange on which the common stock is listed and traded) for the five days
prior to the date of purchase.
It is understood that the Company has no present plan to register these shares
under the Securities Act of 1933.
Dated: August 16, 1999 MELANGE TRADE LIMITED, INC.
---------------------------
Name of Corporation/Trust/Partnership
D. H. SIEGEL, PRES.
Executive Officer
/s/ D. H. SIEGEL
-----------------------
Signature of Executive
<PAGE>
MICROBEST INC.
STOCK PURCHASE AGREEMENT
The undersigned applies to become a shareholder in Microbest, Inc. and agrees
to purchase the number of shares indicated below.
It is understood that the shares are being offered for sale without registration
in reliance on Section 4 (2) of the Securities Act of 1933, as 144 restricted
shares.
The shares are not being purchased for subdivision with any one else.
There is no present intent to sell or otherwise dispose of the shares.
It is understood that the Company has no present intent to register these shares
under the Securities Act of 1933.
It is understood that the Company has no profitable operating history, the
investment is highly speculative, and there is considerable risk in this
investment.
It is understood there is no present market for these shares, the purchase is a
long-term investment, and they may not be sold. The purchase will not cause the
undersigned financial difficulties. Further, the undersigned has had ample time
to study this investment, and has had ample time to consult with financial
advisors of choice, and has been able to see all relevant documents asked for.
The undersigned is an Accredited Investor as that term is defined in Section 2
(15) of the Securities Act of 1933.
The undersigned represents and warrants that the foregoing statements are true
and accurate to the best of the information and belief of the undersigned.
The undersigned agrees to purchase 353,683 shares of Microbest, Inc., Common
Stock at $.4241 per share and encloses $ 150,000 in full payment.
Dated: August 31, 1999 PURCHASER
MELANGE TRADE LIMITED, INC.
Name of Corporation/Trust/Partnership
D. H. SIEGEL, PRES.
Executive Officer
/s/ D. H. SIEGEL
-----------------------
Signature of Executive
Accepted by Microbest, Inc.
/s/ ILLEGIBLE
- ----------------------------
Signature of Executive
<PAGE>
MICROBEST, INC.
STOCK PURCHASE AGREEMENT
The undersigned applies to become a shareholder in Microbest, Inc. and agrees
to purchase the number of shares indicated below.
It is understood that the shares are being offered for sale without registration
in reliance on Section 4 (2) of the Securities Act of 1933, as 144 restricted
shares.
The shares are not being purchased for subdivision with any one else.
There is no present intent to sell or otherwise dispose of the shares.
It is understood that the Company has no present intent to register these shares
under the Securities Act of 1933.
It is understood that the Company has no profitable operating history, the
investment is highly speculative, and there is considerable risk in this
investment.
It is understood there is no present market for these shares, the purchase is a
long-term investment, and they may not be sold. The purchase will not cause the
undersigned financial difficulties. Further, the undersigned has had ample time
to study this investment, and has had ample time to consult with financial
advisors of choice, and has been able to see all relevant documents asked for.
The undersigned is an Accredited Investor as that term is defined in Section 2
(15) of the Securities Act of 1933.
The undersigned represents and warrants that the foregoing statements are true
and accurate to the best of the information and belief of the undersigned.
The undersigned agrees to purchase 368,421 shares of Microbest, Inc., Common
Stock at $.1357 per share and encloses $ 50,000 in full payment.
Dated: December 1, 1999 PURCHASER
MELANGE TRADE LIMITED, INC.
Name of Corporation/Trust/Partnership
D. H. SIEGEL, PRES.
Executive Officer
/s/ D. H. SIEGEL
-----------------------
Signature of Executive
Accepted by Microbest, Inc.
/s/ ILLEGIBLE
- ----------------------------
Signature of Executive
<PAGE>
FINANCIAL COMMITMENT
This will confirm our commitment to support the Microbest, Inc., mission with
our financial resources.
Based on our discussions and the material you have made available to us we have
confidence in you and Microbest and the impressive list of products that
comprise the Microbest BioCleansing System.
Particularly, I want to acknowledge our commitment to stand by you with our
financial resources to the extent of $ 200,000.
This commitment is an agreement to purchase Microbest common stock to be offered
without registration in reliance on Section 4 (2) of the Securities Act of
1933, as 144 restricted shares. These shares are not being purchased for
subdivision with any one else, nor is there ail intent to sell or otherwise
dispose of the shares.
It is understood that there is no present market for these shares and the shares
are being purchased as a long-term investment.
The price for the shares to be purchased will be at a discount of 25% to the
average closing bid price as reported on the Over the Counter Bulletin Board
(the exchange on which the common stock is listed and traded) for the five days
prior to the date of purchase.
It is understood that the Company has no present plan to register these shares
under the Securities Act of 1933.
Dated: August 16, 1999 PURCHASER
INCOME PARTNERSHIP OF AMERICA
Name of Corporation/Trust/Partnership
EDWARD M. CHISH, PRESIDENT
Executive Officer
/s/ EDWARD M. CHISH
-----------------------
Signature of Executive
<PAGE>
MICROBEST, INC.
STOCK PURCHASE AGREEMENT
The undersigned applies to become a shareholder in Microbest, Inc. and agrees
to purchase the number of shares indicated below,
It is understood that the shares are being offered for sale without registration
in reliance on Section 4 (2) of the Securities Act of 1933, as 144 restricted
shares.
The shares are not being purchased for subdivision with any one else.
There is no present intent to sell or otherwise dispose of the shares.
It is understood that the Company has no present intent to register those shares
under the Securities Act of 1933.
It is understood that the Company has no profitable operating history, the
investment is highly speculative, and there is considerable risk in this
investment.
It is understood there is no present market for these shares, the purchase is a
long-term investment, and they may not be sold. The purchase will not cause the
undersigned financial difficulties. Further, the undersigned has had ample time
to study this investment, and has had ample time to consult with financial
advisors of choice, and has been able to see all relevant documents asked for.
The undersigned is an Accredited Investor as that term is defined in Section 2
(15) of the Securities Act of 1933.
The undersigned represents and warrants that the foregoing statements are true
and accurate to the best of the information and belief of the undersigned.
The undersigned agrees to purchase 559,999 shares of Microbest, Inc., Common
Stock at $.2679 per share and encloses $150,000 in full payment,
Dated: September 30, 1999 PURCHASER
INCOME PARTNERSHIP OF AMERICA
Name of the Corporation/Trust/Partnership
EDWARD M. CHISH, PRESIDENT
Executive Officer
/s/ EDWARD M. CHISH
-----------------------
Signature of Executive
Accepted by Microbest, Inc.
/s/ ILLEGIBLE
- ----------------------------
Signature of Executive
<PAGE>
FINANCIAL COMMITMENT
This will confirm our commitment to support the Microbest, Inc., mission with
our financial resources.
Based on our discussions and the material you have made available to us we have
confidence in you and Microbest and the impressive list of products that
comprise the Microbest BioCleansing System.
Particularly, I want to acknowledge our commitment to stand by you with our
financial resources to the extent of $ 100,000.
This commitment is an agreement to purchase Microbest common stock to be offered
without registration in reliance on Section 4 (2) of the Securities Act of 1933,
as 144 restricted shares. These shares are not being purchased for subdivision
with any one else, nor is there an intent to sell or otherwise dispose of the
shares.
It is understood that there is no present market for these shares and the shares
are being purchased as a long-term investment.
The price for the shares to be purchased will be at a discount of 25% to the
average closing bid price as reported on the Over the Counter Bulletin Board
(the exchange on which the common stock is listed and traded) for the five days
prior to the date of purchase.
It is understood that the Company has no present plan to register these shares
under the Securities Act of 1933.
PURCHASER
Dated: August 16, 1999
DAVID H. SIEGEL IRREVOCABLE TRUST
Name of the Corporation/Trust/Partnership
MARIA S. SIEGEL (TRUSTEE)
Executive Officer
/s/ MARIA S. SIEGEL, TRUSTEE
Signature of Executive
<PAGE>
MICROBEST, INC.
STOCK PURCHASE AGREEMENT
The undersigned applies to become a shareholder in Microbest, Inc. and agrees
to purchase the number of shares indicated below.
It is understood that the shares are being offered for sale without registration
in reliance on Section 4 (2) of the Securities Act of 1933, as 144 restricted
shares.
The shares are not being purchased for subdivision with any one else.
There is no present intent to sell or otherwise dispose of the shares.
It is understood that the Company has no present intent to register these shares
under the Securities Act of 1933.
It is understood that the Company has no profitable operating history, the
investment is highly speculative, and there is considerable risk in this
investment.
It is understood there is no present market for these shares, the purchase is a
long-term investment, and they may not be sold. The purchase will not cause the
undersigned financial difficulties. Further, the undersigned has had ample time
to study this investment, and has had ample time to consult with financial
advisors of choice, and has been able to see all relevant documents asked for.
The undersigned is an Accredited Investor as that term is defined in Section 2
(15) of the Securities Act of 1933.
The undersigned represents and wan-ants that the foregoing statements are true
and accurate to the best of the information and belief of the undersigned.
The undersigned agrees to purchase 368,421 shares of Microbest, Inc., Common
Stock at $.1357 per share and encloses $ 50,000 in full payment.
Dated: November 16, 1999 PURCHASER
DAVID H. SIEGEL IRREVOCABLE TRUST
Name of the Corporation/Trust/Partnership
MARIA S. SIEGEL (TRUSTEE)
Executive Officer
MARIA S. SIEGEL, TRUSTEE
-----------------------
Signature of Executive
Accepted by Microbest, Inc.
/s/ ILLEGIBLE
- ----------------------------
Signature of Executive
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM MICROBEST INC. DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 56,554
<SECURITIES> 0
<RECEIVABLES> 41,681
<ALLOWANCES> 0
<INVENTORY> 42,457
<CURRENT-ASSETS> 140,692
<PP&E> 4,875
<DEPRECIATION> 67,594
<TOTAL-ASSETS> 213,161
<CURRENT-LIABILITIES> 567,780
<BONDS> 13,884
400
12,291
<COMMON> 1,577,240
<OTHER-SE> (1,958,434)
<TOTAL-LIABILITY-AND-EQUITY> (368,503)
<SALES> 213,161
<TOTAL-REVENUES> 376,602
<CGS> 327,087
<TOTAL-COSTS> 49,575
<OTHER-EXPENSES> 1,440,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,753
<INCOME-PRETAX> (1,409,882)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,409,882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,409,882)
<EPS-BASIC> 0
<EPS-DILUTED> (0.128)
</TABLE>
