UNITED STATES SEC000URITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______.
Commission file number: 0-10147
APPLIED EARTH TECHNOLOGIES, INC.
--------------------------------------------------
(Exact name of registrant as specified in its charter)
California 95-355578
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3335 South 900 East, Suite 230,
Salt Lake City, Utah 84106
- ------------------------------ ---------
(Address of principal executive offices) (Zip Code)
(801) 467-5339
--------------------------------------------
Registrant's telephone number, including area code
---------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), Yes [ ] No [X] and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the last practicable
date.
Class Outstanding as of March 31, 1996
--------------------- ------------------------------
Common Stock, No Par Value 11,338,741
<PAGE>
PART I - FINANCIAL INFORMATION
- -----------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------------------------------------------
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB
pursuant to the rules and regulations of the Securities and
Exchange Commission and, therefore, do not include all
information and footnotes necessary for a complete presentation
of the financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted
accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included
and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of March 31,
1996, and the related audited balance sheet of the Company as of
December 31, 1995, the unaudited related statements of operations
and cash flows for the three month period ended March 31, 1996
and 1995, and the unaudited statement of stockholders' equity for
the three month periods ended March 31, 1995 and 1996, are
attached hereto and incorporated herein by this reference.
Operating results for the quarter ended March 31, 1996, are
not necessarily indicative of the results that can be expected
for the year ending December 31, 1996.
- -----------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------
General
Applied Earth Technologies, Inc. (the "Company") (formerly
San Diego Bancorp), was incorporated under the laws of the State
of California on May 19, 1979, for the primary purpose of acting
as a bank holding corporation for several subsidiaries, and the
principal business was in the industrial loan market conducted
through a subsidiary named El Camino Thrift and Loan Association.
During several years preceding 1986, the Company incurred
substantial losses and during 1986 management decided to
discontinue all operating activities, and liquidate the remaining
assets and liabilities. The subsidiaries were either dissolved
or sold for nominal amounts, and the Company became a "shell"
corporation by December 31, 1986, and had no material operations
until September, 1993. On September 21, 1993, the Company
acquired 100% of the outstanding common stock of Enviro-Guard
Corporation (a corporation incorporated in the State of Utah on
May 30, 1991) from Enviro-Guard Holding Corporation (a
corporation incorporated in the State of Colorado on June 10,
1987). This transaction was accounted for as a reverse
acquisition whereby the acquired corporation (Enviro-Guard
Corporation) gains controlling stockholder interest in the
acquiring corporation (the Company), and the financial statements
of Enviro-Guard Corporation are presented on a continuous basis
since inception in May of 1991.
Enviro-Guard Corporation has developed a line of
organically-based insecticide products made from natural
compounds with the objective of achieving environmentally-
friendly, yet effective results. In August of 1992, Enviro-Guard
acquired 100% of the outstanding common stock of Diatect
International, Inc. (Diatect), (incorporated in the State of
Kansas in 1989). Diatect has developed and owns the rights to
three EPA registered insecticides. Also in August of 1992,
Enviro-Guard acquired 100% of the outstanding common stock of
D.S.D., Inc. (incorporated in the State of Kansas in 1982). The
principal business activity of D.S.D., Inc., is the manufacturing
and sale of cattle dusters and mineral feeders as well as the
blending and sale of various agricultural related insecticides.
On December 18, 1992, Enviro-Guard Corporation completed
negotiations to acquire 90.14% of the outstanding common stock
(891,250 shares) of White Mountain Mining and Manufacturing, Inc.
("White Mountain") (an Idaho Corporation). White Mountain owns
83 unpatented BLM mining claims located in Malheur County,
Oregon. The purpose of this acquisition of the mining property
is for Enviro-Guard Corporation to have a source of diatomite,
which is an important organic ingredient for its environmentally-
safe insecticides.
On December 30, 1993, the Company acquired 100% of the
outstanding common stock of Actagro Acquisition, Inc., (formerly
Actagro, Inc.). Actagro Acquisition, Inc., is a California
corporation which manufactures and sells organic based
agricultural fertilizer to customers in the Southern San Joaquin
Valley. On December 6, 1994, the Company divested itself of
Actagro. In the divestiture, the shareholders of Actagro
returned 715,063 shares of the Company's common stock for
cancellation.
On August 22, 1996, the Company changed its name from San
Diego Bancorp to Applied Earth Technologies, Inc. to more
accurately reflect the Company's business operations and to
eliminate confusion as to the Company's business associated with
the Company's prior name.
Ability of the Company to Continue as a Going Concern
For the three-month period ended March 31, 1996, the Company
has incurred a consolidated net loss of $145,893. In addition,
at March 31, 1996, current liabilities exceeded current assets by
$1,713,504.
During the first three months of 1996, the Company converted
$29,500 in miscellaneous liabilities to equity by issuing 533,333
shares of common stock. In the future, management believes that
there is an additional $600,000 in debt (principally notes
payable and accruals) that it may be able to convert to equity
during fiscal year 1996. The Company also believes that without
additional conversions of debt to equity and restructuring the
payment terms of short-term debt, substantial doubt remains as to
the Company's ability to meet its current obligations and
continue in business. The Company has taken steps to address its
insolvency problems by working with its creditors to keep them
informed of the Company's progress in meeting outstanding
liabilities. For the most part, the Company's creditors have
been patient, waiting for payment at a future date.
The Company is attempting to obtain additional working
capital from several sources, including investment banking firms,
private investors and state funding agencies interested in
assisting growing companies within the agri-environmental sector.
Management intends to seek equity financing through the sale of
the Company's securities.
The Company must meet monthly operational expenses of
approximately $85,000. Currently, the Company has average
revenues from operations of approximately $63,000 which creates
an operational shortfall of approximately $22,000 per month.
However, management believes that additional revenue generated by
increased marketing efforts will result in increased sales of the
Company's products and ultimately alleviate a substantial portion
of the shortfall. Until those revenues eventuate, the Company
will be dependent upon outside funding to meet operating
requirements.
Results from Operations
During the first three months of fiscal year 1996, the
Company had revenues of $193,174, cost of sales of $86,588,
operating expenses of $274,178, other income of $4,580 and an
income tax benefit of $17,119. These yielded a net loss of
$145,893, compared to a loss of $341,868 for the same period of
1995. The substantial portion of the first quarter 1996 loss was
due to three factors: professional fees/consulting fees
($72,443), and depreciation and amortization ($62,702), and
interest expense ($31,799). The Company believes that many of
the operating and administrative expenses associated with the
first quarter loss were due, in part, to insufficient cash flow
and the illiquid nature of the Company's non-current assets.
Because of liquidity difficulties, many expenses were paid
through the issuance of common stock.
Management is hopeful that once its products are in the
marketplace, the losses from operations the Company currently
suffers will be alleviated by increased sales revenue and
profitability. Currently, the Company has not had the working
capital to effectively market its products.
Liquidity and Capital Resources
The Company has a severe working capital deficit. As of
March 31, 1996, the Company's working capital deficit totaled
$1,713,504 compared with $1,502,455 at December 31, 1995. The
Company has current liabilities totaling $1,850,899 and no long
term debt. At the end of 1995, current liabilities and long term
debt were $1,688,297 and $200,000, respectively. During the
first quarter of 1996, total liabilities decreased $37,398.
Despite the slight reduction in total debt, the Company's working
capital deficit has had a direct correlation to the Company's
inability to expand and market its products effectively.
If the Company is unable to obtain some funds in the near
future, it will not be able to continue in business. The
Company, therefore, continues to seek working capital from
several sources, including equity markets and private investors.
There is no assurance, however, that these efforts will be
successful. The Company does feel that it will increase revenues
from operations as it moves from the development stage of its
products, which has included lengthy and costly time in obtaining
EPA approval. With Enviro-Guard's products in the marketplace
and with adequate financial support, the Company anticipates
revenues to offset on-going expenses. The Company is uncertain,
however, as to whether there will be sufficient revenues to cover
prior years' obligations.
As previously stated, the Company's lack of cash has
affected its ability to effectively market its products. The
marketing strategy will require funds to be fully effect.
Accordingly, although the Company anticipates more revenue from
its products then it has received in the past, it will not be as
profitable as it could be with additional funding for full
implementation of its marketing and promotional plans.
<PAGE>
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Financial Position
As of March 31, 1996 and December 31, 1995
- -----------------------------------------------------------------
ASSETS
-------
(Unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
CURRENT ASSETS
Cash $ 19,445 $ 64,970
Accounts Receivable 25,047 25,036
Inventories 88,336 95,836
Prepaid expenses 4,557 -
------------- -----------------
Total Current Assets 137,385 185,842
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PROPERTY, PLANT AND EQUIPMENT
Buildings Lease Hold Improvements 127,119 127,119
Mining property 4,352,852 4,370,390
Equipment 260,277 261,185
------------- -----------------
Total Property, Plant
and Equipment 4,740,248 4,758,694
Less accumulated depreciation 202,002 195,672
------------- -----------------
Net Property, Plant
and Equipment 4,538,246 4,563,022
------------- -----------------
OTHER ASSETS
Investment in EPA labels, Net of
amortization 3,436,167 3,509,807
Notes receivable 243,699 250,000
Deposits 1,117 967
Other assets 4,500 57,200
------------- -----------------
Total Other Assets 3,685,483 3,817,974
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TOTAL ASSETS $ 8,361,114 $ 8,566,838
============= =================
The accompanying notes are an integral
part of these financial statements.
<PAGE>
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Financial Position
As of March 31, 1996 and December 31, 1995
- -----------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
(Unaudited)
March 31, 1996 December 31, 1995
-------------- -----------------
CURRENT LIABILITIES
Accounts payable $ 253,492 $ 242,714
Interest payable 219,135 203,762
Income taxes payable 20,489 20,489
Other accrued liabilities 48,126 26,296
Notes payable 997,062 665,514
Current portion of
long-term debt 312,585 529,522
-------------- -----------------
Total Current Liabilities 1,850,889 1,688,297
-------------- -----------------
LONG-TERM DEBT, LESS CURRENT PORTION - 200,000
-------------- -----------------
DEFERRED TAX LIABILITY 1,186,928 1,238,851
-------------- -----------------
COMMITMENTS
MINORITY INTEREST 339,397 339,397
-------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, no - par value;
20,000,000 shares
authorized; 11,338,741 and
10,805,408 shares issued
and outstanding, respectively 9,088,650 9,059,150
Common stock subscribed 376,746 376,746
Accumulated deficit (4,481,496) (4,335,603)
-------------- -----------------
Total Stockholders' Equity 4,983,900 5,100,293
-------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,361,114 $ 8,566,838
============== =================
The accompanying notes are an integral
part of these financial statements.
<PAGE>
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Operations for the
three- Month periods ended March 31, 1996 and 1995
- -----------------------------------------------------------------
Three Months Ended
---------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
REVENUES $ 193,174 $ 109,322
COST OF SALES 86,588 51,522
-------------- --------------
GROSS PROFIT 106,586 57,800
-------------- --------------
OPERATING EXPENSES
Salaries, wages and
benefits 57,501 73,743
Consulting 37,300 18,004
Business development 8,105 -
Travel 6,959 15,436
Rent 9,779 4,441
Interest 31,799 20,177
Utilities 5,134 3,589
Depreciation and amortization 62,702 62,623
Advertising 4,174 49,399
Office 5,610 9,266
Taxes and licenses 3,328 2,693
Professional fees 35,143 69,103
Insurance 5,595 6,294
Repairs and maintenance 488 775
Miscellaneous 561 16,528
-------------- --------------
Total Operating Expenses 274,178 352,071
-------------- --------------
(LOSS) FROM OPERATIONS (167,592) (294,271)
-------------- --------------
OTHER INCOME (LOSS)
Interest 4,036 2,150
Royalties 544 490
(Loss) on sale of property - (109,332)
Miscellaneous - 2,400
-------------- --------------
Total Other Income (Loss) 4,580 (104,292)
-------------- --------------
(LOSS) BEFORE INCOME TAX BENEFIT (163,012) (398,563)
INCOME TAX BENEFIT 17,119 56,695
-------------- --------------
NET (LOSS) $ (145,893) $ (341,868)
============== ==============
NET (LOSS) PER SHARE (Primary) $ (.01) $ (.04)
NET (LOSS) PER SHARE
(Fully Diluted) $ (.01) $ (.04)
<PAGE>
Applied Earth Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
for the Three Month Periods ended
March 31, 1995 and March 31, 1996
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------ Common Stock Accumulated
Shares Amount Subscribed Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1994 8,203,267 $ 8,550,140 $ 197,450 $ (3,019,122) $ 5,728,468
Common Stock issued for services
at $.10 to $.35 per share 469,348 79,568 - - 79,568
Common Stock Subscribed to be
issued for debt reduction - - 30,000 - 30,000
Conversion of Common
Stock Subscribed 359,875 143,950 (143,950) - -
Common Stock issued for accrued
salaries and wages at
$.40 per share 70,418 28,167 - - 28,167
Net (Loss) - - - (341,868) (341,868)
------------ ------------ ------------ ------------ ------------
Balances as of
March 31, 1995 9,102,908 $ 8,801,825 $ 83,500 $ (3,360,990) $ 5,524,335
============ ============ ============ ============ ============
Balance as of December 31, 1995 10,805,408 $ 9,059,150 $ 376,746 $ (4,335,603) $ 5,100,293
Common Stock issued for reduction
of notes payable at $.06 per share 533,333 29,500 - - 29,500
Net (Loss) - - - (145,893) (145,893)
------------ ------------ ------------ ------------ ------------
Balance as of March 31, 1996 11,338,741 $ 9,088,650 $ 376,746 $ (4,481,496) $ 4,983,900
</TABLE>
The accompanying notes are an integral
part of these financial statements.
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows for the
Three and Six Month Periods Ended June 30, 1996 and 1995
- -----------------------------------------------------------------
Three Months Ended
---------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (145,893) $ (341,868)
Add items not requiring
the use of cash:
Depreciation, amortization
and non-cash expenses 62,702 176,847
(Increase) in accounts
receivable (11) (30,970)
Decrease in inventories 7,500 -
(Increase) decrease in
deposits (150) 3,289
Decrease in notes receivable 6,301 -
(Increase) in prepaid expenses (4,557) (520)
Increase (decrease) in
accounts payable 10,778 (2,831)
(Decrease) in deferred
tax credit (51,923) (91,502)
Increase (decrease) in
interest payable 15,373 (13,324)
Increase in other
accrued liabilities 23,830 52,376
-------------- --------------
NET CASH FLOWS USED FROM
OPERATING ACTIVITIES (76,050) (248,503)
-------------- --------------
CASH FLOWS FROM INVESTING
ACTIVITIES
(Acquisition) reduction in
property, plant and equipment 18,450 304,365
Decrease in other assets 52,700 -
(Increase) reduction
of intangibles 17,264 17,538
-------------- --------------
NET CASH FLOWS PROVIDED
FROM INVESTING ACTIVITIES 88,414 321,903
-------------- --------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital contributions 29,500 -
Net proceeds from notes payable 15,026 444,865
Reduction of long term debt (102,415) (522,560)
-------------- --------------
NET CASH FLOWS (USED)
FROM FINANCING ACTIVITIES (57,889) (77,695)
-------------- --------------
TOTAL (DECREASE) IN CASH (45,525) (4,295)
CASH AT BEGINNING OF PERIOD 64,970 (1,847)
-------------- --------------
CASH AT END OF PERIOD $ 19,445 $ (6,142)
============== ==============
<PAGE>
Applied Technologies, INC.
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------
The condensed consolidated financial statements of Applied
Earth Technologies, Inc. included herein have been prepared
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although, certain
information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been
condensed or omitted, the Company believes that the disclosures
are adequate to make the information presented not misleading.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
included in Applied Earth Technologies, Inc.'s annual report on
Form 10-KSB for the fiscal year ended December 31, 1995.
The condensed consolidated financial statements included
herein reflect all normal recurring adjustments that, in the
opinion of management, are necessary for a fair representation.
The results for interim periods are not necessarily indicative of
trends or of results to be expected for a full year.
PART II - OTHER INFORMATION
- -----------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------------------------------------------
See Applied Earth Technologies, Inc.'s annual report on Form
10-KSB for the fiscal year ended December 31, 1995.
- -----------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 3. DEFAULTS UPON SECURITIES
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 5. OTHER INFORMATION
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------
(a) Exhibits. None.
(b) Reports on Form 8-K. None
- -----------------------------------------------------------------
SIGNATURES
- -----------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APPLIED EARTH TECHNOLOGIES, INC.
(Registrant)
Dated: September 18, 1996 By /s/
-------------------------
Dale H Christiansen,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000319124
<NAME> APPLIED EARTH TECHNOLOGIES, INC. (FORMERLY SAN DIEGO BANCORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 19,445
<SECURITIES> 0
<RECEIVABLES> 25,047
<ALLOWANCES> 0
<INVENTORY> 88,336
<CURRENT-ASSETS> 137,385
<PP&E> 4,720,403
<DEPRECIATION> 202,002
<TOTAL-ASSETS> 8,361,114
<CURRENT-LIABILITIES> 1,850,889
<BONDS> 0
0
0
<COMMON> 9,088,650
<OTHER-SE> (4,140,750)
<TOTAL-LIABILITY-AND-EQUITY> 8,361,114
<SALES> 193,174
<TOTAL-REVENUES> 197,754
<CGS> 86,588
<TOTAL-COSTS> 242,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,799
<INCOME-PRETAX> (163,012)
<INCOME-TAX> (17,119)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,893)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
