<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31,
1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File number: 0-10147
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APPLIED EARTH TECHNOLOGIES, INC.
(formerly SAN DIEGO BANCORP)
(Exact name of registrant as specified in charter)
California 95-355578
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(State or other jurisdiction (I.R.S. Employer Identification
No.)
of incorporation or organization)
3335 South 900 East, Suite 230, Salt Lake City, Utah 84106
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (801) 467-5339
Securities registered pursuant to section 12(b) of the Act:
Title of each className of each exchange on which registered
None N/A
---- ---
Securities registered pursuant to section 12(g) of the Act:
Common Stock, No Par Value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes [ ] No [X] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
<PAGE>
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State the issuer's revenues for its most recent fiscal year:$793,022
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. At December 31, 1995, the aggregate market
value of the voting stock held by nonaffiliates was $245,146. The average of
the bid and asked price of such stock on December 31, 1995, was $0.045 per
share.
At December 31, 1995, the registrant had 10,805,408 shares of common
stock, no par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant
to rule 424(b) or (c) under the Securities Act of 1933: None<PAGE>
<PAGE> 3
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TABLE OF CONTENTS
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ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . .4
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS . 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION. . . . . . . . . . . . . . . . . . . . . . . . 16
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . 18
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. . . . . . . . 19
ITEM 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . 29
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . 30
<PAGE>
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PART I
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ITEM 1. BUSINESS
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ON AUGUST 22, 1996, SAN DIEGO BANCORP CHANGED ITS NAME TO APPLIED EARTH
TECHNOLOGIES, INC. THIS REPORT IS BEING FILED ON OR ABOUT SEPTEMBER 4, 1996,
WHICH IS BEYOND THE DATE ON WHICH THE REPORT WOULD HAVE BEEN TIMELY FILED AND
MAY NOT CONTAIN INFORMATION CONCERNING THE MORE RECENT ACTIVITIES OF THE
COMPANY. THE READER SHOULD RELY ON REPORTS FOR LATER PERIODS WHICH ARE
EXPECTED TO BE FILED ON OR BEFORE SEPTEMBER 15, 1996.
General
San Diego Bancorp ("the Company") 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. 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) gained 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 1991.
When referred to herein, the Company includes all of its subsidiaries.
Enviro-Guard Corporation has, through its subsidiaries, developed a
line of organically-based insecticide products made from natural compounds
with the objective of achieving environmentally-friendly, yet effective
results. In August 1992, Enviro-Guard acquired 100% of the outstanding
common stock of Diatect International, Inc. ("Diatect"), a Kansas
corporation. Diatect has developed and owns the rights to three
Environmental Protection Agency ("EPA") registered insecticides. Also in
August 1992, Enviro-Guard acquired 100% of the outstanding common stock of
D.S.D., Inc. ("D.S.D.", a Kansas corporation. The principal business
activity of D.S.D. is the marketing and sale of cattle dusters and mineral
feeders as well as the blending and sale of various agricultural related
insecticides. Dr. Scratch Company, Inc., a subsidiary of D.S.D.,
manufactures cattle dusters, mineral feeders and animal-actuated insecticide
applicators. When referred to herein, Enviro-Guard includes all of its
subsidiaries. <PAGE>
<PAGE> 5
The Company has developed a variety of insecticides which utilize so
called "natural-killing agents" which are non-toxic to the environment as
well as humans and other warm-blooded animal life. Whereas widely used
conventional chemical synthesized insecticides are composed of highly
dangerous, toxic chemicals that seep into the water table and are washed into
rivers and lakes contaminating water and soil for decades, the Company's
products are composed of natural elements such as diatomaceous earth ("DE")
and pyrethrin, which degrade, leaving the environment unharmed. DE and
pyrethrin have been used separately for years as alternatives to hazardous
chemical insecticides, but were not as effective in treatment. By combining
DE and pyrethrin in its products, the Company has achieved a synergy leading
to far more effective insecticides than DE or pyrethrin individually.
The Company has obtained EPA registrations and labels necessary for the
production and marketing of their insecticides. The approval by the EPA of
the Company's labels is significant due to the time and cost associated with
EPA approval which can take years and cost millions of dollars. Due to the
time it took to obtain EPA approval, Enviro-Guard did not begin the
commercial marketing of its products until late 1993.
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 mining property acquisition is
for the Company to have a source of insecticidal-quality DE, an important
organic ingredient for the Company's products.
On December 30, 1993, the Company acquired 100% of the outstanding
common stock of Actagro Acquisition, Inc., ("Actagro") (formerly Actagro,
Inc.), a California corporation. Actagro manufactures and sells organic
based agricultural fertilizer to customers in the Southern San Joaquin
Valley. This acquisition carried high debt load and Actagro did not meet its
required net income commitment. Consequently, on December 6, 1994, the
Company divested itself of Actagro. In the divestiture, the shareholders of
Actagro returned 784,937 shares of the Company common stock for cancellation.
The Company continues to have a shortage of working capital, which is
likely to continue unless the Company increases substantially its sales
revenue or obtains additional working capital through equity sources. The
report of the Company's auditor included with this annual report on Form
10-KSB contains a modification relating to the Company's ability to continue
as a going concern. (See ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION and ITEM 7. FINANCIAL STATEMENTS. )
Industry
During 1994, the worldwide market for pesticides grew by 10% to a total
of $27.8 billion as the total amount of acreage planted continued to increase
in the United States and the world. Pesticide consumption in dollar terms is
expected to grow 4.4% per year during 1993-2003, compared with 3% during
1983-93. Agriculture is the largest end-user sector for insecticides,<PAGE>
<PAGE> 6
followed by commercial, industrial, home, garden and government applications.
Within each of these sectors are numerous markets. For example, the retail
nursery green good sales increased 10% to $15.2 billion. Every $1.00 of
green good sales results in the sale of $3.00 worth of tools, fertilizers,
and insecticides. The United States spends approximately $500 million
annually to kill cockroaches, with Virginia alone spending an estimated
$60,000,000 annually.
Four markets---corn, cotton, vegetables, and fruit and nuts---account
for 78% of the U.S. insecticide market. Japan is the second-largest market
for pesticides in the world, by sales. Insecticides are the leading product
category in the pesticide market, with 34% of the Japanese market. Western
European insecticide sales amount to approximately 15% of total world
insecticide sales. France, Spain and Italy are key markets for insecticides
in Western Europe. Export demand for insecticide products take 59% of U.S.
insecticide production. Export demand is expected to remain strong.
A recent Gallup poll reported that 92% of farmers want to use safer
pesticides and 66% favored tougher enforcement of pesticide misapplication
penalties.
The nature of synthesized chemical pesticides has caused concern among
the public and regulators particularly over the pesticides persisting in the
environment, accumulating in soil and ground water and affecting surrounding
wildlife such as fowl and fish. These concerns have led the EPA to require
stricter guidelines on new pesticides. Additionally, the EPA has, in many
instances, ordered new tests for previously approved products which must now
meet the newer, more stringent standards. The additional testing is resulting
in some companies electing to remove existing products from the market rather
than subject the products to the newer standards.
In the past five years, chemical companies have voluntarily dropped the
registration of 28 active ingredients and 5,000 pesticide products that were
in use at the time of cancellation. Additionally, since insecticides were
first used in the 1940's, more than 600 insect species have developed
resistance to many synthetic pesticides, leading the industry to constantly
search for new products. Insecticide resistance now costs an estimated $1.4
billion a year in crop losses in the United States alone.
Products
The cost and time associated with EPA approval has delayed the
Company's entry into the market place until the latter part of 1993.
Consequently, the Company has yet to receive wide spread acceptance of its
product; however, test marketing has shown positive signs. The Company
markets and sells its products under the trade names Results, Diatect, and
Dr. Scratch.
The active ingredients used in the Company's products are DE, pyrethrin
and piperonyl butoxide. DE is a naturally occurring mineral deposit
resulting from microscopic single-celled plants called diatoms which took the
minerals from the water and created protective shells for themselves. As
<PAGE> 7
they died and their shells drifted to the bottom of the sea beds, vast
deposits were created. One of the numerous uses for DE is as a natural
insecticide, since it causes severe mechanical cutting damage to insects akin
to the damage of broken glass swallowed by humans.
DE is taken from the earth and ground into a usable dust. It is,
basically, an inert dust which does not react with other chemical compounds
to form a new insecticidal compound. There are many varieties of diatoms,
and the preponderance of the type in any given deposit gives that deposit
certain characteristics. In the case of nontoxic insecticides, certain
qualities make it possible to kill insects without harming animals, plants or
humans. These rare deposits furnish a material that has two very important
characteristics:
(1) when fractured, the particle edges are very sharp and (2) each tiny
particle has the ability to absorb liquid. In addition to cutting the
covering of an insect's shell to cause dehydration, DE also absorbs the
insect's covering and bodily fluids of the insect, further causing
dehydration and eventual death. Moreover, DE causes extensive trauma to
insects, both internally and externally. In order to not reduce or nullify
its effectiveness as an insecticide, DE must be free of significant
impurities. DE by itself can be used as an insecticide, but is generally
slow to reduce insect populations and thus has limited effectiveness,
especially against fast-breeding insects. For this reason, the Company's
products combine DE with pyrethrin.
Pyrethrins are oily liquid esters extracted from the pyrethrum flower,
the "African Daisy." The extract is a "botanical insecticide" and acts on
insects with phenomenal speed causing paralysis. It is virtually harmless to
mammals, i.e., warm-blooded life. Pyrethrin affects both the peripheral and
central nervous system of the insect. Initially, it stimulates nerve cells
to produce repetitive discharges, quickly leading to paralysis.
Piperonyl Butoxide ("PBO"), an extract originally discovered in a
variety of sassafras, has since been synthesized and made available in
quantities greater than possible from plants. While early studies suggested
that PBO is itself a natural insecticide, it is its use as a synergist that
is particularly exciting and useful. A synergist is not generally considered
toxic or insecticidal, but is a material used with insecticides to synergize
or enhance the activity of the insecticides. PBO is the synergist used in
the Company's products. It enhances the action of the fast knockdown
provided by pyrethrin. Basically, PBO binds oxidative enzymes and prevents
them from degrading the pyrethrin. Combined with small amounts of pyrethrin,
it affords a rapid knockdown, a greater mortality, and a longer residual
action than pyrethrin by itself. PBO has been found to be safe and free of
any normal hazards of toxicity. It is well tolerated in large quantities by
warm-blooded animals. Because PBO is substantially less expensive than
pyrethrin, its use allows the Company to offer more economically priced
products.
The Company combines DE, pyrethrin and PBO by using surfactants to
insure a good mix and greatly increase effectiveness and persistence. The
<PAGE> 8
combination of these active ingredients results in a compound much more
effective than each ingredient individually. When using the ingredients
together, DE breaks down the chitin, allowing the pyrethrin to act on the
insects' nerve cells directly. The pyrethrin does not evaporate as quickly
and is released for hours rather than minutes. PBO is used to increase the
effectiveness of pyrethrin by as much as ten times.
The Company's products consist of:
Diatect D-20 Insecticide, EPA Registration No. 42850-1, Indoor
Insecticide. Controls roaches, fleas, ants, silverfish, crickets, bedbugs,
box elder bugs, and other insects. Use under sinks, behind furniture, in air
vents, under tile, stairwells, and basements.
Diatect Multi-Purpose Insecticide, EPA Registration No. 42850-2.
Distributed in the agriculture market, the largest end-user market for
insecticides; commercial; industrial; and government markets as Diatect
Multi-Purpose Insecticide. This insecticide is approved by the EPA for use
in a wide variety of areas, e.g., edible growing crops, animal quarters,
livestock, ornamentals, etc., under the least hazardous classification and is
effective on a wide variety of insects. The insecticide can be applied as a
dust or sprayed in solution with water and can be used on crops and fruits up
to and including the day of harvest.
Distributed in the retail market for use in the home and garden markets
under the trade name Results under the following retail labels:
Results Ant and Insect. Controls ants, aphids,
caterpillars, leafhoppers, lice, mites, mosquitoes, ticks,
and other insects.
Results Tomato and Garden. Protects garden plants from many
varieties of worms, beetles, leafhoppers, stink bugs, squash
vine borers, and other insects.
Results Rose and Floral. Protects azaleas, begonias,
African violets, chrysanthemums, dogwood, elm, roses,
tulips, and many other plants. Destroys insects such as
mealybugs, fruit flies, white flies, and caterpillars that
ruin the beauty of garden flowers and plants.
Results Fire Ant Insecticide. Applying the insecticide
directly to the fire ant mounds, provides quick, effective
control in eliminating these aggressive, dangerous pests.
Each year 10,000 Americans seek hospital treatment for
venomous fire ant stings and two of those people die.
Unlike bees, fire ants can sting repeatedly and have a very
aggressive behavior.
The Company believes, Diatect and Results are far more effective than
major competitive synthetic chemical products.<PAGE>
<PAGE> 9
Diatect Pet Powder, EPA Registration No. 42850-3. To be marketed on a
retail basis under the trade name "Results."
Results Pet Powder. Protects dogs, cats and other pets
against fleas, ticks, and lice infestation. Can be applied
directly on pets and on their sleeping areas without the
fear of using potentially harmful chemicals.
Dr. Scratch is a line of cattle dusters, mineral feeders and
animal-actuated insecticide applicators marketed to livestock growers.
Competitor's dusters are available which apply dust to animals' hair but they
lack the feature of applying the ultra-fine dust to the skin through the
massaging of the applicator tube. This feature is unique to Dr. Scratch
dusters.
Regulatory Approval
All insecticides, in general, purchased in stores today must, by law,
have EPA-approved labels that disclose various required information about the
product. These insecticide labels provide an extensive amount of information
and indicate that the insecticide has been tested, evaluated, and regulated
by the EPA. In fact, no insecticides can be legally registered, much less
sold, without going through these procedures.
Toxicity
Toxicity is the quality, state or degree of being poisonous. All too
often people think of toxicity as poisoning that is caused by ingesting a
small amount of some substance. However, almost any chemical is potentially
toxic given enough of it and the right circumstances. In fact, every
homeowner has cabinets in their bathroom, kitchen, or garage that contain
bottles of substances, that if ingested, inhaled, or spread on the skin, may
cause harm. Even something as seemingly innocuous as table salt, is
potentially toxic, if sufficiently large quantities are ingested.
Toxicity is usually expressed as the lethal dose or LD50. The LD50
denotes the amount (single dosage of the substance by mouth) in milligrams
per kilogram of body weight required to kill 50% of a group of test animals.
LD50 denotes the potency of a substance; the lower the number, the less of
that substance is required to kill an animal. Conversely, the higher the
number, the more of that substance is required. For example, the LD50 for
table salt is 3,300 (mg/kg) and for aspirin the LD50 is 750 (mg/kg). The
LD50's of different substances can be easily compared and are represented on
insecticide labels by the signal words DANGER or POISON, WARNING, or CAUTION.
These signal words are associated with different ranges of LD50's and hence
different degrees of toxicity as listed in the table below.
<PAGE>
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<TABLE>
<CAPTION>
Toxicity Category Signal Words (required on Oral LD50 Probable Lethal
an insecticide label by EPA) (mg/kg) Adult Human Dose <F1>
- ----------------- ---------------------------- ---------- -------------------------
<S> <C> <C> <C>
I--Highly Toxic DANGER or POISON, plus skull 0 to 50 A few drops to 1 teaspoon
and crossbones symbol
II--Moderately Toxic WARNING 50 to 500 1 teaspoon to 2 teaspoons
III--Slightly Toxic CAUTION 500 to 5,000 1 ounce to 1 pint (1 pound)
IV--Almost non-toxic CAUTION more than 5,000 1 ounce to 1 pint (1 pound)
<FN>
<F1> Toxicity of Insecticides and Determining the LD50," Kenneth J. Stein and F. William Ravlin, Department of
Entomology, Virginia Polytechnic Institute and State University, 1995
</TABLE>
Oral toxicity testing on the Company's Products resulted in an LD50
of more than 5,000 mg/kg. The oral toxicity for the product is less than
that for table salt or aspirin. (Because the product was mildly irritating
to the eyes of New Zealand rabbits, the product does carry the Level III
Signal Word "Caution" with the appropriate wording. However, it is of
importance to note that this wording is because of the irritation to the eyes
of the rabbits not the oral or dermal toxicity of the product.)
As previously stated, all new insecticides must be "registered" with
the EPA, which specifies the conditions of their use as part of its mandate
under the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA"). An
insecticide user or manufacturer who fails to comply with FIFRA
restrictions risks enforcement actions from both the EPA and state
authorities, including, but not limited to, suspended product sales and
fines. The Company's products comply with FIFRA restrictions and are
registered with the EPA.
The pesticide regulatory program instituted by Congress and
implemented by the EPA is having a profound effect on the availability of
old as well as new synthetic chemical pesticides. Many of the old
pesticides were registered before their long-term health and environmental
effects were fully understood. In 1972, Congress decreed that the EPA
should reexamine the risks of all active ingredients in pesticides
registered before modern testing methods became available. In 1988,
impatient with the slow pace of the registration program, Congress imposed
timetables on the EPA and levied fees on chemical companies wishing to re-
register their products.
Although the EPA has banned relatively few pesticides in recent
years, the impact of Congress' action has been significant. As stated
above, chemical companies have voluntarily dropped registration of 28
active ingredients and 5,000 pesticide products that were in use at the
time of cancellation over the past 5 years. The cost of developing a new
chemical for registration has also risen enormously in recent years,
partially because of expensive tests required to show that the chemical
poses low environmental and human health risks. The typical pesticide is
put through more than 100 tests and approval can take more than three
years. Once approved, labeling instructions must be followed for proper
use, handling, storage and disposal.
<PAGE>
<PAGE> 11
The effect of these tighter restrictions and the removal of these
active ingredients is to open the door for the Company and its products.
The market for the Company's environmentally-safe products broadens with
each synthetic chemical insecticide taken off the shelf.
Competition
The principal players in the U.S. plant care industry, particularly
the insecticide industry, are major companies such as Dow, DuPont,
Monsanto, Shell Oil and Ortho. Those companies all have more extensive
resources than the Company and have established product recognition and
following. The Company believes, however, that by focusing on the
non-synthetic insecticides, it will be able to acquire a market niche which
has not been a focus of the larger, better established companies. There is
no assurance, however, that the Company will be able to establish this
niche or that, even if the Company is successful, the larger companies will
not enter into this niche with their extensive resources which the Company
may not be able to compete against.
The Company believes it has an advantage in the products and market
niche it has identified in that it has already obtained EPA approval of its
products and labels. The EPA approval is important due to the time and
cost associated with receiving such approval which can take years and costs
of millions of dollars.
Management Changes
In February 1995, James Dayley resigned as President of the Company.
Both he and Dale Christiansen resigned their positions on the Board of
Directors at the same time. Mr. Christiansen continued with the Company as
Chief Financial Officer. Mr. George H. Henderson became President of the
Company on an interim basis until another Company president could be found.
Additions to Mr. Robert Crouch on the Board of Directors included Mr.
Henderson, John L. Runft, Michael P. McQuade and Elwynn S. Hewlett, Jr.
In August 1995, Dennis P. Nielsen joined the Board of Directors.
In October 1995, Mr. Ross S. Wolfley was hired by the Company as
President, CEO and member of the Board of Directors. Additionally, Mr.
Elwynn S. Hewlett, Jr. became Chairman of the Board of Directors. Mr.
Henderson resigned as President of the Company, but continued as a member
of the Board of Directors.
Offices
The Company and its subsidiary Enviro-Guard maintain their
administrative offices at 3335 South 900 East, Suite 230, Salt Lake City,
while the Company's subsidiaries D.S.D. and Diatect maintain administrative
offices on East Highway 36, Smith Center, Kansas. Production facilities
are located on East Highway 36, Smith Center, Kansas, and 108 East
Schoolhouse Road, Lebanon, Kansas. (See ITEM 2. PROPERTIES.)
<PAGE>
<PAGE> 12
Employees
<TABLE>
<CAPTION>
Name of Company No. of Employees Position Full-time Part-time
- --------------- ---------------- -------- --------- ---------
<S> <C> <C> <C> <C>
San Diego<F1> 3 Officers 3 N/A
Enviro-Guard 1 Other 1 N/A
D.S.D. and Diatect 7 2 Officers/5 Other 7 N/A
White Mountain - N/A N/A N/A
<FN>
<F1> Two of the Company's three officers and directors are also employees of Enviro-Guard.
</TABLE>
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ITEM 2. PROPERTIES
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The Company's properties are as follows:
<TABLE>
<CAPTION>
Purpose Location Acreage/Sq. Ft. Lease/Own Description
- ----------------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C>
San Diego Bancorp 3335 South 900 East
and Enviro-Guard Suite 230
Administrative Salt Lake City, UT 1,000 sq. ft. Lease Brick
Offices
D.S.D. and Diatect East Highway 36 4,000 sq. ft. Own Brick
Administrative Smith Center, KS
D.S.D. and Diatect East Highway 36 10,000 sq. ft. Own Metal/Quonset
Manufacturing, Smith Center, KS
and Warehouse
D.S.D. and Diatect 108 E. Schoolhouse Rd 25,000 sq. ft. Own Brick
Production Lebanon, KS
Facilities
White Mountain
Mining Claims Malheur County, OR 83 Claims Own Unpatented
Placer
</TABLE>
Limited Title to Unpatented Claims
The validity of all unpatented mining claims is subject to inherent
uncertainties. Such claims are located on federal or state land and are
subject to procedures established by federal and state laws. Unpatented
claims, when properly located, staked, and posted according to regulation,
give the claimant possessory rights only. Possessory title to an
unpatented claim, when validly initiated, endures unless lost through
abandonment due to failure to perform and file proof of required assessment
work, through failure to timely record conveyances, or through a forfeiture
which results from an adverse location made while the prior location is in
default with respect to the performance of assessment work. Because many
of these factors involve findings of fact, title validity cannot be
determined solely from an examination of the record. The continuing
validity of these claims is subject to many contingencies, including the
<PAGE> 13
availability of land for location at the time the location was made, the
making of valid mineral discoveries within the boundary of each claim,
compliance with all federal and state regulations, including filings with
federal and county agencies.
Because mining claims are self-initiated and self-maintained rights,
they possess some unique vulnerabilities not associated with other types of
property interests. It is impossible to ascertain the validity of
unpatented mining claims from public real estate records, and therefore,
typically it is difficult or impossible to confirm that all of the
requisite steps for location and maintenance of a claim have been followed.
Under federal law, as interpreted by the federal government, in order for
an unpatented mining claim to be valid, the claimant has the burden of
proving that the mineral occurrence on which it is based can be mined at a
profit at the time the claim is located and at the time of any subsequent
challenge to such claim's validity. Thus, it is conceivable that, during
the times of falling mineral prices, claims that were valid when located
could become invalid if challenged. Mining claims are frequently located
with less than sophisticated survey techniques. This situation,
particularly in old mining districts, may result in additional difficulty
in ascertaining the location for validity of such claims.
Title to unpatented claims and other mining properties in the western
United States typically involves certain other inherent risks due to the
frequently ambiguous conveyancing history characteristics of such
properties as well as the frequently ambiguous or imprecise language of
mineral leases, agreements, and royalty obligations.
The Company has not obtained title opinions with respect to the
claims and may acquire other claims without a title opinion. If the
Company should experience a failure to title, cost of action, acquisition,
and investigation may be lost.
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ITEM 3. LEGAL PROCEEDINGS
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On July 22, 1994, a civil complaint was filed by Gruntal & Co.,
Incorporated, in U.S. District Court Southern District of New York against
the Company and other individuals and related entities, including James
Dayley, a former officer and director and the Company and Robert Crouch, a
director of the Company, alleging violations of the federal securities
anti-fraud provisions and RICO statutes. Gruntal & Co. Inc. is seeking
damages of approximately $7.3 million against all defendants, which
included $1,389,432 in treble damages and $5 million in punitive damages.
The action centers around the alleged activities of one of the Company's
shareholders and his purported dealings with a registered representative of
Gruntal & Co., Inc. and various other individuals and entities unknown to
the Company and its officers and directors. Gruntal & Co., Inc., is a
securities broker/dealer that made a market in the Company's common stock.
The Company, Mr. Dayley and Mr. Crouch deny any complicity and have filed
an answer to the complaint denying the allegations and any wrong doing as
<PAGE> 14
the allegations relate to themselves and the Company. The circumstances
are the subject matter of the counterclaim of the Company in the United
States District Court for the Southern of New York, Case No. 94 CIV 5366
(PKL), entitled Gruntal & Company, Inc. v. San Diego Bancorp, et al.; San
Diego Bancorp v. Gruntal & Company, Inc., and David Gorobetz. On June 18,
1996, the Court dismissed the Company's counterclaim on the ground that it
had failed to allege one of the key elements of tortious interference.
This ruling came as a surprise to all defense counsel and appears to be
overly constricted and technical and prevents the Company from conducting
discovery to flesh out its allegations. The Company, through its New York
counsel, has sought certification for an interlocutory appeal of the
Court's dismissal of the counterclaim. The Company believes it has a
viable counterclaim against Gruntal. In any event, the Company should be
allowed to amend the counterclaim to overcome any technical deficiencies.
As a result of the Court's dismissal of the Company's counterclaim and the
petition for certification of an interlocutory appeal of said dismissal,
the resolution of this case appears to have been postponed indefinitely.
It is to be noted, however, that the Plaintiff has not vigorously
prosecuted this case and most of the activity has been on the part of the
Company in seeking to establish a
counterclaim against Gruntal. It is doubtful that any serious effort to
settle this case will take place until the issue of the Company's
counterclaim is determined.
On October 27, 1995, the Company and its subsidiaries filed
litigation in the Kansas District Court for the 17th Judicial District and
for the County of Smith, in Smith Center, Kansas against A.E. Smith, the
former owner and president of the three Kansas subsidiary corporations, on
grounds of fraud, breach of contract, rescission and restitution, and
breach of fiduciary duty, in action entitled San Diego Bancorp, Enviro-
Guard Corporation, D.S.D., Inc., Diatect International, Inc., and Doctor
Scratch Co., Inc. v. A.E. Smith, Case No. 95-C. On March 15, 1996,
following court ordered mediation, the Court entered an order approving a
settlement between the parties as resolving the issues of the litigation
and retaining jurisdiction until the settlement agreement's conditions were
fully performed. As a result of the litigation, any and all cloud on the
title of the Company's subsidiaries, or their respective assets, was
removed. In the settlement, Mr. Smith received a note for $415,000. In
turn, the Company obtained two buildings and substantial equipment located
in Smith Center and Lebanon, Kansas. The settlement also calls for the
cancellation of other receivables and payables between the Company and Mr.
Smith. Mr. Smith also returned Enviro-Guard Holding Company common stock
to the Company. As of August 1996, the balance owed to Mr. Smith is
approximately $165,000, due in early 1997.
On July 19, 1996, John Wilding of Orem, Utah, filed an action against
the Company and Enviro-Guard Corporation for collection on a delinquent
promissory note; Wilding v. San Diego Bancorp, et al., Case No. 960400489
CN in the Fourth Judicial District in and for Utah County, State of Utah.
Although Enviro-Guard Corporation is not a co-maker or endorser of the
note, stock of one of Enviro-Guard Corporation's subsidiaries, White
Mountain Mining and Manufacturing, Inc., stock certificates nos. 1, 2, 4,
<PAGE> 15
14, 15, and 16 were delivered to Wilding, unendorsed and without stock
powers, representing a majority (705,873 shares) of the total outstanding
stock of White Mountain Mining and Manufacturing, Inc. (1,000,000), as
security for the note. Other than the reference in the note to said stock
serving as collateral to secure the note, there is no separate security or
pledge agreement relating to said stock serving as security for the note.
The cause of action brought by Wilding is for a money judgment and does not
involve a judicial foreclosure on the stock securing the note. The Company
and Enviro-Guard Corporation have appeared in the action, but have not
answered the complaint pending negotiations for a new payment schedule on
the note. The parties to the litigation are negotiating this matter in an
effort to find a solution, perhaps by amending the terms of the note. The
Company believes this matter will be amicably resolved over time.
- ---------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
- ---------------------------------------------------------------------------
No matters were submitted to a vote of shareholders of the Company
during the fourth quarter of fiscal year ended December 31, 1995.
PART II
- ---------------------------------------------------------------------------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ---------------------------------------------------------------------------
The following table sets forth, for the respective periods indicated,
the prices for the Company's common stock in the over-the-counter market as
reported by a weekly reporting service and according to the OTC Bulletin
Board. The bid prices represent inter-dealer quotations, without
adjustments for retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions. Prior to October 1, 1993, and
subsequent to the Company's fiscal year ended December 31, 1986, there was
no "established trading market" for shares of the Company's common stock.
At December 31, 1995, the Company's common stock had a high of $0.06 and a
low of $0.03. All bid prices below have been rounded to the nearest whole
cent.
Bid Prices
----------
Fiscal Year Ended December 31, 1994
-----------------------------------
First Quarter $7.00 $0.50
Second Quarter $7.50 $1.50
Third Quarter $1.00 $0.16
Fourth Quarter $0.56 $0.13
<PAGE>
<PAGE> 16
Fiscal Year Ended December 31, 1995
-----------------------------------
First Quarter $0.50 $0.19
Second Quarter $0.31 $0.06
Third Quarter $0.56 $0.06
Fourth Quarter $0.31 $0.03
The Company has not paid any dividends on its Common Stock, and the
Company does not anticipate that it will pay dividends in the foreseeable
future. The future payment of dividends, if any, on the common stock is
within the discretion of the Board of Directors and will depend on the
Company's earnings, its capital requirements, and financial condition and
other relevant factors.
At December 31, 1995, the Company had 682 shareholders of record
based on information provided by the Company's transfer agent.
- ---------------------------------------------------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
- ---------------------------------------------------------------------------
General
Until October 1993, when the Company acquired Enviro-Guard, the
Company had not conducted operations for several years. At the end of
1993, the Company acquired Actagro. Actagro's operations were included in
the Company's financial statements through its disposition in late 1994 and
no activity was included during fiscal year 1995. Therefore, because of
the changing organization of the Company, a comparison of prior years with
the year ended December 31, 1995, would not be conducive to an
understanding of the Company and its fiscal condition.
Ability of the Company to Continue as a Going Concern
The Company incurred a consolidated net loss of $1,316,481 for the
year ended December 31, 1995. In addition, current liabilities exceeded
current assets by $1,502,455. The Company has converted and is currently
seeking to convert certain short-term debt to equity and is seeking
additional financing through the investment of equity or debt capital in
order to enhance the Company's ability to continue as a going concern
through the end of fiscal year 1996. The report of the Company's auditor
contains a modification as to the ability of the Company to continue as a
going concern. The Company believes that without additional conversions of
debt to equity and restructuring the payment terms of short-term debt,
there is substantial doubt as to the Company's ability to meet is current
obligations and continue in business.
During the 1995 fiscal year the Company converted $269,526 in accrued
wages, salaries, and marketing fees into equity by offering shares of
common stock. Common stock valued at $418,780 was issued to reduce debt and
pay for services during the year. Management anticipates converting up to
an additional $600,000 in short-term debt to equity during fiscal year
1996. The Company is seeking additional working capital from several
sources, including investment banking firms interested in companies in the
agri-environmental industry. Management intends through the production
and marketing of its products to increase cash flows and gross profit in
order to cover a greater portion of the Company's existing liabilities and
operating expenses. The Company may also seek equity or debt financing
through the sale of the Company's securities. Currently, the Company must
meet monthly expenses of $85,000. Presently, the Company is unable to meet
this amount, however, management is hopeful that the increased revenues
from the sale of product will alleviate a substantial portion of this
short-fall. Even with an improved sales outlook it will be necessary to
seek capital from the above mentioned sources. The minimum amount of
working capital required by the Company to continue for the next 12 months
is $750,000. However, there is no assurance that the Company will be able
to obtain additional working capital and, if obtained, on favorable terms
or in a timely manner.
Results of Operations
During the fiscal year ended December 31, 1995, the Company's
revenues totaled $793,022. Cost of sales totaled $260,868, yielding a
gross profit of $532,154. The Company's operating expenses were
$1,625,785. The 1995 fiscal year operating loss for the Company's
consolidated operations was $1,093,631. Management believes that reduced
cash flows, difficulties with the Company's Kansas subsidiaries, pending
litigations, and limited working capital all contributed to ineffective
marketing of the Company's products, despite the approval from the state of
California for sale of the Company's Diatect insecticide. Because the
Company was not able to market its products, revenues were not sufficient
to cover the operating expenses. Of the Company's operating expenses
during fiscal year 1995, $325,282 was for legal and other professional
fees, $252,982 was depreciation and amortization; $205,006 was interest
expense; and $163,750 was research and development expense. Because of
the illiquid nature of the Company's non-cash assets, many expenses were
paid through the issuance of common stock. Although the Company believes
it will experience an increase in product sales during the upcoming fiscal
year, it can not predict with any degree of certainty that any increase in
revenues will be sufficient to offset ongoing operating expenses and
service existing short-term debt.
During 1995, the Company incurred net non-operating losses of
$303,345. A $216,040 loss was included during fiscal year 1995
associated with the settlement of the Company's litigation with Mr. A.E.
Smith. An additional loss of $109,332 was experienced on the sale of
Company assets, most of which was incurred on the disposition of an office
building in Salt Lake City. The loss before taxes totaled $1,396,976. An
$80,495 tax benefit yielded a net loss of $1,316,481 in 1995 compared to
$1,770,363 in 1994.
The Company believes that many of the operating and administrative
expenses associated with the fiscal year 1995 loss were due to insufficient
cash flow and the illiquid nature of its non-cash assets. The Company has
taken steps to address its insolvency problems by working with its <PAGE>
<PAGE> 18
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.
Liquidity and Capital Resources
The Company has a substantial working capital deficit. As of
December 31, 1995, the Company had a working capital deficit of $1,502,455,
an increase from the working capital deficit of $1,182,199 at December 31,
1994. The Company has current liabilities of $1,688,097, with an
additional $200,000 in long term debt. The increase in total liabilities
was due to the reporting of the settlement with Mr. A.E. Smith in 1995, a
substantial portion of which has been repaid by mid-1996.
If the Company is unable to obtain some funds in the near future it
will not be able to continue in business. The Company is, therefore,
seeking working capital from several sources, including the equity markets
and private investors. There is no assurance, however, that these efforts
will be successful. The Company believes that it will increase revenues
from operations as it continues to move from the development stage of its
products to a full marketing and sales program. With the Company's products
in the market place, the Company anticipates revenues to offset on-going
expenses. The Company is uncertain, however, as to whether there will be
sufficient revenue to cover past obligations.
The Company's lack of cash will also affect the ability to
effectively market its products. The Company believes two of the largest
and most important markets for its products are the agricultural and home
and garden markets. The Company will conduct affordable advertising and
maintain a sales force that can effectively reach these markets. This
marketing strategy will require funds to be fully effective. 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 cash to fund the advertising and marketing.
- ---------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------
The financial statements of the Company are set forth immediately
following the signature page to this Form 10-KSB. (See ITEM 13. EXHIBITS
AND REPORTS ON FORM 8-K for Index to Financial Statements.)
- ---------------------------------------------------------------------------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
- ---------------------------------------------------------------------------
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or financial
disclosure.<PAGE>
<PAGE> 19
PART III
- ---------------------------------------------------------------------------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ---------------------------------------------------------------------------
The following table sets forth as of August 30, 1996, the name, age
and position of each executive officer and director and the term of office
of each director of the Company.
<TABLE>
<CAPTION>
Director and/or
Name Age Position Officer Since
- ------------------- --- -------- ---------------
<S> <C> <C> <C>
Ross S. Wolfley 45 President and Director October 1995
Dennis P. Nielsen 56 Secretary and Director August 1995
Elwynn S. Hewlett, Jr. 56 Executive V.P. & Chairman February 1995
George H. Henderson 67 Director February 1995
John L. Runft 59 Director February 1995
Michael P. McQuade 39 Director February 1995
Robert B. Crouch 70 Director October 1993
Dale H Christiansen 44 Treasurer and CFO October 1993
</TABLE>
Each director of the Company serves for a term of one year and until
his or her successor is elected at the Company's annual shareholders'
meeting and is qualified, subject to removal by the Company's shareholders.
Ross S. Wolfley entered a three year employment contract with the Company
on October 15, 1995. Elwynn S. Hewlett, Jr., and George H. Henderson
entered three year employment contracts with the Company on February 28,
1995. The Board of Directors agreed to extend "at will" employment
contracts to Dennis P. Nielsen, Dale H Christiansen and John L. Runft. All
other officers serve at the pleasure of the board of directors and until
his or her successor is elected at the annual meeting of the board of
directors and is qualified. Set forth below is certain biographical
information regarding each of the Company's executive officers and
directors.
Ross S. Wolfley, was Director of Marketing for WordPerfect
Corporation from September 1986 until April 1993. Since leaving
WordPerfect, he has been involved with several small companies in helping
them focus and develop strategic business directions and plans. In his
capacity as Director of PC Marketing at WordPerfect Corporation, Mr.
Wolfley was responsible for the release of WordPerfect 5.1, the most widely
used word processor in the world. While in charge of channel marketing and
distribution, he was responsible for establishing and maintaining
relationships with the major U.S./Canadian distributors and resellers
authorized to carry the WordPerfect products. During that time, more than
56% ($200+ million) of the company's domestic sales was through these
channels. Mr. Wolfley received a B.S. in Psychology from Brigham Young
University, Provo, Utah in 1975, and a Juris Doctorate from J. Reuben
Clark Law School, Brigham Young University, Provo, Utah, in 1987 graduating
Cum Laude. <PAGE>
<PAGE> 20
Elwynn S. Hewlett, Jr. has twenty-nine years in the business and
project development arenas. His special emphasis has been upon marketing,
promotion, finance and operations. Currently Mr. Hewlett is President of
Enviro-Guard Corporation, an SDBC subsidiary.
George H. Henderson, Ph.D., was employed as Senior International
Trade Specialist by the State of Idaho from 1990 to 1996. From 1985 to
1989, Mr. Henderson was the Mine and Plant Manager in a joint venture of
Occidental Petroleum and the government of the People's Republic of China.
While serving in this capacity, Mr. Henderson was in charge of the
development and then successfully putting into operation the world's
largest open pit coal mine and its accompanying preparation plant facility.
John L. Runft, is an Attorney at Law currently serving as President
and a Director of Karlinmar Corporation and Karlinmar Capital Corporation.
Mr. Runft is also serving as a Civilian Aide to the Secretary of the Army
of the United States and has been since his appointment in 1988. He is
also a Member and Director of the Idaho Community Foundation. Mr. Runft
received a B.A. in Political Science from the College of Idaho in 1962, and
a Juris Doctorate from the University of Chicago in 1965.
Dennis P. Nielsen has had much experience in the management and
marketing arena. From 1989 through 1992, Mr. Nielsen was the Owner/Dealer
of eleven new car franchises including: Ford, Mercury, Chrysler, Plymouth,
Dodge, Dodge Trucks, Jeep/Eagle, Pontiac, Cadillac, Buick and GMC Trucks.
From 1992 to the present, Mr. Nielsen has been a self employed consultant
and Director of Dixie National Life Insurance Company, Jackson,
Mississippi; President/Director (50%) Knights Bridge Holding Corp., Salt
Lake City, Utah; Chairman/Director (50%) ICN Networks, Inc., Hawaii;
President/Director (50%) Consulting Services, Inc., Salt Lake City, Utah.
Michael P. McQuade has had his own private dental practice in,
Richmond, Virginia since 1987. He is also currently the President of
Courthouse Road Landowners Association in, Richmond, Virginia and currently
in the process of developing 22 acres in the Richmond area.
Robert B. Crouch, has since 1991 been an officer and director of
Enviro-Guard Corporation. Prior to that time, from 1988 to 1991, he served
as an officer and director of Asia American Enterprises, Inc., Salt Lake
City, Utah. Mr. Crouch has been a member of the District of Columbia,
Ohio, and California Bar Associations. He has been in private practice and
worked for legal firms, businesses, and the U.S. Patent Office providing
patent advice and performing patent examination. Mr. Crouch received a
B.S. in Civil Engineering, University of Idaho, Moscow, Idaho in 1949, and
L.L.B. from George Washington University, Washington, D.C. in 1953.
Dale H Christiansen, was prior to the acquisition of Enviro-Guard
Corporation by the Company employed as Enviro-Guard Corporation's Chief
Financial Officer. From 1990 to 1993, Mr. Christiansen was self-employed
as a financial management consultant. From 1988 to 1990, Mr. Christiansen
was a consultant and then chief financial officer for Security Marketing
<PAGE> 21
Group, Oxnard, California. From 1986 to 1988, he served as chief financial
officer for J.D. Power & Associates, Agoura Hills, California. Prior to
that Mr. Christiansen has served in financial planning positions with both
Nissan Motor Corporation, Gardena, California, and Chrysler Corporation,
Highland Park, Michigan. Mr. Christiansen received a B.S. in Business
Management from Brigham Young University, Provo, Utah in 1975, and a MBA
from J.L. Kellogg Graduate School of Management, Northwestern University,
Evanston, Illinois in 1977.
Key Employees and Other Personnel
David J. Black, Vice-President of D.S.D. and Diatect. As a business
consultant since 1985, Mr. Black has set up new businesses for small
companies, organizing and implementing computerized data base, accounting,
purchasing, human resources, customer service and production systems. Mr.
Black has extensive experience in production and plant engineering, labor
relations and personnel, and has authored, designed and desktop published
operations manuals and sales materials. Mr. Black received a B.S. in
Mechanical Engineering from the University of Utah, Salt Lake City, Utah,
in 1970, graduating Magna Cum Laude; and a MBA from the University of
Pittsburgh, Pittsburgh, Pennsylvania, in 1972.
Involvement in Certain Legal Proceedings
See ITEM 3. LEGAL PROCEEDINGS of this Form 10-KSB.
Compliance with Section 16(a) of the Exchange Act
Since the Company ceased operations in 1989 until October 1993, the
Company knows of no person, who at any time during the subsequent fiscal
years, was a director, officer, beneficial owner of more than ten percent
of any class of equity securities of the Company registered pursuant to
Section 12 ("Reporting Person"), that failed to file on a timely basis any
reports required to be furnished pursuant to Section 16(a). Based upon a
review of Forms 3 and 4 furnished to the Company during the fiscal year
ended December 31, 1995, other than disclosed below, the Company knows of
no Reporting Person that failed to file the required reports during the
1994 fiscal year or prior years.
<PAGE>
<PAGE> 22
The following table sets forth as of December 31, 1995, the name and
position of each Reporting Person that failed to file on a timely basis any
reports required pursuant to Section 16(a) during the 1995 fiscal year or
prior years.
Report to Filed Since
Name of Reporting Person Position Be Filed December 31,
1995
- ------------------------ -------- --------- --------------
Ross S. Wolfley President/Director Form 3 No(3)
Elwynn S. Hewlett Executive Vice Form 3/4 No
President Director
Dennis P. Nielsen Director Form 3/4 No(3)
John L. Runft Director Form 3/4 No(3)
George H. Henderson Director Form 3/4 No(3)
Michael P. McQuade Director Form 3/4 No
Dale H Christiansen CFO Form 4 No(3)
(3) Form(s) were filed after December 31, 1995, but prior to the filing of
this 1995 Form 10-KSB
<PAGE>
<PAGE> 23
- ---------------------------------------------------------------------------
ITEM 10. EXECUTIVE COMPENSATION
- ---------------------------------------------------------------------------
Summary Compensation Table
The following tables set forth certain summary information concerning
the compensation paid or accrued for each of the Company's last three
completed fiscal years to the Company's or its principal subsidiaries chief
executive officer and each of its other executive officers that received
compensation in excess of $100,000 during such period (as determined at
December 31, 1995, the end of the Company's last completed fiscal year):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
Other ------ -------
Annual Restricted Options/ LTIP AllOther
Name and Principal Position Year Salary($) Bonus($) Compensation Stock Awards SARs(#) Payout Compensation
- --------------------------- ---- --------- -------- ------------ ------------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ross S. Wolfley <F1>
Pres. and CEO of San Diego
Bancorp, Diatect
International, Inc., D.S.D.,
Inc., and Dr. Scratch
Company, Inc. 1995 18,500 -0- -0- -0- -0- -0- -0-
George H. Henderson <F2>
Pres. and CEO of
San Diego Bancorp 1995 -0- -0- -0- -0- -0- -0- -0-
James Dayley <F3> 1995 20,000 -0- -0- -0- -0- -0- -0-
Pres. and CEO, 1994 44,500
San Diego Bancorp 1993 6,000
Elwynn S. Hewlett, Jr. <F4> 1995 104,000 -0- -0- -0- -0- -0- -0-
President and CEO, 1994 104,000 -0- -0- -0- -0- -0- -0-
Enviro-Guard Holding Corp. 1993 104,000 -0- -0- -0- -0- -0- -0-
<FN>
<F1> Mr. Wolfley became President and CEO of San Diego Bancorp on October 15, 1995. Mr. Wolfley's compensation was
accrued in 1995 and was paid by the issuance of 74,000 shares of the Company's common stock in 1996, valued at $.25 per
share.
<F2> Mr. Henderson was acting Pres. and CEO of San Diego Bancorp from February 13, 1995, to October 14, 1995.
<F3> Mr. Dayley resigned as President, CEO and director of San Diego Bancorp on February 13, 1995. Mr. Dayley's
compensation was accrued in 1995 and was paid by the issuance of 50,000 shares of the Company's common stock in 1995,
valued at $.40 per share.
<F4> Mr. Hewlett's salary for fiscal years 1994, 1994 and 1993 were accrued ($77,374, $83,185 and $49,009,
respectively) and paid by the issuance of 79,796 shares of the Company's common stock in 1994, valued at $1.00 - $1.50
per share, 137,292 shares of the Company's common stock in 1995, valued at $.40 per share, and 274,828 shares of the
Company's common stock in 1996, valued at $.25 per share.
</TABLE>
<PAGE>
<PAGE> 24
Accrued Compensation
During fiscal years 1995, 1994 and 1993, the Company accrued salaries
for its officers and directors that are either employees of the Company or
its subsidiaries in the amounts of $178,319, $303,447 and $188,903,
respectively. The board of directors has authorized a plan to reduce the
debt structure of the Company by authorizing the conversion of accrued
compensation to shares of the Company's common stock based on $.25 per
share for salaries accrued in 1995.
The board of directors authorized a plan during fiscal year 1994 to
reduce the debt structure of the Company by authorizing the conversion of
accrued compensation to shares of the Company's common stock based on the
bid price of the common stock on the day prior to the time of conversion.
On July 5, 1994, those individuals converted an aggregate of $78,754 in
accrued salaries for 78,754 shares of restricted common stock valued at
$1.00 per share. On July 22, 1994, those individual shareholders converted
an aggregate of $91,457 in accrued salaries to 53,771 shares of the
Company's restricted common stock, valued at $1.50 per share. On April 27,
1994, individual employees that had accrued salaries for fiscal years 1993,
1992, and 1991 converted an aggregate of $383,218 in accrued salaries to
$383,218 shares of the Company's restricted common stock. The bid price on
April 26, 1993, was $1.00 per share.
Employment Contracts and Termination of Employment and Changes in Control
Arrangements
The Company entered into an Employment Agreement with Elwynn S.
Hewlett, Jr., as Executive Vice President on February 28, 1995. The
Employment Agreement provides for an $80,000 annual compensation with bonus
based on gross sales of the Company, subject to increase at the discretion
of the Board of Directors. The term of the Employment Agreement is 3
years. The Company is to provide group health, medical, and life
insurance, similar to that which will be made available to all full-time
employees and reimburse Mr. Hewlett for out-of-pocket expenses incurred in
connection with the Company's business.
The Company entered into an Employment Agreement with George H.
Henderson as Chief Operating Officer on February 28, 1995. The Employment
Agreement does not take effect until the Company is determined to be
"operational," which means with reference to the Company that stage of in
the evolution of the Company where the Company is sufficiently funded to
carry on regular business, pay its bills, manufacture and market its
products, and pay its employees, agents and consultants on a reliably
regular basis. The attaining and commencement of operational status shall
be determined in the sole discretion of the Board of Directors. The
Employment Agreement provides for an $80,000 annual compensation with bonus
based on gross sales of the Company, subject to increase at the discretion
of the Board of Directors. The term of the Employment Agreement is 3
years. The Company is to provide group health, medical, and life
insurance, similar to that which will be made available to all full-time
<PAGE> 25
employees and reimburse Mr. Henderson for out-of-pocket expenses incurred
in connection with the Company's business.
Ross S. Wolfley entered an Employment Agreement with the Company on
October 15, 1995, as President and CEO. The Employment Agreement provides
for a $90,000 annual compensation with bonus based on gross sales of the
Company, subject to increase at the discretion of the Board of Directors.
The term of the Employment Agreement is 3 years. The Company is to provide
group health, medical, and life insurance, similar to that which will be
made available to all full-time employees and reimburse Mr. Hewlett for
out-of-pocket expenses incurred in connection with the Company's business.
The Board of Directors agreed to extend "at will" employment
contracts to Dennis P. Nielsen as Vice President of Marketing and Sales,
Dale H Christiansen as CFO, and John L. Runft as Vice President of
Corporate Affairs.
During fiscal year 1994 there were no compensatory plans or
arrangements, including payments to be received from the Company, with
respect to any person named in Cash Compensation set out above which would
in any way result in payments to any such person because of his
resignation, retirement, or other termination of such person's employment
with the Company or its subsidiaries, or any change in control of the
Company, or a change in the person's responsibilities following a changing
in control of the Company.
Board Compensation
The Company's officers and directors received no compensation or cost
reimbursement for attendance at board meetings.
1995 Stock Option Plan
Set forth below is a summary of the Company's 1995 Stock Option Plan
(the "Plan"), which is qualified in its entirety by the actual provisions
of the Plan.
In November 1995, the board of directors adopted a Plan under which
options to acquire stock of the Company may be granted from time to time to
employees that are not "affiliates" of the Company or its subsidiaries. In
addition, at the discretion of the board of directors, options to acquire
stock of the Company may from time to time be granted under the Plan to
other individuals, including consultants or advisors, who contribute to the
success of the Company or its subsidiaries and are not employees of the
Company, provided that, bonafide services shall be rendered and such
services must not be in connection with the offer or sale of securities in
a capital raising transaction.
Administration of the Plan is to be determined by the board of
directors, or by such committee as the board deems proper. Any option
shall be approved by a majority vote of those board members in attendance
at a meeting at which a quorum is present. No member of the board or duly
<PAGE> 26
authorized committee shall be liable for any action taken or determination
made in good faith with respect to the Plan.
The Company is authorized to grant options to purchase up to
3,000,000 shares of Common Stock under the Plan, which, as of December 31,
1995, options to purchase up to 1,600,000 shares had been issued and none
exercised.
If any right to acquire shares granted under the Plan is exercised by
the delivery of other shares of common stock or the relinquishment of
fights to shares of common stock, only the net shares Of common stock shall
count against the total number of shares reserved for issuance under the
terms of the Plan. The Company will reserve for issuance on the exercise
of the options the number of shares of common stock subject to such option.
The Company may reserve either authorized but unissued shares or issued
shares that have been reacquired by the Company.
Each option has a term established by the board of directors or duly
authorized committee at the time the option is granted but in no event may
an option have a term in excess of five (5) years. Options under the Plan
shall vest and become exercisable at such time or times and on such terms
as the board or duly authorized committee may determine at the time of the
grant of the option. Options shall be non-transferable, except by will or
the laws of descent and distribution.
The exercise price of each option issued under the Plan shall be
equivalent to either the fair market value of the common stock on the date
of grant as determined by the board or duly authorized committee based on
the average of the closing bid and asked price for the common stock over
the 20 day trading period immediately prior to the grant or on the bid
price on the date of grant (excluding the exercise of other options
conversion rights or similar rights granted by the Company). The exercise
of any option shall be contingent on receipt by the Company of cash,
certified bank check to its order, or other consideration acceptable to the
Company, provided, that at the discretion of the board or a duly authorized
committee, the written provisions of the Option may provide the payment can
be made in whole or in part in shares of common stock of the Company, which
shares shall be valued at their then fair market value as determined by the
board or a duly authorized committee, or by the surrender or cancellation
of other rights to a common stock of the Company.
The Plan provides that in the event that the number of shares of
common stock from time to time issued and outstanding is increased or
decreased pursuant to a stock split or a stock dividend, the number of
shares of common stock then covered by each outstanding option granted
thereunder shall be increased or decreased proportionately, with no
increase or decrease in the total purchase price of the shares then so
covered, and the number of shares of common stock subject to the Plan shall
be increased or decreased by the same proportion.
The Plan may be abandoned or terminated at any time by the board or a
duly authorized committee except with respect to any options then<PAGE>
<PAGE> 27
outstanding under the Plan. It shall otherwise terminate on the earlier of
the date that is (i) ten years after the date the Plan is adopted by the
board or (ii) ten years after the date the Plan is approved by the
shareholders of the Company. The Plan may not be amended more than once
during any six month period, other than to comport with changes in the Code
or the Employees Retirement Income Security Act or the rule and regulations
promulgated thereunder.
- ---------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ---------------------------------------------------------------------------
The following tables set forth as of December 31, 1995, the name and
address and the number of shares of the Company's Common Stock, no par
value per share, held of record or beneficially by each person who held of
record, or was known by the Company to own beneficially, more than 5% of
the 10,805,408 issued and outstanding shares of the Company's Common Stock,
and the name and share holdings of the Company and its principal
subsidiaries and of all officers and directors as a group.
<PAGE>
Security Ownership of Certain Beneficial Owners
<TABLE>
<CAPTION>
Name and Amount
Title Address of and Nature of Percent
of Beneficial Beneficial of
Class Owner Ownership <F1> Class
- ----- ---------- ------------- -------
<S> <C> <C> <C>
Common Pioneer Industrial Life Insurance 1,000,000 9.25
Company, Ltd.
P.O. Box N4826, Matron House
Nassau, Bahamas
Common Enviro-Guard Holding Corporation 3,552,710 32.88
286 South Pineview Drive
Alpine, UT 84004
Common Elwynn S. Hewlett, Jr. 4,208,288 <F2> 38.95
3335 South 900 East, Suite 230
Salt Lake City, UT 84106
<FN>
<F1>All shares owned directly are owned beneficially and of record and such shareholder has
sole voting, investment, and dispositive power, unless otherwise noted.
<F2>Includes shares held of record by Enviro-Guard Holding Corporation of which Mr. Hewlett is
the CEO, President, Director and Principal Shareholder, and may be deemed to have indirect
beneficial ownership.
</TABLE>
Security Ownership of Officers and Directors of the Company and its
Principal Subsidiary
<TABLE>
<CAPTION>
Name and Amount
Title Position of and Nature of Percent
of Officer and Beneficial of
Class Director Ownership <F1> Class
- ----- ----------- ------------- --------
<S> <C> <C> <C>
Common James Dayley
President & CEO, San Diego Bancorp 80,000 0.007
Common George H. Henderson
Interim President & CEO,
Director, San Diego Bancorp 43,000 0.004
Common Ross S. Wolfley
President & CEO, Director,
San Diego Bancorp -0- -0-
Common Elwynn S. Hewlett, Jr.
Executive Vice President,
Director, San Diego Bancorp --See Above
All Officers/Directors
as a Group (8 Persons) 5,357,723 49.58
<FN>
<F1>All shares owned directly are owned beneficially and of record and such shareholder has
sole voting, investment, and dispositive power, unless otherwise noted.
</TABLE>
<PAGE>
<PAGE> 29
- ---------------------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------------------------
Transactions with Management and Others.
Except as indicated below, and for the periods indicted, there were
no material transactions, or series of similar transactions, since the
beginning of the Company's last fiscal year, or any currently proposed
transactions, or series of similar transactions, to which the Company was
or is to be party, in which the amount involved exceeds $60,000, and in
which any director or executive officer, or any security holder who is
known by the Company to own of record or beneficially more than 5% of any
class of the Company's common stock, or any member of the immediate family
of any of the foregoing persons, has an interest.
Certain Business Relationships
Except as indicated below, and for the periods indicated, there were
no material relationships regarding directors that exist, or have existed
during the Company's last fiscal year.
Indebtedness of Management
Except as indicated below, and for the periods indicated, there were
no material transactions, or series of similar transactions, since the
beginning of the Company's last fiscal year, or any currently proposed
transactions, or series of similar transactions, to which the Company was
or is to be a party, in which the amount involved exceeds $60,000 and in
which any director or executive officer, or any security holder who is
known to the Company to own of record or beneficially more than 5% of any
class of the Company's common stock, or any member of the immediate family
of any of the foregoing persons, has an interest.
Loan from Shareholders
In November 1993, the Company gave a promissory note in the amount of
$400,000 to Danny F.A.B. Wirken, a shareholder and consultant to the
Company, for funds advanced to the Company to pay ongoing operating
expenses. The promissory note bears interest at 8% annually, is unsecured,
and payable on demand. At December 31, 1995, the principle and accrued
interest totaled $449,508.
The Company has received loans from L. Craig Hunt, John Wilding, and
Elwynn S. Hewlett, Jr., shareholders of the Company (see Financial
Statements, Note 7).<PAGE>
<PAGE> 30
PART IV
- ---------------------------------------------------------------------------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- ---------------------------------------------------------------------------
(a)(1)Financial Statements. The following financial statements are
included in this report:
Title of Document Page
- ----------------- -----
Independent Auditors Report of Terrence J. Dunne,
Certified Public Accountant F-1
Consolidated Statement of Financial Position
as of December 31, 1995 and 1994 F-3
Consolidated Statement of Operations
for the years ended December 31, 1995, 1994, and 1993 F-4
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994, and 1993 F-5
Consolidated Statement of Cash Flows
for the years ended December 31, 1995, 1994, and 1993 F-6
Notes to Financial Statements
F-9
(a)(2) Financial Statement Schedules.
Not applicable
(a)(3) Exhibits. The following exhibits are included as part of this
report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------ --------- ----------------- --------
Item 3 Articles of Incorporation and Bylaws
- ------ ------------------------------------
3.01 3 Articles of Incorporation Incorporated
by reference*
3.02 3 Bylaws Incorporated
by reference*
3.03 3 Amendments to Articles Incorporated
by reference*
3.04 3 Amendments to Articles, dated January 20, 1994 Incorporated
by reference
<PAGE>
<PAGE> 31
List of Exhibits (continued)
3.05 3 Amendments to Articles, dated May 16, 1996 This Filling
Item 4Instruments Defining the Rights of Security Holders
- ------ ---------------------------------------------------
4.01 4 Specimen Stock Certificated Incorporated
by reference*
4.06 4 1994 San Diego Bancorp Stock Option Plan Incorporated
by reference
Item 10Material Contracts
- ------- ------------------
10.01 10 Stock Purchase Agreement between the Company
and Enviro-Guard Holding Corporation Incorporated
by reference
10.02 10 Agreement and Plan of Acquisition between
the Company and Actagro, Inc. Incorporated
by reference
10.03 10 Settlement Agreement and Mutual Release
of All Claims between the Company and
Actagro, Inc. Incorporated
by reference
10.04 10 Marketing and Sub-Registration Agreement
dated April 20, 1005. Incorporated
by reference
* Incorporated by reference from the Company's registration statement on
Form S-18 filed with the Commission, SEC File No. 2-68874-LA, and
amendments thereto.
Incorporated by reference from the Company's Current Report on Form 8-K
dated October 15, 1993, filed with the Commission.
Incorporated by reference from the Company's Current Report on Form 8-K
dated December 31, 1993, filed with the Commission.
Incorporated by reference from the Company's registration statement on
Form S-8 filed with the Commission on March 15, 1994.
Incorporated by reference from the Company's Annual Report on Form 10-
KSB and Form 10-KSB/A for its fiscal year ended December 31, 1993, filed
with the Commission.
Incorporated by reference from the Company's Current Report on Form 8-K
dated December 5, 1994, filed with the Commission.
Incorporated by reference from the Company's quarterly report on Form
10-QSB for the period ended June 30, 1995.
<PAGE> 32
(b) Reports on Form 8-K. The following reports on Form 8-K were filed
with the Commission during the quarter ended December 31, 1995:
None.
<PAGE>
<PAGE> 33
- ---------------------------------------------------------------------------
SIGNATURES
- ---------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
SAN DIEGO BANCORP
Date: September 4, 1996 By /s/ Ross S. Wolfley
Ross S. Wolfley, President
Date: September 4, 1996 By /s/Dale H. Christiansen
Dale H. Christiansen, CFO/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated
Date: September 4, 1996 By /s/Ross S. Wolfley
Ross S. Wolfley, Director
Date: September 4, 1996 By /s/Dennis P. Nielsen
Dennis P. Nielsen, Director
Date: September 4, 1996 By /s/Elwynn S. Hewlett
Elwynn S. Hewlett, Jr., Director
Date: September 4, 1996 By /s/George H. Henderson
George H. Henderson, Director
Date: September 4, 1996 By /s/Michael P. McQuade
Michael P. McQuade, Director
Date: September 4, 1996 By /s/Robert B. Crouch
Robert B. Crouch, Director
Date: September 4, 1996 By /s/John L. Runft
John L. Runft, Director
<PAGE>
<PAGE> F1
To The Board of Directors
of Applied Earth Technologies, Inc.
(formerly San Diego Bancorp)
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying consolidated statements of financial
position of Applied Earth Technologies, Inc. (a California corporation)
(formerly San Diego Bancorp) and its subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1995,
1994 and 1993. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to
express an opinion on these consolidated financial statements based on my
audit. I did not audit the financial statements of Actagro Acquisition,
Inc. (formerly Actagro, Inc.), a wholly owned subsidiary which was acquired
on December 30, 1993, and subsequently rescinded as of December 6, 1994. I
also did not audit the combined financial statements of Diatect
International, Inc., and D.S.D., Inc., as of December 31, 1995, and for the
year then ended. These financial statements were audited by other auditors
whose reports have been furnished to me, and in my opinion, insofar as they
related to the amounts included for Actagro Acquisition, Inc., Diatect
International, Inc., and D.S.D., Inc. are based solely on the reports of
the other auditors.
I conducted my audit in accordance with generally accepted auditing
standards. These standards require that I plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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. I believe
that my audits and the reports of other auditors provide a reasonable basis
for my opinion.
In my opinion, based on my audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of San Diego Bancorp and its
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a
going concern. As is shown in this consolidated financial statements, the
Company has incurred substantial losses during the past three years, and
has a working capital deficiency of $1,502,455 as of December 31, 1995.
<PAGE> F2
These working conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding those
matters are discussed in Note 15. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/Terrance J. Dunne
Terrance J. Dunne
Certified Public Accountant
Spokane, Washington<PAGE>
<PAGE> F3
APPLIED EARTH TECHNOLOGIES, INC. Consolidated Statement of Financial
(Formerly SAN DIEGO BANCORP) Position December 31, 1995 and 1994
- ---------------------------------------------------------------------------
ASSETS
1995 1994
----------- ----------
CURRENT ASSETS
Cash (Note 1 & 2) $ 64,970 $
Accounts receivable 25,036 17,980
Advances to Employees 276
Inventories (Notes 1, 2 & 3) 95,836 57,882
Prepaid expenses 3,289
----------- -----------
Total Current Assets 185,842 79,427
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Notes 1, 2, 4, 7, 8 & 16)
Buildings 127,119 314,218
Mining property 4,370,390 4,440,543
Equipment 261,185 270,279
----------- -----------
Total Property, Plant and Equipment 4,758,694 5,025,040
Less accumulated depreciation 195,672 251,377
----------- -----------
Net Property, Plant and Equipment 4,563,022 4,773,663
----------- -----------
OTHER ASSETS
Investment in EPA labels, Net of Accumulated
Amortization (Notes 1, 2 & 5) 3,509,807 3,804,364
Notes receivable (Note 1 & 6) 250,000 250,150
Deposits 967 467
Other assets (Note 1) 57,200 1,029
----------- -----------
Total Other Assets 3,817,974 4,056,010
----------- -----------
TOTAL ASSETS $ 8,566,838 $ 8,909,100
=========== ===========
<PAGE>
<PAGE> F4
APPLIED EARTH TECHNOLOGIES, INC. Consolidated Statement of Financial
(Formerly SAN DIEGO BANCORP) Position December 31, 1995 and 1994
- ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
----------- -----------
CURRENT LIABILITIES
Accounts payable (Note 10) $ 242,714 $ 165,474
Bank overdraft 1,847
Dealer Deposits 10,625
Interest payable 203,762 113,090
Income taxes payable 20,489 33,563
Other accrued liabilities 26,296 29,134
Notes payable (Note 7) 665,514 505,561
Current portion of long-term debt (Note 8) 529,522 402,332
----------- -----------
Total Current Liabilities 1,688,297 1,261,626
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION (NOTE 8) 200,000 120,228
----------- -----------
DEFERRED TAX LIABILITY (NOTE 9) 1,238,851 1,458,563
COMMITMENTS (NOTE 10 & 16)
MINORITY INTEREST 339,397 340,215
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no-par value;
20,000,000 shares authorized; 10,805,408 and
8,203,267 shares issued and outstanding,
respectively 9,059,150 8,550,140
Common stock subscribed (Note 11) 376,746 197,450
Accumulated deficit (4,335,603) (3,019,122)
----------- -----------
Total Stockholders' Equity 5,100,293 5,728,468
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,566,838 $ 8,909,100
=========== ===========
<PAGE> F5
APPLIED EARTH TECHNOLOGIES, INC. Consolidated Statement of Operations
(Formerly SAN DIEGO BANCORP) for the Years Ended December 31,
1995, 1994 and 1993
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ---------------
<S> <C> <C> <C>
REVENUES $ 793,022 $ 6,398,293 $ 597,458
COST OF SALES 260,868 3,330,537 329,937
---------------- ---------------- ---------------
GROSS PROFIT 532,154 3,067,756 267,521
---------------- ---------------- ---------------
OPERATING EXPENSES
General and administrative 2,192,015
Salaries, wages and benefits 352,734 452,548 299,361
Consulting 63,018 281,972 215,644
Research and development 163,750 48,671 37,038
Travel 39,011 93,083 56,862
Rent 19,378 29,962 18,809
Interest 205,006 408,257 59,580
Utilities 10,664 11,536 10,660
Depreciation and amortization 252,982 757,889 21,301
Advertising 30,411 307,393 19,495
Office 29,166 79,483 74,553
Taxes and licenses 19,615 36,251 33,407
Professional fees 262,264 259,344 69,521
Insurance 17,015 27,985 11,976
Bad debts 21,259 7,898 7,700
Repairs and maintenance 9,852 31,844 8,145
Miscellaneous 129,660 15,780 614
---------------- ---------------- ---------------
Total Operating Expenses 1,625,785 5,041,911 944,666
---------------- ---------------- ---------------
OPERATING (LOSS) (1,093,631) (1,974,155) (677,145)
---------------- ---------------- ---------------
OTHER INCOME (LOSS)
Unrealized loss on investment in ERT (Note 1) (323,645)
Loss on disposition of subsidiary (Note 1) (149,301)
Interest 18,671 80,970 2,868
Gain (Loss) on sale of assets (109,332) 600 123,953
Gain (Loss) on reduction of notes payable (216,040) 226,649
Minority interest in loss 818 822
Miscellaneous 2,538 129,144 2,259
---------------- ---------------- ---------------
Total Other Income (Loss) (303,345) (34,761) 129,080
---------------- ---------------- ---------------
(LOSS) BEFORE INCOME TAX BENEFIT (1,396,976) (2,008,916) (548,065)
INCOME TAX BENEFIT (Note 9) 80,495 238,553
---------------- ----------------
NET (LOSS) $ (1,313,481) $ (1,770,363) $ (548,065)
================ ================ ===============
NET (LOSS) PER SHARE (Primary) $ (.122) $ (.219) $ (.098)
================ ================ ===============
NET (LOSS) PER SHARE (Fully Diluted) $ (.106) $ (.208) N/A
================ ================
/TABLE
<PAGE>
<PAGE> F6
APPLIED EARTH TECHNOLOGIES, INC. Consolidated Statement of Changes In
(Formerly SAN DIEGO BANCORP) Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------ Common Stock Accumulated
Shares Amount Subscribed Deficit Total
--------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1992 5,610,016 $ 6,311,350 - $ (700,694) $ 5,610,656
Additional capital contribution - 310,499 - - 310,499
Common stock issued for the
acquisition of Actagro Acquisition,
Inc. at $2.31 per share (Note 1) 784,937 1,811,120 - - 1,811,120
Common stock subscribed - - $ 495,268 - 495,268
Net (loss) - - - (548,065) (548,065)
--------- ----------- ------------ ----------- -----------
Balance as of December 31, 1993 6,394,953 8,432,969 495,268 (1,248,759) 7,679,478
Common stock issued for services
at $.10 to $1.50 per share 1,358,62 71,036,212 - - 1,036,212
Common stock issued for reduction
of debt at $1.00 to $2.00 per share 223,334 263,334 - - 263,334
Common stock issued for cash
at $.08 to $1.00 per share 344,000 285,100 - - 285,100
Common stock issued for
equipment at $1.00 per share 20,000 20,000 - - 20,000
Common stock canceled due to the
rescission of Actagro Acquisition
on December 6, 1994 at $2.31 per
share (Note 1) (784,937) (1,811,120) - - (1,811,120)
Common stock subscribed - - (297,818) - (297,818)
Common stock issued for ERT at
$1.50 per share 647,290 323,645 - - 323,645
Net (loss) - - - (1,770,363) (1,770,363)
--------- ----------- ------------ ----------- -----------
Balance 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 $.40 per share 1,959,641 355,635 (143,950) - 211,685
Common Stock issued for reduction
of debt at $.15 to $.40 per share 642,500 153,375 - - 153,375
Common Stock subscribed (Note 11) - - 323,246 - 323,246
Net (Loss) - - - (1,316,481) (1,316,481)
--------- ----------- ------------ ----------- -----------
Balance as of December 31, 1995 10,805,408 $ 9,059,150 $ 376,746 $ (4,335,603) $ 5,100,293
========= =========== ============ =========== ===========
/TABLE
<PAGE>
<PAGE> F7
APPLIED EARTH TECHNOLOGIES, INC. Consolidated Statement of Cash Flows for the
(Formerly SAN DIEGO BANCORP) Years Ended December 31, 1995, 1994 and 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (1,316,481) $ (1,770,363) $ (548,065)
Add items not requiring the use of cash:
Depreciation and amortization 252,982 562,915 21,301
(Increase) decrease in accounts receivable (6,906) 597,366 (565,153)
(Increase) decrease in advances 276 47,924 (48,200)
(Increase) decrease in interest receivable 1,844 (1,000)
(Increase) decrease in income tax receivable 66,018 (66,018)
(Increase) decrease in inventories (37,954) 148,444 (196,280)
Decrease in deposits 2,789 40,861
(Increase) decrease in prepaid expenses 46,968 (41,661)
(Increase) in other assets (56,324)
Increase (decrease) in accounts payable 77,240 (863,013) 975,579
(Decrease) in deferred tax credit (219,712) (1,675,252) (214,138)
(Decrease) in dealer deposits (10,625) (12,716) (1,639)
(Decrease) in accrued compensation (134,419)
Increase in interest payable 90,672 61,576 30,528
Increase (decrease) in income taxes payable (13,074) 14,113 3,040
(Decrease) in minority interest (818) (818)
(Decrease) in other accrued liabilities (4,838) (100,578) (97,102)
---------------- ---------------- ---------------
NET CASH FLOWS USED FROM OPERATING
ACTIVITIES (1,242,773) (2,834,711) (883,227)
---------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of notes receivable (205,150)
Disposal of property, plant and equipment 183,153 4,716,485
Divestiture of intangible and other assets 69,216 2,089,789 112,215
---------------- ---------------- ---------------
NET CASH FLOWS PROVIDED FROM
INVESTING ACTIVITIES 252,369 6,601,124 112,215
---------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 688,306 310,499
Reduction of capital lease obligation (51,612)
Reduction of capital contributions (180,647)
Reduction of debt (107,560) (3,661,788)
Net proceeds from notes payable 476,475 576,753
---------------- ---------------- ---------------
NET CASH FLOWS PROVIDED (USED) FROM
FINANCING ACTIVITIES 1,057,221 (3,894,047) 887,252
---------------- ---------------- ---------------
NET INCREASE (DECREASE) IN CASH 66,817 (127,634) 116,240
CASH AT BEGINNING OF YEAR (1,847) 125,787 9,547
---------------- ---------------- ---------------
CASH AT END OF YEAR $ 64,970 $ (1,847) $ 125,787
================ ================ ===============
/TABLE
<PAGE>
<PAGE> F8
APPLIED EARTH TECHNOLOGIES, INC. Consolidated Statement of Cash Flows for the
(Formerly SAN DIEGO BANCORP) Years Ended December 31, 1995, 1994 and 1993
- ------------------------------------------------------------------------------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
1995 1994 1993
---------------- ---------------- ---------------
<S> <C> <C> <C>
Interest paid in cash $ 7,743 $ 8,318 $ 8,504
================ ================ ===============
Issuance of common stock for debt reduction $ 153,375 $ 263,334 -
================ ================ ===============
Issuance of common stock for equipment - $ 20,000 -
================ ================ ===============
Issuance of common stock for the acquisition of
subsidiary - $ 323,645 -
================ ================ ===============
/TABLE
<PAGE>
<PAGE> F9
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 1 - ORGANIZATION
San Diego Bancorp ("SDBC") 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, SDBC 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 SDBC became a "shell" corporation by December 31, 1986, and
was dormant until September 1993. On September 21, 1993, SDBC
acquired 100% of the outstanding common stock (4,438,400
shares) 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) in exchange for 3,594,953 shares of
SDBC common stock valued at $1.75 per share. This transaction
was accounted for as a reverse acquisition whereby the acquired
corporation (Enviro-Guard Corporation) gained controlling
stockholder interest in the acquiring corporation (SDBC), and
the financial statements of Enviro-Guard Corporation are
presented on a continuous basis since inception in May of 1991.
Enviro-Guard Corporation ("Enviro-Guard") 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 1992, Enviro-Guard
acquired 100% of the outstanding common stock of Diatect
International, Inc. ("Diatect") (incorporated in the State of
Kansas in 1989) for 120,000 shares of common stock of Enviro-
Guard valued at $5 per share and $100,000 in notes payable.
The transaction was valued at $700,000 and accounted for as a
purchase. Diatect has developed and owns the rights to three
EPA registered insecticides. Also in August 1992, Enviro-Guard
acquired 100% of the outstanding common stock of D.S.D., Inc.
("D.S.D.") (incorporated in the State of Kansas in 1982) in
exchange for 520,000 shares of the common stock of Enviro-Guard
valued at $5 per share and the assumption by Enviro-Guard of a
$448,360 note payable which is due to D.S.D. from a
shareholder of D.S.D. This transaction was valued at
$3,048,360 and accounted for as a purchase. The principal
business activity of D.S.D. is the marketing and sale of cattle
dusters, mineral feeders and animal-actuated insecticide
applicators as well as the blending and sale of various
agricultural related insecticides.<PAGE>
<PAGE> F10
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 1- ORGANIZATION - Continued
On December 18, 1992, Enviro-Guard 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) in exchange for 260,375 shares
of common stock (at a value of $6 per share) of Enviro-Guard
Holding Corporation (the former parent company of Enviro-Guard
Corporation), plus $25,000 in cash and $347,616 in notes
payable.
The total value of this acquisition, accounted for as a
purchase, was $3,458,400. White Mountain owns 83 unpatented
BLM mining claims located in Malheur County, Oregon (there is
an obligation to pay $100 per year per mining claim to the
Bureau of Land Management). The purpose of this acquisition of
the mining property is for the Company to have a source of
diatomaceous earth, an important organic ingredient for its
environmentally-safe products.
On December 30, 1993, SDBC acquired 100% of the outstanding
common stock of Actagro Acquisition, Inc., ("Actagro")
(formerly Actagro, Inc.), in exchange for 784,937 shares of
SDBC common stock valued at $2.31 per share plus $2,000,000
promissory notes and options to purchase an additional 715,063
shares of common stock at $1.40 per share. All of the Actagro
common stock was held in escrow as security for the $2,000,000
in promissory notes. This transaction was accounted for as a
purchase and valued at $3,811,120. Actagro, an California
corporation, manufactures and sells organic based agricultural
fertilizer to customers in the Southern San Joaquin Valley.
On December 6, 1994, SDBC divested itself of Actagro. In the
divestiture, Actagro returned 784,937 shares of SDBC common
stock to the Company. SDBC was no longer liable for the
$2,000,000 debt to the Actagro shareholders or the
corresponding interest that had accrued during 1994. In
addition, $300,000 had been advanced to Actagro to assist the
company in 1994 operations. In the divestiture, SDBC received
a $250,000 five-year note.
On April 29, 1994, SDBC completed acquisition of 100% of the
outstanding common stock of Emissions Reduction Technology,
Inc. ("ERT"), in exchange for 647,290 shares of SDBC common
stock valued at $.50 per share. The transaction was accounted
for as a purchase valued at $323,645. ERT owns the contractual
rights and technology for an emissions reduction device (Patent
No. 4,310,028) designed to be placed in the intake air system
<PAGE> F11
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 1- ORGANIZATION - Continued
of an automobile with the effect of improving the air/gas
mixture and vehicle performance. The emissions reduction
device was tested and marketed in 1994. Because of marketing
and cash flow issues, marketing efforts were discontinued. The
Company has since written off the ERT purchase as an Unrealized
Loss.
On October 27, 1995, the Company and its subsidiaries filed
litigation against A.E. Smith, the former owner of the three
Kansas subsidiary corporations, on grounds of fraud, breach of
contract, recission and restitution, and breach of fiduciary
duty. On March 15, 1996, following court ordered mediation,
the Court entered an order approving a settlement between the
parties as resolving the issues of the litigation and retaining
jurisdiction until the settlement agreement's conditions were
fully performed. As a result of the litigation, any and all
cloud on the title of the Company's subsidiaries, or their
respective assets, was removed. In the settlement, Mr. Smith
received a note for $415,000. In turn, the Company obtained
two buildings and substantial equipment located in Smith Center
and Lebanon, Kansas. The settlement also called for the
cancellation of other receivables and payables between the
Company and Mr. Smith. Mr. Smith also returned Enviro-Guard
Holding Company common stock to the Company. As of August
1996, the balance owed to Mr. Smith is approximately $165,000,
due in early 1997. At December 31, 1995, due to the litigation
in process at year end, $20,000 was held in escrow pending the
settlement of the litigation under Judge's order of a Kansas
District Court. All assets located in the State of Kansas are
pledged as collateral for the payment of the A.E. Smith
settlement.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of
all subsidiaries, and all significant inter-company accounts
and transactions have been eliminated in consolidation.
Provision for losses on trade accounts receivable is made in
amounts required to maintain an adequate allowance to cover
anticipated bad debts. Accounts receivable are charged against
the allowance when it is determined by the Company that payment
will not be received. At the year end, the allowance is
adjusted by management based on a review of the accounts
receivable. <PAGE>
<PAGE> F12
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 2- SIGNIFICANT ACCOUNTING POLICIES - Continued
Inventories are stated at the lower of cost (first-in, first-
out) or market.
Property, plant and equipment are stated at cost including the
allocable purchase price applicable to the respective assets of
purchased subsidiaries. All expenditures for improvements,
replacements and additions are added to the asset accounts at
cost.
Expenditures in the nature of normal repairs and maintenance
are charged against earnings as incurred. The cost and related
accumulated depreciation are eliminated from the accounts and
the resulting gain or loss is reflected in the statement of
operations when depreciable assets are retired or otherwise
disposed. Depreciation is provided for by the use of straight-
line and accelerated methods over the estimated useful lives of
the assets. Depletion will be computed using the unit-of-
production method, once the mine is put into production.
In regard to intangible assets, trademarks are amortized on a
straight-line basis over a ten-year life. Patents are
amortized over the remaining life of the patent, not to exceed
20 years. Patents for which approval has not yet been received
are not subject to amortization. Upon approval of applications
currently pending, these patents will be amortized on the
straight-line method over a period not to exceed 20 years. EPA
labels are amortized on a straight-line basis over a 15-year
life, commencing with the beginning of product sales.
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
The Company has adopted financial accounting standards number
109 which states that the objectives of accounting for income
taxes are to recognize the amount of taxes payable or
refundable for the current year and to recognize deferred tax
assets and liabilities for the future tax consequences of
events that have been recognized in a corporation's financial
statements or income tax returns.
Employees of the Company are entitled to paid vacations, paid
sick days and personal days off, depending upon job
classification, length of service and other factors. Based on
the existence of a relatively high employee turnover rate, it
is impractical to estimate the amount of compensation for
<PAGE> F13
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
future absences. Accordingly, no liability has been recorded
in the accompanying financial statements. The Company's policy
is to recognize the costs of compensated absences when actually
paid to employees.
Earnings (losses) per share are computed using the weighted
number of outstanding shares of common stock.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
the company's management's estimates for various accounts.
NOTE 3 - INVENTORIES
Inventories consist of the following:
12/31/95 12/31/94
-------- --------
Raw Material $ 79,537 $ 41,474
Finished Goods 16,299 16,408
-------- --------
Total $ 95,836 $ 57,882
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The Company owns land and buildings in the following locations:
12/31/95 12/31/94
-------- --------
Salt Lake City, Utah $ 0 $287,099
Smith Center, Kansas 127,119 27,119
-------- --------
Total Land and Buildings $127,119 $ 314,218
The Company owns 83 unpatented mining claims located in Malheur
Country, Oregon with cost basis of $4,370,390. Commercial
production of diatomaceous earth has not commenced on this
property.
NOTE 5 - INVESTMENT IN EPA LABELS
The Company has acquired three product registrations or labels
approved by the U.S. Environmental Protection Agency granting
federal clearance to manufacture, market and sell specified
insecticide products. Included are: No. 42850-1 for use
against flies, roaches, ants, etc., in and around buildings;
No. 42850-3 for use against fleas, ticks and lice on pets; and
No. 42850-2 for use against over 60 insects on over 130 edible
<PAGE> F14
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
crops and plants up to and including the day of harvest. State
approval for use of these products in California, Texas, North
Carolina, Arizona, Washington and other agricultural states
were obtained during 1994, 1995 and 1996.
NOTE 6 - NOTES RECEIVABLE
The Company has one note receivable for $250,000 from Actagro.
The note is due on or before December 31, 1999. Interest is
paid quarterly at a rate of 6.5%. This note has been pledged
as security for the payments of the A.E. Smith settlement
obligation (see Note 1).
NOTE 7 - NOTES PAYABLE
Balance as of Balance as of
Creditor and Conditions December 31, 1995 December 31, 1994
- ----------------------- ----------------- -----------------
John Wilding (a shareholder
of the Company), secured by
unrestricted SDBC and common
stock of White Mountain Mining
and Manufacturing, Inc.,
interest at 16.0%, due on demand. 142,323 -
Ross S. Wolfley, unsecured,
interest is variable, due on demand 37,815 -
Mid-America Capital Fund, unsecured,
interest at 11.0%, due on demand 7,000 -
West America Securities, Inc.,
unsecured, interest of 11%,
due on May 19, 1996 28,000 -
DeLynn Heaps, unsecured,
interest at 10.0%, due on demand 10,000 -
John Runft, assigned to
Elwynn S. Hewlett, Jr.
(a shareholder of the Company),
unsecured, interest at 9.0%,
due on demand 9,500 -
Jeffrey Linabary, unsecured,
interest at 14.0%, due on demand 4,295 -<PAGE>
<PAGE> F15
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 7 - NOTES PAYABLE - Continued
Balance as of Balance as of
Creditor and Conditions December 31, 1995 December 31, 1994
- ----------------------- ----------------- -----------------
L. Craig Hunt (a shareholder of
the Company) secured by Smith
Center property, interest at
12.5%, due on demand 25,000 25,000
John Wilding (a shareholder of
the Company), original $46,755
note, secured by common stock
of White Mountain Mining and
Manufacturing, Inc., interest
at 16.5%, due on demand - 30,950
Agri-Dyne Corporation,
unsecured, interest at 10%,
due on demand - 25,000
David Russell, unsecured,
interest at 10%, due on demand 15,000 15,000
Robert Williams, secured
by buildings, no interest,
due on demand - 23,030
Danny Wirken (a shareholder
of the Company), unsecured,
interest at 8%, due on demand 386,581
386,581
- ----------------------- ----------------- -----------------
TOTAL $ 665,514 $ 505,561
======================= ================= =================
<PAGE>
<PAGE> F16
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 8- LONG-TERM DEBT
December 31, 1995 December 31, 1994
Creditor & Conditions Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------- ---------- ----------- ---------
Performance Systems Investments,
monthly payments of $2,432
at 9.75% interest, secured
by deed of trust, balance
due June, 1997. - - $ 16,584 $ 120,228
Former shareholders of
White Mountain Mining
and Manu-facturing, Inc.,
monthly payments of $18,000,
secured by the mining
property, due September
1994. $ 209,444 - 209,444 -
George Reeve, monthly payments
of $3,568 at 9% interest,
unsecured, due May, 1995 105,078 - 105,078 -
John Wilding, monthly
payments of $5,000
beginning July 1994,
interest at 10%, secured
by second position on
corporate office building
in Salt Lake City, Utah - - 71,226 -
A. E. Smith, secured by D.S.D.
and Diatect assets, at 6%
interest, due January, 1997. 215,000 200,000 - -
----------- ---------- ----------- ---------
$ 529,522 $ 200,000 $ 402,332 $ 120,228
========== ========== ========== =========
<PAGE>
<PAGE> F17
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
Aggregate maturities required on long-term debt are as follows:
Period Ending December 31, Amount
------------------------- ------
1996 $529,522
1997 200,000
Total $729,522
========
Since payments on the notes to the former shareholders of White
Mountain Mining and Manufacturing, Inc. are in arrears, the
Company has agreed to pay interest at the rate of 18% per annum
on the unpaid balance beginning on May 1, 1993. The Company
agreed to a one-time compounding of interest, effective June
21, 1995.
NOTE 9 - INCOME TAXES
The net deferred tax liability in the accompanying statements
of financial position includes the following components:
12/31/95 12/31/94
-------- --------
Deferred tax asset $ 1,141,937 $ 980,942
Less: Deferred tax asset valuation
allowance (570,969) (490,470)
-------- --------
Net deferred tax asset 570,968 490,472
Deferred tax liability (1,809,819) (1,949,035)
-------- --------
Net deferred tax liability $(1,238,851) $(1,458,563)
============ ============
The following temporary differences give rise to the deferred tax asset:
12/31/95 12/31/94
-------- --------
Net operation loss carryforwards $ 1,060,807 $ 899,812
Unrealized capital loss 81,130 81,130
Deferred tax asset $ 1,141,937 $ 980,942
<PAGE>
<PAGE> F18
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 9- INCOME TAXES - Continued
The following temporary differences give rise to the deferred tax
liability:
12/31/95 12/31/94
-------- --------
Excess of financial accounting basis
of assets of purchased companies
over tax basis (see below) $ 2,088,251 $ 2,088,251
Amortization of deferred tax liability (278,432) (139,216)
-------- --------
Deferred tax liability $ 1,809,819 $ 1,949,035
The following temporary differences gave rise to the deferred income tax
benefit:
12/31/95 12/31/94
-------- --------
Net operating loss carryforward $160,990 $899,812
Unrealized capital loss 81,130
160,990 980,942
Less: Valuation allowance (80,495) (742,389)
Deferred income tax benefit $ 80,485 $ 238,553
During 1992, Enviro-Guard Corporation acquired three companies
accounted for as purchases. (Diatect International, Inc.,
D.S.D., Inc., and White Mountain Mining and Manufacturing,
Inc.). The total of the excess of the purchase price of the
assets acquired exceed their income tax basis by $6,842,816.
During 1993, San Diego Bancorp acquired Actagro Acquisition,
Inc. in a transaction accounted for as a purchase, which
resulted in an excess of the accounting basis of the assets
acquired over their income tax basis in the amount of
$3,874,281. The effect of these transactions gives rise to
larger depreciation and amortization expenses for financial
statement purposes than are allowed for income tax purposes.
The Company has available net operating loss carryforwards of
$3,311,306 at December 31, 1995, which will begin to expire in
2006.<PAGE>
<PAGE> F19
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 10 - LITIGATION
On July 22, 1994, a civil complaint was filed by Gruntal & Co.,
Incorporated, in U.S. District Court Southern District of New
York against the Company and other individuals and related
entities, including James Dayley and Robert Crouch, former
officers and directors of the Company. Gruntal asserted in its
complaint that all defendants had violated Section 10(b) of the
Securities and Exchange Act of 1934, alleged common law fraud
and misrepresentation, and claimed RICO violations. Gruntal &
Co., Inc. is seeking damages of approximately $7.3 million
against all defendants, which included $1.4 million in treble
damages and $5 million in punitive damages. The action centers
around alleged activities of one of the Company's shareholders
and his purported dealings with a registered representative of
Gruntal & Co., Inc., and various other individuals and entities
unknown to the Company and its officers and directors.
Gruntal & Co., Inc. is a securities broker/dealer that made a
market in the Company's common stock. The Company, Mr. Dayley
and Mr. Crouch have denied any complicity and have filed an
answer to the complaint denying the allegations and any wrong
doing as the allegations relate to themselves and the Company.
The Company has filed a counterclaim asserting that Gruntal &
Co., Inc. was at fault for its losses. The counterclaim
alleges that Gruntal & Co., Inc.'s action against the Company
was an attempt to mitigate losses resulting from the acts
and/or omissions of its own employees. On June 18, 1996, the
Court dismissed the Company's counterclaim on the ground that
it had failed to allege one of the key elements of tortious
interference. The Company, through its New York counsel, has
sought certification for an interlocutory appeal of the Court's
dismissal of the counterclaim. The Company believes it has a
viable counterclaim against Gruntal. The Company should be
allowed to amend the counterclaim to overcome any technical
deficiencies. As a result of the Court's dismissal of the
Company's amended counterclaim and the petition for
certification of an interlocutory appeal of said dismissal, the
resolution of this case appears to have been postponed
indefinitely. It is doubtful that any serious effort to settle
this case will take place until the issue of the Company's
counterclaim is determined. While the Company cannot predict
with any certainty the outcome of the matter, given the merits
of the case, the complaint is not anticipated to result in
monetary damages from the Company.
In the fall of 1994 and during 1995, the Company was sued by a
number of bona fide creditors, which actions the Company
<PAGE> F20
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 10 - LITIGATION - Continued
allowed to go to judgment. These actions and the consequential
judgments arose as a direct result of the inability of the
Company to fund the operations and payments to all the
Company's creditors. The collection judgments total
approximately $52,000 and are included in the Company's
accounts payable and other obligations.
In addition to the lawsuits above, see Note 16, subsequent
events.
NOTE 11 - COMMON STOCK SUBSCRIBED
As of December 31, 1995, the Company and the following
individuals agreed to convert outstanding debt, accrued wages
and marketing expenses into common stock in 1995.
Name of Individual Debt Reduction
Ross S. Wolfley $ 100,000
George H. Henderson 15,163
Michael P. McQuade 6,889
Subtotal 122,052
Accrued Wages
Elwynn S. Hewlett, Jr. 68,707
Dale H Christiansen 48,445
Scott Hunt 57,792
Ross S. Wolfley 18,750
David Black 7,500
Subtotal 201,194
Marketing Expense
Paul Jensen 53,500
Total $ 376,746
NOTE 12 - CONCENTRATION OF CREDIT RISK
The Company is a wholesale supplier of products and grants
credit to its customers, a substantial portion of which are
retailers of agricultural products throughout the country.
<PAGE>
<PAGE> F21
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 13 - STOCK OPTIONS
The Company has the following common stock options outstanding as of
December 31, 1995:
Number of Exercise
Stock Optionee Stock Options Price
- -------------- ------------- --------
John Runft 100,000 $0.06 (1)
George H. Henderson 500,000 $0.06 (2)
Elwynn S. Hewlett, Jr. 500,000 $0.06 (3)
Ross S. Wolfley 500,000 $0.06 (4)
Total 1,600,000
=========
(1) These stock options may be exercised at any time prior to
February 28, 1998.
(2) These stock options may be exercised at any time prior to
February 28, 1998.
(3) These stock options may be exercised at any time prior to
February 28, 1998.
(4) These stock options may be exercised at any time prior to
October 14, 1998.
The 1995 Stock Option Plan was initiated in order to aid the
Company in maintaining and developing a management team,
attracting qualified officers and employees. A total of
3,000,000 shares of stock may be subject to, or issued pursuant
to the terms of the plan. During 1995, $143,950 was recognized
as compensation for stock-based employee compensation.
Number of
Shares
---------
Outstanding at 12/31/94 454,200
Granted during 1995 1,821,600
Exercised during 1995 569,348
Expired during 1995 106,452
Outstanding at 12/31/95 1,600,000
Stock options granted under the plan in 1995 had an average
option price of $.05 less than the market value on date of
grant.<PAGE>
<PAGE> F22
APPLIED EARTH TECHNOLOGIES, INC.Notes to Consolidated Financial Statements
(Formerly SAN DIEGO BANCORP)
- ---------------------------------------------------------------------------
NOTE 14 - RELATED PARTY TRANSACTIONS
San Diego Bancorp has notes payable to seven shareholders
(including two officers) totaling $563,404 as of December 31,
1995. As of December 31, 1994, the Company had a note payable
to one shareholder at $386,581.
NOTE 15 - GOING CONCERN
The Company's financial statements have been presented on the
basis that it is a going concern which contemplates the
realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has reported
recurring net losses for the years ended December 31, 1995,
1994, 1993, 1992, and 1991, and had a working capital
deficiency of $1,502,455 as of December 31, 1995. The Company
raised additional working capital in 1995 and 1996 through the
issuance of additional common stock and through operations of
its Kansas subsidiaries.
NOTE 16 - SUBSEQUENT EVENTS
On July 19, 1996, John Wilding of Orem, Utah, sued the Company
and Enviro-Guard for collection on a delinquent promissory
note. Although Enviro-Guard is not a co-maker or endorser of
the note, stock of one of Enviro-Guard's subsidiaries, White
Mountain Mining and Manufacturing, Inc., was delivered to
Wilding (representing a majority of the total outstanding
shares of White Mountain Mining and Manufacturing, Inc. stock)
as security for the note. The cause of action brought by
Wilding is for a money judgment and does not involve judicial
foreclosure on the stock securing the note. The Company and
Enviro-Guard have appeared in the action, but have not answered
the complaint pending negotiations for a new payment schedule
on the note. As of December 31, 1995, the balance owed is
$157,697 including accrued interest. The parties to the
litigation are negotiating this matter in an effort to find a
solution, perhaps by amending the terms of the note. The
Company believes this matter will be amicably resolved over
time.
On August 22, 1996, the Company changed its name from San Diego
Bancorp to Applied Earth Technologies, Inc. (the "Name Change")
to better reflect the business activities of the Company. The
Company's board of directors unanimously recommended the Name
Change for the Company and nine (9) stockholders of the Company
holding 58.8% of the issued and outstanding shares of the
shares entitled to vote have executed a written consent to such
Name Change in accordance with section 603 of the California
Corporations Code.
A480526
STATE OF CALIFORNIA
SECRETARY OF STATE
CORPORATION DIVISION
I, BILL JONES, Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the corporate record on
file in this office, of which it purports to be a copy, and that same is full,
true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California this
August 27 1996
--------------
By /s/ Bill Jones
Secretary of State
(Graphic seal of the state of California)
<PAGE>
<PAGE>
A480526
ENDORSED
FILED
In the office of the Secretary of State
of the State of California
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
SAN DIEGO BANCORP
The Undersigned, Ross S. Wolfley and Dennis P. Nielsen, hereby certify
that:
1. They are, respectively, the duly elected and acting President and Secretary
of San Diego Bancorp, a California corporation (the "Corporation").
2. Article I of the Articles of Incorporation of the corporation shall be, and
hereby is, amended to read as follows:
I.
The name of this corporation is applied Earth Technologies, Inc.
3 . The foregoing amendment has been approved and adopted by resolution of the
Board of Directors of the Corporation adopted at a special meeting of the
directors held on May 16, 1996.
4. In accordance with S603 of the California Corporations Code, the foregoing
amendment was approved by written consent of nine (9) shareholders of the
corporation representing 7,469,371 shares constituting fifty-eight and 8/10
percent (58.8%) of the issued and outstanding shares of common stock of the
corporation, which shareholders would be entitled to vote upon said resolution
at a formal meeting of the shareholders of the corporation held for the
purpose of acting upon such resolution. The total number of outstanding
shares of the corporation is 12,703,012. The number of shares voting in favor
of the amendment equaled or exceeded the vote required. The percentage vote
required was more than 50%. IN WITNESS WHEREOF, the Undersigned have executed
this Certificate of Amendment on this 16th day of May, 1996. We further
declare under penalty of perjury under the laws of the State of California
that the matters set forth in this Certificate are true and correct of our
own knowledge.
By /s/ Ross Wolfley
Ross Wolfley, President
By /s/ Dennis P. Nielsen
Dennis P. Nielsen, Secretary
CERTIFICATE OF AMENDMENT
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 64,970
<SECURITIES> 0
<RECEIVABLES> 25,036
<ALLOWANCES> 0
<INVENTORY> 95,836
<CURRENT-ASSETS> 185,842
<PP&E> 4,758,694
<DEPRECIATION> 195,672
<TOTAL-ASSETS> 8,566,838
<CURRENT-LIABILITIES> 1,688,297
<BONDS> 200,000
0
0
<COMMON> 9,059,150
<OTHER-SE> (3,958,857)
<TOTAL-LIABILITY-AND-EQUITY> 8,566,838
<SALES> 793,022
<TOTAL-REVENUES> 815,049
<CGS> 260,868
<TOTAL-COSTS> 1,420,779
<OTHER-EXPENSES> 325,372
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,006
<INCOME-PRETAX> (1,396,976)
<INCOME-TAX> (80,495)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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