UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission file number: 0-10147
APPLIED EARTH TECHNOLOGIES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
California 95-355578
---------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3335 South 900 East, Suite 230, Salt Lake City, Utah 84106
- ---------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(801) 467-5339
--------------
Registrant's telephone number, including area code
Not Applicable
---------------------------------------
(Former name, former address, and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), Yes [X] No [ ] and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the last practicable
date.
Class Outstanding as of June 30, 1996
- -------------------------- -------------------------------
Common Stock, No Par Value 14,135,164
<PAGE>
PART I - FINANCIAL INFORMATION
- -----------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------------------------------------------
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB
pursuant to the rules and regulations of the Securities and
Exchange Commission and, therefore, do not include all
information and footnotes necessary for a complete presentation
of the financial position, results of operations, cash flows, and
stockholders' equity in conformity with generally accepted
accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included
and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of June 30,
1996, and the related audited balance sheet of the Company as of
December 31, 1995, the unaudited related statements of operations
and cash flows for the three and six month periods ended June 30,
1996 and 1995, and the unaudited statement of stockholders'
equity for the three month periods ended June 30, 1996 and 1995,
are attached hereto and incorporated herein by this reference.
Operating results for the quarter ended June 30, 1996, are
not necessarily indicative of the results that can be expected
for the year ending December 31, 1996.
- -----------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------------------------------------
General
Applied Earth Technologies, Inc. (the "Company") (formerly
San Diego Bancorp), was incorporated under the laws of the State
of California on May 19, 1979, for the primary purpose of acting
as a bank holding corporation for several subsidiaries, and the
principal business was in the industrial loan market conducted
through a subsidiary named El Camino Thrift and Loan Association.
During several years preceding 1986, the Company incurred
substantial losses and during 1986 management decided to
discontinue all operating activities, and liquidate the remaining
assets and liabilities. The subsidiaries were either dissolved
or sold for nominal amounts, and the Company became a "shell"
corporation by December 31, 1986, and had no material operations
until September, 1993. On September 21, 1993, the Company
acquired 100% of the outstanding common stock of Enviro-Guard
Corporation (a corporation incorporated in the State of Utah on
May 30, 1991) from Enviro-Guard Holding Corporation (a
corporation incorporated in the State of Colorado on June 10,
1987). This transaction was accounted for as a reverse
acquisition whereby the acquired corporation (Enviro-Guard
Corporation) gains controlling stockholder interest in the
acquiring corporation (the Company), and the financial statements
of Enviro-Guard Corporation are presented on a continuous basis
since inception in May of 1991.
Enviro-Guard Corporation has developed a line of
organically-based insecticide products made from natural
compounds with the objective of achieving environmentally-
friendly, yet effective results. In August of 1992, Enviro-Guard
acquired 100% of the outstanding common stock of Diatect
International, Inc. ("Diatect"), (incorporated in the State of
Kansas in 1989). Diatect has developed and owns the rights to
three EPA registered insecticides. Also in August of 1992,
Enviro-Guard acquired 100% of the outstanding common stock of
D.S.D., Inc. (incorporated in the State of Kansas in 1982). The
principal business activity of D.S.D., Inc., is the manufacturing
and sale of cattle dusters and mineral feeders as well as the
blending and sale of various agricultural related insecticides.
On December 18, 1992, Enviro-Guard Corporation completed
negotiations to acquire 90.14% of the outstanding common stock
(891,250 shares) of White Mountain Mining and Manufacturing, Inc.
("White Mountain") (an Idaho Corporation). White Mountain owns
83 unpatented BLM mining claims located in Malheur County,
Oregon. The purpose of this acquisition of the mining property
is for Enviro-Guard Corporation to have a source of diatomite,
which is an important organic ingredient for its environmentally-
safe insecticides.
On December 30, 1993, the Company acquired 100% of the
outstanding common stock of Actagro Acquisition, Inc.,
("Actagro") (formerly Actagro, Inc.). Actagro Acquisition, Inc.,
is a California corporation which manufactures and sells organic
based agricultural fertilizer to customers in the Southern San
Joaquin Valley. On December 6, 1994, the Company divested itself
of Actagro. In the divestiture, the shareholders of Actagro
returned 715,063 shares of the Company's common stock for
cancellation.
On August 22, 1996, the Company changed its name from San
Diego Bancorp to Applied Earth Technologies, Inc. to more
accurately reflect the Company's business operations and to
eliminate confusion as to the Company's business that was
associated with the Company's prior name.
Ability of the Company to Continue as a Going Concern
For the six-month period ended June 30, 1996, the Company
has incurred a consolidated net loss of $280,594. In addition,
at June 30, 1996, current liabilities exceeded current assets by
$1,564,017.
During the first six months of 1996, the Company converted
$198,164 in accrued salaries, marketing expenses and other
liabilities to equity by issuing 2,544,928 shares of common
stock. In the future, management believes there is an additional
$600,000 in debt (principally notes payable and accruals) that
may be converted to equity during fiscal year 1996. The Company
also believes that without additional conversions of debt to
equity and restructuring the payment terms of short-term debt,
substantial doubt remains as to the Company's ability to meet its
current obligations and continue in business. The Company has
taken steps to address its insolvency problems by working with
its creditors to keep them informed of the Company's progress in
meeting outstanding liabilities. For the most part, the
Company's creditors have been patient, waiting for payment at a
future date.
The Company must meet monthly operational expenses of
approximately $85,000. Currently, the Company has average
revenues from operations of approximately $75,000 which creates
an operational shortfall of approximately $10,000 per month.
However, management believes that additional revenue generated by
increased marketing efforts will result in increased sales of the
Company's products and ultimately alleviate a substantial portion
of the shortfall. Until those revenues eventuate, the Company
will be dependent upon outside funding to meet operating
requirements.
The Company is attempting to obtain additional working
capital from several sources, including investment banking firms,
private investors and state funding agencies interested in
assisting growing companies within the agri-environmental sector.
Management intends to seek equity financing through the sale of
the Company's securities.
Results from Operations
During the fiscal quarter ended June 30, 1996, the Company
had revenues of $259,624, cost of sales of $134,045, operating
expenses of $309,461, other income of $12,376 and an income tax
benefit of $36,805. These yielded a net loss of $134,701,
compared to a net loss of $117,353 for the same period of 1995.
The substantial portion of the second quarter 1996 loss was due
to two factors: professional and consulting fees ($102,796), and
depreciation and amortization ($62,706). The Company believes
the resolution of its legal difficulties in Kansas and the
completion of its tardy financial reporting in 1996 will reduce
future professional fees. In addition, many of the other
operating, administrative and interest expenses associated with
the second quarter loss continue to be due, in part, to
insufficient cash flow and the illiquid nature of the Company's
non-current assets. Because of liquidity difficulties, many
expenses were paid through the issuance of common stock.
For the six month periods ended June 30, 1996 and June 30,
1995, the company had consolidated revenues of $452,798 and
$372,386, respectively. The net losses for the periods totaled
$280,594 in 1996 and $459,220 in 1995.
Management is hopeful that once its products are in the
marketplace, the losses from operations the Company currently
suffers will be alleviated by increased sales revenue and
profitability. Currently, the Company has not had the working
capital to effectively market its products.
Liquidity and Capital Resources
The Company has a severe working capital deficit. As of
June 30, 1996, the Company's working capital deficit totaled
$1,564,017 compared with $1,502,455 at December 31, 1995. The
Company reports current liabilities totaling $1,774,977 and no
long term debt. At the end of 1995, current liabilities and long
term debt were $1,688,297 and $200,000, respectively. During the
second quarter of 1996, total liabilities decreased $113,320.
The Company's working capital deficit continues to have a direct
correlation with the Company's inability to expand and market its
products effectively.
If the Company is unable to obtain some funds in the near
future, it will not be able to continue in business. The
Company, therefore, continues to seek working capital from
several sources, including equity markets and private investors.
There is no assurance, however, that these efforts will be
successful. The Company does feel that it will increase revenues
from operations as it moves from the development stage of its
products, which has included lengthy and costly time in obtaining
EPA approval. With the Company's products in the marketplace and
with adequate financial support, the Company anticipates revenues
to offset on-gong expenses. The Company is uncertain, however,
as to whether there will be sufficient revenues to cover prior
years' obligations.
As previously stated, the Company's lack of cash has
dramatically affected its ability to effectively market the
Company's products. The marketing strategy require funds to be
fully implemented. Accordingly, while the Company anticipates
more revenue from its products than it has received in the past,
it will not be as profitable as it could be with additional
funding for full implementation of its marketing and promotional
plans.
<PAGE>
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Financial Position
As of June 30, 1996 and December 31, 1995
- -----------------------------------------------------------------
ASSETS
-------
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
CURRENT ASSETS
Cash $ - $ 64,970
Accounts receivable 116,445 25,036
Inventories 94,515 95,836
------------- -----------------
Total Current Assets 210,960 185,842
------------- -----------------
PROPERTY, PLANT AND EQUIPMENT
Buildings 127,119 127,119
Mining property 4,335,314 4,370,390
Equipment 260,277 261,185
------------- -----------------
Total Property, Plant
and Equipment 4,722,710 4,758,694
Less accumulated depreciation 201,582 195,672
------------- -----------------
Net Property, Plant
and Equipment 4,521,128 4,563,022
------------- -----------------
OTHER ASSETS
Investment in EPA labels, net
of accumulated amortization 3,362,527 3,509,807
Notes Receivable 243,699 250,000
Deposits 1,117 967
Other Assets 4,500 57,200
------------- -----------------
Total Other Assets 3,611,843 3,817,974
------------- -----------------
TOTAL ASSETS $ 8,343,931 $ 8,566,838
============= =================
The accompanying notes are an integral
part of these financial statements.
<PAGE>
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Financial Position
As of June 30, 1996 and December 31, 1995
- -----------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
(Unaudited)
June 30, 1996 December 31, 1995
------------- -----------------
CURRENT LIABILITIES
Accounts payable $ 286,758 $ 242,714
Bank overdraft 465 -
Interest payable 241,358 203,762
Income taxes payable 20,489 20,487
Other accrued liabilities 43,035 26,298
Notes payable 1,182,872 665,514
Current portion of long-term debt - 529,522
------------- -----------------
Total Current Liabilities 1,774,977 1,688,297
------------- -----------------
LONG-TERM DEBT,
LESS CURRENT PORTION - 200,000
------------- -----------------
DEFERRED TAX LIABILITY 1,115,319 1,238,851
------------- -----------------
COMMITMENTS
MINORITY INTEREST 339,397 339,397
------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, no - par value;
20,000,000 shares
authorized; 14,135,164
and 10,805,408 shares issued
and outstanding, respectively 9,422,396 9,059,150
Common stock subscribed 308,039 376,746
Accumulated deficit (4,616,197) (4,335,603)
------------- -----------------
Total Stockholders' Equity 5,114,238 5,100,293
------------- -----------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 8,343,931 $ 8,566,838
============= =================
The accompanying notes are an integral
part of these financial statements.
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Operations for the
Three and Six Month Periods Ended June 30, 1996 and 1995
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 259,624 $ 263,064 $ 452,798 $ 372,386
COST OF SALES 134,045 121,716 220,633 173,238
------------- ------------- ------------- -------------
GROSS PROFIT 125,579 141,348 232,165 199,148
------------- ------------- ------------- -------------
OPERATING EXPENSES
Salaries, wages and benefits 63,536 73,254 121,037 146,997
Consulting 18,506 23,155 55,806 41,159
Travel 14,206 8,154 21,165 23,590
Rent 2,899 9,100 12,678 13,541
Interest 34,677 12,065 66,476 32,242
Utilities 2,237 2,433 7,371 6,022
Depreciation and amortization 62,706 60,754 125,408 123,377
Business Development and Promotion 11,988 37,454 24,267 86,853
Office 6,440 9,057 12,050 18,323
Taxes and licenses 1,778 1,750 5,106 4,443
Professional fees 84,290 46,454 119,433 115,557
Bad debts - 9,891 - 9,891
Repairs and maintenance 545 3,715 1,033 4,490
Miscellaneous 5,653 4,936 11,809 21,464
------------- ------------- ------------- -------------
Total Operating Expenses 309,461 302,172 583,639 647,949
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (183,882) (160,824) (351,474) (448,801)
OTHER INCOME (LOSS)
Loss on sale of property - - - (109,332)
Interest Income 3,936 6,314 7,972 8,464
Royalties 769 629 1,313 1,119
Miscellaneous 7,671 5,994 7,671 2,101
------------- ------------- ------------- -------------
Total Other Income (Loss) 12,376 12,937 16,956 (97,648)
------------- ------------- ------------- -------------
(LOSS) BEFORE INCOME TAX BENEFIT (171,506) (147,887) (334,518) (546,449)
INCOME TAX BENEFIT 36,805 30,534 53,924 87,229
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (134,701) $ (117,353) $ (280,594) $ (459,220)
============= ============= ============= =============
NET (LOSS) PER SHARE (Primary) $ (.010) $ (.013) $ (.022) $ (.045)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
Applied Earth Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
for the Three Month Periods ended June 30, 1995 and 1996
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------ Common Stock Accumulated
Shares Amount Subscribed Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances as of March 31, 1995 9,102,908 $ 8,801,825 $ 83,500 $ (3,360,989) $ 5,524,336
Common Stock issued for Debt
reduction at $.35 per share 97,500 34,125 - - 34,125
Common Stock issued for services
at $.06 to $.40 per share 1,080,000 90,000 - - 90,000
Net (Loss) - - - (117,353) (117,353)
------------ ------------ ------------ ------------ ------------
Balances as of June 30, 1995 10,280,408 $ 8,925,950 $ 83,500 $ (3,478,342) $ 5,531,108
============ ============ ============ ============ ============
Balances as of March 31, 1996 11,338,741 $ 9,088,650 $ 376,746 $ (4,481,496) $ 4,983,900
Common Stock issued for cash
at $.20 per share 500,000 100,000 - - 100,000
Common Stock issued for cash
at $.10 per share 10,000 1,000 - - 1,000
Common Stock issued for services
at $.06 per share 1,800,000 108,000 - - 108,000
Conversion of Common Stock
Subscribed 274,828 68,707 (68,707) - -
Common Stock issued for Debt
Conversion at $.26 per share 211,595 56,039 - - 56,039
Net (Loss) - - - (134,701) (134,701)
------------ ------------ ------------ ------------ ------------
Balances as of June 30, 1996 14,135,164 $ 9,422,396 $ 308,039 $ (4,616,197) $ 5,114,238
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>
APPLIED EARTH TECHNOLOGIES, INC.
Consolidated Statement of Cash Flows for the
Three and Six Month Periods Ended June 30, 1996 and 1995
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (134,701) $ (117,352) $ (280,594) $ (459,220)
Add items not requiring the
use of cash:
Depreciation, amortization
and non-cash expenses 55,954 60,754 118,660 99,826
(Increase) in accounts receivable (91,398) (60,232) (91,409) (91,202)
(Increase) in advances - (120) - (120)
(Increase) decrease in inventories (6,179) (20,000) 1,321 (20,000)
(Increase) decrease in deposits - (150) (150) 3,159
(Increase) decrease in prepaid expenses 4,557 (6,000) - (6,500)
Increase in accounts payable 33,266 14,232 44,044 10,772
(Decrease) in deferred tax liability (71,609) (65,338) (123,532) (156,840)
Increase (decrease) in interest payable 22,223 2,940 37,596 (10,384)
Increase (decrease) in other accrued
liabilities (5,091) 54,590 18,739 107,595
------------- ------------- ------------- -------------
NET CASH FLOWS USED FROM
OPERATING ACTIVITIES (192,978) (136,676) (275,325) (522,914)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Reduction in property, plant
and equipment 17,538 17,538 35,984 322,175
Decrease in other assets - - 52,700 _
Decrease in notes receivable - 150 6,301 150
Reduction of intangibles 17,266 17,266 34,530 34,532
------------- ------------- ------------- -------------
NET CASH FLOWS PROVIDED
FROM INVESTING ACTIVITIES 34,804 34,954 129,515 356,857
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 265,039 124,125 294,539 261,860
Net proceeds from notes payable - - 200,836 130,343
Reduction of long term debt (126,775) - (415,000) (208,038)
------------- ------------- ------------- -------------
NET CASH FLOWS PROVIDED
FROM FINANCING ACTIVITIES 138,264 124,125 80,375 184,165
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (19,910) 22,403 (65,435) 18,108
CASH AT BEGINNING OF PERIOD 19,445 (6,142) 64,970 (1,847)
------------- ------------- ------------- -------------
CASH AT END OF PERIOD $ (465) $ 16,261 $ (465) $ 16,261
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
Applied Technologies, INC.
Notes to Consolidated Financial Statements
- -----------------------------------------------------------------
The condensed consolidated financial statements of Applied
Earth Technologies, Inc. included herein have been prepared
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although, certain
information normally included in financial statements prepared in
accordance with generally accepted accounting principles has been
condensed or omitted, the Company believes that the disclosures
are adequate to make the information presented not misleading.
The condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
included in Applied Earth Technologies, Inc.'s annual report on
Form 10-KSB for the fiscal year ended December 31, 1995.
The condensed consolidated financial statements included
herein reflect all normal recurring adjustments that, in the
opinion of management, are necessary for a fair representation.
The results for interim periods are not necessarily indicative of
trends or of results to be expected for a full year.
PART II - OTHER INFORMATION
- -----------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- -----------------------------------------------------------------
See Applied Earth Technologies, Inc.'s annual report on Form
10-KSB for the fiscal year ended December 31, 1995.
- -----------------------------------------------------------------
ITEM 2. CHANGES IN SECURITIES
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 3. DEFAULTS UPON SECURITIES
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 5. OTHER INFORMATION
- -----------------------------------------------------------------
None.
- -----------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------------------------------
(a) Exhibits. None
(b) Reports on Form 8-K. None
- -----------------------------------------------------------------
SIGNATURES
- -----------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APPLIED EARTH TECHNOLOGIES, INC.
(Registrant)
Dated: September 18, 1996 By /s/
--------------------------
Dale H Christiansen,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000319124
<NAME> APPLIED EARTH TECHNOLOGIES, INC. (FORMERLY SAN DIEGO BANCORP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 116,445
<ALLOWANCES> 0
<INVENTORY> 94,515
<CURRENT-ASSETS> 210,960
<PP&E> 4,722,710
<DEPRECIATION> 201,582
<TOTAL-ASSETS> 8,343,931
<CURRENT-LIABILITIES> 1,774,977
<BONDS> 0
0
0
<COMMON> 9,422,396
<OTHER-SE> (4,308,158)
<TOTAL-LIABILITY-AND-EQUITY> 8,343,931
<SALES> 452,798
<TOTAL-REVENUES> 469,754
<CGS> 220,633
<TOTAL-COSTS> 517,163
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,476
<INCOME-PRETAX> (334,518)
<INCOME-TAX> (30,534)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280,594)
<EPS-PRIMARY> (0.022)
<EPS-DILUTED> (0.022)
</TABLE>
