<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, 1994
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
-------
SAN DIEGO BANCORP
-----------------
(Exact name of registrant as specified in 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)
Issuer's telephone number, including area code: (801) 467-5339
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
-------- --------
Securities registered pursuant to section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(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 [ ]
<PAGE> 2
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. [ ]
State the issuer's revenues for its most recent fiscal year:$6,398,293.
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. AT DECEMBER 31, 1994, THE AGGREGATE MARKET VALUE OF THE VOTING
STOCK HELD BY NONAFFILIATES WAS $492,663. THE AVERAGE OF THE BID AND ASKED PRICE
OF SUCH STOCK ON DECEMBER 31, 1994, WAS $0.155 PER SHARE.
AT DECEMBER 31, 1994, THE REGISTRANT HAD 8,203,267 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> 3
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
PART I
- ------
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . .4
ITEM 2. DESCRIPTION OF PROPERTIES. . . . . . . . . . . . . . . . . . . . 10
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. . . . . . 11
PART II
- -------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 15
PART III
- --------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . 15
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 21
PART IV
- -------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 22
<PAGE> 4
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
- --------------------------------------------------------------------------------
GENERAL
San Diego Bancorp, a California corporation (the "Company"), was incorporated
in May of 1979. The Company began business as an industrial loan company and
operated through its subsidiary El Camino Thrift and Loan Association in and
around San Diego, California. In 1986, after suffering substantial losses in the
loan business, the Company ceased operations, liquidated its assets, which
consisted of those assets held by El Camino Thrift and Loan Association and paid
the remaining liabilities.
The Company had no operations until June 1993 when current management of the
Company, after investigation into the pesticide industry, decided to acquire
Enviro-Guard Corporation, a Utah corporation ("Enviro-Guard"). Enviro-Guard,
through various subsidiaries, had obtained Environmental Protection Agency
("EPA") approval on several insecticide products and labels. The insecticides
developed by Enviro-Guard are unique in that they are organically based and
non-intrusive to the environment.
After the acquisition of Enviro-Guard which was completed on October 15,
1993, the Company sought to broaden its product and revenue base by acquiring
Actagro, Inc., a California corporation ("Actagro"), on December 31, 1993.
Actagro and its predecessor Agra-Sav have since 1979 been actively engaged in
developing, producing and marketing patented plant nutrients. Through the
acquisition of Enviro-Guard and Actagro, the Company believed it had put
together the framework for a complementary line of environmentally friendly
insecticides and plant care products. However, this acquisition carried high
debt load and did not meet its required net income commitment. Actagro was
divested in late 1994.
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
In 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. The
retail nursery green good sales increased 10% to $15.2 billion. Every one
<PAGE> 5
dollar of green good sales results in the sale of $3 worth of tools,
fertilizers, and insecticides. A recent Gallup poll reported that 92% of
farmers want to use safer pesticides and 66% favored tougher enforcement of
pesticide misapplication penalties.
Additionally, since insecticides were first used in the 1940s, 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.
The nature of these 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 tests on new pesticides and fertilizers. 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.
Enviro-Guard
------------
Enviro-Guard was incorporated in May 1991 to engage in the business of
developing, manufacturing and marketing environmentally friendly EPA approved
and registered insecticides. Enviro-Guard operates in conjunction with its
subsidiaries; D.S.D., Inc., Diatect International, Inc., Dr. Scratch Company,
Inc., and White Mountain Mining and Manufacturing, Inc. When referred to herein,
Enviro-Guard includes all of its subsidiaries.
Enviro-Guard was acquired by the Company in October 1993 through the exchange
of shares of the Company for shares of Enviro-Guard. The majority shareholder
of Enviro-Guard, Enviro-Guard Holding Corporation, received 3,552,710 shares of
the Company's common stock in exchange for 4,368,400 shares of
Enviro-Guard.
Enviro-Guard 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 of the past (and present) 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
pyrethrum, which degrade, leaving the environment unharmed. DE and pyrethrum
have been used separately for years as alternatives to hazardous chemical
insecticides, but were not as effective in treatment. By combining DE and
pyrethrum in its products, Enviro-Guard has achieved a synergy leading to far
more effective insecticides than DE or pyrethrum individually.
<PAGE> 6
Enviro-Guard and its subsidiaries have obtained EPA registrations and labels
necessary for the production and marketing of their insecticides. The approval
by the EPA of Enviro-Guard'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
commercial marketing of its products until late 1993.
PRODUCTS
The cost and time associated with EPA approval has delayed Enviro-Guard's
entry into the market place until the latter part of 1993. As such, Enviro-Guard
has yet to receive wide spread acceptance of its product; however, test
marketing has shown positive signs. Through Enviro-Guard, the Company hopes it
has obtained a variety of proprietary, environmentally friendly, non-toxic
insecticides for various areas of use and effective on a multitude of insects
and plants under the trade names Results, Diatect, and Dr. Scratch [ Dr. Scratch
products are animal-actuated insecticide applicators---not insecticides
themselves]. The active ingredients used in the Enviro-Guard's products are
diatomaceous earth, pyrethrum and pipernonyl butoxide.
Diatomaceous Earth ("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 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 ground 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 it is fractured, the particle edges are very sharp and (2) each tiny
particle has the ability to absorb liquid. Once the covering of an insect's
shell is cut, DE absorbs bodily fluids of the insect, causing dehydration and
death. Moreover, the DE causes extensive trauma to insects, both internally and
externally. In order to not reduce or nullify its effectiveness as an
insecticide, DE has to 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, Enviro-Guard's products combine DE with pyrethrum. 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.
<PAGE> 7
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 SDBC 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 pyrethrins, 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.
Enviro-Guard combines DE and pyrethrum by using surfactants to insure a good
mix and greatly increase effectiveness and persistence. The combination of DE
and pyrethrum results in a compound much more effective than each ingredient
individually. When using the two ingredients together, the DE breaks down the
chitin, allowing the pyrethrum to act on the insects' nerve cells directly. The
pyrethrum does not evaporate as quickly and is released for hours rather than
minutes. Furthermore, Enviro-Guard uses PBO to increase the effectiveness of
pyrethrum by as much as ten times. Without PBO, the cost of additional pyrethrum
would make the cost of the product prohibitive. The Company's products
consist of:
DIATECT D-20 INSECTICIDE, EPA REGISTRATION NO. 42850-1, INDOOR INSECTICIDE.
Control 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.
<PAGE> 8
RESULTS ROSE AND FLORAL. Protects Azaleas, Begonias, African Violets,
Chrysanthemums, Dogwood, Elm, Roses, Tulips, and many other plants. Destroy
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
products, which are synthetic chemicals.
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 animal-actuated insecticide applicators, which is
marketed to livestock growers. Other dusters are available which apply dust to
animals' hair but lack features that massage ultra-fine dust through the haft
onto the skin. Those features are unique to Dr. Scratch' dusters.
REGULATORY APPROVAL
The pesticide industry is heavily regulated on both the federal and state
level, particularly from the standpoint of the damage most pesticides can cause
to the environment. Before a pesticide can be used, it must receive governmental
approval commonly referred to as registration. Once registered pesticides are
still subject to additional regulation including the submission of new data to
add a new pest, geographic area or other change to the original limited approval
for the pesticide.
Before insecticides may be sold, the EPA must approve a registration package
and grant a use label. Additionally, state regulatory approval must be received
from any state where the insecticide is to be marketed. The Company's
insecticides are generally classified in the least hazardous category due to
their temporary/and nonintrusive nature in the environment. This has allowed the
Company to obtain EPA approval somewhat faster then other insecticides are
approved.
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 then the
Company and have established product recognition and following. The Company
believes, however, that by focusing on the non-synthetic pesticides, it will be
able to acquire a market niche which has not been a focus of the larger, better
<PAGE> 9
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 feels 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 cost millions of dollars.
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 both administrative and production
facilities on East Highway 36, Smith Center, Kansas. (See ITEM 2. PROPERTIES.)
EMPLOYEES
Name of Company No. of Employees Position Full-time Part-time
- --------------- ----------------- -------- --------- ---------
San Diego(1) 1 Officers 3 N/A
Enviro-Guard 1 Other 1 N/A
D.S.D. and Diatect 7 1 Officer/6 Other 7 N/A
White Mountain -- N/A N/A N/A
- -------------
(1) Two of the Company's three officers and directors are also employees of
Enviro-Guard.
<PAGE> 10
- --------------------------------------------------------------------------------
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
The Company's properties are as follows:
<TABLE>
<CAPTION>
Purpose Location Acreage/Sq. Ft. Lease/Own Description
- ------- -------- --------------- --------- -----------
<S> <C> <C> <C> <C>
San Diego 3335 South 900 East
Bancorp and Suite 230
Enviro-Guard Salt Lake City, UT 1,000 sq. ft. Lease Brick
Administrative
Offices
D.S.D. and
Diatect East Highway 36
Administrative Smith Center, KS 4,000 sq. ft. Own Brick
D.S.D. and
Diatect
Manufacturing, East Highway 36
and Warehouse Smith Center, KS 10,000 sq. ft. Own Metal/Quonset
White Mountain
Mining Claims Malheur County, OR 83 Lease 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 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
<PAGE> 11
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 rifle, cost of action, acquisition, and investigation
may be lost.
- --------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
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 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.
- --------------------------------------------------------------------------------
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, 1994.
<PAGE> 12
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, 1994, the bid and ask
quotations for the Company's common stock were $0.1875 and $0.125, respectively.
All bid prices below have been rounded to the nearest whole cent.
Bid Prices
Fiscal Year Ended December 31, 1993 High Low
- ----------------------------------- ---- ----
First, Second, and Third Quarter N/A N/A
Fourth Quarter $6.25 $4.00
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
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, 1994, the Company had 267 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. Therefore, a comparison of prior
years
<PAGE> 13
with the year ended December 31, 1994, would not conducive to an understanding
of the Company and its fiscal condition. Additionally, the acquisition of
Actagro and its subsequent disposition occurred almost entirely within fiscal
year 1994, as a result a discusion of Actagro's operations for comparative
periods would not have any meaningful significants. ABILITY OF THE COMPANY TO
CONTINUE AS A GOING CONCERN
The Company incurred a consolidated net loss of $1,770,363 for the year ended
December 31, 1994. In addition, current liabilities exceeded current assets by
$1,182,199. 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 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 1994 fiscal year the Company converted $323,862 in accrued wages,
salaries, and marketing fees into equity by offering shares of common stock.
Management anticipates converting up to $600,000 in short-term debt to equity
during fiscal year 1995. 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 existing liabilities and operating
expenses. The Company may also seek equity 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 $500,000. 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, 1994, the Company's revenues totaled
$6,398,293. Cost of sales total $3,330,537, thus yielding a gross profit of
$3,067,756. The Company operating expenses were $5,041,911. The 1994 fiscal
year operating loss for the Company's consolidated operations was $1,974,155.
Of those amounts, Actgro accounted for revenues of $5,863,350; costs of sales of
$2,992,517; and gross profits of $2,870,833. After deducted Actagro's operating
expenses of $2,719,113, Actagro had a profit, before taxes, of $151,720.
Revenues from Enviro-Guard were $534,943, with costs of sales at $338,020; and
gross profits of $196,923. Management believes that reduced cash flows, 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.
<PAGE> 14
Of the Company's operating expenses during fiscal year 1994, $570,187 was
depreciation and amortization; $541,316 was professional and consulting fees;
and $114,714 was interest 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 its will experience in increase in
product sales during the current 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. The Company
experienced a $323,645 loss during fiscal year 1994 associated with its
investment in Emission Reduction Technology. Although the Company expended
funds during 1994 in preparation for the production and marketing of the
emissions reduction device, limited working capital forced the Company to focus
a majority of its attention to the operation of its Enviro-Guard subsidiary and
the promotion of the Diatect insecticide products. The Company also experienced
a loss of $149,301 associated with the divestiture of Actagro.
The Company believes that many of the operating and administrative expenses
associated with the fiscal year 1994 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 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,
1994, the Company had a working capital deficit of $1,182,199, a reduction of
the working capital deficit of $1,780,637 at December 31, 1993. The Company has
current liabilities of $1,261,626, with an additional $120,228 in long term
debt. With the divestiture of Actragro, long term debt has been reduced by
$2,982,130, from $3,102,358 at December 31, 1993. Despite the reduction in
long-term debt, the Company working capital deficit has had a direct correlation
on the Company's inability to expand and market its products more 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 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 does feel that it will increase revenues from operations
as it moves from the development stage of its products, which includes lengthy
and costly time in obtaining EPA approval. With Enviro-Guard'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 Enviro-Guard's and Actagro's products. The Company
believes one of the largest markets for its product is the home and garden use
with this market accounting for over approximately 20% of the insecticide and
plant care industry. The home and garden market will be affected by the
Company's ability to market its products. 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.
<PAGE> 15
- --------------------------------------------------------------------------------
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.
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 December 31, 1994, the name, age, and
position of each executive officer and director and the term of office of each
director of the Company.
Director and/or
Name Age Position Officer Since
- ---- --- -------- -------------
James Dayley 62 President and Director October 1993
Robert B. Crouch 70 Director June 1993
Dale H. Christiansen 44 Treasurer and CFO October 1993
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. Each officer
serves, at the pleasure of the board of directors, for a term of one year 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. JAMES
DAYLEY, was self-employed as an independent business consultant assisting
businesses in capital formation and business acquisitions from February 1992 to
September 1993, when he became an officer and director of the Company. Mr.
Dayley is the author of Scoring Millions -- The Entrepreneur's Guide to Raising
$1,000,000 For a Business Venture by Going Public NOW!, which provides
businesses useful information regarding state "Small Corporate Offering
Registration Exemptions." From October 1990 to February 1992, Mr. Dayley was
<PAGE> 16
President and C.E.O. for Resource Recovery & Manufacturing Corp. ("RRMC"), East
St. Louis, Illinois, a development stage company organized for the purpose of
recovering resuable materials from the municipal waste stream of East St. Louis
and other nearby communities.
ROBERT B. CROUCH, has since 1991 been an officer and director of EGC. 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, DC in 1953.
DALE H CHRISTIANSEN, was prior to the acquisition of Enviro-Guard Corporation
("EGC") by the Company employed as EGC's Chief Financial Officer. From 1990 to
1993, self-employed as a financial management consultant. From 1988 to 1990, Mr.
Christiansen was a consultant and then chief financial officer for Security
Marketing 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. Kellog
Graduate School of Management, Northwestern University, Evanston, Illinois in
1977.
KEY EMPLOYEES AND OTHER PERSONNEL
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, a subsidary of the Company.
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, 1994, 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. The
following table sets forth as of December 31, 1994, 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 1994 fiscal year or prior years.
<PAGE> 17
Report to Filed Since
Name of Reporting Person Position Be Filed December 31, 1994
- ------------------------ -------- -------- -----------------
Elwynn S. Hewlett President,
Enviro-Guard Form 4 No
Corporation
Dale H. Christiansen CFO/Director Form 4 No
- --------------------------------------------------------------------------------
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 $100,000 during such period (as determined at December 31, 1994, the
end of the Company's last completed fiscal year):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted
Name and Compen- Stock Options/ LTIP All Other
Principal Position Year Salary($) Bonus($) sation Awards SARs(#) Payout Compensation
- ------------------ ---- --------- -------- ------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James Dayley 1994 44,500 -0- -0- -0- -0- -0- -0-
Pres. and C.E.O., 1993 6,000 -0- -0- -0- -0- -0- -0-
San Diego Bancorp 1992 -0- -0- -0- -0- -0- -0- -0-
Elwynn S. 1994 104,000 -0- -0- -0- -0- -0- -0-
Hewlett, Jr.(1) 1993 104,000 -0- -0- -0- -0- -0- -0-
President and 1992 91,000 -0- -0- -0- -0- -0- -0-
C.E.O., Enviro-
Guard Holding Corp.
<FN>
(1) Neither the Company, nor Enviro-Guard Holding Corporation have an employment
agreement with Mr. Hewlett. Certain portions Mr. Hewlett's salary for fiscal
years 1994, 1993, and 1992 were accrued ($83,185, $49,009, and $50,525,
respectively) and paid by the issuance of 122,634 shares of the Company's common
stock in 1994, valued at $1.00 per share, and 159,570 shares of the Company's
common stock in 1995, valued at $1.00 to $1.50 per share.
</TABLE>
<PAGE> 18
ACCRUED COMPENSATION
During fiscal years 1994, 1993, 1992, and 1991, the Company accrued salaries
for its officers and directors that are either employees of the Company or its
subsidiaries in the amounts of $303,447, $188,903, $136,715, and $57,600,
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 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
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 receive no compensation or cost
reimbursement for attendance at board meetings.
1994 STOCK OPTION PLAN
Set forth below is a summary of the Company's 1994 Stock Option Plan (the
"Plan"), which is qualified in its entirety by the actual provisions of the
Plan.
In March 1994, 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
<PAGE> 19
quorum is present. No member of the board or duly authorized committee shall be
liable for any action taken or determination made in good faith with respect to
the Plan.
The Company may grant options to purchase up to 1,000,000 shares of Common
Stock under the Plan, which, as of December 31, 1994, options to purchase up to
959,418 shares had been issued and 957,338 have been 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 bard 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 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
<PAGE> 20
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, 1994, 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 8,203,267 issued and
outstanding shares of the Company's Common Stock, and the name and share
holdings of each officer and director of the Company and its principal
subsidiaries and of all officers and directors as a group.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Name and Amount
Title Address of and Nature of Percent
of Beneficial Beneficial of
Class Owner Ownership(1) Class
- ----- ---------- ------------- -------
<S> <C> <C> <C>
Common Pioneer Industrial Life Insurance 1,000,000 12.19
Company, Ltd.
P.O. Box N4826, Matron House
Nassau, Bahamas
Common Enviro-Guard Holding Corporation 3,552,710 43.31
4970 South 900 East, Building J
Salt Lake City, UT 84117
Common Elwynn S. Hewlett, Jr.
4970 South 900 East, Building J 3,789,814(2) 46.20
Salt Lake City, UT 84117
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS OF THE COMPANY AND ITS PRINCIPAL SUBSIDIARY
Name and Amount
Title Position of and Nature of Percent
of Officer and Beneficial of
Class Director Ownership(1) Class
- ----- ----------- ------------- --------
<S> <C> <C> <C>
Common Elwynn S. Hewlett, Jr. --See Above--
President, C.E.O., Enviro-
Guard Holding Corporation
Common James Dayley 30,000 0.36
President, C.E.O.,
All Officers/Directors
as a Group (4 Persons) 5,024,793 61.25
<FN>
(1) All shares owned directly are owned beneficially and of record and such shareholder
has sole voting, investment, and dispositive power, unless otherwise noted.
(2) Includes shares held of record by Enviro-Guard Holding Corporation of which Mr. Hewlett is the C.E.O., President,
Director and Principal Shareholder, and may be deemed to have indirect
beneficial ownership.
</TABLE>
- --------------------------------------------------------------------------------
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
<PAGE> 22
member of the immediate family of any of the foregoing persons, has an interest.
Loan from Shareholders
In May 1992, Enviro-Guard Corporation gave a promissory note in the amount of
$112,215 and 100,000 shares of Enviro-Guard Corporation to George Reeve, to
acquire a 25 % interest in an environmental system which reportedly removes
minerals and/or mineral deposits from water systems. The interest was sold in
August 1993 to an investment group for $270,000. The promissory note bears
interest at 9% annually and in unsecured. The note is due in full during May
1995. At December 31, 1994, principle and accrued interest totaled $132,337.
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, 1994, the principle and accrued interest totaled
$418,581.
- --------------------------------------------------------------------------------
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, 1994 and 1993 F-2
Consolidated Statement of Operations
for the years ended December 31, 1994, 1993, and 1992 F-4
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1994,
1993, and 1992 F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1994, 1993, and 1992 F-6
Notes to Financial Statements F-9
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Not applicable
<PAGE> 23
(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!
Item 4 Instruments Defining the Rights of Security Holders
- --------------------------------------------------------------------------------
4.01 4 Specimen Stock Certificated Incorporated
by reference*
4.06 4 1994 San Diego Bancorp Stock Incorporated
Option Plan by reference~
Item 10 Material 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=
* 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.
<PAGE> 24
& 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.
(b) Reports on Form 8-K. The following reports on Form 8-K
were flied with the Commission during the quarter ended
December 31, 1994:
Form 8-K dated December 5, 1994:
Item 2.Acquisition or Disposition of Assets
Divestiture of Actagro, Inc.
<PAGE> 25
- --------------------------------------------------------------------------------
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: July 12, 1996 By /s/ Ross S. Wolfley
---------------------------
Ross S. Wolfley, President
Date: July 12, 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: July 12, 1996 By /s/Ross S. Wolfley
----------------------------
Ross F. Wolfley, Director
Date: July 12, 1996 By /s/Dennis P. Nielsen
----------------------------
Dennis P. Nielsen,Director
Date: July 12, 1996 By /s/Elwynn S. Hewlett
----------------------------
Elwynn S. Hewlett, Director
Date: July 12, 1996 By /s/George H. Henderson
----------------------------
George H. Henderson, Director
Date: July 12, 1996 By /s/Michael P. McQuade
----------------------------
Michael P. McQuade, Director
Date: July 12, 1996 By /s/Robert B. Crouch
----------------------------
Robert B. Crouch, Director
<PAGE>
To The Board of Directors
of San Diego Bancorp
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying consolidated statements of financial position of
San Diego Bancorp (a California corporation) and its subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the years ended December 31,
1994, 1993 and 1992. 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. Those statements were audited by
other auditors whose report has been furnished to me, and in my opinion,
insofar as it relates to the amounts included for Actagro Acquisition, Inc., is
based solely on the report of the other auditors.
I conducted my audit in accordance with generally accepted auditing standards.
Those 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 audit and the report of other
auditors provide a reasonable basis for my opinion.
In my opinion, based on my audit and the report 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, 1994 and 1993, and the results of their
operations, changes in stockholders' equity and cash flows for the years ended
December 31, 1994, 1993 and 1992, 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 $1,182,199
as of December 31, 1994. 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 16. 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
July 10, 1996
<PAGE>
SAND DIEGO Consolidated Statement of Financial Position
BANCORP As of December 31, 1994 and 1993
- --------------------------------------------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
19941993
CURRENT ASSETS ---------- ----------
<S> <C> <C>
Cash $ $ 125,787
Accounts receivable, net of allowance for doubtful
accounts of $-0- and $29,597, respectively (Note 2) 17,980615,346
Advances to shareholder 25,877
Advances to employees 276 22,323
Interest receivable 1,844
Income tax refund receivable 66,018
Inventories (Notes 2 & 3) 57,882206,326
Prepaid expenses 3,28946,968
--------------------
Total Current Assets 79,4271,110,489
--------------------
PROPERTY, PLANT AND EQUIPMENT (Notes 2,4,7,8 & 9)
Buildings 314,2183,020,966
Mining property 4,440,5434,510,696
Equipment 270,2792,209,863
--------------------
Total Property, Plant and Equipment 5,025,0409,741,525
Less accumulated depreciation 251,377233,406
--------------------
Net Property, Plant and Equipment 4,773,6639,508,119
---------------------
OTHER ASSETS
Investment in EPA labels, Net of
amortization (Notes 2 & 5) 3,804,3644,420,372
Trademarks and patents, less accumulated
amortization of $26,355 (Note 2) 1,936,875
Cash value of life insurance 66,606
Notes receivable 250,15045,000
Deposits 467 44,617
Other assets 1,02915,733
--------------------
Total Other Assets 4,056,0106,529,203
--------------------
TOTAL ASSETS $ 8,909,100$ $ 17,147,811
=====================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F2
<PAGE>
SAND DIEGO Consolidated Statement of Financial Position
BANCORP As of December 31, 1994 and 1993
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 165,474 $ 1,028,486
Bank overdraft 1,847
Dealer deposits 10,625 22,801
Accrued compensation 121,967
Interest payable 113,090 51,514
Income taxes payable 33,563 19,450
Other accrued liabilities 29,134 7,745
Notes payable (Note 7) 505,561 1,147,310
Current portion of capital lease obligation (Note 8) 19,653
Current portion of long-term debt (Note 9) 402,332 472,200
--------- ----------
Total Current Liabilities 1,261,626 2,891,126
--------- ----------
LONG-TERM LIABILITIES
Long-Term debt, less current portion (Note 9) 120,228 3,070,399
Capital lease obligation, less current portion (Note 8) 31,959
---------- ----------
Total Long-Term Liabilities 120,228 3,102,358
---------- ----------
DEFERRED TAX LIABILITY (NOTE 10) 1,458,563 3,133,816
---------- ----------
COMMITMENTS (NOTE 1)
MINORITY INTEREST 340,215 341,033
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no - par value; 20,000,000 shares
authorized; 8,203,267 and 6,394,953 shares issued
and outstanding, respectively 8,550,140 8,432,969
Common stock subscribed (Note 12) 197,450 495,268
Accumulated deficit (3,019,122) (1,248,759)
----------- ----------
Total Stockholder's Equity 5,728,468 7,679,478
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,909,100 $ 17,147,811
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F3
<PAGE>
SAND DIEGO Consolidated Statement of Operation for the
BANCORP Years Ended December 31, 1994, 1993 and 1992
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
------------------ --------------------
<S> <C> <C> <C>
REVENUES $ 6,398,293 $ 597,458$ 151,145
COST OF SALES 3,330,537 329,937122,332
---------- --------------------
GROSS PROFIT 3,067,756 267,52128,813
---------- --------------------
OPERATING EXPENSES
General and administrative 2,192,015
Salaries, wages and benefits 452,548 299,361165,615
Consulting 281,972 215,644102,995
Research and development 48,671 37,03887,600
Travel 93,083 56,86248,921
Rent 29,962 18,80925,028
Interest 408,257 59,58027,623
Utilities 11,536 10,66033,783
Depreciation and amortization 757,889 21,30110,211
Advertising 307,393 19,4959,336
Office 79,483 74,5539,989
Taxes and licenses 36,251 33,40712,643
Professional fees 259,344 69,5212,924
Insurance 27,985 11,9765,575
Bad debts 7,898 7,700 4,206
Repairs and maintenance 31,844 8,1452,132
Miscellaneous 15,780 614
---------- --------------------
Total Operating Expenses 5,041,911 944,666548,581
---------- --------------------
OPERATING (LOSS) (1,974,155) (677,145)(519,768)
OTHER INCOME (LOSS)
Unrealized loss on investment in ERT (Note 1) (323,645)
Loss on disposition of subsidiary (Note 1) (149,301)
Interest 80,970 2,868844
Gain on sale of assets 600 123,953
Gain on reduction of notes payable 226,649
Minority interest in loss 822
Miscellaneous 129,144 2,25910,342
---------- --------------------
Total Other Income (Loss) (34,761) 129,08011,186
---------- --------------------
(LOSS) BEFORE INCOME TAX BENEFIT (2,008,916) (548,065)(508,582)
INCOME TAX BENEFIT (Note 10) 38,553
----------
========== ====================
NET (LOSS) $ (1,770,363) $ (548,065)$ (508,582)
========== ====================
NET (LOSS) PER SHARE (Primary) $ (.219) $ (.098)$ (.144)
========== ====================
NET (LOSS) PER SHARE (Fully Diluted) $ (.208)
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F4
<PAGE>
SAND DIEGO Consolidated Statement of Changes in Stockholders
BANCORP Equity for the Years Ended
December 31, 1994, 1993 and 1992
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------- Common Stock Accumulated
Shares Amount Subscribed DeficitTotal
---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Balance as of December 31, 1991 2,015,063 $ 6,123 $ (192,112)$ (175,989)
Common stock issued for reverse
acquisition of Enviro-Guard
Corporation at $1.75 per share
(Note 1) 3,594,953 6,295,227 6,295,227
Net (loss) (508,582) (508,582)
---------- ---------- --------------------
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 (Note 1) $ 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 1,358,627 1,036,212 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 (Note 12) (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
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F5
<PAGE>
SAND DIEGO Consolidated Statement of Cash Flows for the
BANCORP Years Ended December 31, 1994, 1993 and 1992
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 19931992
---------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net (loss) $ (1,770,363)$ (548,065)$ (508,582)
Add items not requiring the use of cash:
Depreciation and amortization 562,915 21,301 10,211
(Increase) decrease in accounts receivable 597,366 (565,153) (50,193)
(Increase) decrease in advances 47,924 (48,200)
(Increase) decrease in interest receivable 1,844 (1,000) (844)
(Increase) decrease in income tax receivable 66,018 (66,018)
(Increase) decrease in inventories 148,444 (196,280) (10,046)
Decrease in deposits 40,861
(Increase) decrease in prepaid expenses 46,968 (41,661) (5,307)
Increase (decrease) in accounts payable (863,013) 975,579 45,841
(Decrease) in deferred tax credit (1,675,252) (214,138)
Increase (decrease) in dealer deposits (12,716) (1,639) 24,440
Increase (decrease) in accrued compensation (134,419) 198,786
Increase in interest payable 61,576 30,528 20,755
Increase in income taxes payable 14,113 3,040 16,410
(Decrease) in minority interest (818)
Increase (decrease) in other accrued liabilities (100,578) (97,102)78,347
---------- ---------- ----------
NET CASH FLOWS USED FROM OPERATING
ACTIVITIES (2,834,711) (883,227) (180,182)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of notes receivable (205,150)
(Acquisition) disposal of property, plant and equipment 4,716,485 (27,867)
Divestiture of intangible and other assets 2,089,789 112,215
---------- ---------- ----------
NET CASH FLOWS PROVIDED (USED) FROM
INVESTING ACTIVITIES 6,601,124 112,215 (27,867)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 310,499
Reduction of capital lease obligation (51,612)
Reduction of capital contributions (180,647)
Reduction of debt (3,661,788)
Net proceeds from notes payable 576,753 213,157
---------- ---------- ----------
NET CASH FLOWS PROVIDED (USED) FROM
FINANCING ACTIVITIES (3,894,047) 887,252 213,157
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH (127,634) 116,240 5,108
CASH BALANCE AT BEGINNING OF PERIOD 125,787 9,547 4,439
---------- ---------- ----------
CASH BALANCE AT END OF PERIOD $ (1,847) $ 125,787 $ 9,547
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F6
<PAGE>
SAND DIEGO Consolidated Statement of Cash Flows for the
BANCORP Years Ended December 31, 1994, 1993 and 1992
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid in cash $ 38,318 $ 28,504 $ 10,923
========== ========== ==========
Issuance of common stock and notes payable
for the acquisition of subsidiary $ 700,000
==========
Issuance of common stock and assumption of
debt for acquisition of subsidiary $ 3,048,360
==========
Issuance of common stock and notes payable
for the acquisition of subsidiary $ 3,458,400
==========
Issuance of common stock and notes payable
for the acquisition of subsidiary $ 3,811,120
==========
Issuance of common stock for debt cancellation $ 263,334
==========
Issuance of common stock for equipment $ 20,000
==========
Issuance of common stock for the
acquisition of subsidiary $ 323,645
==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F7<PAGE>
<PAGE>
SAND DIEGO
BANCORP Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
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) gains 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 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) 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 of 1992, Enviro-Guard acquired 100% of the outstanding
common stock of D.S.D., Inc. (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., Inc. from a
shareholder of D.S.D., Inc. This transaction was valued at
$3,048,360, and accounted for as a purchase. 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
F8
<PAGE>
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 Enviro-Guard
Corporation to have a source of diatomite, which is an important
organic ingredient for its environmentally-safe insecticides.
On December 30, 1993, SDBC acquired 100% of the outstanding common
stock of Actagro Acquisition, Inc., (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 Acquisition, Inc. 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
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, SDBC divested itself of Actagro. In the
divestiture, Actagro returned SDBC's 715,063 common shares. 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 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.
F9
<PAGE>
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.
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 when depreciable assets are
retired or otherwise disposed. The cost and related accumulated
depreciation are eliminated from the accounts and the resulting gain
or loss is reflected in the statement of operations. Depreciation is
provided for by the use of straight-line and accelerated methods over
the estimated useful lives of the assets. Depletion is provided 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.
F10
<PAGE>
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 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:
12/31/94 12/31/93
---------- ----------
Raw Materials $ 41,474 $146,498
Finished Goods 16,408 59,828
---------- ----------
Total $ 57,882 $206,326
========== ==========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
The Company owns land and buildings in the following locations:
12/31/94 12/31/93
---------- ----------
Fresno, California $2,705,774
Salt Lake City, Utah $287,099 287,099
Smith Center, Kansas 27,119 28,093
---------- ----------
Total Land and Buildings $ 314,218 $3,020,966
========== ==========
The Company owns 83 unpatented mining claims located in Malheur
Country, Oregon with cost basis of $4,510,696. Commercial production
of diatomite has not commenced on this property.
NOTE 5 - INVESTMENT IN EPA LABELS
The Company has acquired three registrations or labels issued by the
U.S. Environmental Protection Agency granting federal clearance to
manufacture and market 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
F11
<PAGE>
crops and plants up to and including the day of harvest. Approval
for use of these three labels 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 %.
F12
<PAGE>
NOTE 7 - NOTES PAYABLE
<TABLE>
<CAPTION>
Balance as of Balance as of
Creditor and Conditions December 31, 1994December 31, 1993
------------------------------------
<S> <C> <C>
ACTAGRO ACQUISITION, INC., and another
individual, interest due monthly at 2.5% per
month with a minimum of $2,500 per month
and an additional facility fee of 0.75% per
annum, due on demand $119,302
UNOCAL CHEMICAL AND MINERALS, unsecured,
interest at 8.5%, due on demand 133,268
PACIFEX, unsecured interest at 8.5%, due on
demand. 229,733
JOHN NORDSTROM, unsecured, interest at 10%,
due on demand 40,000
CLYDE IRION, (a shareholder of the Company)
unsecured, interest at 10%, due on demand 30,000
A.E. SMITH, (a shareholder of the Company),
secured by the accounts receivable, buildings and
equipment of D.S.D., Inc., interest at 8.75%,
renewable annually on July 31. Interest on this
note has been paid to April 15, 1991 60,907
A.E. SMITH, unsecured, non-interest bearing
obligation, due on demand 50,000
L. CRAIG HUNT, secured by Smith Center
property, interest at 12.5%, due on demand $25,000
JOHN WILDING, original $46,755 note, secured by
common stock of White Mountain Mining and
Manufacturing, Inc., interest at 16.5%, due on
demand. 30,950 39,100
AGRI-DYNE CORPORATION, unsecured, interest at
10%, due on demand 25,000 25,000
DAVID RUSSELL, unsecured, interest at 10%, due
on demand 15,000 15,000
GEORGE BISHOP, unsecured, interest at 10%, due
on demand 5,000
ROBERT WILLIAMS, secured by buildings, no
interest, due on demand 23,030 25,000
DANNY WIRKEN, (a shareholder of the Company),
unsecured, interest at 8%, due on demand 386,581 400,000
---------- ----------
TOTAL $505,561 $1,147,310
========== ==========
</TABLE>
F13
<PAGE>
NOTE 8 - CAPITAL LEASE OBLIGATION
With the divestiture of Actagro, the Company no longer has equipment
under capital leases as of December 31, 1994. As of December 31,
1993, $64,753 of leased equipment had been capitalized with related
accumulated amortization of $1,799.
The following is a comparative annual schedule of future minimum
lease payments for assets under capital leases:
Period Ending December 31 12/31/94 12/31/93
------------------------- -------- --------
1994 $26,968
1995 26,968
1996 8,989
-----
Total minimum lease payments 62,925
Less amounts representing interest (11,313)
--------
Present value of minimum lease payments 51,612
Less current portion (19,653)
--------
Long-term portion of capital lease obligations $31,959
========
F14
NOTE 9- LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
------------------- ------------------
Due Within Due AfterDue Within Due After
Creditor & Conditions One Year One Year One Year One Year
-------- -------- -------- --------
<S> <C> <C> <C> <C>
VARIOUS CONTRACTS PAYABLE, monthly
payments ranging from $538 to
$707 including interest ranging
from 5.9% to 13%, secured by
vehicles, due dates maturing
through April 1996 $23,215 $22,946
REGENCY BANK, monthly payments
of $12,804 including interest at
prime plus 2.75% secured by real
and personal property, guaranteed
by a shareholder of the Company
and an individual, due April 13,
2002 85,263 757,753
GERALD NORDSTROM (a shareholder
of the Company)monthly payments
of approximately $1,200 including
interest at prime plus 2% , due
January, 1996 9,610 46,762
KLEINS BIOLA RANCHES, INC.,
annual payments of $6,000 plus
interest at 9%, secured by deed of
trust, due December, 1997 12,000 47,440
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 15,040 136,822
FORMER SHAREHOLDERS of White
Mountain Mining and
Manufacturing, 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%, unsecured, due
May, 1995 105,078 87,628 17,450
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 71,226 30,000 41,226
GERALD NORDSTROM, (a
shareholder), promissory note at
7.5% interest, quarterly interest
only payments beginning March
1994, then quarterly payments of
$59,893 plus interest from March
1997 through December 2000. 958,289
</TABLE>
F15
<PAGE>
NOTE 9- LONG-TERM DEBT - Continued
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
-------------------------------------
Due Within Due AfterDue Within Due After
Creditor & Conditions One Year One Year One Year One Year
-------- -------- -------- --------
<S> <C> <C> <C> <C>
JOHN MARIHART, (a shareholder),
promissory note at 7.5% interest,
quarterly interest only payments
beginning March 1994, then
quarterly payments of $59,893 plus
interest from March 1997 through
December 2000 958,289
CLYDE IRION, (a shareholder),
promissory note at 7.5% interest,
quarterly interest payments
beginning on March 1994, then
quarterly payments of $2,663 plus
interest from March 1997 through
December 2000 42,609
TOM AVINELIS, (a shareholder),
promissory note at 7.5% interest,
quarterly interest only payments
beginning March 1994, then
quarterly payments of $2,551 plus
interest from March 1997 through
December 2000 40,813
------
TOTALS $402,332 $120,228 $472,200$3,070,399
======== ======== ==================
</TABLE>
Aggregate maturities required on long-term debt are as follows:
Period Ending December 31, Amount
-------------------------- ------
1995 $402,332
1996 18,241
1997 101,987
-------
Total $522,560
========
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.
F16
<PAGE>
NOTE 10 - INCOME TAXES
The net deferred tax liability in the accompanying statements of
financial position includes the following components:
12/31/94 12/3193
-------- -------
Deferred tax asset $ 980,942 $ 214,137
Less: Deferred tax asset
valuation allowance (490,470)
--------- -------
Net deferred tax asset 490,47 214,137
Deferred tax liability (1,949,035) (3,347,953)
---------- -----------
Net deferred tax liability $(1,458,563)$(3,133,816)
=========== ===========
The following temporary differences give rise to the deferred tax
asset:
12/31/94 12/31/93
-------- --------
Net operation loss carry
forwards $ 899,812 $ 160,823
Unrealized capital loss 81,130
Administrative expenses
capitalized as inventory 28,486
Direct write-off of bad debt 1,118
Vacation accrual expensed 23,710
------ ------
Deferred tax asset $ 980,942 $ 214,137
========== ==========
The following temporary differences give rise to the deferred tax
liability as of December 31, 1993:
12/31/94 12/31/93
-------- --------
Excess of financial accounting
basis of assets of purchased
companies over tax basis
(see below) $ 2,088,251 $ 3,267,999
Amortization of deferred
tax liability (139,216)
Excess of tax over
financial accounting
depreciation 79,954
------ ------
Deferred tax liability $ 1,949,035 $ 3,347,953
=========== ===========
F17
<PAGE>
The following temporary differences give rise to the deferred income
tax benefit:
12/31/94
--------
Net operating loss carryforward $899,812
Unrealized capital loss 81,130
------
980,942
Less: Valuation allowance (742,389)
---------
Deferred income tax benefit $ 238,553
During 1992, Enviro-Guard Corporation (the reverse acquisition
predecessor to San Diego Bancorp) 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 $1,248,759 at December
31, 1994, will begin to expire in 2006.
NOTE 11 - 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, 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 $1.4 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
F18
<PAGE>
action against the Company was an attempt to mitigate losses
resulting from the acts and/or omissions of its own employees. 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 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.
NOTE 12 - COMMON STOCK SUBSCRIBED
As of December 31, 1994, the Company and the following individuals
agreed to convert accrued wages and marketing expenses into common
stock at the rate of $.40 per share; 359,875 shares of common stock
was subsequently issued to Messrs. Hewlett, Downs, Crouch, and
Christiansen in 1995.
Name of Individual Accrued Wages
Elwynn Hewlett, Jr. $ 46,250
Jay Downs 31,550
Robert Crouch 35,550
Dale Christiansen 30,600
------
Subtotal 143,950
-------
Marketing Expense
-----------------
Paul Jensen 53,500
Total $197,450
========
NOTE 13 - 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.
F19
<PAGE>
NOTE 14 - STOCK OPTIONS
The Company has the following common stock options outstanding as of
December 31, 1994:
Number of Exercise
Stock Optionee Stock Options Price
-------------- ------------- --------
Danny Wirken 100,000 $4.00(1)
Taylor & Associates 2,080 Bid Price(2)
Doug Goff 50,000$0.10(3)
Dennis Nielsen 230,000 $0.10(4)
John Runft 2,120 $0.50(5)
George Henderson 50,000 $0.10(3)
------
Total 434,200
=======
(1) These stock options may be exercised after April 1,
1994, but prior to October 1, 1995.
(2) These options must be exercised prior to August 1, 1995.
(3) These options must be exercised prior to June 1, 1995.
(4) These options must be exercised prior to October 17,
1995.
(5) These options must be exercised prior to June 5, 1995.
NOTE 15 - RELATED PARTY TRANSACTIONS
San Diego Bancorp has a note payable to a shareholder, with balances
of $386,581 and $400,000 as of December 31, 1994 and December 31,
1993, respectively.
NOTE 16 - 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, 1994, 1993, 1992, and 1991, and had a
working capital deficiency of $1,182,199 as of December 31, 1994.
The Company raised additional working capital in 1995 and 1996
through the issuance of additional common stock and through
operations of its Kansas subsidiaries.
F20
<PAGE>
NOTE 17 - SUBSEQUENT EVENT
On October 27, 1995, the Company filed litigation in the Kansas
District Court as plaintiffs along with the Company's wholly owned
subsidiary Kansas corporations against the former owner and
president of the three subsidiary Kansas corporations, A.E. Smith, of
Smith Center, Kansas, on the grounds of fraud, breach of contract,
rescission, 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, A.E. 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, which had been recorded in the financial
statements as of December 31, 1994. Mr. Smith also returned
Enviro-Guard Holding Company common stock to the Company. As of
July, 1996, the balance owed to Mr. Smith is approximately $180,000,
due in early 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000319124
<NAME> SAN DIEGO BANCORP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> (1874)
<SECURITIES> 0
<RECEIVABLES> 17980
<ALLOWANCES> 0
<INVENTORY> 57882
<CURRENT-ASSETS> 79427
<PP&E> 5025040
<DEPRECIATION> 251377
<TOTAL-ASSETS> 8909100
<CURRENT-LIABILITIES> 1261626
<BONDS> 0
0
0
<COMMON> 8550140
<OTHER-SE> 197450
<TOTAL-LIABILITY-AND-EQUITY> 8909100
<SALES> 6398293
<TOTAL-REVENUES> 6398293
<CGS> 3330537
<TOTAL-COSTS> 5041911
<OTHER-EXPENSES> 34761
<LOSS-PROVISION> (1974155)
<INTEREST-EXPENSE> 408257
<INCOME-PRETAX> (2008916)
<INCOME-TAX> (238553)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1770363)
<EPS-PRIMARY> (0.219)
<EPS-DILUTED> (0.208)
</TABLE>
