UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998.
[ ] TRANSACTION REPORT UNDER SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from To
Commission File Number 0-14213
U.S. MICROBICS
(Formally Global Venture Funding, Inc.)
(Name of small business issuer in its charter)
Colorado 84-0990371
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6965 El Camino Real, Ste 105-279
Carlsbad CA 92009
(Address of principal executive offices)
Issuer's telephone number (760) 436-5485
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 issuer was required to file such report), and
(2) has been subject to such filing requirements for the
past 90 days. Yes x No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date.
Class Outstanding at May 8, 1998
Common Stock
$.0001 par value 3,228,048
=================================
U.S. Microbics and Subsidiaries
(formerly Global Venture Funding, Inc.)
Consolidated Balance Sheets
As of March 31, 1998 and September 30, 1997
<TABLE>
<CAPTION>
<C> <C> <C>
March 31, September 30,
1998 1997
(Unaudited) (Audited)
ASSETS
Current Assets
Cash $ 15,232 $ 1,700
Accounts receivable
- trade 253,534 -
Inventory 2,475 -
Prepaid expenses and
other assets 500 28,000
Total current assets 271,741 29,700
Plant and equipment
(Note 2) 37,792 36,200
Total assets $ 309,533 $ 65,900
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 3) $ 25,000 $ 75,400
Accounts payable and
accrued liabilities 50,772 88,300
Net liabilities of
discontinued operation
(Note 4) - 76,900
Total current liabilities 75,772 240,600
Stockholders' equity
(deficit) (Note 5):
Convertible preferred stock,
$.10 par value; authorized
20,000,000 shares:
Series II; authorized 500,000
shares; issued and outstanding
21,857 and 22,519 shares
(aggregate liquidation preference
of $21,857 and $22,519) 2,186 2,300
Series B; authorized 500,000
shares; issued and outstanding
17,955 and 18,655 (aggregate
liquidation preference of $17,955
and $18,655) 1,796 1,900
Series C, authorized 50,000
shares; issued and outstanding
13,470 and 3,240 shares
(aggregate liquidation preference
of $1,347,000 and $324,000) 1,347 300
Series D; authorized 50,000 shares:
issued and outstanding 32,450 and
17,138 shares (no liquidation
preference) 3,245 1,700
Common stock $.0001 par value;
authorized 150,000,000 shares; issued
and outstanding 1,628,048 and
1,447,929 162 200
Additional paid-in capital 2,305,910 1,928,000
Stock options 204,357 187,700
Treasury stock - (1,000)
Accumulated deficit (2,285,242) (2,295,800)
Total stockholders' equity
(deficit) 233,761 (174,700)
Total liabilities and stockholders'
equity (deficit) $ 309,533 $ 65,900
</TABLE>
==============================
U.S. Microbics and Subsidiaries
(formerly Global Venture Funding, Inc.)
Consolidated Statement of Cash Flow
For the six months and quarters ended
March 31, 1998 and 1997
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
For The Six For the Three
Months Ended March 31, Months Ended March 31,
1998 1997 1998 1997
Cash flows from operation activities:
Net income (loss) $ 10,521 $ (255,791) $ 96,421 $ (150,376)
Depreciation - - - -
Adjustments to reconcile net income
(loss) to net cash (used) by operating
activities:
(Increase) decrease in:
Accounts receivable - trade (253,534) (253,534)
Inventory 2,475) (2,475)
Stock options exercised - 30,000
Prepaids, deposits and other assets 27,500 5,169 47,600 11,573
Increase (decrease) in:
Notes payable (50,400) 6,500
Accounts payable and accrued
expenses (37,491) 35,506 11,824 11,357
Net liabilities of discontinued
operations (76,900) - 8,059
Common stock subscriptions
payable 81,000 81,000
Net cash (used) by operating
activities (382,779) (104,116) (93,664) (38,387)
Cash flows from financing activities
Issuance of common stock and
preferred stock in exchange for
services 229,403 27,191 14,968 25,690
Proceeds from issuance of
common and preferred stock net
of placement fees 167,500 79,620 91,520 79,620
Proceeds from issuance of
long-term debt to related parties 98,500
Cancellation of treasury stock 1,000 1,000
Repayments of long-term debt (118,889) (87,100)
Repayments of notes payable (6,156) - (3,087)
Net cash flow from financing
activities 397,903 80,266 107,488 15,123
Cash flows from investing activities:
Purchase of leasehold improvements
and equipment (1,592) (16,620) (1,592) (10,395)
INCREASE (DECREASE) IN
CASH 13,532 (40,470) 12,232 (33,659)
CASH AT BEGINNING OF
PERIOD 1,700 49,836 3,000 43,025
CASH AT END OF PERIOD $ 15,232 $ 9,366 $ 15,232 $ 9,366
</TABLE>
===================================
U.S. Microbics and Subsidiaries
(formerly Global Venture Funding, Inc.)
Consolidated Statement of Income
For the six months quarters ended
March 31, 1998 and 1997
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C>
For the Six For the Three
Months Ended March 31, Months Ended March 31,
1998 1997 1998 1997
Revenues $ 259,124 $ - $ 259,124 $ -
Cost of revenues 193 - 193 -
Gross profit 258,931 - 258,931 -
Selling, general , and
administrative expenses 198,601 239,214 145,841 140,940
Income (loss) from operations 60,330 (239,214) 113,090 (140,940)
Other expenses:
Interest related parties 16,577 9,436
Interest expense 49,809 - 16,669 -
Net Income (loss) from continuing
operations before taxes 10,521 (255,791) 96,421 (150,376)
Provision for income taxes - - - -
Net profit (loss) from continuing
operations 10,521 (255,791) 96,421 (150,376)
Discontinued operations - - - -
Net income (loss) $ 10,521 $(255,791) $ 96,421 $(150,376)
BASIC Earnings Per Share $ Nil $ (0.07) $ 0.03 $ (0.04)
Net income (loss) per common share
Weighted average common shares
and common equivalents outstanding 3,674,965 3,853,932 3,674,965 3,853,932
Diluted Earnings Per Share $ Nil $ (0.07) $ 0.02 $ (0.04)
Net income(loss) per common share &
outstanding options
Weighted average common shares,
common equivalents and options 3,894,965 3,853,932 3,894,965 3,853,932
outstanding
</TABLE>
==============================
NOTES TO FINANCIAL STATEMENTS
1. Basis of presentation and accounting policies:
Organization and basis of presentation:
Global Venture Funding, Inc. (the "Company" or "GVF")
was incorporated in Colorado on December 7, 1984 under
the name of Venture Funding Corporation. The Company
was formed for the purpose of acquiring or merging with
a privately held business. The Company completed
its registered offering on Form S-18 on October 17, 1985.
The stock was traded in the OTC market.
On May 8, 1992, a "Certificate of Assumed or Trade Name"
was filed with the Colorado Secretary of State to record the
trade name of "Global Venture Funding, Inc." On June 18,
1993, the Articles of Incorporation were amended and the
name of the Company was changed to Global Venture
Funding, Inc. In April of 1998, the Articles of Incorporation
were amended and the name of the company was changed
to U.S. Microbics (USMX), the name under which the
company now transacts business.
From May 1996 to October 1997, USMX was pursuing
opportunities in the prepaid cellular communications business
via an acquired subsidiary in Atlanta, a national support
center in Las Vegas, and a retail store operation in
Houston, TX. The Atlanta operation was closed in 1996
and the national support center in 1997. The Houston
operation was sold to its existing management in December
1997 with an effective date of October 31, 1997.
On July 17, 1997, Robert Brehm became CEO and changed
the direction of the company. The Board of Directors
authorized a one for twenty reverse split of all classes of
the stock effective on August 20, 1997.
USMX has a fiscal year ending in September and is
currently building an environmental conglomerate based upon
the microbial technology acquired from XyclonyX.
On August 30, 1997, USMX acquired XyclonyX, a
microbial technology company with headquarters in
La Jolla, CA. XyclonyX was acquired to capitalize on
the prior commercial success of the existing management
with microbial technology applications in oil recovery,
environmental cleanup, hazardous waste management and
agricultural applications. USMX operates XyclonyX as a
separate profit center with its own management
and technology.
During fiscal 1998, USMX created another subsidiary,
West Coast Fermentation Center, to cultivate
microbial cultures that are sold to third party licensees
and other subsidiaries of USMX. In November 1997,
USMX formed Sub-Surface Waste Management, a
wholly owned subsidiary whose purpose is to
manufacture and sell the patented Bio-RaptorTM
technology licensed from XyclonyX. During the
second quarter, USMX also formed Sol Tech
Corporation and Bio-Con Microbes as wholly
owned subsidiaries to reach the sewage treatment
and agriculture markets.
The Company is in the process of arranging and
obtaining private and public financing for additional
equity to provide working capital for current overhead
costs as well as to finance start-up costs of its West Coast
Fermentation Center, XyclonyX, Bio-Con Microbes, and
Sub-Surface Waste Management operating subsidiaries.
Consolidated Subsidiaries:
The consolidated financial statements include the accounts
U.S. Microbics, the parent company, and the wholly owned
subsidiaries of XyclonyX, Sub-Surface Waste
Management, Inc., West Coast Fermentation center, and
Bio-Con Microbes. All material intercompany transactions
have been eliminated in consolidation.
Income taxes:
The Company has implemented the provisions on
SFAS No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires that income tax accounts be computed
using the liability method.
Deferred taxes are determined based upon the estimated
future tax effects of differences between the financial
reporting and tax reporting bases of assets and liabilities
given the provisions of currently enacted tax laws.
The adoption of this provision by the Company has not
required any adjustment to the financial statements
presented.
Net earnings per common share:
Net earnings per common share is computed by dividing
net earnings by the weighted average number of shares of
common stock and dilutive common stock equivalents
outstanding during the year. Dilutive common stock
equivalents consist of shares issuable upon conversion of
convertible preferred shares and the exercise of the
Company's stock options (calculated using the treasury
stock method).
In February 1997, the Financial Accounting Standards
Board issued Financial Accounting Standards No. 128
("SFAS 128"), Earnings Per Share, which is effective for
periods ending after December 15, 1997. At that time,
the Company will be required to change the method
currently used to compute earnings per share and to
restate all prior periods. Under the new requirements
for calculating primary earnings per share, which will be
referred to as basic earnings per share, the dilutive effect
of stock options and warrants will be excluded. Diluted
earning per share as defined in SFAS 128 is similar to
fully diluted earnings per share as defined in APBO
No. 15 "Earnings Per Share". The impact of SFAS
128 on the calculation of basic and diluted earnings
per share for 1997 and 1996 is not expected to be material.
Pervasiveness of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments:
Based on the borrowing rates currently available to the
Company, the carrying value of any long-term debt, to
related parties approximates fair value.
Property and Equipment
Property and equipment consists principally of a
fermentor and related accessories that were acquired as
part of the Company's acquisition of XyclonyX. As of
March 31, 1998, the assets had not been placed in service.
Notes Payable
Notes payable consists of one unsecured note, to a
related party, that was converted to equity in May 1998.
Business acquisition and discontinued operations:
On August 30, 1997, the Company completed the
acquisition of XyclonyX in a transaction accounted for
in a manner similar to a purchase. In accordance with
accounting principles associated with a transaction where
the acquired company is considered a promoter in the
founding and organizing of the business, the acquired
business assets were recorded at the historical cost basis
of the predecessor. XyclonyX became a wholly owned
subsidiary of the Company through the exchange of
250,000 shares of common stock for all of the outstanding
stock of XyclonyX. XyclonyX was formed on August
14, 1997 and had no significant operations prior to its
acquisition by the Company.
On October 31, 1997, the Company adopted a formal
plan to sell its Houston, Texas cellular phone products store.
The sale was effective as of October 31, 1997 with the
buyer assuming all liabilities for products or services
entered into from November 1, 1997 forward. The assets
of this operation consisted of inventories, deposits and
leasehold improvements.
5. Stockholders' Surplus:
Common Stock
As of March 31, 1998, there were 1,628,048 shares of
Common Stock outstanding. Holders of Common Stock
are entitled to one vote for each share held of record on
all matters submitted to a vote of the stockholders.
Holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the
Board of Directors out of funds legally available
therefrom. In the event of a liquidation, dissolution
or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of
any then outstanding.
Preferred stock, if any. Holders of Common Stock have
no right to convert their Common Stock into any other
securities. The Common Stock has no preemptive or
other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock.
Preferred Stock
The Board of Directors has the authority, without further
action of the stockholders, to issue up to 20,000,000 shares
of non-voting Preferred Stock, $.10 par value, as follows:
500,000 shares have been designated as Series II, of which
21,857 shares of Series II are currently issued and remain
outstanding. Each share of Series II preferred stock is
entitled to preference upon liquidation of $1.00 per share
for any unconverted shares. Each Series II preferred share
may be converted to Common stock after a specified
holding period as follows: after one year, two shares of
Common stock; after two years, five shares of Common
stock; after three years, ten shares of Common stock.
In November 1996, the Board of Directors changed the
conversion schedule as follows : Commencing January
1, 1997, each shareholder shall be entitled to convert 250
shares (or 5%) of each 5,000 share unit to 2,500 shares of
common stock. The shareholder shall be entitled to
convert the balance of each unit of Series II Preferred shares
at the conversion rate of 475 shares of each unit during
each six-month period thereafter beginning July 1, 1997.
500,000 shares have been designated as Series B, of which
17,955 shares of Series B are currently issued and remain
outstanding. Each share of Series B preferred stock is
entitled to preference upon liquidation of $1.00 per share
for any unconverted shares. Each Series B preferred
share may be converted to Common stock after a specified
holding period as follows: after one year, two shares of
Common; after two years, five shares of Common stock.
In November 1996, the Board of Directors changed the
conversion schedule as follows: Commencing January
1, 1997, each shareholder shall be entitled to convert
250 shares (or 5%) of each 5,000 share unit to 1,250
shares of common stock. The shareholder shall be
entitled to convert the balance of each unit of Series B
Preferred shares at the conversion rate of 475 shares
of each unit during each six-month period thereafter
beginning July 1, 1997.
50,000 shares have been designated as Series C, of
which 13,740 shares of Series C are currently issued.
Each share of Series C preferred stock is entitled to
preference upon liquidation of $100 per share for any
unconverted shares, and the liquidation preference is
junior only to that of all previously issued preferred
shares. Each Series C preferred share may be converted
to 100 shares of Common stock after a specified holding
period of one year.
50,000 shares have been designated as Series D, of which
32,450 shares of Series D are currently issued and remain
outstanding. The Series D preferred stock carries no
liquidation preferences and is subject to forfeiture prior
to conversion. Each Series D preferred share may be
converted to 100 shares of Common stock after a
specified holding period of one year.
The Company has reserved 17,500,000 shares of its
$.0001 par value Common stock for conversion of Preferred stock.
The Board of Directors of the Company has authority to
issue all or a portion of the authorized but unissued
preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences
and the number of shares constituting any series or the
designation of such series. The issuance of Preferred
Stock could adversely affect the voting power of
holders of Common Stock and could have the effect
of delaying, deferring or preventing a change in
control of the Company.
Stock Options:
For the period beginning March 31, 1996 and
ending March 31, 1997:
On July 26, 1996, the Company issued options to
purchase 15,000 common shares to an individual in exchange
for a management consulting agreement scheduled to
terminate on May 26, 1997. The option agreement
provides for an exercise price of $2 per share commencing
July 26, 1996 until July 26, 1998 or 24 months after the
filing and acceptance of this issuance with the Securities
and Exchange Commission, whichever date is later.
The number of shares issuable under the agreement are
subject to adjustment to take into account
reorganizations, recapitalization, mergers or other
similar corporate events. In addition, the Company
agreed to reserve 15,000 shares of its $.0001 par
value common stock for the exercise of this option.
This agreement was valued at $30,000 and was
amortized over the life of the consulting agreement.
These options were exercised during December 1996.
An additional 5,000 shares were issued to a consultant
per a services contract and are exercisable at $20.00
per share. A prior employee of the company was also
granted an employee stock option for 5,000 shares at
$.50 per share.
For the period beginning March 31, 1997 and ending
March 31, 1998: The Company issued options during the
year for consulting services, fees in connection with
obtaining financing and various other services to
employees and non-employees.
Stock options and warrants summary information:
Activity of options and warrants granted is as follows:
[CAPTION]
<TABLE>
<C> <C> <C>
Options and warrants outstanding
Weighted
Shares average
exercise
price
Balance, December 31, 1995 0 0
Granted 25,000 $6.20
Balance December 31, 1996 25,000 $6.20
Granted 1,480,400 $2.59
Exercised (15,000) $2.00
Balance December 31, 1997 1,490,400 $2.77
Granted 26,700 $0.75
Expired (247,900) $0.72
Balance March 31, 1998 1,269,200 $3.15
Exercisable, March 31, 1998 1,224,200 $3.16
</TABLE>
The following is a summary of options and warrants
outstanding at March 31, 1998:
[CAPTION]
<TABLE>
<C> <C> <C> <C> <C> <C>
Options and warrants outstanding Options and warrants exercisable
=======================================
Weighted Range of Number Average
Weighted Number Weighted
exercise prices Outstanding remaining average exercisable average
contractual life exercise price exercise price
(years)
=======================================
$ .10 - .75 121,700 2.06 $ 0.42 81,700 $0.58
1 325,000 4.47 1.00 325,000 1.00
2 200,000 4.61 2.00 200,000 2.00
3 200,000 4.61 3.00 200,000 3.00
4 200,000 4.61 4.00 200,000 4.00
5 200,000 4.61 5.00 200,000 5.00
10 3,150 3.85 10.00 3,150 10.00
20 10,000 2.79 20.00 5,000 20.00
60 9,350 1.48 60.00 9,350 60.00
------------ ---------- ----------- ----------- -------
1,269,200 4.29 $ 3.13 1,224,200 $ 3.16
</TABLE>
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The Company accounts for stock compensation to
non-employees under the provisions of FAS 123,
"Accounting for Stock-Based Compensation." As
allowed by FAS 123, the company has elected to
continue to follow Accounting Principals Board
Opinion No. 25, "Accounting For Stock Issued To
Employees" (APB 25) in accounting for its employee
stock option plans. Under APB 25, the company does
not recognize compensation expense on the issuance of
its stock options because the option terms are fixed and
the exercise price equals the market price, or greater,
of the underlying stock on the grant date.
As required by FAS 123, the company has determined
the pro-forma information as if the company had
accounted for stock options under the fair value method
of FAS 123. Had the fair value method of accounting
been applied to the company's stock option plan, the
tax-effected impact would be as follows:
Quarter ending 03/31/98
Net Income as reported $ (10,521)
Estimated fair value of the option grants,
net of tax $ (112,345)
Net Income Adjusted $ (101,824)
Adjusted net income per share $ (.10)
The fair value of each option and warrant is estimated as
of the date of the grant using the Black-Sholes option
pricing model with the following assumptions :
Expected stock price volatility 340.45%
Expected option/warrant lives 1-5 years
Expected dividend yields --
Risk-free interest rates 5.65 - 6.59%
The weighted average fair value of options/warrants
granted was $.16.
6. Related party transactions:
Office space and administrative support:
Since July, 1997, the Company is provided office space
and other administrative support services at a cost of
$750 per month by various corporations under the
control of the president of the Company, a principal
stockholder.
Notes payable to related party:
For 3/31/97, Notes payable to a related party consisted
of various notes payable to a Director of the Company,
and a corporation under the control of Director.
For period ending 03/31/98, The notes were unsecured,
and due to related party shareholders. They were
converted to equity in May 1998.
Legal fees:
Certain stockholders of the Company are affiliated with
firms who currently provide or have provided legal services
to the Company in prior years. During the quarters
ended March 31, 1998 and 1997, the outstanding
balances due these firms totaled approximately $ 627
and $31,433, respectively.
PART I - Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
During the quarter ended March 31, 1998, the Company
efforts were directed to fund raising, building
organizational infrastructure, adding new sales
subsidiaries, searching for manufacturing space,
and shipping microbial blends to existing and new
customers. The company also formed Sol Tech
Corporation for sales of its sewage treatment products,
West Coast Fermentation Center for microbial blend
manufacturing, and Bio-Con Microbes for
agricultural and aqua/mariculture applications.
Bio-Con Microbes granted a license for golf course
applications aimed at cutting water consumption.
The company is finalizing its manufacturing location
and new office space for occupancy during the third
quarter.
Buildout of the facility is expected to be complete by
the end of the fiscal year, however blending operations
should commence within the third quarter thus
generating revenue for the company.
Results of Operations
Quarter Ended March 31, 1998 compared to the
March 31, 1997. During the quarter ended March 31,
1997 the Company was developing its retail store strategy
in Houston and had no revenues and an operating loss
of $(150,376). During the quarter ended March 31,
1998, the Company was developing its manufacturing
plans, raising capital and orchestrating a strategic plan
for its subsidiaries. A license was granted by Bio-Con
Microbes to Gran Verde, Inc., a subsidiary of
Customer Sports, Inc. for $250,000 prepayment and
minimum payments over the next five years. As a
result of this license and additional shipments of microbial
blends by Sub-Surface Waste Management, the Company
showed revenue of $259,124 and a net profit of $96,421
for the quarter.
Selling, general and administrative (S, G & A) expenses
for the quarter ending on March 31, 1997 totaled $140,940.
Selling, general and administrative expenses were
comprised mainly of Houston startup operations,
accounting expenses arising from the preparation of
SEC reporting forms for public disclosure, consulting
fees, and filing fees. S, G & A expenses for the period
ending March 31, 1998 were comprised of accounting,
legal, public relations, and expenses associated with the
new subsidiaries startup and organization.
Interest expense for related parties was $9,436 during
the second quarter of fiscal 1997. The interest is related
to notes payable to related parties for past services
rendered. These notes, due in 18 months from the date
of issuance, bear interest at the rate of 10% per annum.
Interest expense for the quarter ending March 31,
1998 consisted of interest associated with notes from
consultants that were settled with stock and cash
payments during the quarter.
Primarily, as a result of the above mentioned expenses
and revenues, Net Income from Operations increased
by $246,797 in the quarter ended March 31, 1998
compared to the quarter ending March 31, 1997.
There was no provision for income taxes in either
1997 or 1998 due to the existence of net operating
loss carry forwards from prior years, and the
likelihood of the Company being able to utilize these
net operating losses in the future.
Net Income per share increased from a loss of $(0.04)
to profit of $0.03 in March 31, 1998 primarily due to
the increase in the revenue generated from the
environmental technology operations.
The Company experienced a profit from operations
of $96,421 during the quarter ending March 31, 1998.
This profit risks the first time the company has shown
positive earnings since it began trading on November
1996. This achievement marks the turning point in the
Company's history and illustrates the ability to generate
sales from a prior successful technology and customer
base.
In order to implement the company's strategic plan
with its subsidiaries, the Company is planning on
raising additional capital through the issuance of stock
in U.S. Microbics and its subsidiaries. The funds
are targeted to establish the fermentations manufacturing
operation and the staffing of the sales subsidiaries.
The Company is also seeking new business opportunities
that may be acquired or developed internally. Based on
the current status of the Company, additional capital
will be required in order for the Company to complete
any business acquisitions or development, or to maintain
their ongoing operations.
Liquidity and Capital Resources
Cash and equivalents totaled $15,232 and $1,700 at
March 31, 1998 and September 30, 1997 respectively.
During the quarter ending March 31, 1998, net cash
used by operating activities totaled $93,664 compared to
$38,387 in the same period in 1997. Operating activities
includes payments for accounting, legal fees and
professional services.
Net Working Capital (Current Assets less Current
Liabilities) was $195,969 as of March 31, 1998. As
of September 30, 1996, net working capital was
$(210,900) including a $76,900 discontinued operation
liability which was expensed during the current quarter.
The company was able to convert most notes payable
and much of the accounts payable to stock at values of
approximately $1.00 per share during fiscal 1998.
Additional working capital was generated from
Private Placement Equity sales.
To date the Company has financed its operations
principally through borrowings and private placements
of equity securities and debt. During the second quarter
of 1998, the Company raised $104,000 in a private
placement for which Series C, Preferred stock was
issued for 1,680 shares.
Net proceeds to the company after placement fee's
was $91,520 The Company will need additional capital
to continue its existence and will endeavor to raise
sufficient funds through the sale of shares, licensee
fees, or other means.
Non-cash investing and financing activities
For the quarter ending March 31, 1998:
Preferred shareholders exercised their right to convert
Series II Preferred stock and Series B Preferred stock
to common stock. Under the conversion 12,995
shares of Series II preferred were converted to
6,497 shares of common stock and 13,990
shares of Series B preferred stock were
converted to 3,497 shares of common stock.
During the quarter, 40,000 shares of treasury
stock were canceled thus reducing the common
stock outstanding. An additional 1,000 shares of
Series D preferred stock were also canceled due to
lack of performance of the shareholder.
For the period ending March 31, 1997:
During the quarter ended March 31, 1997, 7,550 shares
of Series II preferred stock and 3,500 shares of Series
B preferred stock were converted into 93,000 shares of
common stock. The Company issued 3,000 shares
of Series C preferred stock and 100,000 shares of
common stock for future consulting services. The
contract negotiations were not completed and
the stock was in the possession of the Company.
These shares were subsequently canceled. The
Company also issued 27,000 shares of common
stock for placement fees in consideration of funds
received by the Company from sale of shares under
the private placement memorandum.
Future Funding Requirements
The Company's working capital and other capital
requirements during the next year or more will vary
based on a number of factors, including the rate at
which microbial products are shipped and generate
profits, the level of sales and marketing activities for
environmental products, and the level of effort needed
to develop additional distribution channels to the
point of commercial viability.
Continuation Of Business
In order for the Company to be successful, additional
funding will be required. The Company had generated
initial revenues and has paid operating costs from equity
sales. The failure of the company or its subsidiaries to
successfully obtain additional funds may jeopardize
its existence.
The company intends to raise additional working
capital by the sale of common stock, borrowings
and/or possible licensing of its developed business
arrangements.
Employees
As of March 31, 1998, the Company had 3 full-time
employees and many part time consultants.
By September 30, 1998, the Company expects to
significantly increase the number of employees,
principally in microbial manufacturing operations, and
sales and marketing through operating subsidiaries.
The Company's employees are not represented by a
labor union and the Company believes its employee
relations are good.
On March 24, 1998 Mery Robinson was appointed
the position of Secretary after the resignation of Sy
Phillips.
Factors Affecting Future Performance
From time to time, in reports filed with the Securities
and Exchange Commission, in press releases, and in
other communications to shareholders or the investing
public, the Company may comment on anticipated
future financial performance. Such forward looking
statements are subject to risks and uncertainties,
including but not limited to, the impact of competitive
products and services, technological changes in the
Company's industry, the ability of the Company to
develop and successfully deploy it's products through
a distribution network, the Company's ability to
attract and retain customers, product demand and
market acceptance risks, reliance on key strategic
alliances, fluctuations in operating results, delays in
development of highly complex products and
services and other risks detailed from time to time in
USMX's filing with the Securities and Exchange
Commission. These risks could cause the company's
actual results for 1998 and beyond to differ materially
from those expressed in any forward looking statements
made by, or on behalf of, the Company.
Although the environmental technology
opportunities are numerous and the Company enjoys
Letters of Intent for its products, and the company has
shipped products and has licensed its technology, the
ability to finance, build and manufacture the microbial
blends has not yet commenced although plans to
startup a pilot plant operation indicate such a plant
could be in operation as soon as June 1998. The
Company's failure to operate such a plant in a profitable
manner could materially effect the financial results and
the amount of capital required to operate the business
in the future.
PART II Item 1 - Legal Proceedings
There are no known legal proceedings to which the
Company is a party as of March 31, 1998
Item 2 - Changes In Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters To A Vote Of
Security Holders
None.
Subsequent to March 31, 1998, a special shareholders
meeting was convened and the name of the Company was
changed to U.S. Microbics.
Item 5 - Other Information - Subsequent Events
In April 1998, two employees exercised their rights
to convert 14,000 shares of series D preferred
to 1,400,000 restricted shares of common stock.
The company also issued four blocks of 50,000
shares of restricted common stock to Sub-Surface
Waste Management, Sol Tech Corporation,
Bio-Con Microbes, and West Coast Fermentation
Center in return for all outstanding stock in
each subsidiary.
Item 6 - Exhibits and Reports on Form 8-K
(a) None
Reports on Form 8-K - None filed during quarter ended
March 31, 1998.
Subsidiaries of Registrant as of March 31, 1998
-XyclonyX; 100% owned, Sub-Surface Waste
Management, Inc.; 100% owned. Bio-Con Microbes;
100% owned, West Coast Fermentation Center;
100% owned, Sol Tech Corporation; 100 %
owned.
SIGNATURES
In accordance with the requirements of the Exchange
Act, the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. Microbics
Date: 05/15/98 By: /s/ Robert C. Brehm
Robert C. Brehm, President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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