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 June 30, 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, INC.
(Formally Global Venture Funding, Inc.)
-------------------------------------------
(Name of small business issuer in its charter)
Colorado 84-0990371
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6965 El Camino Real, Suite 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 July 31, 1998
- ---------------------------- ----------------------------
Common Stock $.0001 par value 3,423,980
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<TABLE>
<CAPTION>
U.S. Microbics Inc.
and Subsidiaries
(Formerly Global Venture Funding, Inc.)
Consolidated Balance Sheets
As of June 30, 1998 and September 30, 1997
ASSETS
------
June 30, September 30,
1998 1997
(unaudited) (audited)
----------- ---------
<S> <C> <C>
Current assets:
Cash $ 549,819 $ 1,700
Accounts receivable - trade 3,534 --
Inventory 2,475 --
Prepaid expenses and other assets 360,641 28,000
----------- -----------
Total current assets 916,469 29,700
Plant and equipment - Note 2 39,887 36,200
Available for sale securities - Note 6 30,000 _
----------- -----------
Total assets $ 986,355 $ 65,900
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - Note 3 $ -- $ 75,400
Accounts payable and accrued liabilities 107,656 88,300
Net liabilities of discontinued operations -- 76,900
----------- -----------
Total current liabilities 107,656 240,600
Stockholders' equity (deficit) - Note 5:
Convertible preferred stock, $.10 par value authorized 20,000,000 shares:
Series II; authorized 500,000 shares; issured and outstanding
21,809 and 22,519 (aggregate liquidation preference of
$21,809 and $22,519 2,181 2,300
Series B; authorized 500,000 shares; issured and outstanding
17,606 and 18,655 (aggregate liquidation preference of
$17,606 and $18,655) 1,761 1,900
Series C; authorized 500,000 shares; issured and outstanding
15,960 and 3,240 (aggregate liquidation preference of
$1,596,000 and $324,000) 1,596 300
Series D; authorized 500,000 shares; issured and outstanding
20,513 and 17,138 (no liquidation preference) 2,051 1,700
Common stock $.0001 par value; authorized 150,000,000 shares;
issured and outstanding 3,248,273 and 1,447,929 325 200
Additional paid-in capital 2,696,424 1,928,000
Stock options 898,237 187,700
Treasury stock -- (1,000)
Unrealized loss on investment (220,000) --
Accumulated deficit (2,503,875) (2,295,800)
----------- -----------
Total stockholders' equity (deficit) 878,699 (174,700)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 986,355 $ 65,900
=========== ===========
1
</TABLE>
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<TABLE>
<CAPTION>
U.S. Microbics Inc.
and Subsidiaries
(Formerly Global Venture Funding, Inc.)
Consolidated Statements of Income
For the Nine Months and Quarters Ended June 30, 1998 and 1997
For the Nine For the Three
Months ended June 30, Months ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 259,124 $ 1,385 $ -- $ --
Cost of revenues 193 3,000 -- --
----------- ----------- ----------- -----------
Gross margin 258,931 (1,615) -- --
Selling, general and
administrative expenses 412,364 337,857 138,763 404
----------- ----------- ----------- -----------
Income (loss) from operations (153,433) (339,472) (138,763) (404)
----------- ----------- ----------- -----------
Other expenses:
Interest related parties -- 25,906 -- --
Interest expense 54,642 -- 4,833
Depreciation -- 302 -- --
----------- ----------- ----------- -----------
Net income (loss) from continuing
operations before taxes (208,075) (365,680) (143,596) (404)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net profit (loss) from continuing (208,075) (365,680) (143,596) (404)
operations
Discontinued operations -- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ (208,075) $ (365,680) $ (143,596) $ (404)
=========== =========== =========== ===========
Basic earnings per share
Net income (loss) per common share $ (0.12) $ (0.09) $ (0.08) $ Nil
Weighted average common shares 1,785,348 3,909,645 1,785,348 3,909,645
2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. Microbics Inc.
and Subsidiaries
(Formerly Global Venture Funding, Inc.)
Consolidated Statements of Cash Flows
For the Nine Months and Quarters Ended June 30, 1998 and 1997
For the Nine For the Three
Months ended June 30, Months ended June 30,
---------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $ (208,075) $ (365,680) $ (143,596) $ (109,889)
Depreciation -- 302 -- 302
Adjustments to reconcile net income
(loss) to net cash (used( by
opetating activities:
(Increase) decrease in:
Accounts receivable - trade (3,534) -- 250,000 --
Inventory (2,475) -- -- --
Stock options exercised 20,000 30,000 20,000
Prepaids, deposits and other assets (332,641) 1,059 (360,141) 130
Increase (decrease) in:
Notes payable (75,400) -- (25,000) --
Acccounts payable and accrued liabilities 19,393 69,488 56,884 40,771
Net liabilities of discontinued operations
Common stock subscriptions payable
----------- ----------- ----------- -----------
Net cash flows by operating activities (582,732) (264,831) (201,853) (68,686)
Cash flows from financing activities:
Issuance of common stock and preferred stock
in exchange for services 619,337 27,191 391,834 --
Proceeds from issuance of common and preferred
stock net of placement fees 518,402 76,620 350,902 --
Proceeds from issuance of long-term debt -- 136,856 -- 141,953
Exchange of common stock for note payable 25,799 -- 25,799 --
Cancellation of treasury stock 1,000 -- --
Repayments of Notes payable -- (6,156) -- (63,123)
----------- ----------- ----------- -----------
Net cash flows from financing activities 1,164,538 234,511 768,535 78,830
Cash flows from investing activities
Purchase of leasehold improvements and equipment (3,687) (18,107) (2,095) (18,107)
Increase in investments net of unrealized loss (30,000) -- (30,000) --
----------- ----------- ----------- -----------
Net csh flows from investing activities (33,687) (18,107) (32,095) (18,107)
INCREASE (DECREASE) IN CASH FLOWS 548,119 (48,427) 534,587 (7,963)
CASH AT BEGINNING OF PERIOD 1,700 49,800 15,232 9,336
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 549,819 $ 1,373 $ 549,819 $ 1,373
=========== =========== =========== ===========
3
</TABLE>
<PAGE>
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, Inc., (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).
4
<PAGE>
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.
2. 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 June, 1998, the assets had not been placed in service in
service and no depreciation has been taken.
3. Notes Payable
Notes payable consists of one unsecured note, to a related party, that was
converted to equity in May 1998.
4. 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:
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, $.0001 par value and 20,000,000 shares Preferred Stock ,
$.10 par value.
Common Stock
As of June 30, 1998, there are 3,248,273 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 therefor. 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 Common 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
5
<PAGE>
the Common Stock. All outstanding shares of Common Stock are, and the
Common Stock to be outstanding upon completion of this Offering will be,
duly authorized, validly issued, fully paid and nonassessable.
Preferred Stock
The Board of Directors has the authority, without further action of the
stockholders, to issue up to 20,000,000 shares of Preferred Stock, $.10 par
value, as follows as of June 30, 1998:
As of June 30, 1998, 500,000 shares have been designated as Series II, and
of which 21,809 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.
As of June 30, 1998, 500,000 shares have been designated as Series B, and
of which 17,606 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
stock; 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.
As of June 30, 1998, 50,000 shares have been designated as Series C, and of
which 15,960 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.
As of June 30, 1998, 50,000 shares have been designated as Series D, and of
which 20,513 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 and exercise of stock options
assuming the maximum number of shares of each class of preferred shares
were issued and converted. Based upon the issued and outstanding preferred
shares as of June 30, 1998, the equivalent number of common shares which
can be converted from preferred shares by class is as follows: Class II -
218,092, Class B - 88,030, Class C - 1,596,000, Class D - 2,051,300.
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
Preferred Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company.
6. Revaluation of Investment Stock
The Company revalued its investment in restricted Common Stock Available
for Sale to the market value as of June 30, 1998. The original value was
$250,000 and the value at June 30, 1998 was $30,000 resulting in a $220,000
unrealized charge to shareholders' equity of the Company. The actual
realized gain or loss to the company will be determined upon the sale or
other disposition of the investment. This accounting entry did not effect
the company's income statement or cash flows.
6
<PAGE>
Stock Options:
--------------
For the period beginning June 30, 1998 and ending June 30, 1997:
Stock options were granted to various consultants involved with capital
raising, marketing, technical support, and investor relations. The stock
options were issued at various exercise prices ranging from $.75 to $1.50.
Several officers of the company were granted options with exercise prices
ranging from $2.00 to $10. Steve Hopkins was granted options of 200,000
shares at $2.00 and 50,000 shares at $2.50 as part of his $500,000
investment. An existing shareholder exercised $20,000 of options at $75 per
share and was issued 267 shares of Series C Preferred Stock
For the period beginning June 30, 1997 and ending June 30, 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:
Options and warrants
outstanding
-------------------------------
Weighted
average
Shares 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
Exercised (26,700) $0.75
Granted 1,250,000 $3.10
Balance June 30, 1998 2,492,500 $3.14
Exercisable, June 30, 1998 2,452,500 $3.19
The following is a summary of options and warrants outstanding at June 30,
1998:
<TABLE>
<CAPTION>
Options and warrants outstanding Options and warrants exercisable
-------------------------------- --------------------------------
Range of Number Weighted average Weighted average Number Weighted average
exercise prices outstanding remaining exercise price exercisable exercise price
contractual life
(years)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ .10 - .75 195,000 1.28 0.55 155,000 $0.66
$1.00 325,000 4.22 1.00 325,000 1.00
$1.50 550,000 0.97 1.50 550,000 1.50
$2.00 475,000 4.65 2.00 475,000 2.00
$2.50 50,000 4.9 2.50 50,000 2.50
$3.00 225,000 4.37 3.00 225,000 3.00
$4.00 225,000 4.37 4.00 225,000 4.00
$5.00 225,000 4.37 5.00 225,000 5.00
$10.00 203,150 4.43 10.00 203,150 10.00
$20.00 10,000 2.54 20.00 10,000 20.00
$60.00 9,350 1.23 60.00 9,350 60.00
2,492,500 3.41 $ 3.14 2,452,500 $3.19
</TABLE>
7
<PAGE>
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:
Nine Months ending 6/30/98
--------------------------
Net Income as reported $(208,075)
Estimated fair value of the $(916,700)
option grants, net of tax
Net Income Adjusted $(1,124,775)
Adjusted net income per share $(.63)
weighted average common outstanding of 1,785,348 shares)
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 274.4
Expected option/warrant lives .5-5 years
Expected dividend yields --
Risk-free interest rates 5.00-5.50%
The weighted average fair value of options/warrants granted was $.73.
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.
8
<PAGE>
PART I - Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
- --------------------------------------------------------------------------------
Overview
During the quarter ended June 30, 1998, the Company efforts were directed to
fund raising, building organizational infrastructure, and finalizing the
manufacturing site for occupancy during the fourth quarter. Buildout of the
facility is expected to be complete by the end of the calendar year, however
blending operations should commence within the fourth quarter thus generating
revenue for the company.
Results of Operations
- ---------------------
Quarter Ended June 30, 1998 compared to the June 30, 1997.
During the quarter ended June 30, 1997 the Company was developing its retail
store strategy in Houston and had no revenues and an operating loss of $(404).
During the quarter ended June 30, 1998, the Company was developing its
manufacturing plans, raising capital and orchestrating a strategic plan for its
subsidiaries. The Company incurred a net operating loss for the quarter ended
June 30, 1998 of $143,596. Selling, general and administrative (S, G & A)
expenses for the quarter ending on June 30, 1997 totaled $404 as operating
activity had ceased. S, G & A expenses for the period ending June 30, 1998 were
comprised of accounting, legal, public relations, and expenses associated with
the new subsidiaries startup and organization.
There was no interest expense for related parties during the quarter ended June
30, 1997 and 1998 respectively. Interest expense for the quarter ending June 30,
1998, was $4,833 and consisted of interest associated with notes from
consultants that were settled with stock and cash payments during the quarter.
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 loss per share increased from a loss of $0.01 to $0.12 in June
30, 1998 compared to 1997 primarily due to the increased activity in preparing
for fully scale operating activity in the marketing, production and
administrative sections of the Company. Manufacturing is expected to began
during the final quarter of fiscal 1998 as the Company begins to fill its
letters of intent for Bio-Raptors(TM).
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 $549,819 and $1,700 at June 30, 1998 and September
30, 1997 respectively. During the quarter ending June 30, 1998, net cash used by
operating activities totaled $201,853 compared to $68,686 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 $878,699 as of June 30, 1998. As of September 30, 1997, net
working capital was $ (174,700) 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 third quarter
of 1998, the Company raised $518,402, net of placement fees in a private
placement for which Common stock and series C and D, Preferred stock was issued.
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 June 30, 1998:
Preferred shareholders exercised their right to convert Series II Preferred
stock and Series B Preferred stock to common stock. Under the conversion 950
shares of Series II preferred were converted to 475 shares of common stock and
7,000 shares of Series B preferred stock were converted to 1,750 shares of
common stock.
9
<PAGE>
During the quarter, 14,000 shares of Series D preferred stock, held by officers
of the company, were converted to restricted common stock. A consultant was
issued 2,300 shares of Series D preferred stock under the terms of a performance
consulting agreement that provides for stock cancellation for non-performance.
The company converted the $25,000 note plus interest to 344 shares of Series C
Preferred stock.
For the period ending June 30, 1997:
During the quarter ended June 30, 1997, 3,876 shares of Series II preferred
stock and 4,825 shares of Series B preferred stock were converted into 62,885
shares of common stock.
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.
Employees
- ---------
As of June 30, 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.
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.
10
<PAGE>
PART II
Item 1 - Legal Proceedings
- --------------------------
There are no known legal proceedings to which the Company is a party as of June
30, 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.
Item 5 - Other Information - subsequent events
- ----------------------------------------------
A registration Statement on Form S-8 respecting the registration of 150,000
shares of the Common stock of the Company issued under the employee benefit
plans was filed with the Securities Exchange Commission on July 20, 1998.
The company entered into a lease for 22,000 square feet of office and warehouse
space at a lease rate of $15,250 pre month for 60 months.
On July 1, 1998 Stephen Hopkins was appointed a Director.
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) None
(b) Reports on Form 8-K - Steve Hopkins, New Director filed July 24, 1998.
(c) None.
(d) Subsidiaries of Registrant as of June 30, 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, Inc.
Date: 08/14/98 By: /s/ Robert C. Brehm
---------------------------------
Robert C. Brehm, President
11
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