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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 quarter ended March 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
---------------- ------------------
Commission File No.: 0-14213
U.S. MICROBICS, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Colorado 84-0990371
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State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5922-B Farnsworth Court
Carlsbad, California 92008
(760) 918-1860
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class Name of each exchange on which registered
None None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value per share
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. Yes |X| No |_|
Common Stock, $0.0001 par value per share - 5,532,219 shares outstanding as
of May 12, 1999
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format (check one): Yes ; No |X|
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Part I - Financial Information
Item 1. Financial Statements
U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding, Inc.)
Consolidated Condensed Balance Sheets
As of As of
March 31, September 30,
1999 1998
----------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,660 $ 316,600
Accounts receivable ($125,000 from related parties) 128,074 --
Inventories 139,519 --
Prepaid expenses and other 42,639 10,000
----------- -----------
Total current assets 329,892 326,600
----------- -----------
Plant and equipment, net 335,350 99,100
Deposits 64,110 17,500
----------- -----------
Total assets $ 729,352 $ 443,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 501,028 $ 206,300
Current portion of capital lease obligation 5,780 --
----------- -----------
Total current liabilities 506,808 206,300
=========== ===========
Capital lease obligation, net of current portion 9,633 --
----------- -----------
Commitments and Contingencies
Stockholders' Equity :
Convertible preferred stock, $.10 par value;
20,000,000 shares authorized:
Series II; 500,000 shares authorized;
19,396 and 21,507 shares issued and 1,940 2,200
outstanding; aggregate liquidation
preference of $19,396
Series B; 500,000 shares authorized;
14,548 and 15,915 shares issued and 1,455 1,600
outstanding; aggregate liquidation
preference of $14,548
Series C; 50,000 shares authorized;
31,215 and 15,357 shares issued and
outstanding; aggregate liquidation
preference of $3,121,500 3,121 1,500
Series D; 50,000 shares authorized;
8,338 and 20,438 shares issued and
outstanding; no liquidation preference 834 2,000
Common stock; $.0001 par value; 150,000,000
shares authorized; 5,097,749 and 3,447,554
shares issued and outstanding 510 400
Additional paid-in capital 5,691,167 3,936,800
Stock subscription notes receivable (785,000) --
Accumulated deficit (4,701,116) (3,707,600)
----------- -----------
Total stockholders' equity 212,911 236,900
=========== ===========
Total liabilities and stockholders' equity $ 729,352 $ 443,200
=========== ===========
The notes to consolidated condensed financial statements are an integral part of these statements.
1
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<PAGE>
U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding, Inc.)
Consolidated Condensed Statements of Operations
(Unaudited)
For the Six
Months Ended March 31,
----------------------------
1999 1998
----------- -----------
Revenues ($175,000 from related parties) $ 176,728 $ --
Cost of revenues 17,744 --
----------- -----------
Gross profit 158,984 --
Selling, general, and administrative
expenses 1,161,079 198,794
----------- -----------
Loss from operations (1,002,095) (198,794)
Other (income) expenses, net (8,579) 49,809
=========== ===========
Net loss $ (993,516) $ (248,603)
=========== ===========
Net loss per share:
Basic and diluted $ (.31) $ (.24)
Weighted average shares used in
computing net loss per share:
Basic and diluted 3,220,511 3,674,965
The notes to consolidated condensed financial statements are
an integral part of these statements.
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U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding Inc.)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
For the Six
Months Ended March 31,
-----------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss) $(993,516) $(248,603)
Depreciation 14,376 --
Issuance of common stock and preferred
stock in exchange for services 87,050 229,403
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Changes in operating assets and
liabilities:
Accounts receivable (128,074) 5,590
Inventories (139,519) (2,475)
Prepaid expenses, deposits and other (79,249) 27,500
Accounts payable and accrued expenses 353,728 (37,491)
Net liabilities of discontinued
operations -- (76,900)
--------- ---------
Net cash used in operating activities (885,204) (102,976)
========= =========
Cash flows from financing activities:
Cash proceeds from issuance of common and
preferred stock, net of placement fees 808,227 167,500
Cash proceeds from exercise of stock options 15,250 --
Cancellation of treasury stock -- 1,000
Repayments of long-term debt -- (50,400)
--------- ---------
Net cash provided by financing activities 823,477 118,100
========= =========
Cash flows used in investing activities:
Purchases of plant and equipment (235,213) (1,592)
--------- ---------
INCREASE (DECREASE) IN CASH (296,940) 13,532
CASH AT BEGINNING OF PERIOD 316,600 1,700
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CASH AT END OF PERIOD $ 19,660 $ 15,232
========= =========
The notes to consolidated condensed financial statements are
an integral part of these statements.
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U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding Inc.)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Continued)
For the Six
Months Ended March 31,
--------------------------
1999 1998
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Supplemental disclosures of non-cash
investing and financing activities:
Purchase of equipment under capital lease
obligation $ 15,413 $ --
Preferred stock issued for note receivable $ 785,000 $ --
Common stock options exercised in
settlement of accrued expenses $ 59,000 $ --
Cash paid for:
Interest $ 276 $ --
Income taxes $ -- $ --
The nots to consolidated condensed financial statements
are an integral part of these statements.
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U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
1. Basis of Presentation
The unaudited consolidated condensed financial statements of U.S. Microbics,
Inc. and subsidiaries have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The company suggests that the
these financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB for the
fiscal year ended September 30, 1998.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments, consisting only of normal
recurring entries, necessary to present fairly its financial position at March
31, 1999 and the results of its operations and its cash flows for the periods
presented.
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 these estimates.
Revenues and cost of revenues for the first six months of 1998 have been
adjusted from $259,124 and $193, respectively, to zero as previously reported
consistent with the reversal of such revenues and cost of revenues effected in
the Company's annual report on Form 10-KSB for the year ended September 30,
1998.
Certain prior period balances have been reclassified to conform to the current
period presentation.
2. Organization and Risks and Uncertainties
Organization
U.S. Microbics, Inc. was organized December 7, 1984 under the laws of the State
of Colorado as Venture Funding Corporation. The Company amended its Articles of
Incorporation in June 1993 changing its name to Global Venture Funding, Inc. The
Company amended its Articles of Incorporation in May 1998 changing its name to
U.S. Microbics, Inc. The Company has been engaged in a variety of operations
since inception.
During August 1997, the Company acquired the assets of Xyclonyx, a privately
held company founded to develop, apply and license patented toxic and hazardous
waste treatment and recovery processes as well as to license and apply
microbially enhanced oil recovery technologies and products.
The Company has five wholly-owned subsidiaries: West Coast Fermentation Center,
Sub Surface Waste Management, Inc.(SSWM), Sol Tech Corporation (d.b.a. -
Wasteline Performance Corporation), Bio-Con Microbes and Applied Microbic
Technologies, Inc. West Coast Fermentation Center's primary business is to
cultivate microbial cultures that are to be sold to other subsidiaries of the
Company. Sub Surface Waste Management's business is to assemble and sell
products using technology licensed from Xyclonyx. Sol Tech Corporation and
Bio-Con Microbes are companies formed to service the sewage treatment and
agriculture markets, respectively. Applied Microbic Technologies, Inc. intends
to (i) license customers in the United States to use microbial blends that are
specially formulated for Microbially Enhanced Oil Recovery ('MEOR") in the
United States and (ii) provide related technical support services.
Risks and Uncertainties
For the six months ended March 31, 1999 the Company has generated only limited
revenues of $176,728, of which $175,000 represented related party transactions.
During this same period, the Company incurred a net loss of $993,516 and had
negative cash flows from operations of $885,204. As of March 31, 1999, the
Company has an accumulated deficit of $4,701,116. The Company had no revenues
5
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U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
during the fiscal years ended September 30, 1998 and 1997. The company incurred
net losses of $1,411,800 in fiscal 1998 and $1,327,200 in fiscal 1997.
To date, the Company has relied on private placements of equity and debt to fund
its operating and capital requirements. The Company is planning on raising
additional capital through the issuance of stock in private placements or a
public offering. The Company is currently developing business opportunities and
operations through its wholly-owned subsidiaries. There can be no assurance that
such additional equity financing will be available on terms acceptable to the
Company, if at all, or that such business opportunities will occur as planned,
if at all. Based upon the current financial condition of the Company, additional
capital will be required in order for the Company to continue its ongoing
operations. These matters raise substantial doubt about the Company's ability to
continue as a going concern.
Subsequent to March 31, 1999, the Company has raised approximately $353,000, net
of issuance costs, pursuant to a private placement offering for its Series C
preferred stock at $100 per share.
3. Inventories:
Inventories consist of the following:
March 31,
1999
-----------
Raw materials $ 12,181
Finished goods 127,338
===========
$ 139,519
===========
4. Related Party Transactions
During the first quarter of fiscal 1999, the Company entered into two Technology
Licensing Agreements with certain stockholders of the Company. Revenues from
these agreements totaled $175,000. As of March 31, 1999, $125,000 is included in
accounts receivable related to these revenues.
5. Net Loss Per Share
Basic and diluted net loss per share is computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the
reporting periods. During the six months ended March 31,1999 and 1998, common
stock equivalents are not considered because they would be anti-dilutive.
6. Commitments and Contingencies
Litigation
In March 1999, the Company was served with a stockholder derivative lawsuit
titled Merriam v. U.S. Microbics, et. al, Marin County Superior Court, Case No.
991288. This lawsuit alleges, among other things, that certain stock was
6
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U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998 (Unaudited)
improperly issued to the President of the Company and to certain consultants for
services. Prior to the initiation of the lawsuit, the Company formed a special
independent committee of the Board of Directors to investigate these claims and
the committee found the claims to be without merit. The Company has engaged
outside legal counsel to represent it in this matter and intends to vigorouly
defend this action. Although management believes the lawsuit to be without
merit, an unfavorable ruling would have a material adverse impact on the
Company's financial position and results of operations.
Purchase commitments
During the quarter ended March 31, 1999, the Company entered into an agreement
with a supplier to purchase certain inventories at a total cost of $194,000. The
Bio-RaptorsTM are scheduled for delivery in the third quarter of the fiscal
year. The Company has made a deposit of $10,000 on this order. The Company also
entered into an agreement to use the fermentation facilities of an outside
manufacturer to produce its microbes. The total estimated cost of the contract
is $61,600. The Company made a 50% deposit on this contract totaling $30,800 in
March 1999. The fermentation process began in April 1999 and is expected to be
completed by the end of May 1999.
7. Equity Financing
During the six months ended March 31, 1999, the Company received cash proceeds,
net of offering costs, totaling $808,227 pursuant to a private placement
offering for its Series C preferred stock at $100 per share. The Company also
received cash proceeds totaling $15,250 from stock options exercised.
Non-cash issuances of common and preferred stock included common stock options
exercised in settlement of accrued expenses totaling $59,000, common stock
issued for services valued by the Company at $10,000 and Series D preferred
stock issued as compensation to certain officers valued by the Company at
$22,800.
7
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PART I
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of the Company. Readers are cautioned not to
place undue reliance on these forward-looking statements, which are only
predictions and speak only as of the date hereof. Forward-looking statements
usually contain the words "estimate," "anticipate," "believe," "expect," or
similar expressions, and are subject to numerous known and unknown risks and
uncertainties. In evaluating such statements, prospective investors should
carefully review various risks and uncertainties identified below, as well as
the matters set forth in the Company's Annual Report on Form 10-KSB for the year
ended September 30, 1998 and its other SEC filings. These risks and
uncertainties could cause the Company's actual results to differ materially from
those indicated in the forward-looking statements. The Company undertakes no
obligation to update or publicly announce revisions to any forward-looking
statements to reflect future events or developments.
The Company
U.S. Microbics, Inc. (the "Company" or "USMX") intends to build an environmental
biotech company utilizing the proprietary microbial technology, bioremediation
patents, knowledge, processes and unique microbial culture collection developed
over 30 years by the late George M. Robinson and his daughter Mery C. Robinson
(collectively, the "Microbial Technology"). The Company creates and markets
proprietary microbial technologies that provide natural solutions to many of
today's environmental problems. The Company's microbes or "bugs" can be used to
break down various substances, including oil, diesel, fuel, arsenic, certain
toxic waste, and certain water and soil contaminants. The Company intends to
leverage the products, applications and customer contacts developed by the
Robinsons to apply, develop, license and commercialize the Microbial Technology.
The Company believes that it can build the foundation for the international
commercialization of proprietary products based on the Microbial Technology for
applications in the global environmental, manufacturing, agricultural and
natural resource markets. Unlike certain other start-up companies that need to
develop a product or technology and find a market and customers, USMX already
has advanced, proprietary technology, as well as products that have been
utilized in various environmental and agricultural applications worldwide. The
Company is in the process of determining and obtaining the capital, personnel
and manufacturing and distribution capacity necessary to commercialize the
Microbial Technology.
The Company's initial objective is to establish itself as a leading provider of
environmental technology and products to companies in the United States through
the licensing of technology that meets governmental standards, is
environmentally friendly, is easy to manufacture and apply and yields profit for
its licensees. To achieve this objective, the Company intends to focus its
strategy on the following three elements: (i) licensing its bioremediation
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technology to high-volume end-users for hydrocarbon waste cleanup; (ii)
developing a manufacturing center for its proprietary microbial blends; and
(iii) licensing its technology to entities for use in specific vertical markets
and territories, site clean-up and maintenance products, agricultural growth
enhancement and aquaculture/mariculture applications.
The Company's achievement of its objectives is highly dependent, among other
factors, on its ability to raise the necessary capital to build the production
facility that will supply potential new customers and satisfy the potential
demand from prior customers that previously utilized products based on the
Microbial Technology. The Company intends to raise additional working capital
through the sale of common and preferred stock or debt and through potential
licensing arrangements. There can be no assurance that the Company will raise
such capital on terms acceptable to the Company, if at all. The Company's
failure to obtain adequate financing may jeopardize its existence. See
"Liquidity and Capital Resources."
Overview
Through the six months ended March 31, 1999, the Company's efforts were directed
to developing biotechnology previously acquired, fund raising, building
organizational infrastructure, and continued construction of manufacturing
facilities for production and shipment of microbes for remediation of
hydrocarbons, sewage treatment and agriculture applications and for the
retrofitting and shipment of the Bio-RaptorTM.
Toward these ends, the Company's blending area is now 90% complete and is
expected to provide the capability of producing 200,000 units per month of
microbial blends which can support potential monthly sales volumes from $600,000
to $2,000,000 based on projected unit sales prices between $3.00 and $10.00
depending on the application. The blending production staff has been trained and
is in a state of readiness.
An outside fermentation facility, with sufficient capacity to produce microbes
to support the next six to nine months of sales, has been contracted with and
receipt of fermented "Bugs" has begun.
Preparations are underway to establish an internal capacity for the production
of microbes using in-house fermentors. The microbiology lab setup is complete
using a 14 liter fermentor to maintain a base supply of "Bugs." The 100 liter
fermentor is installed and is undergoing final testing with expected production
to begin in June of 1999. The Company anticipates that with the completion of
this in-house fermentation process, production capacity can supply sufficient
microbes to meet sales projections for the next 6 to 9 months and it will no
longer be necessary to outsource the production of its microbes.
The Company does not have an existing backlog of sales orders and has not
generated significant sales to date related to microbes. The Company has also
not produced microbes in significant quantities. Further, there can be no
assurance that projected production and sales volumes or sales prices will be
achieved.
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Future Plans - Fiscal Year Ending September 30, 1999
Projected revenues for the last half of fiscal 1999 include Bio-Raptor(TM) sales
and related microbial blends and consulting services to support Bio-Raptor(TM)
sales. Projected revenues of Bio-Raptor(TM) products include new and existing
prospects, Soil Recycling Center Licenses, odor control and land fill operators.
Sales of Bio-Raptors(TM) will be limited by microbial blend production until
outsourcing and internal production can meet demand.
During the first quarter of fiscal 1999, the Company continued building
infrastructure (people, procedures, systems) and setting up initial
manufacturing operations. Sales consisted almost entirely of Technology License
Agreements to certain shareholders of the Company.
During the second quarter of fiscal 1999, the Company began adding fermentation
capacity and continued work on its manufacturing operations and blending
capacity to meet future projected revenue goals. Principal projected products
will include Bio-Raptor(TM), and microbial sewage and agricultural products from
internal fermentation. Results of field test data on animal waste, grease trap
and solvent grease absorption should be completed by June 1999. To provide for
maximum operations of SSWM for land bioremediation projects and organization
development, the Company intends to raise five million dollars. Two million
dollars of projected proceeds would be used to purchase additional fermentation
capacity and upgrade blending operations, and the remaining projected proceeds
of three million dollars would be used for research and development costs and
working capital to finance projected increases in accounts receivable and
inventories. Revenues are projected to be generated from Bio-Raptor(TM)
licenses, equipment sales, microbial blends and related consulting services.
During the third quarter of fiscal 1999, the Company intends to generate sales
of products including Bio-Raptors(TM) and microbial sales for agriculture,
sewage and golf course applications. During this quarter, the Company
anticipates reducing or eliminating reliance upon out-sourced fermentation
capacity.
During the fourth quarter of fiscal 1999, based on the Company's ability to
raise additional financing, manufacturing capacity is projected to be expanded
and brought on line in-house. Sales efforts in remediation of hydrocarbons are
anticipated to result in sales of additional Bio-Raptors(TM). Sewage,
agriculture, and golf course bugs are expected to comprise the remaining sales.
There can be no assurance that such revenue or production capacity will be
achieved in the time frame anticipated, if at all.
The Company expects to raise additional capital to fund operations through June
30, 1999, and anticipates that cash generated from private placements and
projected revenues during the fourth quarter will enable it to fulfill cash
needs for fiscal 1999 operations. There can be no assurance that the Company
will be able to raise such funds on terms acceptable to the Company, if at all,
or to generate such revenues. Expected capital expenditures for plant and
equipment total $2,000,000. Research and development costs are projected to be
under $500,000 as many products have previously been marketed. Research and
development costs will be associated primarily with Bio-Raptor(TM) configuration
for specific applications. The Company plans to increase the number of employees
to approximately 40 by the end of the fiscal 1999 in anticipation of increased
projected revenues.
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Results of Operations
For the six months ended March 31, 1999 compared to the six months ended March
31, 1998
The Company had revenues of $176,728 during the six months ended March 31, 1999,
as compared to no revenues for the same period in fiscal 1998. Revenues for the
six months ended March 31, 1999 consisted primaarily of $175,000 of
non-refundable licensing fees sold to certain stockholders of the Company.
Selling, general and administrative ("SG&A") expenses for first half of fiscal
1999 totaled $1,161,079 compared to $198,794 for the same period in fiscal 1998.
SG&A expenses for the first half of fiscal 1999 consisted of occupancy, payroll,
accounting, legal, consulting, and public relations expenses including $87,050
of non-cash compensation cost related to common and preferred stock and stock
options and warrants issued for certain services rendered.
The Company incurred a net loss of $993,516 and negative cash flows from
operations of $885,204 for the six months ended March 31, 1999 compared to a net
loss of $248,603 and negative cash flows from operations of $102,976 for the six
months ended March 31, 1998. Basic and diluted net loss per share was $(.31) for
the six months ended March 31, 1999 compared to $(.24) for the six months ended
March 31, 1998.
In order to continue implementing the Company's strategic plan, the Company is
planning on raising an additional $5,000,000 from private placements during the
last half of fiscal 1999. The funds are targeted to expand the fermentation
manufacturing operation and the staffing of sales subsidiaries. Although the
Company is expecting to increase revenues during the last half of fiscal 1999,
based on the current financial condition of the Company, additional capital will
be required in order for the Company to maintain its ongoing operations. There
can be no assurance that the Company will be able to raise such capital on terms
acceptable to the Company, if at all.
Liquidity and Capital Resources.
- - --------------------------------
Cash and cash equivalents totaled $19,660 and $316,600 at March 31, 1999 and
September 30, 1998, respectively. Net cash used in operations was $885,204 for
the six months ended March 31, 1999, compared to $102,976 for the comparable
period in fiscal 1998. In preparing for the manufacture and sale of its
products, the Company purchased equipment, office furniture and leasehold
improvements of approximately $250,626 in the first half of fiscal 1999 compared
to $1,592 in the same period of fiscal 1998.
During the six months ended March 31, 1999, the Company raised $808,227, net of
placement fees of approximately $110,000, from private placements of Series C
preferred stock. As of March 31, 1999, the Company has negative working capital
of $176,916 compared to positive working capital of $120,300 as of September 30,
1998. The Company will need to continue to raise funds by various financing
methods such as private placements to maintain its operations until such time as
cash genereated by operations is sufficeint to meet its operating and capital
requirements. There can be no assurance that the Company will be able to raise
such capital on terms acceptable to the Company, if at all.
11
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To date, the Company has financed its operations principally through private
placements of equity securities and debt. Subsequent to March 31, 1999 the
Company has raised approximately $353,000, net of placement fees. The Company
believes that it has sufficient cash to continue its operations through June 30,
1999, and anticipates that cash generated from anticipated private placements
and projected revenues during the third and fourth quarters of fiscal 1999 will
enable it to fulfill cash needs for fiscal 1999 operations. The Company will
need additional capital to continue its operations and will endeavor to raise
funds through the sale of equity shares and revenues from operations. There can
be no assurance that the Company will obtain sufficient capital or generate
revenues on acceptable terms, if at all. Failure to obtain such capital or
generate such revenues would have an adverse impact on the Company's financial
position and results of operations and ability to continue as a going concern.
During the last half of fiscal 1999, the Company projects capital expenditures
for plant and equipment of approximately $2,000,000 and research and development
costs of less than $500,000, assuming the Company raises projected capital.
Research and development costs will be associated primarily with Bio-Raptor(TM)
configuration for specific applications. The Company also plans to increase its
number of employees to approximately 40 by the end of fiscal 1999.
The Company's operating and capital requirements during the next fiscal year and
thereafter will vary based on a number of factors, including: (i) the rate at
which microbial products are shipped and generate profits; (ii) the necessary
level of sales and marketing activities for environmental products; and (iii)
the level of effort needed to develop additional distribution channels to the
point of commercial viability.
There can be no assurance that additional private or public financing, including
debt or equity financing, will be available as needed, or, if available, on
terms favorable to the Company. Any additional equity financing may be dilutive
to shareholders and such additional equity securities may have rights,
preferences or privileges that are senior to those of the Company's existing
common or preferred stock. Furthermore, debt financing, if available, will
require payment of interest and may involve restrictive covenants that could
impose limitations on the operating flexibility of the Company. The failure of
the Company to successfully obtain additional future funding may jeopardize the
Company's ability to continue its business and operations.
Year 2000 Assessment
Beginning in the year 2000, computer systems and software need to accept 4 digit
entries to distinguish 21st century dates from 20th century dates. Computer
systems and software that do not properly recognize 4 digit entries could
generate erroneous data or cause a system to fail. All of the Company's computer
systems and software, phone and security systems and machinery and equipment
have been purchased within the past 12 months, have been tested where
12
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applicable, and therefore are expected to accurately accept 4 digits and operate
properly into the 21st century. The Company has also contacted major vendors and
service providers about their state of Year 2000 compliance and readiness. In
the event that significant Year 2000 issues are identified with such parties,
the Company will make contingency plans such as the use of alternate vendors or
manual systems.
The Company's current estimate is that no significant additional costs will be
incurred in prepardness for the Year 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In March 1999, the Company was served with a stockholder derivative lawsuit
titled Merriam v. U.S. Microbics, et. al, Marin County Superior Court, Case No.
991288. This lawsuit alleges, among other things, that certain stock was
improperly issued to the President of the Company and to certain consultants for
services. Prior to the initiation of the lawsuit, the Company formed a special
independent committee of the Board of Directors to investigate these claims and
the committee found the claims to be without merit. The company has engaged
outside legal counsel to represent it in this matter and intends to vigorouly
defend this action.
Item 2. Changes in Securities and Used of Proceeds.
During the six months ended March 31, 1999, the Company raised $468,356, net of
placement fees, from the issuance of shares of Series C Preferred Stock pursuant
to a private placement and 15,250 from the exercise of common stock options. The
shares of Series C Preferred Stock issued pursuant to the private placement were
not registered under the Securities Act of 1933, as amended, because the subject
transaction involved a non-public offering exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
promulgated thereunder.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on March 12, 1999 as a result of
engaging Arthur Andersen LLP as its independent certifying accountant.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed in its behalf by the undersigned, thereunto duly
authorized. .
U.S. Microbics, Inc.
Date: May 16, 1999 By: /s/ Robert C. Brehm
-------------------------------------
Robert C. Brehm, President and
Chief Executive Officer
By: /s/ Conrad Nagel
-------------------------------------
Conrad Nagel, Chief Financial Officer
14
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,660
<SECURITIES> 0
<RECEIVABLES> 128,074
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<INVENTORY> 139,519
<CURRENT-ASSETS> 329,892
<PP&E> 350,731
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0
7,350
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<INCOME-PRETAX> (993,516)
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<NET-INCOME> (993,516)
<EPS-PRIMARY> (.31)
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