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 June 30, 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
-------- ----------
(State or other jurisdiction (IRS Employer
of 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 - 6,194,140 shares outstanding as of
August 9, 1999
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format (check one): Yes No |X|
<PAGE>
<TABLE>
<CAPTION>
1
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
June 30, September 30,
1999 1998
ASSETS (Unaudited)
----------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 275,816 $ 316,600
Accounts receivable ($125,000 from related parties) 186,733 --
Inventories 186,158 --
Prepaid expenses and other 77,087 10,000
----------- -----------
Total current assets 725,794 326,600
----------- -----------
Plant and equipment, net 356,350 99,100
Deposits 56,710 17,500
----------- -----------
413,060 116,600
----------- -----------
Total assets $ 1,138,854 $ 433,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 753,329 $ 206,300
Current portion of capital lease obligation 5,780 --
----------- -----------
Total current liabilities 759,109 206,300
=========== ===========
Capital lease obligation, net of current portion 8,188 --
----------- -----------
Commitments and contingencies
Stockholders' equity :
Convertible preferred stock, $.10 par value; 20,000,000 shares authorized:
Series II; 500,000 shares authorized; 17,733 and 21,507 shares issued
and outstanding; aggregate liquidation preference of $17,733 1,773 2,200
Series B; 500,000 shares authorized; 14,548 and 15,915 shares issued
and outstanding; aggregate liquidation preference of $14,548 1,455 1,600
Series C; 50,000 shares authorized; 38,813 and 15,357 shares issued
and outstanding; aggregate liquidation preference of $3,881,300 3,881 1,500
Series D; 50,000 shares authorized; 5,738 and 20,438 shares issued
and outstanding; no liquidation preference 574 2,000
Common stock; $.0001 par value; 150,000,000 shares authorized;
5,602,220 and 3,447,554 shares issued and outstanding 560 400
Additional paid-in capital 6,762,331 3,936,800
Stock subscription notes receivable (820,668) --
Accumulated deficit (5,578,349) (3,707,600)
----------- -----------
Total stockholders' equity 371,557 236,900
----------- -----------
Total liabilities and stockholders' equity $ 1,138,854 $ 443,200
=========== ===========
The notes to consolidated condensed financial statements are an integral part of these statements.
1
<PAGE>
U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding, Inc.)
Consolidated Condensed Statements of Operations
(Unaudited)
For the Nine
Months Ended June 30,
--------------------------
1999 1998
----------- -----------
Revenues ($175,000 from related parties) $ 190,130 $ --
Cost of revenues 27,704 --
----------- -----------
Gross profit 162,426 --
Selling, general, and administrative expenses 2,079,011 412,557
----------- -----------
Loss from operations (1,916,585) (412,557)
Other (income) expenses, net (45,836) 54,642
=========== ===========
Net loss $(1,870,749) $ (467,199)
=========== ===========
Net loss per share:
Basic and diluted $ (.45) $ (.26)
Weighted average shares used in
computing net loss per share:
Basic and diluted 4,187,803 1,785,348
The notes to consolidated condensed financial statements
are an integral part of these statements.
2
<PAGE>
U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding Inc.)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
For the Nine
Months Ended June 30,
-------------------------------------
1999 1998
------------ -----------
Cash flows from operating activities:
Net income (loss) $(1,870,749) $ (467,199)
Depreciation 24,814 --
Issuance of common stock and preferred
stock in exchange for services 323,218 619,337
Adjustments to reconcile net income
(loss) to net cash used in operating
Activities:
Changes in operating assets and
liabilities:
Accounts receivable (186,733) 255,590
Inventories (186,158) (2,475)
Prepaid expense, deposits and other (106,297) (332,641)
Accounts payable and accrued expenses 558,477 19,393
Net liabilities of discontinued -- --
operations
----------- -----------
Net cash used in operating activities (1,443,428) 92,005
=========== ===========
Cash flows from financing activities:
Cash proceeds from issuance of common and
preferred stock net of placement fees 1,631,107 518,402
Cash proceeds from exercise of stock options 27,750 20,000
Cancellation of treasury stock -- 1,000
Repayments of long-term debt -- (75,400)
Exchange of common stock for note payable -- 25,799
----------- -----------
Net cash provided by financing activities 1,658,857 489,801
=========== ===========
Cash flows used in investing activities:
Purchases of plant and equipment (256,213) (3,687)
Increase in investments net of unrealized loss -- (30,000)
=========== ===========
Net cash provided by investing activities (256,213) (33,687)
=========== ===========
INCREASE (DECREASE) IN CASH (40,784) 548,119
CASH AT BEGINNING OF PERIOD 316,600 1,700
=========== ===========
CASH AT END OF PERIOD $ 275,816 $ 549,819
=========== ===========
The notes to consolidated condensed financial statements
are an integral part of these statements.
3
</TABLE>
<PAGE>
U.S. Microbics Inc., and Subsidiaries
(formerly Global Venture Funding Inc.)
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Continued)
For the Nine
Months Ended June 30,
-----------------------
1999 1998
--------- -----------
Supplemental disclosures of non-cash
Investing and financing activities:
Purchase of equipment under
capital lease obligation $ 13,968 $ --
Preferred stock issued for note receivable $779,000 $ --
Common stock issued for note receivable $ 8,332 $ --
Common stock options exercised in settlement
of accrued expenses $ 59,000 $ --
Common stock issued for services $ 50,000 $ --
Cash paid for:
Interest $ 890 $ --
Income taxes $ -- $ --
The notes to consolidated condensed financial statements
are an integral part of these statements
4
<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 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 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 June
30, 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 nine 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 fiscal 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 on 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.
5
<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 1999 AND 1998 (Unaudited)
Risks and Uncertainties
For the nine months ended June 30, 1999, the Company has generated only limited
revenues of $190,130, of which $175,000 represented related party transactions.
During this same period, the Company incurred a net loss of $1,870,749 and had
negative cash flows from operations of $1,443,429. As of June 30, 1999, the
Company has an accumulated deficit of $5,578,314. The Company had no revenues
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 June 30, 1999, the Company has raised approximately $77,400, net
of placement fees, pursuant to a private placement offering for its Series C
Preferred Stock at $100 per share.
3. Inventories:
Inventories consist of the following:
June 30,
1999
------------------
Raw materials $ 10,079
Work in progress 47,173
Finished goods 128,906
------------------
$ 186,158
==================
4. Related Party Transactions
During the first quarter of fiscal 1999, the Company entered into two Technology
Licensing Agreements with certain shareholders of the Company. Revenues from
these agreements totaled $175,000. As of June 30, 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 period. During the nine month ended June 30,1999 and 1998, common
stock equivalents are not considered because they would be anti-dilutive.
6
<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED JUNE 30, 1999 AND 1998 (Unaudited)
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
improperly issued to the President of the Company and to certain consultants for
services. The Company has formed a special independent committee of the Board of
Directors to investigate these claims. 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 has 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 fourth quarter of
the fiscal year. The Company has made deposits totaling $29,400 on this order,
of which $19,400 was made during the quarter ended June 30, 1999.
7. Equity Financing
During the nine months ended June 30, 1999, the Company received cash proceeds,
net of offering costs, totaling $1,631,107 pursuant to a private placement
offering for its Series C Preferred Stock at $100 per share. The Company also
received cash proceeds totaling $27,750 from stock options exercised.
Non-cash issuances of common and preferred stock included common stock options
exercised in settlement of accrued expenses totaling $253,500, 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
<PAGE>
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 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
8
<PAGE>
its licensees. To achieve this objective, the Company intends to focus its
strategy on the following three elements: (i) licensing its bioremediation
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 nine months ended June 30, 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 complete and is expected
to provide the capability of producing 200,000 units per month of microbial
blends which can support potential monthly sales volume 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.
The Company anticipates that its in-house fermentation process production
capacity can supply sufficient microbes to meet sales projections for the next 6
months in conjunction with the outsourcing of additional 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.
Future Plans - Fiscal Year Ending September 30, 1999
Projected revenues for the last quarter 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.
9
<PAGE>
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 sales and marketing expansion will be emphasized. Bio-Raptors(TM) sales for
hydro carbon, animal waste & green waste processing should result in placement
on selected sites in Southern California. Sewage, and animal waste 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,
it at all.
The Company expects to raise additional capital to fund operations through June
30, 2000, 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 $50,000. Research and development costs are projected to be
under $10,000 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 25 by the end of the fiscal 1999 in anticipation of increased
projected revenues.
Results of Operations
For the nine months ended June 30, 1999 compared to the nine months ended June
30, 1998
The Company had revenues of $190,130 during the nine months ended June 30, 1999,
as compared to no revenues for the same period in fiscal 1998. Revenues for the
nine months ended June 30, 1999 consisted primarily of $175,000 of
non-refundable licensing fees sold to certain shareholders of the Company.
Selling, general and administrative ("SG&A") expenses for first three quarters
of fiscal 1999 totaled $2,079,011 compared to $412,557 for the same period in
fiscal 1998. SG&A expenses for the first three quarters of fiscal 1999 consisted
of occupancy, payroll, accounting, legal, consulting, and public relations
expenses including $281,155 of non-cash compensation cost related to common and
preferred stock and stock options and warrants issued for certain services
rendered. The increase of approximately $1,498,000 is due primarily to increases
in payroll and related expenses of $602,000, consulting services of $589,000,
legal and professional fees of $162,000, and occupancy costs of $145,000.
The Company incurred a net loss of $1,870,749 and negative cash flows from
operations of $1,443,429 for the nine months ended June 30, 1999 compared to a
net loss of $467,199 and positive cash flows from operations of $92,005 for the
nine months ended June 30, 1998. Basic and diluted net loss per share was $(.45)
for the nine months ended June 30, 1999 compared to $(.26) for the nine months
ended June 30, 1998.
10
<PAGE>
On May 24th, 1999, the Company through a wholly-owned subsidiary, Sub-Surface
Waste management, Inc., granted a three license to Builders Referal Inc.,
("BRI") of Irvine California, to market and sell through its nationwide network
of contractors, its transportable Bio-RaptorTM bioremediation system. The
license agreement provides for the Company to pay BRI a referral fee of six per
cent of the gross sales amount in the specified market territory. BRI agreed to
pay the Company license fees of one per cent of gross sales. To retain their
license, BRI is obligated to pay the Company minimum annual license fees of
$50,000, $100,000 and $200,000 respective during the term of the three-year
license agreement. The fees are payable on a quarterly basis.
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
first two quarters of fiscal 2000. 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 quarter
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 $275,816 and $316,600 at June 30, 1999 and
September 30, 1998, respectively. Net cash used in operations was $1,443,429 for
the nine months ended June 30, 1999, compared to net cash received $92,005 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 $356,350, in the first three quarters of fiscal
1999 compared to $99,100 in the same period of fiscal 1998.
During the nine months ended June 30, 1999, the Company raised $1,631,107, net
of placement fees of approximately $203,120, from private placements of Series C
Preferred Stock. As of June 30, 1999, the Company had negative working capital
of $33,280 as 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 generated by operations is sufficient 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.
To date, the Company has financed its operations principally through private
placements of equity securities and debt. Subsequent to June 30, 1999 the
Company has raised approximately $77,400, net of placement fees. The Company
believes that it has sufficient cash to continue its operations through
September 30, 1999. 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.
11
<PAGE>
During the last quarter of fiscal 1999, the Company projects expenditures for
plant and equipment of approximately $50,000 and research and development costs
of less than $10,000, 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 25 by the end of fiscal year 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 the 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
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 the 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 has not made any contingency plans in the event of
a failure of its gas and electric provider.
The Company's current estimate is that no significant additional costs will be
incurred in prepardness for the Year 2000.
12
<PAGE>
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. The Company has formed a new special independent committee of the
Board of Directors to investigate these claims. 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 nine months ended June 30, 1999, the Company raised $1,631,107 net of
placement fees of approximately $203,120, from the issuance of shares of Series
C Preferred Stock pursuant to a private placement and 27,750 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
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
- --------------------------------------------------------------------------------
Number Description
- --------------------------------------------------------------------------------
1. Bioremediation Product Line License Agreement
- --------------------------------------------------------------------------------
13
<PAGE>
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
EXHIBIT 1
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
This Agreement is made this 24th day of May 1999, by and between: Sub-Surface
Waste Management, Inc., a Nevada corporation, 5922-B Farnsworth Court, Carlsbad,
CA 92008 hereinafter referred to as "Licensor", and Builders Referral, Inc.,
19782 MacArthur Blvd., Suite 280, Irvine, CA 92612, hereinafter referred to as
"Licensee".
WHEREAS, Licensor holds the Exclusive United States Distribution License to
the Patents, Technical information and all related marketing rights and know-how
necessary for the sale and sublicense of bioremediation products and related
Bio-Raptor(TM) equipment, microbial blends, services, and processes;
WHEREAS, Licensee desires to acquire the right to use the Products,
Technical information and the Licensor's Trademarks and to receive technical
assistance from Licensor for the marketing and sale of the Products, to the
Specified Market, in the Territory, and Licensor is willing to grant such right
to Licensee;
NOW, THEREFORE, to effect the above purpose, and in consideration of the
mutual covenants and premises set forth herein, Licensor and Licensee hereby
agree as follows:
1.0 DEFINITIONS:
The terms defined in this Section shall, for all purposes of the Agreement,
except where the context clearly requires otherwise or except as otherwise
indicated, have the meaning specified below:
1.1 "Product(s)" shall mean the know-how, services, Bioremediation Product Line
and use licenses; specifications of that are set forth in Exhibit "A" attached
hereto.
1.2 "Technical Information" shall mean the Proprietary information, technical
data, processes, and specifications including application data, and training and
operations manuals, associated with the marketing, sale and installation of the
Product.
1.3 "Territory" shall mean the area more further described in Exhibit "B"
attached hereto.
1.4 "Licensor's Trademarks" shall mean the trademarks as licensed or used by
Licensor on or in connection with the Products, which Trademarks are shown in
Exhibit "C".
1.5 The Term "Specified Market" shall mean the market more fully described in
Exhibit "D" attached hereto.
1.6 "Biological Product Line" and the term "microbial blends" shall mean all
Sub-Surface Waste Management, Inc. biological products (REMEDILINE(TM)) having
utility for hydrocarbon bioremediation as applied to the Bio-Raptor(TM)
applications, including, but not limited to, the specific products listed in
Exhibit "A".
1.7 "Effective Date" shall mean the date on which this Agreement is executed.
1.8 The "Term" of this Agreement shall be three (3) years, commencing on the
Effective Date unless sooner terminated by the Licensor or Licensee in
accordance with the provisions herein.
1.9 "Patents" shall mean the bioremediation patents which are licensed,
registered or applied for by the Licensor or issued or assigned to the Licensor
during the Term of the Agreement, including current and future bioremediation
patents which have been or may be applied for or granted to Licensors, and
including but not limited to those patents listed in Exhibit "E".
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
2.0 LICENSE GRANT:
2.1 Licensor hereby grants to Licensee a non-exclusive right and license to use
the Technical Information and the non-exclusive right to market and sell the
Products, for the Specified Market, within the Territory, during the Term of
this Agreement. The right and license granted under this Agreement may not be
sublicensed, transferred or assigned by Licensee. Licensor shall not set up
another Licensee in the Specified Market, in the Territory as long as the terms
of paragraph 2.5 are met and, in addition, the Licensee shall have achieved
Gross Revenues of one-half, or more, of the Minimum Annual Sales Quota within
the first six months of each measured year as specified in paragraph 6.2.
2.2 Licensor hereby grants to Licensee a non-exclusive right and license to use
the Licensor's Trademarks or names in the United States. Licensee may not use
names or marks other than the Licensor's Trademarks in connection with the
Products licensed in this Agreement.
2.3 Licensor reserves the right to license additional licensee's for different
Specific Markets within the same Territory as covered by this License Agreement.
2.4. During the term of the Agreement, Licensee shall not export, distribute, or
sell the Product outside the United States directly or indirectly by any means,
or through any business affiliated with Licensee, and shall forward to Licensor
any and all inquiries and information related to the Product it has received
from prospective customers outside the United States. The Licensor shall pay the
Licensee six percent (6%) of the gross sales amount, or gross license fees (in
the instance of introduction to a new Licensee), gross royalties or any other
revenue derived from the referral in connection with any customers or contacts
provided to the Licensor by the Licensee. Said six-percent (6%) referral fee
shall be payable with respect to new customer-generated revenue received by
Licensor during the first six months (180) days of business from/with the new
customer.
2.5 This license grant in the Territory for the Specified Market shall remain in
full force and effect during the term of this Agreement while the Licensee is
not in breach of this Agreement and the License Fees, Minimum Quarterly License
Fees, and Minimum Annual License Fees are not more than thirty (30) days overdue
and the Minimum Annual Sales Quotas are met. In the event Licensee is delinquent
on any such fees, and Licensee fails to cure said delinquency within thirty (30)
days of such notice by Licensor, Licensee shall forfeit its license rights to
the Territory and Specified Market, without benefit of License fee refund, and
Licensor shall be free to license another third party for the same Territory and
Specified Market.
2.6 During the term of this Agreement, Licensee shall not:
(a) reverse engineer, separate or regrow any individual cell culture contained
in any microbial blend.
(b) disclose the results of any benchmark test of the microbial blends compared
to any third party without Licensor's written permission.
3.0 HOUSE ACCOUNTS:
3.1 Licensee acknowledges that Licensor may be obligated to supply the Products
to existing customers, in the Territory, who were customers of Licensor prior to
the Effective Date of this Agreement. Such customers are classified as "House
Accounts" and sales to such customers are not commissionable to Licensee unless
agreed to by Licensor in writing.
2
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
3.2 In addition to existing House Accounts, Licensor reserves the right to
classify new customers in the Territory as House Accounts if they are not in the
Specified Market or Territory, as defined in this License Agreement, are
purchasing Non-Bio-Raptor(TM) Hydrocarbon products, Non-Hydrocarbon
Bio-Raptor(TM) products, or are preexisting customers who have Letters of Intent
with Licensor for Bio-Raptor applications. In addition, customers who are
referred to Licensor by Licensee or other Licensees in the Territory in other
Specified Markets may also be classified as House Accounts.
4.0 DEFINITIONS FOR CALCULATION OF FEES AND COMMISSIONS:
The parties understand and agree that license fees and commission levels must be
calculated uniformly. The parties agree to use gross revenues as the basis for
calculating fees and commissions as means of avoiding conflicts arising out of
accounting interpretations associated with net income and net profits.
Adjustments to fees and commissions shall be made as a function of gross revenue
pursuant to methods and calculations defined herein. The fee and commission
schedules herein reflect this understanding between the parties and are based on
the following definitions of "Gross Revenues".
4.1 "Gross Revenue(s)" shall be defined as the funds collected by the Licensor
for the Products shipped to Customers generated by Licensee, licensed as end
users by Licensor , within the Specified Market, in the Territory less sales
taxes, credit returns, insurance and applicable freight and duty. Gross Revenues
shall also include the funds collected by Licensor for referrals as specified in
paragraph 2.4 and 5.2, but shall not includes funds collected for lab tests,
bench tests, field tests, or other charges at cost plus expenses.
5.0 COMMISSIONS
5.1 Commissionable Sales Licensor agrees to pay Licensee, on a monthly basis, a
commission of six percent (6%) of all Gross Revenues collected from all
Customers in the Specified Market and the Territory during the term of this
Agreement. In the event Licensee is delinquent more than thirty (30) days on any
fees due Licensor, Licensor may offset any commissions due Licensee to the
extent of the delinquencies.
5.2 Referrals to Licensor During the term of the Agreement, Licensee shall
forward to Licensor any and all inquiries and information related to the Product
it has received from prospective customers not in the Specified Market for the
Territory. The Licensor shall pay the Licensee six percent (6%) of the gross
sales amount, or gross license fees (in the instance of introduction to a new
Licensee), gross royalties or any other revenue derived from the referral in
connection with any customers or contacts provided to the Licensor by the
Licensee. Said six-percent (6%) referral fee shall be payable with respect to
new customer-generated revenue received by Licensor during the first six months
(180) days of business from/with the new customer.
6.0 SCHEDULE OF LICENSE FEES:
6.1 License Fees: In consideration of the grant of the rights set forth herein,
Licensee shall pay Licensor the sum of one percent (1%) of the Gross Revenues
paid by Customers within the Specified Market, in the Territory. License agrees
to pay license fees on a monthly basis upon receipt of a detailed invoice
specifying total customer receipts collected by Licensor.
6.2 Minimum Annual Sales Quota: Licensee acknowledges that Licensor requires a
minimum annual sales quota to support Licensee's sales activities. Licensee
agrees to undertake sales activities that enable it to meet the following
Minimum Annual Sales Quotas (as measured by gross revenues of Customers):
3
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
Year One: $10,000,000
Year Two: $20,000,000
Year Three: $40,000,000
The Minimum Annual Sales Quota is measured at the end of the calendar quarter
every twelve months after the Effective Date as follows:
Effective Date Range Calendar Quarter
January 1 - March 31 April 1 of current year to March 31 of each
succeeding year
April 1 - June 30 July 1 of current year to June 30 of each
succeeding year
July 1 - September 30 October 1 of current year to September 30 of
each succeeding year
October 1 - December 31 January 1 of current year to December 31 of each
succeeding year
6.3 Minimum Quarterly License Fee: In order to keep the License active for the
Territory and the Specified Market, the Licensee shall pay minimum quarterly
license fees which are due March 31, June 30, September 30 and December 31 and
shall be applied as the Minimum Quarterly License Fee for the succeeding
quarter.
6.3.1. Minimum Quarterly License Fee: Licensee shall pay a minimum quarterly
license fees as follows:
Year One Quarters: $12,500
Year Two Quarters $25,000
Year Three Quarters $50,000
6.4 Minimum Annual License Fee: The Minimum Annual License Fee is equal to one
percent (1%) of the Minimum Annual Sales Quota and is due thirty (30) days after
the Minimum Annual Sales Quota measurement period of one year. Credit shall be
given for actual license fees paid and Minimum Quarterly License Fees up to a
maximum of the Minimum Annual License Fee. In the event that the credits are not
sufficient to sum to the Minimum Annual License Fee, Licensee agrees to pay the
difference within thirty (30) days.
7.0 CUSTOMERS:
Customers are defined as end users of the Products that have been sold Products
by Licensee and have been licensed by Licensor. Customers exclude end users
classified as House Accounts by Licensor end users not in the Specified Market
and Territory. Each Customer must be licensed as a Product end user by Licensor
and each is required to attend a training program at Licensor's choice of
location.
8.0 TECHNICAL INFORMATION AND LICENSOR'S TRADEMARKS:
8.1 All rights in the Technical Information and the Licensor's Trademarks other
than those specifically granted herein are reserved to Licensor. Licensee
acknowledges that Licensee shall not acquire any title or interest in the
Technical Information or Licensor's Trademarks as a result of the Licensee's use
thereof. Licensee acknowledges that Licensor holds the Exclusive United States
Distributor License, granted by XyclonyX.
4
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
8.2 Licensor shall have Licensee registered as a registered or permitted user,
or the like, of the Licensor's Trademarks with the appropriate governmental
agency or entity, within the Territory, as may be required. Any cost to record
such an application shall be borne by Licensee. Upon termination or expiration
of this Agreement for any reason whatsoever, Licensor may immediately apply to
cancel Licensee's status as a registered or permitted user. Licensee shall
consent in writing to the cancellation and shall join in any cancellation
petition.
8.3 Licensor shall indemnify, defend, and hold Licensee harmless from any and
all suits or proceeding based on a claim that the Products constitute an
infringement of any United States or foreign patent. Licensee shall promptly
notify Licensor of the existence of any claim of patent infringement of any
Products to which Licensor's indemnification obligation would apply, and shall
give Licensor the reasonable opportunity to defend the same at its own expense,
provided that Licensee shall at all times also have the right to full
participation the defense at its expense. Licensee, at its sole option, may
actively participate in the defense of any such suit or proceeding, sharing in
the cost of said defense if it participates in such suit or proceeding. Licensee
shall cooperate with Licensor in the defense of any proceeding for any
infringement under this indemnification.
9.0 REPRESENTATIONS:
9.1 Licensee represents that it possesses sufficient financial resources and
management ability to manage and direct the sales and marketing of the Products
to meet the Minimum Annual Sales Quotas.
9.2 Licensee represents that it has the intention and ability to develop
distribution and sales channels through which the Product may be distributed and
sold efficiently.
9.3 Licensor represents that it holds the Exclusive United States Distribution
License of the Technical Information and Products and that there are no claims,
existing or threatened, in connection with the Licensor's clear title or
license. Licensor represents that the Products, Technical information,
Biological Product Line and related know-how do and will function for the
intended purpose of each Product as described in the Technical Information and,
further, that the Licensor has performed sufficient testing and analysis to
prove the usefulness and competitive efficiency of the technology underlying
this Agreement.
10.0 NON-COMPETITION:
10.1 During the term of this Agreement, Licensee shall not engage, directly or
indirectly, in the marketing or use of any competitive product or process whose
use or composition is similar to that of the Products without the written
consent of the Licensor, providing that the Products can be demonstrated to be
useful and competitive for all applications contemplated by Licensee's customer
base.
10.2 Licensee acknowledges and agrees that due to the unique nature of the
Products and Processes and the irreparable harm that disclosure or unauthorized
sales, use, and application shall cause Licensor, Licensee agrees that during
the term of this Agreement, and in the event of termination of this agreement,
Licensee covenants and agrees as follows:
a) During the term of this Agreement and for a period of five (5) years
after termination of this Agreement, including but not limited to, the
provisions of Paragraph 13.0, herein, neither Licensee nor any of his
employees, agents, partners, representatives and/or servants shall
5
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
directly or indirectly solicit customers of or divert business from
Licensor for the purpose of microbiological research, production,
application, usage, sales, or manufacturing of Licensor's products,
technology, proprietary techniques, applications, or processes, or any
microbial blends, formula, or cultured products or products of
fermentation or bio-chemical blends as described herein or developed
hereafter by Licensor.
b). For the five (5) year period after termination, Licensor agrees to
pay Licensee a commission of five percent (5%) of the Gross Revenues
paid by Customers in the Specified Market and the Territory who were
sold by Licensee during the period prior to termination.
11.0 CONFIDENTIALITY AND NONDISCLOSURES:
11.1 Licensee shall hold in confidence the Technical Information which is
identified as "proprietary" or "confidential" when delivered to Licensee
(hereinafter referred to as "Confidential Information").
11.2 The Confidential Information shall be used by Licensee for the sole purpose
of application and marketing the Products. Licensee shall refrain from using or
allowing the use of the Confidential Information for any other private or
commercial purpose.
11.3 Licensee agrees that the Confidential Information shall be shown to or
discussed only with selected individuals employed by Licensee on a "need to
know" basis for the purposes of performing under this Agreement. Licensee shall
take, and shall cause all its employees to take reasonable precaution to insure
the confidentiality of the Confidential Information.
11.4 The Confidential Information received by Licensee shall not be disclosed or
divulged to any third party or parties without prior written approval of
Licensor. Prior to showing the Confidential Information to, or discussing it
with, any third party, Licensee shall require the third party to maintain the
confidentiality under the same terms hereof.
11.5 Upon termination of this Agreement, Licensee shall cease to use and shall
forthwith return or surrender to Licensor all the Confidential Information and
all reproductions thereof in their custody or possession.
11.6 Licensee understands and agrees that Licensor might be irreparably harmed
by violation of this Article, and that the use of the Confidential Information
for the business purposes of any party other than Licensor could enable such
party to compete unfairly with Licensor. In the event that Licensee becomes
aware of any breach of the confidentiality of, or the misappropriation of, any
of the Confidential Information, Licensee will promptly give notice thereof to
Licensor. In addition, Licensor shall be entitled to enforcement by specific
performance of this Article and to damages and may terminate this Agreement.
11.7 The obligation of Licensee under this Article shall survive the termination
or rescission of the Agreement for a period of five (5) years after such
expiration, termination, or rescission.
12.0 INDEMNIFICATION
12.1 Licensee shall indemnify, defend and hold Licensor, its affiliates, parent
company, shareholders, subcontractors, officers, directors, employees and agents
harmless from any and all costs and demands resulting from any damage, loss or
injury, whether to property or persons, including death, resulting from, arising
out of, or in connection with: (1) negligence; (2) intentional acts; or (3)
errors and omissions of the Licensee, its employees, officers, contractors, or
agents in connection with the application, selling or marketing of the Products.
6
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
13.0 TERMINATION:
13.1 This Agreement may be terminated immediately by Licensor upon:
(a) The failure of Licensee to cure a material breach of this Agreement
within sixty (60) days of receipt of written notice to Licensee of such
breach;
(b) The failure of Licensee to pay any license fee as described herein
within thirty (30) days from the due date;
(c) In the event Licensee is delinquent in payment obligations to Licensor
or its affiliates under this Agreement or otherwise, Licensor may terminate
this Agreement.
(d) In the event Licensee, during the term of this Agreement, engages,
directly or indirectly, in the marketing or use of any competitive product
or process whose use or composition is similar to that of the Products
without the written consent of the Licensor.
13.2 Upon termination of this Agreement for any reason whatsoever Licensee will
return to Licensor all notes, records, documents, drawings, specifications, and
all other information in any form relating to Licensor under this Agreement, all
of which shall remain the sole property of Licensor.
13.3 Upon termination of this Agreement for any reason other than a payment
default, Licensee shall provide Licensor, within ten (10) days from the date of
such termination, with a list of all prospects outstanding on the date of
termination. Licensee shall be entitled to receive commissions from Gross
Revenues generated by these prospects within ninety (90) days after termination.
14.0 OPTION TO EXTEND LICENSE
Licensee, who is not in default in the terms of this agreement, and who has met
the Minimum Annual Sales Quotas for the last year of the Agreement, shall have
the option to extend the license for a period of three (3) additional years
provided that Licensor and Licensee jointly agree to new Minimum Annual Sales
Quotas, Minimum Quarterly License Fees, and Minimum Annual License Fees for the
extended period. Such new terms shall be incorporated into the extended
Agreement as an additional exhibit and agreed to prior to the expiration of the
current Agreement. Licensee shall give thirty days notice of its intention to
exercise the option prior to the expiration of this license. If notice to
exercise the option to extend is not received by the expiration date of this
license, the license will expire on said date and the option will no longer be
in effect.
15.0 TECHNICAL ASSISTANCE
15.1 Within one hundred (120) days of the Effective Date, Licensor shall
transfer to the Licensee Technical Information in a form and manner necessary to
enable the Licensee to market and sell the Products.
15.2 Upon prior written request of Licensee, and subject to the agreement of
Licensor with regard to the schedule and content of such assistance, Licensor
shall provide the following services under the conditions as stipulated
hereunder:
7
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
a) All such engineering/technical assistance as 15.1 above, shall be
done at Licensor's expense at Licensor's choice of location.
Transportation and living expenses during the assistance period shall
be paid by Licensee.
b) Any additional assistance which may be requested by Licensee from
time to time, shall be done at Licensee's expense, and shall be billed
at then current prevailing rates per hour, per capita, for the hours of
the services actually provided by Licensor's engineer/technical
expert(s).
c) All reasonable and customary business travel expenses (including
transportation, meals, and lodging during travel) shall be invoiced at
cost by Licensor, and shall be paid by Licensee, within thirty (30)
days after receipt of invoice from Licensor, provided that the business
class airfare for round-trip transportation shall be paid in advance by
Licensee.
15.3 Licensor shall provide, during the first one hundred twenty (120) days,
Licensor's biotechnical/application/marketing consultation time, by telephone,
at Licensor's expense.
15.4 Any additional assistance by Licensor's personnel, or consultants which may
require a personal site visit or customer contact shall be billed at the
prevailing, reasonable and/or customary rate per day, plus travel and per diem
expenses and payable by Licensee.
16.0 IMPROVEMENTS, DEVELOPMENTS AND/OR NEW PRODUCTS
16.1 Licensee and Licensor may undertake improvements, developments and/or new
products with respect to the Product from time to time and agree to inform the
other of the proposed improvements, developments or new products. Improvements,
developments or new products by either shall be shared on a royalty-free basis
within the territories covered by the agreement(s) existing at the time between
the parties. Both parties agree to negotiate in good faith the fees and
royalties to be paid for use of the other's improvements, developments or new
products which may be used, licensed or transferred outside the Territory; such
royalties and fees to be at parity with those established by this Agreement.
Both parties agree to provide full cooperation with respect to such improvements
and developments. All such improvements, developments or new products shall be
the Property of the Licensor.
16.2 Any royalty-free license granted hereby shall extend pursuant to the same
terms and conditions as those provided herein, without the parties hereto
entering into a specific agreement with respect thereto.
17.0 ARBITRATION:
All disputes, controversies, or differences arising out of, relating to, or in
connection with this Agreement between the parties hereto, or any breach
thereof, which cannot be resolved amicably by the parties shall be finally
settled by arbitration by a panel of three (3) arbitrators in accordance with
the Rules of and Procedures of the American Arbitration Association. Each party
shall appoint one (1) arbitrator and the two (2) arbitrators shall appoint the
third arbitrator. Any decision rendered by such arbitration shall be binding
upon both parties. The place of arbitration shall be San Diego, California. The
award rendered by the arbitrators shall be final and binding upon the parties
hereto. The prevailing party shall be entitled to all legal fees.
18.0 APPLICABLE LAW:
This Agreement shall be governed by and construed in accordance with the laws of
the State of California.
8
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
19.0 FORCE MAJEURE:
19.1 Neither party shall be liable to the other party for the failure or delay
in performance of any of its obligations under this Agreement due to acts of
God, fire, flood, strikes, labor troubles or other industrial disturbances, acts
of Government, laws and regulations, torts, insurrections or any other cause
beyond the control of the affected party. Upon the occurrence of such an event,
the affected party shall immediately notify the other party with as much detail
as possible. The affected party shall, immediately after the cause is removed,
perform such obligations with all due diligence.
19.2 In the event that the prevention of performing the obligation under this
Agreement shall continue beyond a period of six (6) months, the party unaffected
by such event shall have the right to terminate this Agreement upon thirty (30)
days prior notice to the other party.
20.0 ASSIGNMENT
20.1 Neither party shall assign any of its rights or obligations, or this
Agreement, in whole or in part, to a third party, except as provided for in the
case of:
a) Licensee's rights granted herein to subcontract for the application
of the Product and the establishment and expansion of the sales,
distribution, use and applications network development within the
designated Territory subject to Licensor's prior written approval of
such subcontract/subcontractor.
b) Licensor shall have the right to assign this Agreement to any third
party who purchases or lawfully obtains all or substantially all of the
Licensor's assets or outstanding voting shares.
20.2 In the event of Sub-Surface Waste Management, Inc.'s cessation of business,
or dissolution, the rights in connection with the Licensor shall revert to
XyclonyX and then to the patent owners where applicable and shall be assigned to
their heirs, or assignees providing however that such assignment shall in no way
encumber this Agreement and that such assignment strictly prohibit any and all
heirs or their representatives of any estate from challenging the terms,
conditions, or economic equity or value of this agreement throughout
arbitration, legal action or otherwise.
21.0 NOTICES:
21.1 All notices or communications given or required to be given hereunder shall
be given by personal delivery or by registered airmail or by cable, telex, or
facsimile followed by a letter dispatched within twenty-four (24) hours to the
following addresses:
To Licensor: 5922-B Farnsworth Court, Carlsbad, CA 92008
To Licensee: 19782 MacArthur Blvd., Suite 280, Irvine, CA 92612.
21.2 Notices and communications shall be deemed received by the addressee on the
date of delivery if delivered personally, the fifth (5th) day from the date of
posting if sent by registered mail, or by forty-eight (48) hours after
transmission if sent by cable, telex, or facsimile, or by evidence of signature
on overnight delivery.
22.0 MISCELLANEOUS PROVISIONS:
22.1 The headings of the Articles have been inserted for convenience or
reference only and shall not affect the interpretation or construction of the
provisions of the Agreement.
9
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
22.2 This Agreement shall not be modified except by a written instrument
executed by duly authorized representative of the parties hereto.
22.3 In the event any term or provision of this Agreement shall for any reason
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement, and this Agreement shall be interpreted and construed as if such
term or provision, to the extent that it is invalid, illegal or unenforceable,
had never been contained in this agreement.
22.4 Waiver of any right by a party hereto towards the other of breach or a
series of breaches hereof shall not affect the right of the waiving party to
exercise any of its rights provided hereunder on account of any other breach
hereof or similar breach subsequent thereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives on the date first above written.
The Effective date of this license shall be the _________________________, 1999.
10
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
LICENSOR: LICENSEE:
Sub-Surface Waste Management, Inc. Builders Referral, Inc.
By:
--------------------------------- --------------------------------------
Robert C. Brehm, Vice President Jebb Hook, President
---------------------------------------
Al Krauza, Vice President
11
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
TECHNOLOGY LICENSE AGREEMENT
EXHIBIT "A"
BIOREMEDIATION PRODUCT LINE
REMEDILINE(TM) Microbial Blends
- -------------------------------
300HC - Biological above ground site remediation microbial blends for
bioremediation of hydrocarbon contaminated soil.
Note: All SSWM biological products are suspended in a pre-application,
dormant-state, on the high quality, technical-grade diatomaceous earth
necessary, for enhanced product stability, microbial viability, and long
shelf-life, within environmental ranges, for convenient handling, and ease of
end-user application. Other product suspensions are available depending upon
application or process suitability standards.
BIO-RAPTOR(TM) Product Line
- ---------------------------
Bio-Raptor(TM) - HC --- Transportable Bio-Raptor(TM) for hydrocarbon treatment
applications (1)
Microbial Application System(TM) - HC --- Add-on hydrocarbon treatment system
for existing equipment - includes spray bar, automated microbial delivery
system, auxiliary pumps, etc. Does not include belt scale that may be ordered
separately.
Bio-Raptor(TM) - HCUL --- Hydrocarbon Treatment Patent Use License - Single
Machine
MAS(TM) - HCUL --- Hydrocarbon Treatment Patent Use License - Single MAS System
(1) Transportable Bio-Raptor(TM)- HC is defined as a Bio-Raptor(TM) that will be
used on one site at a time and will be moved from site to site to perform
hydrocarbon bioremediation treatments which take less than 12 months to complete
on an individual site. This definition does not include Bio-Raptors(TM) that are
classified as Soil Recycling Centers which are used on a single site with
multiple customers bringing contaminated soil or other material to that site for
remediation or conversion into other materials, or Bio-Raptors(TM) used for
non-hydrocarbon treatment.
12
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
BIOREMEDIATION PRODUCT LINE LICENSE AGREEMENT
EXHIBIT "B"
TERRITORY DESCRIPTION
The Continental United States excluding Hawaii and Alaska
---------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
TECHNOLOGY LICENSE AGREEMENT
EXHIBIT "C"
LICENSOR'S TRADEMARKS
Bio-Raptor(TM) Bioremediation Shredder/Sprayer System/Process
Microbial Application System(TM)
Bio-Raptor(TM), REMEDILINE(TM)
14
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
TECHNOLOGY LICENSE AGREEMENT
EXHIBIT "D"
LICENSEE'S SPECIFIED MARKET DESCRIPTION
Customers requiring time specific job site bioremediation of hydrocarbon
contaminated soil using a transportable Bio-Raptor(TM) that is moved from site
to site. Job site resident time is less than 12 months.
15
<PAGE>
SUB-SURFACE WASTE MANAGEMENT, INC.
TECHNOLOGY LICENSE AGREEMENT
EXHIBIT "E"
LICENSOR'S PATENTS LICENSED, REGISTERED OR APPLIED FOR
United States Patent 5,039,415 - Aug. 13, 1991
Decontamination of hydrocarbon contaminated soil
Inventors
Smith; Alvin J. Appl. No.: 512,474
Filed: Apr. 23, 1990
Abstract
The method of treating hydrocarbon contaminated soil that includes forming the
soil into a flowing particulate stream; forming an aqueous liquid mixture of
water and treating substance that reacts with hydrocarbon to form CO(2) and
water; dispersing the liquid mixture into the particulate soil stream to wet the
particulate; allowing the substance to react with the wetted soil particulate to
thereby form CO(2) and water, whereby the resultant soil is beneficially
treated.
9 Claims, 4 Drawing Figures
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 275,816
<SECURITIES> 0
<RECEIVABLES> 186,733
<ALLOWANCES> 0
<INVENTORY> 186,158
<CURRENT-ASSETS> 725,794
<PP&E> 382,691
<DEPRECIATION> 26,341
<TOTAL-ASSETS> 1,138,854
<CURRENT-LIABILITIES> 759,109
<BONDS> 0
0
7,683
<COMMON> 560
<OTHER-SE> 363,314
<TOTAL-LIABILITY-AND-EQUITY> 1,138,854
<SALES> 190,130
<TOTAL-REVENUES> 190,130
<CGS> 27,704
<TOTAL-COSTS> 27,704
<OTHER-EXPENSES> 2,079,011
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 890
<INCOME-PRETAX> (1,870,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,870,749)
<EPS-BASIC> 0
<EPS-DILUTED> (.45)
</TABLE>
