UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
x QARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1998
[ ] 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 of incorporation or organization)
(IRS Employer Identification No.)
5922-B Farnsworth Court
Carlsbad, California 92008
(760) 915-1860
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 - 4,847,550 shares outstanding as
of January 15, 1999.
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format (check one): Yes No x
U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1998
December 31, September 30,
1998 1998
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 685,746 $ 316,600
Accounts receivable (Note 2) 176,862 --
Inventory (Note 3) 21,390 --
Prepaid expenses and other assets 12,764 10,000
Total current assets 896,761 326,600
Property and equipment (Note 4) 242,591 99,100
Deposits (Note 5) 18,710 17,500
Deferred tax assets (Note 9) -- --
$1,158,062 $ 443,200
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (Note 6) $ -- $ --
Accounts payable and accrued liabilities 410,448 206,300
Current portion of lease obligation 5,780 --
Net liabilities of discontinued
operation (Note 7) -- --
Total current liabilities 416,228 206,300
Long term liabilities - lease
obligation less current
portion (Note 11) 8,593 --
Commitments and contingencies (Note 12)
Stockholders' equity (deficit) (Note 8)
Convertible preferred stock, $.10 par
value; authorized 20,000,000 shares:
Series II; authorized 500,000 shares;
issued and outstanding 21,376 and
21,507 shares (aggregate liquidation
preference of $21,376 and $21,507) 2,138 2,200
Series B; authorized 500,000 shares;
issued and outstanding 15,617 and
15,915 shares (aggregate liquidation
preference of $15,617 and $15,9155) 1,562 1,600
Series C; authorized 50,000 shares;
issued and outstanding 30,750 and
15,357 shares (aggregate liquidation
preference of $3,075,000 and $1,535,700) 3,075 1,500
Series D; authorized 50,000 shares;
issued and outstanding 8,938 and
20,438 shares (no liquidation preference) 894 2,000
7,668 7,300
Common stock $.0001 par value; authorized
150,000,000 shares; issued and outstanding
4,735,362 and 3,447,554 shares 474 400
Additional paid-in capital 4,227,184 3,068,000
Stock subscribed (725,000) --
Stock options and warrants 1,198,380 868,800
Accumulated deficit (3,975,465) (3,707,600)
733,241 236,900
$ 1,158,062 $ 443,200
The Notes to Consolidated Financial Statements are an integral part of
these statements.
===================================
U. S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the Three
Months Ended December 31,
1998 1997
Revenues $ 176,728 $ --
Cost of revenues 17,895 --
Gross profit 158,833 --
Selling, general and administrative expenses 430,784 52,760
Loss from operations (271,951) (52,760)
Other income (expense):
Interest Income 4,051 --
Interest expense, related parties -- 33,140
Interest expense -- --
4,051 33,140
Net loss from continuing operations
before taxes (267,900) (85,900)
Provision for income taxes (Note 9) -- --
Net loss from continuing operations (267,900) (85,900)
Discontinued operations (Note 7): -- --
Net loss $ (267,900) $ (85,900)
Net loss per common share (basic and diluted):
Net loss from continuing operations (0.11) (0.13)
Discontinued operations -- --
Net loss $ (0.11) $ (0.13)
Weighted average common shares outstanding 2,392,409 665,137
==================================
U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the Three
Months Ended December 31,
1998 1997
Cash flows from operating activities:
Net loss $ (267,900) $ (85,900)
Adjustments to reconcile net income to
cash provided (used) by operating activities:
Depreciation and amortization 89,945
Stock, stock options and warrants in
exchange for services 32,800
Loss on disposal of discontinued operation
Decrease (increase) in:
Accounts receivable (176,862) (20,100)
Inventory (21,390)
Prepaid expenses and other assets (2,762)
Deposits (1,210)
Increase (decrease) in:
Accounts payable and accrued liabilities 118,043 (49,300)
Current portion of lease contract 5,780
Net liabilities of discontinued operation - (76,900)
Net cash used in operating activities (223,556) (232,200)
Cash flows from investing activities:
Purchase of property and equipment (147,350) -
Net cash used in investing activities (147,350) -
Cash flows from financing activities:
Proceeds from issuance of long-term debt
to related parties
Repayment of long-term debt to related parties
Increase in long-term portion of lease
contracts 8,593 -
Repayment of notes payable - (56,900)
Issuance of common stock, preferred stock,
and stock options in private placements 730,960 290,400
Exercise of stock options 500 -
Net cash provided by financing activities 740,053 233,500
Net increase (decrease) in cash and
cash equivalents 369,146 1,300
Cash and cash equivalents, beginning of period 316,600 1,700
Cash and cash equivalents, end of period $ 685,746 $ 3,000
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ - $ -
Cash paid for interest $ - $ -
Schedule of non-cash investing and
financing activities:
Stock issued in exchange for
extinguishment of debt $ - $ (56,900)
Conversion of preferred stock to
common stock (Note 8) $ 1,253 $ -
==================================
U.S. MICROBICS, INC. AND SUBSIDIARIES
(FORMERLY GLOBAL VENTURE FUNDING, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1998 AND 1997
1. Basis of presentation and accounting policies:
Organization and basis of presentation:
The Company 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"). The Company has been
engaged in a variety of operations since inception.
During August, 1997, the Company acquired the assets of Xyclonyx, a 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.
During the year ended September 30, 1998, the Company created four sub-
sidiaries: West Coast Fermentation Center, Sub Surface Waste Management, Inc.,
Sol Tech Corporation, and Bio-Con Microbes. 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. All four
subsidiaries have entered into technology license agreements with Xyclonyx.
These agreements are ten years in length and call for license fees and
royalties as specified in the agreement.
On November 20, 1998, the Company created an addition subsidiary, Applied
Microbic Technologies, Inc. ("AMTI'). It is anticipated that this Company
will enter into a technology licensing agreement with Xyclonyx. AMTI 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.
The Company has experienced losses from discontinued operations of $5,600 and
$253,400, including a loss on disposal of $5,600 and $42,200 for the years
ended September 30, 1998 and 1997, respectively, and has experienced losses
from continuing operations of $1,406,200 and $1,073,800 for the years ended
September 30, 1998 and 1997, respectively. For the quarter ended December
31, 1998 the company incurred a loss of $267,900.
The Company is planning on raising additional capital through the issuance of
additional stock in a private placement or public offering. The Company is
also currently developing business opportunities and operations through its
wholly-owned subsidiaries. Based upon the current status of the Company,
additional capital will be required in order for the Company to complete any
development or to maintain their ongoing operations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result from the outcome
of this uncertainty.
Consolidation:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material inter-company transactions have
been eliminated in consolidation.
Discontinued operations:
On December 30, 1997, the Company formally disposed of its Houston, Texas
cellular phone product store. The sale was effective as of October 31, 1997
with the buyer assuming all liabilities for products or services entered into
from November 1, 1997 and forward. In accordance with the Financial
Accounting Standards Board Emerging Issue Task Force 95-18, when the
measurement date for a discontinued operation, as defined in APBO No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" occurs after the balance sheet date but
before the financial statements for the prior period have been issued, the
estimated loss on disposal should be recognized and the segments operating
results should be presented as a discontinued operation in the not yet
released financial statements. As such, the estimated loss on disposal was
recognized and the operating results were presented as a discontinued
operation in the September 30, 1997 financial statements.
Cash and cash equivalents:
The Company considers highly liquid investments with maturities of three months
or less when purchased to be cash equivalents.
Accounts receivable:
Accounts receivable are valued at their net realizable value after a provision
for uncollectible amounts.
Inventory:
Inventory is valued at the lower of cost or market using the first-in-first-out
method of inventory cost allocation.
Deferred financing costs:
Costs associated with obtaining financing are included in prepaid expenses and
other assets and are amortized over the term of the related debt using the
straight-line method. All such costs became fully amortized during the year
ended September 30, 1998.
Property and equipment:
Property and equipment is stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets.
Income taxes:
The Company has implemented the provisions on SFAS No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires that income tax accounts be
computed using the liability method. Deferred taxes are determined based
upon the estimated future tax effects of differences between the financial
reporting and tax reporting bases of assets and liabilities given the
provisions of currently enacted tax laws.
Net loss per common share:
During the year ended September 30, 1998, the Company adopted Financial
Accounting Standard No. 128, "Earnings Per Share". This statement replaces
primary earnings per share with basic earnings per share and generally
requires dual presentation of basic and diluted earnings per share.
Accordingly, the compilations of loss per common share has been computed in
accordance with this standard. The net loss per common share for the year
ended September 30, 1997 did not need to be adjusted to conform with this
statement.
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock and dilutive common stock
equivalents outstanding during the year. Dilutive common stock equivalents
consist of shares issuable upon conversion of convertible preferred shares
and the exercise of the Company's stock options and warrants (calculated
using the treasury stock method). During the quarters ended December 31,
1998 and 1997 respectively, common stock equivalents are not considered in
the calculation of the weighted average number of common shares outstanding
because they would be anti-dilutive, thereby decreasing the net loss per
common share.
Pervasiveness of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments:
Based on the borrowing rates currently available to the Company, the carrying
value of notes payable at September 30, 1997 approximates fair value.
2. Accounts receivable:
Accounts receivable consists of amounts due for technology licenses and
microbe sale in December of 1998. There were no accounts receivable as of
December 31, 1997.
3. Inventory:
The inventory is comprised entirely of raw materials and manufacturing supplies
at December 31, 1998. There was no inventory as of December 31, 1997.
4. Property and equipment:
Property and equipment consisted of:
December 31, 1998 September 30, 1998
Office furniture and equipment $ 84,732 $ 57,400
Leasehold improvements 39,198 7,100
Leased equipment 21,221 -
Manufacturing equipment 102,854 36,200
248,005 100,700
Less accumulated depreciation (5,414) (1,600)
$ 242,591 $ 99,100
Depreciation expense for the quarter ended December 31, 1998 was $3821.
There was no depreciation expense for the quarter ended December 31, 1997.
5. Deposits:
Deposits at December 31, 1998 consisted of a security deposit on the Company's
building lease, a deposit with a consultant and a utility company deposit.
6. Notes payable:
There were no Notes payable as of December 31, 1998 or December 31, 1997. Notes
payable at September 30, 1997 consisted of various unsecured notes due in 6
months from the date of issuance and were bearing interest at 12%. The
maturities ranged from October, 1997 to March, 1998. Several of these notes
were extinguished by the issuance of preferred stock during the year ended
September 30, 1998 (see Note 6) with the remaining notes being paid off in
cash.
7. Business acquisitions and discontinued operations:
Business acquisition:
On August 30, 1997, the Company completed the acquisition of Xyclonyx in a
transaction accounted for in a manner similar to a purchase. Xyclonyx became
a wholly-owned subsidiary of the Company through the exchange of 250,000
shares of common stock for all of the outstanding stock of Xyclonyx.
Xyclonyx was formed on August 14, 1997 and had no significant operations
prior to its acquisition by the Company.
Discontinued operation:
On October 31, 1997, the Company adopted a formal plan to sell its Houston,
Texas cellular phone products store. The sale was effective as of October
31, 1997 with the buyer assuming all liabilities for products or services
entered into from November 1, 1997 forward. The assets of this operation
consisted of inventories, deposits and leasehold improvements.
For the year ended September 30, 1997, the Company estimated a loss on disposal
of the discontinued operation of $42,220 (no income tax benefit) which
included a provision for expected operating losses of $11,900 (no income tax
benefit) during the phase-out period. The actual loss on the disposal of the
assets exceeded the estimate by $5,600 (no income tax benefit). Accordingly,
the accompanying statement of operations for the year ended September 30,
1998 includes an additional loss of $5,600.
Net sales of the discontinued operation were $23,200 for the one month ended
October 31, 1997 and $29,000 for the year ended September 30, 1997. These
amounts are not included in sales in the accompanying statement of operations
for these periods.
Assets and liabilities of the discontinued operation consisted of the
following:
October 31, 1997 September 30, 1997
Inventories $ 2,200 $ 2,600
Deposits and other assets 3,700 3,700
Leasehold improvements 14,800 14,800
Total assets 20,700 21,100
Accounts payable and accrued expenses 103,200 98,000
Net liabilities $ (82,500) $ (76,900)
The disposal was completed upon the asset and liability exchange and the
exchange of 80,000 shares of the Company's common stock in December, 1997.
As of December 31, 1998 all provisions for losses from the discontinued
operation has been liquidated.
8. Stockholders' equity (deficit):
On August 20, 1997, the Board of Directors authorized a one-for-twenty (1:20)
reverse stock split of all shares of outstanding common and preferred stock.
The effect was a reduction in the number of issued and outstanding common
shares from 11,173,898 to 558,695 and preferred shares from 843,599 to
42,180. All references in the accompanying financial statements to the
number of common and preferred shares and per share amounts have been
restated to reflect the above reverse stock split.
Preferred stock:
The Company's preferred stock may be divided into such series as may be
established by the Board of Directors. The Board of Directors may fix and
determine the relative rights and preferences of the shares of any series
established. All convertible preferred shares are non-cumulative, non-
participating and do not carry any voting privileges.
In October, 1991, the Board of Directors authorized the issuance of 500,000
shares of Series II Convertible Preferred Stock. Each share of Series II
preferred stock is entitled to preference upon liquidation of $1.00 per share
for any unconverted shares. Each Series II preferred share may be converted
to common stock after a specified holding period as follows: after one year,
two shares of common stock; after two years, five shares of common stock;
after three years, ten shares of common stock. In November, 1996, the Board
of Directors changed the conversion schedule as follows: commencing January
1, 1997, each shareholder shall be entitled to convert an initial amount of
250 shares to 2,500 shares of common stock. The shareholder shall be entitled
to convert the balance of their Series II Preferred shares in increments of
475 shares during each six-month period thereafter beginning July 1, 1997.
In March, 1992, the Board of Directors authorized the issuance of 500,000
shares of Series B Convertible Preferred Stock. Each share of Series B
preferred stock is entitled to preference upon liquidation of $1.00 per share
for any unconverted shares. Each Series B preferred share may be converted
to common stock after a specified holding period as follows: after one year,
two shares of common stock; after two years, five shares of common stock.
In November, 1996, the Board of Directors changed the conversion schedule as
follows: Commencing January 1, 1997, each shareholder shall be entitled to
convert an initial amount of 250 shares to 1,250 shares of common stock.
The shareholder shall be entitled to convert the balance of their Series B
Preferred shares in increments of 237.5 shares during each six-month period
thereafter beginning July 1, 1997.
In June, 1992, the Board of Directors authorized the issuance of 50,000 shares
of Series C Convertible Preferred Stock. Each share of Series C preferred
stock is entitled to preference upon liquidation of $100 per share for any
unconverted shares, and the liquidation preference is junior only to that of
all previously issued preferred shares. Each Series C preferred share may be
converted to 100 shares of common stock after a specified holding period of
one year.
In June, 1992, the Board of Directors authorized the issuance of 50,000 shares
of Series D Convertible Preferred Stock. The Series D preferred stock carries
no liquidation preferences. Each Series D preferred share may be converted to
100 shares of common stock after a specified holding period of one year. The
Series D preferred stock is also subject to forfeiture at any time prior to
conversion if the recipient thereof fails or refuses to perform such
reasonable duties as may be assigned to them from time to time by the Board
of Directors. The Series D preferred stock may not be sold, transferred, or
conveyed to any other person and is subject to redemption at a price of $.001
per share in the event of death, disability, or incompetency of the original
holder or the attempted transfer or conveyance of the shares to any other
person.
The Company has reserved 17,500,000 shares of its $.0001 par value common
stock for conversion of preferred stock issuances. As of September 30, 1998,
there were 21,507 shares of Series II preferred stock, 15,915 shares of
Series B preferred stock, 15,357 shares of Series C preferred stock and
20,438 shares of Series D preferred stock issued and outstanding. Conversion
of all issued and outstanding convertible preferred stock to common stock
would result in an additional 3,874,145 shares of common stock.
Preferred stock transactions:
All valuations of preferred stock issued for services were based upon the
closing price of the Company's common stock on the date of the agreement.
This amount was then multiplied by the applicable conversion rate and then
discounted by management. These discounts are based upon the restrictive
nature of the stock, block size and other factors.
Preferred stock transactions during the quarter ended December 31, 1998:
In December of 1998, the President of the Company converted 7,000 shares of
Series D preferred stock into 700,000 shares of common stock. The Chief
Operating Officer converted 2,500 shares of Series D preferred stock into
250,000 shares of common stock and the Vice-President converted 3,200 shares
of Series D preferred stock into 320,000 shares of common stock.
In December of 1998, the President, Chief Operation Officer and Vice-President
received a stock bonus as compensation for prior services in Series D
preferred stock of 500 shares each for the President and Chief Operating
Officer and 200 shares for the Vice-President. All shares were valued at
approximately $11 per share.
During the quarter ended December, 31, 1998, certain stockholders exercised
their preferred stock conversion rights and the Company issued 2,805 shares
of common stock in exchange for cancellation of 131 shares of Series II
preferred stock, and 299 shares of Series B preferred stock.
Preferred stock transactions during the year ended September 30, 1998:
During October, 1997, the Company issued 2,000 shares of Series D preferred
stock to the President of the Company in lieu of a cash salary payment and
100 shares of Series D preferred stock to a consultant for services. All
exchanges were valued at approximately $5 per share.
During November, 1997, the Company issued 7,000 shares of Series D preferred
stock to the President of the Company and 7,000 shares of Series D preferred
stock to the Chief Operating Officer of the Company in lieu of cash salary
payments. All transactions were valued at approximately $10 per share.
During December, 1997, the Company issued 920 shares of Series C preferred
stock to various creditors in exchange for debt owed by the Company in the
mount of $52,800. All exchanges were valued at approximately $57 per share.
During May, 1998, the Company issued 500 shares of Series D preferred stock to
the President of the Company, 500 shares of Series D preferred stock to the
Chief Operating Officer of the Company, and 200 shares of Series D preferred
stock to the Vice President of the Company in lieu of cash salary payments.
All transactions were valued at approximately $20 per share.
Throughout the year ended September 30, 1998, certain stockholders exercised
their preferred stock conversion rights and the Company issued 1,526,625
shares of common stock in exchange for cancellation of 1,012 shares of
Series II preferred stock, 2,740 shares of Series B preferred stock, 1,028
shares of Series C preferred stock, and 14,000 shares of Series D preferred
stock.
Throughout the year ended September 30, 1998, the Company sold 12,225 shares
of Series C preferred stock pursuant to a private placement offering as
permitted under Regulation D of the Securities Act of 1933 related to
transactions not involving a public offering. The net proceeds to the
Company after issuing costs of $104,600 was $780,100. In conjunction with a
5,000 shares issuance of Series C preferred stock to an individual, an option
to purchase 300,000 shares of common stock at prices ranging from $2.00 to
$2.50 per share was granted to this individual. This individual is now on the
Company's Board of Directors.
Preferred stock transactions during the year ended September 30, 1997:
During November, 1996, the Company issued 112 shares of series C preferred stock
to three employees in lieu of cash salary payments and 13 shares of Series D
preferred stock to a consultant for services. All exchanges were valued at
approximately $4 per share.
Throughout the year ended September 30, 1997, certain stockholders exercised
their preferred stock conversion rights and the Company issued 119,736 shares
of common stock in exchange for the cancellation of 1,231 shares of Series II
preferred stock, 1,235 shares of Series B preferred stock and 1,000 shares of
Series D preferred stock.
During April, 1997, the Company issued 125 shares of Series C preferred stock to
two employees in lieu of cash salary payments. All exchanges were valued at
approximately $4 per share.
During July, 1997, the Company issued 12,500 shares of Series D preferred stock
to five employees in lieu of cash salary payments. All exchanges were valued
at approximately $1 per share.
During July and August, 1997, the Company issued 100 shares of Series C
preferred stock and 4,600 shares of Series D preferred stock for finder's
fees related to assisting the Company in obtaining financing. All exchanges
were valued at approximately $1 per share.
Common stock transactions:
All valuations of common stock issued for services were based upon the closing
price of the Company's common stock on the date of the agreement. In the
event restricted common stock was issued, a discount was applied by
management. These discounts are based upon the restrictive nature of the
stock, block size, and other factors.
Common stock transactions during the quarter ended December 31, 1998:
During December 1998, the Company issued 10,000 shares of common stock to a
consultant in exchange for services. The exchange was valued at $1 per share.
An option holder exercised their options and purchased 5,000 shares of common
stock. The transaction was valued at $500.
Common stock transactions during the year ended September 30, 1998:
During December, 1997, the Company issued 320,000 shares of common stock in
exchange for various services. The exchanges were valued at approximately
$.38 to $1.32 per share.
During April, 1998, the Company issued 23,000 shares of common stock in
exchange for various services. The exchanges were valued at approximately
$.75 to $1 per share.
In July, 1998, the Company issued 150,000 shares of common stock in exchange
for various services. The exchanges were valued at approximately $1.25 per
share.
Common stock transactions during the year ended September 30, 1997:
During February, 1997, the Company sold 14,400 shares of common stock with
warrants to purchase 9,350 shares of common stock at $60.00 per share
pursuant to a private placement offering as permitted under Regulation D of
the Securities Act of 1933 related to transactions not involving a public
offering. The net proceeds to the Company after issuing costs was $225,600.
During July, 1997, the Company issued 40,000 shares of common stock for finder's
fees related to assisting the Company in obtaining financing. All exchanges w
ere valued at approximately $.01 per share.
During July, 1997, the Company issued 250,000 shares of common stock to the
President of the Company in exchange for prior services as a consultant to
the Company. The exchange was valued at approximately $.20 per share.
During August, 1997, the Company issued 14,667 shares of common stock in
exchanges for various services. All exchanges were valued at approximately
$.50 per share.
During August, 1997, the Company issued 60,000 shares of common stock to a
creditor in exchange for debt owed by the Company in the amount of $54,111.
The exchange was valued at approximately $.90 per share.
During September, 1997, the Company issued 560,000 shares of common stock in
exchange for various services. All exchanges were valued at approximately
$1.00 per share.
Stock options and warrants:
The Company issued options and warrants during the years ended September 30,
1998 and 1997 for consulting services, fees in connection with obtaining
financing, and various other services.
Activity of options and warrants granted is as follows:
Options and warrants outstanding
[CAPTION]
<TABLE>
<C> <C> <C>
Options and warrants outstanding
Weighted
Shares average
exercise
price
- -----------------------------------------------------
Balance, September 30, 1996 15,000 $ 2.00
Granted 270,500 3.55
Exercised (15,000) 2.00
Balance September 30, 1997 270,500 3.55
Granted 2,523,000 2.63
Exercised (30,000) 0.10
Expired (38,150) 0.43
Balance September 30, 1998 2,725,350 2.78
Granted 1,433,333 1.44
Expired (450) .20
Exercised (5,000) .10
Balance, December 31, 1998 4,153,233 $ 2.32
</TABLE>
The following is a summary of options and warrants outstanding at December 31,
1998:
CAPTION>
<TABLE>
<C> <C> <C> <C> <C> <C>
Options and warrants outstanding Options and warrants exercisable
=======================================
Weighted
average
remaining Weighted Weighted
contractual average average
Range of Number life exercise Number exercise
exercise prices outstanding (years) price exercisable price
=======================================
$.10 - .50 147,550 1.98 $ 0.23 147,550 $ 0.23
1-5 3,883,333 3.84 2.62 3,883,333 2.62
10 103,000 4.97 10.00 103,000 10.00
20 10,000 2.50 20.00 10,000 20.00
60 9,350 1.00 60.00 9,350 60.00
4,153,233 3.79 $ 2.32 4,153,233 $ 2.32
</TABLE>
Options and warrants granted during the quarter ended December 31, 1998
consisted of 1,100,000 options to officers and directors, and 333,333
warrants in connection with a private placement offering.
The Company accounts for stock compensation under the provisions of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation". SFAS 123 provides that companies may elect to account for
employee stock options using a fair value-based method or continue to apply
the intrinsic value-based method prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25").
Under the fair value-based method prescribed by SFAS 123, all employee stock
option grants are considered compensatory. Compensation cost is measured at
the date of grant based on the estimated fair value of the options determined
using an option pricing model. The model takes into account the stock price
at the grant date, the exercise price, the expected life of the option, the
volatility of the stock, expected dividends on the stock and the risk-free
interest rate over the expected life of the option. Under APB 25, generally
only stock options that have intrinsic value at the date of grant are
considered compensatory. Intrinsic value represents the excess, if any, of
the market price of the stock at the grant date over the exercise price of
the options.
As permitted by SFAS 123, the Company accounts for these employee stock options
under APB 25, under which no compensation cost has been recognized because the
exercise price of the options was equal to or exceeded the market price of
the stock on the date of grant.
The following table discloses the Company's proforma net income and net loss
per share assuming compensation cost for employee stock options had been
determined using the fair value-based method prescribed by SFAS 123 for the
quarter ended December 31, 1998:
Net loss:
As reported $ (267,900)
Proforma (1,287,900)
Net loss per common share (basic and diluted):
As reported $ (0.11)
Proforma (.54)
There were no options granted to employees during the year ended September
30, 1997.
The fair value of each option and warrant is estimated on the date of grant
using the Black-Scholes option pricing model. The following assumptions were
used to estimate the fair value:
Qtr ended December 31
1998 1997
Expected stock price volatility 240.96% 307.02%
Expected option/warrant lives 1-5 years 1-5 years
Expected dividend yields -- --
Risk-free interest rates 5.75-5.75 5.68-6.59
Weighted average fair value of
options/warrants granted 0.93 $0.16
9. Income taxes:
The benefit for income taxes from continuing operations is different than the
amount computed by applying the statutory federal income tax rate to net loss
before taxes. A reconciliation of income tax benefit follows:
Year ended September 30,
1998 1997
Computed tax benefit at federal statutory rate $ 480,000 $ 451,200
Equity issuances for services (122,000) (79,600)
Change in valuation allowance (358,000) (371,600)
$ -- $ --
The provision for federal and state income taxes consisted of the following:
Year ended September 30,
1998 1997
Current $ -- $ --
Deferred $ -- $ --
The deferred tax asset consisted of the following:
Net operating loss carryforwards $ 1,186,300 $ 828,300
Valuation allowance (1,186,300) (828,300)
Net deferred tax asset $ -- $ --
The Company has net operating loss carryforwards ("NOL's") for federal income
tax reporting purposes of approximately $3,489,200. The NOL's expire at
various times through 2013.
Included in the above NOL's are net operating loss carryforwards which may be
subject to substantial limitations in accordance with various provisions of
the Internal Revenue Code. The Company has not yet determined the amount and
nature of these limitations.
10. Related party transactions:
Licensing agreements:
During the quarter ended June 30, 1996, the Company entered into an agreement
with Cellular 99, a Nevada corporation under the control of the President of
the Company at the time, whereby it obtained an exclusive license to rent
cellular phones in the State of Illinois, using the proprietary marketing
technology of Cellular 99. The Company exchanged 500 shares of Series D
Preferred Stock for these licencing rights. These rights were valued at
$1,000 or $2 per share. These shares were subsequently converted to 50,000
shares of common stock and returned to the Company as treasury stock during
the year ended September 30, 1997 as Illinois operations were never pursued.
During the quarter ended December 31, 1996, the Company entered into a similar
agreement with Cellular 99 as previously described for licensing rights in the
state of Texas. The company exchanged 500 shares of Series D preferred stock
for these licensing rights. These rights were valued at $1,000 or $2 per
share. These shares were subsequently converted to 50,000 shares of common
stock. During the year ended September 30, 1997, 40,000 shares were returned
to the Company as treasury stock as only a portion of the state of Texas
operations were pursued.
During the quarter ended December 31, 1998, the Company entered into two
Technology Licensing Agreements in the states of California and Arizona.
The total revenue from these agreements was $175,000.
Office space and computer usage:
During the year ended September 30, 1998, the Company was provided office space
and computer usage at a cost of $9,500 to the Company by the President of the
Company. This arrangement ended when the Company occupied its leased
facilities located at 5922-B Farnsworth Court, Carlsbad, CA 92008, in
September of 1998.
Notes payable to related party:
During the year ended September 30, 1997, the Company had notes payable to a
related party. These notes consisted of various notes payable to the past
President of the Company, and corporations under the control of the past
President. The notes were unsecured, due in 18 months from the date of
issuance, and bear interest at 10%. During August, 1997, the outstanding
balance on the notes was $263,700. The Company issued 2,850 shares of
Series C preferred stock in exchange for extinguishment of the liabilities.
All exchanges were valued at approximately $93 per share.
Legal fees:
Certain stockholders of the Company are affiliated with firms who currently
provide or have provided legal services to the Company in prior years.
During the years ended September 30, 1998 and 1997, fees and other expenses
charged by these firms totaled approximately $24,400 and $23,100, respect-
ively. As of September 30, 1998 and 1997, amounts due these firms totaled
$400 and $12,300, respectively. As of December 31, 1998 a balance of $352
was owing to these firms.
11. Recently issued Financial Accounting Standards:
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. This Statement
requires that an enterprise (a) classify items of other comprehensive income
by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. SFAS 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Management does not believe
the adoption of SFAS 130 will impact reporting of the Company's results of
operations when implemented.
In June, 1997, the FASB issued Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures About Segments of an Enterprise and Related Information",
which redefines how public business enterprises report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographical
areas, and major customers. SFAS 131 is effective for financial statements
for periods beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated.
Management believes the adoption of SFAS 131 may result in additional
disclosures regarding the Company's segments.
12.Commitments and contingencies:
Employment contracts:
During July, 1997, the Company entered into a two-year employment contract with
its President. Base annual compensation during the first year is $90,000.
Base annual compensation during the second year is $120,000.
On October 1, 1998, the Company entered into employment agreements with its
President and Chief Operating Officer. The new employment agreement with the
President supersedes the employment agreement entered into during July, 1997.
Both of the new agreements are for five years and provide for minimum salary
levels, incentive bonuses, and specified benefits. The aggregate commitment
for future salaries, excluding bonuses and benefits, from these employment
agreements is $2,400,000.
Threatened litigation:
In December, 1998, the Company was notified in a demand letter that a stock-
holder is threatening to file a stockholder derivative lawsuit. The Company
engaged outside legal counsel to investigate this matter. As a result of
this investigation, the Company believes no further action or investigation
is necessary.
Consulting contract:
During November, 1996, the Company entered into a one-year consulting contract
with an individual to run operations at its Houston, Texas cellular phone
products store. Base annual compensation is $120,000. Liabilities for these
services were extinguished as part of the sale of the operation as of October
31, 1997.
Purchase commitment:
During December, 1996, the Company entered into a purchase agreement for a
cellular calling card switch system. The outstanding commitment of $76,100
as of September 30, 1997 was assumed by the buyer of the Houston, Texas
cellular products store as of October 31, 1997.
Store lease:
The Company leased a commercial facility for conducting its cellular phone
products store operations. The lease covered the period from December, 1996
to November, 1997 with five one-year options to extend. All liabilities
relating to this lease from November 1, 1997 and forward were assumed by the
buyer of the operation.
Technology license agreement:
Xyclonyx, a wholly-owned subsidiary of the Company, has a technology license
agreement with three individuals including the Chief Operating Officer of the
Company. The agreement is for seventeen years or the life of the patents,
which ever is greater, and specifies royalties in the amount of six percent
of gross revenues subject to certain adjustments as specified in the
agreement.
Building lease:
The Company began leasing office and warehouse space under an operating lease
expiring in August, 2003 during the year ended September 30, 1998. The
Company has an option to extend the lease for five more years if it so
desires. Minimum future rental payments under this lease for each of the
next five years is as follows:
Year ending September 30,
1999 $ 183,700
2000 192,000
2001 199,300
2002 207,700
2003 197,500
$980,200
Rent expense totaled $47,026 during the quarter ended December 31, 1998.
The Company is a leasee of a forklift under a capital lease expiring in 2001.
The asset and liability under the capital lease are recorded at the present
value of the minimum lease payments. The asset is depreciated over the
estimated productive life. Depreciation of this asset is included in
depreciation expense. The interest rate of the lease is approximately
7.75%. Minimum payments under the lease are as follows: 1999 $5,780, 2000
$5,780 and in 2001 $5298.
Consulting services agreement:
During the year ended September 30, 1998 the Company entered into a consulting
services agreement for various services. In conjunction with this agreement,
2,300 shares of Series D preferred stock were issued to the consultant.
These shares were subsequently returned to the Company in February, 1999 as
the consultant failed to perform under the terms of the agreement. These
shares are not treated as issued and outstanding in the accompanying
consolidated financial statements and management believes no compensation is
due to the consultant under the terms of the agreement.
13. Subsequent events:
Private placement:
During the period from January 1, 1999 to January 31, 1999, the Company raised
approximately $75,000, before issuing costs, pursuant to a private placement
offering as permitted under Regulation D of the Securities Act of 1933
related to transactions not involving a public offering.
===============================
PART I
ITEM 2 - Managements'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 in the matters set forth under the caption
"Risk Factors" in the Company's Annual Report on Form 10-KSB 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, toxic
waste, water and soil contamination. 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, 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
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, for 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 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 Stock and/or debt and through the
potential licensing of its developed business arrangements. There can be no
assurance that the Company will raise sufficient capital to fund its
proposed operations and the Company's failure to obtain adequate financing
may jeopardize its existence. See "Management's Discussion and Analysis or
Plan of Operation - Liquidity and Capital Resources."
The Company's principal office is located at 5922-B Farnsworth Court, Carlsbad,
California 92008, and its telephone number is (760) 918-1860. The Company's
home page on the Internet can be located at www.bugsatwork.com.
Overview
During the fiscal year ended September 30, 1997, the Company engaged in the
operation and shutdown of its unprofitable cellular operations. Prior to
contemplating bankruptcy in July 1997, the Company hired Robert C. Brehm,
who had been acting as a consultant to the Board of Directors regarding
potential turnaround alternatives, as the Company's Chief Executive Officer.
The Company implemented a one-for-twenty stock split, terminated its
cellular operations and acquired XyclonyX, a new biotech company with proven
technology. During the fiscal year ended September 30, 1998, the Company
focused on capitalizing on the biotechnology assets that it had acquired,
fund raising, building organizational infrastructure and establishing its
manufacturing site for occupancy during September 1998.
Plan of Operations for the Fiscal Year Ending September 30, 1999
The Company intends to generate revenue during the fiscal year ending
September 30, 1999 by focusing on sales of Bio-Raptor tm products and related
microbial blends and consulting services to support Bio-Raptor tm sales. USMX
plans to sell its Bio-Raptor tm products to new and existing prospects for
soil recycling center licenses, odor control and land fill operators. The
Company's microbial blend production capacity will limit its sales of Bio-
Raptor's tm until outsourcing and internal production can meet demand. During
the first quarter of fiscal year 1999, the Company is building infrastructure
(i.e., personnel, procedures and systems) and establishing initial
manufacturing operations.
During the second quarter of fiscal year 1999, the Company intends to add
fermentation capacity, fine tune its manufacturing operations and increase
blending capacity to meet anticipated sales goals during the summer months.
Principal microbial products will be Bio-Raptor tm, sewage and certain
agricultural products (from internal fermentation). USMX plans to ship
completed Bio-Raptors tm during the second quarter of fiscal year 1999. The
Company believes that new product announcements will result from completed
field test data concerning animal waste, grease trap and solvent grease
absorption should. To initiate SSWM's operations for land bioremediation
projects and complete organization development, the Company will need to
raise approximately $5 million, $1 million of which will be used to purchase
additional fermentation capacity and upgrade blending operations. The Company
anticipates that revenues will be from Bio-Raptor tm licenses, equipment
sales, microbial blends and related consulting services.
During the third quarter of fiscal year 1999, the Company intends to increase
its product delivery and sales, including Bio-Raptors tm, and to extend
microbial sales for agriculture, sewage and golf course applications. During
this quarter, the Company intends to continue its reliance on outsourced
fermentation capacity, but also will order fermentors for on-site
installation over the following six months. The Company anticipates that
revenues will continue from Bio-Raptor tm related products, as well as
agricultural, sewage and golf course applications.
During the fourth quarter of fiscal year 1999, the Company will test and
possibly bring on line its new manufacturing capacity. USMX projects that it
will increase its sales efforts and ship additional Bio-Raptors tm as well as
products and services based on sewage, agricultural, and golf course
applications.
Results of Operations
For the Quarter ended December 31, 1998, Compared to the Quarter Ended December
31, 1997
The Company had revenues during the quarter ended December 31, 1998 of $176,728,
which consisted of Technology Licensing Agreements of $175,000 and the sale
of microbic product. Cost of revenue was $17,895 leaving a gross profit of
$158,833. There was no revenue for the quarter ended December 31, 1997.
Selling, general and administrative ("SG&A") expenses for first quarter of
fiscal year 1999 totaled $271,951 compared to $52,760 for the corresponding
quarter of fiscal year 1998. SG&A expenses for the first quarter of fiscal
year 1999 consisted of accounting, legal, consulting, public relations,
subsidiary startup and organization and fund raising expenses. SG&A
expenses also included non-cash charges from the issuance or future issuance
of stock and stock options in the approximate amount of $118,200 for the
quarter ended December 31, 1998. There was no issuance of stock or options
for services in the quarter ended December 31, 1997. The remaining SG&A
expenses that required cash, amounted to approximately $149,700 for the
quarter ended December 31, 1998. The Company used stock in lieu of cash to
conserve its cash resources.
There was no interest expense for the quarter ended December 31, 1998.Interest
expense totaled $33,140 for the corresponding quarter in fiscal year 1998.
The decreased expense resulted from retirement of debt in the first quarter
of fiscal year 1998. There was no provision for income taxes in either
quarter ended December 31, 1998 or 1997, due to the losses sustained by the
Company.
The Company incurred net losses of $267,900 and $85,900 for the quarters ended
December 31, 1998 and 1997, respectively. Net loss per share decreased from a
net loss per share of $0.13 for the quarter ended December 31, 1997, to a net
loss per share of $0.11 in the corresponding quarter of 1998, due primarily
to the increased weighted average number of shares of Common Stock out-
standing at December 31, 1998.
In order to continue implementing the Company's strategic plan with its
subsidiaries, the Company is planning on raising an additional $2.5 to
$5,000,000 from a private placement during the second and third quarters of
fiscal year 1999. The funds are targeted to establish the fermentation
manufacturing operation and the staffing of sales subsidiaries. Although the
Company is expecting to increase revenues during the second quarter of fiscal
year 1999, based on the current status of the Company, additional capital will
be required in order for the Company to maintain its ongoing operations.
Liquidity and Capital Resources.
Cash and cash equivalents totaled $886,746 and $3,000 at December 31, 1998 and
1997, respectively. Net cash used by operations was $223,556 for the quarter
ended December 31, 1998 compared to $232,200 for the comparable quarter of
1997. In preparing for the manufacture and sale of its products the Company
purchased office furniture and equipment of approximately $27,000 including
computer systems, $123,500 of manufacturing equipment and leasehold
improvements of $32,600.
During the quarter ended December 31, 1998, the Company raised $730,960 from a
private placement, net of placement fees, from the issuance of Series C
preferred stock. As a result of these proceeds, the Company has working
capital (Current Assets less Current Liabilities) of $480,533 as of December
31, 1998, compared to a negative working capital of $6,400 as of December 31,
1997. The Company raised an additional $66,000 during January of 1999, net
of placement fees, from the private placement.
To date, the Company has financed its operations principally through borrowings
and private placements of equity securities and debt. During fiscal year 1998,
the Company raised $780,100 net of placement fees in a private placement in
which shares of Series C Preferred Stock were issued. The Company believes
that it has sufficient cash to continue its operations through March 31, 1999,
and anticipates that cash generated from projected revenues and an anticipated
private placement during the second and third quarters of fiscal year 1999
will enable it to fulfill its projected operational budget for fiscal year
1999. The Company will need additional capital to continue its operations
and will endeavor to raise funds through the sale of shares, licenses and
revenues. There can be no assurances, however, that the Company can obtain
sufficient capital on acceptable terms, if at all. Failure to obtain such
capital likely would affect adversely the Company's ability to continue as
a going concern.
During fiscal year 1999, the Company projects capital expenditures for plant
and equipment of approximately $1 million and R&D costs of $500,000. R&D
costs will be associated primarily with Bio-Raptor(tm) delivery and config-
uration for specific applications. The Company also plans to increase the
number of its employees to approximately 40 by the end of fiscal year 1999.
The Company's working capital and other 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 public or private 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.
Non-cash investing and financing activities.
For the quarter ended December 31, 1998:
The Company issued 1,200 shares of Series D preferred stock to as compensation
of officers in lieu of cash. The transaction was valued at $11.00 per share.
Human Resources
As of January 15, 1999, the Company had eight (8) full-time employees and
fourteen (14) full-time and part-time consultants, for a combined total of
twenty-two (22) employees and consultants. The Company's personnel are
employed as follows: eight (8) in administrative functions; six (6) in
production support and manufacturing; six (6) in promotion; and two (2) in
sales. During fiscal year 1999, the Company intends to hire additional
consultants and employees in the areas of human resources, manufacturing,
administration, customer support and research and development. In particular,
the Company must recruit qualified personnel for key position in its
microbial manufacturing and sales operations, including qualified personnel
for product management, shift supervisions, laboratory and quality control
functions, blending and fermentation, sales consultants, training
coordinators and customer service staff. The Company's failure to
effectively recruit, hire, train and manage qualified personnel could have a
material adverse effect on its business, financial condition and results of
operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, the Company has received certain correspondence threatening
litigation against the Company. The Company evaluates potential claims and
believes that all claims asserted to date are without merit. The Company
intends to defend any litigation filed against the Company. There are no
known legal proceedings to which the Company is a party to as of December
31, 1998.
Item 2. Changes in Securities.
During the quarter ended December 31, 1998, the Company raised $730,960, net of
placement fees, from the issuance of shares of Series C Preferred Stock
pursuant to a private placement. 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 6. Exhibits and Reports on Form 8-K.
The Company filed a Current Report on Form 8-K with the Commission on
November 24, 1998, relating to the reacquisition of the golf course
applications license from Gran Verde Distribution, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. Microbics, Inc.
Date: February 15, 1999 By: /s/ Robert C. Brehm
Robert C. Brehm, President and
Chief Executive Officer
/s/ Conrad Nagel
Conrad Nagel, Chief Financial Officer
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EXHIBIT 27 - FINANCIAL DATA SCHEDULE
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7,668
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<CGS> 17,895
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<OTHER-EXPENSES> (4,051)
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