UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTER ENDED JUNE 30, 2000
/ / 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 as Specified in Its Charter)
Colorado 84-0990371
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5922-B Farnsworth Court
Carlsbad, California 92008
(Address of principal executive offices) (Zip code)
(760) 918-1860
(Issuer's telephone number, including area code)
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 |_|
As of August 7, 2000 the registrant had 9,290,622 shares of its Common Stock,
$0.0001 par value per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_|
No |X|
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
U.S. Microbics, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
AS OF AS OF
JUNE 30, SEPTEMBER 30,
2000 1999
ASSETS (UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 125,400
Accounts receivable 15,868 --
Prepaid expenses and other assets 31,061 22,100
Inventories (Note 3) 71,810 68,600
-------------- ----------------
Total current assets 118,739 216,100
Property and equipment, net 235,932 239,700
Deposits 26,110 27,300
-------------- ----------------
TOTAL ASSETS $ 380,781 $ 483,100
============== ================
============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 655,437 $ 766,000
Current portion of capital lease obligation 4,952 4,900
-------------- ----------------
Total current liabilities 660,389 770,900
Capital lease obligation, net of current portion 2,063 5,300
-------------- ----------------
TOTAL LIABILITIES 662,452 776,200
-------------- ----------------
Commitments and contingencies (Note 5) -- --
Stockholders' deficit:
Convertible preferred stock, $.10 par value; 20,000,000 shares authorized:
Series II; 500,000 shares authorized; 8,422 and 17,163 shares issued 842 1,700
and outstanding; aggregate liquidation preference of $8,421 and $17,163
Series B; 500,000 shares authorized; 7,459 and 13,969 shares issued 746 1,400
and outstanding; aggregate liquidation preference of $7,459 and $13,969
Series C; 50,000 shares authorized; 49,773 and 40,110 shares issued 4,977 4,000
and outstanding; aggregate liquidation preference of $4,977,300 and
$4,011,000
Series D; 50,000 shares authorized; 5,525 and 4,725 shares issued and 553 500
outstanding; no liquidation preference
-------------- ----------------
7,118 7,600
Common stock; $.0001 par value; 150,000,000 shares authorized; 888 600
8,875,622 and 6,010,380 shares issued and outstanding
Additional paid-in capital 8,866,385 6,212,900
Stock options and warrants 1,526,830 963,400
Treasury stock -- (33,300)
Stock subscriptions notes receivable (2,446,166) (804,200)
Accumulated deficit (8,236,726) (6,640,100)
-------------- ----------------
TOTAL STOCKHOLDERS' DEFICIT (281,671) (293,100)
-------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 380,781 $ 483,100
============== ================
</TABLE>
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The notes to consolidated condensed financial statements are an
integral part of these statements.
U.S. Microbics, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
2000 1999
---------------- ---------------
<S> <C> <C>
Revenues ($50,000 from related parties in 1999) $ 26,348 $ 65,130
Cost of revenues 23,337 27,704
---------------- ---------------
Gross profit 3,011 37,426
Selling, general, and administrative expenses 1,639,681 2,079,011
---------------- ---------------
Loss from operations (1,636,670) (2,041,585)
Other income 40,020 45,836
================ ===============
Net loss $ (1,596,650) $ (1,995,749)
================ ===============
Net loss per common share (basic and diluted) (Note 4):
Net loss from continuing operations $ (.23) $ (.48)
Weighted average common shares outstanding 6,939,861 4,187,803
</TABLE>
The notes to consolidated condensed financial statements are an
integral part of these statements.
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<PAGE>
U.S. Microbics, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
2000 1999
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,596,650) $ (1,995,749)
Adjustment to reconcile net loss to cash used in
operating activities:
Depreciation 34,174 24,814
Stock, stock options, and warrants in exchange for services 333,449 323,218
Decrease (increase) in:
Accounts receivable (15,868) (61,733)
Prepaid expense, deposits and other (7,771) (106,297)
Inventory (3,210) (186,158)
Increase (decrease) in:
Accounts payable and accrued expenses (107,683) 558,477
--------------- ----------------
Net cash used in operating activities (1,363,559) (1,443,428)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (30,441) (256,213)
--------------- ----------------
Net cash used in investing activities (30,441) (256,213)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock and stock options in private 1,228,100 1,631,107
placements
Cancellation of treasury stock 33,300 --
Exercise of stock options 7,200 27,750
--------------- ----------------
Net cash provided by financing activities 1,268,600 1,658,857
--------------- ----------------
Decrease in cash (125,400) (40,784)
Cash at beginning of period 125,400 316,600
--------------- ----------------
Cash at end of period $ -- $ 275,816
=============== ================
</TABLE>
The notes to consolidated condensed financial statements are an
integral part of these statements.
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<PAGE>
U.S. Microbics, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
2000 1999
---------------- ------------
Supplemental disclosures of non-cash
Investing and financing activities:
<S> <C> <C>
Purchase of equipment under capital lease obligation $ -- $ 13,968
Preferred stock issued for note receivable $ 315,001 $ 779,000
Common stock issued for note receivable $ -- $ 8,332
Common stock issued in exchange for services $ 35,650 $ 50,000
Common stock options exercised in settlement of $ 165,000 $ 59,000
accrued expenses
Cash paid for:
Interest $ 3,614 $ 890
Income taxes $ -- $ --
</TABLE>
The notes to consolidated condensed financial statements are an
integral part of these statements.
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<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDTAED FINANCIAL STAMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements of U.S. Microbics,
Inc. (the "Company") and its 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, 1999.
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, 2000 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.
2. ORGANIZATION AND RISKS AND UNCERTAINTIES
ORGANIZATION
The Company 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 to change its name to Global Venture Funding, Inc.
The Company amended its Articles of Incorporation in May 1998 to change its name
to U.S. Microbics, Inc. The Company has been engaged in a variety of operations
since its 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 to customers in the United States the use of microbial blends
that are specially formulated for Microbially Enhanced Oil Recovery ("MEOR") in
the United States and (ii) provide related technical support services.
RISKS AND UNCERTAINTIES
For the nine months ended June 30, 2000, the Company has generated limited
revenues of $26,348. During this same period, the Company incurred a net loss of
$1,596,650 and had negative cash flows from operations of $1,363,559. As of June
30, 2000, the Company has an accumulated deficit of $8,236,726. The Company had
revenues of $66,900 during the fiscal year ended September 30, 1999 and had no
revenues during the fiscal years ended September 30, 1998 and 1997. The Company
incurred net losses of $2,932,500 in fiscal 1999 and $1,411,800 in fiscal 1998.
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U.S. MICROBICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
To date, the Company has relied on private placements of equity and debt to fund
its operating and capital requirements. The Company intends to raise additional
capital through the issuance of stock in private placements or in a public
offering or through the incurrence of debt. The Company is currently developing
business opportunities and operations through its wholly-owned subsidiaries.
There can be no assurance that such additional 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, 2000, the Company has collected approximately $138,000,
net of issuance costs, on notes receivable related to a private placement of its
Series C preferred stock at prices ranging from $50 to $100 per share.
3. INVENTORIES
Inventories consist of the following:
JUNE 30,
2000
----------------
Raw materials and supplies $ 5,315
Finished goods 66,495
----------------
$ 71,810
=================
4. 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 months ended June 30, 2000 and 1999, common
stock equivalents are not considered for calculations because they would be
anti-dilutive.
5. COMMITMENTS AND CONTINGENCIES
Litigation:
In March 1999, the Company was served with a stockholder derivative lawsuit
titled Merriam v. U.S. Microbics, et. al., which alleges, among other things,
that certain stock was improperly issued to the President of the Company and to
certain consultants in exchange for their services. The Company has formed a
special independent committee of the Board of Directors to investigate these
claims, has engaged outside legal counsel to represent it in this matter, and
intends to vigorously defend this action. Although management believes the
lawsuit is without merit, an unfavorable ruling would have a material adverse
impact on the Company's financial position and results of operations.
Purchase commitment:
During the year ended September 30, 1999, the Company entered into an agreement
with a supplier to purchase certain inventories at a total cost of $194,000 and
made deposits totaling $29,400. The Company has not completed the purchase
transaction and the supplier sued the Company for the remainder of the purchase
price plus attorneys' fees. The Company has reached an out of court settlement
with the supplier to increase the deposit on the equipment by $30,000. The
Company expects to fulfill this requirement.
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U.S. MICROBICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
7. EQUITY FINANCING
During the nine months ended June 30, 2000, the Company received cash proceeds
of approximately $1,228,100, net of offering costs, pursuant to a private
placement of its Series C preferred stock at prices ranging from $50 to $150 per
share. Subsequent to June 30, 2000, the Company has raised approximately
$138,000, net of issuance costs, in notes receivable related to a private
placement of its Series C preferred stock. As of June 30, 2000, the Company had
$940,000 in notes receivable from the sale of 9,750 shares of Series C preferred
stock.
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<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, 1999 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
The Company creates and markets proprietary microbial technologies that provide
natural solutions to many of today's environmental problems. For instance, the
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 foundation for the Company's developments is its access to and
ownership of certain proprietary microbial technology, bioremediation patents,
knowledge, processes, and unique microbial culture collection developed over the
past 30 years by the late George M. Robinson and his daughter Mery C. Robinson
(collectively, the "Microbial Technology").
The Company intends to leverage the products, applications, and customer base
developed by the Robinsons and to apply, develop, license, and commercialize the
Microbial Technology. The Company envisions itself laying 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 must develop a product or technology and find a market and
customers, the Company already owns advanced proprietary technology as well as
products that have been utilized in various environmental and agricultural
applications worldwide. The Company is attempting to assemble the capital,
personnel, and manufacturing and distribution capacity necessary to successfully
commercialize the Microbial Technology.
The Company's initial objective is to establish itself as a leading provider of
environmental technology and products to companies in the United States through
the licensing of technology that meets governmental standards, is
environmentally friendly, is easy to manufacture and apply, and yields profit
for its licensees. To achieve this objective, the Company intends to focus its
strategy on the following three elements: (i) entering into joint ventures with
environmental contractors for hydrocarbon and waste cleanup, (ii) developing a
manufacturing center for its proprietary microbial blends, and (iii) selling
waste cleanup products and agricultural growth enhancement and
aquaculture/mariculture applications to end users.
The Company's success is highly dependent on its ability to raise the necessary
capital to build the production facility that will supply new customers and
satisfy the demand from prior customers that previously utilized products based
on the Microbial Technology. The Company intends to raise additional capital
through the sale of equity securities, the incurrence of debt, and entering into
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" below.
During the fiscal year ended September 30, 1999, the Company's efforts were
directed to developing its biotechnology product line, fund raising, building
organizational infrastructure and the continued construction of manufacturing
facilities for production and shipment of microbes for remediation of
hydrocarbons, sewage treatment
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and agriculture applications and for the retrofitting and shipment of the
BIO-RAPTOR(TM). The Company also conducted product demonstrations to show the
efficacy of the microbial products in hydrocarbon applications, odor control,
waste management, manure and green-waste conversion to compost, and restaurant
and hotel applications. The Company hired and trained a technical support team
consisting of hydrocarbon, sewage and agriculture specialists was produced in
printed a catalogue of products in an Internet downloadable form, conducted
training courses for new users, and developed a sales and marketing training
program.
The Company's powder blending facility is now complete. The facility has an
expected production capacity for its microbial blends is 200,000 units per
month. The Company has implemented its in-house fermentation production and is
increasing capacity to supply sufficient microbes to meet sales projections for
fiscal 2000.
On August 7, 2000, the Company, through its wholly owned subsidiary, Sub-Surface
Waste Management, Inc. entered into a joint venture with Environmental
Reclamation Inc., (ERI) forming Environmental Bio-Reclamation, L.L.C. (EBR) to
engage in bio-remediating contaminated properties, and operate soil recycling
centers in one or more major U.S. cities. U.S. Microbics is to supply the
bioremediation technology and ERI is to act as the contractor for bioremediation
projects or as the operator for the soil recycling centers. EBR is completing a
paid demonstration for a major company.
On August 10, 2000, the Company formed Natura Agricultura, S.A De C.V., a
corporation formed under the laws of Mexico ("Natura") for the purposes of
distributing its agriculture products to Central and South America. Natura
recently started operations but has not yet generated significant sales or
revenues. There can be no assurance that Natura will achieve significant sales
or revenues or even if a market for its Microbial Technology will develop in
Central and South America.
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE NINE MONTHS ENDED JUNE
30, 1999
The Company's revenues decreased 60%, or $38,782 to $26,348 for the nine months
ended June 30, 2000, from $65,130 for the same period in fiscal 1999 primarily
as a result of a decrease in hydro-carbon sales. Revenues for the nine months
ended June 30, 2000 consisted primarily of bio-remediation of hydro-carbons in
contaminated soil for an oil company and sales of microbial blends for
agricultural applications.
Selling, general and administrative expenses decreased 21%, or $439,330 to
$1,639,681 for the nine months ended June 30, 2000, from $2,079,011 for the same
period in fiscal 1999 primarily as a result of a reduction in consulting
expenses. Selling, general and administrative expenses for the nine months ended
June 30, 2000 consisted primarily of occupancy, payroll, accounting, legal,
consulting, and public relations expenses.
The Company incurred a net loss of $1,596,650 and had negative cash flows from
operations of $1,363,559 for the nine months ended June 30, 2000 compared to a
net loss of $1,995,749 and negative cash flows from operations of $1,443,428 for
the nine months ended June 30, 1999. Basic and diluted net loss per share was
$.23 for the nine months ended June 30, 2000 compared to a diluted net loss per
share of $.48 for the nine months ended June 30, 1999. The decrease was
partially due to the increase in average shares outstanding to 6,939,861 for the
nine months ended June 30, 2000 compared to 4,187,803 for the corresponding nine
months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $0.00 and $125,400 at June 30, 2000 and
September 30, 1999, respectively. The Company had net bank overdrafts of $60,775
as of June 30, 2000. Net cash used in operations was $1,363,559 for the nine
months ended June 30, 2000, compared to $1,443,428 for the comparable period in
fiscal 1999.
During the nine months ended June 30, 2000, the Company raised $1,223,600, net
of issuance costs in private placements of its Series C preferred stock. As of
June 30, 2000, the Company has negative working capital of $541,650 as compared
to negative working capital of $554,800 as of September 30, 1999. The Company
will need to continue to raise funds by various financing methods to maintain
its operations until such time as cash generated
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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.
On March 14, 2000, the Company entered into an Investment Agreement (the
"Investment Agreement") to sell up to $35.0 million of the Company's common
stock to Swartz Private Equity, LLC ("Swartz"). As part of the consideration for
the Investment Agreement, the Company issued warrants to Swartz to purchase an
aggregate of 250,000 shares of common stock at an exercise price of $2.00 per
share. In addition, the Company will pay financial advisory and finders' fees of
$25,000 in connection with this equity line financing arrangement.
Under the terms of the Investment Agreement:
o The Company periodically may choose to sell shares of its common stock to
Swartz. If the Company elects to sell shares to Swartz, then the purchase
price for such shares will be the lesser of (i) ninety-two percent (92%) of
the lowest closing bid price (the "Market Price") for the Company's common
stock during the thirty days following the date that such shares are
delivered to Swartz, or (ii) the Market Price minus $.10 per share.
o If the Company elects not to put shares of its common stock to Swartz, then
it may be obligated to pay fees to Swartz of up to $100,000 every six
months.
o If the Investment Agreement is terminated by the Company or by Swartz for
certain enumerated reasons, including breach of the Investment Agreement by
the Company, then the Company may be obligated to pay fees to Swartz of up
to $200,000.
o Each time that the Company elects to sell shares of its common stock to
Swartz, the Company is obligated to issue and deliver to Swartz a warrant
to purchase a number of shares equal in value to fifteen percent (15%) of
the Market Price of such shares of its common stock. The warrant is
exercisable at one hundred ten percent (110%) of the Market Price for such
shares of its common stock.
The number of shares of common stock that may be issued to Swartz at any time is
limited by the historical trading volume of the common stock. Based on the
recent historical trading volume and trading prices, the Company would not be
able to sell a sufficient number of shares to Swartz to draw down the entire
equity line before its expiration. In addition, if the common stock continue to
trade at such volume and prices, the Company will be unable to sell a sufficient
number of shares to Swartz to fund its operations without additional sources of
capital. The Investment Agreement also gives Swartz a right of first refusal
with respect to any of the Company's future financings.
To date, the Company has financed its operations principally through private
placements of equity securities and debt. The Company estimates that it will
have to raise at least an additional $200,000 to continue its operations through
September 30, 2000. Although the Company believes revenues will increase during
the last quarter of fiscal 2000, the Company will need to raise additional funds
to maintain its ongoing operations, reduce its accounts payable, and to
implement its strategic plan. Assuming the Company raises projected capital
during the last quarter of fiscal 2000, the Company projects expenditures for
plant and equipment of approximately $10,000 and research and development costs
of less than $25,000. Research and development costs will be associated
primarily with Bio-Raptor(TM) configuration for specific applications. The
Company also plans to expand its formation manufacturing operation and to
increase the number of employees to approximately 25 by the end of fiscal 2000.
The Company anticipates that cash generated from sales of shares to Swartz, from
additional private placements of equity securities, and from projected revenues
during the fourth quarter of fiscal 2000, will enable it to fulfill its cash
needs for the remainder of fiscal 2000. However, there can be no assurance that
any such revenues will materialize. The Company's failure to obtain adequate
financing may jeopardize its existence.
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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 effort needed to develop additional distribution channels to commercial
viable levels.
The Company will need additional capital to continue its operations beyond
fiscal 2000 and will endeavor to increase revenues from operations and to raise
funds through the sale of equity securities to Swartz and to others and through
the incurrence of debt. There can be no assurance that additional private or
public financing, including debt or equity financing, will be available when
needed, or on terms favorable to the Company. Any additional equity financing
may be dilutive to shareholders and any 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 as a going concern.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In March 1999, the Company was served with a shareholder derivative lawsuit
titled Merriam v. U.S. Microbics, et. al, Marin County Superior Court, Case No.
991288 seeking damages and which alleges, among other things, that certain stock
was improperly issued to the President of the Company and to certain consultants
in exchange 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 vigorously
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.
On December 16, 1999, Extec USA, Inc. filed a lawsuit against the Company in the
Riverside County Superior Court, Case No. 336732 which asserts that the Company
failed to pay the full purchase price for certain shredding equipment. The
Company has reached an out of court settlement with Extec USA to increase the
deposit on the equipment by $30,000. The Company expects to fulfill this
requirement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the nine months ended June 30, 2000, the Company raised $1,223,600 net of
issuance costs, 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 (the "Securities Act"), because the subject transaction involved a
non-public offering exempt from registration pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 10, 2000, the Company filed a Report on Form 8-K pursuant to
Item 5 disclosing its entering into agreements with Swartz Private
Equity, LLC to secure an equity line financing arrangement for the
Company.
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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: August 14, 2000 By: ROBERT C. BREHM
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/S/ Robert C. Brehm, President
and Chief Executive Officer
By: CONRAD NAGEL
-----------------------
/S/ Conrad Nagel,
Chief Financial Officer
