UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended December 31, 1999
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____________ to ____________
Commission File No.: 0-14213
U.S. MICROBICS, INC.
(Name of small business issuer in its charter)
Colorado 84-0990371
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
5922-B Farnsworth Court
Carlsbad, California 92008
(760) 918-1860
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class Name of each exchange on which registered
None None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Common Stock, $0.0001 par value per share - 6,613,836 shares outstanding
as of January 10, 2000
Documents Incorporated by Reference: None.
Disclosure Format (check one): Yes ; No |X|
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<TABLE>
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Part I - Financial Information
Item 1. Financial Statements
U.S. Microbics Inc., and Subsidiaries
Consolidated Condensed Balance Sheets
As of As of
December 31, September 30,
1999 1999
ASSETS (Unaudited) (Audited)
----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ -- $ 125,400
Accounts receivable 27,490 --
Inventories 73,509 68,600
Prepaid expenses and other assets 12,718 22,100
----------- -----------
Total current assets 113,717 216,100
----------- -----------
Plant and equipment, net 236,690 239,700
Deposits 26,110 27,300
----------- -----------
Total assets $ 376,517 $ 483,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 774,130 $ 766,000
Current portion of capital lease obligation 4,900 4,900
----------- -----------
Total current liabilities 779,030 770,900
=========== ===========
Capital lease obligation, net of current portion 4,816 5,300
----------- -----------
Commitments and contingencies
Stockholders' equity :
Convertible preferred stock, $.10 par value;
20,000,000 shares authorized:
Series II; 500,000 shares authorized; 16,711
and 17,163 shares issued and outstanding;
aggregate liquidation preference of $16,711 1,671 1,700
Series B; 500,000 shares authorized; 13,613
and 13,969 shares issued and outstanding;
aggregate liquidation preference of $13,613 1,362 1,400
Series C; 50,000 shares authorized; 44,360 and
40,110 shares issued and outstanding;
aggregate liquidation preference of $4,436,000 4,436 4,000
Series D; 50,000 shares authorized; 5,725 and 4,725
shares issued and outstanding; no liquidation
preference 573 500
Common stock; $.0001 par value; 150,000,000 shares
authorized; 6,463,836 and 6,010,380 shares issued and
outstanding 646 600
Additional paid-in capital 6,658,189 6,212,900
Stock options and warrants 931,830 963,400
Treasury stock (33,336) (33,300)
Stock subscription notes receivable (823,572) (804,200)
Accumulated deficit (7,149,128) (6,640,100)
=========== ===========
Total stockholders' deficit (407,329) (293,100)
=========== ===========
Total liabilities and stockholders' deficit $ 376,517 $ 483,100
=========== ===========
The notes to consolidated condensed financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
U.S. Microbics Inc., and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)
For the Three
Months Ended December 31,
--------------------------
1999 1998
----------- -----------
Revenues $ 28,457 $ 176,728
Cost of revenues 9,136 17,895
----------- -----------
Gross profit 19,321 158,833
Selling, general, and administrative expenses 547,742 430,784
----------- -----------
Loss from operations (528,421) (271,951)
Other income (expense):
Interest Income 19,924 4,051
Interest expense (554) --
----------- -----------
19,370 4,051
Net loss from continuing operations before taxes (509,051) (267,900)
Provision for income taxes (Note 9) -- --
----------- -----------
Net loss from continuing operations (509,051) (267,900)
----------- -----------
Net loss $ (509,051) $ (267,900)
=========== ===========
Net loss per share:
Basic and diluted $ (.09) $ (.11)
Weighted average common shares outstanding 5,694,644 2,392,409
The notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
U.S. Microbics Inc., and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
For the Three
Months Ended December 31,
-------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
Net income (loss) $(509,051) $(267,900)
Adjustments to reconcile net income
(loss) to net cash used in operating
Activities:
Depreciation 367 3,821
Stock options and warrants in exchange for services (19,924)
Issuance of common stock and preferred
stock in exchange for services -- 118,924
Changes in operating assets and liabilities:
Accounts receivable (27,490) (176,862)
Inventories (4,909) (21,390)
Prepaid expense, and other assets 9,382 (2,762)
Deposits 1,190 (1,210)
Accounts payable and accrued expenses 7,250 118,042
Current portion of lease contract 880 5,780
--------- ---------
Net cash used in operating activities (542,305) (223,557)
========= =========
Cash flows used in investing activities:
Reduction of property plant and equipment 3,189 (147,350)
--------- ---------
Cash flows from financing activities:
Cash proceeds from issuance of common and
preferred stock net of placement fees 407,000 730,960
Cash proceeds from exercise of stock options 7,200 500
Cancellation of treasury stock -- --
Decrease in long-term portion of lease contract (484) 8,593
--------- ---------
Net cash provided by financing activities 413,716 740,053
========= =========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (125,400) 369,146
CASH AT BEGINNING OF PERIOD 125,400 316,600
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ -- $ 685,746
========= =========
The notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
U.S. Microbics Inc., and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Continued)
For the Three
Months Ended
December 31,
------------------
1999 1998
-------- --------
Supplemental disclosures of non-cash
Investing and financing activities:
Purchase of equipment under capital lease obligation $ -- $16,858
Preferred stock issued for note receivable $ -- $ --
Common stock options exercised in settlement of
accrued expenses $31,200 $ --
Cash paid for:
Interest $ 554 $ --
Income taxes $ -- $ --
The notes to consolidated condensed financial statements
are an integral part of these statements
<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1999 AND 1998 (Unaudited)
1. Basis of Presentation
The unaudited consolidated condensed financial statements of U.S. Microbics,
Inc. and subsidiaries have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The company suggests that the
these financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB for the
fiscal year ended September 30, 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
December 31, 1999 and the results of its operations and its cash flows for the
periods presented.
The preparation of financial statements, in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
2. Organization and Risks and Uncertainties
Organization
U.S. Microbics, Inc. was organized December 7, 1984 under the laws of the State
of Colorado as Venture Funding Corporation. The Company amended its Articles of
Incorporation in June 1993 changing its name to Global Venture Funding, Inc. The
Company amended its Articles of Incorporation in May 1998 changing its name to
U.S. Microbics, Inc. The Company has been engaged in a variety of operations
since inception.
During August 1997, the Company acquired the assets of Xyclonyx, a privately
held company founded to develop, apply and license patented toxic and hazardous
waste treatment and recovery processes as well as to license and apply
microbially enhanced oil recovery technologies and products.
The Company has five wholly-owned subsidiaries: West Coast Fermentation Center,
Sub Surface Waste Management, Inc. (SSWM), Sol Tech Corporation (d.b.a. -
Wasteline Performance Corporation), Bio-Con Microbes and Applied Microbic
Technologies, Inc. West Coast Fermentation Center's primary business is to
cultivate microbial cultures that are to be sold to other subsidiaries of the
Company. Sub Surface Waste Management's business is to assemble and sell
products using technology licensed from Xyclonyx. Sol Tech Corporation and
Bio-Con Microbes are companies formed to service the sewage treatment and
agriculture markets, respectively. Applied Microbic Technologies, Inc. intends
to (i) license customers in the United States to use microbial blends that are
specially formulated for Microbially Enhanced Oil Recovery ("MEOR") in the
United States and (ii) provide related technical support services.
Risks and Uncertainties
For the three months ended December 31, 1999 the Company has generated only
limited revenues of $28,457. During this same period, the Company incurred a net
loss of $509,051 and had negative cash flows from operations of $542,305. As of
December 31, 1999, the Company has an accumulated deficit of $7,149,128. The
Company 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.
<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1999 AND 1998 (Unaudited)
To date, the Company has relied on private placements of equity and debt to fund
its operating and capital requirements. The Company is planning on raising
additional capital through the issuance of stock in private placements or a
public offering. The Company is currently developing business opportunities and
operations through its wholly-owned subsidiaries. There can be no assurance that
such additional equity financing will be available on terms acceptable to the
Company, if at all or that such business opportunities will occur as planned, if
at all. Based upon the current financial condition of the Company, additional
capital will be required in order for the Company to continue its ongoing
operations. These matters raise substantial doubt about the Company's ability to
continue as a going concern.
Subsequent to December 31, 1999, the Company has raised approximately $321,500,
net of issuance costs, pursuant to a private placement offering for its Series C
preferred stock at ranging in price from $100 to $150 per share.
3. Inventories:
Inventories consist of the following:
December 31,
1999
-------
Raw materials and supplies $ 4,661
Finished goods 68,848
-------
$73,509
=======
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 three months ended December 31,1999 and 1998,
common stock equivalents are not considered because they would be anti-dilutive.
6. Commitments and Contingencies
Litigation:
In March 1999, the Company was served with a stockholder derivative lawsuit
titled Merriam v. U.S. Microbics, et. al. This lawsuit alleges, among other
things, that certain stock was improperly issued to the President of the
Company and to certain consultants for services. The Company has formed a
special independent committee of the Board of Directors to investigate
these claims. The Company has engaged outside legal counsel to represent it
in this matter and intends to 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.
In December, 1999, the Company was served with a lawsuit by one of its
suppliers for nonpayment of various purchases.
<PAGE>
U.S. MICROBICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED DECEMBER 31, 1999 AND 1998 (Unaudited)
6. Commitments and contingencies (continued):
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. The Company made deposits totaling $29,400. The Company has
not completed the purchase transaction and the supplier has sued the
Company for performance under the purchase agreement.
7. Equity Financing
During the three months ended December, 1999, the Company received cash
proceeds, net of offering costs of $18,000, totaling $407,000 pursuant to a
private placement offering for its Series C preferred stock at $100 to $150 per
share.
<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
U.S. Microbics, Inc. (the "Company" or "USMX") intends to build an environmental
biotech company utilizing the proprietary microbial technology, bioremediation
patents, knowledge, processes and unique microbial culture collection developed
over 30 years by the late George M. Robinson and his daughter Mery C. Robinson
(collectively, the "Microbial Technology"). The Company creates and markets
proprietary microbial technologies that provide natural solutions to many of
today's environmental problems. The Company's microbes or "bugs" can be used to
break down various substances, including oil, diesel, fuel, arsenic, certain
toxic waste, and certain water and soil contaminants. The Company intends to
leverage the products, applications and customer contacts developed by the
Robinsons to apply, develop, license and commercialize the Microbial Technology.
The Company believes that it can build the foundation for the international
commercialization of proprietary products based on the Microbial Technology for
applications in the global environmental, manufacturing, agricultural and
natural resource markets. Unlike certain other start-up companies that need to
develop a product or technology and find a market and customers, USMX already
has advanced, proprietary technology, as well as products that have been
utilized in various environmental and agricultural applications worldwide. The
Company is in the process of determining and obtaining the capital, personnel
and manufacturing and distribution capacity necessary to commercialize the
Microbial Technology.
The Company's initial objective is to establish itself as a leading provider of
environmental technology and products to companies in the United States through
the licensing of technology that meets governmental standards, is
environmentally friendly, is easy to manufacture and apply and yields profit for
<PAGE>
its licensees. To achieve this objective, the Company intends to focus its
strategy on the following three elements: (i) licensing its bioremediation
technology to high-volume end-users for hydrocarbon waste cleanup; (ii)
developing a manufacturing center for its proprietary microbial blends; and
(iii) licensing its technology to entities for use in specific vertical markets
and territories, site clean-up and maintenance products, agricultural growth
enhancement and aquaculture/mariculture applications.
The Company's achievement of its objectives is highly dependent, among other
factors, on its ability to raise the necessary capital to build the production
facility that will supply potential new customers and satisfy the potential
demand from prior customers that previously utilized products based on the
Microbial Technology. The Company intends to raise additional working capital
through the sale of common and preferred stock or debt and through potential
licensing arrangements. There can be no assurance that the Company will raise
such capital on terms acceptable to the Company, if at all. The Company's
failure to obtain adequate financing may jeopardize its existence. See
"Liquidity and Capital Resources."
Overview
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 and agriculture applications and for the
retrofitting and shipment of the Bio-Raptor(TM). The Company conducted product
demonstrations to show the efficacy of the microbial products in hydrocarbon
applications, odor control, waste management, manure and greenwaste conversion
to compost, and restaurant and hotel applications. A technical support team
consisting of hydrocarbon, sewage and agriculture specialists was hired and
trained, a catalogue of products was produced in printed and Internet
downloadable form, training courses were developed and given for new users and a
sales and marketing training program was developed.
The Company's powder blending facility is now complete and its 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 year
2000.
The Soil Recycling Center business plan has been developed and defined with
specific steps for government permitting, environmental approvals, funding and
operations. The Company ran a demonstration center using manure and greenwaste
to demonstrate product efficacy, develop operator training techniques, determine
Bio-Raptor(TM) operational logistics, manpower requirements, water application
and control procedures, and loading, unloading, and land farming and windrow
optimization. These results were used in the Signal Hill Petroleum demonstration
program that demonstrated bioremediation of heavy crude oil hydrocarbons to
non-detectable levels within a six-week time frame.
<PAGE>
The Company does not have an existing backlog of sales orders and has not
generated significant sales or revenues to date related to its Microbial
Technology. Further, there can be no assurance that projected production and
sales volumes or sales prices will be achieved.
Plan of Operations for the Fiscal Year Ending September 30, 2000
The Company intends to generate revenue during fiscal year 2000 by focusing on
sales of its three product lines, Remediline(TM), Wasteline(TM) and Bi-Agra(TM)
and the sale of the Bio-Raptor(TM) and related consulting services for microbial
application. The Company plans to sell its products to new and existing end-user
prospects, to soil recycling center licensees, and through domestic and foreign
distributors. Sales of Bio-Raptors(TM) for soil recycling center applications
could be limited by land use permit lead times and local permitting for water
use, air quality control, and conditional use. The Company also plans to
distribute its product through the retail channel via strategic relationships
with existing distributors and joint ventures created for domestic and
international business.
With additional equity capital, the Company plans to identify profitable
candidates for acquisition where the product lines acquired are complimentary or
add new distribution channels, and the companies provide synergistic
opportunities for economies of scale.
The Company intends to raise additional capital to fund operations through
September 2000 and beyond, and anticipates that cash generated from financings
and projected revenues will enable it to fulfill cash needs for fiscal year 2000
operations. There can be no assurance that the Company will be able to raise
such funds on terms acceptable to the Company, if at all, or to generate such
revenues. There can be no assurance that the Company will receive such financing
or generate revenues in the time frame anticipated, if at all.
If the Company receives sufficient financing or generates significant revenues,
then the Company intends to expand its fermentation capacity and sales and
marketing efforts during fiscal year 2000. During the first quarter of fiscal
year 2000, the Company is building infrastructure (i.e., personnel, procedures
and systems) and establishing initial sales and marketing operations. Research
and development costs are projected to be under $1,000,000, which will be
associated primarily with specific product case study results for generating
sales and marketing collateral material. The Company plans to increase the
number of employees to approximately 50 by the end of the fiscal 2000.
Results of Operations
For the three months ended December 31, 1999 compared to the three months ended
December 31, 1998
The Company had revenues of $28,457 during the three months ended December 31,
1999, as compared to $176,728 of revenues for the same period in fiscal 1998.
Revenues for the three months ended December 31, 1999 consisted primarily of
bio-remediation of hydro-carbons in contaminated soil for and oil company and
sales of microbial blends for grease trap remediation.
<PAGE>
Selling, general and administrative ("SG&A") expenses for first quarter of
fiscal year 2000 totaled $547,742 compared to $271,951 for the same period in
fiscal year 1998. SG&A expenses for the first quarter of fiscal year2000
consisted of occupancy, payroll, accounting, legal, consulting, and public
relations expenses.
The Company incurred a net loss of $509,051 and had negative cash flows from
operations of $542,305 for the three months ended December 31, 1999 compared to
a net loss of $267,900 and negative cash flows from operations of $223,557 for
the three months ended December 31, 1998. Basic and diluted net loss per share
was $(.09) for the three months ended December 31, 1999 compared to $(.11) for
the three months ended December 31, 1998. The decrease was due to the increase
in average shares outstanding of 5,694,644 for the three months ended December
31, 1999 compared to 2,392,409 for the corresponding period in 1998.
In order to continue implementing the Company's strategic plan, the Company is
planning on raising up-to an additional $5,000,000 from private placements
during the second and third quarters of fiscal 2000. The funds are targeted to
expand the fermentation manufacturing operation and the staffing of sales
subsidiaries.
Although the Company is expecting to increase revenues during the last half of
fiscal 2000, based on the current financial condition of the Company, additional
capital will be required in order for the Company to maintain its ongoing
operations. There can be no assurance that the Company will be able to raise
such capital on terms acceptable to the Company, if at all.
LG Enterprises Joint Venture
In December 1999, the Company announced that it will establish and operate a
jointly-owned company with LG Enterprises and Global Environmental Inc., that
will engage in bioremediation businesses and initiatives, including acquiring
and bioremediating contaminated properties, establishing and operating soil
recycling centers in one or more major U.S. cities, licensing the Company's
technology in Mexico and establishing companies in Mexico to engage in
bioremediation of Mexican properties.
The agreement provides that:
o SSWM will (i) provide the Bio-Raptor(TM) and bioremediation
technology, products and services; (ii) manage and operate the soil
recycling centers including interacting with various federal, state
and local environmental authorities and private environmental
companies overseeing and administering clean-up efforts; and (iii)
oversee, manage and administer the clean-up of contaminated sites
acquired by the joint venture.
o Global Environmental, Inc. will identify and secure a variety of
contaminated sites and properties that have the potential for
commercially viable redevelopment.
<PAGE>
o LG Enterprises, an affiliate of LandGrant Corporation which is a full
service real estate operating company headquartered in San Diego,
California, will assist in the development of a number of projects
containing contaminated soil that must be remediated. The Company
believes that LandGrant's financial expertise, developed through its
financing of acquisition and construction projects, will benefit the
Company.
Manufacturer's Direct Services Retail Distribution Agreement
On December 22, 1999, the Company signed an agreement with Manufacturers' Direct
Services, Inc., (MDS) of San Diego, to develop new channels of distribution and
market products in the automotive, rail, aviation, marine, trucking,
recreational vehicle and sporting goods industries. MDS is a full service, sales
and marketing company that specializes in assisting companies seeking sales
growth through multiple channels of distribution.
Under the terms of the agreement, MDS will develop and design retail packaging,
wholesale and retail pricing structures, promotional and advertising campaigns,
and identify and solicit retailers and oversee distribution. The Company will
provide MDS with product costing and performance information and identify and
develop products for retail/consumer use.
Liquidity and Capital Resources.
- --------------------------------
Cash and cash equivalents totaled $ 0.00 and $125,400 at December 31, 1999 and
September 30, 1999, respectively. The Company had net bank overdrafts of $53,483
as of December 31, 1999. Net cash used in operations was $542,305 for the three
months ended December 31, 1999, compared to $ 223,557 for the comparable period
in fiscal 1998.
During the three months ended December 31, 1999, the Company raised $407,000 net
of placement fees of approximately $18,000, from private placements of Series C
preferred stock. As of December 31, 1999, the Company has negative working
capital of $665,313 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 such as private placements to maintain its operations until
such time as cash generated by operations is sufficient to meet its operating
and capital requirements. There can be no assurance that the Company will be
able to raise such capital on terms acceptable to the Company, if at all.
To date, the Company has financed its operations principally through private
placements of equity securities and debt. Subsequent to December 31, 1999 the
Company has raised approximately $321,500, net of placement fees. The Company
believes that it has sufficient cash to continue its operations through March
31, 2000, and anticipates that cash generated from anticipated private
placements and projected revenues during the second and third quarters of fiscal
2000 will enable it to fulfill cash needs for fiscal 2000 and through fiscal
2003 operations.
In January 2000 the Company signed a term sheet with Swartz Private Equity, LLC
of Atlanta, Georgia for up to a $35 million equity line. The term sheet calls
for a private equity line for the purchase of the Company's Common Stock,
subject to registration and certain other conditions and limited to a percentage
<PAGE>
of dollar trading volume. On January 27, 2000, the Company issued a Warrant to
Swartz for the purchase of up to 250,000 shares of Common Stock in connection
with the proposed equity line. Of the warrants issued, 100,000 shares of Common
stock will be exercisable upon the end of the final document review period,
75,000 shares will be exercisable upon the execution of the equity line
documents, and 75,000 shares shall be exercisable upon the earlier of (i) July
10, 2000 or (ii) the date on which the related registration is declared
effective. The warrant's exercise price will equal the lesser of (i) the lowest
closing bid price for the five trading days prior to January 10, 2000, as
subject to an exercise price adjustment set forth in the warrant or (ii) the
lowest closing bid price for five trading days prior to the date of execution of
all of the equity line documents. There can be no assurance that the Company
will enter into a definite agreement with Swartz Private Equity or any other
investment entity with respect to the equity line or that the Company will
receive any related financing thereto.
The Company will need additional capital to continue its operations and will
endeavor to raise funds through the sale of equity shares and revenues from
operations. There can be no assurance that the company will obtain sufficient
capital or generate revenues on acceptable terms, if at all. Failure to obtain
such capital or generate such revenues would have an adverse impact on the
Company's financial position and results of operations and ability to continue
as a going concern.
During the last half of fiscal 2000, the Company projects expenditures for plant
and equipment of approximately $5,000,000 and research and development costs of
less than $1,000,000, assuming the Company raises projected capital. Research
and development costs will be associated primarily with Bio-Raptor(TM)
configuration for specific applications. The Company also plans to increase its
number of employees to approximately 50 by the end of fiscal year 2000.
The Company's operating and capital requirements during the next fiscal year and
thereafter will vary based on a number of factors, including: (i) the rate at
which microbial products are shipped and generate profits; (ii) the necessary
level of sales and marketing activities for environmental products; and (iii)
the level of effort needed to develop additional distribution channels to the
point of commercial viability.
There can be no assurance that additional private or public financing, including
debt or equity financing, will be available as needed, or, if available, on
terms favorable to the Company. Any additional equity financing may be dilutive
to shareholders and such additional equity securities may have rights,
preferences or privileges that are senior to those of the Company's existing
common or preferred stock. Furthermore, debt financing, if available, will
require payment of interest and may involve restrictive covenants that could
impose limitations on the operating flexibility of the Company. The failure of
the Company to successfully obtain additional future funding may jeopardize the
Company's ability to continue its business and operations.
<PAGE>
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. This lawsuit alleges, among other things, that certain stock was
improperly issued to the President of the Company and to certain consultants for
services. The Company has formed a special independent committee of the Board of
Directors to investigate these claims. The Company has engaged outside legal
counsel to represent it in this matter and intends to 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. This lawsuit 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 Ex tec USa to increase
the deposit on the equipment by $20,000 prior to February 22, 2000, and an
additional $10,000 by April 30, 2000. The Company anticipates fulfilling this
agreement.
On December 17, 1999, Red Mountain Pacific, LLC filed a lawsuit against the
Company in the San Diego County Superior Court, Case No. N002193. This lawsuit
asserts that the Company failed to pay the full rental price for certain
equipment. The Company has negotiated a settlement where by a payment of $10,000
is to be made by February 15 and final payment of $8,000 by February 22, 2000.
The Company anticipates fulfilling this agreement.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended December 31, 1999, the Company raised $407,000,
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 3. Defaults Upon Senior Securities.
None
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Subsequent Events:
Term Sheet With Swartz Private Equity, LLC
In January 2000 the Company signed a term sheet with Swartz Private Equity, LLC
of Atlanta, Georgia for up to a $35 million equity line. The term sheet calls
for a private equity line for the purchase of the Company's Common Stock,
subject to registration and certain other conditions and limited to a percentage
of dollar trading volume. On January 27, 2000, the Company issued a Warrant to
Swartz for the purchase of up to 250,000 shares of Common stock in connection
with the proposed equity line. Of the warrants issued, 100,000 shares of Common
stock will be exercisable upon the end of the final document review period,
75,000 shares will be exercisable upon the execution of the equity line
documents, and 75,000 shares shall be exercisable upon the earlier of (i) July
10, 2000 or (ii) the date on which the related registration is declared
effective. The warrant's exercise price will equal the lesser of (i) the lowest
closing bid price for the five trading days prior to January 10, 2000, as
subject to an exercise price adjustment set forth in the warrant or (ii) the
lowest closing bid price for five trading days prior to the date of execution of
all of the equity line documents. There can be no assurance that the Company
will enter into a definite agreement with Swartz Private Equity or any other
investment entity with respect to the equity line or that the Company will
receive any related financing thereto.
Approval of 1-for-20 reverse stock split
On February 4, 2000, Common and Preferred shareholders approved a 1-for-20
reverse stock split which had been implemented on August 20, 1997.
Item 6. Exhibits and Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on December 10, 1999, as amended
on Form 8-K/A on December 21, 1999, as a result of re-engaging Bradshaw Smith &
Company LLP, as its independent certifying accountant.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed in its behalf by the undersigned, thereunto duly
authorized.
U.S. Microbics, Inc.
Date: February 14, 2000 By: /s/ Robert C. Brehm
- ----------------------- -----------------------
Robert C. Brehm, President and
Chief Executive Officer
By: /s/ Conrad Nagel
--------------------
Conrad Nagel, Chief Financial Officer
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