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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (NO FEE REQUIRED)
Commission File Number 1-10192
AGRISTAR INC.
(Name of Small Business Issuer in Its Charter)
Delaware 76-0232200
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 Hawthorn Road
P.O. Box 778
Conroe, Texas 77301
(Address of Principal Executive Offices) (Zip Code)
(409) 760-3433
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock Boston Stock Exchange
Securities registered under Section 12(g) of the Exchange Act: Not
Applicable.
Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The registrant's revenues for its most recent fiscal year were
$2,071,119.
The aggregate market value of the 17,885,202 shares of Common Stock held
by non-affiliates of the Registrant, based on the closing sale price of $.13 per
share on April 30, 1996 reported by the Boston Stock Exchange, was $2,325,076.
Number of shares of Common Stock , $.01 par value, outstanding, as of the
latest practicable date.
32,612,404 shares issued and outstanding at January 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Item 13 - Exhibits, List and Reports on Form 8-K
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TABLE OF CONTENTS
PART I....................................................................... 3
Item 1. Description of Business................................. 3
Item 2. Description of Property................................. 7
Item 3. Legal Proceedings....................................... 8
Item 4. Submission of Matters to a Vote of Security Holders..... 8
PART II...................................................................... 8
Item 5. Market For Common Equity And Related Stockholder
Matters................................................. 8
Item 6. Management's Discussion And Analysis or Plan Of
Operation............................................ . 9
Item 7. Financial Statements.................................... 10
Item 8. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure..................... 10
PART III.....................................................................11
Item 9. Directors, Executive Officers, Promoters And Control
Persons; Compliance With Section 16(a) Of The
Exchange Act............................................ 11
Item 10. Executive Compensation.................................. 13
Item 11. Security Ownership Of Certain Beneficial Owners And
Management.............................................. 16
Item 12. Certain Relationships And Related Transactions.......... 17
Item 13. Exhibits, List And Reports On Form 8-K.................. 17
SIGNATURES...................................................................18
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) HISTORY AND DEVELOPMENT OF BUSINESS
AgriStar Inc. (the "Registrant" or the "Company") is a Delaware
corporation that was organized on September 4, 1987 as a wholly owned subsidiary
of AgriStar Industries Inc., a corporation organized on August 11, 1987 under
the laws of British Columbia, Canada ("AgriStar Canada"). On September 16, 1987,
in connection with a reverse takeover transaction, AgriStar Canada acquired 100%
of the common stock of Norax Corporation, a Texas corporation controlled by the
inventor of the Star*Pac-Registered Trademark- technology. Concurrently,
AgriStar Canada caused the Registrant to be merged with Norax Corporation in a
transaction where the Registrant became the surviving company. On July 21, 1988,
AgriStar Canada was redomiciled into the State of Wyoming and its name was
changed to AGS Technologies Inc. Through a series of mergers, the Registrant
ultimately emerged as a publicly held U.S. company. In January 1992, the Company
sold 800,000 shares of its Common Stock to each of Limit & Co. and SOS & Co. at
a price of $.25 per share. In March 1992, Limit & Co. purchased an additional
3,200,000 shares of Common Stock and SOS & Co. purchased an additional 1,200,000
shares of Common Stock at $.25 per share.
The Registrant's principal businesses are in the crossing, growing and
marketing of flowers (orchids and Star*Pac-Registered Trademark- fresh-cut
flowers) and in micropropagation (the cloning of plants). The Registrant
operates through a number of divisions and subsidiaries.
(b) ORCHIDS AND STAR*PAC-REGISTERED TRADEMARK- FRESH CUT FLOWERS.
On August 18, 1993, the Registrant purchased certain assets of Arm-Roy
Stewart, Inc. (doing business as Stewart Orchids), a California corporation
which crosses, grows and sells a variety of orchids to both wholesale and retail
customers. The effective acquisition date was July 5, 1993.
The purchase price for the assets consisted of a note in the principal
amount of $70,000 and 400,000 "restricted" shares of Common Stock of the
Company, plus contingent cash and common stock consideration based on sales of
existing inventory during the 31 month period beginning on January 1, 1994, or
after the Company has had $700,000 in sales, whichever comes first. In any
event, the contingent portion of the consideration cannot exceed $280,000 in
cash and 300,000 "restricted" shares of Common Stock of the Company.
The purchased assets included inventories of over 500,000 orchid plants,
production and laboratory equipment, the seller's trade name and customer lists,
and a number of plant patents relating to orchid varieties. As of January 31,
1996, the Registrant has paid the $70,000 note and an aggregate of $170,923
against the portion of the contingent liability payable in cash. In February
1996 Armroy agreed to a final balance due of $76,000 in the form of a note
payable over 2 years. The Registrant is operating a nursery and mail-order
fulfillment location at Carpinteria, California, and a retail store in Culver
City, California as the Stewart Orchids division of its subsidiary, AgriStar
Flowers, Inc. ("Agristar Flowers").
Form 10-KSB-Page 3
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In February 1994, the Registrant entered into an agreement with Leaves &
Blooms of Tyler, Inc. ("LBT"), a full-line and nationwide marketer of cut
flowers, bedding plants, rose bushes and foliage. The Registrant granted LBT a
non-exclusive license to utilize AgriStar's Star*Pac-Registered Trademark-
floral packaging system in LBT's U.S. fresh cut flower marketing program. Under
this licensing arrangement, the Registrant received $25,000 in advance payments.
The Company will receive $.05 per stem sold by LBT utilizing the Company's
technology. On April 25,, 1994 the Registrant entered into a similar agreement
with Flowers Direct of Grand Prairie, Texas. Under the Agreement, Flowers
Direct paid the Registrant $75,000 in non-refundable deposits and will pay $.06
per stem sold. Both parties decided in 1995 to cancel this contract because the
project was not cost effective.
(C) RESEARCH AND DEVELOPMENT
On December 21, 1995, AgriStar Inc. converted its rights and research
regarding an edible vaccine for 8 1/2% ownership in a company called Terramed
Inc. Terramed, Inc. is a company involved in the development of an edible
vaccine for both humans and animals. Due to the uncertainties involved in the
success of the company, no value has been assigned to the investment in the
Company's financial statements.
(D) MICROPROPAGATION
STAR*PAC-REGISTERED TRADEMARK- CONTAINER TECHNOLOGY
The Registrant's micropropagation business is based on its patented
Star*Pac-Registered Trademark- container technology. The Star*Pac-Registered
Trademark- containers are made of a flexible, transparent plastic film which is
gas permeable, liquid impermeable and able to withstand the high temperatures
generated by commercial sterilization systems. As a result, the Star*Pac-
Registered Trademark- container system provides an ideal environment for the
growth of plant tissue cultures and the preservation of certain plant products.
While the Star*Pac-Registered Trademark- system does not reduce the
technical complexity of plant micropropagation, it does significantly reduce the
practical complexity. In a Star*Pac-Registered Trademark- micropropagation
laboratory, the nutrient medium is prepared and then dispensed into the
Star*Pac-Registered Trademark- containers prior to sterilization. The medium
filled Star*Pac-Registered Trademark- containers can then be sterilized as a
single unit. After sterilization of the medium filled Star*Pacs, plant cuttings
are prepared and cleaned under a sterile vent hood, inserted into each chamber
of the Star*Pac-Registered Trademark- container, and the entire Star*Pac-
Registered Trademark- container is then heat sealed. After sealing, the filled
Star*Pac-Registered Trademark- containers are then moved to an environmentally
controlled grow-out room. Since the Star*Pac-Registered Trademark- containers
are disposable, there is no need for large quantities of glass or plastic test
tubes and the associated washing equipment, and the heat resistance of the
Star*Pac-Registered Trademark- plastic makes it possible to sterilize the growth
medium and the Star*Pac-Registered Trademark- container as a unit. Similarly
each Star*Pac-Registered Trademark- container is divided into a number of sealed
chambers so that microbiological contamination of one chamber will not ruin the
entire Star*Pac-Registered Trademark-. Finally, the only foreign objects to
enter a sterilized Star*Pac-Registered Trademark- are the prepared plant cutting
and the technician's forceps. The entire package is then permanently heat
sealed. As a result of the foregoing, the Star*Pac-Registered Trademark- system
has an economic advantage over conventional plant tissue culture practices,
particularly
Form 10-KSB-Page 4
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in less developed countries where suitable laboratory equipment is difficult to
obtain and sterile working conditions are difficult to maintain.
Initially, the principal use of the Star*Pac-Registered Trademark- system
was in the field of plant tissue culture micropropagation where the unique
characteristics of the Star*Pac-Registered Trademark- make it possible to
replace sterile test tubes and other rigid-walled containers with a simple
disposable plastic bag, thereby reducing the need for "clean room" working
conditions. In addition, controlled testing of various agricultural and
horticultural plant species in the Registrant's laboratories demonstrated the
ability of the Star*Pac-Registered Trademark- system to prolong germplasm
storage, improve crop uniformity, accelerate tissue culture growth rates and
increase overall crop yields.
(E) OPERATIONS
The Company's domestic micropropagation operations are located at
Registrant's corporate headquarters in Conroe, Texas. The major products are in
higher value plants, particularly orchids and the food crop areas, including
banana, onion and mini tubers of potatoes.
Because of the highly intensive nature of micropropagation, and the
relatively low prices for many micropropagated plants, especially for house
plants such as ferns, spathaphyllum and ficus, the management recognized in 1991
that for these plants to be competitively marketed in the United States, they
had to be produced in countries where labor costs are low. Accordingly, in
March 1992, the Registrant entered into an agreement to create, capitalize and
operate AgriStar (Asia) Ltd., a company incorporated in Hong Kong, and
subsequently a joint venture company, Dongguang Shilong Dexing-Aseptic Cultured
Plant Co., Ltd., in China. In 1993, the Shilong operation began to produce and
market micropropagated banana plants for the Chinese market, and to export
ornamental plants for sale by the Registrant. In January 1994, the Registrant
established its second overseas micropropagation facility, AgriStar de
Venezuela, S.A., a wholly owned subsidiary of the Registrant. After several
months in operation, the Registrant decided to close down the lab because
economic conditions in Venezuela had changed whereby it was no longer to the
Registrant's advantage to have a micropropagation lab there. The Company ceased
its operations in Venezuela in 1995, and abandoned its remaining assets. The
assets consisted primarily of its inventory of plants. The abandonment resulted
in a loss of $38,208.
(F) MANUFACTURE OF STAR*PAC-REGISTERED TRADEMARK- CONTAINERS
The Registrant presently subcontracts the manufacture of Star*Pac-
Registered Trademark- containers to unaffiliated firms and anticipates that it
will continue to do so for the foreseeable future. The Registrant believes its
labor and material sources are reliable and that, other than normal competitive
factors, the Registrant's operations and industry do not have any special
characteristics which may have a material impact upon its future financial
performance. The Registrant presently purchases the raw material for the
manufacture of its Star*Pac-Registered Trademark- containers from one
unaffiliated supplier, a major petroleum company which is the sole manufacturer
of the material. No assurance can be given that there will not be future supply
shortages of the material or that prices will not increase. In the event the
current raw material becomes
Form 10-KSB-Page 5
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unavailable, management is aware of approximately six potential suppliers of
suitable replacement materials, all of which are major corporations. The
possible replacement materials are not believed by management to be as effective
as the raw material currently in use, and no assurances can be given that use of
an alternative material will not have an adverse impact on the performance of
the Registrant's products and business of the Registrant.
(G) PATENTS AND KNOW-HOW
A total of four U.S. patents and eight foreign patents have been issued
for the use of the Registrant's Star*Pac-Registered Trademark- container. The
original patent specifies the Star*Pac-Registered Trademark- system as including
a gas permeable and liquid impermeable membrane container, a system for plant
production including enclosure of cells, seeds, plant tissue and plants in a
growth medium within the containers, and methods of using the containers
including methods of micropropagation and tissue culturing. Two additional
patents have been issued for an automated system for the Star*Pac-Registered
Trademark- technology. The patented system automates the growing of plants in
the Star*Pac-Registered Trademark- containers.
(H) COMPETITION
The Registrant's business is intensely competitive. In pursuing its
business objectives, the Registrant competes with four distinct categories of
businesses: (1) the sale of Star*Pac-Registered Trademark- containers competes
with vendors of rigid-walled containers for tissue and cell cultures, such as
glass and plastic test tubes, flasks and petri dishes; (2) the micropropagation
and sale of plants and plant products using its containers competes with
vendors of plants and plant products; (3) the sale of its containers competes
with vendors of other types of flexible containers and packages with similar
uses. Competitors include large, established companies, and others. Most of
the Registrant's competitors have substantially greater financial, technical,
research and development, and marketing resources than the Registrant, and
(4) AgriStar Flowers competes on its sales of orchids with other venders of
flowers.
(I) EMPLOYEES
As of March 31, 1996, the Registrant had 33 full-time employees. Of these
employees, 6 are salaried and 27 are paid on an hourly basis. A total of 3
employees are involved in administration, 23 are in production, 2 are clerical
support staff and 5 in sales. The AgriStar Flowers subsidiary employs 22 of the
33 employees. The Registrant believes the relationship with its employees is
satisfactory, and the Registrant has not experienced work stoppages. The
Registrant's employees are not parties to a collective bargaining agreement.
Form 10-KSB-Page 6
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ITEM 2. DESCRIPTION OF PROPERTY.
The Registrant's principal place of business and offices are situated on
4.09 acres at 100 Hawthorn Road, Conroe, Texas, 77301, approximately 45 miles
north of Houston. On May 4, 1990, the Registrant purchased the land, fixed
equipment and buildings in Conroe, Texas for $235,000 cash plus 25,000
"restricted" shares of Common Stock of the Registrant.
Agristar Flowers leases 88,000 square feet of space located at 3376
Foothill Road, Carpinteria, California, from Arm-Roy Stewart, Inc. under a lease
which expires in 1998, at a current monthly rental of $3,000, ending December
31, 1995. The new rate of $4,000 per month started with January 1996 and will
continue for 12 months. AgriStar Flowers also leases a sales outlet located at
3838 Sepulveda Boulevard, Culver City, California, under a lease for 17,700
square feet of space, at a current monthly rental of $850.
Form 10-KSB-Page 7
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ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not involved with any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
From March, 1989 to August 13, 1993, the Registrant's Common Stock was
quoted on the NASDAQ Small-Cap Market system and listed on the Boston Stock
Exchange under the symbol "AGRS." As of August 13, 1993, the quotation of the
Common Stock on NASDAQ was discontinued, because the Registrant's total assets
had decreased below the minimum level required for continued quotation on
NASDAQ. The Common Stock of the Registrant continues to be listed on the Boston
Stock Exchange and over the counter on the electronic bulletin board. The chart
below reflects closing sale prices for the years ending December 31, 1994 and
December 31, 1995, as reported by the Boston Stock Exchange.
HIGH LOW
---- ---
Fiscal 1994
- ---------------------
First Quarter .25 .19
Second Quarter .25 .13
Third Quarter .25 .13
Fourth Quarter .16 .13
Fiscal 1995
- ---------------------
First Quarter .19 .13
Second Quarter .13 .05
Third Quarter .06 .05
Fourth Quarter .05 .03
Form 10-KSB-Page 8
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On January 31, 1996, the number of stockholders of record for the Common
Stock was 417.
The Registrant has never paid any dividends. The current policy of the
Board of Directors is to retain all available funds to finance the development
of the Registrant's existing and proposed products and the expansion of its
business. Accordingly, it is not anticipated that any cash dividends will be
paid to stockholders of the Registrant in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FISCAL 1995 COMPARED WITH FISCAL 1994
For the year ended December 31, 1995, the Registrant incurred a net loss
of ($433,376) on total revenues of $2,071,119, substantially all of which were
on sales of orchids, potatoes, onions, and Star*Pac bags. During the preceding
year, the Registrant incurred a net loss of ($292,666) on total revenues of
$2,212,484. AgriStar Flowers had sales of $1,528,228 as compared to $1,533,199
in 1994. The Company had an increase of $116,504 in plant sales for 1995,
including an increase in orchid sales of $46,699. Sales of AgriStar de
Venezuela of $81,622 and other operating revenue of $158,435 from license,
distribution and processing fees, initial non-refundable royalties from a flower
packaging agreement, and a grant from an unrelated corporation for the
propagation of hardwood trees contributed to higher total revenues in 1994.
The Company's plant sales are seasonal in nature, with 42% of such sales
occurring in the second quarter in 1995. Revenues from micropropagation
activities at the Conroe facility in the second quarter represented 45% and 58%
of annual revenues from this facility in 1995 and 1994, respectively. Revenues
from plant sales of AgriStar Flowers in each of the first two quarters in 1995
were 29% and 25% of annual revenues.
Sales for 1995 decreased by 6% from 1994, while gross profit increased
from 35% to 38% of sales. The increase in gross profit for 1995, resulted from
higher margin orchid sales and the abandonment in 1994 of $97,713 of plants
purchased by AgriStar de Venezuela due to infection. Total selling, general and
administrative expenses for 1995 were $1,168,612 compared to $1,104,402 for 1994
for an increase of $64,210. The increase in selling, general and administrative
expenses is due to increased bad debts of $78,236 and professional fees of
$45,507, which are partially offset by a decrease of 1994 expenses of $71,999
from AgriStar de Venezuela, including foreign currency translation losses of
$45,408.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Registrant had total assets of $1,704,763,
including $1,229,452 of current assets, and total liabilities of $1,016,994, of
which $928,952 were current liabilities. In December 1993, the Company borrowed
$40,000 from Dr. Dominic Man-Kit Lam, the Company's Chief Executive Officer. In
March 1994, the Company borrowed an additional $20,000 from Dr. Lam.
Additionally, the Company borrowed $60,000 from two stockholders in December
1994, in order to meet its current obligations. In August, 1995, the Company
borrowed $300,000 from a stockholder, payable in August 1996, with interest
payable quarterly
Form 10-KSB-Page 9
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at 12%. There is no assurance that additional loans will be forthcoming. The
Company has incurred substantial recurring losses which have decreased working
capital and caused cash flow problems. Although it cannot be assured that the
company will be able to continue as a going concern, management believes that
cost savings efforts and the shifting of the Conroe location's inventory and
sales from potatoes, onions and similar plants to more profitable orchids will
enable the Company to meet its obligations and sustain its operations.
On May 20, 1996, AgriStar, Inc. received notice that the maturity of the
$300,000 note payable was being accelerated from August 3, 1996 to June 20,
1996 due to failure by the Company to pay interest which was due March 4,
1996. The notice calls for payment of the principal and accrued interest.
There is no assurance that AgriStar will be able to pay off the loan at this
time or that the shareholder will postpone the payment of the loan.
It is anticipated that AgriStar (Asia), accounted for under the equity
method, will continue to operate at a loss as an independent entity in 1996.
The Registrant's equity in losses from AgriStar (Asia) in 1995 will be limited
to its net investment of $1.
As of January 30, 1996, Dr. Dominic Man-Kit Lam voluntarily reduced his
annual salary to $48,000. Furthermore, as of May 15, 1996, Dr. Lam once again
voluntarily waived his entire salary.
ITEM 7. FINANCIAL STATEMENTS.
For the years ended December 31, 1994 and 1995, the financial statements
were audited by the accounting firm of Conklin Hruzek & Co., P.C. The financial
statements of the Registrant for such periods are annexed to this Annual Report
on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As described in its Current Report on Form 8-K dated February 1, 1995,
the financial statements of the Issuer for the year ended December 31, 1993,
were audited by the independent accounting firm of Ernst & Young LLP. The
Issuer dismissed Ernst & Young LLP on February 1, 1995, and retained the
accounting firm of Conklin Hruzek & Co., P.C. as its auditors as of that date.
The appointment of Conklin Hruzek & Co., P.C. as the Issuer's independent
accounting firm was approved by the Audit Committee. Accordingly, the financial
statements of the Issuer for the year ended December 31, 1994 and for all
subsequent periods will be audited by the accounting firm of Conklin Hruzek &
Co., P.C.
During the Issuer's fiscal year ended December 31, 1993, and the
subsequent interim period preceding the appointment of Conklin Hruzek & Co.,
P.C. as the Issuer's independent accounting firm, the former auditor's report on
the Issuer's financial statements neither contained any adverse opinions or
disclaimers of opinions nor were qualified or modified as to uncertainties,
audit scope, or accounting principles. There were no disagreements with the
former auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the
Form 10-KSB-Page 10
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satisfaction of the former auditors, would have caused it to make reference to
the subject matter of the disagreements in connection with its reports.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The By-Laws of the Registrant provide that the Registrant shall have not
less than three (3) nor more than nine (9) Directors, the exact number to be
fixed by the Board of Directors from time to time. The Registrant's directors
are elected by a vote at the annual meeting of the stockholders and serve for
terms of one year. While the current terms of the directors of the Registrant
will expire on the date of the next annual meeting of the stockholders, it is
anticipated that the current directors of the Registrant will continue to serve
in such capacities for the foreseeable future. Directors who are not salaried
employees of the Registrant are reimbursed for their travel, lodging and food
expense incurred when attending such meetings.
The day to day business affairs of the Registrant are entrusted to its
executive officers. The officers, who are appointed by the Board of Directors,
hold office for one-year terms. While the current terms of the officers of the
Registrant will expire on the date of the next annual meeting of the
stockholders, it is anticipated that the current officers of the Registrant will
continue to serve in such capacities for the foreseeable future.
As of May 30, 1996, the executive officers and directors of the
Registrant are as follows:
Name Age Position
- ---- --- --------
Dominic Man-Kit Lam 48 Chairman of the Board
and Director
Alvin Granoff 48 Secretary and Director
Cal A. Froberg 32 President, Treasurer, and
Chief Financial Officer
A brief account of the business experience of each executive officer and
director of the Registrant follows:
DR. DOMINIC MAN-KIT LAM was appointed Chief Executive Officer and
Chairman of the Registrant's Board of Directors effective June 7, 1991.
Dr. Lam resigned as Chief Executive Officer, as well as officer, of the Company
on September 28, 1995. In 1984, Dr. Lam co-founded Houston Biotechnology
Incorporated, a privately held biotechnology firm involved in the development
of biopharmaceutical products for use in the fields of ophthalmology and
neurology. Dr. Lam served as Chairman of the Board of Directors of Houston
Biotechnology from 1984 through July 1991 and continues to serve as a
scientific advisor. From 1988 to 1992, Dr. Lam also served as a Director of
the Hong Kong Institute of Biotechnology, a non-profit research institute
that is conducting research in the fields of pharmaceutical development,
environmental technology and food science. In 1988, Dr. Lam also founded
LifeTech Industries, Ltd., a privately held technology transfer company
engaged in the development and marketing of health care products.
Form 10-KSB-Page 11
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Dr. Lam is a 1967 graduate of Lakehead University (B.S. Mathematics); a
1968 graduate of the University of British Columbia (M.S. Theoretical Physics);
and a 1970 graduate of the University of Toronto (Ph.D. Medical Biophysics).
Subsequently, Dr. Lam was employed for two years as a research fellow in
Neurobiology at the Harvard Medical School. In 1972, Dr. Lam was appointed
Instructor in Neurobiology at the Harvard Medical School and was subsequently
promoted to Assistant Professor of Physiology in 1974. In 1977, Dr. Lam left the
Harvard Medical School to accept a position as Associate Professor of
Ophthalmology at the Baylor College of Medicine where he was subsequently
promoted to Professor of Ophthalmology in 1980. In 1985, Dr. Lam was named
Professor of Biotechnology and Cell Biology at the Baylor College of Medicine
and was appointed to serve as the Director of the Center for Biotechnology,
Baylor College of Medicine until 1992, when he became Director Emeritus. Dr. Lam
also serves as Adjunct Professor of Physics, at the University of Houston, and
as an Adjunct Professor of Neurobiology and Anatomy at the University of Texas
Health Science Center.
As a result of his professional, business and artistic endeavors, Dr. Lam
has been the recipient of numerous awards including the Marjorie W. Margolin
Prize from the Retina Research Foundation (1986); the Houston Art Center Award
for Painting (1987); the Retina Research Foundation Award (1988); the KPMG Peat
Marwick High Tech Entrepreneur of the Year Award (1989); an Arthur Young/Inc.
Magazine Entrepreneur Award (1989); the Presidential Medal of Merit (1989); and
the Alcon Award for outstanding achievement in ophthalmology research (1990).
Dr. Lam also served as a member of President Bush's Committee on Arts and
Humanities.
ALVIN GRANOFF was appointed to the Board of Directors on September 28,
1995. Mr. Granoff is Chairman and part owner of the Stoneleigh Hotel and
Chairman of Granoff Co., an international investment trade company. He is also
President and founder of Granoff Law Offices. Mr. Granoff attended law school
at Southern Methodist University and also attended Beloit College.
CAL A. FROBERG has served as the Registrant's Chief Technical Officer
since March 1990 and has recently been appointed Vice President. Before joining
the Registrant, Mr. Froberg was the general manager of Plant Reproduction
International, Inc., one of the largest commercial micropropagation facilities
in the U.S. During his career, Mr. Froberg has worked with over 75 different
plant species, totaling over 250 varieties of plants, including vegetables and
fruit crops as well as ornamental varieties. Mr. Froberg has received numerous
awards from The American Society of Horticultural Science and The International
Plant Propagators' Society for his achievements in plant tissue culture and
propagation. Mr. Froberg received a Bachelor of Science degree in Horticultural
Science from The Texas A&M University in 1985. On March 22, 1995, Mr. Froberg
was promoted to Chief Operating Officer.
INDEMNIFICATION
Form 10-KSB-Page 12
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The Registrant's Certificate of Incorporation and By-laws are intended to
take full advantage of the enabling provisions of the General Corporation Law of
Delaware with respect to limiting the personal liability of its officers,
directors, employees and agents. The Certificate and By-laws provide that the
Registrant may indemnify current and former directors, officers, employees and
agents, and persons serving in similar capacities in the subsidiaries or other
entities in which the Registrant has an interest to the fullest extent permitted
by law. Thus, the Registrant may be prevented from recovering damages for
certain alleged errors or omissions by the officers and directors of the
Registrant. Under the Registrant's By-laws, indemnification payments may only be
made upon a determination that the indemnified person acted in good faith and in
a manner such person reasonably believed to be in, or not opposed to, the best
interests of the Registrant and, with respect to a criminal proceeding, had no
reasonable cause to believe such conduct was unlawful. Such determination shall
be made (i) by a majority of the disinterested members of the Board of
Directors, (ii) by independent legal counsel in a written opinion, or (iii) by
the stockholders. It is the position of the Securities and Exchange Commission
that exculpation from and indemnification for liabilities arising under the
Securities Act and the rules and regulations thereunder is against public policy
and therefore unenforceable.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Three reports covering transactions for Dr. Dominic Man-Kit Lam, Alvin
Granoff and Cal A. Froberg have been or will be filed late. These transactions
have been or will be reported to the SEC on Form 3 and Form 4.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth, for the fiscal years
indicated, the total compensation received by the Chief Executive Officer. No
executive officer of the Company was paid salary and bonus exceeding $100,000
with respect to the year ended December 31, 1995. The Registrant has no
deferred compensation, life insurance, long term incentive or other executive
compensation plans.
Form 10-KSB-Page 13
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- ---------------------- ----------------------
Restricted
Name and Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary Bonus Compensation(1) Awards SARs Payouts Compensation
- --------------------- ---- -------- ----- --------------- ---------- --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Dominic Man-Kit 1995 $ 80,000(2) $0 $0 $0 0 $0 $0
Lam,
CEO 1994 $ 80,769 $0 $0 $0 0 $0 $0
1993 $110,769 $0 $0 $0 4,000,000 $0 $0
</TABLE>
- ----------------
(1) Certain of the officers of the Company routinely receive other benefits
from the Company, including travel reimbursement, the amounts of which
are customary in the industry. The Company has concluded, after
reasonable inquiry, that the aggregate amounts of such benefits during
the years ended December 31, 1995, 1994, and 1993 which cannot be
precisely ascertained, did not exceed the lesser of 10% or $50,000 of the
compensation set forth above as to the Chief Executive Officer or as to
all executive officers as a group.
(2) As of January 31, 1996, Dr. Lam's compensation was reduced to $48,000
per annum. As of May 15, 1996, Dr. Lam's compensation was totally
eliminated.
STOCK OPTION/SAR GRANTS IN 1995
A total of 295,000 options were granted in October 1, 1995 for AgriStar
employees. These options will be fully vested after September 30, 1996 and will
expire on September 30, 1999.
Form 10-KSB-Page 14
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
FISCAL YEAR END OPTION VALUES
No options were exercised by the Chief Executive Officer during fiscal
1995. The following table provides information related to the number and value
of options (none of which were in-the-money) held at fiscal year end.
Number of Securities Underlying Unexercised
Options at FY-End (#)
---------------------
Name Exercisable Unexercisable
---- ----------- -------------
Dr. Dominic Man-Kit Lam. . . . 4,000,000 -0-
EMPLOYMENT AGREEMENTS
Pursuant to the employment agreement with Dr. Lam, as amended, Dr. Lam
is entitled currently to receive an annual salary of $80,000. On September 23,
1993, Dr. Lam voluntarily reduced his salary from $120,000 to $80,000 in
order to afford a greater amount of working capital for the Company. This
salary was further reduced to $48,000 per annum effective January 31, 1996.
Finally, Dr. Lam voluntarily waived his entire salary beginning May 15, 1996.
The term of employment is for 5 years expiring on May 31, 1996, and is
renewable for such periods as determined by mutual agreement of the parties.
The employment agreement provides for an annual cost of living increase, an
incentive bonus at the discretion of the Board of Directors, and any fringe
benefits offered generally to all the Registrant's employees, and
reimbursement for expenses incurred for the benefit of the Registrant. The
agreement also prohibits competition with the Registrant during its term, and
solicitation of the Registrant's employees and customers for two years after
termination. It further provides that all inventions, discoveries and
technical improvements made by Dr. Lam during the period of his employment,
whether protectible or unprotectible by patent, trademark, copyright or trade
secret, and which relate or pertain in any way to the business of the
Registrant, shall become and remain the sole and exclusive property of the
Registrant.
Pursuant to his employment agreement, in September 1991, Dr. Lam
exercised the option to purchase 1,000,000 shares of Common Stock. On April 23,
1993, Dr. Lam was granted an option by the Registrant to purchase 4,000,000
shares of Common Stock at an exercise price of $.46 per share, exercisable
during the period commencing April 23, 1993 and ending on April 22, 2003.
In light of Dr. Lam's numerous academic and business endeavors, the
employment agreement provides that Dr. Lam will only be required to devote so
much of his business time, effort and attention to the affairs of the Registrant
as may be reasonably necessary to effectively discharge his duties to the
Registrant, and that Dr. Lam will have the unrestricted right to pursue other
business interests to the extent that such interests are not competitive with
the business of the Registrant. In light of the potential conflicting demands on
Dr. Lam's time and potential conflicting claims to technological opportunities
that may, from time to time, come to the attention of Dr. Lam, the Registrant
has agreed to use its best efforts to resolve any conflicts of interest in a
fair manner which will protect the interests of the Registrant and all other
persons to whom Dr. Lam owes a fiduciary duty. To the extent that an actual
conflict of interest arises
Form 10-KSB-Page 15
<PAGE>
between the Registrant and Dr. Lam or any of his affiliates, then Dr. Lam is
required to provide full and fair disclosure of all material facts surrounding
such conflict to the Board of Directors and to abstain from voting on any matter
or proposal which may have a direct or indirect impact on such conflict.
The Registrant does not have a right of first refusal with respect to all
business or technological opportunities that may come to the attention of Dr.
Lam. While Dr. Lam is obligated to protect the Registrant's exclusive rights to
its patented semi-permeable flexible container system and use his best efforts
to convey all improvements thereon and all additional commercial uses therefor
to the Registrant, the agreement recognizes that the Dr. Lam's various
activities may, from time to time, give rise to conflicting claims to
technologies developed or acquired by Dr. Lam and his affiliates. In general,
Dr. Lam will be obligated to use reasonable efforts to obtain assignments,
licenses or first rights of refusal on behalf of the Registrant for methods,
technical developments and technologies which relate specifically to plant
cloning, micropropagation, agriculture, and horticulture, and which Dr. Lam has
rights to transfer. Dr. Lam shall have no obligation to the Registrant, however,
with respect to methods, technical developments and technologies relating to the
genetic engineering of new plant species, or with respect to the development,
extraction or subsequent commercialization of new products derived from such
plants.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of January 31,
1996 with respect to the beneficial ownership of Common Stock by (i) each person
known to be the beneficial owner of 5% or more of the outstanding voting
securities of the Registrant, (ii) each director of the Registrant, and (iii)
all executive officers and directors as a group.
Percentage of
Outstanding
Name and Address of Beneficial Owner Number of Shares Owned Common Stock
- ------------------------------------ ---------------------- -------------
Dominic Man-Kit Lam (1)(2) 14,482,202 39.5%
Cal A. Froberg (1)(3) 220,000 *
Alvin Granoff 25,000 *
1107 W. Jefferson Blvd.
Dallas, Texas 75208
SOS & Co. 2,000,000 6.1%
4800 Main Street
Kansas City, Missouri 64112
Limit & Co. 3,922,000 12.0%
2501 McGee Street
Kansas City, Missouri 64108
Form 10-KSB - Page 16
<PAGE>
All Executive Officers and Directors 14,727,202 44.1%
as a Group (3 persons)
- ---------------------
* Less than one percent
(1) 100 Hawthorn Road, Conroe Texas, 77301.
(2) Includes (a) 5,982,000 shares held by Dr. Lam, (b) 3,500,000 shares held
by Dr. Lam's brother-in-law, Dr. Tsang Wai-Kuen and other family members,
but subject to a 10-year voting trust, and (c) 1,000,000 shares held by
Dr. Lam for the benefit of his two minor children. Dr. Lam disclaims
beneficial ownership of such shares. Also includes presently
exercisable options to purchase 4,000,000 shares.
(3) Includes presently exercisable options to purchase 200,000 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
The following index to financial statements and exhibits refers to the
body of the financial statements which are submitted as a separate section
following the signature page of this Annual Report on Form 10-KSB.
1. Index to Financial Statements (including materials required by Item 8):
Report of Conklin Hruzek & Co., P.C., Independent Auditors
Balance Sheet--December 31, 1995
Statements of Operations--Years Ended December 31, 1995 and 1994
Statements of Shareholders' Equity--Years Ended December 31,
1995 and 1994
Statements of Cash Flows--Years Ended December 31, 1995 and 1994
Notes to Financial Statements
2. (a) REPORTS ON FORM 8-K
None
(b) EXHIBITS
21. Subsidiaries of the Registrant.
Form 10-KSB - Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: May 24, 1996
AGRISTAR INC.
By: /s/ Cal Froberg
-------------------------------------
Cal Froberg, President and
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-KSB has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
- ---------------------
Dominic Man-Kit Lam Chairman of the Board and Director May 24, 1996
Form 10-KSB - Page 18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
AgriStar Inc.
We have audited the consolidated balance sheet of AgriStar Inc. and its
subsidiaries as of December 31, 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AgriStar Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 and 12 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and experienced cash flow problems that raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
CONKLIN HRUZEK & CO. P.C.
Houston, Texas
May 15, 1996, except for Note 12,
as to which the date is June 4, 1996
Form 10-KSB - Page 19
<PAGE>
<TABLE>
<CAPTION>
AGRISTAR INC.
Consolidated Balance Sheet
December 31, 1995
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,704
Trade accounts receivable, net of allowance for doubtful
accounts of $4,729 68,910
Receivable from related party 9,670
Inventories -- Note 2 1,047,282
Deposits 13,131
Prepaid expenses 47,755
----------
Total current assets 1,229,452
Investment in affiliated company -- Note 5 1
Property, plant and equipment, net -- Note 6 249,331
Patent cost, net of accumulated amortization
of $130,990 225,979
----------
$1,704,763
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 364,955
Accrued acquisition cost - Note 3 70,576
Notes payable to stockholders - Notes 9 and 12 420,000
Current maturities of long-term debt - Note 5 38,421
Unearned income -- Note 11 35,000
----------
Total current liabilities 928,952
Long-term debt, net of current maturities - Note 5 88,042
Commitments and contingencies -- Notes 2, 11 and 12
Shareholders' equity -- Notes 3 and 10:
Common stock:
Authorized 50,000,000 shares of $.01
par value; 32,612,404 shares
issued and outstanding 326,124
Additional paid-in capital 7,453,075
Accumulated deficit (7,091,430)
----------
Total shareholders' equity 687,769
----------
$1,704,763
----------
----------
</TABLE>
See accompanying notes to consolidated financial statements.
Form 10-KSB - Page 20
<PAGE>
AGRISTAR INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Sales and other operating revenues $2,071,119 $ 2,212,484
COST OF PLANTS AND BAGS SOLD 1,286,788 1,439,162
----------- -----------
Gross profit 784,331 773,322
----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 1,168,612 1,104,402
Research and development 0 10,954
----------- -----------
Total operating expenses 1,168,612 1,115,356
----------- -----------
OPERATING LOSS (384,281) (342,034)
OTHER INCOME (EXPENSE):
Abandonment of inventory (Note 4) (38,208) --
Interest and other income 16,000 56,376
Interest and other expense (26,887) (7,008)
----------- -----------
Net other income (expense) (49,095) 49,368
----------- -----------
NET LOSS $ (433,376) $ (292,666)
----------- -----------
----------- -----------
NET LOSS PER SHARE $ (.01) $ (.01)
----------- -----------
----------- -----------
Weighted average number of
shares outstanding 32,612,404 32,612,404
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
Form 10-KSB - Page 21
<PAGE>
AGRISTAR INC.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
-----------------------
Paid-in Accumulated
Shares Amount Capital Deficit Total
---------- ------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 32,612,404 326,124 7,453,075 (6,365,388) 1,413,811
Net loss for the year ended
December 31, 1994 -- -- -- (292,666) (292,666)
---------- -------- ---------- ----------- ----------
Balance at
December 31, 1994 32,612,404 $326,124 $7,453,075 $(6,658,054) $1,121,145
Net loss for year ended
December 31, 1995 -- -- -- (433,376) (433,376)
---------- -------- ---------- ----------- ----------
Balance at
December 31, 1995 32,612,404 $326,124 $7,453,075 $(7,091,430) $ 687,769
---------- -------- ---------- ----------- ----------
---------- -------- ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
Form 10-KSB - Page 22
<PAGE>
AGRISTAR INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (433,376) $(292,666)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 73,442 79,671
Abandonment of inventory 38,208 --
Changes in current assets and liabilities:
Accounts receivable 51,474 48,692
Inventory 112,221 (230,308)
Prepaid expenses and other 29,488 (34,595)
Accounts payable and accrued liabilities 976 101,469
Accrued acquisition cost (88,542) (82,382)
Unearned income (81,900) 101,150
Retirement of asset 622 --
---------- ---------
Net cash used in operating activities (297,387) (308,969)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (10,092) (11,359)
---------- ---------
Net cash provided by (used in)
investing activities (10,092) (11,359)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans from stockholders 300,000 80,000
Payment of bank loan -- (500,000)
---------- ---------
Net cash provided by (used in)
financing activities 300,000 (420,000)
---------- ---------
Net decrease in cash and cash equivalents ( 7,479) (740,328)
Cash and cash equivalents at beginning of the year 50,183 790,511
---------- ---------
Cash and cash equivalents at end of the year $ 42,704 $ 50,183
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Form 10-KSB - Page 23
<PAGE>
AGRISTAR INC.
Notes to Consolidated Financial Statements
1. THE COMPANY
AgriStar Inc. (the Company) is engaged in the growing of orchids for its
subsidiary and the marketing and sale of products which utilize its
patented semi-permeable flexible container system which Management believes
is a significant advance in the field of plant micropropagation and the
storage, growth and shipment of living plants and other organisms. The
container serves as a totally closed system or miniature aseptic greenhouse
for plant micropropagation or cloning, the process of regenerating a new
plant or many identical plants from parts of an original plant.
AgriStar Flowers, Inc. (Flowers) is a wholly-owned subsidiary of the
Company. Flowers is in the business of growing and selling orchids and is
based in California.
In January 1994, the Company formed a wholly-owned subsidiary, AgriStar de
Venezuela, S.A., and began micropropagation activities in Venezuela.
The Company discontinued production at the lab facility in 1994. The
Company ceased its remaining activities in Venezuela in 1995.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies of the
Company:
(a) GENERAL
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 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.
(b) BASIS OF PRESENTATION
The Company's consolidated financial statements have been presented on
the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company has incurred substantial
losses which have resulted in cash flow problems. The Company's
continued existence is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to
comply with the terms of its financing agreements and to obtain
additional financing or refinancing as required. Although it cannot
be assured that the Company will be able to continue as a going
concern, management believes that cost saving efforts should enable
the Company to meet its obligations and sustain its operations.
(c) INVENTORIES
Inventories consist of orchids and other plants, Star*Pacs, heat
sealers and supplies, and are stated at the lower of average cost or
market. At December 31, 1995, inventories consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and supplies $ 21,920
Work in progress 203,381
</TABLE>
Form 10-KSB - Page 24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Finished goods 821,981
-----------
$ 1,047,282
-----------
-----------
</TABLE>
(d) PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are recorded at cost. Expenditures for
ordinary maintenance and repairs are charged to operations when
incurred. The cost of renewals and replacements are capitalized.
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets, as follows:
Laboratory Equipment 5 to 7 years
Buildings 7 to 31 years
Office Furniture and Equipment 3 to 7 years
Vehicle 5 years
(e) PATENT COSTS
Patents are recorded at cost and are being amortized over their
estimated useful lives of 17 years. Amortization expense for 1995 and
1994 is $23,202 and $22,953, respectively.
(f) NET LOSS PER SHARE
The 1995 and 1994 loss per share is computed on the basis of the
weighted average number of shares outstanding during the year. All
options and warrants have been excluded from the calculation as they
would be anti-dilutive.
(g) STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an initial maturity of three
months or less to be cash equivalents. Interest paid for the years
ended December 31, 1995 and 1994 was $9,322 and $8,279 respectively.
The Company's non-cash investing and financing activities in 1995 and
1994 consisted of capital lease obligations incurred in 1995 of
$50,463 under leases for computer equipment and computer software.
(h) CONSOLIDATION OF WHOLLY-OWNED SUBSIDIARIES
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been
eliminated. The Company's investment in a 49% owned company is
accounted for on the equity basis, as discussed in Note 5 to the
financial statements.
3. ACQUISITION OF STEWART ORCHIDS
Effective July 5, 1993, the company acquired certain assets of Stewart
Orchids, a California based orchid grower for $518,811 which consisted of a
$70,000 note payable, 400,000 shares of Restricted common stock (fair
market value of $50,000), contingent payments of $317,500 and incurred
acquisition costs of approximately $81,311. The contingent payments
include quarterly cash payments equal to 10 percent of revenues received
from sales of the acquired inventory through January 1996,
Form 10-KSB - Page 25
<PAGE>
not to exceed $280,000, and up to an additional 300,000 shares of
restricted common stock issued at a rate of one share of common stock for
every $8.33 of revenues from the sale of the acquired inventory. The
contingent payments were accrued as part of the purchase price. The
balance of the accrued purchase price at December 31, 1995 was payable in
cash of up to $109,076 and up to 300,000 shares of restricted Common Stock.
Approximately 215,000 shares are issuable under the agreement as of
December 31, 1995. Subsequent to December 31, 1995, the Company paid cash
of $8,144 for sales through December 31, 1995, and issued a note payable to
the former owner for $76,000 towards the portion of the accrued purchase
price payable in cash. Accordingly, $76,000 of the accrued purchase price
has been classified as long-term debt as of December 31, 1995. The
acquired assets consisted primarily of inventory. The acquisition was
accounted for using the purchase method and, accordingly, the purchase
price was allocated to the assets acquired based on estimated fair values
at the date of acquisition. The acquired company is a wholly-owned
subsidiary of the Company known as AgriStar Flowers, Inc. (dba Stewart
Orchids).
4. INVESTMENT IN CONSOLIDATED FOREIGN OWNED SUBSIDIARY
In January 1994, the Company formed a wholly owned subsidiary, AgriStar de
Venezuela, S.A., and began micropropagation activities in Venezuela. In
connection with the operations, the Company entered into a six month lease
of certain facilities and equipment. The Company did not exercise its
option to extend the lease and discontinued production at the lab facility
in 1994. The company ceased its remaining activities in 1995, and
abandoned its assets in Venezuela, which consisted primarily of its
inventory of plants. The abandonment resulted in a loss of $38,208.
AgriStar de Venezuela, S.A. operated in an economic environment which
is highly inflationary. Inventories were translated at approximate
rates prevailing when acquired. Other assets and liabilities were
translated at year end exchange rates. Income and expense were
translated at average rates of exchange prevailing during the year.
Net translation losses of $45,408 were included in selling, general
and administrative expenses in 1994. No translation losses were
recognized in 1995.
The following is a summary of AgriStar de Venezuela's operations for the
year ended December 31, which are included in the consolidated financial
statements:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Gross Revenue $ -- $ 82,000
---- ---------
---- ---------
Net Loss $(38,000) $(165,000)
-------- ---------
-------- ---------
</TABLE>
5. INVESTMENT IN AFFILIATED COMPANY
In March 1992, The Company entered into an agreement with Mercuries-Jeantex
Holdings Limited, a Hong Kong corporation ("Mercuries") with respect to the
creation, capitalization, ownership and operation of AgriStar (Asia) Ltd.,
a newly-formed Hong Kong corporation ("AgriStar (Asia)"). Under the terms
of this agreement, the Company conveyed a 20-year exclusive license to
AgriStar (Asia) and technical support valued at $77,291 in exchange for an
equity interest in AgriStar (Asia) of 49% of the initial stockholders'
equity. Under the terms of the Agreement, AgriStar (Asia) has been granted
the exclusive right to license and commercialize the Company's technologies
in Taiwan, the British Crown Colony of Hong Kong and the People's Republic
of China, together with a right of first refusal to license and
commercialize the Registrant's technologies in other Asian countries,
including Japan, India, the countries of Indo-China and Indonesia. The
capital required to build and fund the facilities was provided by the
Company's joint venture partner.
Form 10-KSB - Page 26
<PAGE>
In connection with each license agreement negotiated by AgriStar (Asia),
the Company is entitled to receive an annual technology license fee of
$25,000 together with a production royalty of 5% of the actual selling
price of plants produced and sold by Centers established by AgriStar
(Asia). The Company has waived the annual technology licensee fee in 1995
and 1994. No production royalties have been recognized by the Company
through December 31, 1995.
AgriStar (Asia) completed construction of and commenced the production of
plants from its first Center at ShiLong, an industrial community near
Canton in the People's Republic of China in 1992. The Company's investment
in AgriStar (Asia) has been recorded under the equity method of accounting.
The Company has no obligation to fund the operating losses of Agristar
(Asia) in excess of the Company's investment. Accordingly, the Company has
not recognized its equity in the operating losses of Agristar (Asia) beyond
its investment. The Company's unrecognized losses from Agristar (Asia's)
operations was approximately $370,000 at December 31, 1995. The Company's
unrecognized losses from AgriStar (Asia's) operations for the years ended
December 31, 1995 and 1994 amounted to approximately $180,000 and $133,000,
respectively.
6. PROPERTY, PLANT AND EQUIPMENT
At December 31, 1995, property, plant and equipment and accumulated
depreciation were composed of the following:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements $ 3,149
Land 8,200
Buildings and improvements 192,118
Equipment 181,734
Furniture and fixtures 169,836
Vehicle 1,647
--------
Total property, plant and equipment,
at cost 556,684
Accumulated depreciation (307,353)
--------
Net property, plant and equipment $249,331
--------
--------
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1994 was
$50,240 and $56,717, respectively.
7. INCOME TAXES
The Company has no income tax expense in 1995 and 1994 for either financial
or income tax reporting purposes. For Federal income tax purposes, the
Company has unused net operating loss carryovers of approximately
$7,000,000 expiring through 2010, available to offset future taxable
income. Utilization of approximately $4,700,000 of these carryovers, which
expire during the years 2003 to 2007, are subject to annual limitations of
approximately $165,000 as a result of certain ownership changes in the
common stock of the Company.
The Company has a net operating loss carryover for financial statement
purposes of approximately $6,560,000 at December 31, 1995. The temporary
differences between financial statement and income tax net operating loss
carryovers result from the use of the cash basis of accounting by AgriStar
Flowers, Inc. for income tax purposes. Because of the Company's history of
losses, the recognition
Form 10-KSB - Page 27
<PAGE>
of the net operating loss carry forwards is uncertain at this time.
Accordingly, all net deferred tax assets resulting from the Company's net
operating loss carryover and its losses from AgriStar de Venezuela of
approximately $204,000, have a 100% valuation allowance recorded against
them as of December 31, 1995 and 1994.
8. NOTES PAYABLE AND LONG-TERM DEBT
The Company's notes payable consist of the following at December 31, 1995:
Notes payable to the Company's Chairman of the Board, payable
on demand with interest at 6%, unsecured $ 60,000
Notes payable to stockholders on
demand, with interest at 8 1/2%,
collateralized by substantially all
of the Company's assets including
all of the outstanding shares of
AgriStar Flowers, Inc. 60,000
Note payable to a stockholder, due
August 4, 1996, with interest payable
quarterly at 12%, collateralized by
all of the outstanding shares of
AgriStar Flowers, Inc. 300,000
--------
$420,000
--------
--------
The Company's long-term debt consists of the following at December 31,
1995:
Note payable to former owner of
Stewart Orchids in monthly installments
of $3,533, including interest at 10%,
beginning April 1, 1996 with the final
installment due March 1, 1998,
collateralized by substantially all
of the assets of AgriStar Flowers, Inc. $ 76,000
Capitalized lease obligations payable
in monthly installments of $1,648 in
1996, 1997 and 1998, and $1,066 in
1999 and 2000, including interest at
approximately 22%, collateralized by
computer equipment and software 50,463
--------
$126,463
Less current maturities 38,421
--------
$ 88,042
--------
--------
Annual maturities of long-term debt, excluding capital lease obligations
payable, for the years ending after December 31, 1995, are as follows: 1996 -
$26,.332, 1997 - $39,200, 1998 - $10,468.
Form 10-KSB - Page 28
<PAGE>
Minimum future lease payments under capital leases as of December 31, 1995,
consist of the following:
1996 $19,772
1997 19,772
1998 17,569
1999 12,786
2000 10,655
-------
$80,554
Less amounts representing interest $30,091
-------
$50,463
-------
-------
Equipment held under capital leases at December 31, 1995, consist of computer
equipment and software included in office equipment. The computer equipment and
software were recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset and amounted to $54,898. The assets
were not in service as of December 31, 1995, and accordingly, no depreciation
has been provided on the assets.
9. RELATED PARTY TRANSACTIONS
(a) LEASING AGREEMENT
The Company leases its nursery facilities in Carpinteria, California
from Arm-Roy Stewart, Inc., a stockholder of the Company and former
owner of Stewart Orchids. The Company paid rent expense of $36,000 to
Arm-Roy Stewart, Inc. during the years ended December 31, 1995 and
1994, respectively.
(b) LEGAL FEES
The Company incurred legal fees in conjunction with patent
applications, its Security and Exchange Commission filings and general
corporate services to three firms in which shareholders of the Company
are partners. For the years ended December 31, 1995 and 1994, the
Company incurred legal expenses aggregating $50,425 and $22,232,
respectively, to the law firms.
(c) NOTES PAYABLE
During 1994, the Company borrowed $60,000 from the Chairman of the
Board of Directors and $40,000 and $20,000 from two of the Company's
stockholders, Limit & Co. and SOS & Co., respectively. During 1995,
the Company borrowed $300,000 from a stockholder.
10. SHAREHOLDERS' EQUITY
Effective on July 5, 1993, the Company issued 400,000 shares of common
stock to the former owner of Stewart Orchids as part of the acquisition
price. The issuance of the shares were claimed to be exempt from the
registration requirements of the Securities Act of 1933, as amended, and
accordingly, such shares are subject to restrictions on transfers.
Form 10-KSB - Page 29
<PAGE>
The Company has issued stock options to certain directors, officers, employees,
and others as follows:
<TABLE>
<CAPTION>
Shares
Under Option Price Range
------------ -----------
<S> <C> <C>
Balance on December 31, 1993 5,191,666 $0.46-1.50
Expired (116,666) $0.25-1.50
---------
Balance on December 31, 1994 5,075,000 $0.46-1.50
---------
Expired (650,000) $0.50-1.25
Granted 295,000 $0.10
---------
Balance on December 31, 1995 4,720,000 $0.10-1.50
---------
---------
</TABLE>
At December 31, 1995, options for 4,325,000 shares were immediately
exercisable.
The Company also has an incentive stock option plan for key employees (the
"Plan"). The remaining number of shares available for grant under the Plan
is 110,000 at December 31, 1995. Stock options granted under the Plan
amount to 295,000 shares in 1995 (these shares are reflected in the above
Table of shares under option).
In July 1991, the Company granted to the former chairman a warrant to
purchase 1,000,000 shares of the Company's Common Stock at a price of $1.50
per share, to be exercised any time after January 1, 1992. The warrant
expired December 31, 1994.
Additionally, in conjunction with the Company's public offering, the
Company issued to the Underwriters warrants to purchase 400,000 shares of
common stock at $1.50 per share. Such warrants expired on March 31, 1994.
At December 31, 1995, there were 6,996,666 total shares reserved for future
issuances of common stock.
11. COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company has operating lease agreements for certain facilities,
office equipment, and a vehicle. Rental expense related to operating
leases for the years ended December 31, 1995 and 1994, including
amounts paid to related parties, amounted to $58,147 and $57,649,
respectively. The office equipment and vehicle leases are on a month-
to-month basis. Therefore, there are no future minimum rental
commitments.
Future minimum lease commitments for facilities under non-cancelable
operating leases with initial or remaining terms of one year or more
at December 31, 1995 are as follows:
Form 10-KSB - Page 30
<PAGE>
Year Ending December 31
1996 $ 77,119
1997 86,472
1998 98,472
1999 20,471
2000 15,354
---------
Total minimum
future rental payments $ 297,889
---------
---------
(b) EMPLOYMENT AGREEMENTS
During 1991, the Company entered into an employment agreement with its
Chairman. The employment agreement covers a term of five years, and
included compensation at an annual rate of $1, plus .5% of that
portion of stockholders' equity, if any, in excess of $500,000. On
January 10, 1992, this employment agreement was revised to compensate
the Chairman at an annual rate of $120,000. On September 23, 1993,
the Chairman voluntarily reduced his compensation to $80,000 per year.
(c) UNEARNED INCOME
In June, September and December 1994, the Company received advance
partial-payments of $111,500, net of sales discounts allowed of
$5,400, under five potato supply contracts. These contracts called
for delivery of 830,000 mini-tubers (potato plants). All potato
tubers were shipped by June of 1995. A contract for 50,000 banana
plants with an advance partial payment of $35,000 is reflected in the
balance sheet at December 31, 1995.
(d) SELF-INSURANCE
AgriStar, Inc. is self-insured for various risks of loss or damage to
its property or the property of others and risk of loss from injury to
others. The cost of such losses, if any, will be recognized in the
period the loss occurs. AgriStar Flowers, Inc. maintains insurance
policies to reduce its risk of loss from such occurrences.
12. SUBSEQUENT EVENTS
On May 20, 1996, notice was received by the Company that the maturity of a
note payable of $300,000 was being accelerated due to failure to pay the
interest which was due March 4, 1996. The notice calls for payment of the
principal and interest by June 20, 1996. There is no assurance that the
Company will be able to pay off the loan at that time, nor that the lendor
will postpone the payment of the loan. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue in existence.
Form 10-KSB - Page 31
<PAGE>
EXHIBIT 21
STATE OR
OTHER
JURISDICTION
OF
NAME INCORPORATION DOING BUSINESS AS
- ---- ------------- -----------------
AgriStar Flowers, Inc. Delaware Stewart Orchids
AgriStar de Venezuela, S.A. Venezuela AgriStar de Venezuela
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 42,704
<SECURITIES> 0
<RECEIVABLES> 73,639
<ALLOWANCES> 4,729
<INVENTORY> 1,047,282
<CURRENT-ASSETS> 1,229,452
<PP&E> 556,684
<DEPRECIATION> 307,353
<TOTAL-ASSETS> 1,704,763
<CURRENT-LIABILITIES> 928,952
<BONDS> 88,042
0
0
<COMMON> 326,124
<OTHER-SE> 361,645
<TOTAL-LIABILITY-AND-EQUITY> 1,704,763
<SALES> 2,071,119
<TOTAL-REVENUES> 2,071,119
<CGS> 1,286,788
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,206,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,887
<INCOME-PRETAX> (433,376)
<INCOME-TAX> 0
<INCOME-CONTINUING> (433,376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (433,376)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
