-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MraOQnMUw8J/8KHyyUBLIa6SlPwIjzvmIF2xOUUjIT6VaS9vanntU/25aa8b84TR cuGfZlvseJPqXnLa3hE5xg== 0001012895-96-000014.txt : 19960812 0001012895-96-000014.hdr.sgml : 19960812 ACCESSION NUMBER: 0001012895-96-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19960809 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN DIEGO BANCORP CENTRAL INDEX KEY: 0000319124 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 95355578 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10147 FILM NUMBER: 96606462 BUSINESS ADDRESS: STREET 1: 3335 SOUTH 900 EAST STREET 2: SUITE 230 CITY: SALT LAKE CITY STATE: UT ZIP: 84106 BUSINESS PHONE: 8014675339 MAIL ADDRESS: STREET 1: 3335 SOUTH 900 EAST STREET 2: SUITE 230 CITY: SALT LAKE CITY STATE: UT ZIP: 84106 10QSB 1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________. Commission file number: 0-10147 SAN DIEGO BANCORP (Exact name of registrant as specified in its charter) California 95-355578 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3335 South 900 East, Suite 230, Salt Lake City, Utah 84106 (Address of principal executive offices) (Zip Code) (801) 467-5339 Registrant's telephone number, including area code Not Applicable (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has 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), Yes [X] No [ ] and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Class Outstanding as of June 30, 1995 ----- ------------------------------- Common Stock, No Par Value 10,280,408 EXPLANATORY NOTE: THIS REPORT IS BEING FILED ON OR ABOUT AUGUST 5, 1996, WHICH IS BEYOND THE DATE ON WHICH THE REPORT WOULD HAVE BEEN TIMELY FILED AND DOES NOT CONTAIN INFORMATION CONCERNING EVENTS OCCURING SUBSEQUENT TO JUNE 30, 1995. 2 PART I - FINANCIAL INFORMATION - ------------------------------------------------------------------------------ ITEM 1. FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB pursuant to the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnotes necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. The unaudited balance sheet of the Company as of June 30, 1995, and the related audited balance sheet of the Company as of December 31, 1994, the unaudited related statements of operations and cash flows for the three and six month periods ended June 30, 1995 and 1994, and the unaudited statement of stockholders' equity for the three month periods ended June 30, 1995 and 1994, are attached hereto and incorporated herein by this reference. Operating results for the quarter ended June 30, 1995, are not necessarily indicative of the results that can be expected for the year ending December 31, 1995. - ------------------------------------------------------------------------------ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ General San Diego Bancorp (SDBC) was incorporated under the laws of the State of California on May 19, 1979, for the primary purpose of acting as a bank holding corporation for several subsidiaries, and the principal business was in the industrial loan market conducted through a subsidiary named El Camino Thrift and Loan Association. During several years preceding 1986, SDBC incurred substantial losses and during 1986 management decided to discontinue all operating activities, and liquidate the remaining assets and liabilities. The subsidiaries were either dissolved or sold for nominal amounts, and SDBC became a "shell" corporation by December 31, 1986, and had no material operations until September, 1993. On September 21, 1993, SDBC acquired 100% of the outstanding common stock of Enviro-Guard Corporation (a corporation incorporated in the State of Utah on May 30, 1991) from Enviro-Guard Holding Corporation (a corporation incorporated in the State of Colorado on June 10, 1987). This transaction was accounted for as a reverse acquisition whereby the acquired corporation (Enviro-Guard Corporation) gained controlling stockholder interest in the acquiring corporation (SDBC), and the financial statements of Enviro-Guard Corporation are presented on a continuous basis since inception in May of 1991. 3 Enviro-Guard Corporation owns and markets a line of organically-based insecticide products made from natural compounds with the objective of achieving environmentally-friendly, yet effective results. In August of 1992, Enviro-Guard acquired 100% of the outstanding common stock of Diatect International, Inc. (Diatect), (incorporated in the State of Kansas in 1989). Diatect has developed and owns the rights to three EPA registered insecticides. Also in August of 1992, Enviro-Guard acquired 100% of the outstanding common stock of D.S.D., Inc. (incorporated in the State of Kansas in 1982). The principal business activity of D.S.D., Inc., is the manufacturing and sale of cattle dusters and mineral feeders as well as the blending and sale of various agricultural related insecticides. On December 18, 1992, Enviro-Guard Corporation completed negotiations to acquire 90.14% of the outstanding common stock (891,250 shares) of White Mountain Mining and Manufacturing, Inc. ("White Mountain") (an Idaho Corporation). White Mountain owns 83 unpatented BLM mining claims located in Malheur County, Oregon. The purpose of this acquisition of the mining property is for Enviro-Guard Corporation to have a source of diatomite, which is an important organic ingredient for its environmentally-safe insecticides. On December 30, 1993, SDBC acquired 100% of the outstanding common stock of Actagro Acquisition, Inc., (formerly Actagro, Inc.). Actagro Acquisition, Inc., is a California corporation which manufactures and sells organic based agricultural fertilizer to customers in the Southern San Joaquin Valley. On December 6, 1994, SDBC divested itself of Actagro. In the divestiture, the shareholders of Actagro returned 715,063 shares of SDBC common stock for cancellation. With the acquisition and subsequent divestiture of Actagro Acquisition, Inc. in 1993 and 1994, respectively, a comparison of prior periods with the three and six month periods ended June 30, 1995, is of limited benefit in understanding the Company's financial position. Ability of the Company to Continue as a Going Concern For the six-month period ended June 30, 1995, the Company has incurred a consolidated net loss of $459,220. In addition, at June 30, 1995, current liabilities exceeded current assets by $1,200,074. During the first six months of 1995, the Company converted $261,860 in accrued salaries, marketing expenses and other liabilities to equity by offering shares of common stock. In the future, management anticipates the conversion of an additional $600,000 in debt (principally notes payable and accruals) to equity during fiscal years 1995 and 1996. The Company also believes that without additional conversions of debt to equity and restructuring the payment terms of short-term debt, substantial doubt remains as to the Company's ability to meet its current obligations and continue in business. The Company has taken steps to address its insolvency problems by working with its creditors to keep them informed of the Company's progress in meeting outstanding liabilities. For the most part, the Company's creditors have been patient, waiting for payment at a future date. The Company is attempting to obtain additional working capital from several sources, including investment banking firms, private investors and state funding agencies interested in assisting growing companies within the agri-environmental sector. Management intends to obtain equity financing through the sale of the Company's securities. 4 The Company must meet monthly operational expenses of approximately $85,000. Currently, the Company is unable to meet this amount. However, management believes that additional revenue generated by the marketing sales of its Enviro-Guard and Diatect product line will ultimately alleviate a substantial portion of the shortfall. Until those revenues eventuate, the Company is dependent upon outside funding to sustain it. Results from Operations During the fiscal quarter ended June 30, 1995, the Company had revenues of $263,064, cost of sales of $121,716, operating expenses of $302,172, other income of $12,937 and an income tax benefit of $30,534. These yielded a net loss of $117,353, compared to a net profit of $99,428 (which included Actagro) for the same period of 1994. The substantial portion of the second quarter 1995 loss was due to two factors: professional and consulting fees ($69,609), and depreciation and amortization ($60,754). The Company believes that many of the operating and administrative expenses associated with the second quarter loss were due, in part, to insufficient cash flow and the illiquid nature of the Company's non-current assets. Because of liquidity difficulties, many expenses were paid through the issuance of common stock. For the six month period ended June 30, 1995, the company had consolidated revenues of $372,386. The net loss for the period totaled $459,220. Management is hopeful that once its products are in the marketplace, the losses from operations the Company currently suffers will be alleviated by increased sales revenue and profitability. Currently, the Company has not had the working capital to effectively market its products. Liquidity and Capital Resources The Company has a severe working capital deficit. As of June 30, 1995, the Company's working capital deficit totaled $1,200,074 compared with $1,182,199 at December 31, 1994. The Company has current liabilities totaling $1,410,295 and no long term debt. At the end of 1994, current liabilities and long term debt were $1,261,626 and $120,228, respectively. During the second quarter of 1995, total liabilities increased $65,620. The Company's working capital deficit continues to have a direct correlation with the Company's inability to expand and market its products effectively. If the Company is unable to obtain some funds in the near future, it will not be able to continue in business. The Company, therefore, continues to seek working capital from several sources, including equity markets and private investors. There is no assurance, however, that these efforts will be successful. The Company does feel that it will increase revenues from operations as it moves from the development stage of its products, which has included lengthy and costly time in obtaining EPA approval. With Enviro- Guard's products in the market place and with adequate financial support, the Company anticipates revenues to offset on-gong expenses. The Company is uncertain, however, as to whether there will be sufficient revenues to cover prior years' obligations. 5 As previously stated, the Company's lack of cash has dramatically affected its ability to effectively market Enviro-Guard's products. The marketing strategy require funds to be fully implemented. Accordingly, while the Company anticipates more revenue from its products than it has received in the past, it will not be as profitable as it could be with additional funding for full implementation of its marketing and promotional plans. Contract Signed On April 20, 1995, Diatect International, Inc. a subsidiary of the Company, entered into a marketing and sub-registration agreement with Organic Solutions, Inc. a Texas corporation. The Marketing and Sub-registration Agreement is for a period of two-years and allows Organic Solutions to sub- register 3 of Diatect's existing EPA approved product labels. During the term of the contract Organic Solutions is required to purchase twelve truck loads (approximately 40,000 lbs. per truckload) of product. In addition, Organic Solutions will pay costs associated with the packaging of the product. 6 SAN DIEGO BANCORP Consolidated Statement of Financial Position As of June 30, 1995 and December 31, 1994
ASSETS (Unaudited) June 30, 1995 December 31, 1994 ----------------- ----------------- CURRENT ASSETS Cash$ 16,261 $ Accounts receivable 109,182 17,980 Advances to employees 396 276 Inventories 77,882 57,882 Prepaid expenses 6,500 3,289 ----------------- ----------------- Total Current Assets 210,221 79,427 ----------------- ----------------- PROPERTY, PLANT AND EQUIPMENT Building and Leasehold Improvements 27,119 314,218 Mining property 4,405,467 4,440,543 Equipment 270,279 270,279 ----------------- ----------------- Total Property, Plant and Equipment 4,702,865 5,025,040 Less accumulated depreciation 238,455 251,377 ----------------- ----------------- Net Property, Plant and Equipment 4,464,410 4,773,663 ----------------- ----------------- OTHER ASSETS Investment in EPA labels, net of amortization 3,657,084 3,804,364 Notes receivable 250,000 250,150 Deposits 617 467 Other assets 1,009 1,029 ----------------- ----------------- Total Other Assets 3,908,710 4,056,010 TOTAL ASSETS$ 8,583,341 8,909,100 ================= ================= /TABLE 7 SAN DIEGO BANCORP Consolidated Statement of Financial Position As of June 30, 1995 and December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) June 30, 1995 December 31, 1994 ----------------- ----------------- CURRENT LIABILITIES Accounts payable$ 176,246$ 165,474 Bank overdraft 1,847 Dealer deposits 11,254 10,625 Interest payable 102,706 113,090 Income taxes payable 33,563 33,563 Other accrued liabilities 136,100 29,134 Notes payable 635,904 505,561 Current portion of long-term debt 314,522 402,332 ----------------- ----------------- Total Current Liabilities 1,410,295 1,261,626 ----------------- ----------------- LONG-TERM LIABILITIES Long-Term debt, less current portion 120,228 ----------------- DEFERRED TAX LIABILITY 1,301,723 1,458,563 ----------------- ----------------- COMMITMENTS MINORITY INTEREST 340,215 340,215 ----------------- ----------------- STOCKHOLDERS' EQUITY Common stock, no - par value; 20,000,000 shares authorized; 10,280,408 and 6,394,953 shares issued and outstanding, respectively 8,925,950 8,550,140 Common stock subscribed 83,500 197,450 Accumulated deficit (3,478,342) (3,019,122) ----------------- ----------------- Total Stockholder's Equity 5,531,108 5,728,468 ----------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$ 8,583,341 $ 8,909,100 ================= ================= /TABLE 8 SAN DIEGO BANCORP CONSOLIDATED STATEMENT FOR OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1994
Three Months Ended Six Months Ended June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994 ------------- -------------- ------------- -------------- REVENUES$ 263,064$ 3,002,731$372,386$ 4,882,681 COST OF SALES 121,716 1,721,358 173,238 2,630,214 ------------- -------------- ------------- -------------- GROSS PROFIT 141,348 1,281,373 199,148 2,252,467 ------------- -------------- ------------- -------------- OPERATING EXPENSES Salaries, wages and benefits 73,254 509,558 146,997 937,919 Consulting 23,155 35,950 41,159 122,147 Research and development 27,551 104,919 Travel 8,154 53,415 23,590 133,784 Rent 9,100 40,580 13,541 87,444 Interest 12,065133,257 32,242 228,765 Utilities 2,433 13,799 6,022 36,214 Depreciation and amortization 60,754 112,630 123,377 225,269 Business Development and Promotion 37,454 891 86,853 5,124 Office 9,057 89,112 18,323 166,017 Taxes and licenses 1,750 1,746 4,443 11,578 Professional fees 46,454108,875 115,557 196,859 Bad debts 9,891 10,683 9,891 17,038 Repairs and maintenance 3,715 58,018 4,490 89,231 Miscellaneous 4,936 24,881 21,464 66,122 ------------- -------------- ------------- -------------- Total Operating Expenses 302,172 1,220,946 647,949 2,428,430 ------------- -------------- ------------- -------------- INCOME (LOSS) FROM OPERATIONS (160,824) 60,427 (448,801) (175,963) OTHER INCOME (LOSS) Loss on sale of property (109,332) Interest Income 6,314 20,909 8,464 26,108 Royalties 629 1,119 Miscellaneous 5,994 18,092 2,101 28,974 ------------- -------------- ------------- -------------- Total Other Income (Loss) 12,937 39,001 (97,648) 55,082 ------------- -------------- ------------- -------------- (LOSS) BEFORE INCOME TAX BENEFIT (147,887) 99,428 (546,449) (120,881) INCOME TAX BENEFIT 30,534 87,229 ------------- -------------- ------------- -------------- NET INCOME (LOSS)$ (117,353)$99,428$ (459,220)$(120,881) ============= ============== ============= ============== NET (LOSS) PER SHARE (Primary)$(.013) $ .014$ (.045)$ (.018 ============= ============== ============= ============== /TABLE 9 SAN DIEGO BANCORP Consolidated Statement of Changes in Stockholders' Equity for the Three Month Periods ended June 30, 1994 and 1995
Common Stock Common Stock Accumulated Shares Amount Subscribed Deficit Total ------------ ------------ ------------ ------------ ------------ Balances as of March 31, 1994 6,601,953$ 8,664,969$ 684,418$ (1,469,068)$7,880,319 Stock Options exercised at prices ranging from $.75 to $2.00 318,842 330,559 330,559 Investment in Emission Reduction Technology 647,290 250,000 250,000 Conversion of Common Stock Subscribed 441,768 441,768 (441,768) 0 Common Stock Subscribed 62,744 62,744 Net Profit 99,428 99,428 ------------ ------------ ------------ ------------ ------------ Balances as of June 30, 199510,280,408$8,925,950$83,500$(3,478,342)$ 5,531,108 Balances as of March 31, 1994 9,102,908 $ 8,801,825 $ 83,500 $ (3,360,989) $ 5,524,336 Common Stock issued for Debt reduction at $.35 per share 97,500 34,125 34,125 Common stock issued for services at $.06 to $.40 per share 1,080,000 90,000 90,000 Net (Loss) (117,353) (117,353) ------------ ------------ ------------ ------------ ------------ Balances as of June 30, 1995 10,280,408 $8,925,950 $ 83,500 $(3,478,342) $ 5,531,108 ============ ============ ============ ============ ============ /TABLE 10 SAN DIEGO BANCORP Consolidated Statement of Cash Flows for the Three and Six Month Periods Ended June 30, 1995 and 1994
Three Months Ended Six Months Ended June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994 ------------- ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)$ (117,352)$ 99,428$ (459,220)$ (120,881) Add items not requiring the use of cash: Depreciation, amortization and non-cash expenses 60,75475,128 99,826 173,314 (Increase) in accounts receivable (60,232) (464,111) (91,202) (1,036,298) (Increase) decrease in advances(120) (31,067)(120) 508 (Increase) in interest receivable (249) (495) Decrease in income tax receivable 2,083 56,574 (Increase) in inventories (20,000) (62,804) (20,000) (110,770) (Increase) decrease in deposits(150) 3,159 (Increase) decrease in prepaid expenses (6,000) 150,303 (6,500) (70,986) Increase (decrease) in accounts payable 14,232 (284,204) 10,772 (325,832) Increase (decrease) in deferred tax liability (65,338) (156,840) (Decrease) in accrued compensation (329,249) (248,163) Increase (decrease) in interest payable 2,940 47,969 (10,384) 99,433 Increase (decrease) in other accrued liabilities 54,590 (226) 107,5952,870 ------------- ------------- ------------- ------------- NET CASH FLOWS USED FROM OPERATING ACTIVITIES(136,676) (796,999) (522,914)(1,580,726) ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES (Acquisition) reduction in property, plant and equipment 17,538 (12,567) 322,175 (129,854) (Increase) decrease in notes receivable150 (250,000) 150 (250,000) (Increase) reduction of intangibles 17,266 (2,269)34,532 (6,953) ------------- ------------- ------------- ------------- NET CASH FLOWS PROVIDED (USED) FROM INVESTING ACTIVITIES 34,954 (264,836) 356,857 (386,807) ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions 124,125 1,022,327 261,860 1,254,327 Net proceeds from notes payable\ 87,016 130,343 689,620 Reduction of long term debt (208,038) ------------- ------------- ------------- ------------- NET CASH FLOWS PROVIDED (USED) FROM FINANCING ACTIVITIES 124,125 1,109,343 184,165 1,943,947 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH 22,403 47,508 18,108 (23,586) CASH AT BEGINNING OF PERIOD(6,142)54,693 (1,847) 125,787 ------------- ------------- ------------- ------------- CASH BALANCE AT END OF PERIOD$ 16,261$ 102,201$ 16,261 $ 102,201 ============= ============= ============= ============= /TABLE 11 The condensed consolidated financial statements of San Diego Bancorp included herein have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Although, certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted, San Diego Bancorp believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in San Diego Bancorp's annual report on Form 10-KSB for the fiscal year ended December 31, 1994. The condensed consolidated financial statements included herein reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair representation. The results for interim periods are not necessarily indicative of trends or of results to be expected for a full year. PART II - OTHER INFORMATION - ------------------------------------------------------------------------------ ITEM 1. LEGAL PROCEEDINGS - ------------------------------------------------------------------------------ See San Diego Bancorp's annual report on Form 10-KSB for the fiscal year ended December 31, 1994. - ------------------------------------------------------------------------------ ITEM 2. CHANGES IN SECURITIES - ------------------------------------------------------------------------------ None. - ------------------------------------------------------------------------------ ITEM 3. DEFAULTS UPON SECURITIES - ------------------------------------------------------------------------------ None. - ------------------------------------------------------------------------------ ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------------------------ None. - ------------------------------------------------------------------------------ ITEM 5. OTHER INFORMATION - ------------------------------------------------------------------------------ None. 12 - ------------------------------------------------------------------------------ ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------------ (a) Exhibits. Exhibit No. Description ------- -------------- 10 Marketing and Sub-Registration Agreement dated April 20, 1995. 27 Financial Data Schedule (b) Reports on Form 8-K. None - ------------------------------------------------------------------------------ SIGNATURES - ------------------------------------------------------------------------------ Pursuant to the requirements 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. SAN DIEGO BANCORP (Registrant) Dated: July 31, 1996 By /s/ DALE H CHRISTIANSEN --------------------------- Dale H Christiansen, Chief Financial Officer and Director EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB FOR THE PERIOD ENDED JUNE 30, 1995. 0000319124 SAN DIEGO BANCORP 6-MOS DEC-31-1995 JUN-30-1995 16,261 0 109,578 0 77,882 210,221 4,702,865 238,455 8,583,341 1,410,295 0 0 0 9,009,450 (3,478,342) 8,583,341 372,386 390,363 173,238 622,001 109,322 0 32,242 (546,450) (87,229) 0 0 0 0 (459,221) (0.045) (0.045)
EX-10 3 MARKETING AND SUB-REGISTRATION AGREEMENT THIS Marketing and Sub-registration Agreement (hereinafter referred to as the "Agreement") is hereby entered into and made effective this 20th day of April, 1995, by and between the following parties: I. PARTIES DIATECT: Diatect International, Inc., a Kansas corporation, with its principal place of business located at Highway 36 East, Smith Center, Kansas 66967, hereinafter referred to as "Diatect." ORGANIC SOLUTIONS: Organic Solutions, Inc., a Texas corporation, with its principal place of business located at 8023 Vantage Dr., Suite 600, San Antonio, Texas 78230, hereinafter referred to as "Organic Solutions." II. RECITALS 1. Diatect is the owner of the following listed insecticides registered with the Environmental Protection Agency of the United States ("EPA"), which insecticides in the aggregate are hereinafter referred to as the "Product," (a) EPA No. 42850-1 (b) EPA No. 42850-2 (c) EPA No. 42850-3 2. Diatect has made arrangements with an affiliate, DSD, Inc., a Kansas corporation, which is a registered manufacturing establishment with the EPA, for the manufacture of the Product upon Diatect's order. 3. Organic Solutions desires and is fully authorized and able to obtain a sub-registration of the Product from Diatect and to market and sell the Product under sub-labels utilizing Organic Solutions' own brand names. 4. Dialect desires and is fully authorized and able to grant sub- registrations of its aforementioned Product labels to Organic Solutions so that Organic Solutions can wholesale and retail product exclusively manufactured and packaged by, or at the order of, Diatect for marketing and resale by Organic Solutions under Organic Solutions sub-labels and brand names. III. NOW, THEREFORE, in consideration of the foregoing recitals and of the terms and conditions hereinafter set forth, the parties hereto agree as follows: 1. TERM. The term of this Agreement shall be for a period of two years from the date hereof. This Agreement may be renewed by the parties only by written agreement signed by both parties, which agreement of renewal shall contain all changes and amendments agreed upon by the party for such renewal and, further, said renewal agreement shall be executed by the parties at least sixty (60) days prior to the expiration of the term of this Agreement. 2. SUB-REGISTRATION. Diatect hereby grants Organic Solutions a sub-registration for the following listed labels of its Product for a period coextensive with the term of this Agreement: (a) EPA No. 42850-1 (b) EPA No. 42850-2 (c) EPA No. 42850-3 Immediately following execution of this Agreement, Diatect will file the appropriate notice of sub-registration with the EPA and provide Organic Solutions with a copy thereof. 3. SUB-LABELS. Diatect agrees to formulate and cause to be manufactured for sale to Organic Solutions any and all sub-labels which can be produced under the sub-registration granted herewith. All sub- labels and brand names desired by Organic Solutions must be submitted to and approved by Diatect before being utilized by Organic Solutions. Such approval by Diatect will serve to prevent sub-labeling outside of the parameters of the sub-registration and prevent any conflicts with brand names owned by Diatect or brand names owned by any other sub- registrants of Diatect. 4. BEST EFFORTS PRODUCTION. (a) This Agreement does not constitute either an "output" contract nor a "requirements" contract. Diatect is obligated under this Agreement to exercise only its best efforts to supply Product to Organic Solutions. Said best efforts of Diatect shall be subject to the exceptions of acts of God and force majeure, including, but not limited to, hurricanes, tornados, floods, war and insurrection. (b) Subject to the foregoing provisions regarding best efforts, each order for Product from Organic Solutions shall be filled and shipped F.O.B. plant within thirty (30) days of receipt of such order, subject further to the availability of raw materials and packaging materials. If necessary to fill such orders, Diatect will subcontract for additional production and/or packaging capacity. 5. QUALITY CONTROL. Each production run of Product is referred to as a "batch." Samples from each batch will be kept and maintained by Diatect for a period of at least three years. Testing to product standard will be performed by Diatect on at least every tenth batch, and copies of all relevant batch tests will be supplied to Organic Solutions in conjunction with orders received from Organic Solutions. 6. PRICING. (a) Current pricing for Product is as follows: EPA No. 42850-1 and EPA No. 42850-3: $1.80 per pound EPA No. 42850-2: $1.60 per pound (b) The above current pricing will be maintained by Diatect during the term of this Agreement subject only to an increase or decrease in said price in direct proportion to relevant increase or decrease in component material costs. The price of Product does not include packaging costs. The price of Product does include Diatect's costs of product liability insurance. Diatect will give Organic Solutions at least forty-five (45) days written notice of any price increase or decrease in order that Organic Solutions can adjust its wholesale and retail selling prices. Diatect expressly agrees to reduce product price in the event of the occurrence of a decrease in the price of component material(s). Further, the parties agree to undertake good faith efforts to continually review price structures for the benefit of both parties. (c) Orders will be placed for truckloads of Product in the approximate amount of forty thousand (40,000) pounds per truckload. Subject to the provisions of Section III 4, above, each order shall be filled, shipped, and invoiced within thirty (30) days of receipt of said order. (d) Invoices for orders shall be paid at net within fifteen (15) days from invoice date. 7. MINIMUM ORDER REQUIREMENT. Organic Solutions shall order a minimum of twelve (12) truckloads of Product per year during the term of this Agreement. Said truckloads shall be spread out over the term of this Agreement so that there is at least one truckload of Product ordered during every sixty (60) day period. 8. PACKAGING. (a) Organic Solutions will supply all packaging materials for the Product, except that Diatect will supply the stretch wrap. Such packaging materials to be supplied by Organic Solutions includes, but is not limited to, bottles, pallets, boxes and other materials to meet special packaging requests of Organic Solutions. (b) Diatect will cause the Product to be packaged by means of subcontracting with DSD, Inc. for said packaging. Diatect reserves the right to subcontract said packaging of Product, or any part thereof. (c) Unless other wise agreed in writing between these parties, the standard containers for packaging and the relevant costs for packaging shall be as follows: (i) Five (5) ounce bottle . . . . . . .$ .27 (ii) Ten (10) ounce bottle . . . . . . .$ .27 (iii) Twenty (20) ounce bottle. . . . . .$ .30 (iv) Two (2) Lb. bottle. . . . . . . . .$ .33 (v) Five (5) Gal. bucket or pail. . . .$1.00 (vi) Thirty (30) pound bag . . . . . . .$1.00 9. STORAGE. (a) Diatect will receive and store at its expense the aforementioned packaging materials supplied by Organic Solutions in an aggregate amount not to exceed two truckloads of such packaging materials. For example, Diatect's storage capacity under this provision could accommodate twenty thousand 20 oz. bottles, 48 pallets, and several pallets of boxes. Any increase in amount of storage of packaging materials must be negotiated with Diatect in advance. (b) Any loss or damage to packaging materials supplied by Organic Solutions while under the possession and control of Diatect will be charged and billed against Diatect and reflected as a deduction on invoices to Organic Solutions for purchase of Product. 10. REGISTRATION OF SUB-LABELS AND COMPLIANCE WITH LAWS. Organic Solutions shall obtain and maintain at its own cost all necessary registration and/or permits for all sub-labeled Product marketed and sold in the respective jurisdictions (e.g., states, foreign countries, etc.), or to government agencies (e.g., GSA). Copies of all registrations of all sub-labels shall be provided by Organic Solutions to Diatect prior to commencement of any marketing or sales activities in said respective jurisdictions. Organic Solutions warrants that it will comply with all relevant laws and regulations of the respective jurisdictions in which Product is marketed or sold. 11. ADVERTISING. Organic Solutions shall bear all costs of the development, distribution, and implementation of its advertising and Product literature relating to sub-labeled Product. Diatect will cooperate with Organic Solutions in the development of such advertising and Product literature. All such advertising and Product literature must receive written approval from Diatect prior to its publication, release, distribution or any other use by Organic Solutions. Unless otherwise agreed by these parties in writing, Organic Solutions shall submit galley proofs of all advertising and/or Product literature to Diatect for Diatect's approval prior to any release, publication, distribution or commercial use of same. 12. INSURANCE. Diatect shall use its best efforts to maintain product liability insurance on all Product and will cause Organic Solutions to be named as a co-insured on the existing product liability insurance policy. The primary insured on the existing product liability insurance is DSD, Inc. Within thirty (30) days following execution of this Agreement, Diatect will cause Organic Solutions to be furnished with a copy of the relevant product liability insurance policy or policies showing designation of Organic Solutions as a named insured under said insurance. 13. SHARING OF EFFICACY DATA. The parties shall share all efficacy data regarding the Product with each other at no cost to the other party. Such efficacy data will include, without limitation, actual application results from customers, field tests, and results by testing and research organizations. 14. PROVISION OF FINANCIAL AND OTHER INFORMATION. (a) Organic Solutions shall provide Dialect with financial information regarding Organic Solutions for the purpose of assuring Diatect of Organic Solutions financial capability to fulfill the terms of this Agreement. At a minimum, Organic Solutions shall provide Dialect with copies of quarterly financial statements of Organic Solutions and with copies of any 10-K or 10-Q filings with the United States Securities and Exchange Commission. (b) Organic Solutions shall immediately give notice to Diatect of any litigation or regulatory proceeding, or threats thereof, known to Organic Solutions which in any way involves the Product or this Agreement, whether or not Organic Solutions is directly involved in such litigation or regulatory proceeds. 15. RELATIONSHIP OF THE PARTIES. (a) The relationship of these parties is and shall be that of independent contracting entities. Nothing contained in this Agreement shall constitute or be construed to be or to create a partnership or joint venture between these parties. Neither party has any ownership right, title or interest in the other party. The parties hereto shall be free at all times to exercise their own respective judgment as to the manner and procedures by which they perform their obligations under this Agreement. Nothing herein shall be deemed to prohibit any party from engaging in any other business or occupation or from contracting with any other entity, except as it might conflict with the terms and conditions of this Agreement. (b) The parties hereto understand and acknowledge that Diatect is actively selling Product in the marketplace and that such activity may result in direct competition between these parties from time to time. Organic Solutions represents that it is not the intent of Organic Solutions to disturb the market for Diatect. Organic Solutions warrants that it will promote the Product in accordance with the highest ethical standards of business and commerce. 16. DISPUTE RESOLUTION. Any disputes or claims arising out of or relating to any part or provision of this Agreement or any breach of the provisions of this Agreement, which dispute or claim cannot be resolved by these parties within thirty (30) days of written notice thereof, shall, upon written demand made by either party, be resolved by binding arbitration in accordance with the rules of the American Arbitration Association. Cost and fees of arbitration are hereby agreed to as may be awarded by the arbitrators under and pursuant to any such arbitration proceedings. Such binding arbitration is hereby expressly agreed by and between these parties to be the sole and exclusive remedy for any and all disputes and for claims that may arise between these parties under or in any way relating to this Agreement. The venue of any and all arbitration proceedings shall be Topeka, Kansas, USA, unless otherwise agreed by these parties in writing. The law of the State of Kansas shall apply as the law of the jurisdiction for the purposes of the arbitration proceedings and for the purpose of construing and interpreting this Agreement. Any award entered by the arbitrators may be registered and entered as a binding judgment in any court of competent jurisdiction in the United States. Any award rendered by the arbitrators and any judgment upon an award entered by any court of competent jurisdiction shall include all costs of arbitration, all court costs, attorney fees, and other costs and expenses deemed payable by the arbitrators. 17. COSTS AND EXPENSES. Each party shall bear its own respective costs and expenses relating to the formation and to the performance of this Agreement. 18. NOTICE. Except as otherwise provided for herein, all documentary transmissions and transactional notices required by this Agreement as well as any other notice to any party hereto shall be given by certified or registered mail (or equivalent), to the respective parties as required under this agreement or otherwise, to the following addresses indicated below or to any change of address given by a party to the others pursuant to written notice. DIATECT: Diatect International, Inc. Highway 36 East Smith Center, Kansas 66967 ORGANIC Organic Solutions, Inc. SOLUTIONS: 8023 Vantage Dr., Suite 600 San Antonio, Texas 78230 19. GENERAL PROVISIONS: (a) Entire Agreement: This Agreement constitutes and is the entire agreement of the parties and supersedes all other prior understanding and/or agreements between the parties regarding the matters herein contained, whether verbal or written. (b) Amendment: This Agreement may be amended only in writing signed by both parties. (c) Assignment: No party to this Agreement shall be entitled to assign its interest herein without the prior written approval of the other party. (d) Execution of Other Documents: Each of the parties agrees to execute any other documents reasonably required to fully perform the intentions of this Agreement. (e) Binding Effect: This Agreement shall inure to and be binding upon the parties hereto, their agents, employees, heirs, personal representatives, successors and assigns. (f) No Waiver of Future Breach: The failure of one party to insist upon strict performance or observance of this Agreement shall not be a waiver of any future breach or of any terms or conditions of this Agreement. (g) Execution of Multiple Originals: Four (4) original counterparts of this Agreement shall be executed by these parties. (h) Governing Law: This Agreement shall be governed and interpreted by the laws of the State of Kansas. (i) Severability: In the event any provision or section of this Agreement conflicts with the applicable law, such conflicts shall not affect the provisions of the Agreement which can be given effect without the conflicting provision. WHEREFORE, this Agreement is hereby executed and made effect this 20th day of April, 1995. DIATECT INTERNATIONAL, INC. By: /signed/ A.E. Smith, President ORGANIC SOLUTIONS, INC. By: /signed/ John C. Brannon -----END PRIVACY-ENHANCED MESSAGE-----