-----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, M+bBEkFJg3Pwls9gE7NfoCZR+C73dXywnxJ9M3Od0JMoYbUV8FMBnNUJzrI3DulM 2pPwopX6DbhAv52ZhXpDeQ== 0001012895-96-000006.txt : 19960719 0001012895-96-000006.hdr.sgml : 19960719 ACCESSION NUMBER: 0001012895-96-000006 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19960718 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10147 FILM NUMBER: 96596142 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 10KSB 1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission File number: 0-10147 ------- SAN DIEGO BANCORP ----------------- (Exact name of registrant as specified in 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) Issuer's telephone number, including area code: (801) 467-5339 Securities registered pursuant to section 12(b) of the Act: Title of each class Name of each exchange on which registered None N/A -------- -------- Securities registered pursuant to section 12(g) of the Act: Common Stock, No Par Value -------------------------- (Title of class) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes [ ] No [X] (2) Yes [X] No [ ] 2 Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the 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. [ ] State the issuer's revenues for its most recent fiscal year:$6,398,293. State the aggregate market value of the voting stock held by nonaffiliates of the registrant. AT DECEMBER 31, 1994, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES WAS $492,663. THE AVERAGE OF THE BID AND ASKED PRICE OF SUCH STOCK ON DECEMBER 31, 1994, WAS $0.155 PER SHARE. AT DECEMBER 31, 1994, THE REGISTRANT HAD 8,203,267 SHARES OF COMMON STOCK, NO PAR VALUE, ISSUED AND OUTSTANDING. DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the part of the form 10-KSB (e.g., part I, part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or other information statement; and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the Securities Act of 1933: None 3 - -------------------------------------------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page PART I - ------ ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . .4 ITEM 2. DESCRIPTION OF PROPERTIES. . . . . . . . . . . . . . . . . . . . 10 ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS. . . . . . 11 PART II - ------- ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 15 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 15 PART III - -------- ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . 15 ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 17 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 20 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 21 PART IV - ------- ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . 22 4 PART I - -------------------------------------------------------------------------------- ITEM 1. BUSINESS - -------------------------------------------------------------------------------- GENERAL San Diego Bancorp, a California corporation (the "Company"), was incorporated in May of 1979. The Company began business as an industrial loan company and operated through its subsidiary El Camino Thrift and Loan Association in and around San Diego, California. In 1986, after suffering substantial losses in the loan business, the Company ceased operations, liquidated its assets, which consisted of those assets held by El Camino Thrift and Loan Association and paid the remaining liabilities. The Company had no operations until June 1993 when current management of the Company, after investigation into the pesticide industry, decided to acquire Enviro-Guard Corporation, a Utah corporation ("Enviro-Guard"). Enviro-Guard, through various subsidiaries, had obtained Environmental Protection Agency ("EPA") approval on several insecticide products and labels. The insecticides developed by Enviro-Guard are unique in that they are organically based and non-intrusive to the environment. After the acquisition of Enviro-Guard which was completed on October 15, 1993, the Company sought to broaden its product and revenue base by acquiring Actagro, Inc., a California corporation ("Actagro"), on December 31, 1993. Actagro and its predecessor Agra-Sav have since 1979 been actively engaged in developing, producing and marketing patented plant nutrients. Through the acquisition of Enviro-Guard and Actagro, the Company believed it had put together the framework for a complementary line of environmentally friendly insecticides and plant care products. However, this acquisition carried high debt load and did not meet its required net income commitment. Actagro was divested in late 1994. The Company continues to have a shortage of working capital, which is likely to continue unless the Company increases substantially its sales revenue or obtains additional working capital through equity sources. The report of the Company's auditor included with this annual report on Form 10-KSB contains a modification relating to the Company's ability to continue as a going concern. (See ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION and ITEM 7. FINANCIAL STATEMENTS. ) INDUSTRY In 1994, the worldwide market for pesticides grew by 10% to a total of $27.8 billion as the total amount of acreage planted continued to increase in the United States and the world. Pesticide consumption in dollar terms is expected to grow 4.4% per year during 1993-2003, compared with 3% during 1983-93. The retail nursery green good sales increased 10% to $15.2 billion. Every one 5 dollar of green good sales results in the sale of $3 worth of tools, fertilizers, and insecticides. A recent Gallup poll reported that 92% of farmers want to use safer pesticides and 66% favored tougher enforcement of pesticide misapplication penalties. Additionally, since insecticides were first used in the 1940s, more than 600 insect species have developed resistance to many synthetic pesticides, leading the industry to constantly search for new products. Insecticide resistance now costs an estimated $1.4 billion a year in crop losses in the United States alone. The nature of these synthesized chemical pesticides has caused concern among the public and regulators particularly over the pesticides persisting in the environment, accumulating in soil and ground water and affecting surrounding wildlife such as fowl and fish. These concerns have led the EPA to require stricter tests on new pesticides and fertilizers. Additionally, the EPA has, in many instances, ordered new tests for previously approved products which must now meet the newer, more stringent standards. The additional testing is resulting in some companies electing to remove existing products from the market rather than subject the products to the newer standards. Enviro-Guard ------------ Enviro-Guard was incorporated in May 1991 to engage in the business of developing, manufacturing and marketing environmentally friendly EPA approved and registered insecticides. Enviro-Guard operates in conjunction with its subsidiaries; D.S.D., Inc., Diatect International, Inc., Dr. Scratch Company, Inc., and White Mountain Mining and Manufacturing, Inc. When referred to herein, Enviro-Guard includes all of its subsidiaries. Enviro-Guard was acquired by the Company in October 1993 through the exchange of shares of the Company for shares of Enviro-Guard. The majority shareholder of Enviro-Guard, Enviro-Guard Holding Corporation, received 3,552,710 shares of the Company's common stock in exchange for 4,368,400 shares of Enviro-Guard. Enviro-Guard has developed a variety of insecticides which utilize so called 'natural killing agents' which are non-toxic to the environment as well as humans and other warm-blooded animal life. Whereas widely used conventional chemical synthesized insecticides of the past (and present) are composed of highly dangerous, toxic chemicals that seep into the water table and are washed into rivers and lakes contaminating water and soil for decades, the Company's products are composed of natural elements such as diatomaceous earth ("DE") and pyrethrum, which degrade, leaving the environment unharmed. DE and pyrethrum have been used separately for years as alternatives to hazardous chemical insecticides, but were not as effective in treatment. By combining DE and pyrethrum in its products, Enviro-Guard has achieved a synergy leading to far more effective insecticides than DE or pyrethrum individually. 6 Enviro-Guard and its subsidiaries have obtained EPA registrations and labels necessary for the production and marketing of their insecticides. The approval by the EPA of Enviro-Guard's labels is significant due to the time and cost associated with EPA approval which can take years and cost millions of dollars. Due to the time it took to obtain EPA approval, Enviro-Guard did not begin commercial marketing of its products until late 1993. PRODUCTS The cost and time associated with EPA approval has delayed Enviro-Guard's entry into the market place until the latter part of 1993. As such, Enviro-Guard has yet to receive wide spread acceptance of its product; however, test marketing has shown positive signs. Through Enviro-Guard, the Company hopes it has obtained a variety of proprietary, environmentally friendly, non-toxic insecticides for various areas of use and effective on a multitude of insects and plants under the trade names Results, Diatect, and Dr. Scratch [ Dr. Scratch products are animal-actuated insecticide applicators---not insecticides themselves]. The active ingredients used in the Enviro-Guard's products are diatomaceous earth, pyrethrum and pipernonyl butoxide. Diatomaceous Earth ("DE") is a naturally occurring mineral deposit resulting from microscopic single-celled plants called diatoms which took the minerals from the water and created protective shells for themselves. As they died and their shells drifted to the bottom of the sea beds, vast deposits were created. One of the numerous uses for DE is as a natural insecticide, since it causes severe mechanical cutting damage to insects akin to the damage of ground glass swallowed by humans. DE is taken from the earth and ground into a usable dust. It is, basically, an inert dust which does not react with other chemical compounds to form a new insecticidal compound. There are many varieties of diatoms, and the preponderance of the type in any given deposit gives that deposit certain characteristics. In the case of nontoxic insecticides, certain qualities make it possible to kill insects without harming animals, plants or humans. These rare deposits furnish a material that has two very important characteristics: (1) when it is fractured, the particle edges are very sharp and (2) each tiny particle has the ability to absorb liquid. Once the covering of an insect's shell is cut, DE absorbs bodily fluids of the insect, causing dehydration and death. Moreover, the DE causes extensive trauma to insects, both internally and externally. In order to not reduce or nullify its effectiveness as an insecticide, DE has to be free of significant impurities. DE by itself can be used as an insecticide, but is generally slow to reduce insect populations and thus has limited effectiveness, especially against fast-breeding insects. For this reason, Enviro-Guard's products combine DE with pyrethrum. Pyrethrins are oily liquid esters extracted from the pyrethrum flower, the "African Daisy." The extract is a "botanical insecticide" and acts on insects with phenomenal speed causing paralysis. It is virtually harmless to mammals, i.e., warm-blooded life. Pyrethrin affects both the peripheral and central nervous system of the insect. Initially, it stimulates nerve cells to produce repetitive discharges, quickly leading to paralysis. 7 Piperonyl Butoxide ("PBO"), an extract originally discovered in a variety of sassafras, has since been synthesized and made available in quantities greater than possible from plants. While early studies suggested that PBO is itself a natural insecticide, it is its use as a synergist that is particularly exciting and useful. A synergist is not generally considered toxic or insecticidal, but is a material used with insecticides to synergize or enhance the activity of the insecticides. PBO is the synergist used in SDBC products. It enhances the action of the fast knockdown provided by pyrethrin. Basically, PBO binds oxidative enzymes and prevents them from degrading the pyrethrin. Combined with small amounts of pyrethrins, it affords a rapid knockdown, a greater mortality, and a longer residual action than pyrethrin by itself. PBO has been found to be safe and free of any normal hazards of toxicity. It is well tolerated in large quantities by warm-blooded animals. Because PBO is substantially less expensive than pyrethrin, its use allows the company to offer more economically priced products. Enviro-Guard combines DE and pyrethrum by using surfactants to insure a good mix and greatly increase effectiveness and persistence. The combination of DE and pyrethrum results in a compound much more effective than each ingredient individually. When using the two ingredients together, the DE breaks down the chitin, allowing the pyrethrum to act on the insects' nerve cells directly. The pyrethrum does not evaporate as quickly and is released for hours rather than minutes. Furthermore, Enviro-Guard uses PBO to increase the effectiveness of pyrethrum by as much as ten times. Without PBO, the cost of additional pyrethrum would make the cost of the product prohibitive. The Company's products consist of: DIATECT D-20 INSECTICIDE, EPA REGISTRATION NO. 42850-1, INDOOR INSECTICIDE. Control roaches, fleas, ants, silverfish, crickets, bedbugs, box elder bugs, and other insects. Use under sinks, behind furniture, in air vents, under tile, stairwells, and basements. DIATECT MULTI-PURPOSE INSECTICIDE, EPA REGISTRATION NO. 42850-2. Distributed in the agriculture market, the largest end-user market for insecticides, commercial, industrial, and government markets as Diatect Multi-Purpose Insecticide. This insecticide is approved by the EPA for use in a wide variety of areas, e.g., edible growing crops, animal quarters, livestock, ornamentals, etc., under the least hazardous classification and is effective on a wide variety of insects. The insecticide can be applied as a dust or sprayed in solution with water and can be used on crops and fruits up to and including the day of harvest. Distributed in the retail market for use in the home and garden markets under the trade name Results under the following retail labels: RESULTS ANT AND INSECT. Controls ants, aphids, caterpillars, leafhoppers, lice, mites, mosquitoes, ticks, and other insects. RESULTS TOMATO AND GARDEN. Protects garden plants from many varieties of worms, beetles, leafhoppers, stink bugs, squash vine borers, and other insects. 8 RESULTS ROSE AND FLORAL. Protects Azaleas, Begonias, African Violets, Chrysanthemums, Dogwood, Elm, Roses, Tulips, and many other plants. Destroy insects such as mealybugs, fruit flies, white flies, and caterpillars that ruin the beauty of garden flowers and plants. RESULTS FIRE ANT INSECTICIDE. Applying the insecticide directly to the fire ant mounds, provides quick, effective control in eliminating these aggressive, dangerous pests. Each year 10,000 Americans seek hospital treatment for venomous fire ant stings and two of those people die. Unlike bees, fire ants can sting repeatedly and have a very aggressive behavior. The Company believes, Diatect and Results are far more effective than major competitive products, which are synthetic chemicals. DIATECT PET POWDER, EPA REGISTRATION NO. 42850-3. To be marketed on a retail basis under the trade name "Results." RESULTS PET POWDER. Protects dogs, cats and other pets against fleas, ticks, and lice infestation. Can be applied directly on pets and on their sleeping areas without the fear of using potentially harmful chemicals. DR. SCRATCH is a line of animal-actuated insecticide applicators, which is marketed to livestock growers. Other dusters are available which apply dust to animals' hair but lack features that massage ultra-fine dust through the haft onto the skin. Those features are unique to Dr. Scratch' dusters. REGULATORY APPROVAL The pesticide industry is heavily regulated on both the federal and state level, particularly from the standpoint of the damage most pesticides can cause to the environment. Before a pesticide can be used, it must receive governmental approval commonly referred to as registration. Once registered pesticides are still subject to additional regulation including the submission of new data to add a new pest, geographic area or other change to the original limited approval for the pesticide. Before insecticides may be sold, the EPA must approve a registration package and grant a use label. Additionally, state regulatory approval must be received from any state where the insecticide is to be marketed. The Company's insecticides are generally classified in the least hazardous category due to their temporary/and nonintrusive nature in the environment. This has allowed the Company to obtain EPA approval somewhat faster then other insecticides are approved. COMPETITION The principal players in the U.S. plant care industry, particularly the insecticide industry, are major companies such as Dow, DuPont, Monsanto, Shell Oil and Ortho. Those companies all have more extensive resources then the Company and have established product recognition and following. The Company believes, however, that by focusing on the non-synthetic pesticides, it will be able to acquire a market niche which has not been a focus of the larger, better 9 established companies. There is no assurance, however, that the Company will be able to establish this niche or that, even if the Company is successful, the larger companies will not enter into this niche with their extensive resources which the Company may not be able to compete against. The Company feels it has an advantage in the products and market niche it has identified in that it has already obtained EPA approval of its products and labels. The EPA approval is important due to the time and cost associated with receiving such approval which can take years and cost millions of dollars. OFFICES The Company and its subsidiary Enviro-Guard maintain their administrative offices at 3335 South 900 East, Suite 230, Salt Lake City, while the Company's subsidiaries D.S.D. and Diatect maintain both administrative and production facilities on East Highway 36, Smith Center, Kansas. (See ITEM 2. PROPERTIES.) EMPLOYEES Name of Company No. of Employees Position Full-time Part-time - --------------- ----------------- -------- --------- --------- San Diego(1) 1 Officers 3 N/A Enviro-Guard 1 Other 1 N/A D.S.D. and Diatect 7 1 Officer/6 Other 7 N/A White Mountain -- N/A N/A N/A - ------------- (1) Two of the Company's three officers and directors are also employees of Enviro-Guard. 10 - -------------------------------------------------------------------------------- ITEM 2. PROPERTIES - -------------------------------------------------------------------------------- The Company's properties are as follows:
Purpose Location Acreage/Sq. Ft. Lease/Own Description - ------- -------- --------------- --------- ----------- San Diego 3335 South 900 East Bancorp and Suite 230 Enviro-Guard Salt Lake City, UT 1,000 sq. ft. Lease Brick Administrative Offices D.S.D. and Diatect East Highway 36 Administrative Smith Center, KS 4,000 sq. ft. Own Brick D.S.D. and Diatect Manufacturing, East Highway 36 and Warehouse Smith Center, KS 10,000 sq. ft. Own Metal/Quonset White Mountain Mining Claims Malheur County, OR 83 Lease Unpatented Placer
LIMITED TITLE TO UNPATENTED CLAIMS The validity of all unpatented mining claims is subject to inherent uncertainties. Such claims are located on federal or state land and are subject to procedures established by federal and state laws. Unpatented claims, when properly located, staked, and posted according to regulation, give the claimant possessory rights only. Possessory title to an unpatented claim, when validly initiated, endures unless lost through abandonment due to failure to perform and file proof of required assessment work, through failure to timely record conveyances, or through a forfeiture which results from an adverse location made while the prior location is in default with respect to the performance of assessment work. Because many of these factors involve findings of fact, title validity cannot be determined solely from an examination of the record. The continuing validity of these claims is subject to many contingencies, including the availability of land for location at the time the location was made, the making of valid mineral discoveries within the boundary of each claim, compliance with all federal and state regulations, including filings with federal and county agencies. Because mining claims are self-initiated and self-maintained rights, they possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims from public real estate records, and therefore, typically it is difficult or impossible to confirm that all of the requisite steps for location and maintenance of a claim have been followed. Under federal law, as interpreted by the federal government, in order for an unpatented mining claim to be valid, the claimant has the burden of proving that the mineral occurrence on which it is 11 based can be mined at a profit at the time the claim is located and at the time of any subsequent challenge to such claim's validity. Thus, it is conceivable that, during the times of falling mineral prices, claims that were valid when located could become invalid if challenged. Mining claims are frequently located with less than sophisticated survey techniques. This situation, particularly in old mining districts, may result in additional difficulty in ascertaining the location for validity of such claims. Title to unpatented claims and other mining properties in the western United States typically involves certain other inherent risks due to the frequently ambiguous conveyancing history characteristics of such properties as well as the frequently ambiguous or imprecise language of mineral leases, agreements, and royalty obligations. The Company has not obtained title opinions with respect to the claims and may acquire other claims without a title opinion. If the Company should experience a failure to rifle, cost of action, acquisition, and investigation may be lost. - -------------------------------------------------------------------------------- ITEM 3. LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- On July 22, 1994, a civil complaint was filed by Gruntal & Co., Incorporated, in U.S. District Court Southern district of New York against the Company and other individuals and related entities, including James Dayley, a former officer and director and the Company and Robert Crouch, a director of the Company, alleging violations of the federal securities anti-fraud provisions and RICO statutes. Gruntal & Co. Inc. is seeking damages of approximately $7.3 million against all defendants, which included $1,389,432 in treble damages and $5 million in punitive damages. The action centers around the alleged activities of one of the Company's shareholders and his purported dealings with a registered representative of Gruntal & Co., Inc. and various other individuals and entities unknown to the Company and its officers and directors. Gruntal & Co., Inc., is a securities broker/dealer that made a market in the Company's common stock. The Company, Mr. Dayley and Mr. Crouch deny any complicity and have filed an answer to the complaint denying the allegations and any wrong doing as the allegations relate to themselves and the Company. The circumstances are the subject matter of the counterclaim of the Company in the United States District Court for the Southern of New York, Case No. 94 CIV 5366 (PKL), entitled Gruntal & Company, Inc. v. San Diego Bancorp, et al.; San Diego Bancorp v. Gruntal & Company, Inc., and David Gorobetz. - -------------------------------------------------------------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - -------------------------------------------------------------------------------- No matters were submitted to a vote of shareholders of the Company during the fourth quarter of fiscal year ended December 31, 1994. 12 PART II - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - -------------------------------------------------------------------------------- The following table sets forth, for the respective periods indicated, the prices for the Company's common stock in the over-the-counter market as reported by a weekly reporting service and according to the OTC Bulletin Board. The bid prices represent inter-dealer quotations, without adjustments for retail mark-ups, mark-downs or commissions and may not necessarily represent actual transactions. Prior to October 1, 1993, and subsequent to the Company's fiscal year ended December 31, 1986, there was no 'established trading market" for shares of the Company's common stock. At December 31, 1994, the bid and ask quotations for the Company's common stock were $0.1875 and $0.125, respectively. All bid prices below have been rounded to the nearest whole cent. Bid Prices Fiscal Year Ended December 31, 1993 High Low - ----------------------------------- ---- ---- First, Second, and Third Quarter N/A N/A Fourth Quarter $6.25 $4.00 Fiscal Year Ended December 31, 1994 - ----------------------------------- First Quarter $7.00 $0.50 Second Quarter $7.50 $1.50 Third Quarter $1.00 $0.16 Fourth Quarter $0.56 $0.13 The Company has not paid any dividends on its Common Stock, and the Company does not anticipate that it will pay dividends in the foreseeable future. The future payment of dividends, if any, on the common stock is within the discretion of the Board of Directors and will depend on the Company's earnings, its capital requirements, and financial condition and other relevant factors. At December 31, 1994, the Company had 267 shareholders of record based on information provided by the Company's transfer agent. - -------------------------------------------------------------------------------- ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- GENERAL Until October 1993, when the Company acquired Enviro-Guard, the Company had not conducted operations for several years. Therefore, a comparison of prior years 13 with the year ended December 31, 1994, would not conducive to an understanding of the Company and its fiscal condition. Additionally, the acquisition of Actagro and its subsequent disposition occurred almost entirely within fiscal year 1994, as a result a discusion of Actagro's operations for comparative periods would not have any meaningful significants. ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN The Company incurred a consolidated net loss of $1,770,363 for the year ended December 31, 1994. In addition, current liabilities exceeded current assets by $1,182,199. The Company has converted and is currently seeking to convert certain short-term debt to equity and is seeking additional financing through the investment of equity capital in order to enhance the Company's ability to continue as a going concern through the end of fiscal year 1996. The report of the Company's auditor contains a modification as to the ability of the Company to continue as a going concern. The Company believes that without additional conversions of debt to equity and restructuring the payment terms of short-term debt, there is substantial doubt as to the Company's ability to meet is current obligations and continue in business. During the 1994 fiscal year the Company converted $323,862 in accrued wages, salaries, and marketing fees into equity by offering shares of common stock. Management anticipates converting up to $600,000 in short-term debt to equity during fiscal year 1995. The Company is seeking additional working capital from several sources, including investment banking firms interested in companies in the agri-environmental industry. Management intends through the production and marketing of its products to increase cash flows and gross profit in order to cover a greater portion of the Company existing liabilities and operating expenses. The Company may also seek equity financing through the sale of the Company's securities. Currently, the Company must meet monthly expenses of $85,000. Presently, the Company is unable to meet this amount, however, management is hopeful that the increased revenues from the sale of product will alleviate a substantial portion of this short-fall. Even with an improved sales outlook it will be necessary to seek capital from the above mentioned sources. The minimum amount of working capital required by the Company to continue for the next 12 months is $500,000. However, there is no assurance that the Company will be able to obtain additional working capital, and if obtained, on favorable terms or in a timely manner. RESULTS OF OPERATIONS During the fiscal year ended December 31, 1994, the Company's revenues totaled $6,398,293. Cost of sales total $3,330,537, thus yielding a gross profit of $3,067,756. The Company operating expenses were $5,041,911. The 1994 fiscal year operating loss for the Company's consolidated operations was $1,974,155. Of those amounts, Actgro accounted for revenues of $5,863,350; costs of sales of $2,992,517; and gross profits of $2,870,833. After deducted Actagro's operating expenses of $2,719,113, Actagro had a profit, before taxes, of $151,720. Revenues from Enviro-Guard were $534,943, with costs of sales at $338,020; and gross profits of $196,923. Management believes that reduced cash flows, pending litigations, and limited working capital all contributed to ineffective marketing of the Company's products, despite the approval from the state of California for sale of the Company's Diatect insecticide. 14 Of the Company's operating expenses during fiscal year 1994, $570,187 was depreciation and amortization; $541,316 was professional and consulting fees; and $114,714 was interest expense. Because of the illiquid nature of the Company's non-cash assets, many expenses were paid through the issuance of common stock. Although the Company believes its will experience in increase in product sales during the current fiscal year, it can not predict with any degree of certainty that any increase in revenues will be sufficient to offset ongoing operating expenses and service existing short-term debt. The Company experienced a $323,645 loss during fiscal year 1994 associated with its investment in Emission Reduction Technology. Although the Company expended funds during 1994 in preparation for the production and marketing of the emissions reduction device, limited working capital forced the Company to focus a majority of its attention to the operation of its Enviro-Guard subsidiary and the promotion of the Diatect insecticide products. The Company also experienced a loss of $149,301 associated with the divestiture of Actagro. The Company believes that many of the operating and administrative expenses associated with the fiscal year 1994 loss were due to insufficient cash flow and the illiquid nature of its non-cash assets. 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. Liquidity and Capital Resources The Company has a substantial working capital deficit. As of December 31, 1994, the Company had a working capital deficit of $1,182,199, a reduction of the working capital deficit of $1,780,637 at December 31, 1993. The Company has current liabilities of $1,261,626, with an additional $120,228 in long term debt. With the divestiture of Actragro, long term debt has been reduced by $2,982,130, from $3,102,358 at December 31, 1993. Despite the reduction in long-term debt, the Company working capital deficit has had a direct correlation on the Company's inability to expand and market its products more 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 is, therefore, seeking working capital from several sources, including the 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 includes lengthy and costly time in obtaining EPA approval. With Enviro-Guard's products in the market place, the Company anticipates revenues to offset on-going expenses. The Company is uncertain, however, as to whether there will be sufficient revenue to cover past obligations. The Company's lack of cash will also affect the ability to effectively market Enviro-Guard's and Actagro's products. The Company believes one of the largest markets for its product is the home and garden use with this market accounting for over approximately 20% of the insecticide and plant care industry. The home and garden market will be affected by the Company's ability to market its products. The Company will conduct affordable advertising and maintain a sales force that can effectively reach these markets. This marketing strategy will require funds to be fully effective. Accordingly, although the Company anticipates more revenue from its products then it has received in the past, it will not be as profitable as it could be with additional cash to fund the advertising. 15 - -------------------------------------------------------------------------------- ITEM 7. FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial statements of the Company are set forth immediately following the signature page to this Form 10-KSB. (See ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K for Index to Financial Statements.) - -------------------------------------------------------------------------------- ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - -------------------------------------------------------------------------------- The Company has had no disagreements with its certified public accountants with respect to accounting practices or procedures or financial disclosure. PART III - -------------------------------------------------------------------------------- ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT - -------------------------------------------------------------------------------- The following table sets forth as of December 31, 1994, the name, age, and position of each executive officer and director and the term of office of each director of the Company. Director and/or Name Age Position Officer Since - ---- --- -------- ------------- James Dayley 62 President and Director October 1993 Robert B. Crouch 70 Director June 1993 Dale H. Christiansen 44 Treasurer and CFO October 1993 Each director of the Company serves for a term of one year and until his or her successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until his or her successor is elected at the annual meeting of the board of directors and is qualified. Set forth below is certain biographical information regarding each of the Company's executive officers and directors. JAMES DAYLEY, was self-employed as an independent business consultant assisting businesses in capital formation and business acquisitions from February 1992 to September 1993, when he became an officer and director of the Company. Mr. Dayley is the author of Scoring Millions -- The Entrepreneur's Guide to Raising $1,000,000 For a Business Venture by Going Public NOW!, which provides businesses useful information regarding state "Small Corporate Offering Registration Exemptions." From October 1990 to February 1992, Mr. Dayley was 16 President and C.E.O. for Resource Recovery & Manufacturing Corp. ("RRMC"), East St. Louis, Illinois, a development stage company organized for the purpose of recovering resuable materials from the municipal waste stream of East St. Louis and other nearby communities. ROBERT B. CROUCH, has since 1991 been an officer and director of EGC. Prior to that time, from 1988 to 1991, he served as an officer and director of Asia American Enterprises, Inc., Salt Lake City, Utah. Mr. Crouch has been a member of the District of Columbia, Ohio, and California Bar Associations. He has been in private practice and worked for legal firms, businesses, and the U.S. Patent Office providing patent advice and performing patent examination. Mr. Crouch received a B.S. in Civil Engineering, University of Idaho, Moscow, Idaho in 1949, and L.L.B. from George Washington University, Washington, DC in 1953. DALE H CHRISTIANSEN, was prior to the acquisition of Enviro-Guard Corporation ("EGC") by the Company employed as EGC's Chief Financial Officer. From 1990 to 1993, self-employed as a financial management consultant. From 1988 to 1990, Mr. Christiansen was a consultant and then chief financial officer for Security Marketing Group, Oxnard, California. From 1986 to 1988, he served as chief financial officer for J.D. Power & Associates, Agoura Hills, California. Prior to that Mr. Christiansen has served in financial planning positions with both Nissan Motor Corporation, Gardena, California, and Chrysler Corporation, Highland Park, Michigan. Mr. Christiansen received a B.S. in Business Management from Brigham Young University, Provo, Utah, in 1975; and a MBA from J.L. Kellog Graduate School of Management, Northwestern University, Evanston, Illinois in 1977. KEY EMPLOYEES AND OTHER PERSONNEL ELWYNN S. HEWLETT, JR. has twenty-nine years in the business and project development arenas. His special emphasis has been upon marketing, promotion, finance and operations. Currently Mr.Hewlett is President of Enviro-Guard Corporation, a subsidary of the Company. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS See ITEM 3. LEGAL PROCEEDINGS of this Form 10-KSB. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Since the Company ceased operations in 1989 until October 1993, the Company knows of no person, who at any time during the subsequent fiscal years, was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company registered pursuant to Section 12 ("Reporting Person"), that failed to file on a timely basis any reports required to be furnished pursuant to Section 16(a). Based upon a review of Forms 3 and 4 furnished to the Company during the fiscal year ended December 31, 1994, other than disclosed below, the Company knows of no Reporting Person that failed to file the required reports during the 1994 fiscal year or prior years. The following table sets forth as of December 31, 1994, the name and position of each Reporting Person that failed to file on a timely basis any reports required pursuant to Section 16(a) during the 1994 fiscal year or prior years. 17 Report to Filed Since Name of Reporting Person Position Be Filed December 31, 1994 - ------------------------ -------- -------- ----------------- Elwynn S. Hewlett President, Enviro-Guard Form 4 No Corporation Dale H. Christiansen CFO/Director Form 4 No - -------------------------------------------------------------------------------- ITEM 10. EXECUTIVE COMPENSATION - -------------------------------------------------------------------------------- SUMMARY COMPENSATION TABLE The following tables set forth certain summary information concerning the compensation paid or accrued for each of the Company's last three completed fiscal years to the Company's or its principal subsidiaries chief executive officer and each of its other executive officers that received compensation in excess of $100,000 during such period (as determined at December 31, 1994, the end of the Company's last completed fiscal year):
SUMMARY COMPENSATION TABLE Annual Compensation Long Term Compensation ------------------- ---------------------- Awards Payouts ------ ------- Other Annual Restricted Name and Compen- Stock Options/ LTIP All Other Principal Position Year Salary($) Bonus($) sation Awards SARs(#) Payout Compensation - ------------------ ---- --------- -------- ------ ------ ------- ------ ------------ James Dayley 1994 44,500 -0- -0- -0- -0- -0- -0- Pres. and C.E.O., 1993 6,000 -0- -0- -0- -0- -0- -0- San Diego Bancorp 1992 -0- -0- -0- -0- -0- -0- -0- Elwynn S. 1994 104,000 -0- -0- -0- -0- -0- -0- Hewlett, Jr.(1) 1993 104,000 -0- -0- -0- -0- -0- -0- President and 1992 91,000 -0- -0- -0- -0- -0- -0- C.E.O., Enviro- Guard Holding Corp. (1) Neither the Company, nor Enviro-Guard Holding Corporation have an employment agreement with Mr. Hewlett. Certain portions Mr. Hewlett's salary for fiscal years 1994, 1993, and 1992 were accrued ($83,185, $49,009, and $50,525, respectively) and paid by the issuance of 122,634 shares of the Company's common stock in 1994, valued at $1.00 per share, and 159,570 shares of the Company's common stock in 1995, valued at $1.00 to $1.50 per share.
18 ACCRUED COMPENSATION During fiscal years 1994, 1993, 1992, and 1991, the Company accrued salaries for its officers and directors that are either employees of the Company or its subsidiaries in the amounts of $303,447, $188,903, $136,715, and $57,600, respectively. The board of directors has authorized a plan to reduce the debt structure of the Company by authorizing the conversion of accrued compensation to shares of the Company's common stock based on the bid price of the common stock on the day prior to the time of conversion. On July 5, 1994, those individuals converted an aggregate of $78,754 in accrued salaries for 78,754 shares of restricted common stock valued at $1.00 per share. On July 22, 1994, those individual shareholders converted an aggregate of $91,457 in accrued salaries to 53,771 shares of the Company's restricted common stock, valued at $1.50 per share. On April 27, 1994, individual employees that had accrued salaries for fiscal years 1993, 1992, and 1991 converted an aggregate of $383,218 in accrued salaries to $383,218 shares of the Company's restricted common stock. The bid price on April 26, 1993, was $1.00 per share. Employment Contracts and Termination of Employment and Changes in Control Arrangements During fiscal year 1994 there were no compensatory plans or arrangements, including payments to be received from the Company, with respect to any person named in Cash Compensation set out above which would in any way result in payments to any such person because of his resignation, retirement, or other termination of such person's employment with the Company or its subsidiaries, or any change in control of the Company, or a change in the person's responsibilities following a changing in control of the Company. BOARD COMPENSATION The Company's officers and directors receive no compensation or cost reimbursement for attendance at board meetings. 1994 STOCK OPTION PLAN Set forth below is a summary of the Company's 1994 Stock Option Plan (the "Plan"), which is qualified in its entirety by the actual provisions of the Plan. In March 1994, the board of directors adopted a Plan under which options to acquire stock of the Company may be granted from time to time to employees that are not "affiliates" of the Company or its subsidiaries. In addition, at the discretion of the board of directors, options to acquire stock of the Company may from time to time be granted under the Plan to other individuals, including consultants or advisors, who contribute to the success of the Company or its subsidiaries and are not employees of the Company, provided that, bonafide services shall be rendered and such services must not be in connection with the offer or sale of securities in a capital raising transaction. Administration of the Plan is to be determined by the board of directors, or by such committee as the board deems proper. Any option shall be approved by a majority vote of those board members in attendance at a meeting at which a 19 quorum is present. No member of the board or duly authorized committee shall be liable for any action taken or determination made in good faith with respect to the Plan. The Company may grant options to purchase up to 1,000,000 shares of Common Stock under the Plan, which, as of December 31, 1994, options to purchase up to 959,418 shares had been issued and 957,338 have been exercised. If any right to acquire shares granted under the Plan is exercised by the delivery of other shares of common stock or the relinquishment of fights to shares of common stock, only the net shares Of common stock shall count against the total number of shares reserved for issuance under the terms of the Plan. The Company will reserve for issuance on the exercise of the options the number of shares of common stock subject to such option. The Company may reserve either authorized but unissued shares or issued shares that have been reacquired by the Company. Each option has a term established by the board of directors or duly authorized committee at the time the option is granted but in no event may an option have a term in excess of five (5) years. Options under the Plan shall vest and become exercisable at such time or times and on such terms as the board or duly authorized committee may determine at the time of the grant of the option. Options shall be non-transferable, except by will or the laws of descent and distribution. The exercise price of each option issued under the Plan shall be equivalent to either the fair market value of the common stock on the date of grant as determined by the board or duly authorized committee based on the average of the closing bid and asked price for the common stock over the 20 day trading period immediately prior to the grant or on the bid price on the date of grant (excluding the exercise of other options conversion rights or similar rights granted by the Company). The exercise of any option shall be contingent on receipt by the Company of cash, certified bank check to its order, or other consideration acceptable to the Company, provided, that at the discretion of the board or a duly authorized committee, the written provisions of the Option may provide the payment can be made in whole or in part in shares of common stock of the Company, which shares shall be valued at their then fair market value as determined by the bard or a duly authorized committee, or by the surrender or cancellation of other rights to a common stock of the Company. The Plan provides that in the event that the number of shares of common stock from time to time issued and outstanding is increased or decreased pursuant to a stock split or a stock dividend, the number of shares of common stock then covered by each outstanding option granted thereunder shall be increased or decreased proportionately, with no increase or decrease in the total purchase price of the shares then so covered, and the number of shares of common stock subject to the Plan shall be increased or decreased by the same proportion. The Plan may be abandoned or terminated at any time by the board or a duly authorized committee except with respect to any options then outstanding under the Plan. It shall otherwise terminate on the earlier of the date that is (i) ten years after the date the Plan is adopted by the board or (ii) ten years after the date the Plan is approved by the shareholders of the Company. The Plan 20 may not be amended more than once during any six month period, other than to comport with changes in the Code or the Employees Retirement Income Security Act or the rule and regulations promulgated thereunder. - -------------------------------------------------------------------------------- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------------------------------------------------------------------------------- The following tables set forth as of December 31, 1994, the name and address and the number of shares of the Company's Common Stock, no par value per share, held of record or beneficially by each person who held of record, or was known by the Company to own beneficially, more than 5 % of the 8,203,267 issued and outstanding shares of the Company's Common Stock, and the name and share holdings of each officer and director of the Company and its principal subsidiaries and of all officers and directors as a group.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Name and Amount Title Address of and Nature of Percent of Beneficial Beneficial of Class Owner Ownership(1) Class - ----- ---------- ------------- ------- Common Pioneer Industrial Life Insurance 1,000,000 12.19 Company, Ltd. P.O. Box N4826, Matron House Nassau, Bahamas Common Enviro-Guard Holding Corporation 3,552,710 43.31 4970 South 900 East, Building J Salt Lake City, UT 84117 Common Elwynn S. Hewlett, Jr. 4970 South 900 East, Building J 3,789,814(2) 46.20 Salt Lake City, UT 84117
21
SECURITY OWNERSHIP OF OFFICERS AND DIRECTORS OF THE COMPANY AND ITS PRINCIPAL SUBSIDIARY Name and Amount Title Position of and Nature of Percent of Officer and Beneficial of Class Director Ownership(1) Class - ----- ----------- ------------- -------- Common Elwynn S. Hewlett, Jr. --See Above-- President, C.E.O., Enviro- Guard Holding Corporation Common James Dayley 30,000 0.36 President, C.E.O., All Officers/Directors as a Group (4 Persons) 5,024,793 61.25 (1) All shares owned directly are owned beneficially and of record and such shareholder has sole voting, investment, and dispositive power, unless otherwise noted. (2) Includes shares held of record by Enviro-Guard Holding Corporation of which Mr. Hewlett is the C.E.O., President, Director and Principal Shareholder, and may be deemed to have indirect beneficial ownership.
- -------------------------------------------------------------------------------- ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------------------------------- TRANSACTIONS WITH MANAGEMENT AND OTHERS. Except as indicated below, and for the periods indicted, there were no material transactions, or series of similar transactions, since the beginning of the Company' s last fiscal year, or any currently proposed transactions, or series of similar transactions, to which the Company was or is to be party, in which the amount involved exceeds $60,000, and in which any director or executive officer, or any security holder who is known by the Company to own of record or beneficially more than 5% of any class of the Company's common stock, or any member of the immediate family of any of the foregoing persons, has an interest. CERTAIN BUSINESS RELATIONSHIPS Except as indicated below, and for the periods indicated, there were no material relationships regarding directors that exist,or have existed during the Company's last fiscal year. INDEBTEDNESS OF MANAGEMENT Except as indicated below, and for the periods indicated, there were no material transactions, or series of similar transactions,since the beginning of the Company's last fiscal year, or any currently proposed transactions, or series of similar transactions, to which the Company was or is to be a party, in which the amount involved exceeds $60,000 and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than 5 % of any class of the Company's common stock, or any 22 member of the immediate family of any of the foregoing persons, has an interest. Loan from Shareholders In May 1992, Enviro-Guard Corporation gave a promissory note in the amount of $112,215 and 100,000 shares of Enviro-Guard Corporation to George Reeve, to acquire a 25 % interest in an environmental system which reportedly removes minerals and/or mineral deposits from water systems. The interest was sold in August 1993 to an investment group for $270,000. The promissory note bears interest at 9% annually and in unsecured. The note is due in full during May 1995. At December 31, 1994, principle and accrued interest totaled $132,337. In November 1993, the Company gave a promissory note in the amount of $400,000 to Danny F.A.B. Wirken, a shareholder and consultant to the Company, for funds advanced to the Company to pay ongoing operating expenses. The promissory note bears interest at 8% annually, is unsecured, and payable on demand. At December 31, 1994, the principle and accrued interest totaled $418,581. - -------------------------------------------------------------------------------- ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------------- (a)(1) FINANCIAL STATEMENTS. The following financial statements are included in this report: Title of Document Page - ----------------- ----- Independent Auditors Report of Terrence J. Dunne, Certified Public Accountant F-1 Consolidated Statement of Financial Position as of December 31, 1994 and 1993 F-2 Consolidated Statement of Operations for the years ended December 31, 1994, 1993, and 1992 F-4 Consolidated Statement of Changes in Stockholders' Equity for the years ended December 31, 1994, 1993, and 1992 F-5 Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1993, and 1992 F-6 Notes to Financial Statements F-9 (a)(2) FINANCIAL STATEMENT SCHEDULES. Not applicable 23 (a)(3) EXHIBITS. The following exhibits are included as part of this report: SEC Exhibit Reference Number Number Title of Document Location - ------ ---------- ----------------- -------- Item 3 Articles of Incorporation and Bylaws - -------------------------------------------------------------------------------- 3.01 3 Articles of Incorporation Incorporated by reference* 3.02 3 Bylaws Incorporated by reference* 3.03 3 Amendments to Articles Incorporated by reference* 3.04 3 Amendments to Articles, dated January 20, 1994 Incorporated by reference! Item 4 Instruments Defining the Rights of Security Holders - -------------------------------------------------------------------------------- 4.01 4 Specimen Stock Certificated Incorporated by reference* 4.06 4 1994 San Diego Bancorp Stock Incorporated Option Plan by reference~ Item 10 Material Contracts - -------------------------------------------------------------------------------- 10.01 10 Stock Purchase Agreement between the Company and Enviro-Guard Holding Corporation Incorporated by reference+ 10.02 10 Agreement and Plan of Acquisition between the Company and Actagro, Inc. Incorporated by reference& 10.03 10 Settlement Agreement and Mutual Release of All Claims between the Company and Actagro, Inc. Incorporated by reference= * Incorporated by reference from the Company's registration statement on Form S-18 filed with the Commission, SEC File No. 2-68874-LA, and amendments thereto. + Incorporated by reference from the Company's Current Report on Form 8-K dated October 15, 1993, filed with the Commission. 24 & Incorporated by reference from the Company's Current Report on Form 8-K dated December 31, 1993, filed with the Commission. ~ Incorporated by reference from the Company's registration statement on Form S-8 filed with the Commission on March 15, 1994. ! Incorporated by reference from the Company's Annual Report on Form 10-KSB and Form 10-KSB/A for its fiscal year ended December 31,1993, filed with the Commission. = Incorporated by reference from the Company's Current Report on Form 8-K dated December 5, 1994, filed with the Commission. (b) Reports on Form 8-K. The following reports on Form 8-K were flied with the Commission during the quarter ended December 31, 1994: Form 8-K dated December 5, 1994: Item 2.Acquisition or Disposition of Assets Divestiture of Actagro, Inc. 25 - -------------------------------------------------------------------------------- SIGNATURES - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: SAN DIEGO BANCORP Date: July 12, 1996 By /s/ Ross S. Wolfley --------------------------- Ross S. Wolfley, President Date: July 12, 1996 By /s/Dale H. Christiansen --------------------------- Dale H. Christiansen, CFO/Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated Date: July 12, 1996 By /s/Ross S. Wolfley ---------------------------- Ross F. Wolfley, Director Date: July 12, 1996 By /s/Dennis P. Nielsen ---------------------------- Dennis P. Nielsen,Director Date: July 12, 1996 By /s/Elwynn S. Hewlett ---------------------------- Elwynn S. Hewlett, Director Date: July 12, 1996 By /s/George H. Henderson ---------------------------- George H. Henderson, Director Date: July 12, 1996 By /s/Michael P. McQuade ---------------------------- Michael P. McQuade, Director Date: July 12, 1996 By /s/Robert B. Crouch ---------------------------- Robert B. Crouch, Director To The Board of Directors of San Diego Bancorp INDEPENDENT AUDITOR'S REPORT I have audited the accompanying consolidated statements of financial position of San Diego Bancorp (a California corporation) and its subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 1994, 1993 and 1992. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit. I did not audit the financial statements of Actagro Acquisition, Inc. (formerly Actagro, Inc.), a wholly owned subsidiary which was acquired on December 30, 1993, and subsequently rescinded as of December 6, 1994. Those statements were audited by other auditors whose report has been furnished to me, and in my opinion, insofar as it relates to the amounts included for Actagro Acquisition, Inc., is based solely on the report of the other auditors. I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I 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. I believe that my audit and the report of other auditors provide a reasonable basis for my opinion. In my opinion, based on my audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of San Diego Bancorp and its subsidiaries as of December 31, 1994 and 1993, and the results of their operations, changes in stockholders' equity and cash flows for the years ended December 31, 1994, 1993 and 1992, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As is shown in this consolidated financial statements, the Company has incurred substantial losses during the past three years, and has a working capital deficiency of $1,182,199 as of December 31, 1994. These working conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters are discussed in Note 16. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Terrance J. Dunne Terrance J. Dunne Certified Public Accountant Spokane, Washington July 10, 1996 SAND DIEGO Consolidated Statement of Financial Position BANCORP As of December 31, 1994 and 1993 - -------------------------------------------------------------------------------- ASSETS ------
19941993 CURRENT ASSETS ---------- ---------- Cash $ $ 125,787 Accounts receivable, net of allowance for doubtful accounts of $-0- and $29,597, respectively (Note 2) 17,980615,346 Advances to shareholder 25,877 Advances to employees 276 22,323 Interest receivable 1,844 Income tax refund receivable 66,018 Inventories (Notes 2 & 3) 57,882206,326 Prepaid expenses 3,28946,968 -------------------- Total Current Assets 79,4271,110,489 -------------------- PROPERTY, PLANT AND EQUIPMENT (Notes 2,4,7,8 & 9) Buildings 314,2183,020,966 Mining property 4,440,5434,510,696 Equipment 270,2792,209,863 -------------------- Total Property, Plant and Equipment 5,025,0409,741,525 Less accumulated depreciation 251,377233,406 -------------------- Net Property, Plant and Equipment 4,773,6639,508,119 --------------------- OTHER ASSETS Investment in EPA labels, Net of amortization (Notes 2 & 5) 3,804,3644,420,372 Trademarks and patents, less accumulated amortization of $26,355 (Note 2) 1,936,875 Cash value of life insurance 66,606 Notes receivable 250,15045,000 Deposits 467 44,617 Other assets 1,02915,733 -------------------- Total Other Assets 4,056,0106,529,203 -------------------- TOTAL ASSETS $ 8,909,100$ $ 17,147,811 =====================
The accompanying notes are an integral part of these financial statements. F2 SAND DIEGO Consolidated Statement of Financial Position BANCORP As of December 31, 1994 and 1993 - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
1994 1993 ---------- ---------- CURRENT LIABILITIES Accounts payable $ 165,474 $ 1,028,486 Bank overdraft 1,847 Dealer deposits 10,625 22,801 Accrued compensation 121,967 Interest payable 113,090 51,514 Income taxes payable 33,563 19,450 Other accrued liabilities 29,134 7,745 Notes payable (Note 7) 505,561 1,147,310 Current portion of capital lease obligation (Note 8) 19,653 Current portion of long-term debt (Note 9) 402,332 472,200 --------- ---------- Total Current Liabilities 1,261,626 2,891,126 --------- ---------- LONG-TERM LIABILITIES Long-Term debt, less current portion (Note 9) 120,228 3,070,399 Capital lease obligation, less current portion (Note 8) 31,959 ---------- ---------- Total Long-Term Liabilities 120,228 3,102,358 ---------- ---------- DEFERRED TAX LIABILITY (NOTE 10) 1,458,563 3,133,816 ---------- ---------- COMMITMENTS (NOTE 1) MINORITY INTEREST 340,215 341,033 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, no - par value; 20,000,000 shares authorized; 8,203,267 and 6,394,953 shares issued and outstanding, respectively 8,550,140 8,432,969 Common stock subscribed (Note 12) 197,450 495,268 Accumulated deficit (3,019,122) (1,248,759) ----------- ---------- Total Stockholder's Equity 5,728,468 7,679,478 ----------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,909,100 $ 17,147,811
The accompanying notes are an integral part of these financial statements. F3 SAND DIEGO Consolidated Statement of Operation for the BANCORP Years Ended December 31, 1994, 1993 and 1992 - --------------------------------------------------------------------------
1994 1993 1992 ------------------ -------------------- REVENUES $ 6,398,293 $ 597,458$ 151,145 COST OF SALES 3,330,537 329,937122,332 ---------- -------------------- GROSS PROFIT 3,067,756 267,52128,813 ---------- -------------------- OPERATING EXPENSES General and administrative 2,192,015 Salaries, wages and benefits 452,548 299,361165,615 Consulting 281,972 215,644102,995 Research and development 48,671 37,03887,600 Travel 93,083 56,86248,921 Rent 29,962 18,80925,028 Interest 408,257 59,58027,623 Utilities 11,536 10,66033,783 Depreciation and amortization 757,889 21,30110,211 Advertising 307,393 19,4959,336 Office 79,483 74,5539,989 Taxes and licenses 36,251 33,40712,643 Professional fees 259,344 69,5212,924 Insurance 27,985 11,9765,575 Bad debts 7,898 7,700 4,206 Repairs and maintenance 31,844 8,1452,132 Miscellaneous 15,780 614 ---------- -------------------- Total Operating Expenses 5,041,911 944,666548,581 ---------- -------------------- OPERATING (LOSS) (1,974,155) (677,145)(519,768) OTHER INCOME (LOSS) Unrealized loss on investment in ERT (Note 1) (323,645) Loss on disposition of subsidiary (Note 1) (149,301) Interest 80,970 2,868844 Gain on sale of assets 600 123,953 Gain on reduction of notes payable 226,649 Minority interest in loss 822 Miscellaneous 129,144 2,25910,342 ---------- -------------------- Total Other Income (Loss) (34,761) 129,08011,186 ---------- -------------------- (LOSS) BEFORE INCOME TAX BENEFIT (2,008,916) (548,065)(508,582) INCOME TAX BENEFIT (Note 10) 38,553 ---------- ========== ==================== NET (LOSS) $ (1,770,363) $ (548,065)$ (508,582) ========== ==================== NET (LOSS) PER SHARE (Primary) $ (.219) $ (.098)$ (.144) ========== ==================== NET (LOSS) PER SHARE (Fully Diluted) $ (.208) ==========
The accompanying notes are an integral part of these financial statements. F4 SAND DIEGO Consolidated Statement of Changes in Stockholders BANCORP Equity for the Years Ended December 31, 1994, 1993 and 1992 - --------------------------------------------------------------------------------
Common Stock ------------- Common Stock Accumulated Shares Amount Subscribed DeficitTotal ---------- ---------- ---------- ------------------- Balance as of December 31, 1991 2,015,063 $ 6,123 $ (192,112)$ (175,989) Common stock issued for reverse acquisition of Enviro-Guard Corporation at $1.75 per share (Note 1) 3,594,953 6,295,227 6,295,227 Net (loss) (508,582) (508,582) ---------- ---------- -------------------- Balances as of December 31, 1992 5,610,016 6,311,350 (700,694)5,610,656 Additional capital contribution 310,499 310,499 Common stock issued for the acquisition of Actagro Acquisition, Inc. at $2.31 per share (Note 1) 784,937 1,811,120 1,811,120 Common stock subscribed (Note 1) $ 495,268 495,268 Net (loss) (548,065) (548,065) ---------- ---------- ------------------------------ Balance as of December 31, 1993 6,394,953 8,432,969 495,268(1,248,759)7,679,478 Common stock issued for services at $.10 to $1.50 per share 1,358,627 1,036,212 1,036,212 Common stock issued for reduction of debt at $1.00 to $2.00 per share 223,334 263,334 263,334 Common stock issued for cash at $.08 to $1.00 per share 344,000 285,100 285,100 Common stock issued for equipment at $1.00 per share 20,000 20,000 20,000 Common stock canceled due to the rescission of Actagro Acquisition on December 6, 1994 at $2.31 per share (Note 1) (784,937)(1,811,120) (1,811,120) Common stock subscribed (Note 12) (297,818) (297,818) Common stock issued for ERT at $1.50 per share 647,290 323,645 323,645 Net (loss) (1,770,363)(1,770,363) ---------- ---------- ------------------------------ Balance as of December 31, 1994 $ 8,203,267 $ 8,550,140$ 197,450$(3,019,122)$ 5,728,468
The accompanying notes are an integral part of these financial statements. F5 SAND DIEGO Consolidated Statement of Cash Flows for the BANCORP Years Ended December 31, 1994, 1993 and 1992 - --------------------------------------------------------------------------------
1994 19931992 ---------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (1,770,363)$ (548,065)$ (508,582) Add items not requiring the use of cash: Depreciation and amortization 562,915 21,301 10,211 (Increase) decrease in accounts receivable 597,366 (565,153) (50,193) (Increase) decrease in advances 47,924 (48,200) (Increase) decrease in interest receivable 1,844 (1,000) (844) (Increase) decrease in income tax receivable 66,018 (66,018) (Increase) decrease in inventories 148,444 (196,280) (10,046) Decrease in deposits 40,861 (Increase) decrease in prepaid expenses 46,968 (41,661) (5,307) Increase (decrease) in accounts payable (863,013) 975,579 45,841 (Decrease) in deferred tax credit (1,675,252) (214,138) Increase (decrease) in dealer deposits (12,716) (1,639) 24,440 Increase (decrease) in accrued compensation (134,419) 198,786 Increase in interest payable 61,576 30,528 20,755 Increase in income taxes payable 14,113 3,040 16,410 (Decrease) in minority interest (818) Increase (decrease) in other accrued liabilities (100,578) (97,102)78,347 ---------- ---------- ---------- NET CASH FLOWS USED FROM OPERATING ACTIVITIES (2,834,711) (883,227) (180,182) ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Issuance of notes receivable (205,150) (Acquisition) disposal of property, plant and equipment 4,716,485 (27,867) Divestiture of intangible and other assets 2,089,789 112,215 ---------- ---------- ---------- NET CASH FLOWS PROVIDED (USED) FROM INVESTING ACTIVITIES 6,601,124 112,215 (27,867) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions 310,499 Reduction of capital lease obligation (51,612) Reduction of capital contributions (180,647) Reduction of debt (3,661,788) Net proceeds from notes payable 576,753 213,157 ---------- ---------- ---------- NET CASH FLOWS PROVIDED (USED) FROM FINANCING ACTIVITIES (3,894,047) 887,252 213,157 ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH (127,634) 116,240 5,108 CASH BALANCE AT BEGINNING OF PERIOD 125,787 9,547 4,439 ---------- ---------- ---------- CASH BALANCE AT END OF PERIOD $ (1,847) $ 125,787 $ 9,547
The accompanying notes are an integral part of these financial statements. F6 SAND DIEGO Consolidated Statement of Cash Flows for the BANCORP Years Ended December 31, 1994, 1993 and 1992 - --------------------------------------------------------------------------------
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: 1994 1993 1992 ---------- ---------- ---------- Interest paid in cash $ 38,318 $ 28,504 $ 10,923 ========== ========== ========== Issuance of common stock and notes payable for the acquisition of subsidiary $ 700,000 ========== Issuance of common stock and assumption of debt for acquisition of subsidiary $ 3,048,360 ========== Issuance of common stock and notes payable for the acquisition of subsidiary $ 3,458,400 ========== Issuance of common stock and notes payable for the acquisition of subsidiary $ 3,811,120 ========== Issuance of common stock for debt cancellation $ 263,334 ========== Issuance of common stock for equipment $ 20,000 ========== Issuance of common stock for the acquisition of subsidiary $ 323,645 ==========
The accompanying notes are an integral part of these financial statements. F7 SAND DIEGO BANCORP Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION 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 was dormant until September, 1993. On September 21, 1993, SDBC acquired 100% of the outstanding common stock (4,438,400 shares) 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)in exchange for 3,594,953 shares of SDBC common stock valued at $1.75 per share. This transaction was accounted for as a reverse acquisition whereby the acquired corporation (Enviro-Guard Corporation) gains 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. Enviro-Guard Corporation has developed 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) for 120,000 shares of common stock of Enviro-Guard valued at $5 per share and $100,000 in notes payable. The transaction was valued at $700,000 and accounted for as a purchase. 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) in exchange for 520,000 shares of the common stock of Enviro-Guard valued at $5 per share and the assumption by Enviro-Guard of a $448,360 note payable which is due to D.S.D., Inc. from a shareholder of D.S.D., Inc. This transaction was valued at $3,048,360, and accounted for as a purchase. 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 F8 White Mountain Mining and Manufacturing, Inc. ("White Mountain") (an Idaho Corporation) in exchange for 260,375 shares of common stock (at a value of $6 per share) of Enviro-Guard Holding Corporation (the former parent company of Enviro-Guard Corporation), plus $25,000 in cash and $347,616 in notes payable. The total value of this acquisition, accounted for as a purchase, was $3,458,400. White Mountain owns 83 unpatented BLM mining claims located in Malheur County, Oregon (there is an obligation to pay $100 per year per mining claim to the Bureau of Land Management). 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.), in exchange for 784,937 shares of SDBC common stock valued at $2.31 per share plus $2,000,000 promissory notes and options to purchase an additional 715,063 shares of common stock at $1.40 per share. All of the Actagro Acquisition, Inc. common stock was held in escrow as security for the $2,000,000 in promissory notes. This transaction was accounted for as a purchase and valued at $3,811,120. 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, Actagro returned SDBC's 715,063 common shares. SDBC was no longer liable for the $2,000,000 debt to the Actagro shareholders or the corresponding interest that had accrued during 1994. In addition, $300,000 had been advanced to Actagro to assist the company in 1994 operations. In the divestiture, SDBC received a $250,000 five-year note. On April 29, 1994, SDBC completed acquisition of 100% of the outstanding common stock of Emissions Reduction Technology, Inc. (ERT), in exchange for 647,290 shares of SDBC common stock valued at $.50 per share. The transaction was accounted for as a purchase valued at $323,645. ERT owns the contractual rights and technology for an emissions reduction device (Patent No. 4,310,028) designed to be placed in the intake air system of an automobile with the effect of improving the air/gas mixture and vehicle performance. The emissions reduction device was tested and marketed in 1994. Because of marketing and cash flow issues, marketing efforts were discontinued. The Company has since written off the ERT purchase as an Unrealized Loss. F9 NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of all subsidiaries, and all significant inter-company accounts and transactions have been eliminated in consolidation. Provision for losses on trade accounts receivable is made in amounts required to maintain an adequate allowance to cover anticipated bad debts. Accounts receivable are charged against the allowance when it is determined by the Company that payment will not be received. At the year end, the allowance is adjusted by management based on a review of the accounts receivable. Inventories are stated at the lower of cost (first-in, first-out) or market. Property, plant and equipment are stated at cost including the allocable purchase price applicable to the respective assets of purchased subsidiaries. All expenditures for improvements, replacements and additions are added to the asset accounts at cost. Expenditures in the nature of normal repairs and maintenance are charged against earnings as incurred when depreciable assets are retired or otherwise disposed. The cost and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is reflected in the statement of operations. Depreciation is provided for by the use of straight-line and accelerated methods over the estimated useful lives of the assets. Depletion is provided using the unit-of-production method, once the mine is put into production. In regard to intangible assets, trademarks are amortized on a straight-line basis over a ten-year life. Patents are amortized over the remaining life of the patent, not to exceed 20 years. Patents for which approval has not yet been received are not subject to amortization. Upon approval of applications currently pending, these patents will be amortized on the straight-line method over a period not to exceed 20 years. EPA labels are amortized on a straight-line basis over a 15-year life, commencing with the beginning of product sales. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company has adopted financial accounting standards number 109 which states that the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize deferred tax assets and liabilities for the future tax consequences of events that have been recognized in a corporation's financial statements or income tax returns. F10 Employees of the Company are entitled to paid vacations, paid sick days and personal days off, depending upon job classification, length of service and other factors. Based on the existence of a relatively high employee turnover rate, it is impractical to estimate the amount of compensation for future absences. Accordingly, no liability has been recorded in the accompanying financial statements. The Company's policy is to recognize the costs of compensated absences when actually paid to employees. Earnings (losses) per share are computed using the weighted number of outstanding shares of common stock. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of the company's management's estimates for various accounts. NOTE 3 - INVENTORIES Inventories consist of the following: 12/31/94 12/31/93 ---------- ---------- Raw Materials $ 41,474 $146,498 Finished Goods 16,408 59,828 ---------- ---------- Total $ 57,882 $206,326 ========== ========== NOTE 4 - PROPERTY, PLANT AND EQUIPMENT The Company owns land and buildings in the following locations: 12/31/94 12/31/93 ---------- ---------- Fresno, California $2,705,774 Salt Lake City, Utah $287,099 287,099 Smith Center, Kansas 27,119 28,093 ---------- ---------- Total Land and Buildings $ 314,218 $3,020,966 ========== ========== The Company owns 83 unpatented mining claims located in Malheur Country, Oregon with cost basis of $4,510,696. Commercial production of diatomite has not commenced on this property. NOTE 5 - INVESTMENT IN EPA LABELS The Company has acquired three registrations or labels issued by the U.S. Environmental Protection Agency granting federal clearance to manufacture and market specified insecticide products. Included are: No, 42850-1 for use against flies, roaches, ants, etc., in and around buildings; No. 42850-3 for use against fleas, ticks and lice on pets; and No. 42850-2 for use against over 60 insects on over 130 edible F11 crops and plants up to and including the day of harvest. Approval for use of these three labels in California, Texas, North Carolina, Arizona, Washington and other agricultural states were obtained during 1994, 1995 and 1996. NOTE 6 - NOTES RECEIVABLE The Company has one note receivable for $250,000 from Actagro. The note is due on or before December 31, 1999. Interest is paid quarterly at a rate of 6.5 %. F12 NOTE 7 - NOTES PAYABLE
Balance as of Balance as of Creditor and Conditions December 31, 1994December 31, 1993 ------------------------------------ ACTAGRO ACQUISITION, INC., and another individual, interest due monthly at 2.5% per month with a minimum of $2,500 per month and an additional facility fee of 0.75% per annum, due on demand $119,302 UNOCAL CHEMICAL AND MINERALS, unsecured, interest at 8.5%, due on demand 133,268 PACIFEX, unsecured interest at 8.5%, due on demand. 229,733 JOHN NORDSTROM, unsecured, interest at 10%, due on demand 40,000 CLYDE IRION, (a shareholder of the Company) unsecured, interest at 10%, due on demand 30,000 A.E. SMITH, (a shareholder of the Company), secured by the accounts receivable, buildings and equipment of D.S.D., Inc., interest at 8.75%, renewable annually on July 31. Interest on this note has been paid to April 15, 1991 60,907 A.E. SMITH, unsecured, non-interest bearing obligation, due on demand 50,000 L. CRAIG HUNT, secured by Smith Center property, interest at 12.5%, due on demand $25,000 JOHN WILDING, original $46,755 note, secured by common stock of White Mountain Mining and Manufacturing, Inc., interest at 16.5%, due on demand. 30,950 39,100 AGRI-DYNE CORPORATION, unsecured, interest at 10%, due on demand 25,000 25,000 DAVID RUSSELL, unsecured, interest at 10%, due on demand 15,000 15,000 GEORGE BISHOP, unsecured, interest at 10%, due on demand 5,000 ROBERT WILLIAMS, secured by buildings, no interest, due on demand 23,030 25,000 DANNY WIRKEN, (a shareholder of the Company), unsecured, interest at 8%, due on demand 386,581 400,000 ---------- ---------- TOTAL $505,561 $1,147,310 ========== ==========
F13 NOTE 8 - CAPITAL LEASE OBLIGATION With the divestiture of Actagro, the Company no longer has equipment under capital leases as of December 31, 1994. As of December 31, 1993, $64,753 of leased equipment had been capitalized with related accumulated amortization of $1,799. The following is a comparative annual schedule of future minimum lease payments for assets under capital leases: Period Ending December 31 12/31/94 12/31/93 ------------------------- -------- -------- 1994 $26,968 1995 26,968 1996 8,989 ----- Total minimum lease payments 62,925 Less amounts representing interest (11,313) -------- Present value of minimum lease payments 51,612 Less current portion (19,653) -------- Long-term portion of capital lease obligations $31,959 ======== F14 NOTE 9- LONG-TERM DEBT
December 31, 1994 December 31, 1993 ------------------- ------------------ Due Within Due AfterDue Within Due After Creditor & Conditions One Year One Year One Year One Year -------- -------- -------- -------- VARIOUS CONTRACTS PAYABLE, monthly payments ranging from $538 to $707 including interest ranging from 5.9% to 13%, secured by vehicles, due dates maturing through April 1996 $23,215 $22,946 REGENCY BANK, monthly payments of $12,804 including interest at prime plus 2.75% secured by real and personal property, guaranteed by a shareholder of the Company and an individual, due April 13, 2002 85,263 757,753 GERALD NORDSTROM (a shareholder of the Company)monthly payments of approximately $1,200 including interest at prime plus 2% , due January, 1996 9,610 46,762 KLEINS BIOLA RANCHES, INC., annual payments of $6,000 plus interest at 9%, secured by deed of trust, due December, 1997 12,000 47,440 PERFORMANCE SYSTEMS INVESTMENTS, monthly payments of $2,432 at 9.75% interest, secured by deed of trust, balance due June, 1997 16,584 120,228 15,040 136,822 FORMER SHAREHOLDERS of White Mountain Mining and Manufacturing, Inc., monthly payments of $18,000, secured by the Mining property, due September, 1994 209,444 209,444 GEORGE REEVE, monthly payments of $3,568 at 9%, unsecured, due May, 1995 105,078 87,628 17,450 JOHN WILDING, monthly payments of $5,000 beginning July 1994, interest at 10%, secured by second position on corporate office building in Salt Lake City 71,226 30,000 41,226 GERALD NORDSTROM, (a shareholder), promissory note at 7.5% interest, quarterly interest only payments beginning March 1994, then quarterly payments of $59,893 plus interest from March 1997 through December 2000. 958,289
F15 NOTE 9- LONG-TERM DEBT - Continued
December 31, 1994 December 31, 1993 ------------------------------------- Due Within Due AfterDue Within Due After Creditor & Conditions One Year One Year One Year One Year -------- -------- -------- -------- JOHN MARIHART, (a shareholder), promissory note at 7.5% interest, quarterly interest only payments beginning March 1994, then quarterly payments of $59,893 plus interest from March 1997 through December 2000 958,289 CLYDE IRION, (a shareholder), promissory note at 7.5% interest, quarterly interest payments beginning on March 1994, then quarterly payments of $2,663 plus interest from March 1997 through December 2000 42,609 TOM AVINELIS, (a shareholder), promissory note at 7.5% interest, quarterly interest only payments beginning March 1994, then quarterly payments of $2,551 plus interest from March 1997 through December 2000 40,813 ------ TOTALS $402,332 $120,228 $472,200$3,070,399 ======== ======== ==================
Aggregate maturities required on long-term debt are as follows: Period Ending December 31, Amount -------------------------- ------ 1995 $402,332 1996 18,241 1997 101,987 ------- Total $522,560 ======== Since payments on the notes to the former shareholders of White Mountain Mining and Manufacturing, Inc. are in arrears, the Company has agreed to pay interest at the rate of 18% per annum on the unpaid balance beginning on May 1, 1993. The Company agreed to a one-time compounding of interest, effective June 21, 1995. F16 NOTE 10 - INCOME TAXES The net deferred tax liability in the accompanying statements of financial position includes the following components: 12/31/94 12/3193 -------- ------- Deferred tax asset $ 980,942 $ 214,137 Less: Deferred tax asset valuation allowance (490,470) --------- ------- Net deferred tax asset 490,47 214,137 Deferred tax liability (1,949,035) (3,347,953) ---------- ----------- Net deferred tax liability $(1,458,563)$(3,133,816) =========== =========== The following temporary differences give rise to the deferred tax asset: 12/31/94 12/31/93 -------- -------- Net operation loss carry forwards $ 899,812 $ 160,823 Unrealized capital loss 81,130 Administrative expenses capitalized as inventory 28,486 Direct write-off of bad debt 1,118 Vacation accrual expensed 23,710 ------ ------ Deferred tax asset $ 980,942 $ 214,137 ========== ========== The following temporary differences give rise to the deferred tax liability as of December 31, 1993: 12/31/94 12/31/93 -------- -------- Excess of financial accounting basis of assets of purchased companies over tax basis (see below) $ 2,088,251 $ 3,267,999 Amortization of deferred tax liability (139,216) Excess of tax over financial accounting depreciation 79,954 ------ ------ Deferred tax liability $ 1,949,035 $ 3,347,953 =========== =========== F17 The following temporary differences give rise to the deferred income tax benefit: 12/31/94 -------- Net operating loss carryforward $899,812 Unrealized capital loss 81,130 ------ 980,942 Less: Valuation allowance (742,389) --------- Deferred income tax benefit $ 238,553 During 1992, Enviro-Guard Corporation (the reverse acquisition predecessor to San Diego Bancorp) acquired three companies accounted for as purchases. (Diatect International, Inc., D.S.D., Inc., and White Mountain Mining and Manufacturing, Inc.). The total of the excess of the purchase price of the assets acquired exceed their income tax basis by $6,842,816. During 1993, San Diego Bancorp acquired Actagro Acquisition, Inc. in a transaction accounted for as a purchase, which resulted in an excess of the accounting basis of the assets acquired over their income tax basis in the amount of $3,874,281. The effect of these transactions gives rise to larger depreciation and amortization expenses for financial statement purposes than are allowed for income tax purposes. The Company has available net operating loss carryforwards of $1,248,759 at December 31, 1994, will begin to expire in 2006. NOTE 11 - LITIGATION On July 22, 1994, a civil complaint was filed by Gruntal & Co., Incorporated, in U.S. District Court Southern District of New York against the Company and other individuals and related entities, including James Dayley and Robert Crouch, former officers and directors of the Company, alleging violations of the federal securities anti-fraud provisions and RICO statutes. Gruntal & Co., Inc. is seeking damages of approximately $7.3 million against all defendants, which included $1.4 million in treble damages and $5 million in punitive damages. The action centers around alleged activities of one of the Company's shareholders and his purported dealings with a registered representative of Gruntal & Co., Inc., and various other individuals and entities unknown to the Company and its officers and directors. Gruntal & Co., Inc. is a securities broker/dealer that made a market in the Company's common stock. The Company, Mr. Dayley and Mr. Crouch have denied any complicity and have filed an answer to the complaint denying the allegations and any wrong doing as the allegations relate to themselves and the Company. The Company has filed a counterclaim asserting that Gruntal & Co., Inc. was at fault for its losses. The counterclaim alleges that Gruntal & Co., Inc.'s F18 action against the Company was an attempt to mitigate losses resulting from the acts and/or omissions of its own employees. While the Company cannot predict with any certainty the outcome of the matter, given the merits of the case, the complaint is not anticipated to result in monetary damages from the Company. In the fall of 1994 and during 1995, the Company was sued by a number of bona fide creditors, which actions the Company allowed to go to judgment. These actions and the consequential judgments arose as a direct result of the inability of the Company to fund the operations and payments to all the Company's creditors. The collection judgments total approximately $52,000 and are included in the Company's accounts payable and other obligations. NOTE 12 - COMMON STOCK SUBSCRIBED As of December 31, 1994, the Company and the following individuals agreed to convert accrued wages and marketing expenses into common stock at the rate of $.40 per share; 359,875 shares of common stock was subsequently issued to Messrs. Hewlett, Downs, Crouch, and Christiansen in 1995. Name of Individual Accrued Wages Elwynn Hewlett, Jr. $ 46,250 Jay Downs 31,550 Robert Crouch 35,550 Dale Christiansen 30,600 ------ Subtotal 143,950 ------- Marketing Expense ----------------- Paul Jensen 53,500 Total $197,450 ======== NOTE 13 - CONCENTRATION OF CREDIT RISK The Company is a wholesale supplier of products and grants credit to its customers, a substantial portion of which are retailers of agricultural products throughout the country. F19 NOTE 14 - STOCK OPTIONS The Company has the following common stock options outstanding as of December 31, 1994: Number of Exercise Stock Optionee Stock Options Price -------------- ------------- -------- Danny Wirken 100,000 $4.00(1) Taylor & Associates 2,080 Bid Price(2) Doug Goff 50,000$0.10(3) Dennis Nielsen 230,000 $0.10(4) John Runft 2,120 $0.50(5) George Henderson 50,000 $0.10(3) ------ Total 434,200 ======= (1) These stock options may be exercised after April 1, 1994, but prior to October 1, 1995. (2) These options must be exercised prior to August 1, 1995. (3) These options must be exercised prior to June 1, 1995. (4) These options must be exercised prior to October 17, 1995. (5) These options must be exercised prior to June 5, 1995. NOTE 15 - RELATED PARTY TRANSACTIONS San Diego Bancorp has a note payable to a shareholder, with balances of $386,581 and $400,000 as of December 31, 1994 and December 31, 1993, respectively. NOTE 16 - GOING CONCERN The Company's 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 reported recurring net losses for the years ended December 31, 1994, 1993, 1992, and 1991, and had a working capital deficiency of $1,182,199 as of December 31, 1994. The Company raised additional working capital in 1995 and 1996 through the issuance of additional common stock and through operations of its Kansas subsidiaries. F20 NOTE 17 - SUBSEQUENT EVENT On October 27, 1995, the Company filed litigation in the Kansas District Court as plaintiffs along with the Company's wholly owned subsidiary Kansas corporations against the former owner and president of the three subsidiary Kansas corporations, A.E. Smith, of Smith Center, Kansas, on the grounds of fraud, breach of contract, rescission, and restitution, and breach of fiduciary duty. On March 15, 1996, following court ordered mediation, the Court entered an order approving a settlement between the parties as resolving the issues of the litigation and retaining jurisdiction until the settlement agreement's conditions were fully performed. As a result of the litigation, any and all cloud on the title of the Company's subsidiaries, or their respective assets, was removed. In the settlement, A.E. Smith received a note for $415,000. In turn, the Company obtained two buildings and substantial equipment located in Smith Center and Lebanon, Kansas. The settlement also called for the cancellation of other receivables and payables between the Company and Mr. Smith, which had been recorded in the financial statements as of December 31, 1994. Mr. Smith also returned Enviro-Guard Holding Company common stock to the Company. As of July, 1996, the balance owed to Mr. Smith is approximately $180,000, due in early 1997. EX-27 2
5 0000319124 SAN DIEGO BANCORP YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 (1874) 0 17980 0 57882 79427 5025040 251377 8909100 1261626 0 0 0 8550140 197450 8909100 6398293 6398293 3330537 5041911 34761 (1974155) 408257 (2008916) (238553) 0 0 0 0 (1770363) (0.219) (0.208)
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