1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 0-10147
SAN DIEGO BANCORP
(Exact name of registrant as specified in its charter)
California 95-355578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3335 South 900 East, Suite 230, Salt Lake City, Utah 84106
(Address of principal executive offices) (Zip Code)
(801) 467-5339
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Class Outstanding as of June 30, 1995
----- -------------------------------
Common Stock, No Par Value 10,280,408
EXPLANATORY NOTE: THIS REPORT IS BEING FILED ON OR ABOUT AUGUST 5, 1996,
WHICH IS BEYOND THE DATE ON WHICH THE REPORT WOULD HAVE BEEN TIMELY FILED AND
DOES NOT CONTAIN INFORMATION CONCERNING EVENTS OCCURING SUBSEQUENT TO JUNE 30,
1995.
2
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of June 30, 1995, and the
related audited balance sheet of the Company as of December 31, 1994, the
unaudited related statements of operations and cash flows for the three and
six month periods ended June 30, 1995 and 1994, and the unaudited statement of
stockholders' equity for the three month periods ended June 30, 1995 and 1994,
are attached hereto and incorporated herein by this reference.
Operating results for the quarter ended June 30, 1995, are not
necessarily indicative of the results that can be expected for the year ending
December 31, 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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General
San Diego Bancorp (SDBC) was incorporated under the laws of the State of
California on May 19, 1979, for the primary purpose of acting as a bank
holding corporation for several subsidiaries, and the principal business was
in the industrial loan market conducted through a subsidiary named El Camino
Thrift and Loan Association. During several years preceding 1986, SDBC
incurred substantial losses and during 1986 management decided to discontinue
all operating activities, and liquidate the remaining assets and liabilities.
The subsidiaries were either dissolved or sold for nominal amounts, and SDBC
became a "shell" corporation by December 31, 1986, and had no material
operations until September, 1993. On September 21, 1993, SDBC acquired 100%
of the outstanding common stock of Enviro-Guard Corporation (a corporation
incorporated in the State of Utah on May 30, 1991) from Enviro-Guard Holding
Corporation (a corporation incorporated in the State of Colorado on June 10,
1987). This transaction was accounted for as a reverse acquisition whereby
the acquired corporation (Enviro-Guard Corporation) gained controlling
stockholder interest in the acquiring corporation (SDBC), and the financial
statements of Enviro-Guard Corporation are presented on a continuous basis
since inception in May of 1991.
3
Enviro-Guard Corporation owns and markets a line of organically-based
insecticide products made from natural compounds with the objective of
achieving environmentally-friendly, yet effective results. In August of 1992,
Enviro-Guard acquired 100% of the outstanding common stock of Diatect
International, Inc. (Diatect), (incorporated in the State of Kansas in 1989).
Diatect has developed and owns the rights to three EPA registered
insecticides. Also in August of 1992, Enviro-Guard acquired 100% of the
outstanding common stock of D.S.D., Inc. (incorporated in the State of Kansas
in 1982). The principal business activity of D.S.D., Inc., is the
manufacturing and sale of cattle dusters and mineral feeders as well as the
blending and sale of various agricultural related insecticides.
On December 18, 1992, Enviro-Guard Corporation completed negotiations to
acquire 90.14% of the outstanding common stock (891,250 shares) of White
Mountain Mining and Manufacturing, Inc. ("White Mountain") (an Idaho
Corporation). White Mountain owns 83 unpatented BLM mining claims located in
Malheur County, Oregon. The purpose of this acquisition of the mining
property is for Enviro-Guard Corporation to have a source of diatomite, which
is an important organic ingredient for its environmentally-safe insecticides.
On December 30, 1993, SDBC acquired 100% of the outstanding common stock
of Actagro Acquisition, Inc., (formerly Actagro, Inc.). Actagro Acquisition,
Inc., is a California corporation which manufactures and sells organic based
agricultural fertilizer to customers in the Southern San Joaquin Valley. On
December 6, 1994, SDBC divested itself of Actagro. In the divestiture, the
shareholders of Actagro returned 715,063 shares of SDBC common stock for
cancellation.
With the acquisition and subsequent divestiture of Actagro Acquisition,
Inc. in 1993 and 1994, respectively, a comparison of prior periods with the
three and six month periods ended June 30, 1995, is of limited benefit in
understanding the Company's financial position.
Ability of the Company to Continue as a Going Concern
For the six-month period ended June 30, 1995, the Company has incurred a
consolidated net loss of $459,220. In addition, at June 30, 1995, current
liabilities exceeded current assets by $1,200,074.
During the first six months of 1995, the Company converted $261,860 in
accrued salaries, marketing expenses and other liabilities to equity by
offering shares of common stock. In the future, management anticipates the
conversion of an additional $600,000 in debt (principally notes payable and
accruals) to equity during fiscal years 1995 and 1996. The Company also
believes that without additional conversions of debt to equity and
restructuring the payment terms of short-term debt, substantial doubt remains
as to the Company's ability to meet its current obligations and continue in
business. The Company has taken steps to address its insolvency problems by
working with its creditors to keep them informed of the Company's progress in
meeting outstanding liabilities. For the most part, the Company's creditors
have been patient, waiting for payment at a future date.
The Company is attempting to obtain additional working capital from
several sources, including investment banking firms, private investors and
state funding agencies interested in assisting growing companies within the
agri-environmental sector. Management intends to obtain equity financing
through the sale of the Company's securities.
4
The Company must meet monthly operational expenses of approximately
$85,000. Currently, the Company is unable to meet this amount. However,
management believes that additional revenue generated by the marketing sales
of its Enviro-Guard and Diatect product line will ultimately alleviate a
substantial portion of the shortfall. Until those revenues eventuate, the
Company is dependent upon outside funding to sustain it.
Results from Operations
During the fiscal quarter ended June 30, 1995, the Company had revenues
of $263,064, cost of sales of $121,716, operating expenses of $302,172, other
income of $12,937 and an income tax benefit of $30,534. These yielded a net
loss of $117,353, compared to a net profit of $99,428 (which included Actagro)
for the same period of 1994. The substantial portion of the second quarter
1995 loss was due to two factors: professional and consulting fees ($69,609),
and depreciation and amortization ($60,754). The Company believes that many
of the operating and administrative expenses associated with the second
quarter loss were due, in part, to insufficient cash flow and the illiquid
nature of the Company's non-current assets. Because of liquidity
difficulties, many expenses were paid through the issuance of common stock.
For the six month period ended June 30, 1995, the company had
consolidated revenues of $372,386. The net loss for the period totaled
$459,220.
Management is hopeful that once its products are in the marketplace, the
losses from operations the Company currently suffers will be alleviated by
increased sales revenue and profitability. Currently, the Company has not had
the working capital to effectively market its products.
Liquidity and Capital Resources
The Company has a severe working capital deficit. As of June 30, 1995,
the Company's working capital deficit totaled $1,200,074 compared with
$1,182,199 at December 31, 1994. The Company has current liabilities totaling
$1,410,295 and no long term debt. At the end of 1994, current liabilities and
long term debt were $1,261,626 and $120,228, respectively. During the second
quarter of 1995, total liabilities increased $65,620. The Company's working
capital deficit continues to have a direct correlation with the Company's
inability to expand and market its products effectively.
If the Company is unable to obtain some funds in the near future, it
will not be able to continue in business. The Company, therefore, continues
to seek working capital from several sources, including equity markets and
private investors. There is no assurance, however, that these efforts will be
successful. The Company does feel that it will increase revenues from
operations as it moves from the development stage of its products, which has
included lengthy and costly time in obtaining EPA approval. With Enviro-
Guard's products in the market place and with adequate financial support, the
Company anticipates revenues to offset on-gong expenses. The Company is
uncertain, however, as to whether there will be sufficient revenues to cover
prior years' obligations.
5
As previously stated, the Company's lack of cash has dramatically
affected its ability to effectively market Enviro-Guard's products. The
marketing strategy require funds to be fully implemented. Accordingly, while
the Company anticipates more revenue from its products than it has received in
the past, it will not be as profitable as it could be with additional funding
for full implementation of its marketing and promotional plans.
Contract Signed
On April 20, 1995, Diatect International, Inc. a subsidiary of the
Company, entered into a marketing and sub-registration agreement with Organic
Solutions, Inc. a Texas corporation. The Marketing and Sub-registration
Agreement is for a period of two-years and allows Organic Solutions to sub-
register 3 of Diatect's existing EPA approved product labels. During the term
of the contract Organic Solutions is required to purchase twelve truck loads
(approximately 40,000 lbs. per truckload) of product. In addition, Organic
Solutions will pay costs associated with the packaging of the product.
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SAN DIEGO BANCORP
Consolidated Statement of Financial Position
As of June 30, 1995 and December 31, 1994
ASSETS
(Unaudited)
June 30, 1995 December 31, 1994
----------------- -----------------
CURRENT ASSETS
Cash$ 16,261 $
Accounts receivable 109,182 17,980
Advances to employees 396 276
Inventories 77,882 57,882
Prepaid expenses 6,500 3,289
----------------- -----------------
Total Current Assets 210,221 79,427
----------------- -----------------
PROPERTY, PLANT AND EQUIPMENT
Building and Leasehold Improvements 27,119 314,218
Mining property 4,405,467 4,440,543
Equipment 270,279 270,279
----------------- -----------------
Total Property, Plant and Equipment 4,702,865 5,025,040
Less accumulated depreciation 238,455 251,377
----------------- -----------------
Net Property, Plant and Equipment 4,464,410 4,773,663
----------------- -----------------
OTHER ASSETS
Investment in EPA labels,
net of amortization 3,657,084 3,804,364
Notes receivable 250,000 250,150
Deposits 617 467
Other assets 1,009 1,029
----------------- -----------------
Total Other Assets 3,908,710 4,056,010
TOTAL ASSETS$ 8,583,341 8,909,100
================= =================
/TABLE
7
SAN DIEGO BANCORP
Consolidated Statement of Financial Position
As of June 30, 1995 and December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
June 30, 1995 December 31, 1994
----------------- -----------------
CURRENT LIABILITIES
Accounts payable$ 176,246$ 165,474
Bank overdraft 1,847
Dealer deposits 11,254 10,625
Interest payable 102,706 113,090
Income taxes payable 33,563 33,563
Other accrued liabilities 136,100 29,134
Notes payable 635,904 505,561
Current portion of long-term debt 314,522 402,332
----------------- -----------------
Total Current Liabilities 1,410,295 1,261,626
----------------- -----------------
LONG-TERM LIABILITIES
Long-Term debt, less current portion 120,228
-----------------
DEFERRED TAX LIABILITY 1,301,723 1,458,563
----------------- -----------------
COMMITMENTS
MINORITY INTEREST 340,215 340,215
----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, no - par value;
20,000,000 shares authorized;
10,280,408 and 6,394,953 shares
issued and outstanding,
respectively 8,925,950 8,550,140
Common stock subscribed 83,500 197,450
Accumulated deficit (3,478,342) (3,019,122)
----------------- -----------------
Total Stockholder's Equity 5,531,108 5,728,468
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY$ 8,583,341 $ 8,909,100
================= =================
/TABLE
8
SAN DIEGO BANCORP
CONSOLIDATED STATEMENT FOR OPERATIONS FOR THE
THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1995 AND 1994
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- -------------- ------------- --------------
REVENUES$ 263,064$ 3,002,731$372,386$ 4,882,681
COST OF SALES 121,716 1,721,358 173,238 2,630,214
------------- -------------- ------------- --------------
GROSS PROFIT 141,348 1,281,373 199,148 2,252,467
------------- -------------- ------------- --------------
OPERATING EXPENSES
Salaries, wages and benefits 73,254 509,558 146,997 937,919
Consulting 23,155 35,950 41,159 122,147
Research and development 27,551 104,919
Travel 8,154 53,415 23,590 133,784
Rent 9,100 40,580 13,541 87,444
Interest 12,065133,257 32,242 228,765
Utilities 2,433 13,799 6,022 36,214
Depreciation and amortization 60,754 112,630 123,377 225,269
Business Development and Promotion 37,454 891 86,853 5,124
Office 9,057 89,112 18,323 166,017
Taxes and licenses 1,750 1,746 4,443 11,578
Professional fees 46,454108,875 115,557 196,859
Bad debts 9,891 10,683 9,891 17,038
Repairs and maintenance 3,715 58,018 4,490 89,231
Miscellaneous 4,936 24,881 21,464 66,122
------------- -------------- ------------- --------------
Total Operating Expenses 302,172 1,220,946 647,949 2,428,430
------------- -------------- ------------- --------------
INCOME (LOSS) FROM OPERATIONS (160,824) 60,427 (448,801) (175,963)
OTHER INCOME (LOSS)
Loss on sale of property (109,332)
Interest Income 6,314 20,909 8,464 26,108
Royalties 629 1,119
Miscellaneous 5,994 18,092 2,101 28,974
------------- -------------- ------------- --------------
Total Other Income (Loss) 12,937 39,001 (97,648) 55,082
------------- -------------- ------------- --------------
(LOSS) BEFORE INCOME TAX
BENEFIT (147,887) 99,428 (546,449) (120,881)
INCOME TAX BENEFIT 30,534 87,229
------------- -------------- ------------- --------------
NET INCOME (LOSS)$ (117,353)$99,428$ (459,220)$(120,881)
============= ============== ============= ==============
NET (LOSS) PER SHARE (Primary)$(.013) $ .014$ (.045)$ (.018
============= ============== ============= ==============
/TABLE
9
SAN DIEGO BANCORP
Consolidated Statement of Changes in Stockholders' Equity for the Three Month
Periods ended June 30, 1994 and 1995
Common Stock Common Stock Accumulated
Shares Amount Subscribed Deficit Total
------------ ------------ ------------ ------------ ------------
Balances as of March 31, 1994 6,601,953$ 8,664,969$ 684,418$ (1,469,068)$7,880,319
Stock Options exercised at prices
ranging from $.75 to $2.00 318,842 330,559 330,559
Investment in Emission Reduction
Technology 647,290 250,000 250,000
Conversion of Common Stock Subscribed 441,768 441,768 (441,768) 0
Common Stock Subscribed 62,744 62,744
Net Profit 99,428 99,428
------------ ------------ ------------ ------------ ------------
Balances as of June 30, 199510,280,408$8,925,950$83,500$(3,478,342)$ 5,531,108
Balances as of March 31, 1994 9,102,908 $ 8,801,825 $ 83,500 $ (3,360,989) $ 5,524,336
Common Stock issued for Debt
reduction at $.35 per share 97,500 34,125 34,125
Common stock issued for services
at $.06 to $.40 per share 1,080,000 90,000 90,000
Net (Loss) (117,353) (117,353)
------------ ------------ ------------ ------------ ------------
Balances as of June 30, 1995 10,280,408 $8,925,950 $ 83,500 $(3,478,342) $ 5,531,108
============ ============ ============ ============ ============
/TABLE
10
SAN DIEGO BANCORP
Consolidated Statement of Cash Flows for the Three and Six Month Periods Ended
June 30, 1995 and 1994
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)$ (117,352)$ 99,428$ (459,220)$ (120,881)
Add items not requiring the use of cash:
Depreciation, amortization and
non-cash expenses 60,75475,128 99,826 173,314
(Increase) in accounts receivable (60,232) (464,111) (91,202) (1,036,298)
(Increase) decrease in advances(120) (31,067)(120) 508
(Increase) in interest receivable (249) (495)
Decrease in income tax receivable 2,083 56,574
(Increase) in inventories (20,000) (62,804) (20,000) (110,770)
(Increase) decrease in deposits(150) 3,159
(Increase) decrease in prepaid expenses (6,000) 150,303 (6,500) (70,986)
Increase (decrease) in accounts payable 14,232 (284,204) 10,772 (325,832)
Increase (decrease) in deferred tax
liability (65,338) (156,840)
(Decrease) in accrued compensation (329,249) (248,163)
Increase (decrease) in interest payable 2,940 47,969 (10,384) 99,433
Increase (decrease) in other accrued
liabilities 54,590 (226) 107,5952,870
------------- ------------- ------------- -------------
NET CASH FLOWS USED FROM OPERATING ACTIVITIES(136,676) (796,999) (522,914)(1,580,726)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisition) reduction in property,
plant and equipment 17,538 (12,567) 322,175 (129,854)
(Increase) decrease in notes receivable150 (250,000) 150 (250,000)
(Increase) reduction of intangibles 17,266 (2,269)34,532 (6,953)
------------- ------------- ------------- -------------
NET CASH FLOWS PROVIDED (USED) FROM INVESTING
ACTIVITIES 34,954 (264,836) 356,857 (386,807)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 124,125 1,022,327 261,860 1,254,327
Net proceeds from notes payable\ 87,016 130,343 689,620
Reduction of long term debt (208,038)
------------- ------------- ------------- -------------
NET CASH FLOWS PROVIDED (USED) FROM FINANCING
ACTIVITIES 124,125 1,109,343 184,165 1,943,947
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH 22,403 47,508 18,108 (23,586)
CASH AT BEGINNING OF PERIOD(6,142)54,693 (1,847) 125,787
------------- ------------- ------------- -------------
CASH BALANCE AT END OF PERIOD$ 16,261$ 102,201$ 16,261 $ 102,201
============= ============= ============= =============
/TABLE
11
The condensed consolidated financial statements of San Diego Bancorp
included herein have been prepared without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Although, certain
information normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted,
San Diego Bancorp believes that the disclosures are adequate to make the
information presented not misleading. The condensed consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in San Diego Bancorp's annual report on Form 10-KSB for
the fiscal year ended December 31, 1994.
The condensed consolidated financial statements included herein reflect
all normal recurring adjustments that, in the opinion of management, are
necessary for a fair representation. The results for interim periods are not
necessarily indicative of trends or of results to be expected for a full year.
PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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See San Diego Bancorp's annual report on Form 10-KSB for the fiscal year
ended December 31, 1994.
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ITEM 2. CHANGES IN SECURITIES
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None.
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ITEM 3. DEFAULTS UPON SECURITIES
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None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
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ITEM 5. OTHER INFORMATION
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None.
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
Exhibit
No. Description
------- --------------
10 Marketing and Sub-Registration Agreement dated April 20, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K. None
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAN DIEGO BANCORP
(Registrant)
Dated: July 31, 1996
By /s/ DALE H CHRISTIANSEN
---------------------------
Dale H Christiansen, Chief Financial Officer and Director