Amendment to Registration of Securities of a Small-Business Issuer — Form 10-SB
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10SB12G/A Amendment to Registration of Securities of a 50± 239K
Small-Business Issuer
4: EX-3 Articles of Incorporation/Organization or By-Laws 10± 40K
5: EX-3 Certificate of Incorporation 3± 14K
3: EX-99 Index of Exhibits 1 6K
7: EX-99 License Agreement With Ntech Corporation (Formerly 17± 60K
Minus 9 Inc.) for Silicon Carbide / Hemp
Process ("Hemp Metals") and Hydrogen
Bonding / Hemp Process ("Hemp Plastics")
6: EX-99 License Agreement With Ntech Corporation (Formerly 17± 60K
Minus 9 Inc.) for Use of Microparticle
("Stuffdust") in Paper
9: EX-99 License Agreement With the Bast Institute 10± 42K
10: EX-99 Research Agreement With Phytomedics Inc. 7± 29K
11: EX-99 Research Agreement With Phytotech Inc. 17± 59K
8: EX-99 Research Agreement With Rutgers University 8± 34K
2: EX-27 Financial Data Schedule (Pre-XBRL) 1 7K
10SB12G/A — Amendment to Registration of Securities of a Small-Business Issuer
Document Table of Contents
[NAME] CONSOLIDATED GROWERS AND PROCESSORS, INCORPORATED
[STATE-OF-INCORPORATION] DELAWARE
[IRS-NUMBER] 77-0462311
[NEW-BUSINESS-ADDRESS]
[STREET1] 6350 LAUREL CANYON BLVD.
[STREET2] SUITE 406
[CITY] NORTH HOLLYWOOD
[STATE] CALIFORNIA
[ZIP] 91606
[PHONE] 818-752-9990
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM-10SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(g) of The Securities Exchange Act of 1934
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
CONSOLIDATED GROWERS AND PROCESSORS, INCORPORATED
ITEM 1. DESCRIPTION OF BUSINESS
Consolidated Growers and Processors, Incorporated (hereinafter "CGP" or "the
Company"), OTC BB: CGPR, was formed and incorporated in Delaware on June 10,
1997 for the principal purpose of engaging in the large scale
commercialization of alternative industrial crop products, primarily
industrial hemp, through the development and / or acquisition of new and
advanced technologies. The Company was funded through a Reg 504D offering
and listed on the OTC market as of October 27, 1997. In October 1997, the
Company acquired a minority interest in a German company, Badische
Naturfaseraufbereitung ("BaFa"). In 1998, the Company furthered its
international operations through the formation of its wholly-owned Canadian
subsidiary, Consolidated Growers and Processors (CGP) Canada Limited
("CGP Canada"), NAWARO GmbH ("NAWARO") in Germany and CGP Europe AG ("CGP
Europe")in Switzerland. In June 1998, the Company also acquired a 100%
interest in a Swiss corporation, Werner Zoellig AG & Glulam Lumber Mfg.
("Zoellig"). The Company has subsequently restructured its European holdings:
it has increased its investment in BaFa from 15 percent to 75 percent
(effective July 1, 1999) and has sold Zoellig to focus on its core business,
the agriculture and processing of industrial hemp. At present, the Company
employs nine people.
CGP has created an integrated, global strategy to become the lowest cost
producer and preeminent supplier of industrial hemp raw material products, and
certain value-added products, in key market segments such as:
a) Nutraceuticals from hemp plant compounds (nutraceuticals are natural
compounds that provide health or medicinal benefits beyond basic nutritional
needs for disease prevention and / or health maintenance);
b) Pharmaceuticals produced from hemp plant compounds (pharmaceuticals are
medical drug products);
c) Hemp food products with nutritional advantages;
d) High quality hemp fibers for production of biocomposites (a biodegradable
composite of materials) and substitution of toxic petrochemical and synthetic
products such as certain rubbers, plastics and fiberglass; and
e) Other environmentally friendly products such as "tree-free" paper made
from hemp pulp. (Pulp is a material produced from the plant stem reduced to a
soft uniform mass for making paper.)
Until recent decades, industrial hemp played a vital role in world commerce for
over 2,000 years, during which it had been relied upon to supply humanity
with a wide range of essential commodities. However, after World War II,
since petroleum was in abundant supply and relatively inexpensive, petroleum
technologies advanced with synthetic chemical processing to facilitate the
replacement of natural, industrial crop products in Western developed
countries. Sixty years later, the industrialized world is living with the two
major consequences of pollution and economic dependence on sometimes
unreliable suppliers of oil. Furthermore, the world is now also facing a
potential major fiber crisis in the coming decade. There is an ever-increasing
need for fiber in paper and building materials. For these reasons and
consequences, producers, consumers and governments of major developed countries
are looking toward natural fibers, including industrial hemp, as alternative
sources of raw materials. Therefore, new crops will be important to both the
sustainability of our natural resources and certain raw material requirements.
The French were the first Western country to begin redevelopment of hemp in
1969. Since 1994, Germany, The Netherlands and Austria have taken the lead
with France in starting the revitalization of industrial hemp. Some
manufacturers, particularly in the automotive and packaging sectors, have
increased demand for natural fibers to enhance the recyclable content of their
products. Total industrial hemp sales worldwide have increased exponentially
from approximately $5 million USD in 1993 to a projected $500 million for 1999.
In Europe, the move toward recycling has created an urgent need to replace
petrochemical products / materials with recyclable and / or biodegradable
alternatives, particularly in Germany, where the Government has mandated that
a minimum of 15 percent of an automobile be recyclable by the year 2002.
However, notwithstanding the impressive growth trends, the industrial hemp
industry in developed countries is fragmented and still in the early stages
of development.
CGP has undertaken the research and development of equipment to maximize
harvesting and processing capabilities for industrial hemp. Our German
subsidiary, BaFa, has made excellent progress in development of the process to
produce the highest quality fiber for application in certain market segments,
and the Company has commenced growing and harvesting larger quantities of hemp
for eventual processing into raw materials. At present however, total capacity
levels for processing hemp fiber and food products still remain too low to
create large user demand. The industry has begun to attract the interest of
large multinational companies seeking alternative, natural raw material
sources. Now, substantially higher planting acreage and more processing
facilities are required to develop potential large markets for major customers
of certain industrial hemp products.
UNIQUENESS OF BUSINESS
Industrial hemp is an invaluable bioresource (natural biological resource). In
1938, Popular Mechanics magazine stated "Over 25,000 products can be
manufactured from hemp." Unique features of the industrial hemp crop, which
are of particular importance to the Company's business development strategy,
are as follows: the hemp plant and nutraceutical compounds and foods that can
be derived therefrom have excellent healing and nutritional properties; hemp
fibers can be an environmentally-friendly alternative to large use toxic
materials and products such as plastics, fiberglass, etc.; the plant can
remediate certain contaminants in soil and water; the plant generates
significant agronomic benefits, such as weed control, soil enhancement and crop
rotation, increasing profitability to the farm economy; the plant has broad
versatility - it is more versatile than the soybean, cotton plant and the
Douglas fir combined in its applications and benefits; it provides superior
yield (e.g., yields 4X cotton) versus many crops and generates valuable seed
for (edible) oil production.
CGP has acquired and / or developed, and continues to develop advanced
technologies and processes to maximize the most advantageous attributes of the
hemp plant for commercial purposes. The Company is planning to build new,
state-of-the-art facilities to process hemp (plant) straw into pulp and various
grades of natural fibers for diverse commercial applications, and hemp
seed / grain into high nutritional food and nutraceutical products. The
Company has also commenced its research and development program, including
collaborative agreements with Rutgers University's Center for Agricultural
Molecular Biology and Phytomedics, Inc. for molecular biology research for seed
breeding, and nutraceutical / pharmaceutical opportunities, respectively; and,
with NTECH Corporation (formerly Minus 9, Inc., hereinafter referred to as
NTECH) for development of hemp based products that could become
environmentally-friendly substitutes for certain plastics and metals (see
Research section below).
PRODUCTS
All industrial hemp products originate from one of the four parts of the plant:
(1) seed (2) grain (3) stalk / straw (4) chaff and leaf (previously
considered harvest waste). CGP intends to process all parts of the industrial
hemp plant to produce and / or develop major raw material (and possibly
certain end use) products for commercial sale and applications as follows:
Novel nutraceuticals and pharmaceuticals from phytochemical industrial hemp
plant compounds;
New proprietary hemp seed varieties, particularly for traits that could
increase fiber content in crop biomass (biological mass of the crop), increase
oil yields and (possibly) completely eliminate existing minimal allowable
amounts of THC (tetrahydrocannabinol, which is a psychoactive agent with no
affect at the minimal, allowable inclusive content in certifiable seed
varieties);
High quality nutraceuticals and nutritional human foods such as: edible oils,
nuts and protein powder;
High quality / purity fibers for biocomposites; for example, in automotive
parts, building insulation and matting materials;
Fibers for pulp to make "tree-free," regular and specialty (e.g., security)
paper products, building materials (e.g. particle board) and / or
"environmentally-friendly plastic and metal substitutes;"
Hurd for animal bedding, building materials, consumer products and industrial
absorbents.
Industrial hemp products offer many unique, beneficial features to the
marketplace that can be readily identifiable as follows:
1. Health and Nutritional Properties:
Cannabidiols and other phytochemical compounds of the plant have proven to be
neuroprotective (protect the brain from neurological disorders) antioxidants,
natural analgesics (pain relievers) and anti-inflammatory facilitators (assist
to reduce / prevent inflammation). The compounds unique to the Cannabis genus
are termed cannabinoids. Cannabidiol ("CBD") is just one of the cannabinoids
of the Cannabis genus plant. Cannabinoids are phenolic, lipophilic compounds,
which biosynthetically are derived from a phenol-carboxylic acid and a
monoterpen. Chemically, they are benzopyran derivatives;
Edible oil, nut, protein powder and cake contain the optimal, (best ratio)
natural profile of essential fatty acids for the human body;
Edible oil, nut and cake contain a high quality and concentration of protein
and a high protein efficiency ratio;
Hemp nut and protein powder contain all eight essential amino acids;
Hemp grain products are closest to "organic quality" - nearly free of
pesticides, herbicides and artificial fertilizers;
Hemp oil in cosmetics can penetrate skin three layers deep, improving effect.
2. Environmental Benefits:
Hemp fiber is natural and an environmentally-friendly alternative to various
petrochemical products in composites, plastics and synthetic fibers (e.g.,
fiberglass);
Hemp fiber is a substitute for wood products, such as pulp for paper,
positively impacting forest conservation;
The hemp plant has unusual characteristics that remediate the soil and water of
certain hazardous waste contaminants;
The hemp plant requires less herbicides / insecticides (than other crops with
comparable uses) avoiding groundwater and other contamination.
The Company currently grows and harvests hemp under long term contracts with
growers. Its hemp straw grown in Europe is being processed into hurd for
animal bedding and high quality natural fiber for use in automobile parts and
building materials. By mid-late 2000, the Company plans to commence processing
of hemp seed / grain into hemp oil, nut and protein powder and larger scale
processing of hemp straw into other grades of fiber for sale as raw materials
in different end use products, including security paper.
GENERAL DEVELOPMENTS
Hemp is more versatile than a combination of other alternative industrial crops
for product applications, and the fiber is stronger and more durable than other
industrial crops. The Company has been aggressive in its pursuit of
technological advancements that would benefit processing and uses of industrial
hemp. Management has concluded an Exclusive Agreement with NTECH, a company
involved in atomic and molecularly assembled substances, for the use of hemp
fiber in combination with other compounds to produce recyclable and / or
biodegradable products to compete with certain plastics and metal products.
The Company anticipates completion of formal product application tests to occur
during the last quarter of the year 2000, after which the Company will pursue
the most profitable production and marketing strategies.
The Company has also acquired the exclusive license for a phytoremediation
process technology for all applications that would utilize industrial hemp as
the plant. Phytoremediation is a natural process utilized to remediate
polluted sites such as radioactive soil and water, as well as metals,
pesticides, hydrocarbons, etc., from weapons facilities or landfills. Plants
break down or degrade organic pollutants and stabilize metal contaminants by
acting as filters or traps. Industrial hemp is proving itself to be one of
the best plants available for this process. The license agreement provides CGP
with the worldwide rights for the use of phytoremediation applications that
utilize industrial hemp in the field of use, in exchange for a royalty of 2 and
1/2 percent of net service revenues. CGP can either directly utilize the
process to provide the remediation service, or sublicense the rights of use to
another party.
Although planting seed is the critical raw material for all of the Company's
products, it is also a saleable product to create another revenue stream. Of
significant importance to seed supply is the Company's relationship with
The Bast Institute, Glukhiv, Ukraine. There are several types of seed
varieties with different natural origins presently in use. The Bast
Institute, a respected agronomic research institute for industrial hemp and
flax, excels at breeding the lowest level THC cultivars available, which is a
critical factor for both planting certification (licensing), crop
processing and sale of human consumption products. The Company has the
exclusive rights to The Bast Institute Ukrainian seed for sales and development
(breeding) in North America, important growing countries in Europe and South
America, as well as Australia and Africa.
RESEARCH
Research efforts will continue to focus on agronomic studies in Canada,
Australia, Africa and South America to learn the optimum growing conditions to
maximize yields of industrial hemp fiber and seed. In April 1999, the Company
received a $60,000 (Canadian Dollars, approximately $40,000 USD) Grant from
A.R.D.I. (Agri-Food Research & Development Initiative) of Canada to conduct
such agronomic studies, and is in the process of negotiations for other
government grants and research programs regarding the cultivation of
industrial hemp. The Company intends to continue research into the production
of "hemp metals" and "hemp plastics," as naturally produced materials to
compete with existing products, through its collaborative relationship with
NTECH. The research commenced in June 1999, and progress to date has exceeded
expectations. Test products are anticipated to be available in the fourth
quarter of the calendar year 2000.
The Company's collaborative biotechnology research for the development of
nutraceutical and pharmaceutical hemp compounds with Phytomedics,Inc. has been
in process since April 1999 and, agricultural molecular biology research for
the enhancement of important hemp genetic traits (and possible elimination of
remaining negligible amounts of THC) in collaboration with the University of
Rutgers Center for Agricultural Molecular Biology since June 1999. The
agreement with Phytomedics is for five years with a committed cost to CGP of
$95,000 for the first year and a mutually agreed upon budget thereafter. Under
this agreement, CGP retains all ownership rights of any new product
developments, and Phytomedics receives a royalty in the amount of 5 percent of
gross revenues derived from any developed product sales. The Rutgers agreement
is for three years at a total cost to CGP of $1.2 million. Under this
agreement, CGP as the Research Sponsor has the right to license, patent and
market any new development with a license fee to Rutgers of a percent of
revenues "customary in the industry" therefrom. Typically, the amount would be
2-5 percent of gross revenues.
GOVERNMENT REGULATION
Growing, harvesting and processing of industrial hemp for commercial
(and other) purposes, activities critical to the Company's operations, are
presently subject to federal regulations in each respective country in which it
currently and / or plans to do business in. The allowable THC content level
for certified (for cultivation) seed varieties is up to 0.3 percent. The
regulations governing industrial hemp also typically stipulate that licenses
are required for the importation, exportation, possession,
production / processing, transportation, delivery and / or offering for sale of
hemp in any form. Growers of hemp must apply for a license for each crop year
in which they cultivate hemp and stipulate the purpose of the hemp crop (i.e.,
seed, grain, fiber) and seed varieties to be sown. In addition, some of the
products that the Company currently may produce, such as industrial hemp oil,
may be subject to regulation by the United States Food and Drug Administration
("FDA") or other similar governmental bodies in other countries. Regulations
require approval of certified seed varieties to be used, granting of licenses
to each grower, periodic testing of plants / seeds grown etc. in order to
control the THC levels of the crops and that reputable growers are involved in
the process. CGP has adhered to and satisfied all requirements.
Notwithstanding that hemp recognition and approval amongst developed
countries has accelerated (except in the United States where certain states
are more proactive than others and federal approvals are still not available),
CGP's research team has established a goal to develop THC-free hemp seed
varieties that have superior seed and fiber yields, without diminishing any
nutritional value or compromising the positive attributes of the hemp fiber,
that will no longer be subject to the administrative burden of the current
regulatory requirements. In the interim, CGP's scientific staff will
maintain the strictest internal controls to comply with all government
testing protocols.
The inability of CGP to develop a completely "THC free" seed variety does not
impact in any way the Company's business plans which are based entirely on the
continued development, cultivation, multiplication and processing of existing,
approved / certified seed varieties only. Failure to obtain FDA or Ministry of
Health approval in any country where it presently plans to sell hemp products
for human consumption (foods, nutraceuticals, cosmetics), could have a negative
impact on the Company's plans and forward looking revenue assumptions.
OPERATIONS
CGP Inc. is a Delaware corporation with domestic offices in Los Angeles,
California and New Brunswick, New Jersey. The Company maintains its main
office at: 6350 Laurel Canyon Blvd., Suite 406, North Hollywood, California
91606, in addition to offices in Winnipeg, Canada, Cologne, Germany and
Zug, Switzerland.
CGP Management has created a multi-continental, diversified strategy in
alignment and consistent with the Company's mission. The mission is to
establish a significant presence in the expansion of the industrial hemp
industry based upon a vertically integrated platform of:
1) Seed -- development and registration of new, better performing, higher
yielding and THC- free hemp seed varieties, and to utilize various FAO and
United Nations programs to introduce / expand hemp cultivation as a staple to
emerging economies based upon this proprietary seed.
2) Growing and Processing -- forming strategic partnerships in each country for
the value added uses of hemp fiber and seed products. These partnerships will
focus on the continual upgrading and modernization of hemp agriculture and
primary processing for the efficiency and economics of hemp use in down-
stream products such as paper, textiles and building materials and,
ultimately, in technical fiber applications in place of certain plastics,
metals and fiberglass products.
3) Research and Development -- continuing R&D in hemp Biotechnology and
pharmaceutical and nutraceutical compounds; continuing R&D into the material
sciences of using cellulose from hemp as the base for metals, plastics and
fiberglass type products that are recyclable and / or biodegradable.
The Company has commenced negotiations for a Joint Venture presence and have
begun seed planting trials in Australia, in addition to ongoing operations in
Canada and Europe. The Company also expects to begin seed planting trials in
Africa and South America in 2000.
In general, the Company's planned manufacturing operations are not labor
intensive and neither labor availability nor wages present issues in any of the
planned areas of operations. The Company begins operations based upon
contractual relationships with farmers to grow industrial hemp for the Company
in the selected locations. CGP is entering into long-term contracts - three
years, with a three year option exercisable by CGP - with most of its farmers.
It is CGP's strategy to supply planting seed to the farmers for both commercial
production and seed multiplication purposes. The Company has established
quality standards and delivery terms that it considers essential for its
purchase obligations of the crop harvest under the contract. A summary of the
Company's planned operations, facilities, production and other relevant points
are presented below by region.
North America - United States and Canada
In order to establish a significant presence, continued research and
development is an important part of the Company's plans. The Company's
principal biotechnology and material science research and development
activities will be centered in New Jersey, USA. The Biotechnology operations
will be conducted on a collaborative basis with two organizations:
Rutgers University, Center for Agricultural Molecular Biology, Alternative
Crops Research and Development. Research will focus particularly on
industrial hemp through biotechnological approaches. CGP is the Research
Program Sponsor, and as such, shall retain all rights to license any
developments of interest; and
Phytomedics, Inc., formerly Photosynthetic Harvest, Inc., is a highly
reputable development stage biotechnology and biopharmaceutical company with a
comprehensive portfolio of novel, proprietary technologies which enable the
discovery and manufacturing of biologically active compounds from live plants
for uses such as nutraceuticals, pharmaceuticals, agro-chemicals, cosmetic and
health care products.
The material science research and development will be conducted through
NTECH, a company engaged in the science of nanotechnology and molecularly
assembled substances. The first products resulting from this research should
be available for industrial trials by June 2000.
The Rutgers agreement is for three years at a total cost to CGP of $1.2 million
USD. The agreement with Phytomedics is for five years with a first year cost
to CGP of $95,000 USD. The NTECH agreement is such that CGP (the licensee)
will pay a royalty of 5% of the net sales price for all products sold by CGP
and any / all sub-licensees, to NTECH. The term of the agreement is for 12
month periods, with automatic renewals, unless cancelled by either the
licensor or licensee with 12 months, written notice.
Management established CGP Canada in 1998 to grow and process industrial hemp
in Western Canada, an area with high quality soil and diverse climatic
conditions. 1998 was the first year of operations for CGP Canada. Eight
hundred acres of industrial hemp were planted in 1998. Most of the harvest met
or exceeded expectations for quality and quantity. The Company maintains 135 MT
of seed and 753 MT of straw as inventory from that harvest in a leased storage
facility. In the 1999 planting season, the Company has aggressively expanded
its Canadian operations. The Company has obtained its raw materials, Ukrainian
and French certified seed, as well as Ukrainian breeder / multiplication seed,
for this year's planting requirements. Planted acreage was 13,400 acres for
commercial production and 4,800 acres for seed multiplication. During the year
2000, the Company plans to press both the seed from inventory and the 1999
harvest to produce a nutraceutical oil, nut and protein powder for sale to
health food market customers. To accomplish this the Company intends to invest
$1.4 million USD for a temporary seed processing facility.
To execute the processing plans of its integrated strategy, Management intends
to commence construction of state-of-the-art, large capacity grain and straw /
fiber processing facilities as models for all future facilities. The
proprietary design of the fiber processing line is based upon the extensive
experience and technological advancements by Bernd Frank, Director of our
German facility (BaFa). Dugan & Associates of Los Angeles has been engaged for
construction management services.
Construction of both facilities should commence around April 2000 and be
completed and operable in mid-2001. Until these full scale facilities are
operable, and subject to additional financing, the Company intends to:
1) Subcontract early stages of straw processing to a Canadian company, and;
2) invest $2 million in a fiber cleaning facility that will produce the
highest quality "technical" fiber for sale into the North American automotive
parts market.
Availability of farmers to contract and labor to work at the planned facilities
are more than adequate to achieve objectives. Contracted prices to the farmer
are reasonable, and other labor wages should be modest. Although the site for
the first hemp fiber processing center in North America has not been identified
by Management, the Company anticipates receiving certain tax and other
incentives from local governments for revenue and job creation therein.
Notwithstanding that planting and harvesting are seasonal between April 1
through October 31, the processing facilities will operate year round.
Europe
NAWARO, a German Investment Company, was formed by CGP in early 1998 to invest
in hemp related businesses in German speaking countries and certain other
contiguous countries such as Poland and the Czech Republic. NAWARO increased
its ownership in BaFa from 15% to 75% as of July 1, 1999.
At present BaFa cultivates approximately 1,235 acres in Malsch, Germany. BaFa,
founded in 1994, was the first modern industrial hemp processing facility in
Germany. Management believes Germany will be a leader in developing mainstream
market products. The German government is considering a mandate that would
require German automotive companies to include the use of natural fibers in
their manufacturing process to achieve specified levels of recyclability by the
year 2002. BaFa has pioneered development of the technology to produce a very
fine, technical fiber that is useable in automobile composite parts and as a
fiberglass substitute for insulation. End users of BaFa products include
Mercedes S Class, BMW and Opel automobiles. BaFa presently operates a facility
with a capacity to produce 1,800 MT of fiber, which will soon be expanded to
2,600 MT.
MANAGEMENT AND OWNERSHIP
The strategic business affairs of the Company are managed by the Board of
Directors, which presently consists of four members. It is anticipated that
the current members will continue to serve until the next annual meeting of the
shareholders. At that meeting, new members will be elected for staggered
one to three year terms. Daily operations of the Company are the
responsibility of its executive officers. The officers are appointed by the
Board. It is anticipated that each of the officers will remain for the
foreseeable future, and one or more will be elected to the Board.
DEPENDENCE UPON KEY PERSONNEL
The Company relies greatly in its efforts on the services and expertise of its
current senior officers: Susan Brana, Chairman of the Board, CGP Inc.; Dr.
Werner Thelen, President, NAWARO; Hansjorg Spoerri, CEO, CGP Inc. and
President, CGP Europe; Dr. Slavik Dushenkov, Executive Vice President, Research
and Development; Mark Kaeller, Chief Operating Officer, CGP Inc. and; Darrell
McElroy, Senior Vice President, Agriculture, CGP Canada. The operation and
future success of the Company could be adversely affected in the event that
the above key personnel were incapacitated or the Company were to lose their
services.
PROFESSIONAL SERVICES / ADVISORS
The Company has retained the following firms as advisors of record:
Program & Construction
Management Dugan & Associates Construction Management
Auditor Kevin G. Breard, C.P.A.
These certified / licensed advisors will support management providing as needed
expertise in their respective areas of specialization-construction management,
accounting and taxation. During the next five years of planned processing
capacity ramp-up, Dugan & Associates will be heavily relied upon to
coordinate and manage all planned construction activities in North America,
Europe and Africa.
Alan Cade, Senior Vice President of Dugan & Associates, is also a member of the
Board of Directors of the Company.
MARKET RESEARCH AND ANALYSIS
GENERAL MARKET DATA
The demand for industrial hemp and industrial hemp products is rapidly
increasing. A story in the April 27, 1997 Wall Street Journal found that the
demand for industrial hemp products would increase by more than 300% from $75
million to greater than $250 million by 1999. A recent ABC TV news story
indicated that worldwide hemp sales would reach an estimated $500 million in
1999.
Based upon discussions between CGP management and executives of major
multinational companies, demand for raw materials from hemp (e.g., fiber, pulp)
would be significantly greater if planned supply quantities were sufficiently
large for a major company to make a long term commitment to its use. Although
worldwide global market data by market segment is difficult to ascertain, the
University of Kentucky completed a study of the "Economic Impact of Industrial
Hemp in Kentucky" (July 1998) that includes estimates of market size by
category for the United States domestic markets only. In summary, the study
concludes that potential domestic markets exist for:
- 300,000 tons of industrial hemp hurd for horse bedding;
- 112,000 tons of industrial hemp fiber for other products as follows:
- 80,000 tons: Paper
- 18,500 tons: Auto parts
- 7,500 tons: Fiberglass
- 2,500 tons: Textiles
- 3,500 tons: Carpeting
The study also found that the potential domestic markets exist for:
- 36,000 tons of industrial hemp grain meal
- 18,000 tons of industrial hemp oil (for edible and other uses)
The total estimate for the potential domestic market is approximately 466,000
tons / year based upon assumptions used that includes an assumption of a 10-20
percent level of market penetration, depending upon market segment, as
reasonable based upon competitive characteristics versus products currently
used in the respective market segments.
MARKET SEGMENTS
Nutraceuticals
The nutraceutical / herbal food supplements industry has worldwide sales of
more than $17 billion and a 15-20 percent annual growth rate. Nutraceuticals
are food substances with health / medical benefits, primarily derived from
plants. The industry is, to a large extent, self-regulated, although the
predominant trend and consumer demand is for proven efficacy, safety and
increased standardization of products. Consumers, particularly those of the
"baby boomer" generation, are showing dramatically increased interest in these
products as they search for new means to prolong health and well being.
Oil
The market for edible oil at present is approximately 6.9 million metric tons.
The food industry generally serves as an indicator of demand. For this reason,
food companies are stressing new product introductions. "Functional foods and
nutraceuticals" are two relatively new terms in the industry to describe foods
containing significant levels of biologically active components that impart
health benefits or desirable physiological effects beyond basic nutrition.
Consumers are showing continued strong interest in reduced calories and less
detrimental fats in food products.
Personal Care Products
Personal care products, encompassing personal soaps, skin care products, hair
care products, cosmetics and other toiletries, is a primary consumer end use
market for fats and oils and their derivatives. Demand for personal care
products is dependent upon demographic and consumer spending patterns, and
tends to be highly income elastic. Personal care product shipments are
projected to advance 4.3 percent annually to $28 billion in the year 2000,
based on new product introductions and an aging population. Consumer
preferences for value-priced, environmentally-responsible and better performing
products are increasing. Environmental regulations and narrower profit margins
have driven personal care products manufacturers' research and development
efforts. The economic downturn of the early 1990's sparked renewed consumer
interest in value-priced products, such as better performing multifunctional
hair care formulations incorporating shampoo, conditioner and other specialty
additives.
Another important trend in the personal care products market is growing
consumer preference for environmentally compatible products. In addition, the
aging population will also influence trends in the use of personal care product
consumption. As the baby-boomer population grows older, the group will
continue to demand new, better performing products based on advancing
technologies and materials to offset signs of aging. In addition, this
demographic trend will also provide opportunities for milder, more effective
formulations of many personal care products.
Nuts
The North American market for nuts is in excess of $10 billion annually of
which the non-peanut segment is approximately $1.3 billion. Nuts with a high
nutritional content profile are sold in "health stores" as a nutraceutical
food, as well as in mainstream markets, where consumers seek healthier
alternatives to peanuts.
Protein Powder
The health food market for high quality whey protein has been dramatically
increasing due to its benefits in building lean muscle mass, weight loss and
nutritional content. At present, soy based whey protein is the leading
product. The market in North America for whey protein was in excess of
150,000 MT in 1998.
Animal Feed
Flax meal, which used to serve this market in North America, has declined
significantly to 159,000 tons annually since customers have begun to switch to
"higher protein" soy meal, particularly due to noted health improvements in
horses.
Horse Bedding (Hurd)
The market for bedding in the US alone is approximately 3 million tons ($400+
million) annually. Most of this market is served presently by bedding made
from straw, wood chips, and to a lesser extent, composition mats.
Natural Fibers
Natural fibers have proven to be environmentally-friendly substitutes for
hydrocarbon (e.g. petrochemical products) and wood in diverse product
categories. Different qualities of fiber are better suited for different
product categories. The global markets for these products easily exceed $20
billion annually. The product categories include: paper, automotive parts,
building materials, non-wovens, plastics, etc.
Phytoremediation
This is an alternative natural process to remediate various types of polluted
sites from radioactive, chemical and hydrocarbon contaminants. The USA market
alone exceeds $230 billion according to the US Department of Energy.
In general, hemp raw materials and value-added products are presently available
and sold by some suppliers into each of the aforementioned market segments,
with the exception of protein powder (processing capability is currently in
development by CGP and should be available by the third quarter of 2000), and
phytoremediation, which is currently only done on a trial test basis by CGP.
CGP presently only produces hurd for bedding and high quality fiber for the
automotive parts and residential building materials (insulation) market
segments. Based upon Management's plans, the Company should have products
available for sale in all market segments before 2001, excluding
pharmaceuticals.
COMPETITION
The Company should face competition from numerous companies in each of its
targeted market segments. For example:
Hemp fibers (of different grades and qualities) - competition from other
agricultural, wood and synthetic fibers and petrochemical products.
Hemp oil - competition from other edible oils such as soy, canola, flax or
olive, and also from coconut, palm oils, sunflower etc. used in cosmetics.
Hemp nuts - competition from walnuts, cashews, almonds, peanuts, etc.
Most of the competitors in the above-named product market segments are more
established, benefit from market recognition and have greater financial,
production and marketing resources than the Company. Management believes that,
due to the large number of companies that operate in its diverse product
markets, it has no single or group of competitors. Notwithstanding the extent
of competition and available products that serve its target markets, the
Company's products should successfully achieve a reasonable level of market
penetration and compete in these markets based upon the following principal
factors:
Agronomic, environmental and economic advantages from growing hemp that should
continue to increase demand by the farmers, governments, manufacturers and
consumers to enable market development;
CGP's planned advanced, large-scale processing technology should result in the
efficient processing of all parts of the industrial hemp plant to facilitate
both supply and competitive pricing;
The potential to develop valuable nutraceuticals and pharmaceuticals from low-
cost, process waste / by-product that contains proven medicinal benefits;
High to optimum health and nutritional profiles of food products for the
nutraceutical and mainstream food markets;
Ability of hemp oil to penetrate three layers of skin, improving the
effects in cosmetic uses;
Biodegradability and higher absorbency of horse bedding product;
High quality fiber that is stronger, more flexible, safer, environmentally-
friendly and lower cost than existing petrochemical products or synthetic
fibers used in automobile parts, insulation, etc.;
Raw fiber to serve as a "tree-free" fiber for making paper;
Unusual capability of industrial hemp to remediate certain hazardous materials
in soil and water.
All of these qualities are competitive advantages that distinguish industrial
hemp from existing products currently serving large volume and revenue markets
and should facilitate reasonable market penetration for the Company's products.
OTHER BUSINESS RISKS
1. Need to Develop New Markets / Products
Although industrial hemp product sales are experiencing rapid growth, the
industry is at the early stage of development. Major markets for key
industrial hemp raw material products have yet to be developed due to available
quantity limitations. Further development and product introduction in the
areas of nutraceuticals and biocomposites are important to the development of
industrial hemp crop markets.
2. Evolving Marketing Strategy
The Company plans to develop markets through a dependence on resellers /
distributors and outside representatives. The Company intends to primarily
produce raw materials for value-added manufacturers that supply end user
markets. For most of its targeted market segments, it intends to rely on
distributors and / or commissioned representatives to sell its products. There
can be no assurance that these outside parties will provide the commitment for
success required by the Company.
3. Primary Raw Material Supply
Although the Company has an exclusive license to all Ukrainian seed varieties
for commercial planting and seed multiplication purposes, there are various
other varieties available with particular traits (e.g., THC content; days to
maturity). However, the Ukrainian varieties are among the lowest THC content
seed varieties in the world. The Company may purchase other varieties during
the next one to two years in order to meet its target growth objectives.
However, the Company's R & D strategy for seed breeding, together with success
in its seed multiplication planting program on a multiple locale, dual-
hemisphere basis are critical to control of its principal raw material and
overall success of its strategy. Therefore, the Company will be dependent upon
a non-controllable source of supply for a limited amount of its seed and there
cannot be any assurance the Company will secure its total needs for seed.
4. Crop Harvesting
The USDA states that 8-10 percent of all sown crops will not produce a viable
crop due to natural disasters, poor farming, etc. Under extreme adverse
natural occurrences, yield could be affected more severely.
5. Need for Future Funding; Uncertainty of Access to Capital
The Company plans to build twenty processing facilities over the next five
years at an estimated expenditure of $125 million. The development of global
marketing capabilities will also require a commitment of substantial funds.
The ability to achieve its plan is dependent upon both the successful
generation of cash flow from operations and access to public and / or private
capital. Additional equity financing could result in dilution to shareholders.
If sufficient capital is not available, the Company may be required to delay
the scope of its growth plans.
6. Technology
The business strategy of the Company includes expectations for technological
development and / or advancement in several areas that includes: seed breeding;
plant extraction systems for plant compounds; harvesting techniques; processing
capability; and biocomposite products. The inability of the Company to achieve
economic, viable results in one or more of the above will impact the projected
results from operations.
7. Dependence on Collaborative Development Arrangements
The Company has entered into collaborative agreements with Rutgers University
to conduct agricultural biotechnology research and development tasks, and
P.H.I. for research and development of commercially viable nutraceutical
compounds available in the industrial hemp plant. Although both organizations
have excellent track records, these partners, and personnel employed by them,
are not controlled by the Company, and each group has other commitments that
may limit their availability to the Company. The Company has limited control
over the activities of these partners, and can expect only specifically defined
resources to be dedicated to the Company's activities. There can only be
limited assurance that performance of obligations by the partners will be done
on a timely basis or that the Company will derive any commercially valuable
products from these arrangements. There can also be only limited assurance
that the partners will not pursue existing or alternative projects in
preference to those being developed in collaboration with the Company.
8. Risks Associated with International Sales
The Company expects that international sales will represent a substantial
portion of its Company's future business. International sales are subject to a
number of risks, including the following: fluctuation in exchange rates,
deteriorating general economic conditions, protection of intellectual property,
adoption of trade restrictions, etc. that could affect product demand and
others that could negatively impact results.
9. Potential Fluctuations in Operating Results
Fluctuations in the Company's results of operations may be caused by various
factors, including the inability to develop, introduce and deliver products on
a timely basis, to offer products at competitive prices, changes in
distribution channels, timely completion of production facilities, etc. and
risks of nature.
ITEM 2. DESCRIPTION OF PROPERTY
The Company has an office in Winnipeg, Manitoba, Canada under the name of its
Canadian subsidiary, Consolidated Growers and Processors (CGP) Canada Ltd.,
that is being leased. The lease term expires January 2001.
As of June 30, 1999 the Company did not own any real property.
The investment policies of the Company are left to the discretion of a quorum
of the Board of Directors. Resolutions can be passed by the Board of Directors
to allow input from security holders as required.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this filing, the Company is not a party to any legal
proceeding.
ITEM 4. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The registrant's securities are traded on the Over-The-Counter Bulletin Board
(OTC-BB) operated by the National Association of Securities Dealers, Inc. under
the symbol CGPR. The registrant's securities began trading on the OTC-BB on
October 27, 1997.
Holders
As of 6/30/99, there were 197 shareholders of Common Stock in the Company, and
32,173,802 shares of Common Stock outstanding.
Dividends
There have been no cash dividends declared on any shares of common equity in
the company since the inception of the Company to present.
ITEM 5. DESCRIPTION OF SECURITIES
Common Stock
Warrants - At present, there are no outstanding warrants to purchase common
equity in the Company.
Options - At present, there are no options outstanding that can be exercised to
purchase equity in the company.
Convertible Stock - At present, there is no convertible stock.
Selling Security Holders - There are no securities to be registered for the
account of any security holders.
Except as otherwise provided by the Company's Certificate of Incorporation or
By-Laws, at every meeting of the stockholders each stockholder shall be
entitled to one vote for each share of voting stock standing in his name on the
books of the corporation on the record date for the meeting.
A. IMPORTANT INFORMATION ON PENNY STOCKS
This statement is required by the U.S. Securities and Exchange Commission (SEC)
and contains important information on penny stocks. Your broker-dealer is
required to obtain your signature to show that you have received this statement
before your first trade in a penny stock. You are urged to read this statement
before signing and before making a purchase or sale of a penny stock.
PENNY STOCKS CAN BE VERY RISKY.
Penny stocks are low-priced shares of small companies not traded on an exchange
or quoted on NASDAQ. Prices often are not available. Investors in penny
stocks often are unable to sell stock back to the dealer that sold them the
stock. Thus, you may lose your investment. Be cautious of newly issued penny
stock.
Your salesperson is not an impartial advisor but is paid to sell you the stock.
Do not rely only on the salesperson, but seek outside advice before you buy any
stock. If you have problems with a salesperson, contact the firm's compliance
officer or the regulators listed below.
INFORMATION YOU SHOULD GET.
BEFORE YOU BUY PENNY STOCK, federal law requires your salesperson to tell you
the "offer" and the "bid" on the stock, and the "compensation" the salesperson
and the firm receive for the trade. The firm also must mail a confirmation of
these prices to you after the trade.
You will need this price information to determine what profit, if any, you will
have when you sell your stock. The offer price is the wholesale price at which
the dealer is willing to sell stock to other dealers. The bid price is the
wholesale price at which the dealer is willing to buy the stock from other
dealers. In its trade with you, the dealer may add a retail charge to these
wholesale prices as compensation (called a "markup" or "markdown").
The difference between the bid and the offer price is the dealer's "spread." A
spread that is large compared with the purchase price can make a resale of a
stock very costly. To be profitable when you sell, the bid price of your stock
must rise above the amount of this spread and the compensation charged by both
your selling and purchasing dealers. If the dealer has no bid price, you may
not be able to sell the stock after you buy it, and may lose your whole
investment.
Brokers' duties and customer's rights and remedies.
If you are a victim of fraud, you may have rights and remedies under state and
federal law. You can get the disciplinary history of a salesperson or firm
from the NASD at 1-800-289-9999, and additional information from your state
securities official, at the North American Securities Administrators
Association's central number: (202) 737-0900. You also may contact the SEC
with complaints at (202) 272-7440.
FURTHER INFORMATION
The securities being sold to you have not been approved or disapproved by the
Securities and Exchange Commission. Moreover, the Securities and Exchange
Commission has not passed upon the fairness or the merits of this transaction
nor upon the accuracy or adequacy of the information contained in any
prospectus or any other information provided by an issuer or a broker or
dealer.
Generally, penny stock is a security that:
Is priced under five dollars;
Is NOT traded on a national stock exchange or on NASDAQ (the NASD's automated
quotation system for actively traded stocks);
May be listed in the "pink sheets" or the NASD OTC Bulletin Board;
Is issued by a company that has less than $5 million in net tangible assets and
has been in business less than three years, by a company that has under $2
million in net tangible assets and has been in business for at least three
years, or by a company that has revenues of $6 million for 3 years.
Use Caution When Investing in Penny Stocks
DO NOT MAKE A HURRIED INVESTMENT DECISION. High-pressure sales techniques can
be a warning sign of fraud. The salesperson is not an impartial advisor, but
is paid for selling stock to you. The salesperson also does not have to watch
your investment for you. Thus, you should think over the offer and seek
outside advice. Check to see if the information given by the salesperson
differs from other information you may have. Also, it is illegal for
salespersons to promise that a stock will increase in value or is risk-free, or
to guarantee against loss. If you think there is a problem, ask to speak
with a compliance official at the firm, and, if necessary, any of the
regulators referred to in this statement.
STUDY THE COMPANY ISSUING THE STOCK. Be wary of companies that have no
operating history, few assets, or no defined business purpose. These may be
sham or "shell" corporations. Read the prospectus for the company carefully
before you invest. Some dealers fraudulently solicit investors' money to buy
stock in sham companies, artificially inflate the stock prices, then cash in
their profits before public investors can sell their stock.
UNDERSTAND THE RISKY NATURE OF THESE STOCKS. Understand the risky nature of
these stocks. You should be aware that you may lose part or all of your
investment. Because of large dealer spreads, you will not be able to sell the
stock immediately back to the dealer at the same price it sold the stock to
you. In some cases, the stock may fall quickly in value. New companies, whose
stock is sold in an "initial public offering," often are riskier investments.
Try to find out if the shares the salesperson wants to sell you are part of
such an offering. Your salesperson must give you a "prospectus" in an initial
public offering, but the financial condition shown in the prospectus of new
companies can change very quickly.
KNOW THE BROKERAGE FIRM AND THE SALESPERSON WITH WHOM YOU ARE DEALING. Because
of the nature of the market for penny stock, you may have to rely solely on the
original brokerage firm that sold you the stock for prices and to buy the stock
back from you. Ask the National Association of Securities Dealers, Inc. (NASD)
or your state securities regulator, which is a member of the North American
Securities Administrators Association, Inc. (NASAA), about the licensing and
disciplinary record of the brokerage firm and the salesperson contacting you.
The telephone numbers of the NASD and NASAA are listed on the first page of
this document.
BE CAUTIOUS IF YOUR SALESPERSON LEAVES THE FIRM. If the salesperson who sold
you the stock leaves his or her firm, the firm may reassign your account to a
new salesperson. If you have problems, ask to speak to the firm's branch
office manager or a compliance officer. Although the departing salesperson
may ask you to transfer your stock to his or her new firm, you do not have to
do so. Get information on the new firm. Be wary of requests to sell your
securities when the salesperson transfers to a new firm. Also, you have the
right to get your stock certificate from your selling firm. You do not have to
leave the certificate with that firm or any other firm.
Your Rights
DISCLOSURES TO YOU. Under penalty of federal law, your brokerage firm must
tell you the following information at two different times-before you agree
to buy or sell a penny stock, and after the trade, by written confirmation:
THE BID AND OFFER PRICE QUOTES FOR PENNY STOCK, AND THE NUMBER OF SHARES TO
WHICH THE QUOTED PRICES APPLY. The BID and OFFER quotes are the wholesale
prices at which dealers trade among themselves. These prices give you an idea
of the market value of the stock. The dealer must tell you these price quotes
if they appear on an automated quotation system approved by the SEC. If not,
the dealer must use its own quotes or trade prices. You should calculate the
spread, the difference between the bid and offer quotes, to help decide if
buying the stock is a good investment.
A lack of quotes may mean that the market among dealers is not active. It thus
may be difficult to resell the stock. You also should be aware that the actual
price charged to you for the stock may differ from the price quoted to you for
100 shares. You should therefore determine, before you agree to a purchase,
what the actual sales price (before the MARKUP) will be for the exact number of
shares you want to buy.
THE BROKERAGE FIRM'S COMPENSATION FOR THE TRADE. A markup is the amount a
dealer adds to the wholesale offer price of the stock and a markdown is the
amount it subtracts from the wholesale bid price of the stock as compensation.
A markup/markdown usually serves the same role as a broker's commission on a
trade. Most of the firms in the penny stock market will be dealers, not
brokers.
THE COMPENSATION RECEIVED BY THE BROKERAGE FIRM'S SALESPERSON FOR THE TRADE.
The brokerage firm must disclose to you, as a total sum, the cash compensation
of your salesperson for the trade that is known at the time of the trade. The
firm must describe in the written confirmation the nature of any other
compensation of your salesperson that is unknown at the time of the trade.
In addition to the items listed above, your brokerage firm must send to you:
MONTHLY ACCOUNT STATEMENTS. IN GENERAL, YOUR BROKERAGE FIRM MUST SEND YOU A
MONTHLY STATEMENT that gives an estimate of the value of each penny stock in
your account, if there is enough information to make an estimate. If the firm
has not bought or sold any penny stocks for your account for six months, it can
provide these statements every three months.
A WRITTEN STATEMENT OF YOUR FINANCIAL SITUATION AND INVESTMENT GOALS. In
general, unless you have had an account with your brokerage firm for more than
one year, or you have previously bought three different penny stocks from that
firm, your brokerage firm must send you a written statement for you to sign
that accurately describes your financial situation, your investment experience,
and your investment goals, and that contains a statement of why your firm
decided that penny stocks are a suitable investment for you. The firm also
must get your written consent to buy the penny stock.
LEGAL REMEDIES. If penny stocks are sold to you in violation of your rights
listed above, or other federal or state securities laws, you may be able to
cancel your purchase and get your money back. If the stocks are sold in a
fraudulent manner, you may be able to sue the persons and firms that caused the
fraud for damages. If you have signed an arbitration agreement, however, you
may have to pursue your claim through arbitration. You may wish to contact an
attorney. The SEC is not authorized to represent individuals in private
litigation.
However, to protect yourself and other investors, you should report any
violations of your brokerage firm's duties listed above and other securities
laws to the SEC, the NASD, or your state securities administrator at the
telephone numbers on the first page of this document. These bodies have the
power to stop fraudulent and abusive activity of salespersons and firms engaged
in the securities business. Or you can write to the SEC at 450 Fifth St., NW.,
Washington, DC 20549; the NASD at 1735 K Street, NW., Washington, DC 20006; or
NASAA at 555 New Jersey Avenue, NW., Suite 750, Washington, DC 20001. NASAA
will give you the telephone number of your state's securities agency. If there
is any disciplinary record of a person or a firm, the NASD, NASAA, or your
state securities regulator will send you this information if you ask for it.
Market Information
THE MARKET FOR PENNY STOCKS. Penny stocks usually are not listed on an
exchange or quoted on the NASDAQ system. Instead, they are traded between
dealers on the telephone in the "over-the-counter" market. The NASD's OTC
Bulletin Board also will contain information on some penny stocks. At times,
however, price information for these stocks is not publicly available.
MARKET DOMINATION. In some cases, only one or two dealers, acting as "market
makers," may be buying and selling a given stock. You should first ask if a
firm is acting as a BROKER (your agent) or as a dealer. A DEALER stock's
itself to fill your order or already owns the stock. A MARKET MAKER is a
dealer who holds itself out as ready to buy and sell stock on a regular
basis. If the firm is a market maker, ask how many other market makers are
dealing in the stock to see if the firm (or group of firms) dominates the
market. When there are only one or two market makers, there is a risk that
the dealer or group of dealers may control the market in that stock and set
prices that are not based on competitive forces. In recent years, some
market makers have created fraudulent markets in certain penny stocks, so
that stock prices rose suddenly, but collapsed just as quickly, at a loss to
investors.
MARK-UPS AND MARK-DOWNS. The actual price that the customer pays usually
includes the mark-up or mark-down. Markups and markdowns are direct profits
for the firm and its salespeople, so you should be aware of such amounts to
assess the overall value of the trade.
THE "SPREAD." The difference between the bid and offer price is the spread.
Like a mark-up or mark-down, the spread is another source of profit for the
brokerage firm and compensates the firm for the risk of owning the stock. A
large spread can make a trade very expensive to an investor. For some penny
stocks, the spread between the bid and offer may be a large part of the
purchase price of the stock. Where the bid price is much lower than the offer
price, the market value of the stock must rise substantially before the stock
can be sold at a profit. Moreover, an investor may experience substantial
losses if the stock must be sold immediately.
EXAMPLE: If the bid is $0.04 per share and the offer is $0.10 per share, the
spread (difference) is $0.06, which appears to be a small amount. But you would
lose $0.06 on every share that you bought for $0.10 if you had to sell that
stock immediately to the same firm. If you had invested $5,000 at the $0.10
offer price, the market maker's repurchase price, at $0.04 bid, would be only
$2,000; thus you would lose $3,000, or more than half of your investment, if
you decided to sell the stock. In addition, you would have to pay compensation
(a "mark-up," "mark-down," or commission) to buy and sell the stock. \1/4\
IN ADDITION TO THE AMOUNT OF THE SPREAD, the price of your stock must rise
enough to make up for the compensation that the dealer charged you when it
first sold you the stock. Then, when you want to resell the stock, a dealer
again will charge compensation, in the form of a markdown. The dealer
subtracts the markdown from the price of the stock when it buys the stock from
you. Thus, to make a profit, the bid price of your stock must rise above the
amount of the original spread, the markup, and the markdown.
PRIMARY OFFERINGS. Most penny stocks are sold to the public on an ongoing
basis. However, dealers sometimes sell these stocks in initial public
offerings. You should pay special attention to stocks of companies that have
never been offered to the public before, because the market for these stocks is
untested. Because the offering is on a first-time basis, there is generally no
market information about the stock to help determine its value. The federal
securities laws generally require broker-dealers to give investors a
"prospectus," which contains information about the objectives, management, and
financial condition of the issuer. In the absence of market information,
investors should read the company's prospectus with special care to find out if
the stocks are a good investment. However, the prospectus is only a
description of the current condition of the company. The outlook of the
start-up companies described in a prospectus often is very uncertain.
FOR MORE INFORMATION ABOUT PENNY STOCKS, contact the Office of Filings,
Information, and Consumer Services of the U.S. Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549, (202) 272-7440.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Consolidated Growers and Processors, Incorporated (the "Company") is an
industrial hemp company with a growing multinational presence. The Company's
primary business objectives are to provide financing, technical, and marketing
expertise to the farming, processing, and marketing of products made from
industrial hemp and other industrial crops. From June 10, 1997 (inception) to
June 30, 1998, the Company's operations were in the development stage. On July
1, 1998 the Company began to receive revenue from hemp products. The Company's
activities primarily have been related to raising capital, establishing or
acquiring key subsidiaries, performing market analysis, sponsoring research,
developing technology, developing products, establishing a grower base, and
recruiting employees. The Company's operations primarily have been funded by
the sale of common stock and warrants.
In October 1997, the Company signed an agreement with the Ukrainian Academy of
Agricultural Sciences / Institute of Bast Crops (the "Institute"). The
Institute has granted the Company exclusive licensing rights for certain
registered industrial hemp seed varieties which were bred by the Institute. In
addition, the Company has exclusive rights for seed production / multiplication
of these varieties in North America, Central America, South America, Africa,
Australia, New Zealand, and Asia (excluding the countries of the former Soviet
Union). Management believes this agreement with the Institute is key to its
establishing a leadership position within industrial hemp as the Institute's
industrial hemp seed varieties have the lowest THC content of any industrial
hemp seed varieties available. The availability of low THC industrial hemp
seed varieties has opened up the commercial growing of industrial hemp in
both Europe and Canada. A comprehensive seed multiplication program has been
established by the Company to multiply seeds for planting in Canada, Europe,
Australia, and South Africa. Most governments, including the Canadian
Government, have imposed strict THC level requirements for the commercial
cultivation of industrial hemp. The Company's exclusive rights to these low
THC industrial hemp seed varieties gives it a strategic advantage to build
business, particularly in the key North American markets.
In November 1997, the Company entered into an agreement with NTECH Corporation
which has developed and also licensed coded microparticles known as StuffDust.
This agreement gives the Company the worldwide license for this product for use
in various paper products. The Company believes that use of this microparticle
should more easily facilitate introduction of industrial hemp fiber into the
specialty and security paper markets.
The Company increased its ownership in Badische Naturfaseraufbereitung
("BaFa") from 15 percent to 75 percent on July 1, 1999. BaFa was the first
modern grower and processor of industrial hemp in Germany. BaFa has the
ability to produce the highest purity and quality of fibers from industrial
hemp, which satisfy the most stringent technical specifications and
requirements, and are presently being used by automotive manufacturers such as
Mercedes, BMW and Opel in automotive panels and also for (residential) building
insulation.
The value ascribed to BaFa will be the Company's investment in that entity. At
June 30, 1999, that value is $300,784. BaFa has an operating history of less
than five years. Although financial statements in accordance with U.S.
generally accepted accounting principles are not readily available, BaFa has
recorded losses every year.
BaFa's true ASSETS are its technological advances in the processing of
industrial hemp fiber. These values are not reflected on BaFa's balance sheet.
This would be similar to a biotechnology company where again the true ASSETS
are its technical knowledge in the industry. Notwithstanding, the most
recently prepared non-audited financial statement at December 31, 1998
indicated that total assets were approximately USD $896,000. The majority of
the asset dollars are in equipment, approximately $82% or USD $734,000, but
BaFa is highly leveraged. There exists bank loans and creditor balances with a
value up to USD $1,258,000. However, again the true ASSETS of BaFa, its
knowledge, is substantially greater than its book assets. Conservatively and
objectively, the cost value seems most appropriate as a valuation at June 30,
1999.
The Company continued to expand operations of its strategic subsidiaries in
Canada (CGP Canada, Ltd.), Germany (NAWARO GmbH), and Switzerland
(CGP Europe AG), respectively, by significantly increasing planted acreage,
increasing the consumer base for its high quality fiber and preparing for new
operations in Canada to further facilitate the development of worldwide markets
for industrial hemp.
In December 1998, the Company sold a subsidiary (Werner Zoellig AG and Glulam
Lumber Manufacturing Corporation) to be able to focus on development of
industrial hemp products and increase its ownership and control of BaFa.
The Company has successfully planted, for the second consecutive year, several
hectares of industrial hemp in Chernobyl, Ukraine. While this project has not
generated revenue to the Company, the Company has received recognition of its
efforts, resulting in numerous, high profile speaking engagements at
international conferences within the agricultural and scientific communities
such as the Fourth International Symposium & Exhibition on Environmental
Contamination in Central and Eastern Europe, and also periodic seminars in 1999
in Eastern Europe in regards to similar topics.
The Company entered into collaborative research agreements with both
Phytomedics Inc. and Rutgers University Biotechnology Center for the
research and development of the nutraceutical and pharmaceutical compounds of
industrial hemp and the maximization of advantageous genetic traits of hemp
(see Research section above).
In December 1998, the Company was engaged as the official editor for industrial
hemp for the UN / FAO internet site, disseminating fundamental and scientific
information about industrial hemp throughout the world.
RESULTS OF OPERATIONS
Because the Company was in the developmental stage from inception through
June 30, 1998, and only began to receive income in July of 1998, only limited
revenues were recognized since inception. The amount of these revenues was
$-0- for the fiscal year ending on June 30, 1998 and $1,181,865 for the fiscal
year ending on June 30, 1999. Revenue from BaFa is not included in these
amounts since the increase in ownership in BaFa above the level at which CGP
may reflect BaFa's operations as other than an "investment" occurred on the
first day of the current fiscal year. Although BaFa has been in operation for
four years, overall, the Company has a limited operating history, and its
prospects are subject to the risks, expenses and difficulties frequently
encountered by companies in an evolving market, in this case industrial crops.
To address these risks, the Company must, among other things, continue to
respond to competitive developments, attract, retain and motivate qualified
personnel, and successfully market the use of industrial hemp as an alternative
to timber and petroleum based products. There can be no assurance that the
Company will be successful in addressing these risks. As of June 30, 1999, the
Company had an accumulated deficit of $2,490,845. The Company had a negative
cash flow from operations of $2,245,407 and $133,841 of cash from investment
activities, from the $2,682,884 of cash received from the sale of additional
shares.
As a result of the Company's limited operating history, the Company does not
have historical financial data for any significant period of time on which to
base planned operating expenses. The limited operating history of the Company
makes the prediction of future results of operations difficult. The Company's
expense levels are based in part on its expectations concerning future
revenue. The Company's operating expenses have increased significantly since
the Company's inception. This trend reflects the costs associated with
formation of the Company, development of infrastructure, and increased efforts
in the research and development and marketing of industrial hemp products. The
Company anticipates marketing expenses to increase in future periods as it
pursues an aggressive marketing campaign through a well-established public
relations firm and established distribution channels.
Product development costs consist primarily of the development costs of hemp
fiber, hemp oil products, "hemp plastics," a material the Company will market
to replace traditional plastics, and "hemp metals," a material the Company
will market to replace certain metal products (see discussion of hemp plastics
and hemp metals above).
General and Administrative expenses have consisted primarily of compensation
and fees for salaries and professional consulting services.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. These factors include the acceptance by businesses and consumers of
industrial hemp, the availability of industrial hemp, the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations, the introduction of new products or services by the Company or
competitors, pricing changes in the industry, or general economic conditions
and economic conditions specific to industrial crops and / or non-wood fibers.
As a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing or marketing decisions or
acquisitions that could have a material adverse effect on the Company's
business, results of operations, and financial condition.
As part of the production process, the Company has established a network of
independent distributors in Canada and entered into multi-year contracts to
sell its seed to Canadian farmers. These exclusive contracts also provide for
the Company to purchase the crop at harvest time. The Company had
approximately 800 acres under contract in Canada in 1998. The 1998 Canadian
crop had a higher yield than predicted based on typical yields experienced in
Europe. The Company purchased the 1998 crop from the Growers in accordance
with the Grower contracts. The stalk portion of the 1998 crop, approximately
750MT is currently in storage awaiting construction of a fiber processing
facility. As of June 30, 1999, four MT of the 1998 seed crop had been sold for
approximately $5,600 USD under long term agreements. The remainder of the 1998
seed harvest (approximately 135 MT) also remains in storage pending completion
of a temporary seed processing facility which is scheduled to commence
operations in April 2000.
In 1999, 13,400 acres of industrial hemp were planted in Canada for commercial
production purposes. This crop achieved growth objectives and the (second)
Canadian harvest was successfully completed in October 1999. The Company is
preparing plans for a Spring 2000 planting. Additionally, 4,800 acres were
planted in Canada for seed multiplication, which also was successfully
harvested in October 1999 and will be used for the spring 2000 planting season.
The Company also commenced seed trials in Australia in December 1999.
INFLATION AND CHANGING PRICES
To date, the impacts of inflation and changing prices on the Company's
operations have been minimal.
GOING CONCERN QUALIFICATIONS
The auditors of the consolidated financial statements of the Company have
stated that the financial statements have been prepared on a going-concern
basis for the year ended June 30, 1999. That basis of accounting contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of conducting business operations. As shown in the consolidated
financial statements, operations for the year ended June 30, 1999 resulted in a
net loss of ($1,946,435). The Company's future is dependent on its ability to
continue to obtain additional capital and realize a level of sales adequate to
support its operations.
CAPITAL RESOURCES AND LIQUIDITY
Financial difficulties have existed for CGP. The Company is entering its third
year (July 1, 1999 - June 30, 2000). The first year the Company was in the
development stage. The development stage took substantial resources to develop
markets along with other necessities inherent with this phase. The second
year, the Company first recognized revenue with a small amount of planting seed
sold. For the third year ended June 30, 2000, the Company has a plan to be a
more viable going concern.
First, the Company plans to sell substantially more planting seed, thus
creating more operating revenue. At present, the Company is planning in Spring
2000 in Canada to contract grow approximately 40,000 acres, up from 18,200
acres in 1999 and 800 acres in 1998. It appears at present that the Company
has more than enough interest from the growers in Canada to meet this goal.
Also in 1999, the Company successfully harvested multiplication seed. This
seed will be used for the Spring 2000 planting season. The fact that the
Company will be producing its own planting seed instead of importing from
Europe will increase its gross margin on the sale of planting seed. Further,
the Company has planned to increase its acreage in North America in 2001 to
approximately 85,000 acres.
Second, the Company plans to expand its revenue stream by selling raw material
(seed for oil), oil, nut and protein powder, and fiber for automotive and
non-woven applications.
Third, the Company is planning a securities offering / seeking financing for up
to $25 million to allow for purchase of state-of-the-art capital equipment.
This cash infusion will also help sustain operations.
Fourth, the Company is laying the foundation for year round planting and
harvesting by planting test plots in the Southern Hemisphere. The Company has
already began trials in Australia in December 1999, and has plans for trials in
South America and Africa in 2000.
Fifth, the Company believes that government hurdles in the US of allowing
hemp to be grown will decrease or be eliminated. In some places, the
government's demanding for environmentally safe materials will accelerate hemp
demand. This will support stronger sales in 2000 and beyond.
Sixth, the increase in name recognition of the Company will enhance sales
growth in an unpredictable amount in the third year of operation. For example,
the Company's supporting studies and research with Rutgers University,
P.H.I., Inc. and within the Chernobyl region of the many, many benefits of
hemp, and its presence at such worldwide organizations as the U.N. F.A.O., will
continue to help the Company as a going concern. The Company continues to
position itself as having the premiere expertise in the farming, processing and
marketing of industrial hemp.
The Company's Canadian subsidiary, CGP Canada, Ltd., is leasing a facility
under a contract terminating in January 2001. The monthly expense is
approximately $1,375 US Dollars ($1,926 Canadian dollars).
INCOME TAXES
No provision for income taxes have been provided. The Company incurred a loss
for the fiscal year ending June 30, 1999. Also, the Company has carried
forward losses from its first year of operation. The Company has elected to
carry forward the losses to offset future taxable income. The losses incurred
for the years ended June 30, 1998 and June 30, 1999 can be carried forward
until they expire at June 30, 2018 and June 30, 2019, respectively. There is
no assurance that future taxable income will be sufficient to realize the net
asset or utilize the tax carryforward. Thus, the Company has certain deferred
tax assets related to the net operating loss carryforward. The Company has
determined that it is more likely than not that the deferred tax asset may not
be realizable.
ITEM 7. FINANCIAL STATEMENTS
The selected financial data presented below has been derived from the financial
statements of the Company. The following table summarizes certain financial
information and should be read in conjunction with "Management's Discussion and
Analysis" and the Financial Statements and related notes included elsewhere in
this Registration Statement. The information below may not be indicative of
the Company's future results of operations.
JUNE 30, 1999 JUNE 30, 1998
Statement of Operations Data:
Revenue $ 1,181,865 $ -
Operating Expenses $ 2,877,716 $ 710,014
Net Loss $ (1,946,435) $ (544,410)
Net Loss per Share $ (.09) $ (.08)
Balance Sheet Data:
Current Assets $ 982,373 $ 231,692
Total Assets $ 1,474,771 $ 12,766,171
Total Stockholders Equity $ 1,166,101 $ 12,663,517
CASH CONTRIBUTIONS
Upon organization of the Company, there was an initial $200 paid in capital.
In exchange for these funds, the company issued 6,123,000 shares to the
founders, which were dispersed as follows:
Gain Integrated Systems, Inc.(1) 3,541,500 shares
Martin Moravcik 581,500 shares
Gero Leson (2) 2,000,000 shares
(1) Susan Brana is the owner of record.
(2) Terminated by the Board of Directors, June 1998.
The following is a list of cash contributions made by officers, directors,
promoters, and affiliated persons made subsequent to the organization of the
company, and made for the purpose of acquiring common equity in the company:
Shareholder Cash Contribution No. of Shares Issued
GAIN, Inc.(1) $1,364,967 9,257,333
Mark Kaeller $ 295,367 1,275,000
Aries Capital Management (2) $ 250,000 100,000
(1) Susan Brana is the owner of record.
(2) Aries Capital Management is affiliated with Sierra Brokerage, Inc.,
the Company's market maker.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors
Susan Brana; 46 years old; Chairman of the Board since July 1997
Susan Brana is an entrepreneur in technology companies. Ms. Brana also has
broad experience in securities compliance and commercial / investment banking.
She has been with CGP (founder) for the past four years, and was the owner /
operator of Alt Capital, a broker dealer in Los Angeles, for the three years
prior to founding CGP.
Hansjorg Spoerri; 53 years old; CEO, CGP and President, CGP Europe; Director
since December 1997
Hansjorg Spoerri has been the managing director of Papierfabrik, Netstal,
Switzerland for 12 years. He has more than 25 years experience in the
innovative development and production of paper in Europe, and consequently,
brings expertise and relationships in the pulp and paper industry.
Dr. Werner Thelen; 43 years old; President, NAWARO; Director since September
1998
Dr. Werner Thelen has been an independent attorney in Cologne, Germany, for the
past 15 years, specializing in banking, finance and corporate law. Dr. Thelen
has been instrumental in the investment in and development of BaFa.
Alan Cade; 43 years old; Director since July 1998
Alan Cade has been with Dugan & Associates, a highly regarded construction
management company in Los Angeles, CA, for over 10 years, and is currently the
Senior Vice President with them. Dugan & Associates will manage the
construction of all planned, state-of-the-art, integrated straw / fiber and
seed processing facilities.
Executive Officers
Susan Brana Chairman of the Board and Secretary, CGP Inc.
Hansjorg Spoerri CEO, CGP Inc. and President, CGP Europe AG
Dr. Werner Thelen President, NAWARO GmbH
Dr. Slavik Dushenkov Executive Vice President, Research and Development,
CGP Inc.
Mark Kaeller Senior Vice President, Chief Operating Officer,
CGP Inc.
Darrell McElroy Senior Vice President, Agriculture, CGP Canada Ltd.
Dr. Slavik Dushenkov joined CGP in April 1999 and had been a consultant to the
Company prior to becoming an employee. Prior to working with CGP, Dr.
Dushenkov was a senior research scientist at Phytotech, Inc. from 1995-1999.
Prior to that, he was a visiting scientist at the Center for Agricultural and
Molecular Biology at Rutgers University from 1992-1995. He has over 20 years
of innovative research experience that includes agricultural molecular
biology, plant physiology and bioremediation. He is co-inventor on three US
patents, and has authored / co-authored numerous books and articles. Dr.
Dushenkov will direct the Company's biotechnology and breeding research and
development programs.
Mark Kaeller has been with CGP for two years. He has ten years of commercial
banking management and operations experience. Prior to his work with CGP, Mr.
Kaeller was an A.V.P. at Sanwa Bank for one year and an A.V.P. at Wells Fargo
Bank for two and a half years.
Darrell McElroy joined CGP in January 1999. Prior to this, for the past 23
years, he has been an independent pedigree seed grower in cereals, canola and
flax. He was one of the first growers in 1998 to plant a commercial plot of
industrial hemp in Western Canada.
SIGNIFICANT EMPLOYEES
There are no other employees to mention that will make a significant
contribution to the Company at this time.
ITEM 9. EXECUTIVE COMPENSATION
Following is the amount of cash and stock compensation for executives of the
Company since inception through 6/30/99:
Dr. Slavik Dushenkov - $9,999.30; 13,000 shares of Common Stock
Dr. Werner Thelen - $22,000.00; 200,000 shares of Common Stock
Hansjorg Spoerri - 600,000 shares of Common Stock
Mark Kaeller - $40,500; 1,695,000 shares of Common Stock
Darrell McElroy - $15,333.33; 10,000 shares of Common Stock
[Enlarge/Download Table]
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Awards
Compensation
Name and
Principle Years Salary Restricted Stock
Position
Hansjorg Spoerri 1997-9 - 600,000
CEO
Slavik Dushenkov 1999 9,999.30 13,000
EVP Research &
Development
Werner Thelen 1997-9 22,000.00 200,000
President, NAWARO
Mark Kaeller 1997-9 40,500.00 1,695,000
SVP, Chief
Operating Officer
Darrell McElroy 1999 15,333.33 10,000
SVP, Agriculture
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the Common Stock ownership of each person known
by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, each director individually, and all officers and
directors of the Company as a group. Each person has sole voting and
investment power with respect to the shares of Common Stock shown, and all
ownership is of record and beneficial:
Title Name and address Amount and nature Percent
of class of beneficial owner of beneficial ownership of Class
Common GAIN, Inc (1) 12,953,183 36.82%
Stock 1015 Gayley Ave.
No. 387
Los Angeles, CA. 90024
Common Mark G. Kaeller 1,970,000 5.60%
Stock P.O. Box 572285
Tarzana, CA. 91357
Common Meekin Holdings Ltd. (2) 3,000,000 8.53%
Stock
Common Avoriaz Holdings Ltd. (2) 4,000,000 11.37%
Stock
All Officers 16,633,183 47.29%
Directors as
a Group
(1) Susan Brana is the owner of record.
(2) Sovereign Management Services, Suites 1601-1603, Kinwick Centre, 32
Hollywood Road,Central, HONG KONG, is the beneficial owner of these shares.
Note: Shareholder records with the Company's transfer agent as of June 30, 1999
show Werner Zoellig AG with 3,000,000 shares outstanding. These shares are
to be considered returned to the Company as part of its sale of Zoellig as of
June 30, 1999, but were not cancelled on record by the transfer agent until
after June 30, 1999.
PRINCIPAL SHAREHOLDERS AND DIRECTORS
A total of 32,174,802 shares of Common Stock were issued and 32,173,802 were
outstanding as of June 30, 1999. The authorized capital stock of the Company
constitutes 50 million shares of common stock at $0.0001 par value. The
holders of Common stock are entitled to one vote per share on all matters to be
voted by the shareholders.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management has concluded an Exclusive Agreement with NTECH Corporation, a
company involved in atomic and molecularly assembled substances, for the use of
hemp fiber in combination with other compounds to produce recyclable /
biodegradable products to compete with certain plastics and metal products.
The Company anticipates completion of formal product application tests to occur
during the last quarter of the calendar year 2000, after which the Company will
pursue the most profitable production and marketing strategies. Susan Brana,
Chairman of the Board of CGP, is also the Chairman of the Board of NTECH
Corporation. As of June 30, 1999, the Company had a note receivable of $24,200
due from NTECH Corporation that is unsecured, non-interest bearing and due on
demand.
Instruments defining the rights of Security-holders, including indentures.
Not applicable.
Voting trust agreements and amendments thereto.
Not applicable.
Company subsidiaries
All of the following companies are 100% wholly-owned subsidiaries of
Consolidated Growers and Processors, Inc.:
Consolidated Growers and Processors (CGP) Canada Limited
93 Lombard Ave., Suite 205
Winnipeg, Manitoba
R3B 3B1 Canada
CGP Canada Ltd. is incorporated in Winnipeg, Manitoba, Canada, and operates
under the name Consolidated Growers and Processors (CGP) Canada Limited.
CGP Europe AG
Industrie Strasse 1
CH 6304 Zug, Switzerland
CGP Europe AG is incorporated in Baar, Switzerland, and operates under the name
CGP Europe AG.
NAWARO GmbH
Kattenbug 18-24
50667
Cologne, Germany
NAWARO GmbH is incorporated in Cologne, Germany, and operates under the name
NAWARO GmbH.
The following company is owned 75%(as of July 1, 1999) by NAWARO GmbH:
Badische Naturfaseraufbereitung (BaFa)
Stephanstrasse 2
76316 Malsch Germany
Badische Naturfaseraufbereitung is incorporated in Malsch, Germany, and
operates under the name BaFa.
Contacts
Transfer Agent
Interwest Transfer Company, Inc.
Lorraine Brighton-Smith
P.O. Box 17136
1981 E. 4800 S.
Suite 100
Salt Lake City, UT. 84117-5126
(801) 272-9294 Tel.
(801) 277-3147 Fax
Market Maker
Sierra Brokerage
Merv Roland or Jeff Richardson
2000 Bethel Rd.
Columbus, OH. 43220
(614) 442-9400 Tel.
(614) 442-9486 Fax
Certified Public Accountant
Kevin G. Breard, CPA, An Accountancy Corporation
9010 Corbin Ave.
Suite 7
Northridge, CA. 91324
(818) 886-0940 Tel.
(818) 886-1924 Fax
RECENT SALES OF UNREGISTERED SECURITIES
Upon organization, the management of the Company created incentive stock
options covering a total of 1,000,000 shares and exercisable at $.01 per
share. These options were granted to either new or existing officers or
directors at any time through the fiscal year ending June 30, 1998. In
November 1997, all 1,000,000 of these options were exercised at $.01 per share;
thus, the Company received $10,000 for the exercising of these options.
In July 1997 (pursuant to Reg. 504 of the Securities Act of 1933), the Company
sold 195,000 "units," whereby each unit consisted of one share of Common Stock
and two warrants. Each unit was sold at $.10 per unit. Each warrant was
exercisable by the holder thereof to purchase one common share of the Company
at an exercise price of $2.50 per share. The warrants were immediately
detachable from the common shares for separate transfer and were exercisable
from the date of the offering circular (July 1, 1997) for a period of twelve
months thereafter. At the discretion of the Board of Directors of the Company,
and on thirty days prior written notice to warrant holders, the exercise period
of the warrants could be extended, or the exercise price of the warrants could
be reduced. At any time during the exercise period of the warrants, or any
extension thereof, the Company could, on thirty days prior written notice, call
the warrants for redemption at a price of $.0001 per warrant. The warrants
would expire and become void on conclusion of their exercise period or any
extension thereof, if applicable. Of the original 390,000 warrants issued,
306,743 warrants were exercised (total $766,857.50).
Since inception to present, the Company has issued "restricted" shares of
Common Stock to various parties. The following is a list of the amount of
"restricted" shares issued for cash to 6/30/99, the price in which they were
issued at, and the consideration received:
Number of "restricted" shares sold Price per share Consideration received
600,000 $ .08 $ 50,000
4,605,000 $ .10 $ 95,000
1,300,000 $ .12 $161,831
819,000 $ .14 $114,660
1,725,000 $ .20 $345,000
3,500,000 $ .24 $850,000
1,000,000 $ .31 $310,000
275,000 $ .50 $137,500
55,000 $ 1.00 $ 55,000
62,700 $ 2.00 $125,400
With respect to these shares of Common Stock issued by the Company, the Company
believes that these transactions did not involve any public offering, in as
much as all these shares were issued to the Company's Officers, Directors and
others, who purchased the shares for investment purposes only and not with a
view to further public distribution. Further, no commissions were paid to any
persons in connection with such sales, no advertising of any nature was made in
connection with the sale of said shares, all Company information was made
available to said purchasers, and said purchasers were required to execute a
subscription agreement restating the aforementioned, among other things.
Accordingly, the Company believes that the aforementioned transactions were
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended.
Since inception to 6/30/99, the Company has issued 12,466 "restricted" shares
of Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $2.50 per share (total consideration $31,165).
Since inception to 6/30/99, the Company has issued 10,000 "restricted" shares
of Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $2.00 per share (total consideration $20,000).
Since inception to 6/30/99, the Company has issued 1,100 "restricted" shares of
Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $1.00 per share (total consideration $1,100).
Since inception to 6/30/99, the Company has issued 2,556,500 "restricted"
shares of Common Stock to various parties for consideration of services
rendered, at a Fair Market Value of $.05 per share (total consideration
$127,825).
Since inception to 6/30/99, the Company has issued 121,600 "restricted" shares
of Common Stock to various parties for consideration of services rendered, at a
Fair Market Value of $.01 per share (total consideration $1,216).
Since inception to 6/30/99, the Company has issued 6,838,000 "restricted"
shares of Common Stock to various parties for consideration of services
rendered, at a Fair Market Value of $.0001 per share (total consideration
$683.80).
Since inception to 6/30/99, the Company has issued 41,293 "restricted" shares
of Common Stock to various growers for the purchase of their harvest, at a Fair
Market Value of $1.00 per share (total consideration $41,293).
In November 1997, the Company entered into an agreement with NTECH Corporation
(formerly Minus 9, Inc., a Nevada Corporation) which developed a coded
microparticle product known as StuffDust. This agreement gives the worldwide
license in regard to this product to the Company, which allows for the use of
the particle in the manufacture of various paper products. As payment for this
license, the Company issued 125,000 "restricted" shares of common stock.
These shares were issued at a Fair Market Value of $.05 per share (total
consideration $6,250). (See notes to Consolidated Financial Statements for
more specifics).
Warrants were sold to and exercised by investors and a director. Restricted
Shares of Common Stock were sold to investors as well as employees of the
Company. Restricted Shares of Common Stock were also issued for services
rendered to employees and service providers to the Company.
From July 1, 1999 through Sep. 30, 1999, the Company has issued an additional
11,298,055 Restricted Shares of Common Stock for cash as well as for services
rendered by employees and consultants to the Company.
In May 1998, the Company entered into an agreement to acquire 100% of the net
assets of Werner Zoellig AG and Glulam Lumber Mfg. For 3,000,000 shares of
Common Stock. The stock was valued at $4.00 per share. (See the notes to
Consolidated Financial Statements for more specifics.) The Company has since
sold this subsidiary to focus on their core business, i.e., industrial hemp
cultivation and processing.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation states the following:
"No director of the corporation shall have personal liability to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty or
loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware Corporation Law, or (d) for any
transaction from which the director derived an improper personal benefit."
The Company's BY-LAWS, Section 7.4, Indemnity, states the following:
"The corporation shall indemnify its directors, officers and employees to the
fullest extent allowed by law, provided, however, that it shall be within the
discretion of the Board of Directors whether to advance any funds in advance of
disposition of any action, suit or proceeding, and provided further that
nothing in this section 7.4 shall be deemed to obviate the necessity of the
Board of Directors to make any determination that indemnification of the
director, officer or employee is proper under the circumstances because he has
met the applicable standard of conduct set forth in subsections (a) and (b) of
Section 145 of the Delaware General Corporation Law."
At the present time, the Company is in the process of obtaining D & O
(Directors and Officers) insurance.
/s/ SUSAN BRANA
Susan Brana
Chairman of the Board of Directors
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Financial Statements
June 30, 1999 and June 30, 1998
(Audited)
KEVIN G. BREARD, C.P.A.
AN ACCOUNTANCY CORPORATION
To the Board of Directors
Consolidated Growers & Processors, Incorporated
Monterey, California
Independent Auditor's Report
I have audited the accompanying consolidated balance sheets of Consolidated
Growers & Processors, Incorporated and Subsidiaries as of June 30, 1999 and
1998 and the related consolidated statements of operations and changes in
stockholders' equity, and changes in cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.
I have 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 financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the 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 provides a reasonable basis
for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Growers & Processors, Incorporated and Subsidiaries as of June 30,
1999 and 1998, and the consolidated results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's operations to date have
resulted in substantial net losses of $1,946,435 and $544,410 during the years
ended June 30, 1999 and 1998, respectively. The Company has experienced
financial difficulties, and there will be unforeseen problems and difficulties
in the next 12 months. However, the Company appears to have a viable plan to
continue in business. As discussed in Note 1 and in Management's Discussion
and Analysis, Going Concern and Capital Resources and Liquidity, the plan
includes a revenue increase and continued cash proceeds from equity offerings
to support operations and to invest in capital equipment for expansion in the
industry. The sole reason for the positive equity balance is the continuing
effort of company personnel to sell common stock. There is no certainty they
will be able to continue to do so, nor is there any assurance the Company's
plan will be realized to sustain operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ KEVIN G. BREARD, CPA
Kevin G. Breard, CPA
Northridge, California
September 25, 1999
NORTHRIDGE OFFICE PLAZA,
9010 CORBIN AVENUE, SUITE 7
NORTHRIDGE, CALIFORNIA 91324
PH (818) 886-0940 FAX (818) 886-1924
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Balance Sheet
Assets
For the year ended June 30,
1999 1998
Current Assets
Cash and cash equivalents $ 88,683 $ 143,171
Accounts receivable, net 731,351 -
Inventories 156,583 87,663
Prepaid expenses and other current assets 5,756 858
Total current assets 982,373 231,692
Other assets
Property, plant and equipment, net 167,414 175,468
Note receivable related party 24,200 -
Investments 300,784 195,089
Net assets of discontinued operations and
assets held for disposition - 12,163,922
Total other assets 492,398 12,534,479
Total assets $ 1,474,771 $ 12,766,171
Liabilities & Stockholders' Equity
Current liabilities
Accounts payable $ 206,767 $ 4,627
Current portion of long term debt 25,476 -
Total current liabilities 232,243 4,627
Long-term liabilities
Note payable, net of current portion 76,427 98,027
Total long-term liabilities 76,427 98,027
Total liabilities 308,670 102,654
Stockholders' equity
Common stock, $0.0001 par value, 50,000,000
shares authorized, 32,174,802 shares issued,
32,173,802 outstanding at June 30, 1999 and
11,379,100 shares issued and outstanding
at June 30, 1998 3,217 1,138
Common stock to be issued 35,778 12,370,378
Additional paid-in capital 3,666,077 845,885
Accumulated deficit during the development stage - (544,410)
Accumulated deficit (2,490,845) -
Accumulated other comprehensive income (44,926) (9,474)
Treasury stock, at cost, 1,000 shares in
1999, 0 shares in 1998 (3,200) -
Total stockholders' equity 1,166,101 12,663,517
Total liabilities & stockholders' equity $ 1,474,771 12,766,171
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Operations
For the Year Ended June 30,
1999 1998
Revenue
Hemp seeds, grains and by-products $ 1,181,865 -
Total revenue 1,181,865 -
Costs and expenses
Costs of hemp seeds, grains, and transportation 790,830 -
General and administrative expenses 1,927,896 705,166
Research and development 158,990 4,848
Total costs and expenses 2,877,716 710,014
Net ordinary income (1,695,851) (710,014)
Other income and expenses
Other income $ 14,277 1,682
Other expenses (55,944) -
Total other income and expenses (41,667) 1,682
Income (loss) from continuing operations
before provision for taxes (1,737,518) (708,332)
Provision for income taxes - -
Income (loss) from continuing operations (1,737,518) (708,332)
Discontinued operations:
Income from operations of Werner Zoellig
AG & Glulam Lumber Mfg., net of tax 205,457 163,922
Loss on disposal of Werner Zoellig AG
& Glulam Lumber Mfg., net of tax (414,374) -
Income loss from discontinued operations (208,917) 163,922
Net income (loss) $(1,946,435) $(544,410)
Income (loss) from continuing
operations per share $ (0.08) $ (0.10)
Net income (loss) per share $ (0.09) $ (0.08)
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
For the Year Ended June 30,
1999 1998
Cash flows from operating activities
Net income (loss) from continuing operations $ (1,737,518) $ (708,332)
Adjustments to reconcile net income (loss)
from continuing operations to net cash used
by operating activities:
Depreciation 36,200 456
Foreign currency translation (35,452) (9,474)
Issuance of common stock for
goods and services 922 337
Issuance of additional paid-in
capital for goods and services 138,465 118,838
Income from Zoellig operations 205,457 163,922
Loss on sale of investment in Zoellig (250,452) -
(Increase) decrease in:
Accounts receivable (731,351) -
Inventory (68,920) (87,663)
Prepaid expenses and other current assets (4,898) (858)
(Decrease) increase in:
Accounts payable 202,140 4,627
Total adjustments (507,889) 190,185
Net cash used by operating activities (2,245,407) (518,147)
Cash flow from investing activities
Purchase of investments (105,695) (359,011)
Purchase of property and equipment (28,146) (175,924)
Net cash used in investing activities (133,841) (534,935)
Net cash flows from financing activities
Net (increase) loans to related parties (24,200) -
Proceeds from issuance of short term debt 25,476 -
Proceeds from issuance of long-term debt - 98,027
Repayment of long term debt (21,600) -
Proceeds from issuance of common stock 1,157 801
Proceeds from additional paid-in capital 2,681,727 727,047
Proceeds from common stock to be issued 35,778 370,378
Issuance of common stock to be issued (370,378) -
Purchase of treasury stock (3,200) -
Net cash provided by financing activities 2,324,760 1,196,253
Net increase (decrease) in cash and
cash equivalents (54,488) 143,171
Cash and cash equivalents
at the beginning of the year 143,171 -
Cash and cash equivalents at the end of the year $ 88,683 143,171
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
For the Year Ended June 30,
1999 1998
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ -0- $ -0-
Income taxes $ -0- $ -0-
Noncash investing and financing transactions
Issuance of common stock in the year ended
June 30, 1998 for $112,925 in outside services
and $6,250 for a license
Common stock $337
Additional paid-in capital 118,838
Total $ 119,175
Issuance of common stock for net assets acquisition in the year ended June
30, 1998. In the acquisition the Company purchased the net assets of Werner
Zoellig AG & Glulam Lumber Mfg. The purchase was accomplished via issuing
3,000,000 shares of stock at $4.00 per share.
Issuance of common stock in the year ended June 30, 1999 for $139,387 in
goods and outside services
Common Stock $ 922
Additional paid-in capital 138,465
Total $ 139,387
On December 31, 1998 the Company sold back the acquired assets and liabilities
of Werner Zoellig AG and Glulam Lumber Mfg. ("Zoellig"). This was a noncash
transaction. The stock given in exchange for the net asset and liabilities was
returned to the Company and canceled. The stock given in the initial purchase
was worth $12,000,000, the value of Zoellig. When the Company disposed of
Zoellig on December 31, 1998, the book value of the Company was $12,414,374.
The book value of Zoellig appreciated $414,374, but when the Company disposed
of Zoellig, no consideration was received for the increased value.
Accordingly, a noncash loss of $414,374 was recorded in the Statement of
Operations.
The accompanying notes are an integral part of these financial statements
[Enlarge/Download Table]
Consolidated Growers & Processors, Incorporated and Subsidiaries
Consolidated Statement of Changes in Stockholder's Equity
Accumulated Accumulated
Additional Other Stock Deficit During
Common Stock Paid-in Comprehensive To Be Development Treasury
Shares Amount Capital Income Issued Stage Stock Totals
Common stock issued
for cash at $.000033
per share 4,123,000 $ 412 $ (277) $ - $ - $ - $ - $ 135
Common stock issued
for services at
.0001 per share 1,000,000 100 - - - - - 100
Common stock issued
for cash at $.10
per share 195,000 20 19,480 - - - - 19,500
Common stock issued
for cash at $2.50
per share 79,600 9 198,991 - - - - 199,000
Common stock issued
for cash at $.01 per
share to officers 1,000,000 100 9,900 - - - - 10,000
Common stock issued
for cash at $.20 per
share 1,000,000 100 199,900 - - - - 200,000
Common stock issued
for cash at $.20 per
share to officers 500,000 50 99,950 - - - - 100,000
Common stock issued
for cash at .10 per
share to officers 950,000 95 94,905 - - - - 95,000
Common stock issued
for services at $.05
per share 2,256,500 225 112,600 - - - - 112,825
Common stock issued
for cash at $.50 per
share 150,000 15 74,985 - - - - 75,000
Common stock issued
for license at $.05
per share 125,000 12 6,238 - - - - 6,250
Cash contributed by
officer - - 29,213 - - - - 29,213
Warrants exercised,
stock to be issued 148,151 - - - 370,378 - - 370,378
Stock subscribed,
stock to be issued
at $4.00 per share 3,000,000 - - - 12,000,000 - - 12,000,000
Foreign currency
translation
adjustment - - - (9,474) - - - (9,474)
Net income (loss) - - - - - (544,410) - (544,410)
BALANCES AS OF
JUNE 30, 1998 14,527,251 $ 1,138 $ 845,885 $ (9,474)$ 12,370,378 $ (544,410) $ - $12,663,517
Reclassification
of stock to be
issued at
June 30, 1998 - 315 12,370,063 - (12,370,378) - - -
Sale of subsidiary
(Zoellig) back to
stockholders (3,000,000) (300)(11,999,700) - - - - (12,000,000)
Issuance of stock
for services 9,224,459 922 138,465 - - - - 139,387
Issuance of stock 11,423,092 1,142 2,311,364 - - - - 2,312,506
Foreign currency
translation
adjustment - - - (35,452) - - - (35,452)
Stock subscribed,
stock to be issued - - - - 35,778 - - 35,778
Treasury Stock (1,000) - - - - - (3,200) (3,200)
Net income (loss) - - - - - (1,946,435) - (1,946,435)
BALANCES AS OF
JUNE 30, 1999 32,173,802 $ 3,217 $3,666,077 $ (44,926) $ 35,778 $ (2,490,845) $ (3,200) $ 1,166,101
The accompanying notes are an integral part of these financial statements
Consolidated Growers & Processors, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
NOTE 1: ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
General
Consolidated Growers & Processors, Incorporated was incorporated under the laws
of the State of Delaware on June 10, 1997 for the primary purpose of providing
financing, technical and marketing expertise to the farming, processing and
marketing of products from industrial hemp and other industrial crops. The
Company was a development stage enterprise in the prior year: July 1, 1997 -
June 30, 1998. Most of the efforts were devoted to financial planning; raising
capital; recruiting and training personnel; developing markets; and starting up
production. For the year ended June 30, 1999, the Company planned principal
operations have commenced and significant revenue was recognized.
The accompanying consolidated financial statements include the accounts of
Consolidated Growers & Processors, Incorporated (the Parent) and its wholly
owned Subsidiaries Consolidated Growers & Processors, Canada Ltd. (CGP Canada),
NAWARO Beteiligungsgesellschaft mbH (NAWARO), and its 98% owned subsidiary
Consolidated Growers & Processors, Europe (CGP Europe) (collectively, the
Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Going Concern
The Company's minimal operations to date have resulted in a substantial
operating loss. The sole reason for the positive equity balance is the
continuing effort of the Company personnel to sell Common Stock. There is no
certainty they will be able to continue to do so. The Company anticipates
revenue from the sale of products currently being grown to substantiate growth.
The Company has had financial difficulties. However, the Company has a plan in
its third year of operation to be more of a going concern.
First, the Company plans to sell substantially more planting seed, thus
creating more operating revenue. The Company plans to have 40,000 acres
planted in Spring 2000, an increase of 119% from Spring 1999. Additionally, by
growing multiplication seed and producing its own planting seed, the Company
can realize greater profit margins.
Second, the Company plans to expand its revenue stream by selling raw
material (seed for oil), oil, nut and protein powder, and fiber for automotive
and non-woven applications.
Third, the Company is planning a securities offering or seeking financing for
up to $25 million to allow for the purchase of state-of-the-art capital
equipment. This cash infusion will also help sustain operations.
Fourth, the Company is laying the foundation for year round planting and
harvesting by planting test plots in Australia, Africa and South America.
Fifth, more countries are allowing and sometimes encouraging the growth of
industrial hemp. Seemingly, sales should increase for the fiscal year end
June 30, 2000 and in future periods.
Sixth, the Company's increased name recognition should help sales in the third
year. The Company is involved in a worldwide organization and a University to
further establish itself as the leader in industrial hemp.
Summary of Significant Accounting Policies
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The financial statements for the prior year ending June 30, 1998 have been
restated in accordance with APB 30: Reporting the effects of disposal of a
segment of a business. This allows for comparable financial statements due to
the discontinued operation from a subsidiary, Zoellig.
The Parent and the Subsidiaries have allowed borrowing and lending on an
interest free basis.
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and equipment are recorded at cost. Depreciation of property and
equipment is recorded on the straight-line method over the respective useful
lives of the assets.
Inventory is valued at the lower of cost or market. Inventory will be recorded
on a first-in first-out basis.
Revenue is recognized upon the transfer of title to the growers. This usually
is the physical delivery of hemp seed to the growers. Hemp can be classified
as an annual crop, having a cycle of less than one year. Because the Company
is a global purveyor of seeds, the transaction of the transfer of title to the
growers will be recorded as a sale. Accordingly, the Company's inventory and
cost of hemp seed sold will be adjusted for this revenue recognition cycle.
If the Company has sold the seed to the growers on a credit basis, then decides
to purchase the growers' harvest, then this will be accounted for as a separate
transaction. These transactions could occur as a result of the Fall 1999
harvest to be recorded in the financial statements for the year ending June 30,
2000.
Research and development expenditures are expensed as incurred.
Investments are recorded under the cost basis of accounting for investments.
Although the Company may have a greater than a 20% ownership interest, if the
Company cannot exert daily control or management influence, like a board
director, then it seems that the cost basis of accounting to be a more
reasonable basis for fair financial presentation.
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of the foreign subsidiaries
are translated into U.S. dollars at year-end exchange rates. Income and
expense items are translated at the average rates of exchange prevailing during
the year. The adjustments resulting from translating the financial statements
of the foreign subsidiary are reflected in stockholders' equity.
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share" ("EPS"). SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS on the face of all statements of operations issued
after December 15, 1997 for all entities with complex capital structures.
Adoption of SFAS No. 128 had no effect on the Company's financial statements.
Basic EPS is computed as net income (loss) divided by the weighted averaged
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares that may be issued
through stock options, warrants, and other convertible securities.
Loss per share is computed using the weighted average number of common shares
outstanding. At June 30, 1999 and 1998 the weighted average number of shares
outstanding were 22,429,496 and 7,144,964 respectively. The computation of
loss per share does not include common stock equivalents because the Company
does not carry these instruments.
NOTE 2: ACCOUNTS RECEIVABLE, NET
The accounts receivable are trade contracts with growers for the production of
industrial hemp. The Company will receive the receivable balance over two
installment periods: November 30, 1999 and January 31, 2000. No material
amounts were provided for an allowance for doubtful accounts at June 30, 1999.
NOTE 3: INVENTORIES
1999 1998
Inventories consist of:
Grain $ 134,947 $ 53,467
Planting seed 11,061 34,196
Straw bales 10,575 -
Total $ 156,583 $87,663
NOTE 4: INVESTMENT
The Company purchased 15% ownership interest in Badische Naturfaseraufbereitung
GmbH (BaFa) for $169,689 for the year ended June 30, 1998. At June 30, 1999,
the Company would increase its ownership interest of BaFa. The total BaFa
investment at June 30, 1999 is $300,784. An additional interest in BaFa was
still in negotiations at the fiscal year end. After the fiscal year end, the
Company invested another $52,737 in BaFa. The financial statements carry the
investment on the cost basis for both years. The primary reason for the
investment in BaFa is that BaFa has represented to the Company that it
possesses the required skills to operate as a mechanical processing facility
for industrial hemp crops. BaFa then would provide industrial hemp fiber to
the Company, as ordered, at the prevailing fair market wholesale prices.
For the year ended June 30, 1998, the Company had made investments in hemp
fiber technology of $25,400. For the year ended June 30, 1999, these
capitalized costs were written off to research and development.
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
Depreciable
1999 1998 Lives
Machinery & equipment $ 198,557 $ 175,468 5 years
Furniture & fixtures 5,513 - 7 years
Total property, plant and equipment 204,070 175,924
Accumulated depreciation (36,656) (456)
Total property, plant and
equipment, net $ 167,414 $ 175,468
Depreciation expense for the years ended June 30, 1999 and June 30, 1998 was
$36,200 and $456 respectively.
NOTE 6: NOTE RECEIVABLE-RELATED PARTY
The note is unsecured, non-interest bearing, and due on demand. The related
party is NTECH Corporation. A majority shareholder in the Company is also a
majority shareholder in NTECH.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Effective on October 1, 1997, the Company signed an agreement with the
Ukrainian Academy of Agricultural Sciences/Institute of Bast Crops (the
"Institute") whereby the Institute exclusively licensed to the Company
certain industrial hemp registered seed varieties, which were bred by the
Institute.
Under the terms of this agreement, the Institute will provide seed production
services for the Company on an exclusive basis for certain specified seed
varieties in the following geographic territories: North America, Central
America, South America, Africa, Australia, New Zealand and Asia (excluding the
countries of the former Soviet Union).
The Company is committed to pay a royalty of 5% of the gross sales price
(excluding the costs of packaging, insurance, taxes, duties, transportation or
other non-production expenses) of these seed varieties to the Institute. This
agreement will continue in effect until canceled by either party upon providing
three years notice to the other party.
On November 15, 1997, the Company entered into an agreement with NTECH
Corporation (formerly Minus 9 Inc.), a Nevada Corporation, which had
developed a coded micro particle product known as StuffDust. This agreement
gives the worldwide license in regard to this product to the Company, which
allows the use of the particle in the manufacture of various paper products.
As payment for this license, the Company issued 125,000 shares of common stock
in 1997, and is committed to pay Minus 9 Inc. royalties on net revenues derived
from the sales of this product. Royalties range from 4% of net revenues to
7.5%, depending upon such factors as user application and volume of sales.
Regardless of net revenues derived from the sale of particle products, the
Company is committed to pay the following annual minimum advance royalties:
Year Amount
1999 $ -0-
2000 100,000
2001 100,000
2002 and thereafter 100,000
Minimum advance royalty payments will be credited against royalties due based
upon actual sales.
This license agreement will terminate upon the expiration of the last-to-expire
patent relating to the licensed product.
NOTE 8: RELATED PARTY TRANSACTIONS
Related party transactions are summarized as follows:
1. 8,474,000 shares of common stock was issued to the Chairman of the Board
for $1,309,169. The value of the shares ranged from $0.10 to $0.249671.
2. 1,625,000 shares of common stock was issued to the chief financial officer
for $252,231. The value of the shares ranged from $0.0001 to $0.249671.
3. Additional stock as issued at par for services to parties who invested money
and resources into the Company (primarily the officers, directors and
employees). These parties were generally working without monetary
compensation. The Board of Directors voted these shares be issued at par
within the first three years of start up operations to parties who did not earn
compensation for their services.
A valuation was used that considers the Company's low public float and the
characteristics of penny stocks. The Company believes the potential dilution
to other shareholders for these shares is more than offset by the intention of
these individuals to hold these securities as a long-term investment and for
their services to increase value for all shareholders.
NOTE 9: INCOME TAXES
No provision for income taxes have been provided. The Company incurred a loss
for the year ended June 30, 1999. Also, the Company has carried forward a loss
from its first year of operation. The Company has elected to carry forward the
losses to offset future taxable income. The losses incurred for the years
ended June 30, 1998 and June 30, 1999 can be carried forward until they expire
at June 30, 2018 and June 30, 2019, respectively. There is no assurance that
future taxable income will be sufficient to realize the net asset or utilize
the tax carryforward. Thus, the Company has certain deferred tax assets
related to the net operating loss carryforward. The Company has determined
that it is more likely than not that the deferred tax asset may not be
realizable. Therefore, no valuation allowance has been recorded.
NOTE 10: DISPOSITION
On May 31, 1998, the Company purchased the net assets of Werner Zoellig AG. &
Glulam Lumber Mfg. The purchase was accomplished via issuing 3,000,000 shares
of stock at $4.00 per share.
On December 31, 1998, after seven (7) months, the Company decided to sell the
subsidiary back to its prior shareholder. The Company took back the issued
shares of stock, and the ownership reverted back to its prior ownership.
This transaction qualifies as a disposal of a business segment. This
subsidiary had a separate product line of glue laminated wooden beams.
NOTE 11: SEGMENT INFORMATION
Industry Segment Data
The Company will have one business segment: industrial hemp fiber, seeds, oil,
and by-products. No revenues have been received from imports. The Canadian
sales are exclusively within Canada.
Consolidated Growers & Processors, Incorporated (the Parent) employs two (2)
people, Consolidated Growers & Processors, Canada Ltd. employs five (5) people,
Consolidated Growers & Processors, Europe employs one (1) person and NAWARO
Beteiligungsgesellschaft mbH employs one (1) person.
Geographic Area Data
June 30, 1999
United Adjustments
States Canada Europe and Consolidated
Eliminations
Revenue from
continuing operations
Unaffiliated customers $ -0- $1,181,865 $ -0- $ - $ 1,181,865
Transfers between
geographic areas - - - - -
Total revenues from
continuing operations -0- 1,181,865 -0- - 1,181,865
Earnings from continuing
operations before
income taxes (1,656,960) 5,788 (52,618) - (1,703,790)
Identifiable assets
From continuing
operations 1,464,743 938,682 445,567 (1,374,221) 1,474,771
Net assets from
Continuing
Operations 1,342,905 (64,870) (66,863) (45,071) 1,166,101
June 30, 1998
United Adjustments
States Canada Europe and Consolidated
Eliminations
Revenue from
continuing operations
Unaffiliated customers $ -0- $ -0- $ -0- $ -0- -0-
Transfers between
geographic areas - - - - -
Total revenues from
continuing operations -0- -0- -0- -0- -0-
Earnings from continuing
operations before
income taxes (618,279) (65,853) (24,200) - (708,332)
Identifiable assets
from continuing
operations 789,211 96,061 380,254 (663,277) 602,249
Net assets from
continuing
operations 599,121 (71,377) 46,485 89,288 663,517
Dates Referenced Herein
| This ‘10SB12G/A’ Filing | | Date | | Other Filings |
|---|
| |  |
| | 6/30/19 | | None on these Dates |
| | 6/30/18 |
| | 6/30/00 |
| | 1/31/00 |
| Filed on: | | 1/5/00 |
| | 11/30/99 |
| | 9/30/99 |
| | 9/25/99 |
| | 7/1/99 |
| | 6/30/99 |
| | 12/31/98 |
| | 7/1/98 |
| | 6/30/98 |
| | 5/31/98 |
| | 12/15/97 |
| | 11/15/97 |
| | 10/27/97 |
| | 10/1/97 |
| | 7/1/97 |
| | 6/10/97 |
| | 4/27/97 |
| List all Filings |
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