UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the fiscal year ended April 30, 1996
Commission File #0-27832
COMPOST AMERICA HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2603175
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Grand Avenue Englewood, New Jersey 07631
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (201)541-9393
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
1. Common Shares, no par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes __X__ No_____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
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State the issuer's revenues for its most recent fiscal year:
$46,954
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of a specified date within the past 60
days - $ 23,411,245 (approximate as of June 30, 1996)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1. Common Stock - 15,177,966 shares outstanding as at July 31,
1996.
Documents Incorporated By Reference - None
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
1285 Ave. of the Americas
3rd Floor
New York, New York 10019
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PART I
Item 1. Description of Business
Background
The Company was incorporated on August 20, 1981 in the State of New Jersey
under the name Alcor Energy and Recycling Systems, Inc. ("Alcor") for the
purpose of designing, constructing, managing and operating resource recovery
facilities. On January 23, 1995 Alcor acquired all of the outstanding shares of
Compost America Company of New Jersey, Ltd. ("CANJ"), which had been
incorporated on December 17, 1993 in the State of Delaware for similar purposes,
and subsequently changed its name to Compost America Holding Company, Inc. The
Company conducts its business directly and through its wholly-owned subsidiary
CANJ. The Company has two other wholly-owned subsidiaries, both presently
inactive; Compost America Technologies, Inc., incorporated in Delaware on June
15, 1995 to license certain rights to composting technology and Gardenlife Sales
Company, Inc., incorporated in Delaware on March 1, 1996 to handle future sales
of produced compost by the Company. CANJ itself has six subsidiaries, Newark
Recycling and Composting Company, Inc. ("NRCC"), incorporated in Delaware on May
10, 1994, owned 75% by CANJ and 25% by Prince Georges Contractors, Inc., doing
business as Potomac Technologies, Inc. ("PTI"), an unaffiliated company, with
NRCC itself owning 100% of American Bio-Ag, and five wholly-owned subsidiaries,
Monmouth Recycling and Composting Co., Inc., incorporated in Delaware on May 10,
1994, Chicago Recycling and Composting Company, Inc., incorporated in Delaware
on August 4, 1995, Gloucester Recycling and Composting Company, Inc.,
incorporated in Delaware on August 15, 1994, Philadelphia Recycling and
Composting Company, Inc., incorporated in Pennsylvania on March 8, 1995 and
Miami Recycling and Composting Company, Inc., incorporated in Delaware on
November 17, 1995, which itself owns all of the outstanding common stock of
Bedminster Seacor Services Miami Corporation, a Florida corporation. Unless
otherwise indicated, references to the Company includes the Company and its
subsidiaries and CANJ and its subsidiaries.
The Company is a development stage company which, through its
subsidiaries, will construct, manage and own enclosed organic material recycling
compost manufacturing plants. Composting is a method of converting the organic
portion of garbage (Municipal Solid Waste--"MSW") and sewage sludge into a peat
moss like product with agronomic benefits. The Company will be paid fees
("tipping fees"), just as landfills and incinerators are paid, for receiving and
processing the organic waste and sewage sludge. The Company also will receive
revenues from the sale of the compost it produces. The Company anticipates that
it will be competitive with other waste management options by locating its
plants convenient to urban centers, thus eliminating the need to use local
transfer stations and reducing the transportation costs associated with
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hauling waste to distant out-of-state landfills. The Company's first project
will be a 200,000 square foot fully enclosed composting facility in Newark, New
Jersey ("Newark Project"), which is 75% owned by the Company through CANJ, and
25% owned by PTI.
The Company's executive offices are located at 320 Grand Avenue, Englewood,
New Jersey 07631-4355. The Company's telephone number is (201) 541-9393; fax
(201) 541-1303.
Introduction
The Company is a development stage company in the business of developing
large scale Company owned organic waste recycling facilities which will process
commercial and residential food, soiled paper and coated cardboard, among other
organic wastes, which are found in municipal and commercial solid wastes
("organic waste") and sewage sludge ("biosolids") from municipal waste water
plants into compost and, in the business of the land application of biosolids.
The Company through its subsidiary entities, currently has five projects
actively under development and is negotiating for additional projects which it
plans to acquire through acquisition, merger or joint venture. To date, the
Company has had no revenues from operations and has utilized private financing
for the development of each of its projects and for general corporate expenses.
The Company uses a combination of patented and proven technologies
currently in use at composting plants in Europe and the United States. The
Company plans to construct fully enclosed, environmentally sound facilities,
each capable of processing 300 to 700 tons per day of varying amounts of organic
waste and biosolids. Initial efforts have been concentrated (1) in New Jersey,
where a progressive regulatory environment, extensive waste supply and some of
the highest organic waste and biosolids disposal ("tipping") fees in the United
States make it a most attractive market for the Company to develop composting
facilities and where, in Newark, New Jersey, the Company hopes shortly to
commence construction of its first enclosed composting facility; (2) in Florida,
where the City of Miami has entered into a 30 year "put or pay" contract with a
corporation which the Company recently has acquired, and where the Company, on
March 29, 1996, purchased property for which it has received a state composting
permit; (3) in Chicago, where a site has been optioned and a permit application
has been filed and a Facility Construction and Development Permit received for a
composting facility; (4) in Monmouth County, New Jersey, where an agreement has
been executed to acquire property where the Company believes a permit may be
obtained to build an invessel composting facility, and (5) in Gloucester City,
New Jersey, where a demonstration composting project is in the final stages of
planning and, upon proof of concept to the local Mayor and Council, will be
upgraded to a full scale commercial facility.
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The Compost Industry
Introduction
The Company believes that the compost industry has entered into a period
that should allow for rapid growth. Economic, legal and regulatory factors have
converged to create the impetus for the development of composting facilities
capable of converting the organic fraction of municipal and commercial solid
waste ("MSW") and sewage treatment plant biosolids into a "beneficial use
product" called compost.The Company hopes to capitalize on this opportunity by
developing company owned composting facilities to be constructed by Black and
Veatch Corporation and to be operated by the Professional Services Group, Inc.,
unaffiliated companies which construct and manage similar plants across the
United States. The Company expects that its composting facilities will have
sufficient resources to assure the efficient, effective and cost-competitive
production of high quality compost. The Company expects to be able to compete
effectively on price ("tipping fees") with landfills and incinerators and yet be
environmentally superior in that the organic fraction of municipal and
commercial solid waste and biosolids will be recycled into environmentally safe
compost.
State of the Waste Industry
The quantity of solid waste and biosolids generated in the United States
each year continues to grow while the trends in managing this waste are
changing. Landfill capacity in many areas of the country continues to diminish
due to the stricter regulation of Subtitle D of the Federal Resource
Conservation and Recovery Act. Twelve states have less than five years of
available capacity remaining. Incineration has reached a ceiling in terms of
future growth due to environmental (Clean Air Act) and "NIMBY" (Not In My
Backyard) concerns regarding the desirability of additional incinerating
capacity and future sites. Curbside recycling of plastic, glass, aluminum,
ferrous and clean paper materials continues to grow, maturing from source
separation regulation to the common daily practice of almost 100,000,000
Americans. The source separation of plastic, glass, aluminum and ferrous
materials has, in turn, significantly increased the quality of the organic
content of the remaining waste, making composting a more efficient alternative
to either incineration or to landfilling. The "Ocean Dumping Act" banned ocean
dumping of sewage sludge and has mandated land based use alternatives. The
"Clean Water Act" has resulted in dramatic increases in the quantity of "clean"
biosolids, creating further recycling (composting) opportunities. The growth of
recycling and composting can be expected to continue as regulatory,
environmental and economic pressures continue to converge. Composting is a
primary waste management method which the Company believes, unlike landfills and
incinerators, can be successfully built in urban America.
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Although the terms solid waste, garbage and trash are used as general
terms, approximately 70% of these wastes are "organic". Solid wastes include the
following:
Municipal and Residential Organic Waste
sewage sludge
septage
municipal solid waste
leaves
grass
tree stumps
stable waste
Christmas trees
Commercial Organic Waste
meat, fish, fowl processing waste
canning byproducts and residues
restaurant waste
produce processing waste
animal by-products and waste (including paunch manure)
pallets (wood, cardboard)
waxed and coated cardboard
soiled paper
school paper and cafeteria waste
grocery store waste
Solid Waste Trends
The United States each year generates approximately 300 million tons of
solid waste, of which approximately seventy percent, or 120 million tons, are
organic compostables and approximately 200 million tons of biosolids from sewage
sludge waste water plants. The following milestones have occurred which created
forces of change which had the effect of permanently restructuring America's
waste management industry and created a significant composting opportunity:
* The Federal Ocean Dumping Ban of 1988 prohibited ocean disposal of all
municipal biosolids after December 31, 1991. As a result, domestic
treatment works which had been ocean dumping were forced to develop land
based management strategies, such as composting, which offered the
beneficial use of biosolids.
* The Part 258 municipal solid waste landfill regulations of 1993 established
minimum requirements for new and existing landfills. These national
regulations put new standards in place for landfill location restrictions,
operational requirements, design standards, groundwater monitoring,
corrective action, closure and post-closure care and financial
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assurance. The result has been the closure of "open dumps" and the
upgrading of existing facilities. The Company believes that this will
result in higher landfill tipping fees and reduced capacity as substandard
facilities must spend money to upgrade, or close.
* The 40 CPR Part 503 regulations of 1993 set national standards for the
management of biosolids. These regulations establish the characteristics
that biosolids must meet for different processes and land application. They
also transform the highest quality biosolids from a waste material, heavily
regulated by state and federal law, into a product that can move freely in
commerce with no regulations beyond the production point. This results in a
level playing field throughout the United States for the distribution of
compost products to end users.
* The Federal lean Water Act of 1977 resulted in substantial funding to state
and local governments through the "Construction Grants Program" to upgrade
domestic treatment works. Through this upgrade, domestic treatment works
advanced beyond primary treatment to add secondary microbial treatment and
chemical tertiary treatment. This resulted in a production of higher
quantities of biosolids. In addition, under the National Pollutant
Discharge Elimination System permitted program, industrial pretreatment
resulted in substantially cleaner biosolids which are ideal for composting
and use as a landscape/manufactured topsoil product in commerce.
* The cessation of Federal Clean Water Act funding to state and local
governments has fueled the movement to privatization for the development of
new capacity for biosolids management, such as through in-vessel composting
facilities constructed by the Company.
* The creation of the National Compost Council by Proctor & Gamble and
environmental groups in 1990 which serves as an independent source of
unbiased technical expertise in the composting field. The Council has
published significant literature and guidance on proper composting
procedures and serves as a national clearinghouse of technical information,
bringing a high profile and level of creditability to composting.
* The national proliferation of recycling programs throughout the late 1980's
and 1990's which have removed the vast majority of inorganic materials from
the municipal waste stream. Nearly every state has adopted voluntary, and
in some cases mandatory, recycling goals. In all cases, initial efforts
focused on newspaper, aluminum cans and glass containers. Many programs
have been expanded to capture plastics, tin/bimetal cans, white goods,
household hazardous
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waste, waste oil collection, universal waste and pollution prevention
programs help ensure that any materials of concern are managed separate
from municipal waste.
* The continuing decline of urban centers led to the development, in the
1980's, of an effort to clean up and make use of the property located at
the heart of urban America. These properties are at the center of biosolids
and solid waste generation and cities want to increase their tax base and
to generate jobs. Unlike incinerators and landfills, the development of
in-vessel composting facilities becomes a compatible land use desirable to
local governments. Proximity near the source of waste generations also
reduces transportation costs and provides economies of scale which make
in-vessel composting a desirable waste management method.
Disposal Alternatives
Introduction. Approximately 62% of the solid waste generated in the United
States goes to landfill, 15% goes to energy incinerators, 1% to conventional
incinerators, and 22% is recycled (source: EPA Characterization of MSW in the
USA). These percentages will continue to change due to economic, legal and
regulatory trends which emerged in the early 1990's.
Source Reduction. Recently, there has been an attempt to emphasize on
source reduction. However, source reduction is not a disposal alternative.
Rather, it seeks to reduce the quantity of the disposable wastes at the outset.
Packaging in bulk, or leaving grass clippings on the lawn are two examples of
proposed source reduction steps. Source reduction would most likely not reduce
the amount of organic compostables available to the Company, since the materials
composted by the Company are not subject to source reduction.
Landfills. The number of landfills in the United States continues to
decline from approximately 30,000 in the 1970's to less than 3,600 today. The
continued reduction in the number of landfills will result from a combination of
factors, including increasingly stringent operating and environmental
regulations, renewed enforcement activities and a reluctance on the part of
municipalities to permit new landfills.
This continued closure of existing landfills will not only have a
significant impact on alternative technologies for disposing of organic solid
waste, but the higher cost of development, permitting and operating new landfill
space, along with increased transportation and transfer station fees, will
create a pricing floor allowing for the growth of alternative waste solutions
and technologies specifically emphasizing composting. Disposal costs, including
transportation, transfer station thruput fees and landfill tip fees, are highest
along the Eastern seaboard. In some
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areas, such as Florida, the Mid-Atlantic states and New England, disposal costs
are in excess of $64 a ton, and in northern New Jersey, New York City and Long
Island, disposal rates are in excess of $100 per ton.
Incineration. A volume reduction option for municipal and commercial waste
is incineration. There are presently less than 160 waste to energy plants in
operation in the United States with a total capacity of approximately 30 million
tons per year. Typical plants range from 400 tons per day to 2,000 tons per day.
Incinerators do not dispose of waste, they merely reduce the volume of waste
going to landfills, typically by about 90% (75% reduction by weight).
The use of incineration was the result of a significant increase in tipping
fees, the subsidizing of incinerator costs through electrical energy rates, the
acceptance of the technologies combined with operating and performance
guarantees by large credible companies and reductions in local landfill space
combined with pressures by municipalities to cap the escalation of long term MSW
disposal costs.
Local resistance to the development of new incineration plants will be a
significant deterrent to the growth of incineration as a solution to the solid
waste disposal problem. Additionally, the subsidizing through electrical energy
rates will be eliminated.
Recycling. Recycling is recognized as a waste recovery strategy whereby
waste materials are beneficially converted into useful products.
Initially,recycling included only metals, plastics, glass and some paper. Today
recycling includes "organic materials" which represent up to seventy percent
(70%) of the solid waste stream. The Company believes that composting is the
only viable method to recycle organic waste materials.
Federal, state and local laws and regulations have played an increasingly
important role in the growth of recycling. Many states and the District of
Columbia have instituted recycling laws. Such states, including New York,
California, Florida, Illinois, Maryland, New Jersey, Ohio, Pennsylvania,
Connecticut and Massachusetts, have mandated recycling goals. Some states have
mandatory source separation laws.
Recycling methods include: (1) curbside collection, (2) drop off centers,
(3) MRF (material recovery facilities), (4) recycling centers (where commingled
recyclable materials are separated for recovery through manual and automated
techniques) and (5) composting facilities where the organic fraction of MSW and
sewage sludge are processed into compost.
The Company believes that the trend toward recycling should continue to
increase for numerous reasons, including:
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1. Increasing consumer/business awareness regarding the environmental
concerns of waste disposal;
2. The development of industry solutions to using recycled materials
and in creating new products, primarily resulting from the availability of
consistent, price competitive supplies of recycled materials;
3. A proliferation of mandatory recycling goals and laws; and
4. The economic and beneficial use of processing the organic fraction
of MSW and sewage sludges into compost.
The Interrelationship of Waste Management Methods. While each of these
three major waste management methods will be used at various times and
locations, composting should experience dramatic growth.
Compost facilities will recycle organic waste materials, including the
organic fraction of MSW and sewage sludge, so as to meet federally mandated
regulatory guidelines. While some portion of the various organic waste materials
will be commingled with plastic, glass and metals and processed together, a
significant portion of the commercially generated waste will be source separated
and not commingled, thereby offering a significant opportunity for composting.
Incinerators and/or refuse derived fuel facilities will seek to receive
mostly dry wastes and will seek to limit those items that are high in nitrogen
and moisture or which can be readily recycled (composted). Landfills will
receive those wastes that are not incinerated, recycled and/or composted.
The National Market
Organic recycling will require the use of in-vessel composting facilities
designed to meet all environmental regulations while producing a beneficial use
product (compost) using sewage sludge and the organic fraction of MSW as the
feed stock. The demand for organic recycling will be driven by higher tipping
fees, reduced local landfill space, higher incinerator costs and the overall
impact of urban development on a nationwide basis.
The Company believes that this projected increased demand for organic
recycling will create the opportunity for the Company to expand its existing
project base from New Jersey, Chicago, Illinois, and Miami, Florida, into other
major urban areas in the United States. The Company estimates that within the
next ten years there will be a significant demand for in-vessel composting
facilities in urban areas throughout the United States, each with a capacity of
300-500 tons per day, capable of processing the
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organic fraction of MSW and sewage sludge. Furthermore, given to the capital
constraints of municipalities, the lack of significant state or Federal grants
or loans, and the pressing need of rapidly satisfying federal and state
requirements, the Company believes that a significant number of these facilities
can be expected to be privately owned.
The Environment For Composting In New Jersey
In 1993, the New Jersey Department of Environmental Protection
("NJDEP"),issued two comprehensive plans governing the strategy for managing New
Jersey's waste through the year 2003. These plans, the "Statewide Sludge
Management Plan Update", and the "Solid Waste Management State Plan Update
1993-2002", together with Governor Whitman's current updates, are addressing the
major problems in the waste industry in New Jersey. As a result, significant new
business opportunities, principally in the area of recycling and composting,
have developed. Important highlights of these plans include the following:
* The state must recycle sixty percent of its total waste stream and fifty
percent of its municipal waste stream by December 31, 1995. Through
calendar year 1993, the State reported having achieved a 53% total waste
stream rate (including construction debris and junked cars) and a 40%
municipal waste stream rate.
* New Jersey must cease all waste exports and become one hundred percent self
sufficient by December 31, 1999. Over the past seven years, new in-state
capacity and increased recycling have reduced exports from four million to
two million tons per year.
* Sixty-one percent of New Jersey's sewage and two million tons per year of
solid waste which is now exported to other states must be recycled,
beneficially reused or disposed of within the state by December 31, 1999.
* Composting is promoted; new incinerators are discouraged.
* One hundred sixty-eight landfills which have been closed must be
re-vegetated. Over 400 additional sites which closed prior to the State's
Sanitary Landfill Closure Statute being passed also may require
re-vegetation in the future.
* Source separated food wastes are now exempt from county waste control
regulations.
* Leaves are banned from landfill disposal or incineration statewide and
grass is a prohibited waste type for acceptance in some State issued
incinerator permits.
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The implementation of these policies, along with the enactment of
complementary legislation, has created a fertile environment for the development
of in-vessel composting plants. Therefore the Company has targeted three of its
first five facilities in the State of New Jersey. Additional elements of the
state's solid waste and sewage sludge management plans include the following:
Regionalization
The state has moved away from its previous approach which called for each
of the twenty-one counties (and one special district) to develop individual
plans for waste processing. Instead, the NJDEP is encouraging the development of
regional disposal facilities to serve more than one county. This sets the stage
for partnerships in the development of new source separated organics and MSW
composting facilities between counties which currently export waste, as well as
counties using landfills which wish to preserve capacity and counties which
incinerate and wish to reduce emissions (such as SO2 from grass) and improve Btu
values, which generally are diminished by high organic waste content.
County Solid Waste Plans
A requirement of New Jersey's solid waste plan is that each county must
submit a waste plan conforming to the objectives and requirements of the state
plan. The counties bear the primary responsibility for achieving self
sufficiency, recycling and source reduction goals established by the NJDEP. One
of the state's objectives is to manage organic wastes through composting.
Permitting Improvements
The NJDEP is involved in a comprehensive effort to streamline and improve
its overall permitting capabilities. The NJDEP recently announced a new food
waste permit which is simpler and less costly than previously required municipal
solid waste or sludge permits. The State also recently announced a program to
pursue "performance partnership agreements" where traditional operational
requirements are maintained, but programs for advanced environmental protection
will be voluntary, selected by facility owner/operators and memorialized in
consent agreements entered with the State. The benefit of entering such
agreements will be reduced bureaucratic requirements and reduced reporting and
inspection which will bring compliance costs down for the Company's planned New
Jersey facilities.
Promoting The Development Of The Compost Industry
As a follow up to the development of the solid waste and sludge management
plans, New Jersey's governor issued Executive Order No. 91 in October 1993,
requiring state agencies to purchase recycled products. Specifically, all state
agencies must now
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utilize compost and soil amendments made from organic materials in maintenance,
landscaping and construction of public lands or projects. These products shall
be used in lieu of other non-recycled products (i.e., farm topsoil, peat moss
and chemical fertilizers). The purpose of this legislation is to create new high
volume end markets for compost, a product made from recycled materials, so that
more private compost facilities will be built.
Waste Hierarchy
The state's solid waste plan is based upon a hierarchy of waste handling
and disposal methods. The waste hierarchy, in order of priority, is as follows:
* Source reduction;
* Source separation and recycling;
* Composting of source separated waste;
* Materials recovery systems;
* Solid waste composting;
* In-state landfilling and regional incineration;
* Out-of-the-state landfilling (as a short-term measure only).
The economic, regulatory and legislative environments in New Jersey have
quickly evolved to create a favorable environment for the development of
in-vessel compost plants in the state. In order for the state to achieve its
recycling and waste self-sufficiency goals, the more than $300 million dollars
per year that is presently spent on disposing of waste out of state must be
re-channeled into recycling before the end of the decade. Given that statewide
mandatory recycling has already been in effect in New Jersey for over eight
years, the only realistic way to achieve the state's recycling and
self-sufficiency goals is through source separated organic waste composting.
Other Key Factors Supporting the Company's Plans for New Jersey
In addition to the policy framework outlined above which is supportive of
developing in-vessel composting systems, a number of other key factors reinforce
the Company's initial efforts to focus on project development in the State of
New Jersey.
* Source Separated Organic material is considered a "recyclable commodity" in
New Jersey if destined for composting. It is therefore exempt from "flow
control" and can move as a "product in commerce."
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* New Jersey has had mandatory recycling in place for eight years and has
achieved a 40% MSW recycling rate. These advanced recycling programs in
each town already have removed a large percentage of inorganic material,
such as glass, aluminum, tin and bimetal cans, and plastics, thereby
creating cleaner organic waste streams.
* In terms of pricing, New Jersey has some of the highest tipping fees in the
United States, particularly in the northeastern part of the State
surrounding the Newark project site. The average tipping fee for commercial
landfill, incineration and transfer station facilities in the immediate
area of the Newark facility is nearly $102 per ton.
* From a disposal standpoint, only three facilities exist in the entire
northeastern region of the State; two mass burn incinerators and one
landfill. The landfill has less than one year of remaining capacity and
virtually no chance of being expanded. All other MSW is exported to
out-of-state landfills through expensive transfer station operations.
* The are no new disposal facilities in the development, planning or
construction stage in all of New Jersey other than those of the Company.
* Distances to major commercial out-of-state disposal facilities are
significant from most of New Jersey, and especially from its northeastern
area. For example, distances from Newark to Waste Management Inc.'s GROWS
and Tulleytown Landfills in Lower Bucks County, Pennsylvania are about 120
miles round trip, and the distance to the Empire Landfill in Taylor,
Pennsylvania is about 200 miles round trip. Since distances to commercial
out-of-state disposal facilities are too great for direct haul
transportation from the northeastern region, the use of expensive transfer
stations presently is required.
* Should waste flow regulations be eliminated, the nearest out- of-state
disposal facilities may be heavily used beyond permitted and logistical
capabilities leading to long lines, time delay and heightened regulatory
scrutiny by state and local enforcement agencies. Solid waste haulers are
primarily in the "collection" industry. Being able to move quickly in and
out of the Company's Newark facility will be of great utility to these
haulers, for whom "time is money."
* Should waste flow regulations be eliminated, demand for the use of
out-of-state landfills will increase, no doubt leading to an increase in
their tipping fees. These higher tipping fees will be supported by the
baseline requirements of the U.S.E.P.A.'s Part 258 landfill requirements
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* Should "Economic Flow Control" strategies be implemented, rates will be
market based and should stay in the range of $70 to $80 per ton.
* Most solid waste movement will be from northeastern New Jersey and New York
City to points west, bringing it past the Company's New Jersey facilities.
The Company's Response
Introduction
With proven technologies and strategically located sites in Newark, New
Jersey, Chicago, Illinois and Miami, Florida, the Company believes that it is
poised to meet a significant portion of
the organic recycling market demand.
The Company, directly and through its subsidiaries and affiliates, is in
the business of recycling organic wastes including the organic waste fraction of
MSW and sewage sludge, by converting them into compost and other soil products
which it plans to sell, through its Gardenlife Sales Company, Inc. subsidiary.
The process which the Company will employ is composting, or the controlled
decomposition of organic matter into humus (a component of soil). Like a
landfill or an incinerator operator, the Company will be paid to accept waste
from the generators of organic materials. In selected markets, like New Jersey,
Illinois and Florida, the Company believes that the opportunity to create a
profitable business based upon the efficiencies of receiving and processing
large volumes of organic waste into compost is significant.
Teaming
While each of the Company's composting facilities will be owned and
operated through a different Company subsidiary, the various projects will be
designed, engineered, constructed and, once "on-line", operated by "teaming
partners", non-affiliated entities who are proven leaders in their own core
competencies. These strategic teaming partners either already have executed
teaming agreements with the Company, or will do so shortly. The Company intends
to use the same teaming partners as it develops its in-vessel composting
facilities throughout the United States. The efforts of all project teaming
partners are coordinated through the Company, and all technology development,
siting, permitting, waste procurement, financing and compost marketing will be
done by the Company itself "in house." The Company's principal teaming partners
are their core competencies are:
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Engineering, Procurement and Construction - Black & Veatch
Operations - Professional Services Group
Construction - VRH Construction Corp.
Financing - Paine Webber Inc.
Feasibility Consultant - R. W. Beck
Composting Facility Consultant - Robert Tardy & Associates Biosolids Land
Application & Composting - Potomac Industries, Inc.
Black & Veatch. Established in 1915, Black & Veatch has evolved into one of the
largest and most respected engineering and construction companies in the world.
With more than 4,800 professionals and 45 offices around the world, the firm is
constantly ranked among the top 10 firms in various design and construction
categories according to leading environmental and construction industry
publications. Black & Veatch Environmental Enterprises provides turnkey services
- - project development, engineering, financing, procurement, construction and
operation services - and program/construction management for public and private
sector environmental projects. Black & Veatch will serve as the Engineering,
Procurement and Construction contractor for the Company's projects and will
provide a seamless transition to Professional Services Group for the actual
operation of the facility.
Professional Services Group. Professional Services Group ("PSG") is the nation's
leading operator of municipal wastewater treatment facilities. PSG is a
subsidiary of Air & Water Technologies ("AWT"), which itself is controlled by
Compagnie Generale des Eaux ("CGE"), the world's largest municipal services
company will revenues in excess of $30 billion. PSG has extensive experience in
the operation of composting facilities, currently operating biosolids and/or
municipal solid waste composting facilities in Baltimore, Maryland; Schenectady,
New York; Bristol, Tennessee/Virginia; Hickory, North Carolina; Southbridge,
Massachusetts; and Wright County, Minnesota. PSG will operate the Company's
composting facilities.
VRH Construction. VRH Construction is one of the nation's top 200 construction
management companies. It has participated in managing large projects at La
Guardia, Kennedy and Newark airports. The Port Authority of New York and New
Jersey is a major and steady client as are all the major airlines which provide
services at these various airports.
Paine Webber, Inc. Paine Webber, Inc. is a leading full-service firm with a
distinguished 115-year history. Paine Webber has an internationally recognized
corporate brand name and a strong reputation for quality client service. Paine
Webber serves the investment and capital needs of over two million clients,
including individuals, institutions, corporations, state and local governments
and public agencies in the United States and abroad. Among the firm's key
businesses are private client brokerage,
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investment banking, municipal securities, real estate, institutional equity and
fixed income sales and trading, research, international asset management and
transaction services. Paine Webber will serve as senior underwriter and
financial advisor for all of the Company's projects and has executed an
exclusive Master Letter Agreement to perform this function.
R. W. Beck. R. W. Beck's Solid Waste Practice provides a complete range of
services in the fields of engineering, planning, management, economics,
environmental analysis and operations analysis. The Solid Waste Practice works
with all types of solid waste systems including landfills, incinerators,
recycling systems, material recovery facilities and refuse derived fuel plants.
This diverse range of knowledge and skills makes R. W. Beck particularly expert
in evaluating composting systems within a complete solid waste management
overview. R. W. Beck has 12 offices and over 650 employees nationwide.
Robert Tardy & Associates. The principal of Robert Tardy & Associates, Robert
Tardy, is a nationally recognized expert in compost facility design. Mr. Tardy
directed all aspects of The Composting Council's Operating Guide, which has
become a composting industry standard. Mr. Tardy has eleven years experience in
biosolids management and has been engaged as a technical consultant for the
Newark composting facility.
Potomac Technologies, Inc. Potomac Technologies, Inc. ("PTI") has successfully
performed many contracts related to the operation, maintenance and construction
of wastewater treatment facilities. PTI maintains the distinction of being one
of the only minority owned entities in the United States engaged in the business
of managing biosolids. From 1984 to 1991, PTI successfully performed the
composting of biosolids for the city of Washington, D.C. and presently is a
subcontractor to a joint venture under contract with the District of Columbia to
beneficially use approximately 1,000 wet tons per day of biosolids through land
application. PTI is a 25% equity partner in the Company's Newark project.
Description Of Composting Technology Used By The Company
The Company has licensed or contracted for three patented technologies, one
of which already has been permitted by the NJDEP. These three technologies will
be provided to the Company through agreements with Bedminster Bio Conversion
Corporation, D.J. Egarian and Associates and Compost Industries, LLC. The
Company's facilities will be similar to operating sites in Europe and the United
States. See "Process Description" below. A typical Company facility will convert
approximately 300 to 700 tons per day of organic waste materials including MSW
and/or sewage sludge into compost.
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Process Description
There are four stages to the composting process:
(1) The first stage involves the receipt of the incoming organic waste
materials. Trucks entering the site will be weighed at a scale and will unload
the materials indoors onto a "tipping floor." The waste material will be
inspected and accepted. (Any unacceptable materials will either be immediately
removed by the trucker, or will be deposited into an on-site container for later
removal.)
(2) Stage two involves mixing the organic materials and commencing the
composting process. The material received will be loaded into rotary mixing
drums, called "Bio Wet Mills" 12 feet or greater in diameter and between 100 and
220 feet long, where it will be processed for 12 to 72 hours under precise
controls. The rotary action of the drums causes the heterogenous and varied
carbonaceous and nitrogenous organic waste material to be reduced in size to
less than one inch while homogenizing the entire mix. When the desired
characteristics have been reached, this thoroughly mixed and partially
decomposed material will be discharged from the mixing drums and screened to
remove any remaining large and/or inert items. These removed inert materials
will be placed in a container for recycling or offsite disposal.
(3) In stage three, the screened homogenized organic material will be
placed in an aerated composting/curing system for up to 90 days, during which
time the material will be agitated and processed through biological activity.
Temperature, oxygen and moisture monitors connected to a computerized monitoring
system will indicate when water and/or air needs to be added in order to
maximize the rate of biological activity (i.e., the composting process). When
the desired compost characteristics are reached, the cured compost will be
removed.
(4) During the final stage, the compost will be processed through
multiple 3/8 inch screens and placed into storage. There will be up to 90 days
of final storage capacity at each facility or at satellite storage and blending
sites.
The objective of composting indoors in a controlled environment is to
optimize the processing time to convert the organic waste into compost. Another
objective is to maximize the volume processed for a given capital cost (which in
turn minimizes the capital cost per ton). A key to accomplishing these goals is
to monitor and control the composting process through the entire system.
Incoming waste materials are mixed to achieve the desired carbon to nitrogen
content, moisture level, pH, and material sizing. From the time decomposition
starts in the Bio Wet Mills to when it ends in curing area, these and other
process parameters are continuously measured. The process variables which will
be
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controlled so that composting occurs at the fastest possible rate are: (a) the
moisture content, (b) the oxygen level, (c) the frequency of agitation (or
turning of the material), (d)temperature, (e) pH and (f) C/N ratio and (g)
particle size. The Professional Services Group facility operator will be
responsible for managing the facilities and monitoring the computerized control
system to achieve optimal performance.
Odor Control
An important aspect of the facility's design is its odor control system.
The Company's plants will be completely enclosed, with doors opened only to
accept deliveries of organic waste materials and to ship finished compost. Each
facility will be under negative air pressure, meaning that air will be drawn
into the plant when the doors are opened. Process air within the facility will
be processed through a chemical filter and/or a bio-filter system, resulting in
the emission of only clean air, water vapor and carbon dioxide into the
atmosphere. The facilities are being designed so that there will be no negative
off-site impact generated by the composting facility.
Transportation Impact
All of the Company's sites are easily accessible from major state highways
and each will have sufficient on-site queuing to manage movement of in and
out-bound trucks. As a result, the transportation impact on the local business
communities will be minimal.
Noise
All composting operations will be within enclosed structures and the
operations will not generate excessive levels of noise, thus not adversely
impacting surrounding property owners. Noise levels will be within all State and
Federal noise parameters. Primary sources of noise will be trucks accessing the
site, the rotary drum motors and front end loaders which operate inside the
buildings. As a result, any impact from noise generated from the operations will
be minimal. Facilities will be located in industrial areas or on sites away from
residential areas.
Compost Marketing
Certain of the Company's principals were actively engaged in the marketing
of compost in New Jersey and Pennsylvania in the 1980's and early 1990's. They
contracted with various municipalities, including the City of Philadelphia,
Washington, D.C., and others, to market the compost produced at the
municipalities' sewage sludge composting facilities. The marketing activities
included performing research studies with agricultural departments in leading
universities, developing compost markets,
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and managing all aspects of the transportation and application of the finished
products.
All of the compost will be marketed under the GARDENLIFE or TURFLIFE
tradenames. Compost and blend products made with compost, such as topsoil, will
be sold by Garden Life Sales Company, Inc. in combination with local landscape
supply companies. Garden Life Sales Company, Inc. has developed a variety of
markets for selling compost and blend products. Some of these users will include
landscapers, growers, greenhouses, sod farms, golf courses,
municipalities,schools and others.
At present, Garden Life Sales Company, Inc. has had some of its product
line certified and approved by NOFA-NJ, the association of organic farmers in
New Jersey.
Project Descriptions
Newark Project
Newark Recycling and Composting Company, Inc., owned 75% by CANJ and 25% by
PTI, is developing a minimum 680 ton per day in-vessel composting facility
together with an 800,000 gallon per day biosolids dewatering facility located on
a 12 acre site in the East Ward of Newark, New Jersey, at the convergence of
Routes 78, 1, 9 and the New Jersey Turnpike. The plant is designed to compost
sewage sludge from any one or a combination of sludge generators from the New
Jersey/New York metropolitan area while utilizing source separated
food/paper/wood wastes as the bulking agent. The plant also is permitted to
dewater liquid sludge which may be provided from municipal and commercial
wastewater plants located in New Jersey. The City of Newark granted preliminary
approval to build the facility on November 21, 1994 and final site plan approval
on January 30, 1995. Final design drawings and plans have been submitted to the
NJDEP. NJDEP air permits have been received, and notice of intent to issue
facility operating permits was issued on August 2, 1995. Full construction
drawings have been completed and construction bids are being received.
A final R.W. Beck market demand and feasibility report is anticipated in
September 1996, together with final cost estimates, a guaranteed maximum price
construction contract from Black and Veatch Construction Corporation and a
maximum price/minimum thruput operations, maintenance and management contract
from Professional Services Group. The managing underwriter for the project,
Paine Webber Incorporated, has advised the Company that it anticipates a closing
of approximately $75,000,000 in principal amount of project revenue bonds of the
New Jersey Economic Development Authority in September of 1996 to finance this
facility. Construction is anticipated to begin immediately thereafter with
completion during the first quarter of 1998.
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Miami Project
The Company, through a subsidiary Miami Recycling and Composting
Company,Inc., acquired from Bedminster Bioconversion Corporation all of the
outstanding stock of its subsidiary Bedminster Seacor Services Miami
Corporation, a corporation developing a 150,000 ton per year MSW/sludge
co-composting project in northwestern Dade County. The project is based upon a
30 year put or pay contract between the City of Miami and Bedminster Seacor
Services Miami Corporation for the composting of all of its residential MSW. The
Company also purchased a 45 acre acceptable site which has zoning and state
approvals to construct the facility. The Dade County Industrial Development
Authority has authorized the issuance of up to $15,000,000 of tax exempt bonds
to finance the project and authorization for additional funds is being sought.
Chicago Project
Chicago Recycling Company, Inc., a wholly owned subsidiary of the Company,
is developing an in-vessel composting facility for source separated organic
waste and sewage sludge on a site adjacent to a new materials recovery facility
and MSW transfer station, both under construction. The Company has entered into
an agreement to purchase the site for which all local approvals have been
received and applications for required State of Illinois permits were
submitted,with the state permit issued in December 1995. Although financing
arrangements have not been completed, the Company anticipates financing the
project through the issuance of tax-exempt municipal bonds by the local
industrial development authority.
Gloucester Project
Gloucester Recycling and Composting Company, Inc., a wholly owned
subsidiary of the Company, together with Compost Industries, LLC, Professional
Services Group, Inc., Tardy and Associates and others have organized a
composting project to demonstrate the collection and composting of source
separated organic wastes from residential and commercial sources in an urban
setting. Compostable wastes will be collected from selected neighborhoods in
Gloucester City and from commercial establishments with compostable wastestreams
that service the same area. Waste providers will include supermarkets,fast food
restaurants, convenience stores and other organic waste generators. The organic
wastes will be composted by the Company using a new patented in-vessel
composting system which the Company has licensed from Compost Industries, LLC.
Compost from the demonstration project will be tested and analyzed for safety,
nutrient content and physical characteristics.
Upon the successful operation of this Demonstration Project, the Company
plans to seek approval to construct a 300 ton per day
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food/fiber waste composting facility at the same site. The materials to be
processed will come from surrounding New Jersey counties as well as from
Philadelphia. The Company anticipates that all required local approvals will be
obtained by the first quarter of 1997. The Company signed a thirty year
lease/purchase agreement with the City of Gloucester to purchase the property
owned by the City.
Monmouth Project
Monmouth Recycling and Composting Co., a wholly owned subsidiary of the
Company, has entered into a purchase option agreement on 15 acres in Freehold
Township, Monmouth County, New Jersey. The property is adjacent to a permitted
outdoor windrow composting facility which the Company had signed an agreement,
amended various times, to purchase by June 30, 1996. Though the June 30, 1996
closing did not occur, the Company continues to be involved in negotiations to
purchase the outdoor composting facility. The outdoor facility is permitted to
compost up to 50,000 tons per year of supermarket produce waste and yard wastes.
The Company had intended to merge these two facilities, and may attempt to
revive the agreement if the environmental concerns are satisfactorily resolved.
Company Financing
The ability of the Company to successfully complete these projects is
dependent upon, among other factors, continued Company financing to cover
Company overhead, the completion of project financing to cover the costs of
project construction and the acquisition of all applicable permits to allow for
the construction and operation of the projects.
Project Financing
On February 13, 1996 the Company entered into an agreement (the "Master
Letter Agreement") with Paine Webber Incorporated ("Paine Webber") pursuant to
which Paine Webber agreed to act as sole financial advisor and senior managing
underwriter for the Company's projects. On that same date the Company's 75%owned
subsidiary, Newark Recycling & Composting Co., Inc. ("NRCC") entered into an
agreement (the "Newark Project Letter Agreement") with Paine Webber pursuant to
which Paine Webber agreed to act as sole financial advisor and senior managing
underwriter for NRCC to raise up to $75 million in a senior-lien tax exempt bond
financing to finance the Newark Project. On that same date the Company's
wholly-owned subsidiary, Monmouth Recycling & Composting Co., Inc.("MRCC")
entered into an agreement (the "Monmouth Project Letter Addendum") with Paine
Webber pursuant to which Paine Webber agreed to act as sole financial advisor
and sole managing underwriter to raise up to $30 million in a senior-lien
tax-exempt bond financing to finance the Monmouth Project. Paine Webber will
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act exclusively on behalf of the Company in those geographic areas where the
Company intends to operate composting facilities. All agreements with Paine
Webber are subject to certain terms and conditions as set forth therein.
Paine Webber anticipates a closing of approximately $70 million for the
Newark Project in June 1996, making funds available for the commencement of
construction for this Project immediately thereafter. Without this project
financing, the Company will be unable to construct or operate this proposed
facility, and the Company's future viability would be in doubt.
Facilities Sitings and Permits
Most aspects of location, construction and operation of composting
facilities are regulated by the states and subject to state and Federal
environmental laws. Obtaining local approvals and state air, water and operating
permits is a detailed and complex process, in many cases taking years to
successfully complete. This is especially true where the compost facility is to
be located in or near urban areas. Representative approvals to be obtained in
most jurisdictions include Local Planning Boards, Zoning Boards, Solid Waste and
Water Disposal Boards, Composting Operation Permits, Air Permits and Building
Permits.
The Company's Permits
The Company believes that the permits it already has acquired, and its now
proven ability to acquire these permits, reflects the experience and expertise
of its management in this area, and provides the Company with an advantage over
possible competitors seeking to enter similar geographic markets. To date, the
Company has acquired or is in the process of acquiring the following permits for
each of its five projects:
Newark Project
1. November 21, 1994--City of Newark grants preliminary approval to build
the facility
2. January 30, 1995--City of Newark grants final site plan approval to
build the facility
3. September 26, 1995--New Jersey Department of Environmental
Protection("NJDEP") issues air quality regulation permit controlling emission
limits
4. October 16, 1995--Application for a Treatment Works Approval for liquid
sludge storage and treatment is filed with NJDEP, with approval anticipated in
June 1996
5. October 25, 1995--NJDEP Division of Water Quality issues a
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New Jersey Pollutant Discharge Elimination System permit for a 680 ton per day
facility. This permit controls the dewatering, lime stabilization, storage,
transfer,composting and distribution of sludge and organic bulking agent.
6. November 27, 1995--City of Newark Department of Engineering issues a
Soil Erosion and Sediment Control permit.
7. February 26, 1996--Company notified that Final Construction Approval has
been authorized by the City of Newark.
Gloucester Project
1. September 1, 1994--NJDEP Division of Solid Waste Management issues a
Demonstration Project Approval for a 10-ton per day in-vessel facility to
compost source separated organic waste, vegetative and food processing waste and
NJDEP Air Pollution Control Program issues a Temporary Certificate to Operate
Control Apparatus permit to demonstrate the feasibility of collecting and
composting source separated organic wastes from residential and commercial
sources.
Chicago Project
1. All local approvals received from Village of Riverdale, Illinois.
2. December 1, 1995--Illinois Environmental Protection Agency, Bureau of
Land, issues a construction and development permit for a facility to compost 350
tons per day of source separated organics and sewage sludge.
Miami Project
1. County zoning approvals to construct 285,000 ton per year MSW/sludge
co-composting project in western Dade County have been received.
2. A state composting permit has been received.
In addition, the Company believes that it will benefit from the Interstate
Memorandum of Understanding under which the states of New Jersey, California,
Illinois and Massachusetts have signed a reciprocal technology transfer
agreement whereby the states will mutually accept support data and the results
of demonstrations, evaluations and certifications of environmental technologies
that are conducted by the other member state environmental agencies. Once fully
established, this process should greatly reduce the Company's permitting
timeframes and application submission costs since it already has obtained
benchmark permits in New Jersey and Illinois.
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Employees
The Company presently employs a total of 7 persons, 2 of whom are
administrative personnel and 5 of whom are involved in project development. None
of the Company's employees are subject to collective bargaining agreements and
the Company has not experienced any labor difficulties, work stoppages or
strikes.
Item 2. Description of Property
The Company maintains its executive, finance and accounting offices at 320
Grand Avenue, Englewood, New Jersey rent-free within the offices VRH through
March 31, 1996 and thereafter at $4,000 per month for one year, and thereafter
on a year by year basis. The Company also leases an office at 350 South Main
Street, Suite 313, Doylestown, Pennsylvania. This office consists of
approximately 2,000 square feet of space used for administrative purposes
only,which are leased from an unaffiliated third party. In December 1995 Newark
Recycling and Composting Company, Inc. purchased a 12 acre site in the East Ward
of Newark, New Jersey at the convergence of Routes 78, 1, 9 and the New Jersey
Turnpike on which the Newark project will be located.
On March 29, 1996 the Company purchased 45 acres in northwest Dade County,
Florida. The Company has entered into an option agreement to purchase the
properties for its projects in Chicago, Illinois and Monmouth County, New
Jersey. The Company has executed a lease/purchase agreement for the required
site for the Gloucester, New Jersey project from the City of Gloucester.
Item 3. Legal Proceedings
There are no material legal proceedings in which the Company is involved.
Item 4. Submission of Matters to a Vote of Security Holders -
None
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's shares of Common Stock presently are being traded on the
Electronic Bulletin Board of the NASD under the symbol "CAHC", and also are
listed in the "pink sheets" of the National Quotation Bureau, Inc. The following
table shows, for the calendar periods indicated, the range of reported high and
low bid quotations for these shares. Such prices necessarily reflect inter
dealer prices, without retail mark up, mark down or commission and may not
necessarily represent actual transactions.
There were no recorded bids for the common shares of Alcor during the
period May 1, 1993 through October 31, 1994, and no recorded bids or offers for
the common shares of Alcor or the Company during the period November 1, 1994
through April 28, 1995. Furthermore, the Company has outstanding only 199,500
freely tradable common shares prior to the effective date of this offering. On
November 28, 1994 Alcor effected a 1 for 20 reverse split of the shares of its
Common Stock.
Quarterly Common Stock Price Range
High Bid Low Bid
-------- -------
1993/1994:
Quarter ended 7/31.............. no bid no bid
Quarter ended 10/31............. no bid no bid
Quarter ended 1/31.............. no bid no bid
Quarter ended 4/30.............. no bid no bid
1994/1995:
Quarter ended 7/31.............. no bid no bid
Quarter ended 10/31............. no bid no bid
Quarter ended 1/31.............. unpriced unpriced
Quarter ended 4/30............... unpriced unpriced
1995/1996:
Quarter ended 7/31............ $6.00 $4.00
Quarter ended 10/31............. $6.50 $5.50
Quarter ended 1/31............ $6.50 $5.75
Quarter ended 4/30............ $6.00 $4.75
As of July 31, 1996, there were approximately 300 holders of record of the
shares of the Company's Common Stock.
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To date, the Company has not paid any cash or other dividends on its Common
Stock and does not anticipate paying dividends in the foreseeable future.
Moreover, the Company's ability to pay dividends on its Common Stock in the
future may be limited by future preferred stock issuances or by lenders.
Item 6. Plan of Operation
Introduction
The Company is a "development stage" company and has not generated
significant operating revenues from its inception to date. The Company does not
expect to generate any significant operating revenues until the Company has
successfully financed, constructed and begun commercial operations of one or
more of its compost project facilities currently in development. Since a merger
between a "public shell" and a "private operating company" is considered to be a
recapitalization of the operating company, with no recognition of intangibles as
a result of the merger, the acquisition of the Company's subsidiary, Compost
America Company of New Jersey, Ltd. (the "private operating company"), on
January 23, 1995, has been accounted for as a reverse purchase of the assets and
liabilities of the Company by Compost America Company of New Jersey, Ltd.
Accordingly, the consolidated financial statements represent assets, liabilities
and operations of only Compost America Company of New Jersey, Ltd. prior to
January 23, 1995 and the combined assets, liabilities and operations of both
companies for the ensuing period. The financial statements reflect the purchase
of the stock of Alcor Energy and Recycling Systems, Inc. (the "public shell"),
the former name of Compost America Holding Company, Inc., by Compost America
Company of New Jersey, Ltd. for stock and the assumption of liabilities of
$49,094, this amount being the historical cost of the assets and liabilities
acquired. All significant inter-company profits and losses from transactions
have been eliminated.
Since its inception, the Company has met its liquidity needs from the
proceeds of the sale of its common stock and from loans made by VRH Construction
Corporation, a principal shareholder of the Company whose owners are directors
of the Company. The Company received $1,365,860 from private sales of its common
stock during the fiscal year ended April 30, 1996, $906,409 from private sales
of its common stock during the fiscal year ended April 30, 1995 and $692,000
during the period December 1993 through April 30, 1994. Since April 30, 1996
through July 31, 1996, the Company has raised an additional $248,396 through
private sales of its common stock. In addition, VRH Construction Corporation
made loans to the Company totalling $2,869,116 during the fiscal year ended
April 30, 1996 and $640,072 during the fiscal year ended April 30, 1995. Since
April 30, 1996 through July 31, 1996, VRH Construction Corporation has loaned an
additional $385,000 to the Company. Total funds
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raised from the sale of common shares and loans from shareholders from December
1993 through April 30, 1996 are $6,473,457, plus an additional $723,396 since
April 30, 1996 through July 31, 1996.
Significant revenues from operations are not anticipated until 1998, when
the Company's initial projects will be fully constructed and operational. Until
that time, the Company anticipates that it will need an additional $3,000,000 to
meet current debt obligations, provide additional development capital for its
various projects and fund ongoing corporate overhead expenses. The Company
anticipates that it will be able to secure these funds from the sale of
additional common shares and/or the issuance of additional debt. In addition,
the Company expects to have completed project financing for the construction of
the Company's facility in Newark, New Jersey prior to the end of 1996 and the
Company may receive development fees and management fees in connection with this
project financing.
The Company does not expect to perform any significant product research and
development and does not expect any significant changes in the number of
employees in the current fiscal year. The Company does expect to commence
construction of its Newark composting facility during the current fiscal year,
and, financing and weather permitting, may also commence construction of its
Miami and Chicago facilities.
Item 7. Financial Statements
(a) Consolidated Balance Sheet as at April 30, 1996
(b) Consolidated Statement of Income (Loss) for the fiscal years ended
April 30, 1996, April 30, 1995 and December 17, 1993 (inception)
through April 30, 1996
(c) Consolidated Statement of Stockholders' Equity from December 17, 1996
(inception) through April 30, 1996
(d) Consolidated Statement of Cash Flows for the fiscal years ended April
30, 1996, April 30, 1995 and December 17, 1993 (inception) through
April 30, 1996
(e) Notes to Consolidated Financial Statements
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
On October 10, 1995 Zeller Weiss & Kahn, CPAs replaced Rosen Seymour Shapss
Martin & Company, CPAs as accountants for CANJ by mutual agreement between
CANJ's Board of Directors and the resigning accountants. No report on CANJ's
financial statements issued by the resigning accountants contained an adverse
opinion or disclaimer of opinion or was qualified or modified as to
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uncertainty, audit scope or accounting principles, nor were their any
disagreements on any matter of accounting principals or practices, financial
statement disclosure or auditing scope or procedure.
On March 1, 1995 Zeller Weiss & Kahn, CPAs replaced Fallon & Fallon as
accountants for Alcor (whose name was changed to the Company) by mutual
agreement between the Company's Board of Directors and the resigning
accountants. No report on Alcor's or the Company's financial statements issued
by the resigning accountants contained an adverse opinion or disclaimer of
opinion or was qualified or modified as to uncertainty, audit scope or
accounting principles, nor were their any disagreements on any matter of
accounting principals or practices, financial statement disclosure or auditing
scope or procedure.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange
Act
Directors and Executive Officers
The following persons were directors and officers of the Company as at July
31, 1996.
Name Age Position(s)
- ---------------------------- ----------- ------------------------
Victor D. Wortmann, Sr. 59 Chairman of the Board;
Director
Roger E. Tuttle 56 President and
Principal Executive
Officer; Director
John B. Fetter 45 Executive Vice Presi-
dent; Treasurer;
Director
George S. Chu 47 Senior Vice President;
Principal Financial
Officer
Gary Sondermeyer 38 Vice President--
Operations
Alfred A. Rattie 42 Vice President--
Marketing
Robert E. Wortmann 57 Secretary; Director
Pasquale J. Dileo 44 Director
The by-laws provide that the Directors of the Company serve until the next
annual meeting of shareholders and until their successors are duly appointed and
qualified. All officers serve at the pleasure of the Board of Directors. There
are at present no committees of the board of directors.
Victor D. Wortmann, Sr. is a Director and Chairman of the Board. He has
been Chairman since January 1994. He is the President of VRH Construction
Corporation ("VRH") which, along with his brother Robert E. Wortmann, he founded
in 1958. VRH specializes in facility construction at airports and supporting
services. Mr. Wortmann is the principal in charge of all phases of the
construction business for VRH. He has been the project executive for numerous
projects including terminal construction and expansions at JFK International
Airport in New York for American Airlines, Alitalia, British Airways, Eastern
Airlines, Flying Tigers, Northwest Airlines, Pan American and TWA. Mr. Wortmann
is a graduate of the University of Miami, School of Business (B.A. 1959). He is
an unsalaried part time employee of the Company.
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Roger E. Tuttle is the Company's President, Chief Executive Officer and a
Director, and was its founder. He has twelve years experience in compost
research and in developing marketing programs for the beneficial use of compost,
serving as the President for Earthlife Sales Co. from 1988 through March 1990,
President of Bird Compost Management, Inc. from April 1990 through March 1992
and of Compost Management, Inc. from March 1992 until it was merged into the
Company. Mr. Tuttle was a founding board member of the Composting Council in
Washington, D.C., the industry trade association. He is a member of the New
Jersey Department of Environmental Protection sludge management task force,
responsible for developing a statewide sludge management plan, is a contributor
to the United States Environmental Protection Agency research on beneficial use
of organic waste.
Mr. Tuttle has conducted research and developed utilization plans for City
and State Governments on compost quality and use. He has consulted on plant
growth in compost, and has conducted research on mass balances of different
composting configurations. Mr. Tuttle has consulted on the startup of several
in-vessel composting facilities, has conducted a review of active and closed
compost facilities in the United States and has participated in the design and
implementation of programs for compost use for the revegetation of landfills and
strip mines. He is a nationally recognized speaker and has authored or
co-authored manuals and literature for use in the compost industry. Mr. Tuttle
is a graduate of Fairleigh Dickinson University (B.A. Economics,
Chemistry/Biology--1963 and M.B.A.--1969).
John B. Fetter is the Company's Executive Vice President and Treasurer, and
is a Director, and has been affiliated with the Company since April 1992. He is
a co-founder of Chicago Recycling Company, subsequently acquired by the Company,
and has more than 20 years experience in engineering, construction management
and project development. In September 1991, he founded Foundation Systems, Inc.
("FSI"), an organization specializing in developing energy and environmental
projects and implementing energy strategy and strategic management programs for
client organizations, and has served as FSI's president since its founding. At
FSI he has consulted to the boards of municipal agencies as well as Fortune 500
companies across the United States on the integration of engineering and
economics into the design and construction of complex projects. From January
1985 through August 1991 he served as senior consultant, manager and later a
partner of Delian Corp. and its successor companies, and led the team which
developed the study which resulted in the construction of the Midland
Cogeneration Venture, the largest co-generation project in the United States.
Mr. Fetter has consulted on numerous environmental projects on topics
ranging from compliance strategies to environmental impact statements. He has
significant experience in financial, legal, and
31
<PAGE>
operational analyses, strategic planning, project management, and systems
implementation. He has developed state of the art computer applications for
management of engineering, environmental compliance, transportation,
construction, marketing and distribution organizations. Mr. Fetter's extensive
environmental background has included management of environmental compliance
projects for several firms and sites requiring definition of policies and
procedures for implementing CERCLA, RCRA, and SARA legislation for
manufacturing, process, and petrochemical facilities. He has participated in the
development of cogeneration and energy projects as well as solid waste
management projects. He has been responsible for planning, scheduling, cost
control and contract administration of construction projects ranging from
wastewater treatment facilities to nuclear generating facilities. Mr. Fetter is
a graduate of the University of Colorado (B.S. Chemical Engineering--1975) and
The University of Pennsylvania's Wharton School of Business (M.B.A.--1981).
George S. Chu is the Company's Senior Vice President and Chief Financial
Officer. Mr. Chu, who joined the Company in August, 1995, has ten years of
financial experience in the structuring and financing of in excess of
$300,000,000 in mergers and acquisitions and in corporate equity and debt
placements. He was previously employed as a Managing Director with LINC
Financial Services, Inc., Chicago, Illinois, a finance company (1994-1995), as
Chief Operating Officer with Glenbeigh, Inc., West Palm Beach, Florida, a health
care company (1993), as a Managing Director with Rickel and Associates, Inc.,
Millburn, New Jersey, investment bankers (1991-1993), as a Vice President with
Van Kampen Merritt, Inc., Philadelphia, Pennsylvania, investment bankers
(1987-1991), as a Vice President with Butcher & Singer, Inc., Philadelphia,
Pennsylvania, investment bankers (1986-1987) and as a Manager with APM, Inc.,
New York, New York, management consultants (1983-1986). Mr. Chu is a graduate of
the Wharton School of Business (M.B.A.-- 1983) and Adelphi University
(Ph.D.--1979). In 1992 and 1993 Mr. Chu was named as one of several defendants
in two private civil actions alleging violations of the anti-fraud provisions of
the federal securities laws regarding the sale of certain bonds while he was a
vice president at Van Kampen Merritt Inc.. Mr. Chu has denied these allegations.
One of the actions has been settled. The other action is still pending.
Gary Sondermeyer, the Company's Vice President--operations, joined the
Company in January 1996. For the prior 16 years, he was employed by the State of
New Jersey, Department of Environmental Protection ("NJDEP"). From January 1988
through December 1995, when he left the Department, Mr. Sondermeyer was the
Assistant Director of Recycling and Planning, Division of Solid Waste Management
of NJDEP. In that capacity, he administered nine major program areas, including
statewide solid waste planning and coordination of the county planning process;
source reduction, recycling and markets development activities; special waste
planning for such
32
<PAGE>
materials as medical waste, contaminated soils and asbestos; statewide sludge
management planning and policy development; maintenance of New Jersey's solid
waste and recycling statistical database; the Division's financial assistance
program; registration of all solid and hazardous waste facilities; the A-901
disclosure statement review program and New Jersey's Clean Committee. His major
responsibilities included updating the Statewide Solid Waste Management Plan,
processing county plan amendments, administration of New Jersey's waste flow
rules, providing technical assistance on recycling, stimulating markets for
recycled products, oversight of source reduction and recycling programs for
State offices, administering New Jersey's Medical Waste Management Plan and
updating the State's Sludge Management Plan. As Assistant Director, he managed a
staff of 90 professional and clerical employees. Mr. Sondermeyer is a graduate
of Cook College (B.S. 1979) and the Rutgers Graduate School (Master of City and
Regional Planning, 1984).
Alfred A. Rattie, the Company's Vice-President of Marketing, is responsible
for directing the Company's compost marketing and land application efforts. He
has twelve years experience in compost research and in developing marketing
programs for the beneficial use of compost, serving as the Vice President for
Earthlife Sales Co. from 1988 through March 1990, Vice President of Bird Compost
Management, Inc. from April 1990 through March 1992 and of Compost Management,
Inc. from March 1992 until it was merged into the Company. Mr. Rattie is a
charter member of New Jersey SCORE (Statewide Committee for Organic Recycling
Education), the Governor's group formed to address the state's organic waste
supply problems. His expertise has allowed him to develop a working relationship
with the New Jersey Department of Environmental Policy as he has permitted over
25 large compost use projects within the state. In addition, he has co-authored
technical literature on compost use and is a frequent speaker concerning compost
issues. Mr. Rattie is a graduate of Pennsylvania State University (B.A.- 1975).
Robert E. Wortmann, the Company's Secretary and a Director, is the Vice
President of VRH Construction Corporation. He, along with his brother, Victor D.
Wortmann, Sr. founded VRH in 1958. He is the principal in charge of all
estimating, and has been the project executive on numerous projects including
the Delta Air Lines Terminal at LaGuardia Airport, the People Express and
Continental Terminals at Newark International Airport, the Air France and Sabena
Terminals at JFK Airport, the Port Authority of New York and New Jersey
Maintenance Complex, the Northwest Airlines Maintenance Complex at LaGuardia
Airport, and the current International Terminal at Newark Airport. Mr. Wortmann
is a graduate of the University of Miami, School of Engineering (B.S.C.E. 1961).
He spends approximately five hours per week on Company business, and receives no
compensation as either an officer or director of the Company.
33
<PAGE>
Pasquale ("Pat") J. Dileo, a Director of the Company, has been the
President of Select Acquisitions, Inc., a diversified holding company, since
1993. From 1989 through 1993 he was the president of Tinton Downs, Inc., a
healthcare development company. Prior thereto, from 1988 through 1989, he was
employed by Merrill Lynch Realty as Director of Commercial Real Estate. He is a
1976 graduate of Trenton State College with a degree in industrial arts
education.
Item 10. Executive Compensation
(b) Summary Compensation Table
Name Annual Compensation All
and Fiscal Other Other
Principal Year Annual Compen-
Position Ended Salary Bonus Comp. Long-Term Comp. sation
- -------- ----- ------ ----- ----- --------------- ------
Roger E. 4/30/96 $ 60,000 none none none none
Tuttle, 4/30/95 $ 60,000 none none none none
Pres. CEO 4/30/94 $ 40,000 none none none none
John B. 4/30/96 $ 10,000 none none none none
Fetter, 4/30/95 $ 30,000 none none none none
Vice-Pres. 4/30/94 $ 30,000 none none none none
Alfred A. 4/30/96 $ 60,000 none none none none
Rattie, 4/30/95 $ 60,000 none none none none
Vice-Pres. 4/30/94 $ 30,000 none none none none
Gary Son- 4/30/96 $ 30,000 none none 250,000 shares none
dermeyer, 4/30/95 n/a n/a n/a n/a n/a
Vice-Pres. 4/30/94 n/a n/a n/a n/a n/a
George S. 4/30/96 $ 7,500 none none none none
Chu, 4/30/95 n/a n/a n/a n/a n/a
Vice-Pres. 4/30/94 n/a n/a n/a n/a n/a
(c) Options/SAR Grants Table
Number of %age of
Shares Total
Under- Options
lying Granted
Options in Fiscal Exercise or Base Expiration
Name Granted Year Price per Share Date
- -------- ------- -------- ---------------- ----
R. Tuttle none n/a n/a n/a
J. Fetter none n/a n/a n/a
A. Rattie none n/a n/a n/a
34
<PAGE>
G. S'meyer 250,000 $2.50 12/31/2000
100,000 $0.01 12/31/2000
G. Chu none n/a n/a n/a
(d) Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Value Table
Number of
Shares Under Value of
Unexercised Unexercised
Shares Options at In-the-Money
Acquired Value FY-End; All Options at
Name on Exerc. Realized Exercisable FY-End
- ------------ --------- -------- ----------- ------
R. Tuttle none none none none
J. Fetter none none none none
A. Rattie none none none none
G. S'meyer none none 350,000 $ 999,000.
G. Chu none none none none
Note: The market price of the Registrant's common stock at the 4/30/96 fiscal
year end was $5.00 per share.
(e) Long-Term Incentive Plan ("LTIP") Awards Table
None of the persons included in (b) above were covered by any plans.
(f) Compensation of Directors
No Director of the Registrant is compensated for serving as a director.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
None of the persons included in (b) above were covered by any employment
contracts, termination of employment or change-in-control arrangements other
than as set forth in the two employment agreements set forth herein.
On May 10, 1996 the Company entered into an employment agreement with its
President, Roger E. Tuttle. His agreement provides for employment as the
Company's President through November 14, 2000 at an initial annual salary of
$225,000, with annual increases commensurate with the growth of the Company,
plus options to purchase 1,000,000 shares of the Company's common stock at $2.50
per share exercisable through November 14, 2000. In addition, he receives a
one-time bonus of $500,000 the first time that the
35
<PAGE>
Company attains sales of $5,000,000 for any one quarter.
In January 1996 the Company entered into an employment agreement with its
Vice President, Gary Sondermeyer. His agreement provides for employment as the
Company's Vice President of Operations through December 31, 2000 at an initial
annual salary of $90,000, with annual increases commensurate with the growth of
the Company, plus options to purchase 250,000 of the Company's common shares at
$2.50 per share, exercisable through December 31, 2000.
(h) Report on Repricing of Options/SARs
None
Item 11. Security Ownership of Certain Beneficial Owners and Management
As at July 31, 1996, the Company had 15,177,966 shares of its Common Stock
issued and outstanding. The following table sets forth certain information with
respect to each beneficial owner of five percent or more of the outstanding
shares of the Company's Common Stock, each officer and each director of the
Company and all officers and directors of the Company as a group. The Company
has no outstanding non-voting securities.
Amount and
Nature of
Name and Address Benefits of Percent of
of Beneficial Owners (1) Ownership Class
- ------------------------ --------- -----
George Chu 100,000 *
413 West Mt. Airy Avenue
Philadelphia, PA 19119
(Vice President)
Pasquale J. Dileo 30,000 *
832 Bay Avenue
Toms River, NJ 08753
(Director)
John B. Fetter 2,828,612(2) 18.6%
820 Gatemore Road
Bryn Mawr, PA 19010
(Vice President, Trea-
surer, Director)
Alfred A. Rattie 625,000 4.1%
29 East Ridge Avenue
Sellersville, PA 18960
(Vice President)
36
<PAGE>
Select Acquisitions, Inc. 1,308,640 8.6%
832 Bay Avenue
Toms River, NJ 08753
Gary Sondermeyer 350,000(3) 2.3%
622 White Swan Way
Langhorne, PA 19047
(Vice President)
Roger E. Tuttle 4,707,105(4) 29.1%
3105 Gibson Lane
Doylestown, PA 18901
(President, CEO,
Director)
Robert E. Wortmann 2,192,500(5) 14.2%
80 Knollwood Road
Upper Saddle River, NJ 07158
(Secretary, Director)
Victor D. Wortmann, Sr. 2,112,500(6) 13.6%
47 Mill Glen Road
Upper Saddle River, NJ 07158
(Director)
Officers and Directors As 12,345,717(7) 72.5%
As A Group (7 Persons)
- ---------------
* Less than 1%
(1) Unless otherwise indicated, each person named in the table exercises sole
voting and investment power with respect to all shares beneficially owned.
(2) Includes 2,528,612 shares owned by John B. Fetter directly, 100,000 shares
owned by Marilyn S. Fetter, his wife, 100,000 shares owned by the John T. Fetter
Revocable Trust, of which John B. Fetter is a trustee and 100,000 shares owned
by Katherine E. Fetter Revocable Trust, of which John B. Fetter is a trustee.
(3) Includes 100,000 shares owned directly and 250,000 shares which may be
acquired within sixty (60) days upon the exercise of options.
(4) Includes 2,433,509 shares owned by Roger E. Tuttle directly, 106,000 shares
owned by William Tuttle, his son, 100,000 shares owned by Kristie Tuttle, his
daughter and 100,000 shares owned by Elizabeth Tuttle, his wife. Also includes
967,596 shares over which Mr. Tuttle has voting control and 1,000,000 shares
which may be acquired within sixty (60) days upon the exercise of options.
37
<PAGE>
(5) Includes 802,500 shares owned by Robert E. Wortmann directly, 40,000 shares
owned by Mary Wortmann, his wife, 150,000 shares owned by Robert E. Wortmann,
Jr., his son, 150,000 shares owned by Erika Wortmann, his daughter, 150,000
shares owned by Andrea Wortmann, his daughter and 600,000 shares owned by VRH
Construction Corporation, a company controlled by Mr. Wortmann and his brother,
Victor D. Wortmann, Sr. Also included in the holdings of Victor D. Wortmann, Sr.
Also includes 300,000 shares which may be acquired within sixty (60) days upon
the exercise of options.
(6) Includes 812,500 shares owned by Victor D. Wortmann, Sr. directly, 200,000
shares owned by Victor D. Wortmann, Jr., his son, 200,000 shares owned by Susan
Ann Curran, his daughter and 600,000 shares owned by VRH Construction
Corporation, a company controlled by Mr. Wortmann and his brother, Robert E.
Wortmann. Also included in the holdings of Robert E. Wortmann. Also includes
300,000 shares which may be acquired within sixty (60) days upon the exercise of
options.
(7) Includes 1,850,000 shares which may be acquired within sixty (60) days upon
the exercise of options and warrants. As at July 31, 1996, the Company had
15,177,966 shares outstanding. An additional 3,161,460 shares were subject to
acquisition within sixty (60) days upon the exercise of options and warrants,
for a total of 18,339,426.
Item 12. Certain Relationships and Related Transactions
In January 1994, VRH Construction Corp.("VRH"), whose principals, Victor D.
Wortmann, Sr. and Robert E. Wortmann are Directors of the Company, acquired
100,000 shares of the common stock of Compost America Company of New Jersey,
Ltd. ("CANJ") for $5.00 per share, or a total of $500,000. CANJ was a privately
held company at the time and this price was established arbitrarily by its
management. These shares, as part of the January 1995 Reorganization, were
exchanged for 600,000 shares of the Company's Common Stock. At that time VRH
entered into a ten year construction management agreement with the Company. The
agreement grants to VRH exclusive rights to build all of the Company's New
Jersey compost facilities at a cost not to exceed a fixed price. In return for
this commitment, and for acting as the general contractor, VRH will receive a
fee equal to 10% of the guaranteed facility construction cost.
From May 1, 1994 through April 30, 1996, VRH has made loans to the Company
totalling $3,509,188. These loans bear interest at ten (10%) percent per annum
and are due August 15, 1996. In addition, since May 1, 1994, Victor D. Wortmann,
Sr. and his family purchased additional shares of CANJ which, when exchanged for
shares of the Company, totalled 1,180,000 shares of the Company's common stock
for a total consideration of $75,750. During this same period,
38
<PAGE>
Robert E. Wortmann and his family purchased additional shares of CANJ which,
when exchanged for shares of the Company, totalled 1,180,000 shares of the
Company's common stock for a total consideration of $75,750. CANJ was a
privately-held company and the purchase price of the CANJ shares was established
arbitrarily by its management. In December 1995 Robert E. Wortmann purchased
40,000 shares of the Company's common stock directly from the Company for $2.50
per share, or a total of $100,000. These shares were restricted as to transfer,
and were acquired at a time when the market price for the Company's common stock
was approximately $5.00 per share. On April 23, 1996 Victor D. Wortmann, Sr. and
Robert E. Wortmann each were granted options to purchase 300,000 shares of the
Company's common stock at $0.01 per share exercisable immediately through April
23, 2001 in consideration for making high risk, unsecured loans to the Company.
The Company leases its executive offices from VRH Construction Company, as
set forth in Item 2 herein.
George Chu, Vice President of the Company, exercised options and acquired
100,000 shares of the Company's common stock on May 1, 1995 for $1,000.
Gary Sondermeyer, Vice President of the Company, exercised options and
acquired 100,000 shares of the Company's common stock on July 1, 1996 for
$1,000.
Employment agreements of Gary Sondermeyer and Roger E. Tuttle, and
compensation of Gary Sondermeyer, Roger E. Tuttle, Alfred Rattie and John Fetter
are set forth in Item 10 above.
In addition to the transactions set forth above, issuances of the Company's
common shares to its officers, directors and Select Acquisitions, Inc. are set
forth in the Notes to Consolidated Financial Statements included herein,
specifically note 5 (Common Stock), note 7 (Agreements), note 8 (Consulting
Contracts), note 14 (Common Stock Purchase Warrants and Options), note 15
(Related Party Transactions) and Note 16 (Employment Contracts).
Item 13. Exhibits and Reports on Form 8-K
a. Exhibits required by Item 601 of Regulation S-B
2. Plan of Acquisition,
Reorganization, etc. (1)
3. Articles of Incorporation (1)
and By-Laws
39
<PAGE>
4. Instruments defining (1)
the Rights of Security
Holders
9. Voting Trust Agreement None
10. Material Contracts Employment Agreements
of Roger E. Tuttle and
Gary Sondermeyer (1)
11. Statement re Computation See Note 21 to
of Per Share Earnings Financial Statements
13. Annual or Quarterly Reports none
16. Letter on Change in (1)
Certifying Accountant
18. Letter on Change in none
Accounting Principles
21. Subsidiaries of the see Part I, Item 1,
Registrant Background,
herein
22. Published Report Regarding none
Matters Submitted to Vote
23. Consents of Experts and not applicable
Counsel
24. Power of Attorney none
27. Financial Data Schedule see Appendix A
28. Reports to State Insurance not applicable
Regulatory Authorities
99. Additional Exhibits None
(1) Incorporated by Reference to Registration Statement on Form S- 1; File No.
333-1592; effective June 7, 1996
(b) Reports on Form 8-K during the last quarter - None
40
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: COMPOST AMERICA HOLDING COMPANY, INC.
August 12, 1996 (Registrant)
By /s/ Roger E. Tuttle
--------------------------------------------
Roger E. Tuttle, President and Principal
Executive Officer
By /s/ George S. Chu
--------------------------------------------
George S. Chu, Senior Vice President,
Principal Financial and
Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
ROGER E. TUTTLE August 12, 1996 /s/ Roger E. Tuttle
President, Principal Executive ----------------------
Officer, Director Roger E. Tuttle
GEORGE S. CHU August 12, 1996 /s/ George S. Chu
Senior Vice President, ----------------------
Principal Financial and George S. Chu
Accounting Officer
JOHN B. FETTER August 12, 1996 /s/ John B. Fetter
Executive Vice President, ----------------------
Treasurer, Director John B. Fetter
VICTOR D. WORTMANN August 12, 1996 /s/ Victor D. Wortmann
Chairman, Director ----------------------
Victor D. Wortmann
ROBERT E. WORTMANN August 12, 1996 /s/ Robert E. Wortmann
Secretary, Director ----------------------
Robert E. Wortmann
PASQUALE E. DILEO August 12, 1996 /s/ Pasquale E. DiLeo
Director ----------------------
Pasquale E. Dileo
Roger E. Tuttle, John B. Fetter, Victor D. Wortmann, Robert E.
Wortmann and Pasquale E. DiLeo constitute all of the members of the
Registrant's Board of Directors.
41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
PERIOD ENDING APRIL 30, 1996 AND THE PERIOD DECEMBER 17, 1993
(INCEPTION) TO APRIL 30, 1996
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent auditors' report F-2
Consolidated financial statements:
Balance sheet F-3
Statement of income (loss) F-4
Statement of stockholders' equity F-5
Statement of cash flows F-6
Notes to consolidated financial statements F-7 to F-63
Supplementary information to consolidated financial statements:
Report of independent auditors on statement of operating expenses F-64
Schedule of operating expenses F-65
</TABLE>
<PAGE>
[LETTERHEAD OF ZELLER WEISS & KAHN
CERTIFIED PUBLIC ACCOUNTANTS]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Compost America Holding Company, Inc. and Subsidiaries
Doylestown, Pennsylvania
We have audited the accompanying consolidated balance sheet of Compost
America Holding Company, Inc. and Subsidiaries as of April 30, 1996 and the
related statements of income (loss), stockholders' equity and cash flows, for
the periods ending April 30, 1996 and April 30, 1995 and for the period December
17, 1993 (inception) to April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also 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. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Compost America Holding
Company, Inc. and Subsidiaries as of April 30, 1996 and the results of its
operations, changes in stockholders' equity and cash flows for the periods
ending April 30, 1996 and April 30, 1995 and for the period December 17, 1993
(inception) to April 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 9 the Company has been in the development stage since
December 17, 1993.
/s/ Zeller Weiss & Kahn
August 10, 1996
Mountainside, New Jersey
F-2
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET - APRIL 30, 1996
ASSETS
Current assets:
Cash $ 3,498
Prepaid expenses 55,552
Due from affiliated company, R.C. Land Company Inc. 28,600
Due from affiliated company, American Bio-AG Corp. 185,000
Due from affiliated company, American Soil, Inc. 175,000
------------
Total current assets 447,650
Investments in joint venture (Note 12A) 639,239
------------
Plant, property and equipment (Note 17)
Land 7,402,112
Transportation equipment 160,046
Office equipment 14,469
Construction in progress, Compost projects 5,502,245
------------
13,078,872
Less depreciation 50,009
13,028,863
Other assets:
Restrictive covenant (Note 8(B)) 229,166
Trademark costs, net of amortization of $305 1,403
Organization costs, net of amortization of $2,874 5,699
Deposits (Note 19) 18,781
Deferred offering expenses 20,564
------------
275,613
$ 14,391,365
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 20) $ 100,000
Accounts payable and accrued expenses 1,449,653
Mortgages payable - Praxair Corp. 2,100,000
Current portion of long-term debt (Note 17) 1,372
Due to affiliated company, VRH Construction Corp.
(Note 15) 3,509,188
Reserve for land replacement 85,375
Due to affiliated company, Select Acquisitions,
Inc. (Note 15) 23,900
Payroll taxes payable 17,980
Total current liabilities 7,287,468
Long-term debt, net of current portion (Note 17) 3,995,742
------------
Contingencies and commitments (Note 13)
Minority interest in consolidated subsidiary 129,208
------------
Stockholders' equity:
Preferred stock, no par value, 25,000,000 shares
authorized
Common stock, no par value, 50,000,000
shares authorized 14,522,362 shares issued
and outstanding (Note 5) 5,841,684
Common stock warrants (Note 14)
Deficit accumulated during the development stage (2,834,045)
Less: subscriptions receivable (29,692)
------------
2,978,947
$ 14,391,365
============
See notes to consolidated financial statements.
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
<TABLE>
<CAPTION>
Cumulative
from
Dec. 17, 1993
Year Year (Inception)
Ended Ended to
April 30, April 30, April 30,
1996 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 80,741
Other revenues $ 46,954 $ 6,500 53,454
----------- ----------- -----------
Total 46,954 6,500 134,196
Cost of operations, transportation 12,342 5,000 17,342
----------- ----------- -----------
Gross income 34,612 1,500 116,853
General and administrative 1,482,505 667,687 2,389,280
----------- ----------- -----------
Loss from operations (1,447,893) (666,187) (2,272,427)
Other non-operating expense:
Interest 284,231 10,753 294,984
----------- ----------- -----------
Loss before income tax expense (1,732,124) (676,940) (2,567,411)
Income tax expense (Note 18) 0 0 0
----------- ----------- -----------
(1,732,124) (676,940) (2,567,411)
Minority interest in (income) loss
of consolidated subsidiaries 80,618 0 80,618
----------- ----------- -----------
(1,651,506) (676,940) (2,486,793)
Loss in equity in joint venture (321,300) (25,952) (347,252)
----------- ----------- -----------
Net loss ($1,972,806) ($ 702,892) ($2,834,045)
=========== =========== ===========
Earnings per common share:
Primary ($.13) ($.07)
==== ====
Weighted average number of common shares outstanding:
Primary 14,749,518 10,347,340
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Year Year December 17, 1993
ended ended (inception) to
April 30, 1996 April 30, 1995 April 30, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net loss ($ 1,972,806) ($ 702,892) ($ 2,834,045)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization 18,256 4,167 22,423
Depreciation 20,411 3,030 23,441
Loss in equity of joint venture 321,300 25,952 347,252
Stock issued for professional services 585,000 585,000
Changes in operating assets and liabilities:
Increase in prepaid expenses (55,552) (55,552)
Decrease in accounts receivable 55,361
Increase (decrease) in accounts payable and
accrued expenses 992,136 216,213 1,493,057
Increase (decrease) in payroll taxes payable 11,932 6,048 17,980
Changes in other assets and liabilities:
(Increase) decrease in due to/from affiliated
companies:
R.C. Land Company, Inc. (28,600) (28,600)
Compost Management, Inc. (212,205)
American Bio-AG Corp. (165,000) (20,000) (185,000)
Select Acquisitions, Inc. (17,750) 23,900
American Soil, Inc. (175,000) (175,000)
Deferred offering costs (20,564) (20,564)
------------ ------------ ------------
Net cash used in operating activities (439,887) (670,676) (785,708)
------------ ------------ ------------
Investing activities:
Purchase of restrictive covenant (250,000) (250,000)
Purchase of construction in progress, Compost projects (1,679,484) (758,745) (3,444,556)
Purchase of property and equipment (7,528,975) (2,920) (7,531,895)
Reserve for land replacement 85,375 85,375
Purchase of organizational costs (1,580) (2,217) (5,925)
Return (purchase) of deposits (16,746) (1,525) (18,271)
Return (purchase) of options 100,000 (100,000)
Purchase of equity of joint venture (584,849) (193,310) (778,159)
------------ ------------ ------------
Net cash used in investing activities (9,626,259) (1,308,717) (11,943,431)
------------ ------------ ------------
Financing activities:
Increase in due to affiliated company, VRH
Construction Corp. 2,869,116 640,072 3,509,188
Increase in notes payable 50,000 50,000 100,000
Increase in mortgage payable 2,100,000 2,100,000
Increase in long-term debt 3,730,871 387,720 4,118,591
Proceeds from issuance of common stock 1,365,860 906,409 2,964,269
Payments on long-term debt (55,612) (3,799) (59,411)
------------ ------------ ------------
Net cash provided by financing activities 10,060,235 1,980,402 12,732,637
------------ ------------ ------------
Net increase (decrease) in cash (5,911) 1,009 3,498
Cash, beginning of period 9,409 8,400
------------ ------------
Cash, end of period $ 3,498 $ 9,409 $ 3,498
============ ============ ============
Supplementary disclosure of cash flow information
Interest $ 284,231 $ 10,753 $ 294,984
Taxes $ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities (Note 22)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ----- -----------
<S> <C> <C> <C>
Balance, December 17, 1993
Issuance of common stock
for technology, December 28, 1993
(.0017 per sh.)(Note 5) 2,160,000 $ 3,600
Issuance of common stock
for technology, January 1, 1994
(1.207 per sh.)(Note 5) 840,000 1,013,875
Issuance of common stock
Jan 1, 1994 - April 30, 1994
(.83 per sh.)(Note 5) 830,400 692,000
Issuance of common stock
for services, April 30, 1994
(.0017 per sh.)(Note 5) 368,640 614
Net Loss April 30, 1994 ($158,347)
---------- ---------- -----------
Balance, April 30, 1994 4,199,040 1,710,089 (158,347)
Issuance of common stock
for settlement claim, May 27, 1994
(.0017 per sh.)(Note 5) 24,000 40
Redemption of common stock
Sept. 29, 1994 (.83 per sh.)(Note 5) (60,000) (50,000)
Issuance of common stock
Oct. 3, 1994 (.83 per sh.)(Note 5) 60,000 50,000
Issuance of common stock
October and November, 1994
(.879 per sh.)(Note 5) 369,600 325,000
Issuance of common stock
Nov. 1, 1994 (.417 per sh.)(Note 5) 120,000 50,000
Issuance of common stock
for merger, December 1, 1994
(.047 per sh.)(Note 5) 2,631,360 122,613
Exercise of warrants
Dec. 1, 1994 (.002 per sh.)(Note 5) 2,580,000 4,300
Issuance of common stock
for acquisition, Feb. 8, 1995
(.18 per sh.)(Note 5) 274,500 49,094
Issuance of common stock
for private placement, Feb. 11, 1995
(2.50 per sh.)(Note 5) 190,000 475,000
Exercise of warrants and options
for legal services, Feb. 11, 1995
(.03 per sh.)(Note 5) 2,714,167 63,142
Issuance of common stock
for Chicago restructuring agreement,
Feb. 15, 1995 (.83 per sh.)(Note 5) 120,000 100,000
Net loss April 30, 1995 (702,892)
---------- ---------- -----------
Balance, April 30, 1995 13,222,667 $2,899,278 ($861,239)
========== ========== ===========
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ----- -----------
<S> <C> <C> <C>
Balance, April 30, 1995 13,222,667 2,899,278 ($861,239)
Issuance of common stock, exercise of
warrants May 1, 1995 (.01 per sh.)(Note 5) 100,000 1,000
Issuance of common stock, May 1995
(2.50 per sh.) (Note 5) 20,000 50,000
Issuance of common stock, June 1995
(2.50 per sh.) (Note 5) 70,000 175,000
Issuance of common stock Aug. 1995
(2.50 per sh.) (Note 5) 40,000 100,000
Issuance of common stock, Sept. 1995
(2.50 per sh.) (Note 5) 2,000 5,000
Issuance of common stock, Oct. 1995
(2.50 per sh.) (Note 5) 45,000 112,500
Issuance of common stock, Nov. 1, 1995
(.92 per sh.) (Note 5) 33,000 30,360
Issuance of common stock, Nov. 1995
(2.50 per sh.) (Note 5) 36,000 90,000
Issuance of common stock, Dec. 1995
(2.50 per sh.) (Note 5) 85,600 214,000
Issuance of common stock, Jan. 1996
(2.50 per sh.) (Note 5) 52,200 130,500
Issuance of common stock, Feb. 1996
(2.50 per sh.) (Note 5) 87,000 217,500
Issuance of common stock, Feb. 1996
(0 per sh.) (Note 5) 500
Issuance of common stock in acquisition of
Bedminster Seacor Services Miami Corporation
March 1, 1996 (2.50 per sh.) (Note 5) 200,000 500,000
Issuance of common stock,
March 1996 (2.50 per sh.) (Note 5) 40,000 100,000
March 1996 (3.00 per sh.) (Note 5) 4,000 12,000
Issuance of common stock,
April 1996 (2.50 per sh.) (Note 5) 48,600 121,500
April 1996 (3.00 per sh.) (Note 5) 2,500 7,500
Issuance of common stock in settlement of
American BIO-AG Corporation
April 30, 1996 (2.50 per sh.) (Note 5) 83,333 208,332
Issuance of common stock for services
April 30, 1996 (2.00 per sh.) (Note 5) 267,000 534,000
Issuance of common stock in settlement of
debt April 30, 1996 (6.00 per sh.)(Note 5) 25,000 150,000
Issuance of common stock for services
April 30, 1996 (2.34 per sh.) (Note 5) 40,000 93,404
Issuance of common stock in payment of
employees for excess services April 30, 1996
(5.00 per sh.) (Note 5) 17,962 89,810
Net loss April 30, 1996 (1,972,806)
---------- ---------- -----------
Balance, April 30, 1996 14,522,362 $5,841,684 ($2,834,045)
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of business:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it
sells to a multitude of users. The process which the Company will employ
is composting, or the controlled decomposition of organic matter into
humus (a component of soil). Like a landfill or an incinerator operator,
the Company will be paid "tipping fees" to accept waste from generators
of these materials. In selected markets like New Jersey, where the
disposal costs are high, the economic opportunity of taking in and
processing large volumes of waste is significant.
The Company will operate a vegetative and selected food waste compost
facility in New Jersey and will continue the development of the indoor
composting projects currently in progress, which will convert organic
materials ordinarily disposed of in landfills or incinerators into a
valuable end product which is beneficial to the environment.
2. Business organization:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in
the state of New Jersey, with 1,000,000 authorized shares at no par
value. On February 1, 1984 Alcor conducted an offering under Regulation
A, an exemption from registration under the Securities Act of 1933. On
that date, 300,000 shares of common stock were issued at $1.00 per
share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000
to 7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert
Spruance Company and 750,000 shares to Peter English and his affiliates
in return for all outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three
subsidiaries due to the lack of sufficient capital needed to continue
the operations of each. Alcor sustained losses from both the disposition
of the Gilbert Spruance Company and The English Group, Inc.
On September 27, 1994, 650,000 shares issued to Peter English to acquire
the English Group, Inc. were returned pursuant to the disposal of the
English Group, Inc.
On September 29, 1994, Alcor issued 1,500,000 shares to two individuals
for cancelling $203,720 of loans due to these individuals.
On October 21, 1994, Alcor amended its Certificate of Incorporation to
increase its authorized common stock from 7,500,000 shares to 15,000,000
shares with 5,490,000 shares issued and outstanding. Alcor, now
inactive, pursued finding a business partner either through merger or
acquisition.
On November 28, 1994 the majority of Alcor stockholders agreed to a one
for twenty reverse split which reduced total outstanding shares to
274,500.
On January 23, 1995, Alcor entered into an Acquisition Agreement and
Plan of Reorganization with Compost America Company of New Jersey, Ltd.,
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
incorporated in the state of Delaware on December 17, 1993. Compost
America Company of New Jersey, Ltd. had 5,000,000 shares, .01 par value
of common stock authorized, of which 1,654,000 shares were issued and
outstanding. Alcor exchanged 9,924,000 shares of its common stock for
all of the outstanding common stock of Compost America Company of New
Jersey, Ltd.
On February 8, 1995, Alcor Energy and Recycling Systems, Inc., changed its
name to Compost America Holding Company, Inc.
(Company).
On December 4, 1995, the directors of the Company approved an amendment to
the Certificate of Incorporation to increase the authorized shares to
issue 75,000,000 shares of which 50,000,000 shares shall be common stock
without par and 25,000,000 shares shall be preferred stock with no par
value.
3. Nature of operations, risks and uncertainties:
The waste management industry in which the Company plans to operate as a
processor of municipal solid waste, sewage sludge and commercial organic
waste, is highly competitive and has been traditionally dominated by
several large and well recognized national and multi-national companies
with substantially greater financial resources in comparison to the
financial resources available to the Company.
There can be no assurance that the Company will be able to obtain the
required federal, state and local permits necessary to operate its
composting facilities presently under development.
The Company plans to contract for and to process, municipal solid waste
and sewage sludge that meets the Company specifications. It is possible
that some of the wastes accepted at a company facility may contain
contaminants which could cause environmental damage and result in
liabilities.
The Company has not entered into any contracts with users of compost from
its facilities which are under development. Should the Company not be
able to sell the compost, the Company may have to give the compost away
and pay for its transportation costs.
The Company has no significant concentration of credit with any individual
counterparty or groups of counterparties.
4. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Compost America Company
of New Jersey, Ltd. and its subsidiaries, Newark Recycling and
Composting Co., Inc., Gloucester Recycling and Composting Company,
Inc., Monmouth Recycling and Composting Co., Inc., Chicago Recycling
and Composting Company, Inc., Miami Recycling and Composting Company,
Inc., Compost America Technologies, Inc., Bedminster Seacor Services
Miami Corporation and Garden Life Sales Company, Inc. Inter-company
transactions and balances have been eliminated in consolidation.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Summary of significant accounting policies (continued):
Principles of reorganization:
The acquisition of the Company's subsidiary, Compost America Company of
New Jersey, Ltd., on January 23, 1995 has been accounted for as a
reverse purchase of the assets and liabilities of the Company by
Compost America Company of New Jersey, Ltd. Accordingly, the
consolidated financial statements represents assets, liabilities and
operations of only Compost America Company of New Jersey, Ltd. prior to
January 23, 1995 and the combined assets, liabilities and operations
for the ensuing period. The financial statements reflect the purchase
of the stock of Alcor Energy and Recycling Systems, Inc., the former
name of Compost America Holding Company, Inc., by Compost America
Company of New Jersey, Ltd. for stock and the assumption of liabilities
of $49,094, this amount being the historical cost of the assets and
liabilities acquired. All significant inter-company profits and losses
from transactions have been eliminated.
Property and equipment:
Property and equipment are carried at cost. The Company computes
depreciation substantially by the straight-line method over the
estimated useful lives of the related assets.
Earnings per share:
Earnings per share has been computed based on the weighted average
number of shares of common stock outstanding during each period.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be "cash
equivalents".
Construction in progress, Compost projects:
Project development costs consist of costs incurred for the development
of the Company's composting facilities. These costs included the
architectural, legal, structural and consulting engineering, artist
rendering, planning board approvals and other construction costs. Upon
commencement of operations of a facility, the costs associated with
such project will be depreciated over the estimated useful life of the
facility.
Inventory:
Inventory will consist of compost and soil products at various stages of
conversion and will be stated at the lower of cost or market (first-in;
first-out).
Revenue recognition:
Tipping fees, the Company's principal source of revenue, will be
recognized upon receipt of the organic waste at the facility sites. The
revenue generated from the sale of compost and soil products will be
recognized upon shipment from facility sites. In addition the Company
will receive payments from an affiliate for services rendered relating
to the land application of bio-solids.
Investments (equity method):
The Company accounts for investments in affiliated companies which
constitute 20% to 50% of the equity of the investor company by the
equity method.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Summary of significant accounting policies (continued):
Restrictive covenant:
The Company is amortizing a $250,000 restrictive covenant over an
estimated life of 15 years with a former employee of Compost
Management, Inc., which subsequently merged into Compost America
Company of New Jersey, Ltd. Amortization expense charged to
operations for 1996 was $16,667.
Trademark cost:
The cost of trademarks acquired are being amortized on the
straight-line method over their remaining lives of 20 years.
Amortization for 1996 amounted to $85.
Organization cost:
The Company amortizes organization cost over a period of 60 months on a
straight-line method. Amortization for 1996 amounted to $1,416.
Research and development:
The Company charges to research and development project costs
associated with projects which are not in the process of construction
or permitted for operation.
Impairment:
Asrequired under FAS 121, effective for fiscal years beginning after
December 15, 1994, the Company recognizes an impairment loss when the
excess of the carrying amount of the asset exceeds the fair value of
the asset. As of April 30, 1996 there has been no impairment losses
attributable to the Company assets.
Deferred offering expense:
The Company recorded expenses associated with the registration
statement for a S-1 filing as a deferred expense and deducted from
the proceeds of the offering upon being effective. Any offerings not
completed are charges to operations when realized.
5. Common stock:
A. December 28, 1993
The Company issued 2,160,000 shares of common stock in exchange for the
original issuance by Compost America Company of New Jersey, Ltd. to
Compost Management, Inc. of 360,000 shares @ .001 per share for the
contribution of all ownership interest and development rights in all
current composting projects throughout the United States.
B. January 1, 1994
The Company issued to Select Acquisitions, Inc. 840,000 shares of common
stock for the original issuance by Compost America Company of New
Jersey, Ltd. of 140,000 shares in exchange for technology and the
reimbursement to Bedminster Bioconversion Corporation, an unrelated
company, for all expenses of composting projects previously entered into
including all guarantees, land purchases and development costs. Select
Acquisitions, Inc. acquired such technology and right by the issuance of
its own 4 1/2% cumulative convertible preferred stock in the amount of
200,000 shares at $10 per share. The parties agreed as of December 31,
1993, the settlement date, the total cash expended by Bedminster
Bioconversion Corporation was $1,013,875 including charges for
technology. The value of the stock issued being the actual cash expended
by Bedminster Bioconversion Corporation.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
C. January 1, 1994 - April 30, 1994
The Company issued 830,400 shares of common stock in exchange for 138,400
shares of Compost America Company of New Jersey, Ltd. originally issued
for cash at $5 per share or $692,000 in a "private placement", to raise
$1,000,000.
D. April 30, 1994
The Company issued Select Acquisitions, Inc. 368,640 shares in exchange
for 61,440 shares of Compost America Company of New Jersey, Ltd.
originally issued for professional fees for structuring and assisting in
the raising of $192,000 of capital contributions through a term sheet
agreement and private placement.
E. May 27, 1994
The Company issued 24,000 shares pursuant to an agreement by Compost
America Company of New Jersey, Ltd. for 4,000 shares of common stock.
According to the agreement, Compost America Company of New Jersey, Ltd.
made a commitment to be a registered company by certain firm dates. If
on those dates Compost America Company of New Jersey, Ltd. was not a
registered company, 2,000 shares would be issued at the passing of each
date, not to exceed 4,000 shares. The shares were valued at Compost
America Company of New Jersey, Ltd. par value of $.01 per share.
Additionally, the investor was also issued 24,000 warrants of Compost
America Company of New Jersey, Ltd. at the lower of $5.50 per share or
the price of the next offering. The warrants expire in five years.
F. September 29, 1994
The Company redeemed 60,000 shares of common stock originally exchanged
with Compost America Company of New Jersey, Ltd. for 10,000 shares of
common stock issued to an unrelated Limited Partnership investor.
G. October 3, 1994
The Company immediately resold the redeemed stock to the principals of VRH
Construction Corp. for the same $50,000 and issued 60,000 shares.
H. October 11, 1994
The Company issued 369,600 shares in exchange for 61,600 shares of Compost
America Company of New Jersey, Ltd. common stock issued under a private
placement for $325,000. The private placement was originally offered for
200,000 shares at $5 per common share. The offering was oversold by
3,400 shares of which the individual who purchased a large block of
these shares waived acceptance of the shares and his right to a refund,
therefore, the Company received excess funds of $17,000. This completed
the January 3, 1994 private placement.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
I. November 1, 1994
The Company issued 120,000 shares for $50,000. Formerly these were 20,000
shares of Compost America of New Jersey, Ltd. which were converted at 6
to 1 in the merger with Alcor.
J. December 1, 1994
The Company, subsequent to the a merger agreement of Compost Management,
Inc. and Compost America Company of New Jersey, Ltd., exchanged
2,631,360 shares of its common stock for 438,560 shares of Compost
America Company of New Jersey, Ltd's common stock. The value of the
shares being the net asset value of statement of financial position of
Compost Management, Inc. at December 1, 1994 which was $122,613. As a
result of the merger of Compost America Company of New Jersey, Ltd. and
Compost Management, Inc. the surviving Company was Compost America
Company of New Jersey, Ltd which subsequently was acquired by the
Company.
K. December 1, 1994
Exercise of warrants originally issued by Compost America Company of New
Jersey, Ltd. previously exercised and exchanged with the Company's
common stock. Compost Management, Inc. exercised 280,000 warrants or
1,680,000 shares and the principals of VRH Construction Corp. exercised
150,000 warrants or 900,000 shares all at a exercise price of $.01 per
share.
L. February 8, 1995
The Company purchased the issued and outstanding stock of Compost America
Holding Company, Inc., formally Alcor Energy and Recycling Systems, Inc.
in a reverse acquisition purchase agreement with Compost America Company
of New Jersey, Ltd. Alcor, a publicly held company has 15,000,000 shares
authorized and 5,490,000 shares outstanding. Prior to the merger, Alcor
did a 20 for 1 reverse split which left 274,500 shares outstanding.
Compost America Company of New Jersey, Ltd. assumed liabilities in the
purchase of the public stock. The cost associated with the purchase
amounted to assumption of a settlement agreement for a law suit between
Alcor Energy and Recycling Systems, Inc., a former name of Compost
America Holding Company, Inc. and Reade Advanced Materials, a creditor,
for $25,000 and closing costs of $24,094 for legal and other expenses,
total cost being $49,094.
M. February 11, 1995
The Company sold 190,000 shares unregistered restricted common stock at
$2.50 per share. These shares were issued by the Company in a private
transaction for a total of $475,000.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
N. February 11, 1995
The Board of Directors of Compost America Holding Company, Inc. authorized
a non-qualified stock option plan (referred to as the performance
option), to directors and officers of the Company and designated
professionals employed by the Company who have tendered invaluable
assistance in the efforts of the Company to become viable. The option
was granted for a period of three years from the date of grant (February
11, 1995) and at an option price of $.01 per share. The Company granted
1,913,167 option for common stock, all of which were exercised on
February 11, 1995 for $19,132. Of the 1,913,167 options granted and
exercised 400,000 shares were for consulting services to be rendered by
FRW, L.L.C., principals of the law firm of Ehmann, Van Denbergh &
Trainor.
O. February 11, 1995
The Board of Directors of Compost America Holding Company, Inc. approved
the issuance of stock options and warrants in the Company to holders of
stock options and warrants of Compost America Company of New Jersey,
Ltd. in exchange for their existing options and warrants. As a result
of the merger of Compost America Holding Company, Inc. and Compost
America Company of New Jersey, Ltd. shareholders of Compost America
Company of New Jersey, Ltd. holding options and warrants were not
considered. The Board of Directors of Compost America Holding Company,
Inc. corrected this omission and granted options and warrants to those
shareholders.
The Company issued 901,000 options at $.01 per common share with an
expiration date of February 10, 1999. As of April 30, 1995, 801,000
options have been exercised for $8,010 and 100,000 options are still
outstanding. Of the 801,000 options exercised from the total 901,000
options granted, 156,000 options were issued to FRW, L.L.C., the
principals of the law firm Ehmann, Van Denbergh & Trainor, 120,000 were
from Compost America Holding Company, Inc. for services instrumental in
assisting the Company to develop. In addition, the law firm received
36,000 options of Compost America Holding Company, Inc. for offset of
legal bills of $36,000.
The Company also issued 784,000 warrants at various exercised prices
expiring February 10, 1999. As of April 30, 1996 33,000 warrants @ .92
have been exercised.
P. February 15, 1995
The Company issued 120,000 shares to three individuals, the principals of
Foundation Systems, Inc., who entered into a joint venture with Compost
America Company of New Jersey, Ltd. for the purpose of constructing,
owning and operating an organic waste processing project to be located
in South Chicago, Illinois.
The individuals sold, conveyed, assigned and transferred into Compost
America Company of New Jersey, Ltd., all of their right, title and
interest in and to the assets which represented 50% of the venture as
well as the liabilities associated with the assets. The total cash
expenditures made by the individuals toward the joint venture amounted
to $100,000. The Company then owned 100% of the Chicago Project.
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
Q. May 1, 1995
The Company issued 100,000 shares upon exercise of options by George Chu,
an officer of the Company, for services rendered at $.01 per share.
R. May 1, 1995 - April 30, 1996
The Company issued 532,900 shares of its unrestricted common stock to
private individuals at no par value at an offering price of $2.50 -
$3.00 per share. The proceeds amounted to $1,316,000 at $2.50 per share
and $19,500 at $3.00 per share.
S. November 1, 1995
Two individuals exercise part of their warrants for the purchase of 33,000
shares of unregistered common stock of the Company at $.92 per shares.
T. February 1, 1996
The Company recorded the issue of 500 shares of unregistered common stock
which were omitted unintentionally as a result of the merger of Compost
Management, Inc. into Compost America Company of New Jersey, Inc.
U. March 1, 1996
The Company issued 200,000 shares of its common stock in exchange for all
the issued and outstanding shares of Bedminster Seacor Services Miami
Corporation owned by Bedminster Bioconversion Corporation. The fair
value being the price of the most recent private sales of $2.50 per
share. Bedminster Bioconversion Corporation received stock valued at
$500,000.
V. April 30, 1996
The Company issued 83,333 shares of its common stock as part of the
settlement for the assets purchased from R.C. Land and management fees
to Ronald Bryce as part of the February 15, 1995 assessment. The fair
value of stock was valued at $2.50 per share of $208,332. These shares
were issued prior to April 30, 1996 before the June 28, 1996 R.C. Land
Agreement was executed.
W. April 30, 1996
The Company issued to Select Acquisitions, Inc. 267,000 shares of common
stock for prior services to the Company at a value of $2.00 per share.
X. April 30, 1996
The Company issued Jonathan Frank 25,000 shares of common stock in
settlement of amounts due to Jonathan Frank of $150,000 on February 28,
1996.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
Y. April 30, 1996
The Company issued 40,000 shares of common stock to William Spier, an
accountant and King and Spalding, a law firm for services rendered in
prior years and in settlement of past obligation. 25,000 shares for
accounting services were valued at $50,000 or $2.00 per share. 15,000
shares for legal fees were valued at $43,404 or $2.89 per share.
Z. April 30, 1996
The Company issued 17,962 shares of common stock as part of a consulting
agreement with Robert Tardy and Robert R. Meyers for services in excess
of their basic service agreement at $5.00 per share.
6. Investment - American BIO-AG Company:
American BIO-AG Corporation was formed as a joint venture under the
Restated Joint Venture Agreement dated February 15, 1995 between R. C.
Land Company, Twin Rivers Equity Partnership and Compost America Holding
Company, Inc.. American BIO-AG Corporation was incorporated in the State
of Delaware, January 11, 1995 (see Note 11(5) & 12(A)).
The purpose of the joint venture was to develop, own and lease and operate
land application sites for the beneficial use of biosolids. Management
of American BIO-AG is being performed by executives from the three
entities forming American BIO-AG. Initially, sites are being developed
in Arizona, Texas and California. Compost America Holding Company, Inc.
owns 33 1/3% of the joint venture.
7. Agreements:
A) Compost America Company of New Jersey, Ltd.
1) Agreement and Plan of Merger:
On December 1, 1994 Compost Management, Inc. and Compost America
Company of New Jersey, Ltd. was merged into Compost America Company
of New Jersey, Ltd with Compost America Company of New Jersey, Ltd.
as the surviving Corporation, which assumed and became liable for all
obligations of Compost Management, Inc. At the date of merger
Compost Management, Inc. had issued and outstanding 200,000 shares of
common stock which were exchanged for 438,560 shares of the common
stock of Compost America Company of New Jersey, Ltd. (see Note 5J).
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued)
A) Compost America Company of New Jersey, Ltd. (continued):
1) Agreement and Plan of Merger (continued):
The following is a summary of the balance sheet of Compost Management,
Inc. at December 1, 1994.
ASSETS
Cash $ 925
Due to Compost America Company of
New Jersey, Inc. 187,722
Investment in Compost America Company
of New Jersey, Inc. 6,400
Property and equipment, net 18,166
Deferred project costs 184,582
Trademark costs, net 1,485
Organizational costs, net 1,276
Deposits 510
--------
Total assets $401,066
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Subscriptions payable $ 2,800
Notes payable, bank 10,783
Due to Teepak, Inc. 264,870
--------
Total liabilities 278,453
Shareholders' equity 122,613
Total liabilities and shareholders'
equity $401,066
========
2) Compost America Company of New Jersey, Ltd. Subscription Agreement:
On January 5, 1994, VRH Construction Corp. purchased 100,000 shares of
the common stock of Compost America Company of New Jersey, Ltd. at $5
per share or $500,000. In addition, the principals of VRH
Construction Corp. were issued 150,000 warrants for Compost America
Company of New Jersey, Ltd. common stock. The purchase of the shares
by the subscriber was in further consideration of the Corporation
granting to VRH Construction Corp. the exclusive right to act as the
Corporation's compost facility development construction manager (see
construction management and investment agreement).
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Company of New Jersey, Inc. (continued):
3) Construction Management and Investment Agreement between Compost
America Company of New Jersey, Ltd. and VRH Construction Corp.:
On January 5, 1994 the Compost America Company of New Jersey, Ltd.
entered into an agreement with VRH Construction Corp. whereby VRH
Construction Corp. purchased 100,000 common shares at $5.00 per
share and provided bonding and construction management services to
Compost America Company of New Jersey, Ltd.'s Project Development
in New Jersey for a term of 10 years. In addition, Compost
Management, Inc. and Select Acquisitions, Inc., major shareholders
of Compost America Company of New Jersey, Ltd., agreed that all
the activities of developing, construction and operations of the
compost facilities in New Jersey will be conducted by Compost
America Company of New Jersey, Ltd. VRH Construction Corp. will
provide construction management services in accordance with the
terms set forth in the "Standard AIA Contract Document AIII".
4) Joint Venture Agreement between Compost Management, Inc. and Select
Acquisitions, Inc.:
On January 1, 1994, amended February 1, 1994, Compost Management, Inc.
and Select Acquisitions, Inc., agreed to have Compost Management,
Inc. continue to develop, operate and manage the organic waste
recycling facilities and blending sites in New Jersey and to enter
into a management agreement related to such activities. Select
Acquisitions, Inc. was to provide working capital financing and
bonding for the composting facilities currently in development by
Compost Management, Inc. in New Jersey. As a result of the above,
Compost Management, Inc. and Select Acquisitions, Inc. formed Compost
America Company of New Jersey Ltd., to be the business entity to
develop and operate organic waste recycling facilities and top soil
blending sites in New Jersey.
Compost America Company of New Jersey, Ltd.'s initial assets
consisted of the contribution by Compost Management, Inc. of all
its ownership interest and development rights in the following
projects: Springfield Recycling and Composting Co., LP, Monmouth
Recycling and Composting Company, Jersey City Recycling and
Composting Company, Gloucester Recycling and Composting Company
and Cheiselhurst Recycling and Composting Company.
Select Acquisitions, Inc. was to fund $1.5 million of funding. Select
Acquisitions Inc. was unable to provide the funding and an Amended
and Restated Joint Venture Agreement was agreed to on February 1,
1994, whereby Select Acquisitions, Inc. was to raise $2,000,000 in a
private offering and Compost Management, Inc. would contribute
ownership interests and development rights throughout the United
States. In addition, Compost Management Inc. entered into a
management agreement with Compost America Company of New Jersey, Ltd.
for a term of 10 years with automatic extensions for 5 years. Key
executives and employees of Compost America Company of New Jersey,
Ltd., were granted a bonus package of 10% of Compost America Company
of New Jersey Ltd. pre tax cash flow. The provisions called for in
this February 1, 1994 agreement never were developed and none were
ever executed.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Company of New Jersey, Inc. (continued):
5) Joint Venture Agreement between Compost Management, Inc. and Select
Acquisitions, Inc. (continued):
The ownership of Compost America Company of New Jersey, Ltd. was to
be owned 53.34% or 640,000 shares by Select Acquisitions, Inc.,
30.0% or 360,000 shares by Compost Management, Inc., 8.33% or
100,000 shares by VRH Construction Corp. and 8.33% or 100,000
shares by the public.
As a result of the merger of Compost Management, Inc. into Compost
America Company of New Jersey, Ltd., and Select Acquisitions,
Inc.'s inability to provide the required funding, the above
agreements were modified on July 24, 1995 but effective as of
December 1, 1994 by an agreement of understanding. Select
Acquisitions, Inc. was issued 61,440 shares for raising $192,000
in a private offering and 140,000 shares for its investment in
Compost America Company of New Jersey, Ltd. Compost Management,
Inc. received 360,000 shares for its investment in addition to
438,560 shares as a result of the merger and 280,000 shares on
exercise of warrants.
6) Term sheet for transaction with Compost Management, Inc., Compost
America Company of New Jersey, Ltd. and Select Acquisitions, Inc.:
Effective January 1, 1994 Compost America Company of New Jersey, Ltd.
and Select Acquisitions, Inc. along with Compost Management, Inc.
assumed all responsibility for the Springfield Recycling and
Composting Project and Compost America Company of New Jersey, Ltd.
and Select Acquisitions, Inc. assumed full responsibility for all
current guarantees provided by Bedminster Bioconversion Corporation.
Compost America Company of New Jersey, Ltd. and Select Acquisitions,
Inc. were to pay all costs and expenses due and payable, related to
the Springfield Project effective as of January 1, 1994 and shall
reimburse Bedminster Bioconversion Corporation for any costs and
expenses paid after January 1, 1994. Select Acquisitions, Inc.
agreed to repay and guarantee the reimbursement of Bedminster
Bioconversion Corporation for all prior funding to Compost
Management, Inc. The balance at December 31, 1993 of reimbursed
costs amounted to $1,013,875 including drawings and engineering for
the Newark Project. Select issued to Bedminster Bioconversion
Corporation $2,000,000 of cumulative convertible preferred stock with
a 4-1/2% annual dividend.
Bedminster Bioconversion Corporation ("BBC") was granted common
stock purchase warrants for 100,000 common shares of Compost
America Company of New Jersey, Ltd. at a price of $5 per share
over a three year period. Compost America Company of New Jersey,
Ltd. was to reimburse Bedminster Bioconversion Corporation for
approved in advance costs for engineers and consultants in
designing and developing any project. Bedminster Bioconversion
Corporation was to receive a $250,000 developer's fee for each
project plus a fee equal to (a) 10% of the Digester cost or (b)
10% of the turnkey construction costs. BBC was to receive a
technology fee equal to the lesser of $3.50 per ton of material
processed in any such project or 5% of gross profits. BBC was to
receive an O&M contract and shall bill for such services on a cost
plus 10% basis. Provisions in this term agreement pertaining to
Compost Management, Inc. and Bedminster Bioconversion Corporation
have been modified or eliminated by the merger of Compost America
Company of New Jersey, Ltd. and Compost Management, Inc, on
December 1, 1994.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Company of New Jersey, Inc. (continued):
7) Agreement between Compost America Company of New Jersey, Ltd. dated
January 15, 1995 and Select Acquisitions, Inc. terminated all prior
agreements including the "Amended and Restated Joint Venture
Agreement".
8) Settlement of Alcor Energy and Recycling Systems, Inc. law suit:
On September 12, 1995, Compost America Holding Company, Inc.,
formerly Alcor Energy and Recycling Systems, Inc., settled with
Reade Advanced Materials for $25,000 a law suit brought against
Alcor prior to its merger with Compost America Company of New
Jersey, Ltd. The settlement consisted of $7,500 at execution of
agreement and 12 monthly payments of $1,458.33 commencing October
1, 1995.
The Company is to make payments as follows:
November 14, 1995 $ 7,500.00
November 14, 1995 2,916.66
December 1995 to September 1996 14,583.34
----------
$25,000.00
==========
9) Settlement Agreement:
On May 17, 1996, the Company and Pasquale Dileo, doing business as
Select Acquisitions, Inc., and Michael Papa entered into a settlement
agreement. Select Acquisitions, Inc. was acquired by Pasquale Dileo
from Michael Papa. Select Acquisitions, Inc. and Pasquale Dileo have
provided various services to the Company for which it received
restricted common stock. As a result of disputes and in the interest
of resolving these disputes this settlement agreement was executed.
The settlement consisted of the following:
A) Compost America Holding Company, Inc. will issue within 14
days of this agreement 80,000 shares of restricted common stock
to the original shareholders of Select Acquisitions, Inc.
B) Within 14 days of this agreement the Company will issue
100,000 shares of restricted common stock of the Company
to Michael Papa and 20,000 shares to Gordan N. Gemma, Esq.
C) Within 14 days Pasquale Dileo will issue 150,000 shares of
Select Acquisitions, Inc. to Michael Papa.
D) Within 30 days Select Acquisitions, Inc. and/or the
Company will pay Michael Papa $60,000.
10) Shareholder Settlement Agreement:
On April 27, 1996 the original shareholders of Select Acquisitions,
Inc. and Compost America Holding Company, Inc. entered into a
settlement agreement. All of the conditions of this agreement
pertain to transactions on the books of Select Acquisitions, Inc.
except as part of this agreement, 267,000 shares of the Company's
common stock of which 150,000 is to be included in the S-1
Registration Statement to be issued to Select Acquisitions, Inc. in
payment for prior service to the Company.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
B) Chicago Recycling and Composting Company, Inc.
1) Chicago Restructuring Agreement:
On July 24, 1995, effective as of February 15, 1995, pursuant to an
agreement between Compost America Holding Company, Inc. and
Foundations Systems, Inc. to convey, sell and transfer unto Compost
America Holding Company, Inc. all of Foundation Systems, Inc. rights,
title and interest in and to the assets of the Chicago Recycling and
Composting Project. The interest acquired represented 50% of the
Joint Venture between the two companies. The principals of
Foundation Systems, Inc. as consideration for their interest were
issued 120,000 shares of common stock of Compost America Holding
Company, Inc.
2) Development Agreement:
On January 11, 1993 Compost Management, Inc. and Teepak, Inc.
agreed, which was assumed by Compost America Company of New Jersey,
Ltd., to develop an organic waste composting facility in South
Chicago, Illinois. Compost Management, Inc. was to develop, own and
operate a site and to enter into waste handling contracts with
organic waste generators. Teepak, Inc. agreed to loan funds to
Compost Management, Inc. for the purpose of obtaining necessary
permits for the facility. Compost Management, Inc. was to provide
financing for the site, site development, equipment and startup.
Teepak, Inc. agreed to enter into a long term waste flow agreement
with Compost Management, Inc. for disposal at the facility. Teepak,
Inc. was to have no ownership or other interest in the site or the
facility and agreed to loan to Compost Management, Inc.:
1) Reasonable travel and other out-of-pocket expenses of
permitting the facility (not to exceed $50,000).
2) $25,000 per month commencing with January 15, 1993 and
thereafter by invoice submitted by Compost Management,
Inc. on February 15, 1993 and for every month up to
issuance of a permit or 8 months. If Compost
Management, Inc. was unsuccessful during this period,
Teepak, Inc. would extend for an additional 12 months,
loans only for out-of-pocket expenses, not to exceed
$50,000.
The Teepak, Inc. loan was to be repaid by Compost Management, Inc. in
quarterly installments commencing three months after the start-up of
the facility to the extent of 50% of available cash flow. If Compost
Management, Inc. failed to get permits by September 15, 1996 or
Compost Management, Inc. ceased efforts to obtain permits the loan
was to be paid in twenty-four months at the earlier of such dates.
Interest shall accrue at 2% over bank prime. The balance due Teepak,
Inc. at April 30, 1996 amounted to $264,871. This agreement has been
modified such that no accrued interest unless repayments are overdue.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
B) Chicago Recycling and Composting Company, Inc. (continued):
3) Conditional Agreement of Sale:
On May 5, 1994 the Indiana Harbor Belt Railroad and Chicago
Recycling and Composting Company, Inc. entered into an agreement
to purchase a parcel of land containing 14 acres. The purchase
price shall be $420,000 with $42,000 down and the balance at
closing. The price of the property is based on $30,000 per acre or
fraction thereof. Any differences in actual acreage will amend
purchase price to conform. The closing shall be 30 days from
completion of due diligence or 365 days from May 5, 1994. The
contract included many contingencies to be satisfied in order to
close.
As of April 30, 1996 the $42,000 deposit was never made but the
contract was still in effect.
On September 1, 1995 the agreement of sale was extended to March 31,
1996.
On March 31, 1996 the agreement of sale was extended to July 31,
1996, subsequently extended to December 31, 1996.
4) Real Estate Lease:
On March 20, 1996 Chicago Recycling and Composting Company, Inc. and
Hub Cap City entered into a lease agreement for the premises
located at 13831 Ashland Avenue, Riverdale, Illinois 60627. The
lease is for a term of 36 months beginning on the date Chicago
Recycling and Composting Company, Inc. purchases the property. The
lease will automatically renew for a period of these years unless
terminated. The lease payment is $500 per month for a total of
$6,000 annually, any renewals are on the same terms.
5) Easement Agreement:
On March 20, 1996 Chicago Recycling and Composting Company, Inc. and
Hub Cap City entered into an easement agreement such that Hub Cap
City gives and conveys an easement for ingress and egress over,
upon and across two separate 20 foot wide portions of the Hub Cap
City parcel to provide access for necessary utility lines, sewer
and water lines or such other access to public facilities as may
reasonably be necessary, to and from the public roadway.
C) Gloucester Recycling and Composting Company, Inc.
1) Lease Agreement, Gloucester City, New Jersey
On July 1, 1995 Gloucester City (lessor) and Gloucester Recycling
and Composting Company, Inc. (lessee) entered into a lease
agreement for certain real property located in Gloucester City,
New Jersey containing approximately 7.98 acres and also Parcel No.
2 (Block 120, Lot 1) if acquired by Gloucester City. Approximately
12 acres of Parcel No.2 shall be dedicated for the full scale,
permanent composting facility. The lease shall commence on March
7, 1996 for an initial term of 24 consecutive months. With the
lessor's consent the lessee shall have the right and option to
extend the term for an additional 30 years. The rent is based on a
rent formula.
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
C) Gloucester Recycling and Composting Company, Inc. (continued):
1) Lease Agreement, Gloucester City, New Jersey (continued):
For the fist 24 months the rent shall be $100 per month plus all
site improvements to Parcel No. 1 to develop a "demonstration
composting facility" for the 30 year extended term.
1) Lessee's redemption of Parcel No. 1.
2) Lessee's payments to lessor in accordance with the "host
community benefit fee schedule" for the extended term.
The benefit fee payment schedule is as follows:
1) Payments in lieu of taxes
a) Taxes due Camden County and District School taxes to
be paid by lessee following receipt of the NJDEP
full scale, permanent composting facility permit.
b) Municipal purpose taxes beginning twelve months
following the date of commercial operation.
c) The initial payment following commercial start-up is
$82,745 with annual escalations of 4%.
2) Lease payments begin the end of the first full month of
commercial operations and shall be equal to the mortgage
expense resulting from the acquisition of Parcel No. 2.
3) Host Community Benefit
Payments are based on tons of all organic waste received
at the composting facility at the rate of $2.40 per ton
which shall be applied against "site clean-up" costs.
Actual cash payments shall begin after the amount is
fully paid except a $.35 per ton shall be paid for the
first calendar year. Following the site clean-up
application the rate shall be $2.75 per ton through the
tenth year. After the ten years the payment shall be
adjusted annually based on the average tip fee. There is
a maximum fee of $100,000 should tip fees fall below
$65.00 per ton. In addition, $1.25 per ton will be paid
to lessor for organic waste in excess of 100,000 tons.
D) Monmouth Recycling and Composting Company, Inc.
1) Option Purchase Agreement:
On March 1, 1995 Compost America Company of New Jersey, Ltd. (CANJ)
and Brown Field Environmental, Inc. entered into an agreement to
purchase a tract of land, together with improvements in Freehold
Township in the County of Monmouth, described as Lot 37 in Block
92 which is an area of 15 acres. The purchase price will be
$600,000 with an estimated closing date of February 14, 1996. CANJ
has the
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
1) Option Purchase Agreement (Continued):
exclusive option to extend the closing for an additional 12 months
by paying $2,500 per month during the extension period. As of
April 30, 1996 the contract was extended for the initial 12 months
to February 14, 1997. CANJ has an additional exclusive right to
extend the closing for a second extension of 18 months by payment
of a $15,000 fee plus a non-refundable option payment per month of
$3,500.
2) Stock Purchase Agreement:
On December 4, 1995, the Company entered into a stock purchase
agreement to acquire 100% of all the issued and outstanding stock of
American Soil, Inc. with Robert F. Young, Jr. (seller) and American
Soil, Inc. American Soil, Inc. has conducted the business of
composting vegetative waste at the site in the Township of Freehold,
County of Monmouth, State of New Jersey. The agreement calls for a
purchase price of $750,000 payable as follows:
$ 37,500 On execution of agreement
12,500 On execution of agreement
425,000 On closing
125,000 On closing into an escrow account for the
payment of liabilities presently unknown
$600,000
In addition, at closing, the Company will deposit $150,000 into an
escrow account for payment of accounts payable liabilities. After
nine months any funds remaining will be split 75% for the Company
and 25% for the seller.
The Company will also take up to 4,000 cubic yards of screened
non-sludge compost per year, without charge, for the years 1996
through 1999. The major assets acquired are the NJDEP and the
federal, state and local permits and the lease agreement between the
seller and Freehold Township, New Jersey.
On April 22, 1996 the agreement for the purchase of American
Soil, Inc. was terminated by the principals of American Soil, Inc.
Negotiations were immediately undertaken and Compost America Holding
Company, Inc. and American Soil, Inc. retroactively agreed to an April
1, 1996 amendment to the Stock Purchase Agreement whereby the parties
agreed to:
a) Compost America Holding Company, Inc. paid a non-refundable
payment of $37,500.
b) Compost America Holding Company, Inc. paid a
non-refundable payment should closing not take place of
$12,500.
c) Compost America Holding Company, Inc. paid a
non-refundable payment of $125,000 on April 1, 1996.
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
d) On or before closing the Company shall pay American
Soil, Inc. $310,000 or 85,000 shares of Compost America
Holding Company, Inc.
e) The Company will make available $150,000 to pay American
Soil, Inc.'s account payable liabilities or other
indebtedness in excess of $35,000. Any amounts remaining
shall be given to American Soil, Inc. in stock at a
price of $5 per share.
f) The Company shall provide an additional escrow of
$125,000 for nine months to pay liabilities in excess of
$150,000 over the first $35,000. The escrow is to pay
any unknown liabilities and any environmental clean-up.
Any remaining funds shall be distributed to the seller.
g) The Company is to provide 4,000 cubic yards of screened
non-sludge compost per year at no charge from 1996
through 1999.
h) The Company will also pay up to $30,000 per month for
monthly operating expenses.
i) The Company will pay the cost of additional stone
freight and bulldozer equipment up to $19,250.
j) The firm and final closing date is June 30, 1996. The
Company put up 100,000 shares to guarentee closing in
the name of Robert F. Young, Jr. These shares to be
returned upon closing or forfeited if closing does not
occur.
Financial statements of American Soil, Inc. have not been provided since
the proposed acquisition does not meet with the test for a significant
subsidiary as required under Reg ss. 210-02 (W). The combined investment
in and advances at the proposed acquisition date amounted to $869,250
which does not exceed 10% of consolidated assets at April 30, 1996.
As of June 30, 1996 the Company has not issued the 100,000 shares and has
not closed on the purchase of the Company. The contract is still
pending.
3) Meher & LaFrance Retainer Agreement:
On May 29, 1996 the Company entered into a Retainer Agreement with
the law firm of Meher & LaFrance to provide legal services
regarding the Township of Freehold, to provide appearances before
municipal and other governmental boards, committees and agencies,
compliance with the Monmouth County Solid Waste Management Plan
and required permitting procedures of the New Jersey Department of
environmental Protection, through final site plan approvals. The
company shall maintain a $1,500 retainer deposit and will be
billed monthly based on an hourly basis of time expended at
standard hourly rates.
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc.:
1) Newark Recycling and Composting Company, Inc. Agreement):
The agreement dated May 1, 1994 is a modification of the original
agreement in principle dated June 16, 1992. The agreement between
Compost America Company of New Jersey, Ltd. and Prince Georges
Contractors, Inc. d/b/a Potomac Technologies (PTI) was to form a
corporation to continue development activities previously
undertaken, which were the development, construction and operation
of a sewer sludge composting facility in Newark, New Jersey,
called the Newark Recycling and Composting Company, Inc. Newark
Recycling and Composting Company, Inc. was to acquire the business
activities of Passaic Valley Management Group which was seeking to
be short listed on the Passaic Valley Sewer Commission RFQ/RFP
process for contracting to manage its sewer sludge for beneficial
use through "land applications" and/or "composting". VRH
Construction Corp. a shareholder in Compost America Company of New
Jersey, Ltd., was to be the exclusive "construction manager" for
each of the composting facilities. Newark Recycling and Composting
Company, Inc. had the objective of earning a "development fee" for
distribution to each of the shareholders and David J. Egarian as
follows:
David J. Egarian $150,000
Compost America Company of New Jersey, Ltd. $450,000
Potomac Technologies $300,000
Newark Recycling and Composting Company, Inc. will enter into a
"Turnkey Construction Contract" with VRH Construction Corp., who will
receive a "construction management fee" equal to 10% of the
construction costs. The ownership of Newark Recycling and Composting
Company, Inc. shall be 75.0% to Compost America Company of New
Jersey, Ltd. and 25.0% to Prince Georges Contractors, Inc. d/b/a
Potomac Technologies ("PTI").
2) On March 21, 1994, Passaic Valley Management Group, LP, the trade
name of the joint venture between Compost America Company of New
Jersey, Ltd., Potomac Technologies and R.C. Land Company, Inc.
entered into a "Sewage Sludge Land Application Agreement". Passaic
Valley Management Group, LP was engaged in the development of
organic waste composting facilities in Essex and Hudson Counties
in the State of New Jersey. R.C. Land Company, Inc. was developing
and permitting land application sites on property it owns and
property owned by others. The agreement called for the joint
venture to deliver and arrange for the unloading and land
applications of the sewage sludge for beneficial use on the
Arizona land application sites. R.C. Land Company, Inc. was to
receive a $5 per wet ton "use fee" plus a $6 per wet ton "land
application fee" for the actual land application of the sewage
sludge. In addition, R.C. Land Company, Inc. was to receive a
$75,000 per year consulting fee if the joint venture entered into
a contractual agreement with the Passaic Valley Sewerage
Commission. This joint venture agreement was modified on February
15, 1995 in the "Restated Joint Venture Agreement". Subsequently,
on January 11, 1995 American BIO-AG Corporation was incorporated.
As of April 30, 1996 no agreement has been reached.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc. (continued):
3) Option and Purchase Agreement:
On July 1, 1994, Newark Recycling and Composting Company, Inc. and
Linde Gases of the Mid-Atlantic, Inc. entered into an agreement
for an option to purchase approximately 11.69 acres of real
property together with the buildings and improvements in the City
of Newark, Essex County, New Jersey. The option called for a
$50,000 option payment on date of agreement for a term from July
1, 1994 to December 31, 1994 with a provision to extend the option
term for up to two additional periods commencing January 1, 1995
and expiring June 30, 1995 and July 1, 1995 and expiring October
31, 1995. At each extension date an additional $50,000 option
payment was required for a total at October 31, 1995 of $150,000.
The purchaser can exercise their option at any time during the
option period and extensions to purchase the property for a
purchase price of $3,250,000. All option payments are to be
credited against the purchase price. In the event the option is
not exercised, all option payments will be forfeited.
On October 20, 1995, an Amendment to Option and Purchase Agreement
was signed whereby "Praxair" was substituted for the seller, Linde
Gases of the Mid-Atlantic, Inc. and Newark Recycling and
Composting Company, Inc. exercised the option and posted as
security for the closing a security bond. The purchase price was
amended to $3,285,866 less the $150,000 in option payments. At
closing a deposit of $1,035,866 was to be paid together with a
promissory note and purchase money mortgage of $2,100,000 at 8%
per annum, payable monthly, with a maturity on August 31, 1996.
The property was closed on December 15, 1995.
To accommodate the down payment VRH Construction Corp. loaned Newark
Recycling and Composting Company, Inc. $1,043,866 on a term loan
basis on demand. The loan was due on January 15, 1996 with interest
at 10% per annum. The loan has been extended to August 15, 1996.
Compost America Holding Company, Inc. has pledged as collateral to
VRH Construction Corp. all its right, title and interest in and to
all shares of Newark Recycling and Composting Company, Inc.'s capital
stock that Compost America Holding Company, Inc. owns.
4) Agreement regarding termination of Sale Agreement:
On July 1, 1994 and amended December 22, 1995 Newark Recycling and
Composting Company, Inc. entered into an agreement with Edward J.
Haefeli to terminate his December 14, 1990 Sale Agreement with
Linde Gases of the Mid-Atlantic for the purchase and sale of
certain improved land containing approximately 11.69 acres. Upon
termination Newark Recycling and Composting Company, Inc. entered
into an Option and Purchase Agreement with Linde Gases. In
consideration of this Termination Agreement Newark Recycling and
Composting Company, Inc. at the closing of Project Financing, but
no later than September 1, 1996, execute a note to Haefeli for
$594,000 payable over 10 years at the rate of 1% over prime rate,
not to exceed 8% per annum. The note is to be secured by the
property. In addition, at closing, but no later than September 1,
1996, Haefeli will be paid $250,000 plus interest accrued from
December 22, 1995 at 8% per annum plus $129.84 per day commencing
December 22, 1995 and ending on the day before the day required
funds are paid in full at the closing.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc. (continued):
5) Agreement with Jerry Harris:
On May 1, 1994 the Company entered into a Consulting Agreement with
Jerry Harris to provide public relations and government relation
services. The term of the agreement is ten years. All compensation
to Jerry Harris is contingent on:
a) Receiving of non-recourse project financing
b) Permit to build and operate the facility
c) Closing of finance for the construction
d) Availability of operating cash flow from the facility
Harris is to receive $25,000 per year for 10 years in equal
quarterly installments.
6) Agreement with Dughi and Hewit:
On May 1, 1994 the Company entered into a Consulting Agreement with
Dughi and Hewit to provide legal services for a term of ten years
payable at $25,000 per year in quarterly equal installments and
contingent as follows:
a) Receiving of non-recourse project financing
b) Permit to build and operate the facility
c) Closing of finance for the construction
d) Availability of operating cash flow from the facility
In addition to the above, Dughi and Hewit will be paid $1,500 per
month until financial closing.
7) Retainer Agreement with Fischbein, Badillo, Wagner and Itzler:
On December 4, 1995 the Company entered into a contract with
Fischbein, Badillo, Wagner and Itzler to provide legal advice,
guidance and other legal services in connection with the Newark
Recycling Project. As consideration the law firm shall receive a
monthly retainer fee of $6,000 for a term of ten months. The first
two month retainer was paid on December 4, 1995. The agreement
also calls for reimbursement of expenses.
8) Loan Agreement with VRH Construction Corp:
On December 26, 1995, Newark Recycling and Composting Company, Inc.
and VRH Construction Corp. signed a loan agreement whereby VRH
Construction Corp. lent $1,043,866 on a term loan basis. The Loan is
due on January 15, 1996 with interest at 10%. The loan has been
extended to August 15, 1996.
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc.:
1) Letter Agreement with Bedminster BioConversion Corporation:
On June 9, 1995, the Company entered into a letter agreement, as a
modification of proposals dated May 3rd and 20th, 1995, for
Compost America Company of New Jersey, Ltd. to acquire 100% of the
outstanding stock of Bedminster Seacor Services Miami Corporation,
from Bedminster Bioconversion Corporation. Bedminster Seacor
Services Miami Corporation has agreed to enter into a 30 year "put
or pay" solid waste service agreement in which the City of Miami
Florida and Bedminster agree to design, construct and operate a
facility having an annual capacity of at least 150,000 tons. The
charges will be $52.50 per ton.
As consideration for the acquisition of 100% of stock of Bedminster
Seacor Services Miami Corporation from Bedminster Bioconversion
Corporation, Bedminster Bioconversion Corporation shall receive:
200,000 Shares of common stock of Miami Recycling and
Composting Company, Inc.
300,000 Warrants to purchase shares of the common stock
of Miami Recycling and Composting Company, Inc.
at $6.00 per share for a term of 5 years.
Bedminster will be the supplier of record of all "Eweson Digesters"
the bridge crane, "Fecon Turning Equipment" and the floor aeration
units to the composting project undertaken by the Company pursuant
to a solid waste service agreement between the City of Miami,
Florida and the Company. Such equipment supply agreements will be
at the equipment cost plus 10%. The agreement calls for license
fees and net distributable cash flow allocations.
As part of the acquisition of Bedminster Seacor Services Miami
Corporation, Miami Recycling and Composting Company, Inc. acquired
the contract for real property in Dade County, Florida. On March 29,
1996 Miami Recycling and Composting Company, Inc. closed on the real
estate contract for a purchase price of $4,095,838.
2) Stock Purchase Agreement:
On March 1, 1996 Miami Recycling and Composting Company, Inc., a
wholly owned subsidiary of Compost America Holding Company, Inc,
entered into an agreement for all of the issued and outstanding
shares of common stock of Bedminster Seacor Services Miami
Corporation by the issuance of 200,000 shares of Compost America
Holding Company, Inc.'s common stock and 300,000 warrants to
purchase shares of Compost America Holding Company, Inc.'s common
stock at $6.00 per share for a term of 5 years from March 1, 1996
from Bedminster Bioconversion Corporation. In addition Ronald K.
Bryce would receive 83,333 shares of the Company's common stock.
The fair value of the shares was $2.50 per share based on current
sales of the Company's stock.
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
In addition, Miami Recycling and Composting Company, Inc. agreed to
a equipment supply arrangement for certain solid waste services at
cost of equipment plus 10% provided that Miami Recycling and
Composting Company, Inc. shall be entitled to utilize Curing
Technologies developed by Bedminster Bioconversion Corporation. As
part of the Stock Purchase Agreement Bedminster Bioconversion
Corporation will be paid a license fee of $200,000 upon financing
of the Miami Project, a supplemental license fee of $300,000,
three years after commencement of commercial operation of the
Miami Project and an additional $300,000, six years after
commercial operation. Bedminster Bioconversion Corporation shall
also receive 20% of the net distributable cash flow allowable to
the revenues received. Additionally. Miami Recycling and
Composting Company, Inc. agreed to pay up to $170,000 within 60
days for accounts payable as part of the Stock Purchase Agreement.
Roger Tuttle, President of Miami Recycling and Composting Company,
Inc., has personally guaranteed the payments of these payables.
On July 11, 1996 and on July 16, 1996 the Stock Purchase Agreement
was amended to change the stock issued for the purchase of
Bedminster Seacor Miami Corporation from Miami Recycling and
Composting Company, Inc. to Compost America Holding Company, Inc.
and to change the license fee to Bedminster Bioconversion
Corporation to $400,000 upon financing of the Miami Project, a
supplemental license fee of $200,000 three years after
commencement operations and an additional $200,000 six years after
commencement.
As of March 1, 1996 the condensed balance sheet of Bedminster Seacor
Services Miami Corporation was as follows:
ASSETS
Current assets:
Due to Miami Recycling and Composting
Company, Inc. $ 17,927
--------
Total current assets 17,927
Construction in progress - compost projects 482,073
--------
Total assets $500,000
========
LIABILITIES AND SHAREHOLDERS EQUITY
Shareholders equity:
Common stock $736,036
Deficit (236,036)
--------
$500,000
========
3) Land Purchase Contract:
On March 29, 1996 Bedminster Seacor Services Miami Corporation, a
wholly owned subsidiary of Miami Recycling and Composting Company,
Inc., purchased a parcel of land in the Northwest quarter of
Section 30, Township South, Range 40 East, Dade County Florida for
$4,095,838 plus closing costs from Rinker Materials Corporation.
Rinker Materials Corporation gave a mortgage of $3,730,870.75 at
7% per
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
3) Land Purchase Contract (continued):
annum commencing May 1,1996 and continuing for the next 22 months.
All interest and principal in due on April 1, 1998. As of March
29, 1996 all contracts have been assigned to Miami Recycling and
Composting Company, Inc.
4) Compost Marketing Agreement:
On August 28, 1995 Bedminster Seacor Services Miami Corporation prior
to its acquisition by Compost America Holding Company, Inc., entered
into an agreement with Nutri-Source, Inc. to sell specialized organic
plant nutrient materials and compost provided by the Company. Nutri-
Source, Inc. will pay the Company $8.00 per ton of compost material
removed for use. In addition, Nutri-Source, Inc. shall pay the
Company an excess profit fee of 50% of the amounts received from sale
of compost from Bedminster Seacor Services Miami Corporation.
5) On October 29, 1993 Bedminster Seacor Services Miami Corporation
entered a Solid Waste Agreement with the City of Miami, Florida to
provide an efficient and environmentally acceptable method of solid
waste disposal. The agreement calls for Bedminster Seacor Services
Miami Corporation to construct, operate and maintain a facility on a
designated site which has the capacity to process at least 204,000
tons of acceptable waste. During start-up and prior to the
commencement date of the operation, the city shall pay a service fee
of $63.50 per ton for waste delivered to and accepted by the
facility. Upon commencing of operations Bedminster Seacor Services
Miami Corporation shall receive the unit billing rate for the first
five years of $63.50 per ton and thereafter at a rate based on an
escalation factor.
6) On October 20, 1994 the agreement with the City of Miami was
amended such that the capacity has been reduced from 204,000 to
183,000.
7) On November 30, 1995 Bedminster Seacor Services Miami Corporation
restated the Compost Recycling Agreement between the City of Miami,
Florida and Bedminster Seacor Services Miami Corporation. The
restated agreement set forth for Bedminster Seacor Services Miami
Corporation to design, construct, operate and maintain the facility
on the site and to pay the cost of construction. The facility shall
have the capacity to process at least 150,000 tons of acceptable
waste. During start-up and prior to the commencement of operations,
the city shall pay Bedminster Seacor Services Miami Corporation a
service fee of $52.00 per ton for acceptable waste delivered to the
facility. On the commencement date of operations, the city will pay
Bedminster Seacor Services Miami Corporation a service fee for the
processing capacity equal to the unit billing rate multiplied by the
greater of (1) the number of tons of waste accepted at the facility
and disposed at Bedminster Seacor Services Miami Corporation's cost
pursuant to the terms or (2) 1/12th of the guaranteed annual tonnage
minus the bypass waste rejected at the facility. The unit billing
rate is equal to $52.00 per ton and escalated yearly in accordance
with and escalation factor.
8) All the agreements with Bedminster Seacor Services Miami
Corporation have been assigned to Miami Recycling and Composting
Company, Inc. subsequent to the acquisition of Bedminster Seacor
Services Miami
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
8) (continued):
Corporation by Miami Recycling and Composting Company, Inc. and its
parent company Compost America Holding Company, Inc. on March 1,
1996.
G) Compost America Technologies, Inc.:
1) Teaming Agreement between Compost America Technologies, Inc. and
Compost Industries, LLC.:
On August 15, 1995, Compost America Technologies, Inc., a wholly
owned subsidiary of Compost America Holding Company, Inc. and
Compost Industries, LLC, signed a Teaming Agreement for Compost
Industries, LLC to supply proprietary composting technology and
equipment, proprietary shop and field fabrication techniques and
installation know-how relating to solid waste separating,
processing, recycling and composting. Compost Industries is to
provide and demonstrate its "Earthcycle Composting System" shop
and field fabrication techniques and equipment engineering and
assistance for the Gloucester Demonstration Project and if
successful for the Gloucester Recycling and Composting Project and
also if requested for other full scale projects. Compost
Industries will provide a demonstration Earthcycle Composting
System, at its expense, at a cost not to exceed $600,000. At
financial closing of the Gloucester full-scale project Compost
Industries will receive payments for all equipment supplies plus a
15% engineering and equipment fee on the total project costs not
to exceed $12,200,000. In addition, Compost Industries shall
receive at "financial closing" 150% of its documented costs up to
$600,000 and 33 1/3% of net distributable cash flow from the
full-scale project upon commercial acceptance and 3.5% of the
"total tip fee revenue" for the life of the Gloucester City
Project.
8. Consulting contracts:
A) Site development and consulting agreement:
Compost Management, Inc. now Compost America Company of New Jersey,
Ltd., as of December 1, 1994 the date of the merger, Bedminster
Bioconversion Corporation and Potomac Technologies, Inc., entered
into a letter agreement dated September 1, 1992 to form a
partnership, Newark Recycling and Composting Company, Inc., to
develop an organic waste composting facility in Newark, New Jersey
and to utilize Gustav Heningberg Associates, Inc. to assist in
various development activities for this project. The term of this
agreement shall be for 10 years and may be extended or modified.
The schedule of payments for consulting services are as follows:
Annual amounts
--------------
At closing of construction
Financing $150,000
Year 1 38,888
Year 2 38,889
Year 3 38,889
Year 4 38,889
Year 5 38,889
Year 6 38,889
Year 7 38,889
Year 8 38,889
Year 9 38,889
--------
$500,000
========
F-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
A) Site development and consulting agreement (continued):
In years 2 through 10, the consulting fee is contingent on the
availability of operating cash flow from the facility. Any
payments not made due to the lack of operating cash flow shall not
be made up in subsequent periods. Payments in years 1 through 9
are to be made quarterly and are contingent on facility being
fully operational. Payments begin with commencement of operations.
In addition to the above, Gustav Heningberg Associates, Inc. and
Robert Holmes, shall receive $1,000 per month, and $1,500 per
month respectively, as development expense which shall cease on
financial closing.
B) Agreement and Release:
On January 31, 1995, Compost America Company of New Jersey, Ltd and
Jonathan W. Frank, a former employee of Compost Management, Inc.
who was terminated as of September 29, 1994, agreed to an
accommodation for Frank to not discuss the confidential
information to a competing business in solid waste disposal in the
United States of America.
For this Frank will receive payments totaling $250,000 which will be
paid as follows:
$ 25,000 To be paid within 10 days of final execution
of this agreement
25,000 Due March 1, 1995
50,000 Due April 1, 1995
150,000 Due March 15, 1995 or upon the closing of
the a public offering of the Companies
common stock which ever comes later. As
of April 30, 1995 this amount was unpaid
Amendment to Agreement and Release:
On February 28, 1996 the Company and Jonathan W. Frank executed an
agreement to amend the January 31, 1995 Agreement and Release to
provide in lieu of the remaining balance of $150,000 the Company
will issue:
1) 25,000 shares of restricted common stock to be registered in
the Company's S-1 Registrations.
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
B) Amendment to Agreement and Release (continued):
2) If the S-1 Registration is not effective by April
30, 1996 Frank shall receive an additional 300
shares of unregistered common stock per month
beginning May 1, 1996.
3) If the proceed of the sale of the shares shall be
less than $165,000 Frank will be issued additional
unregistered shares such that the bid price on July
1, 1996 total $165,000.
The obligation to Frank shall remain in full force until Frank has
received at least $165,000 subject to an increase of .83% per
month after June 30, 1996.
C) Agreement in Principle:
On June 16, 1992, an "Agreement in Principle" was made between
Compost Management, Inc., Compost America Company of New Jersey,
Ltd. (after the December 1, 1994 merger), and Potomac
Technologies, Inc. for a joint venture to develop a composting
facility in Newark, New Jersey. As part of this agreement, Robert
Jones, President of Potomac Technologies, Inc. will be paid a
monthly consulting fee of $6,250 per month to financial closing.
The agreement in principle was restated in a modified agreement,
Newark Recycling and Composting Company, Inc. Agreement dated May
1, 1994 (see Notes 7 (J) and 11 (B)).
D) Engineering and Technology Agreement:
On September 15, 1994, an "Engineering and Technology Agreement" for
the Newark Recycling and Composting Company, Inc., a subsidiary of
Compost America Company of New Jersey, Ltd. and D.J. Egarian &
Associates, Inc., was signed, for the right to use the licensed
patent and engineering services provided by D.J. Egarian &
Associates, Inc. and David J. Egarian, to construct and operate an
organic waste composting facility at the Newark, New Jersey site.
The consulting fee for these services will be paid to either D.J.
Egarian & Associates, Inc. or David J. Egarian as follows:
$ 15,000 Upon execution of this agreement
$167,500 Paid prorata on the percent of completion prior to
the close of project financing for engineering
drawings.
$ 5,000 Per month after commencement of the construction of
the facility through the completion of construction
Any additional services shall be billed as services are provided. At
April 30, 1996 and April 30, 1995, additional charges amounted to
$319,882 and $36,525 respectively.
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
D) Engineering and Technology Agreement (continued):
In addition, upon the commencement of commercial operations of the
facility, Egarian shall be paid the greater of an amount equal to
2% of distributable cash flow per year or $75,000 per year.
If Newark Recycling and Composting Company, Inc. is awarded a 20
year "put or pay" sewer sludge contract from the Passaic Valley
Sewerage Commission to compost a minimum of 200 wet tons per day,
Egarian will receive a one time fee of $150,000, and for each
additional 50 wet tons awarded, Egarian will receive an additional
$25,000.
The term of this agreement is for 15 years from commencement of
commercial operations.
E) Consulting Agreement between Compost America Company of New
Jersey, Ltd. and Michael J. Marchese dated March 1, 1995:
Michael J. Marchese will provide consulting services in obtaining
local and county approvals for the Monmouth County composting
site. The following terms for his consulting services are:
1) $1,000 month beginning 30 days from this agreement
through the receipt of local approval from the Township
of Freehold to build a compost facility on the property
but no longer than 12 months.
2) $2,000 month thereafter until closing on the property.
3) $5,000 month after closing.
4) To a maximum of $100,000
At April 30, 1996 total advanced payments amounted to $64,000.
F) R.W. Beck Professional Services Agreement:
On July 14, 1994, the Company entered into a consulting engineering
service agreement for R.W. Beck to provide services to Newark
Recycling and Composting Co., Inc. The agreement called for a
limited technical review of the proposed system to compost
selected portions of the solid waste stream. The fee for this
service shall be:
$ 5,000 upon execution of agreement
$18,000 upon completion of the technology review report
On March 14, 1995, R.W. Beck submitted the technological review
report.
G) Independent Engineering Service Agreement:
On March 22, 1995, Bedminster Seacor Services Miami Corporation,
prior to its acquisition by Compost America Holding Company, Inc.,
entered into a consulting agreement with R.W. Beck Engineering Co.
to furnish consulting services for the preparation of an
Independent Engineer's Report to be provided in connection with
the financing of a materials recovery/composting facility in
Miami, Florida. The consulting services began on March 22, 1995 by
the signing of the Profession Services Agreement. The estimated
cost of the services is $77,600 which included $42,200 for the
Phase I review and $35,400 for the Phase II review.
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
H) The following consulting agreements were executed by Bedminster
Seacor Services Miami Corporation prior to its acquisition by
Compost America Holding Company, Inc. which were subsequently
resumed by the Company:
1) On December 1, 1994 Bedminster Seacor Services Miami
Corporation entered into an agreement with Ouster
Corporation to provide services regarding the agreement
with Dade County, Florida. Ouster Corporation will have the
exclusive right to deliver all of the wet sewage sludge
from Dade County. The effective date is December 31, 1995
or 48 months after the effective date of any amendments to
the Waste Service Agreement dated October 29, 1993 with the
City of Miami. The agreement calls for Ouster Corporation
to receive $18 per ton of sludge received from Dade County
for 3 years from the effective of this agreement. Ouster
Corporation will have the exclusive right to transport all
compost sold by Bedminster Seacor Services Miami
Corporation. The fee payable ranges from $6.75 - $15.50 per
ton. For all F.O.B. sales of compost from the compost
plant, Ouster Corporation will be paid 15% of the price
paid by the purchase of such compost.
2) Hispanic Consulting and Marketing Corporation Agreement:
On December 5, 1994, Bedminster Seacor Services Miami
Corporation entered into an agreement with Hispanic
Consulting and Marketing Corporation to provide lobbying
and public relation services related to the proposed
agreement with Metro Dade County. Hispanic Consulting and
Marketing Corporation will be paid .7874% for each ton of
solid waste processed or approximately $0.50 per ton.
3) South Florida Bioconversion Corporation Agreement:
On December 28, 1994 Bedminster Seacor Services Miami
Corporation entered into an agreement with South Florida
Bioconversion Corporation to continue to perform certain
services related to the solid waste contract with the City
of Miami. The terms of the agreement commensurate with the
start of the operation of the Miami facility. For 2 years
of construction of the facility Mr. Orlando Garcia shall
receive compensation or $24,000 per year as Committee
Chairman of South Florida Bioconversion Corporation. In
addition various individuals upon the awarding of the
contract and success of the effort to build the Miami
Facility will be paid a single project success fee of 1% of
the capital costs for the facility to be constructed
subject to a minimum of $400,000. In addition, South
Florida Bioconversion Corporation will be paid a consulting
fee based upon the amount of solid waste processed and a
tipping fee of $1.30 per ton processed by the compost
plant. This agreement was superseded by a May 31, 1996
agreement.
4) Martin E. Firestone Agreement:
On February 28, 1995, Bedminster Seacor Services Miami
Corporation entered into an agreement with Martin E.
Firestone for a consulting agreement in assisting in the
awarding of a solid waste contract with the City of Miami,
Florida. Martin E. Firestone will receive a 1/4% of the
capital costs of the developed facility as a development
fee.
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
I) Consulting Agreement with Robert Tardy d/b/a Tardy and Associates:
On December 1, 1995, a Consulting Agreement was signed with Robert
Tardy d/b/a/ Tardy and Associates and the Company for consulting
services regarding the technology and operational aspects of the
production of compost from municipal solid wastes, other organics
and sewage sludge. The term is for one year starting December 1,
1995. The consultant is to receive $4,000 per month on the last
day of each month commencing with the month of December 1995 for
six months and $6,000 per month for the next six months. In
addition, the consultant is to receive expense reimbursement based
on Company policy.
As additional consideration for consulting services in excess of the
basic services of 40 hours per month the Company shall, on a
quarterly basis, issue to the consultant one share of common stock
for each $5 of compensation accrued in excess of the basic
service.
J) Underwriter Counsel Agreement, Wolf, Block, Schorr, Solis-Cohen P.C.:
On April 1, 1996 the Board of Directors of the Company approved the
utilization of Wolf, Block, Schorr, Solis-Cohen P.C. a underwriter
for the Company's proposed project financing anticipated in New
Jersey and its first five project financing in other states. Wolf,
Block, Schorr, Solis-Cohen P.C. will be compensated $160,000 for
the Newark, New Jersey closing which included its Newark and
Monmouth Projects. In addition, they shall receive as compensation
$110,000 for each of the next five non-New Jersey projects.
K) Ronald K. Bryce Consulting Agreement:
On July 1, 1996 the Company entered into a consulting agreement with
Ronald K. Bryce to provide consulting and advice in the
development of the Company's composting facilities. The Consultant
shall receive $4,000 per month from July 1996 to December 1996 and
$6,500 per month from January 1997 to June 30, 1997. Additionally,
the Company shall issue 75,000 registered common shares of the
Company to be registered before September 1, 1996. Expenses are to
be reimbursed not to exceed $1,850 per month without prior
approval of the Company.
L) Peter Coker Consulting Agreement:
On June 24, 1996 the Company entered into an agreement with Peter
Coker to provide financial consulting services. The term is for a
period of 5 years from June 24, 1996 with compensation as follows:
1) 25,000 shares of unregistered common stock for previously
rendered services.
2) As compensation for current services the following options
to purchase:
100,000 shares at $2.00 per share
50,000 shares at $5.00 per share
50,000 shares at $9.00 per share
All options to expire on June 30, 2001. The Company shall
also reimburse consultant for out-of-project expenses.
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
M) Pasquale Dileo Consulting Agreement:
On April 30, 1996 the Company executed a consulting agreement with
Pasquale Dileo, a shareholder in the Company, to provide expertise
in shareholder broker-dealer relations for public companies. The
agreements for a term of three years with compensation at $5,000
per month plus a one-time fee of $25,000 and 100,000 shares of the
Company;s restricted common stock. Consultant shall also be
reimbursed for out-of-pocket expense. In consideration for
consulting services in excess of basic services (200 hours per
month) the Company grants the consultant the option to purchase
200,000 shares of the Company's common stock at a price of $2.50
per share for five years.
N) Mark Gasarch Consulting Agreement:
On May 20, 1996 the Company entered into a consulting agreement with
Mark Gasarch, Esq. to provide legal services in the areas of
Corporate and Federal Securities Law for a term of one year and
for 2 additional consecutive one year terms at the option of the
Company. The consultant will be paid a one time fee of $10,000 and
$8,000 per month commencing with the month of private funding by a
certain financial group or Newark Recycling and Composting
Company, Inc. upon financial closing. The consultant shall be
reimbursed for out-of-pocket expenses. In addition, for excess
services over basic service (60 hours per month) the consultant
will be issued 500 shares of common stock for each 10 hours in
excess of 60 hours per month. In addition, the Company granted the
consultant the option to purchase 200,000 shares at $2.50 per
share for a term of five years.
9. Development stage company:
The Company's operations have been centered around its organizing,
evaluating and developing the business of converting organic waste into
compost and other soil products and the start-up financing of its
operations, including the construction of the waste management and
compost facility in Newark, New Jersey and other compost facilities
throughout the country. From December 17, 1993 through the period ending
April 30, 1996 the Company has secured required financing through
various private placement offerings and through related companies,
Compost Management, Inc., Select Acquisitions, Inc. and VRH Construction
Corp. The Company has acquired losses in connection with its operations
during this same period of $2,834,045.
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Projects in development:
Springfield Project:
The Company conducted research and development to establish the procedures
necessary to operate, blend and store compost produced at the Company's
invessel composting facility. One of the sites used to conduct this
research was the Woodhue Ltd./Bryony Ltd. outdoor windrow composting
facility ("Woodhue/Bryony facility") which the Company operated. A
lease/asset purchase option agreement was negotiated for this site.
Until such time that an agreement was finalized, the facility was under
a month-to-month lease. Additional storing and blending sites were also
under negotiations. All costs incurred with the negotiations and the
operations of the Springfield facility are included in the statement of
operations for April 30, 1994 and 1995.
OnSeptember 29, 1993 Compost Management, Inc. entered into a
Waste/Disposal Recycling Agreement with Club Chef, Inc. ("Club Chef").
The term of this agreement was for five years and was renewable by Club
Chef for additional one-year terms at the option of Club Chef. Pursuant
to the terms and conditions of the January 5, 1994 subscription
agreement and the February 1, 1994 Amended Joint Venture Agreement,
Compost Management, Inc. assigned this contract to the Company. The
Company was to arrange for the collection of acceptable organic wastes
from Club Chef and beneficially reuse the material at an acceptable
site. Club Chef was to pay a service fee based on the weight of
acceptable waste delivered to the facility. The service fee was to be
increased by five percent (5%) on each anniversary of the commencement
of the agreement.
Compost Management, Inc. entered into a Hauling Agreement with Super Kwik,
Inc. ("Super Kwik") on January 5, 1995 as amended May 19, 1994. Super
Kwik was responsible for providing the containers and hauling the
organic waste from Club Chef to a Company facility site. Super Kwik
charged a per ton transportation fee for waste delivered. The
transportation fee was subject to an annual cost escalation of 3% per
year. In addition, for 36 months or 18,000 tons, whichever occurs first,
a capital reduction fee was also be paid to Super Kwik by the Company.
Subsequently this agreement was cancelled when Compost America Company
of New Jersey, Ltd.
ceased operations at Woodhue.
On April 14, 1994, but effective as of January 1, 1994, through the Term
Sheet Agreement, the Company, Select Acquisitions, Inc. and Compost
Management, Inc. assumed all responsibility for the Woodhue/Bryony
facility site from Bedminster and the Springfield Recycling Company.
Under this agreement the Company and Select Acquisitions, Inc. assumed
full responsibility for all guarantees, land purchases and other
agreements entered into. The Company and Select Acquisitions, Inc.
agreed to deliver to GE Capital a letter of credit to replace the
Bedminster letter of credit.
F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Springfield Project (continued):
The Company and Select Acquisitions, Inc. declined to provide the letter
of credit and in April 1994, the Company decided to cease its
involvement in the Springfield facility. Research and development
expenses for the year ending April 30, 1995 was $6,183.
Philadelphia Project:
In a joint venture, Bedminster and Seacor Corporation ("Seacor") with
Compost Management, Inc. and Hi-Tech Recycling Corporation ("Hi-Tech) as
sub-contractors, submitted a proposal to the City of Philadelphia. The
proposal called for the construction by Bedminster and Seacor of an
invessel co-composting sewer sludge and municipal solid waste facility
and for the marketing and distribution of the compost and related blend
products to be handled by Compost Management, Inc. and Hi-Tech. Compost
Management, Inc. through the terms of the April 14, 1994 term sheet
agreement, was to receive a $100,000 developer's fee from Bedminster and
$1.00 per ton for each ton of municipal solid waste processed through
the facility for the life of the project. In addition, Compost
Management, Inc.'s division, Gardenlife received the rights to market
the compost and agreed to utilize the services of Hi-Tech as a
subcontractor.
Due to the financial relationships among the joint venture participants,
Compost Management, Inc. incurred the project costs for the year ended
April 30, 1994. At the year ended April 30, 1995 the project
opportunities did not fully materialize. The venture as it existed with
the participants at the time was abandoned during the fiscal year
beginning May 1, 1994. Currently, the Company is pursuing the
development of a merchant facility in Philadelphia. Total project cost
amounted to $34,076 at April 30, 1995 which has been expensed as
research and development.
Chicago Project:
In April 1993, CACC and Foundations Systems, Inc., as general partners and
Compost Management, Inc. and others, as limited partners, entered into a
limited partnership agreement to form an entity called South Chicago
Recycling and Composting Company, L.P. ("Chicago Partners"). The Chicago
Partners initiated the development of a 500-1,000 ton per day invessel
composting facility in South Chicago, Illinois. The Chicago Partners are
currently negotiating and entering into contracts and agreements for
waste handling, site location, marketing and other aspects of
composting. The Company through Compost Management, Inc. was a 41.5%
limited partner of the Chicago Facility. Funding for the Chicago
Partners has been provided by loans and advances from Teepak, Inc.,
commencing January 11, 1993. Total advance at April 30, 1995 amounted to
$264,871.
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Chicago Project (continued):
On July 24, 1995, an agreement was executed whereby, effective as of
February 15, 1995, the amended and restated agreement date April 6, 1993
never being filed with the Secretary of State of Pennsylvania, caused
the limited partnership to be void. As a result, the individual partners
agreed to exchange their interest, as did Compost Management, Inc., with
Compost America Holding Company, Inc. The individual partners, exclusive
of Compost Management, Inc., for an assignment of the assets were issued
120,000 shares of Compost America Holding Company, Inc. common stock at
a par value of $.01 for their 58.5% of the partnership. Compost America
Company of New Jersey, Ltd. became the 100% owner of the Chicago
Project. On August 4, 1995, the Company incorporated the Chicago Project
under the name "Chicago Recycling and Composting Company, Inc.". Chicago
project costs as of April 30, 1996 amount to $462,122.
Gloucester City - National Source Separated Organic Waste Demonstration
Project:
The Company, with a number of sponsors/partners, is developing an 18-month
pilot program to demonstrate the process of separating organic waste at
its source and transforming organic materials into compost at a compost
site to be operated by the Company. Sponsors/partners for the
demonstration project are: 1) The National Audubon Society; 2) The
Grocery Industry (including The Food Marketing Institute, Grocery
Manufacturers Associates, Proctor & Gamble and The New Jersey Food
Council); 3) Bedminster; 4) Higgins Management, Inc.; 5) U.S.
Environmental Protection Agency; 6) America Forest & Paper Association;
7) U.S. Conference of Mayors; 8) National Association of Counties; 9)
Restaurant and Foodservice Association; and 10) America Plastics
Council.
The location of the demonstration project is a site located in Gloucester
City, New Jersey. A small-scale invessel composting facility will be
installed in a portable building and will process five to eight tons per
day of organic materials collected from the cities of Gloucester City
and Cherry Hill and various commercial accounts. Upon the successful
start up and operation of the pilot program it is anticipated that the
Company will construct a 350 ton per day invessel composting facility at
the same site in Gloucester City.
On June 1, 1995 Gloucester Recycling and Composting Company, Inc. entered
into a lease with Gloucester City for 7.98 acres ("Parcel No.1") located
in Gloucester City, New Jersey. The term of the lease is for 24 months
commencing on the 7th day of March, 1996 and an option to extend the
term for an additional 30 years. Rent for the first 24 months shall be
$100 per month plus real estate taxes. The 30 year extension is based on
a benefit fee payment schedule for the lease payments and the host
community benefit charges. Following commercial start-up payments shall
begin in the amount of $82,745 and increase annually by 4% throughout
the tax year with a computer price index increase or decrease for the
remainder of the term.
The total project cost at April 30, 1996 amounted to $267,423. The
estimated scheduled start for the demonstration project was the first
quarter of 1996. This date has been extended.
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Monmouth Project:
In August 1993, Compost Management, Inc. and Bio-Services entered into an
agreement in principle to form a joint venture named Monmouth Recycling
and Composting Company, Inc. ("Monmouth Facility") to develop a 300-500
ton per day invessel composting facility in Howell Township, Monmouth
County, New Jersey. Bio-Services and the Company would each own 50 % of
the Monmouth Facility. On January 31, 1994 the Company and Bio-Services
entered into a conditional asset purchase agreement whereby the Company
would purchase Bio-Services' 50% interest in the Monmouth Facility for
$92,500. It is the position of management that in accordance with
generally accepted accounting principles that the $92,500 should be
expended as a deferred project cost chargeable to operations in the
current period. The Company paid $17,500 on execution of the agreement
and three monthly installments of $25,000 each in March, April and May
1994. In addition, $407,500, as a purchase amount, was contingent upon
the Company acquiring all of the related permits for the Monmouth
Facility, and the facility being constructed.
In addition to this agreement Compost America Company of New Jersey, Ltd.
agreed to issue to Bio-Services warrants for the purchase of 100,000
shares of Compost America Company of New Jersey, Ltd. common stock under
the following terms (see Note 14):
January 31, 1994-1995 @ $5.00 per share
January 31, 1995-1996 @ $6.00 per share
January 31, 1996-1997 @ $7.00 per share
Should Compost America Company of New Jersey, Ltd. issue a public offering
Bio-Services will have the right to "piggy back" its 100,000 shares in
the public offering. On December 1, 1994, Bio-Services released the
100,000 warrants back to the Company unexercised. The warrants were in
turn released to David Egarian, 25,000 warrants, Rob Jones, 12,500
warrants, Ron Bryce, 12,500 warrants and the remaining 50,000 were
cancelled and withdrawn. On May 10, 1994 the Monmouth Facility was
incorporated in the State of Delaware as Monmouth Recycling and
Composting Company, Inc.
Should Compost America Company of New Jersey, Ltd. not proceed with the
project at any time in the future, and decide not to sell the project,
Bio-Services would have the right to repurchase rights for the sums of
money previously extended so as to be able to continue the development
of the project.
Upon financing closing, all development expenses paid by Bio-Services and
the Company on behalf of the Monmouth Facility would have been
reimbursed and a development fee of $250,000 would have been paid to
each of Bio-Services and the Company. The Agreement in Principle called
for the Monmouth Facility, at financial closing, to enter into a
technology agreement with ComTech Environmental, a company principally
owned by the Partners of Bio-Services, whereby ComTech would receive a
fee equal to $2.00 per cubic yard for all finished compost produced at
the Monmouth Facility for a period of ten years. In October 1993,
Bio-Services entered into a real estate contract to purchase
approximately 27 acres of land on which the Monmouth Facility will be
constructed at a price of $900,000. The contract contained provisions
for monthly option payments of $1,000 to be made until closing in
February 1995 when the balance of $900,000 would be due. Should the
closing date be extended, there were provisions for additional options
payments to be made until closing occurs. In January 1994, Bio-Services
assigned the real estate contract to the Company. The site was
ultimately disapproved by Monmouth County, and a replacement site was
recommended in Freehold Township.
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Monmouth Project (continued):
On March 1, 1995 an Asset Purchase Replacement Agreement was made between
Bio-Services, Inc., D.J. Egarian & Associates, Inc. and Compost America
Company of New Jersey, Ltd.. As part of this agreement, the "Asset
Purchase Agreement" between Compost America Company of New Jersey, Ltd.
and Bio-Services signed on January 31, 1994 for the purchase of the
"Abate Property" was canceled as a result of the site disapproval. A
property identified as Block 92 Lot 37 located in the Township of
Freehold, New Jersey was selected as a replacement for the "Abate
Property" to allow the continued development by Compost America Company
of New Jersey, Ltd. of an indoor composting facility in Monmouth County.
Compost America Company of New Jersey, Ltd., as part of this agreement,
signed an "Option Purchase Agreement" with Brownfield Environmental,
Inc. to purchase a replacement property.
In addition, the $407,500 contingent purchase amount identified in the
January 31, 1994 "Asset Purchase Agreement" will be paid as follows:
1) Upon receipt of local approval from the Township of Freehold
and County approval and New Jersey Department of Environmental
Protection approval, Compost America Company of New Jersey,
Ltd. will pay as follows:
a) $27,416 to D.J. Egarian Associates, Inc.
b) $97,584 to Bio-Services
2) The remaining $282,500 will be paid upon receipt of all
governmental approvals, environmental approvals and building
permits.
a) $61,959 to D.J. Egarian Associates, Inc.
b) $220,541 to Bio-Services
The terms of the original agreement were amended such that Bio-Services
will receive a marketing fee of $1.50 as opposed to $2.00 per cubic yard
of finished compost produced at the Freehold facility. This agreement
also cancelled all previous agreements pursuant to the Monmouth
Recycling and Composting Company, Inc. In addition, on March 3, 1995
mutual releases were signed by the parties involved in the original
Agreement in Principle for the purchase and assignment of the "Abate
Land Purchase Contract". Abate was paid for his release $2,500 plus
engineering, survey and other plans provided for in William J. Mehr
letter of September 29, 1994.
On March 1, 1995, Compost America Company of New Jersey, Ltd. and
Brownfield Environmental, Inc. entered into an "Option Purchase
Agreement" to purchase 15 acres in the Township of Freehold, County of
Monmouth, State of New Jersey. The purchase price is $600,000 payable in
cash on or before February 14, 1996. An extension for 12 months is at
the exclusive option of the Company. The Company shall pay a monthly
option of $2,500 per month during the initial extension period. The
Company has an exclusive right to extend for a second extension period
of 18 months for a payment of $15,000 plus a monthly option payment of
$3,500 per month. The Company has a third extension for 6 months based
on the same terms as the second extension.
On April 1, 1995 the Company paid $25,000 toward the $407,500 contingent
liability in order to extend the due date to June 30, 1996.
F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Monmouth Project (continued):
As part of the Monmouth County composting site, a consulting contract with
Michael J. Marchese on March 1, 1995 was instituted (see consulting
agreements). The total project costs incurred as at April 30, 1996
amounted to $812,160.
Newark Project:
On June 16, 1992, as amended December 11, 1993, Compost Management, Inc.
entered into an agreement in principle with Bedminster and Potomac
Technologies, Inc. to form a joint venture named Newark Recycling and
Composting Company, Inc. ("Newark Facility"), incorporated in the State
of Delaware on May 10, 1994, to develop a 500-1,000 ton per day invessel
composting facility in Newark, New Jersey ("Agreement in Principle").
Potomac Technologies, Inc. owned 25% and Bedminster and the Company each
owned 37-1/2% of the Newark Facility, as amended December 11, 1992.
Pursuant to the April 14, 1994 Term Sheet Agreement and the February 1,
1994 Amended Joint Venture Agreement, the Company acquired Bedminster's
37-1/2%. Pursuant to the Agreement in Principle, upon financial closing
all development expenses paid by the partners of the Newark Facility
will be reimbursed as well as a development fee of $900,000 to be paid
to the partners in accordance with a predetermined schedule.
In conjunction with the Agreement in Principle, the Newark Facility will
pay a consulting fee of $6,250 per month to a principal of Potomac
Technologies, Inc. until financial closing. In June 1993, on behalf of
the Newark Facility, Compost Management, Inc., Bedminster and Potomac
Technologies entered into a Site Development and Consulting Agreement
with another firm which receives $1,000 per month until financial
closing at which time the firm will receive a $150,000 development fee
and, if operating cash flow is available, $38,889 annually in each of
the nine subsequent years of commercial operations.
In October 1993, the Company and Potomac Technologies, Inc. d/b/a Passaic
Valley Management Group, LP, in response to a Request for Qualification
issued by the Passaic Valley Sewerage Commissioners, submitted a
proposal for both composting in Newark, New Jersey, and land application
of sewer sludge in Arizona and New Jersey.
On March 21, 1994, Passaic Valley Management Group, LP and R.C. Land
Company, Inc. (R.C. Land) entered into a sewer sludge land application
agreement ("Sludge Agreement"). Under the Sludge Agreement, R.C. Land
will receive a wet ton use and land application fee. Should Passaic
Valley Management Group, LP be successful with its proposal to Passaic
Valley Sewerage Commissioners for composting, R.C. Land will also
receive an annual fee for consultation services for the length of the
Passaic Valley Management Group, LP proposal for providing back up land
applications services (see Note 7 (E)(2)). As of May 31, 1995, Passaic
Valley Management Group, LP was advised by Passaic Valley Sewerage
Commission that it was unsuccessful in its bid efforts.
F-43
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Newark Project (continued):
On May 1, 1994 Newark Recycling and Composting Company, Inc. entered into
a marketing agreement with Gardenlife Sales Company, a division of
Compost America Holding Company, Inc. Gardenlife Sales Company has the
obligation to market and distribute all compost and other related
products developed by Newark Recycling and Composting Company, Inc. for
a term of 25 years. Revenues received from the sale of compost is
allocated between the parties according to an agreed upon formula. In
the event that no revenue is being generated from the sale of compost,
Newark Recycling and Composting Company, Inc. will pay a management fee
to Gardenlife Sales Company to provide distribution management
guaranteeing that all compost is shipped from the plant. A
transportation reserve account will be established by the Company to
provide transportation if required.
On May 1, 1994 Compost America Company of New Jersey, Ltd. entered into an
agreement with Potomac Technologies, Inc. to form Newark Recycling and
Composting Company, Inc. The Newark Facility was then incorporated in
the State of Delaware on May 10, 1994 as Newark Recycling and Composting
Company, Inc.
The parties to the letter agreement on May 1, 1994 were changed and a new
agreement for the joint venture was modified in the "Newark Recycling
and Composting Company, Inc. Agreement".
On July 1, 1994, Newark Recycling and Composting Company, Inc. entered
into a termination of sale agreement with Edward J. Haefeli. Haefeli
agreed to terminate his right to purchase 11.69 acres of improved land
in order to permit Newark Recycling and Composting Company, Inc. to
enter into an agreement to purchase the premises from Linde Gases. At
closing of the purchase of the premises, Newark Recycling and Composting
Company, Inc. shall pay to Haefeli $250,000 in funds available plus a
note in the amount of $594,000 payable over 10 years at prime + 1%, not
to exceed 8%.
On July 14, 1994, Newark Recycling and Composting Company, Inc. entered
into a professional services agreement with R.W. Beck to provide a
detailed "Engineering Report" on the Newark facility. Compensation in
the amount of $23,000 shall be paid and increased as additional
consulting is required.
On July 26, 1994, Newark Recycling and Composting Company, Inc., doing
business as Passaic Valley Management Group entered into a teaming
agreement with Professional Services Group, Inc. At the option of Newark
Recycling and Composting Company, Inc./Passaic Valley Management Group
Professional Services Group, Inc. will loan up to $500,000 to Newark
Recycling and Composting Company, Inc./Passaic Valley Management Group.
In return, Newark Recycling and Composting Company, Inc./Passaic Valley
Management Group will subordinate to Professional Services Group, Inc.
the management, operations and maintenance portion of any contract
awarded from the Passaic Valley Sewerage Commissioners.
F-44
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Newark Project (continued):
On September 15, 1994, Newark Recycling and Composting Company, Inc.
entered into an engineering and technology agreement with D.J. Egarian &
Associates. D.J. Egarian & Associates granted a license to Newark
Recycling and Composting Company, Inc. to utilize D.J. Egarian &
Associates's patented technology. Newark Recycling and Composting
Company, Inc. did compensate D.J. Egarian & Associates $15,000 upon
execution of the agreement and a pro rata share of $167,500 based upon
completion of engineering drawings. In addition, during construction
D.J. Egarian & Associates shall receive $5,000 per month site
consultation through completion of construction. A separate fee
structure will be implemented upon commencement of commercial operations
of the facility.
In the event the Newark Recycling and Composting Company, Inc. should be
awarded a 20 year "put or pay" sewer sludge contract from Passaic Valley
Sewerage Commissioners, then D.J. Egarian & Associates will receive a
one-time fee of $150,000. Based upon the number of tons awarded D.J.
Egarian & Associates may be able to receive an additional $25,000 for
each 50 tons.
On January 30, 1995 the Central Planning Board, City of Newark, New
Jersey, at a special public hearing, voted to grant a FINAL SITE
APPROVAL subject to compliance with all the conditions stipulated in the
Department of Engineering memorandum dated January 17, 1995.
On February 16, 1995, Converse Consultants East submitted their report to
D.J. Egarian disclosing their findings as to subsurface conditions and
foundations.
On March 14, 1995 R.W. Beck submitted an initial draft of the Technical
Review of the composting facility.
On March 27, 1995 Newark Recycling and Composting Company, Inc. requested
financial assistance from the New Jersey Economic Development Authority
for an in-vessel composting and composting facility in the amount of
$73,790,000.
In conjunction with that request, it is expected that the interest on
these bonds, when issued, will be excludable from gross income of the
holders thereof for federal income tax purposes under ss.103 of the
Code.
On April 11, 1995, Newark Recycling and Composting Company, Inc. received
notice from the Permit Coordination Officer III for the State of New
Jersey Department of Environmental Protection. Newark Recycling and
Composting Company, Inc.'s application had been reviewed for and found
to be administratively complete. The application was then forwarded to
the Bureau of Pretreatment and Residuals for technical review.
On April 11, 1995 the New Jersey Economic Development Authority passed a
resolution whereby Authority officers and staff are authorized to take
all actions necessary to proceed with the financing and to issue bonds
to finance the cost of the New Jersey project. Within 10 days the
resolution was deemed approved by the Governor and became effective.
F-45
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Newark Project (continued):
On April 19, 1995, Newark Recycling and Composting Company, Inc. applied
for the allocation of $73,790,000 of "volume cap" by the State of New
Jersey to allow the project described herein to be fully financed on a
tax-exempt basis.
On June 26, 1995, Newark Recycling and Composting Company, Inc. received
notice that its permit application was deemed technically complete.
On November 1, 1995, Newark Recycling and Composting Company, Inc.
received approval and permit from the New Jersey Pollutant Discharge
Elimination System to operate sludge process and distribution facilities
throughout the State of New Jersey.
The New Jersey Economic Development Authority regarding the Newark
Recycling and Composting Company, Inc. received a letter of intent from
Paine Webber to confirm the commitment to act as underwriter in
connection with the sale by the New Jersey Economic Development
Authority of its solid waste disposal facility revenue bonds, series
1996 in the approximate principle amount of $70,000,000. In addition,
Paine Webber also sent letters of intent for Monmouth Recycling and
Composting Company, Inc. for $30,000,000 and for Gloucester Recycling
and Composting Company, Inc. for $30,000,000.
On December 7, 1995, Legg Mason Wood Walker, Inc. sent a letter to the New
Jersey Economic Development Authority stating that they have agreed to
act as underwriter in connection with their firm commitment to raise the
requisite capital for the debt financing component of the composting
projects proposed by Gloucester Recycling and Composting Company, Inc.,
Monmouth Recycling and Composting Company, Inc. and Newark Recycling and
Composting Company, Inc.
On December 14, 1995, pursuant to Executive Order 185 and PL 1987 c 393
the State Treasurer of New Jersey, Brian W. Clymer, allocated to the New
Jersey Economic Development Authority, $130 million in tax-exempt volume
cap allocation from the state's 1996 tax allocation. This allocation is
to be reserved for the issuance of private activity bonds on behalf of
Newark Recycling and Composting Company.
On January 2, 1996 the New Jersey Economic Development Authority informed
the Company the State Treasurer has allocated to the New Jersey Economic
Development Authority $130 million in 1996 volume cap allocation on
behalf of the Company's composting projects for Newark, Gloucester and
Monmouth. The allocation will expire on March 29, 1996 in the event
bonds are not issued but has been extended to September 30, 1996.
On June 17, 1996 the New Jersey Economic Development Authority reduced the
volume cap allocation for Newark Recycling and Composting Company, Inc.
from $130 million to $85 million and extended the effective date to
September 30, 1996.
F-46
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Newark Project (continued):
As of April 30, 1996 total project cost for the Newark Project amounted to
$3,382,087. In addition the property for the Newark Project has been
acquired at a cost of $3,285,866.
Miami Project:
On November 17, 1995 Compost America Holding Company, Inc. formed it's
wholly owned subsidiary Miami Recycling and Composting Company, Inc., a
Delaware Corporation. On March 1, 1996 Compost America Holding Company,
Inc. acquired 100% of all the issued and outstanding stock of Bedminster
Seacor Services Miami Corporation. The purpose was for Miami Recycling
and Composting Company, Inc., a subsidiary of Compost America Holding
Company, Inc., to operate and own a composting facility in Miami,
Florida. Bedminster Seacor Services Miami Corporation will be the
supplier of all "Eweson Digesters", the bridge crane, Fecon Turning
Equipment" and the floor aeration units to the composting project. In
addition Bedminster Seacor Services Miami Corporation will assign all
contracts, permits, land purchase options and agreements with the City
of Miami for composting.
On March 29, 1996 Miami Recycling and Composting Company, Inc. closed on
the purchase of a parcel of land in Dade County, Florida from Rinker
Materials Corporation which it plans to develop into a large scale
organic waste recycling facility which will process commercial and
residential food, soils, paper, cardboards, other organic wastes and
sewage sludge (biosolids) from municipal waste water plants into
compost.
As of April 30, 1996 Miami Recycling and Composting Company, Inc. has
acquired a land site at a cost of $4,116,629 and construction in
progress costs of $578,453.
10. Private Placements and Private Offerings:
On February 15, 1995, later revised on August 15, 1995, Compost America
Holding Company, Inc. offered for sale, in a private offering,
restricted shares of common stock to private individuals, no par value,
at an offering price of $2.50 per share and $3.00 per share. From
February 15, 1995 to April 30, 1996 722,900 shares have been sold for a
total of $1,810,500. The offering has no expiration date.
On January 3, 1994 Compost America Company of New Jersey, Ltd. offered for
sale, in a private placement, 200,000 shares of common stock at $5 per
share. The offering was to expire February 20, 1994 but was extended to
November 30, 1994 when the offering was terminated. The offering sold
138,400 shares of common stock for a total of $692,000. Select
Acquisitions, Inc. received 61,440 shares of common stock as a
professional service fee for raising $192,000 of the total. The total
amount raised in the offering was $1,017,000 (see Note 5).
F-47
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Events:
1) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into a consulting agreement with Jose Ferre to provide consulting
services regarding the tax free bond financing of the Miami
Project. Ferre shall receive as compensation a development fee
equal to 1% of the capital costs of the Miami Composting facility
with a minimum fee of $400,000. Additionally, Jose Ferre is
granted an option to purchase 15% of the Miami Recycling facility
for a two year period commencing with the start of commercial
operations. The purchase price of the option shall be commercially
reasonable and in accordance with industry standards and norms for
projects of this type at date of acquisition.
2) Consulting Service:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into an agreement with Dade County Bioconversion Corporation,
which superseded the December 28, 1994 agreement with South
Florida Bioconversion Corporation, to provide consulting services
in the construction and operation of the Miami Composting
facility. Dade County Bioconversion Corporation has selected Mr.
Orlando Garcia, Jr. as its representative. Mr. Garcia is to
receive 8,000 shares of Compost America Holding Company, Inc.'s
common stock upon the awarding of the contract and commencement of
construction of the Miami Composting facility certain individuals
will be paid a success fee equal to 1% of the capital costs of the
Miami Composting facility subject to a minimum of $400,000 payable
$100,000 at financial closing and $100,000 at the end of the next
three twelve month periods. In addition, unrestricted common stock
of Compost America Holding Company, Inc. of 25,000 shares will be
issued to the same individuals upon financial closing of the Miami
Composting facility. Upon commercial operation of the Miami
Composting facility Dade County Bioconversion Corporation will be
paid a consulting fee based upon the amount of the solid waste
processed at the compost plant and paid by the City of Miami in
the amount of a tipping fee of $1.30 per ton of solid waste
processed at the compost plant.
3) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into a consulting agreement with Antonio Zamura, Ereleo Pena and
Pedro Roig to provide consulting services to Miami Recycling and
Composting Company, Inc. for the period beginning with May 31, 1996
and terminating on the commencement of commercial operations. The
F-48
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Events (continued):
3) Consulting Services (continued):
consultants will consult with and advise the Company concerning
governmental relations, lobbying and public relations with various
sectors of the community . The consultant shall assist in the
financial closing and the commencement of commercial operations.
Compensation for the consultants will be $3,500 per month commencing
on January 1, 1997 through the month of commencement of commercial
operations. Thereafter the consultants shall receive 1,752
unregistered shares of the common stock of Compost America Holding
Company, Inc. on the last day of each month.
4) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into an agreement with J.G.R. Associates to provided consulting
services in public relations and advertising. The term of this
agreement is May 31, 1996 and terminates on the commencement of
commercial operations. The Company will pay the consultant $3,500
per month which will be paid as follows: $1,750 in cash each month
plus 583 shares of common stock of Compost America Holding Company,
Inc.
which will be issued each month.
5) American BIO-AG Corporation:
On June 28, 1996 Compost America Holding Company, Inc., Twin River
Equities and R.C. Land Company, Inc. each a 33 1/3% owner in the
Joint Venture, American BIO-AG Corporation formed an agreement to
sell their ownership in American BIO-AG Corporation to Newark
Recycling and Composting Company, Inc. In addition, R.C. Land
Company, Inc. will sell all of its land applications business assets
to Newark Recycling and Composting Company, Inc. who will become the
100% owner of American BIO-AG Corporation. Newark Recycling and
Composting Company, Inc. is owned 75% by Compost America Holding
Company, Inc. and 25% by Potomac Technologies, Inc. As
consideration, R.C. Land Company, Inc., for its contribution of
assets and stock ownership of American BIO-AG Corporation, will
receive 305,000 shares of Compost America Holding Company, Inc.'s
restricted stock and $50,000 payable $5,000 on June 21, 1996, $20,000
on June 28, 1996 and $25,000 on July 31, 1996. Additionally, Newark
Recycling and Composting Company, Inc. will make a one year loan to
R.C. Land Company, Inc. in the amount of $150,000 at 15% per annum
and secured by 60,000 registered shares of Compost America Holding
Company, Inc.
F-49
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Events (continued):
5) American BIO-AG Corporation (continued):
As part of this agreement, Ronald K. Bryce, the 100% owner of R.C.
Land Company, Inc., received 83,333 shares of common stock of the
Company and cancelled 75,000 Compost America Holding Company, Inc.
stock purchase warrants. Newark Recycling and Composting Company,
Inc., now 100% owner of American BIO-Ag Corporation, also assumed
all outstanding liabilities of American BIO-AG Corporation as of
June 28, 1996 in the amount of $104,286. The assets acquired from
R.C. Land Company, Inc. consisted of:
1) All plan of operation with all site specific plans with
the State of Arizona's Department of Environmental
Quality
2) Various farms lands 5,428 acres
3) Intellectual property, name and experience in land
application business
4) Various equipment
5) 33 1/3% ownership in American BIO-AG Corporation Joint Venture
The value of the transaction with R.C. land Company, Inc. was
computed based on the fair value of the 305,000 shares at $2.50
per share plus 50,000 in cash plus 33 1/3% of liabilities assumed
of $34,727. The total value attributable to the acquisition of
R.C. Land Company, Inc.'s assets and equity in American BIO-AG
Corporation amounted to $847,227 plus the mortgages assumed of
$276,829 for a net value of $1,124,056.
Compost America Holding Company, Inc. and Twin Rivers Equities
(Potomac Technologies, Inc.) contributed to Newark Recycling and
Composting Company, Inc. the value being the net book value of the
assets acquired.
6) Settlement Agreement:
In July 1996 the Company and Ehmann, Van Denbergh & Trainor, P.C.
made a tentative agreement to settle a disagreement between the
Company and the law firm concerning the validity of billings from
the law firm and when and in what amount and manor the Company
bills should be paid. The original amount due Ehmann, Van Denbergh
and Trainor, P.C. amounted to $603,807 and in a desire to settle,
agrees to
F-50
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Subsequent Events (continued):
6) Settlement Agreement (continued):
$500,000 as a settlement amount. Payments to be made as follows:
$ 50,000 due June 14, 1996
50,000 due June 28, 1996
400,000 monthly installments of $20,000, or payment in
full upon closing of the Newark financing
Ehmann, Van Denbergh & Trainor, P.C. also agreed to give the Company
an option to purchase back 500,000 shares of its common stock at
$4.00 per share until October 31, 1997 in installments of 50,000
shares. In the event of default the note shall bear interest at 4%
over prime from date of default.
7) Registration Statement:
On June 7, 1996 the Company became effective as to it's S-1
Registration Statement which registered 1,353,100 shares of the
Company's common stock solely for selling shareholders.
8) Consulting Agreement John B. Ferre:
On June 10, 1996 the Company and John B. Ferre, a shareholder in the
Company, entered into a consulting agreement regard Chicago
Recycling and Composting Company, Inc., to provide services in
developing lowest cost electric power contracts with power
providers. The consultant will provide, for a term of 5 years,
advice concerning the types of electric equipment best suited to
operate the Company's composting facilities and negotiate the
lowest cost electrical power contracts. The consultant will
receive $5,000 per month commencing June 10, 1996 and shall accrue
and be deferred until payable from operating revenues of the
Chicago Composting and Recycling Company, Inc. facility. At this
time consultant shall also be reimbursed for accrued expenses
incurred.
12. Joint Ventures:
A) American BIO-AG Corporation was incorporated in the State of
Delaware on January 11, 1995. The Corporation is owned 33-1/3% by
each of the following entities:
R.C. Land Company, Inc.
Twin River Equities
Compost America Holding Company, Inc.
F-51
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Joint ventures (continued):
The three entities are unrelated. The purpose of the joint venture
will be to develop, own or lease, operate and farm biosolids
beneficial use land application sites. The joint venture
registered to do business in Arizona on June 27, 1995. In
addition, Professional Service Group desires to support the joint
venture company in its efforts to secure, develop and permit
beneficial use land application sites throughout the United States
beginning first in the South West where 365 day application
prevail such as Texas, Arizona, New Mexico and California. The
initial land application sites to be developed by the joint
venture corporation are Arizona, Texas and New Jersey. Compost
America Holding Company, Inc. will arrange for a bridge loan in
the amount of $750,000 which will be repaid upon long-term
financing. The loan is anticipated to be funded by April 1, 1995
and repaid by June 30, 1995. As of April 30, 1995 the bridge loan
was not arranged. Compost America Holding Company, Inc. has
arranged for short-term funds from February 15, 1995 to April 30,
1996. Compost America Holding Company, Inc. will also receive a
development fee of $125,000 on positive distributable cash flow.
The joint venture corporation will sign a 15 year management
contract with Mr. Bryce, President of R.C. Land Company, Inc. for
$150,000 salary per year to manage the joint venture beginning
February 15, 1995 plus standard benefits in addition upon
generation of positive cash flow. A monthly director fee of $4,000
per month will be paid to each of the directors after revenues
commence. The Board of Directors shall be Ronald R. Bryce,
President, Robert Jones III, Vice President and Roger E. Tuttle,
Secretary. Roger Tuttle is also an officer, director and
shareholder of Compost America Holding Company, Inc.
The Company accounts for its investment in the joint venture on the
equity method. The audited condensed balance sheet and condensed
income statement at April 30, 1996 is as follows:
ASSETS
Total current assets $ 12,983
Property and equipment, net 29,544
Deposits, land acquisitions 77,475
---------
Total assets $ 120,002
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Total liabilities:
Short-term loans and advances:
Notes and loans payable $ 75,000
Newark Recycling and Composting Company, Inc. 185,000
Accounts payable and accrued expenses 150,800
Shareholders' equity (deficiency) (290,798)
---------
Total liabilities and stockholders' equity $120,002
=========
Gross income
Loss from operations ($963,900)
=========
As specified in regulation S-X, summarized financial information has
been presented for the joint venture corporation.
F-52
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Joint ventures (continued):
A) (continued):
The joint venture does not meet the test for a significant
subsidiary as required under REG. ss. 210-01 (w) as the total
assets are less then 10% of consolidated assets.
Compost America Company of New Jersey, Ltd. investment account at
April 30, 1996 is as follows:
Investment in joint venture, loans and advances $1,145,539
Loss for period (321,300)
----------
Equity balance April 30, 1996 $ 824,239
==========
Management of the Corporation is shared equally by the three joint
venture partners.
As of April 30, 1996 the Company was in negotiation to acquire 100%
of American BIO-AG Corporation.
B) Newark Recycling and Composting Company, Inc. was incorporated in the
State of Delaware on May 10, 1994 with Compost America Company of
New Jersey, Ltd. 75% and Potomac Technologies 25%. The purpose of
the Corporation is to continue development activities which were the
development, construction and operation of a sewer sludge composting
facility in Newark, New Jersey. VRH Construction Corp. is a
shareholder in Compost America Holding Company, Inc. and is the
exclusive construction manager for the Newark composting facility.
Management of the corporation will be by consensus of the Board of
Directors. The Company has consolidated the financial statements of
Newark Recycling and Composting Company, Inc. with Compost America
Company of New Jersey, Ltd. at April 30, 1996. The Company reflects
minority interest as another liability in the balance sheet and as a
reduction of net income or net loss in the income statements (see
Note 7 (J)).
13. Contingencies and Commitments:
The Company conducts operations from a facility located in Doylestown, PA
under a one year operating lease. The lease commenced on December 1,
1994 and expires on November 30, 1995. The facility is office use only.
The annual rental is $18,300 payable monthly at $1,525 per month. The
Company has made a $1,525 security deposit. The Company is responsible
for any or all repairs up to $100. The Company must pay additional rent
real estate taxes and all increases in fire insurance. All utilities and
janitorial services are included in the rent. The Company shall have the
right to review this lease for one additional year at the base rate plus
the consumer price index for the previous 12 months.
The Company leased office facilities under an operating lease in
Doylestown, PA. The lease was assumed by Compost America Company of New
Jersey, Ltd. on December 17, 1993 for 6,122 sq. ft. of office space. The
lease expired on June 14, 1994 but was continued on a month to month
basis until December 1, 1994. The total rental, including a percentage
of maintenance, real estate taxes and insurance, amounted to $59,049 for
the period May 1, 1994 to December 1, 1994.
F-53
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and Commitments (continued):
On May 1, 1996 the Company entered into a lease agreement for office
facilities located at 320 Grand Avenue, Englewood, New Jersey 07631 for
a term of five years. The Company will pay a rental of $4,000 per month
plus electricity and real estate taxes over the base year.
The minimum annual rentals:
April 30, 1997 $48,000
April 30, 1998 48,000
April 30, 1999 48,000
April 30, 2000 48,000
The Company leases an automobile under a operating lease. The lease is
payable at $474.55 per month for 48 months. The lease commenced on May
25, 1993. The minimum annual lease cost amounts to:
April 30, 1994 $5,801.60
April 30, 1995 $5,694.60
April 30, 1996 $5,694.60
April 30, 1997 $5,694.60
As part of the "Asset Purchase Replacement Agreement" dated March 1,
1995, the Company is contingently obligated to pay an additional
$407,500 toward the acquisition of 50% interest in the Monmouth
Recycling and Composting Company from Bio Services, Inc. The obligation
to pay this amount is based on the "Option Purchase Agreement" with
Brownfield Environmental, Inc. to purchase the Township of Freehold
property and upon receipt by Compost America Company of New Jersey,
Ltd. of local approval from the Township of Freehold and County
approval from Monmouth County and the N.J. Department of Environmental
Protection for "Inclusion of the project in the Monmouth County Solid
Waste Management Plan", which will allow Compost America Company of New
Jersey, Ltd. to build the indoor composting facility. Further
contingencies require that any remaining governmental, environmental
and building permits related to the construction of the "indoor
composting facility" be obtained in addition to the closing on the
property and the project.
As of April 30, 1996 the Company has advanced $25,000 towards this
balance as an indication of good faith with Bio-Services, Inc.
14. Common stock purchase warrants and options:
As of January 1, 1994, according to the "New and Amended Joint Venture
Agreement", Compost Management, Inc., prior to its merger into Compost
America Company of New Jersey, Ltd., on December 1, 1994, was issued
280,000 warrants @ $.01 per share to acquire 280,000 shares of common
stock of Compost America Company of New Jersey, Ltd. In addition, in a
separate agreement, principals of VRH Construction Corp. were issued
150,000 warrants of Compost America Company of New Jersey, Ltd. common
stock at $.01 per share. All warrants were exchanged six for one after
the merger. The warrants had a term of 5 years. As of April 30, 1996
all outstanding warrants have been exercised.
F-54
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
On January 31, 1994, as a provision of the "Asset Purchase Agreement",
regarding the Monmouth Recycling and Composting Project (Note 9). Bio-
Services Inc. was issued 100,000 warrants for the purchase of 100,000
shares of Compost America Company of New Jersey, Ltd. common stock. The
warrants were exercisable as follows:
$5 per share Year 1
$6 per share Year 2
$7 per share Year 3
Upon a secondary issue Bio-Services, Inc. will have the right to "piggy
back" its 100,000 shares on the secondary issue.
On December 1, 1994 Bio-Services, Inc. released the 100,000 warrants.
They were redistributed as follows:
David Egarian 25,000 $5/$6/$7
Robert W. Jones III 12,500 $5/$6/$7
Ronald K. Bryce 12,500 $5/$6/$7
Cancelled 50,000
-------
100,000
On April 29, 1994, Compost America Company of New Jersey, Ltd. issued a
warrant for 100,000 shares of common stock to Bedminster Bioconversion
Corporation at an exercised price of $5 per share. The warrant expires
on April 29, 1997.
On February 11, 1995, Compost America Holding Company, Inc., subsequent to
the merger with Compost America Holding Company of New Jersey, Ltd. on
February 8, 1995, issued Compost America Holding Company, Inc. warrants
in the amount of 784,000 warrants for its common stock to the following
individuals and entities:
<TABLE>
<CAPTION>
Exercise
Warrant Holder Amount Price Expiration
-------------- ------ ----- ----------
<S> <C> <C> <C>
Bedminster Bioconversion (A) 300,000 $ 0.83 April 18, 1997
Bio-Services, Inc. (B) 300,000 1.00/1.17 January 31, 1996/1997
B. Michael Pisani 67,200 .92 June 1, 1999
Robert B. Long 16,800 .92 June 1, 1999
Gary Sondermeyer 100,000 .01 February 6, 1999
-------
784,000
</TABLE>
All of the 784,000 warrants were outstanding at April 30, 1995. As of
April 30, 1996, 33,000 warrants have been exercised.
(A) The 300,000 warrants to Bedminster Bioconversion Corporation
were part of 360,460 warrants issued to Bedminster
Bioconversion. The 60,460 warrants of 360,460 were part of
those issued by the Board of Directors on April 30, 1995. The
360,460 warrants of Compost America Holding Company, Inc. were
the result of an agreed exchange of the 100,000 warrants issued
to Bedminster Bioconversion Corporation on April 29, 1994.
F-55
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
(B) The 300,000 warrants to Bio-Services, Inc. of Compost America
Holding Company, Inc. were exchanged by agreement for the
100,000 warrants of Compost America Company of New Jersey, Inc.
issued on January 31, 1994.
As a result of the release of the warrants held by Bio-Services,
Inc. the following individuals received warrants previously
issued to Bio-Services, Inc. at the converted amounts.
<TABLE>
<CAPTION>
Exercise
Warrant Holder Amount Price Expiration
-------------- ------ ----- ----------
<S> <C> <C> <C>
David Egarian 150,000 $1/1.17 January 31, 1996/1997
Robert W. Jones III 75,000 1/1.17 January 31, 1996/1997
Ronald K. Bryce 75,000 1/1.17 January 31, 1996/1997
-------
300,000
=======
</TABLE>
On February 11, 1995, in addition to the warrants listed above, the Board
of Directors of Compost America Holding Company, Inc. issued options to
individuals who were entitled to options of Compost America Company of
New Jersey, Ltd., immediately prior to the date of the merger. There are
a total of 901,000 authorized options @ $.01 per common share with an
expiration date of February 10, 1997. As of April 30, 1995, 801,000 of
the options have been exercised and 100,000 are still outstanding. As of
April 30, 1996 all of the options have been exercised.
On February 11, 1995 the Board of Directors of Compost America Holding
Company, Inc. adopted and approved a non-qualified stock option plan to
grant to participants options to purchase its common stock. The Company
granted 1,913,167 common stock options at $.01 per share. At April 30,
1995 all options have been exercised.
On April 30, 1995 the Board of Directors approved the issuance of Compost
America Holding Company, Inc. warrants in exchange for warrants held by
individuals and other entities of Compost America Company of New Jersey,
Ltd. As a result the Company issued 133,012 warrants at an exercise
price of $3.00 with an expiration date of June 1, 1999. The warrants
were issued to the following:
Warrant Holder Amount
-------------- ------
Bedminster Bioconversion Corporation 60,460
David Egarian 30,230
Ronald K. Bryce 15,115
Robert W. Jones III 15,115
B. Michael Pisani 9,674
Robert B. Long 2,418
-------
133,012
=======
These warrants represent the reissuance of the 50,000 warrants cancelled
by Bio-Services, Inc. on December 31, 1994 which were for Compost
America Company of New Jersey, Ltd. All warrants are outstanding at
April 30, 1996 and 1995.
F-56
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
On April 23, 1996 the Company's Board of Directors approved the granting
of stock options for the continued financial support of the Company to:
Robert E. Wortman 300,000 options
Victor D. Wortman 300,000 options
The options are exercisable immediately at $2.00 per share with an
expiration date of April 23, 2001. Robert and Victor Wortman are both
principals of VRH Construction Corporation and shareholders as well as
officers and directors of the Company. The Company will not recognize
compensation expense at April 30, 1996 because the fair market value of
the stock is $2.00 per share which is the same as the option price.
As part of the employment agreements, the following options were granted
as part of an incentive stock option plan to the following employees:
Gary Sondermeyer 250,000 @ $2.50 per share
Expiration 12/31/00
Roger Tuttle 1,000,000 @ $2.50 per share
Expiration 11/14/00
On May 20, 1996 the Company executed an option agreement for Diana E.
McCarthy, Esq. for services rendered. Upon financial closing of each of
the following projects, Diana E. McCarthy, Esq. shall be issued the
following options to purchase Compost America Holding Company, Inc.
common stock:
Newark Project - 300,000 options to purchase 300,000
shares at $2.50 per share for 5 years
Gloucester City Project - 100,000 options to purchase 100,000
shares at $2.50 per share for 5 years
Monmouth County Project - 100,000 options to purchase 100,000
shares at $2.50 per share for 5 years
F-57
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
Summary of Warrants and Options Outstanding:
<TABLE>
<CAPTION>
Exercise
04/30/96 04/30/95 Price Expiration
-------- -------- ----- ----------
<S> <C> <C> <C> <C> <C>
Warrants:
---------
Bedminster Bioconversion Corp 300,000 $ 6.00 03/01/01
300,000 300,000 .83 04/18/97
60,460 60,460 3.00 06/01/99
David Egarian 150,000 150,000 1.00/1.17 01/31/96-97
Robert W. Jones III 75,000 75,000 1.00/1.17 01/31/96-97
Ronald K. Bryce 75,000 75,000 1.00/1.17 01/31/96-97
B. Michael Pisani 45,200 67,200 .92 06/01/99
Robert D. Long 5,800 16,800 .92 06/01/99
Gary Sondermeyer 100,000 100,000 .01 02/06/99
George Chu 100,000 .01 02/10/97
--------- -------
1,111,460 944,460
========= =======
Options:
--------
Robert E. Wortman 300,000 2.00 04/23/01
Victor D. Wortman 300,000 2.00 04/23/01
Gary Sondermeyer 250,000 2.50 12/31/00
Roger Tuttle 1,000,000 2.50 11/14/00
---------
1,850,000
=========
</TABLE>
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted
the principles of FAS-123 "Accounting for Stock Based Compensation"
effective for fiscal year beginning after December 15, 1995, which is
based on fair value. There is no significant difference between
compensation cost recognized by APB-25 and the fair value method of
FAS-123.
F-58
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Related Party Transactions:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in
Compost America Holding Company, Inc. as well as VRH Construction Corp.
VRH Construction Corp. as of April 30, 1996 has advanced $640,072 to the
Company. The amount due to VRH Construction Corp. is included in a note
payable as of April 30, 1995 due January 15, 1995 with interest at 10%.
As of April 30, 1996, the note for $640,072 has been extended from the
original due date to August 15, 1996. In addition, VRH Construction
Corp. has advanced additional funds amounting to $2,869,116 at April 30,
1996, of which $1,543,866 is in two notes payable at 10% due August 15,
1996 and $1,325,250 is interest bearing at 10% per annum and payable on
demand. The total loans and notes outstanding at April 30, 1996 amounted
to $3,509,188. All advances are anticipated to be paid back upon
completion of the Economic Development Bond Funding.
The Company has acquired all composting projects and technology from
Bedminster Bioconversion, Inc. through Select Acquisitions, Inc., a
shareholder in Compost America Company of New Jersey, Ltd. Select
Acquisitions Inc. has advanced $23,900 at April 30, 1996. Bedminster
Bioconversion, Inc., an unrelated corporation, received stock purchase
warrants as indicated in the notes to consolidated financial statements.
There are numerous agreements and intercompany transactions between
Compost America Holding Company, Inc. and its subsidiary, Compost
America Company of New Jersey, Ltd. and with its related subsidiaries,
Newark Recycling and Composting Co., Inc., Gloucester Recycling and
Composting Company, Inc. and Monmouth Recycling and Composting Co., Inc.
Chicago Recycling and Composting Company, Inc. and American BIO-AG
Corporation. At April 30, 1996 and April 30, 1995 all intercompany
transactions have been eliminated except for amounts due from R.C. Land
Company, Inc., a partner in the Joint Venture of American BIO-AG
Corporation, and advances due from American BIO-AG Corporation other
than investments.
16. Employment Contracts:
As stipulated in the Joint Venture Agreement, the Company has guaranteed
and agreed to pay its President, Roger Tuttle, $120,000 annually for a
period of ten years. The Company has similarly guaranteed agreements
with its Vice Presidents, Alfred Rattie and Jonathan Frank to be paid
$90,000 annually. On January 31, 1995, as a closing agreement and
release, Jonathan Frank was terminated (see Note 8 (B)). Roger Tuttle,
Alfred Rattie and Jonathan Frank were formally shareholders in Compost
Management, Inc., prior to the merger of Compost Management, Inc. into
Compost America Company of New Jersey, Ltd., on December 1, 1994.
F-59
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Employee Contracts (continued):
Subsequent to the Joint Venture Agreement, all existing employment
contracts have been terminated. New employment agreements were entered
into as of January 1, 1995 for all current executives. These new
employment agreements as of October 31, 1995 have not been approved by
the Board of Directors or signed by the individuals. Wages have been
accrued based on the new terms for annual salaries of each executive of
$60,000. As of April 30, 1996 employment agreements with Roger Tuttle
were formulated and agreed to. As President, through November 14, 2000,
Roger Tuttle is to receive a salary of $225,000 and annual increases
based on performance including all general executive benefits and will
participate in the statutory incentive stock option plan. As part of his
compensation, Mr. Tuttle shall receive an option to purchase 1,000,000
shares of common stock at $2.50 per share expiring November 14, 2000.
Mr. Tuttle shall also receive a $500,000 one-time signing bonus deferred
until the Company attains sales of not less than $5,000,000 for one
quarter.
As of May 1, 1996 Roger Tuttle and the Company executed an employment
agreement, the terms of which supersede all previous agreements. The
term is for ten years effective May 1, 1996. The compensation shall be
$225,000 per annum in monthly payments from May 1, 1996 to April 30,
1997 with annual increases during the term of the agreement based on
growth of the Company but not less than the increase in the consumer
price index. In addition, Roger Tuttle shall receive an annual bonus
based on 5% of any increase in consolidated net income beginning April
30, 1996. Roger Tuttle shall also receive the following:
1) Reimbursement of all business related expenses
2) An automobile allowance of $500 per month
3) A one-time signing bonus of $500,000 upon achieving sales
of $5,000,000 in any quarter
4) Medical and health insurance
5) Employer grants employee a 1,000,000 shares option to
purchase 1,000,000 shares of common stock at $2.50 per
share for five years
As of April 30, 1996 and April 30, 1995, unpaid accrued wages amounted to
$258,000 and $163,000 respectively.
As of January 1, 1996, a new employment agreement was signed by a new
executive officer, Gary Sondermeyer, for a term from January 1, 1996 to
December 31, 2000. The initial basic annual salary will be $90,000
thereafter increases shall be based on the Company growth. In addition,
the executive shall receive the usual fringe benefits and participate in
a Company statutory incentive stock option plan to purchase 250,000
shares of common stock at $2.50 per share for a period of 5 years.
F-60
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Long term debt:
<TABLE>
<CAPTION>
Rate 1996 1995 Maturity
---- ---- ---- --------
<S> <C> <C> <C> <C>
First Fidelity Bank (A) 10.75% $ 686 $ 3,492 01/20/96 Past due
First Fidelity Bank (A) 10.75% 686 3,492 01/20/96 Past due
Teepak, Inc. (B) Prime & 2% 264,871 264,871 09/15/96
Jonathan W. Frank (C) None 200,000 indefinite
Mortgage payable-Rinker
Materials Corp. (D) 7% 3,730,871 04/01/98
---------- --------
3,997,114 471,855
Less current portion 1,372 56,984
---------- --------
$3,995,742 $414,871
========== ========
</TABLE>
A) The notes payable to Merchants Bank, N.A., Allentown, Pennsylvania
is payable in monthly installments aggregating $843 per month,
including interest. The notes were originally for 60 months with
automotive equipment at a cost of $44,734 pledged as collateral.
B) The loan payable to Teepak, Inc. is for advances to Compost
Management, Inc. prior to its merger with Compost America Company
of New Jersey, Ltd. on December 1, 1994 which was subsequently
assumed by Compost Holding Company, Inc. for the purpose of
obtaining necessary permits for a compost facility in Riverdale,
Illinois. The loans commenced on January 11, 1993 with repayment
terms as follows:
1) After permits are issued Compost America Holding
Company, Inc. shall repay the loan in quarterly
installments commencing three months after the start up
of the facility to the extent of 50% of available cash
flow from the facility.
2) If the facility does not receive the necessary permits
by September 15, 1996, the entire amount of the loans
will be repaid in 24 equal installments. Any overdue
payments shall bear interest at a rate equal to the
prime rate plus 2%.
C) The obligation to Jonathan W. Frank originally for $250,000 is
for a restrictive covenant not to disclose the confidential
information acquired as an employee of the Company to a
composting business in solid waste disposal in the United States
of America. The obligation is unsecured and non interest bearing.
Payments are as follows:
$ 25,000 Upon agreement (January 31, 1995)
25,000 On March 1, 1995
50,000 On April 1, 1995
(not paid on due date but in subsequent period)
150,000 Upon closing of the public offering of the
-------- Company's common stock
$250,000
========
The obligation is expected to be paid in full within less than one year.
As a result, no imputed interest has been computed. As of April 30, 1996
the $150,000 was paid by the issuance of 25,000 shares of the Company's
common stock.
D) The mortgage payable to Rinker Materials Corporation is secured
by land which costs $4,095,838 and is payable on April 1, 1998
with all principal and accrued interest at 7%.
F-61
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Income taxes:
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes"
as of inception, December 17, 1993. FASB Statement No. 109 is required
for all fiscal years beginning after December 15, 1992. This statement
requires that deferred taxes be established for all temporary
differences between book and tax basis of assets and liabilities. There
was no cumulative effect of adoption or current effect on continuing
operations mainly because the Company has been in a development stage
since inception, December 17, 1993, and has sustained net operating
losses during this period. The Company has made no provision for a
deferred tax asset due to the net operating loss carryforward because a
valuation allowance has been provided which is equal to the deferred tax
asset. It cannot be determined at this time that a deferred tax asset is
more likely than not to be realized.
The Company has a loss carryforward of $2,834,045 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2009 and 2012.
19. Deposits:
Denker, Sellew & Douglas - Furniture office $16,117
Minalto Corporation - Business equipment 1,139
Robert Fellheimer - Rent security 1,525
-------
$18,781
=======
20. Note payable, bank:
The note payable to United Jersey Bank is due August 1, 1996, on demand,
at 10% interest.
21. Earnings per share:
1996 1995
Primary Primary
------- -------
Number of shares:
Weighted average shares
outstanding 13,654,892 8,881,882
Incremental shares for
outstanding stock
warrants 877,960 1,366,500
Incremental shares for
outstanding stock
options 216,666 98,958
---------- ----------
14,749,518 10,347,340
========== ==========
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. Shares that would be
outstanding assuming exercise of dilutive stock options and warrants,
all of which are considered to be common stock equivalents. Fully
diluted earnings per share are the same as primary earnings per share
for 1996 and 1995.
F-62
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. Supplemental schedule of non-cash investing and financing activities:
<TABLE>
<CAPTION>
Year Year
ended ended
April 30, 1996 April 30, 1995
-------------- --------------
<S> <C> <C>
Issuance of capital stock for
management services ($ 1,000)
Professional fees 1,000
Issuance of capital stock in
acquisition of Bedminster Seacor
Services Miami Corporation (500,000)
Assets required 500,000
Acquisitions for issuance of capital stock:
Property and equipment net of
depreciation $ 18,166
Trademark costs 1,485
Organizational costs 1,276
Deposits 510
Construction in progress - compost projects 184,582
Liabilities assumed:
Notes payable - bank (10,783)
Due to Teepak, Inc. (264,870)
Other assets and liabilities
eliminated in merger with
Compost Management, Inc. 192,247
Issuance of capital stock for
assets acquired less liabilities
assumed in merger with Compost
Management, Inc., 2,631,360 shares (122,613)
Issuance of capital stock for
legal services, 36,000 shares (36,000)
Issuance of capital stock for
purchase of investments in deferred
Chicago Project, 120,000 shares (100,000)
Issuance of capital stock in settlement
of debt to Jonathan Frank (150,000)
Note due to Jonathan Frank 150,000
Issuance of capital stock for legal,
accounting and consulting services (717,214)
Legal - accounts payable 43,404
Accounting 50,000
Consulting 623,810
Issuance of capital stock for investment
in American BIO-AG Corporation (208,332)
Investment - American BIO-AG Corporation 208,332
</TABLE>
F-63
<PAGE>
[LETTERHEAD OF ZELLER WEISS & KAHN]
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT AUDITORS ON STATEMENT OF OPERATING EXPENSES
Board of Directors
Compost America Holding Company, Inc. and subsidiaries
Doylestown, Pennsylvania
We have audited the consolidated financial statements of Compost America
Holding Company, Inc. and subsidiaries as of April 30, 1996 and 1995 and for the
periods then ended and for the period December 17, 1993 (inception) to April 30,
1996, our report thereon dated August 10, 1996. Our audit was made for the
purpose of forming an opinion on those financial statements taken as a whole. In
connection with our audit of these financial statements, we audited the
statement of operating expenses for the periods ended April 30, 1996 and 1994.
Such information has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, the statement
of operating expenses for the periods ended April 30, 1996 and 1995 and for the
period December 17, 1993 (inception) to April 30, 1996 present fairly, in all
material respects, the information stated therein, when considered in relation
to the consolidated financial statements taken as a whole.
/s/ Zeller Weiss & Kahn
August 10, 1996
Mountainside, New Jersey
F-64
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A Development Stage Company)
SCHEDULE OF OPERATING EXPENSES
<TABLE>
<CAPTION>
Cumulative from
Year Year December 17, 1993
ended ended (inception) to
April 30, 1996 April 30, 1995 April 30, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Operating expenses:
Salaries $ 69,279 $ 59,749 $ 129,028
Payroll taxes 13,736 7,633 21,369
Amortization 18,256 4,167 22,423
Advertising 2,750 646 8,055
Automobile expense 35,022 33,798 68,820
Bad debt charges 7,806 7,806
Bank charges 1,897 637 2,534
Building rental 18,300 69,754 88,054
Carting expense 394 394
Computer expense 849 849
Consultants 560,465 19,100 584,565
Depreciation 20,411 3,030 23,441
Dues and subscriptions 2,872 15,530 18,402
Employment Services 600 600
Equipment rental 1,700 5,055 6,755
Insurance 42,801 50,728 93,529
Licenses and permits 1,268 266 1,534
Miscellaneous 13,678 12,170 25,848
Office expense 24,464 13,429 37,893
Option expense 7,500 7,500
Outside services 1,299 871 2,170
Postage and deliveries 7,679 5,795 13,474
Printing 19,795 19,795
Professional fees 398,224 30,293 428,517
Repairs and maintenance 4,530 4,530
Research and development 230,947 460,376
Taxes, other 47,696 395 48,091
Telephone 42,304 32,076 74,380
Travel and entertainment 133,288 51,069 184,357
Utilities 791 3,400 4,191
---------- -------- ----------
$1,482,505 $667,687 $2,389,280
========== ======== ==========
</TABLE>
F-65
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Apr-30-1996
<PERIOD-END> Apr-30-1996
<CASH> 3,498
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 447,650
<PP&E> 13,078,872
<DEPRECIATION> 50,009
<TOTAL-ASSETS> 14,391,365
<CURRENT-LIABILITIES> 7,287,468
<BONDS> 3,995,742
0
0
<COMMON> 5,841,684
<OTHER-SE> (2,863,737)
<TOTAL-LIABILITY-AND-EQUITY> 14,391,365
<SALES> 46,954
<TOTAL-REVENUES> 49,954
<CGS> 0
<TOTAL-COSTS> 12,342
<OTHER-EXPENSES> 1,482,505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284,231
<INCOME-PRETAX> (1,732,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,732,124)
<DISCONTINUED> 0
<EXTRAORDINARY> (240,682)
<CHANGES> 0
<NET-INCOME> (1,972,806)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
