<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended October 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act; For
the transition period from to
Commission File #0-27832
COMPOST AMERICA HOLDING COMPANY, INC.
................................................................
(Exact name of small business issuer 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 Offices) (Zip Code)
Issuers's telephone number, including area code: (201)541-9393
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_____
--- ---
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 - 15,938,895 shares outstanding as at October 31, 1996.
Transitional Small Business Disclosure Format (check one):
Yes_____ No X
--- ---
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
1285 Ave. of the Americas
3rd Floor
New York, New York 10019
<PAGE>
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of October 31, 1996 F-2
Statement of income for the six months ended
October 31, 1996 and 1995 and for the period
December 17, 1993 (inception) to October 31, 1996 F-3
Statement of stockholders' equity as of October 31, 1996 F-4
Statement of cash flows for the six months ended
October 31, 1996 and 1995 and for the period
December 17, 1993 (inception) to October 31, 1996 F-5
Statement of operating expenses for the six months
ended October 31, 1996 and 1995 and for the period
December 17, 1993 (inception) to October 31, 1996 F-6
Notes to condensed consolidated financial statements F-7 - F-48
Item 2. Plan of Operations
Part II. Other information
Signatures
Appendix A - Financial Data Schedule
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET - OCTOBER 31, 1996
ASSETS
Current assets:
Cash $ 58,635
Accounts receivable 27,691
Inventory. 14,500
Prepaid expenses 261,739
----------
Total current assets 362,565
----------
Investments in joint venture (Note 12) 0
----------
Plant, property and equipment (Note 18)
Land 8,483,441
Site improvements 167,869
Transportation equipment 160,046
Office equipment 153,861
Machinery & equipment 297,878
Construction in progress, Compost projects 6,340,711
----------
15,603,806
Less accumulated depreciation 73,107
15,530,699
Other assets:
Excess of cost over assets acquired, net of
amortization of $1,742 473,333
Lease acquisition cost, net of
amortization of $11,097 998,723
Restrictive covenant 220,834
Trademark costs, net of amortization of $326 1,078
Organization costs, net of amortization of $3,342 5,220
Deposits (Note 20) 83,817
Option deposit 20,000
----------
1,803,005
----------
$17,696,269
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 21) $ 100,000
Notes payable, others 423,250
Accounts payable and accrued expenses 2,197,405
Mortgages payable - Praxair Corp. 2,100,000
Current portion of long-term debt (Note 18) 104,804
Due to affiliated company, VRH
Construction Corp. (Note 16) 4,039,355
Reserve for land replacement
85,375
Due to affiliated company, Select
Acquisitions, Inc. (Note 16) 38,060
Payroll taxes payable 178,065
----------
Total current liabilities 9,266,314
----------
Long-term debt, net of current portion (Note 18) 4,397,043
Contingencies and commitments (Note 13) ----------
Minority interest in consolidated subsidiary 43,571
----------
Stockholders' equity:
Preferred stock, no par value, 25,000,000 shares
authorized; none issued
Common stock, no par value, 50,000,000
shares authorized; 15,938,895 shares issued
and outstanding 9,411,652
Common stock warrants (Note 15)
Common stock not yet issued (Note 7D2A) 397,500
Deficit accumulated during the development stage ( 5,790,119)
Less: subscriptions receivable ( 29,692)
----------
3,989,341
$17,696,269
----------
----------
See notes to condensed consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
(UNAUDITED)
Cumulative from
Three months ended Six months ended December 17, 1993
October 31, October 31, (inception) to
1996 1995 1996 1995 October 31, 1996
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Net sales $ 0 $ 0 $ 0 $ 0 $ 80,741
Other revenues 27,357 27,357 80,811
----------- ----------- ----------- ----------- ----------
Total 27,357 0 27,357 0 161,552
Cost of operations, transportation 1,210 1,210 0 18,552
----------- ----------- ----------- ----------- ----------
Gross income 26,147 0 26,147 0 143,000
General and administrative 1,334,852 253,980 2,330,671 473,295 4,719,951
----------- ----------- ----------- ----------- ----------
Loss from operations ( 1,308,705) ( 253,980) ( 2,304,524) ( 473,295) ( 4,576,951)
----------- ----------- ----------- ----------- ----------
Other non-operating expenses:
Interest 143,114 33,099 282,630 33,099 577,614
Loss impairment ( 475,083) 440,955 440 955
----------- ----------- ----------- ----------- ----------
( 331,969) 33,099 723,585 33,099 1,018,569
----------- ----------- ----------- ----------- ----------
Loss before income tax expense ( 976,736) ( 287,079) ( 3,028,109) ( 506,394) ( 5,595,520)
Income tax expense (Note 19) 0 0 0 0 0
----------- ----------- ----------- ----------- ----------
( 976,736) ( 287,079) ( 3,028,109) ( 506,394) ( 5,595,520)
Minority interest in loss
of consolidated subsidiaries 43,086 704 85,638 704 166,256
----------- ----------- ----------- ----------- ----------
( 933,650) ( 286,375) ( 2,942,471) ( 505,690) ( 5,429,264)
Loss in equity in joint venture ( 18,504) ( 13,603) ( 37,008) ( 360,855)
----------- ----------- ----------- ----------- ----------
Net loss ($ 933,650) ($ 304,879) ($ 2,956,074) ($ 542,698) ($5,790,119)
----------- ----------- ----------- ----------- ----------
----------- ----------- ----------- ----------- ----------
Loss per common share:
Primary and fully diluted ($0.05) ($0.02) ($0.02) ($0.04)
----- ----- ----- -----
----- ----- ----- -----
Fully diluted ($0.05) ($0.02) ($0.02) ($0.04)
----- ----- ----- -----
----- ----- ----- -----
Weighted average number of
common shares outstanding:
Primary 18,076,140 14,158,013 17,797,588 14,071,179
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted 18,076,140 14,158,013 17,797,588 14,071,179
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See notes to condensed consolidated financial statements.
</TABLE>
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<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.) 100,000 1,000
Issuance of common stock, May 1995 (2.50 per sh.) 20,000 50,000
Issuance of common stock, June 1995 (2.50 per sh.) 70,000 175,000
Issuance of common stock Aug. 1995 (2.50 per sh.) 40,000 100,000
Issuance of common stock, Sept. 1995 (2.50 per sh.) 2,000 5,000
Issuance of common stock, Oct. 1995 (2.50 per sh.) 45,000 112,500
Issuance of common stock, Nov. 1, 1995 (.92 per sh.) 33,000 30,360
Issuance of common stock, Nov. 1995 (2.50 per sh.) 36,000 90,000
Issuance of common stock, Dec. 1995 (2.50 per sh.) 85,600 214,000
Issuance of common stock, Jan. 1996 (2.50 per sh.) 52,200 130,500
Issuance of common stock, Feb. 1996 (2.50 per sh.) 87,000 217,500
Issuance of common stock, Feb. 1996 (0 per sh.) 500
Issuance of common stock in acquisition of
Bedminster Seacor Services Miami Corporation
March 1, 1996 (2.50 per sh.) 200,000 500,000
Issuance of common stock,
March 1996 (2.50 per sh.) 40,000 100,000
March 1996 (3.00 per sh.) 4,000 12,000
Issuance of common stock,
April 1996 (2.50 per sh.) 48,600 121,500
April 1996 (3.00 per sh.) 2,500 7,500
Issuance of common stock in settlement of American
BIO-AG Corporation April 30, 1996 (2.50 per sh.) 83,333 208,332
Issuance of common stock for services April 30, 1996
(2.00 per sh.) 267,000 534,000
Issuance of common stock in settlement of debt April
30, 1996 (6.00 per sh.) 25,000 150,000
Issuance of common stock for services April 30, 1996
(2.34 per sh.) 40,000 93,404
Issuance of common stock in payment of employees for
excess services April 30, 1996 (5.00 per sh.) 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)
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ------ -----------
<S> <C> <C> <C>
Balance, April 30, 1996 14,522,362 $5,841,684 ($2,834,045)
Issuance of common stock, May 1996
($3.00 per sh.) 41,534 124,602
Issuance of common stock settlement agreement
with Select Acquisitions, May 31, 1996
(2.50 per sh.) 200,000 500,000
Issuance of common stock, June 1996 (3.00 per sh.) 24,930 74,790
Issuance of common stock for acquisition of assets,
June 28, 1996 (2.50 per sh.) 305,000 762,500
Issuance of common stock in payment to consultants
for excess services, June 30, 1996 (5.00 per sh) 3,128 15,640
Issuance of common stock, consulting agreement
June 30, 1996 (2.50 per sh.) 583 1,458
Issuance of common stock, July 1996 (2.00 per sh.) 16,335 49,005
Issuance of common stock, consulting agreement
July 31, 1996 (2.50 per sh.) 583 1,457
Issuance of common stock consulting agreement
services, July 1, 1996 (2.50 per sh.) 75,000 187,500
Charge deferred offering cost to stock proceed ( 23,564)
Issuance of common stock for services August 16,
1996 (4.00 per sh.) 50,000 200,000
Issuance of common stock, August 1996 (3.00 per sh.) 12,000 36,000
Issuance of common stock for services September 9,
1996 (3.00 per sh.) 52,540 157,620
Issuance of common stock, September 1996
(1.00 per sh.) 78,500 78,500
Issuance of common stock, September 1996
(3.00 per sh.) 69,400 208,200
Issuance of common stock for payment of accounts
payable October 11, 1996 (2.09 per sh.) 51,000 106,760
Issuance of common stock for services October 11,
1996 (2.50 per sh.) 414,000 1,035,000
Issuance of common stock for services October 23,
1996 (2.50 per sh.) 3,000 7,500
Issuance of common stock, October 1996 (1.00 per sh.) 8,000 8,000
Issuance of common stock, October 1996 (3.00 per sh.) 8,000 24,000
Issuance of common stock in payment to consultants
for excess services, October 31, 1996 (5.00 per sh.) 3,000 15,000
Net loss, October 31, 1996 ( 2,956,074)
---------- ---------- ----------
Balance, October 31, 1996 15,938,895 $9,411,652 ( 5,790,119)
---------- ---------- ----------
---------- ---------- ----------
See notes to condensed consolidated financial statements.
</TABLE>
F-4
Page>
<TABLE>
<CAPTION>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Cumulative
from
Six months ended December 17, 1993
October 31, (Inception) to
1996 1995 October 31, 1996
---- ---- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss ($2,956,074) ($ 318,241) ($ 5,790,119)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization 21,974 11,301 44,397
Depreciation 23,098 7,602 46,539
Loss in equity in joint venture 13,603 37,008 360,855
Stock issued for professional services 788,675 1,373,675
Stock issued in settlement of
shareholder dispute 500,000 500,000
Write down of impaired investment
in American BIO-AG 440,955 440,955
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses ( 156,187) ( 13,374) ( 211,739)
Increase (decrease) in accounts payable and
accrued expenses 811,124 21,290 2,304,181
Increase (decrease) in payroll taxes payable 160,085 ( 4,863) 178,065
Increase (decrease) in accounts receivable ( 27,691) ( 27,691)
Increase (decrease) in inventory ( 14,500) ( 14,500)
Changes in other assets and liabilities:
Increase (decrease) in cash from
affiliated companies:
R.C. Land Company, Inc. 28,600
American Bio-AG Corp. 185,000 ( 165,000)
Select Acquisitions, Inc. 14,160 38,060
American Soil Company, Inc. 175,000
Deferred offering costs 20,564
---------- ---------- -----------
Net cash provided from (used in)
operating activities 28,386 ( 424,277) ( 757,322)
---------- ---------- -----------
Investing activities:
Purchase of restrictive covenant ( 250,000)
Purchase of construction in progress,
Compost project ( 2,513,655) ( 596,608) ( 5,958,211)
Purchase of land, property and equipment ( 968,700) ( 120,299) ( 8,500,595)
Reserve for land replacements 85,375
Purchase of organizational costs ( 1,588) ( 5,925)
Increase (decrease) in deposits receivable ( 65,546) 510 ( 83,817)
Return (purchase) of options ( 20,000) ( 50,000) ( 20,000)
Purchase of equity in American
BIO-AG Corporation ( 331,606) ( 262,147) ( 1,109,765)
Purchase of equity in American Soil, Inc. ( 612,320) ( 612,320)
Excess of cost over assets acquired ( 475,075) ( 475,075)
---------- ---------- -----------
Net cash used in investing activities ( 4,986,902) ( 1,030,132) ( 16,930,333)
---------- ---------- -----------
Financing activities:
Increase in due to affiliated company, VRH
Construction Corp. 530,167 1,104,000 4,039,355
Increase in notes payable, bank 100,000
Increase in notes payable, other 423,250 50,000 423,250
Increase in mortgage payable 2,100,000
Increase in long-term debt 444,039 4,562,630
Proceeds from issuance of common stock 3,617,569 442,500 6,581,838
Payments on long-term debt ( 1,372) ( 53,973) ( 60,783)
---------- ---------- -----------
Net cash provided by financing activities 5,013,653 1,542,527 17,746,290
---------- ---------- -----------
Net increase in cash 55,137 88,118 58,635
Cash, beginning of period 3,498 9,409 0
---------- ---------- -----------
Cash, end of period $ 58,635 $ 97,527 $ 58,635
---------- ---------- -----------
---------- ---------- -----------
Supplementary disclosure of cash
flow information
Interest $ 5,697 $ 33,099
$ 300,681
Taxes
$ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities (Note 23)
See notes to condensed consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
COMPOST AMERICA HOLDING COMPANY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATING EXPENSES
(UNAUDITED)
Cumulative from
Three months ended Six months ended December 17, 1993
October 31, October 31, (inception) to
1996 1995 1996 1995 October 31, 1996
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Salaries $ 97,317 $ 100 $ 197,427 $ 14,236 $ 326,455
Payroll taxes 4,316 1,090 7,384 1,694 28,753
Advertising 5,935 1,500 13,990
Amortization 17,407 7,846 21,974 11,301 44,397
Automobile expense 4,134 562 8,247 5,246 77,067
Bad debt charges 55,384 55,384 63,190
Bank charges 320 519 1,121 882 3,655
Building rental 28,575 4,575 33,150 9,150 121,204
Carting expense 394
Computer expense 849
Consultants 359,621 613,036 2,500 1,197,601
Depreciation 15,758 3,801 23,098 7,602 46,539
Dues and subscriptions 160 475 680 600 19,082
Employment Services 600
Equipment rental 1,764 6,755
Insurance 28,257 4,399 43,124 18,185 136,653
Licenses and permits 578 368 578 368 2,112
Miscellaneous 1,000 1,000 440 26,848
Office expense 4,298 590 8,273 6,408 46,166
Option expense 7,500
Outside services 445 12,336 684 12,336 2,854
Postage and deliveries 4,037 695 5,387 1,539 18,861
Printing 44,967 45,672 65,467
Professional fees 569,955 11,994 589,032 91,858 1,017,549
Repairs and maintenance 813 1,689 1,063 1,689 5,593
Research and development 15,000 192,377 15,000 224,457 475,376
Settlement of shareholder
dispute 500,000 500,000
Stock expense 5,539 5,539 5,539
Taxes, other 32,058 1,175 61,960 1,775 110,051
Telephone 23,764 5,172 40,169 15,524 114,549
Travel and entertainment 19,090 3,967 42,975 41,929 227,332
Utilities 2,059 250 2,779 312 6,970
---------- -------- ---------- -------- ----------
$1,334,852 $253,980 $2,330,671 $473,295 $4,719,951
---------- -------- ---------- -------- ----------
---------- -------- ---------- -------- ----------
See notes to condensed consolidated financial statements.
</TABLE>
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed financial statements of Compost America Holding
Company, Inc. and its Subsidiaries have been prepared pursuant to the rules and
regulations of The Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These interim condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes included in the Company's April 30, 1996 annual report on
Form 10KSB. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended October 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended April 30, 1997.
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.
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
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.,
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.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Nature of operations, risks and uncertainties (continued):
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. 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,
Garden Life Sales Company, Inc., American BIO-AG Corporation and American
Soil, Inc. Inter-company transactions and balances have been eliminated
in consolidation.
5. 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.
6. Investment - American BIO-AG Corporation:
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.
As of June 28, 1996 American BIO-AG Corporation was reorganized by Compost
America Holding Company, Inc. and Twin Rivers Equity acquiring 100% of the
stock of American BIO-AG Corporation through their ownership of 75% and
25% respectively in Newark Recycling and Composting Company, Inc.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Investment - American BIO-AG Corporation (continued):
The financial statements reflect American BIO-AG Corporation consolidated
as a 100% owned subsidiary as of October 31, 1996.
7. Agreements:
A) Compost America Holding Company, Inc.
1) American BIO-AG Corporation:
On June 28, 1996 Compost America Holding Company, Inc., Prince Georges
Contractors, Inc. d/b/a 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 assign these assets and 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 at a fair value of
$2.50 per share 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.
On September 30, 1996 the Company issued 51,000 registered shares of
common stock to Ronald K. Bryce for a release of $150,000 loan
provided for in the June 28, 1996 Asset Purchase Agreement and the
payment of all prior American BIO-AG accounts payables.
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. 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 the liabilities assumed in the amount
of $146,604 of American BIO-AG Corporation. The total fair value
attributable to the acquisition of R.C. Land Company, Inc.'s assets
and equity in American BIO-AG Corporation amounted to $2,047,559 less
the mortgages assumed of $276,829 for a net value of $1,770,730.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
1) American BIO-AG Corporation (continued):
Prince Georges Contractors, Inc. d/b/a Twin Rivers Equities (Potomac
Technologies, Inc.) contributed 8 1/3% of its ownership of American
BIO-AG to Compost America Holding Company, Inc.
2) Settlement Agreement:
On July 31, 1996 the Company and Ehmann, Van Denbergh & Trainor, P.C.
entered into an 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 manner the Company bills should be
paid. The original amount due Ehmann, Van Denbergh and Trainor, P.C.
amounted to $685,810 and in a desire to settle, agrees to $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 represented by a note calling for
monthly installments commencing November
1996 (except $40,000 per month in
January, February and March 1997), or
payment in full upon closing of the
financing of any compost facility. The
note is secured by a security interest
in the assets of the Company and its
subsidiaries.
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.
3) 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.
4) Consulting Agreement John B. Fetter:
On June 10, 1996 the Company and John B. Fetter, a shareholder in the
Company, entered into a consulting agreement regarding 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 which 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.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
5) On September 15, 1996 the Company entered into an agreement with
John B. Fetter as owner of 2,528,612 shares of the Company's common
stock agreed for a period of 12 months not to sell 2,300,000 shares of
his stock and for an additional 12 months will not sell 2,000,000
shares of his stock.
6) On October 1, 1996 the Company and individual shareholders agreed
to a modified Lock-Up Agreement for shares that they owned for 6 months
(October 1, 1996 to March 31, 1997) not to sell their shares. The
shareholders and shares are as follows:
Shareholder Shares
----------- ------
William C. Hurtt, Trustee (A) 100,000
William Callari (B) 80,000
A) William C. Hurtt, Trustee will lock-up 37,500 unregistered shares
with a mutually agreed extension for 3 months for 12,500 unregistered
shares. Additional extensions may be available; during the extension
term the shareholder agrees to not sell more than 7 1/2% of the
registered shares. As consideration for the Lock-Up Agreement the
Company will issue 26,000 unregistered shares of common stock.
B) William Callari will lock-up 30,000 unregistered shares with a
mutually agreed extension for 3 months for 10,000 unregistered
shares. Additional extensions may be available; during the extension
term the shareholder agrees to not sell more than 7 1/2% of the
registered shares. As consideration for this Lock-Up Agreement the
Company will issue 20,800 unregistered shares of common stock.
7) On October 9, 1996 the Company and Bruce Boltuch entered into an
agreement for a convertible 10% note for $50,000 payable on April 9,
1997. The note, at the option of the holder, is convertible 30 days
prior to the maturity date into unregistered common shares of the
Company at a conversion price of $3.00 per principal amount of this
note for one share.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
8) On October 9, 1996 the Company entered into a Lock-Up of Insiders
Shares Agreement for a period of 16 months from the date of October 9,
1996. The following is a list of shareholders and their respective
shares as per this agreement.
Shareholder Shares
----------- ------
Andrea Wortmann 150,000
Robert E. Wortmann 150,000
Victor D. Wortmann 812,500
Roger E. Tuttle 2,433,509
Robert E. Wortmann 802,500
Victor D. Wortmann, Jr. 200,000
Elizabeth Tuttle 100,000
Erika Wortmann 150,000
Kristie Tuttle 100,000
Select Acquisitions 1,308,640
Susan Ann Curian 200,000
William Tuttle 100,000
Mary Wortmann 40,000
---------
6,547,149
---------
---------
9) On October 15, 1996 the Company and Brokerage Services Management, Inc.
entered into an agreement for a convertible 10% note for $53,000 with
a maturity of December 15, 1996, interest and principal payable on
maturity. The note, at the option of the holder, is convertible 6
days prior to the maturity date into unregistered common shares of the
Company at a conversion price of $3.00 per principal amount of this
note for one share.
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.
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
2) 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.
3) 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 three years unless terminated. The lease payment
is $500 per month for a total of $6,000 annually, any renewals are on
the same terms.
4) 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.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
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.
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.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc.
1) Option Purchase Agreement:
On March 1, 1995 Compost America Company of New Jersey, Ltd. (CANJ)
and Brownfield 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 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 seller is entitled to receive 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.
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
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 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.
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 seller is entitled to receive 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 guarantee closing in the name of Robert F.
Young, Jr. These shares are to be returned upon closing or
forfeited if closing does not occur. As of September 6, 1996,
the Company has not issued the 100,000 shares and has not closed
on the purchase of American Soil, Inc. The contract is still
pending and has been extended.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
On October 2, 1996 a second amendment to the Stock Purchase Agreement was
signed between Compost America Holding Company, Inc., Robert F. Young,
Jr. and American Soil, Inc. The amendment extended the closing date to
October 2, 1996. The closing occurred October 2, 1996. In addition, the
following amendments were agreed to:
A) Under the first amendment Robert F. Young, Jr. was to be issued
100,000 shares of unregistered common stock, these shares were
never issued. As a result, no sooner than January 5, 1997 and no
later than January 8, 1997 Robert F. Young, Jr. shall be issued
150,000 shares of registered stock. To secure the Company's
obligation to issue the stock, Roger E. Tuttle has agreed to
deliver to escrow agent 150,000 shares of the Company which he
owns. These shares are valued at $2.65 or a total amount of
$397,500.
B) At closing the Company will place $132,500 cash or 50,000 shares
of unregistered common stock of the Company owned by Roger and
Elizabeth Tuttle into an escrow account to be held by the escrow
agent for 9 months for the payment of any unknown liabilities
more than 90 days prior to the closing date that are more than
$5,000 and any environmental clean-up that may be required by
law. This provision is in lieu of the $150,000 in the second
amendment.
C) At closing the Company paid Isdaner & Company $20,000 and Richards
& O'Neil LLP $21,456.95.
D) At the closing the Company paid $325,000 as amended for the first
amendment of $310,000.
E) At closing the Company assumed all assets and liabilities of
American Soil, Inc.
F) The combined investment and advances to American Soil, Inc. was
$1,168,207 which was allocated as follows:
Net assets of American Soil, Inc. $ 158,387
Value of lease with the Town of
Freehold which expires April 27, 2004
(see Note 12F) 1,009,820
----------
$1,168,207
----------
----------
Financial statements of American Soil, Inc. have not been provided since
the acquisition does not meet with the test for a significant subsidiary
as required under Reg Section 210-02 (W). The combined investment in
and advances at the proposed acquisition date amounted to $1,168,207
which does not exceed 10% of consolidated assets at October 31, 1996.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
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.
E) Newark Recycling and Composting Company, Inc. (continued):
1) 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 which has been extended to December 16, 1996. The property was
closed on December 15, 1995.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc. (continued):
1) Option and Purchase Agreement (continued):
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 January 2, 1997. 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.
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.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
1) Letter Agreement with Bedminster Bioconversion Corporation (continued):
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.
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.
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
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 annum
commencing May 1,1996 and continuing for the next 22 months. All
interest and principal is due on April 1, 1998. As of March 29, 1996
all contracts have been assigned to Miami Recycling and Composting
Company, Inc.
4) 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.
5) 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.
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
6) On November 13, 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 an escalation
factor.
In September 1996, in a first amendment to the restated Compost Recycling
Agreement, the amendment effective date was changed to November 13, 1996
and the initial payment by Bedminster Seacor Services Miami Corporation
to the City of Miami to secure the performance of the Company's
obligations under the restated agreement shall be one million three
hundred and fifty thousand dollars ($1,350,000) payable $100,000 in
September 1996 and the balance of $1,250,000 dollars, plus interest at
10% per annum, payable at the earlier of the financial closing of the
funding for the Miami Compost Project or September 1, 1997. If payments
are not received the City of Miami shall have the right to terminate
this agreement.
On November 21, 1996, Miami Recycling and Composting Company, Inc. paid
$1,000,000 to the City of Miami. This fulfills the 30 year "put or pay"
contract requirement between the Company and the City of Miami.
7) 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
Corporation by Miami Recycling and Composting Company, Inc. and its
parent company Compost America Holding Company, Inc. on March 1, 1996.
8. Consulting Contracts:
A) 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
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
A) Engineering and Technology Agreement (continued):
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.
B) 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 October 31, 1996 total advanced payments amounted to $82,000.
On October 2, 1996 the Company entered into a new agreement with Michael J.
Marchese, which revised the agreement dated March 1, 1995, to assist
the Company in obtaining certain agreements with Freehold Township and
Monmouth County for approval of the Company's Monmouth
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
B) Consulting Agreement between Compost America Company of New Jersey,
Ltd. and Michael J. Marchese dated March 1, 1995 (continued):
County in-vessel composting project. The term of the agreement is for 12
months beginning October 2, 1996 and ending October 2, 1997. The
consultant will assist the Company in:
a) Obtainment of a minimum 20 year lease from Freehold Township for a
350-500 ton per day invessel composting facility on the American
Soil, Inc. property.
b) Secure all required local approvals to develop the "Brownfield"
property.
c) Obtain approval of the Monmouth County Board of Chosen Freeholders for
an in-vessel composting facility on the American Soil, Inc. property.
The agreed compensation for this service shall be $7,500 per month
payable for the term of the agreement by the issuance of 18,000 shares
of the Company's common stock. In addition consultant shall be paid any
remaining fees unpaid from the March 1, 1995 agreement.
As a bonus incentive to the consultant
C) 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.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
D) Underwriter Counsel Agreement, Wolf, Block, Schorr, Solis-Cohen:
On April 1, 1996 the Board of Directors of the Company approved the
utilization of Wolf, Block, Schorr, Solis-Cohen underwriter is counsel
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 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.
E) 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 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.
F) 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.
G) 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. The consultant shall also be
reimbursed for out-of-pocket expenses. 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.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
H) 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.
I) 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.
J) 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
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
J) Consulting Service (continued):
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.
K) 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
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.
L) 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.
M) On July 24, 1996 the Company entered into a consulting agreement with
Edward Rodriguez to provide financial consulting services. The
consultant will assist the Company in developing, studying and
evaluating financial, merger and acquisition proposals and assist in
negotiations. As compensation the consultant, for a term of two years,
will receive $200,000 in the form of stock of the Company.
The consultant will receive 100,000 shares of the Company's common stock
to be registered under an S-8 filing and 500,000 stock options
exercisable immediately as follows:
150,000 @ $4.00 Expiration December 31, 2001
150,000 @ 5.00 Expiration December 31, 2001
200,000 @ 6.00 Expiration December 31, 2001
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
M) (continued):
After the exercise of the options the consultant must complete certain
mailing of investor packages before stock can be registered under Form
S-8 filing. Registration of the stock will be in stages from
immediately upon completion of mailing of 100,000 packages to
investors, 3 months after completion and 6 months after completion.
N) On October 2, 1996 the Company and Robert F. Young, Jr. entered into
a consulting agreement. Robert F. Young, Jr. was the original owner
and developer of American Soil, Inc. which on October 2, 1996 was
acquired by the Company. The consultant is to assist the Company in
the transition of management control of American Soil, Inc. with the
Company and to provide the following objectives:
1) Obtain a minimum of a 20 year lease from the Freehold Township
for a 350-500 ton per day invessel composting facility.
2) Secure all acquired local approvals to develop the "Brownfield"
property, directly adjacent to the American Soil, Inc. site, for
compost storage and blending operations.
3) Obtain approval from the Monmouth County Board of Chosen Freeholders
of an amendment to the Monmouth County district solid waste
management plan to authorize a 350-500 ton per day in-vessel
composting facility for source separated organic material on the
American Soil, Inc. property.
For services rendered the consultant shall receive $5,000 per month for
a term of 3 months through January 2, 1997. If objective (1) is
achieved within 2 months after the end of the term the consultant shall
receive a bonus of $15,000 and 10,000 shares of registered common stock
of the Company. If objective (2) and/or (3) are achieved within 2
months after the end of the term of the agreement, the consultant shall
receive $15,000 and 10,000 shares of restricted common stock of the
Company for each objective achieved.
The Company will also provide health coverage for a six month period
from October 2, 1996 to April 2, 1997.
After the term of this agreement the consultant can be engaged at the
rate of $1.00 per hour either in cash or common stock of the Company by
mutual agreement.
The consultant shall receive reimbursement for expenses not to exceed
$1,500 per month. In addition the consultant has requested the Company
to pay $15,000 per year for three years to Cornell College of Art,
Architecture and Planning for research.
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
N) (continued):
If objective (1) is achieved within 4 months after the beginning of the
term, the consultant shall receive a bonus payment of $15,000 in cash
and 8,333 shares of common stock of the Company. Additionally if
objective (2) and or (3) are achieved within 4 months after the
beginning of the term of this agreement $15,000 in cash and 8,333
shares of common stock of the Company will be paid for each completed
objective.
O) On May 30, 1996 the Company signed a retained agreement with Mehr
& LaFrance, Attorneys at Law, to provide legal service related to the
obtaining of rights for compost operations, as well as development
rights on the Freehold Township property, which American Soil, Inc.
presently leases, within Monmouth County Soil Waste Management Plan
and required permitting procedures of the New Jersey Department of
Environmental Protection. Compensation shall be based on the standard
hourly billing rates of the firm from $170 per hour to $200 per hour.
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 October 31,
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 $5,790,119.
Projects in development:
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
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Gloucester City - National Source Separated Organic Waste Demonstration
-----------------------------------------------------------------------
Project (continued):
-------
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 October 31, 1996 amounted to $267,423. The
estimated scheduled start for the demonstration project was the first
quarter of 1996. This date has been extended.
Newark Project:
--------------
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 and further extended to
November 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 and which was further extended to November 30, 1996.
As of October 31, 1996 total project cost for the Newark Project amounted
to $3,786,009. In addition the property for the Newark Project has been
acquired at a cost of $3,327,866.
F-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
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 October 31, 1996 Miami Recycling and Composting Company, Inc. has
acquired a land site at a cost of $4,116,246 and construction in progress
costs of $593,527.
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 October 31, 1996 950,264 shares have been sold for a total of
$2,319,592. The offering has no expiration date.
11. Investment in American BIO-AG Corporation:
The Company and two other entities formed a joint venture. The purpose of
the joint venture is 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
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Investment in American BIO-AG Corporation (continued):
loan is anticipated to be funded by April 1, 1995 and repaid by June 30,
1995. As of June 28, 1996 the bridge loan was not arranged. Compost
America Holding Company, Inc. has arranged for short-term funds from
February 15, 1995 to June 28, 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 the Company's generation of
positive cash flow. In April of 1996 the Company issued 83,333 shares of
its common stock as compensation for unpaid management fees and expenses
to Mr. Ronald Bryce. The Company has valued these shares at a fair value
of $2.50 per share or $208,332. This amount has been capitalized as part
of the cost of the investment in American BIO-AG Corporation by the
Company. 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 through the period ended June 30, 1996.
On June 28, 1996 the Company, through its majority owned subsidiary, Newark
Recycling and Composting Company, Inc., purchased all of the land
application business assets of R.C. Land Company and all the ownership
interests of Compost America Holding Company, Inc., Twin River Equities
and R.C. Land Company, Inc.'s in American BIO-AG Corporation. Newark
Recycling and Composting Company, Inc. became the 100% owner of the entity
American BIO-AG Corporation. Newark Recycling and Composting Company,
Inc. is owned 75% by Compost America Holding Company, Inc. and 25% owned
by Potomac Technologies. For the period October 1, 1996 to October 31,
1996 American BIO-AG Corporation has been included in the consolidated
financial statements of the Company.
12. Minority interest in consolidated subsidiary:
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 October 31, 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)).
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and Commitments:
A) 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.
B) 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.
C) 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 are as follows:
April 30, 1997 $48,000
April 30, 1998 48,000
April 30, 1999 48,000
April 30, 2000 48,000
D) 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 payments during
the next year amount to $5,695.
E) 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
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and Commitments (continued):
E) (continued):
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 October 31, 1996 the Company has advanced $25,000 towards this
balance as an indication of good faith with Bio-Services, Inc.
F) On October 2, 1996 the Company was assigned a lease commitment
with the Township of Freehold, New Jersey for two parcels of land
located in the Township of Freehold, County of Monmouth, State of New
Jersey. One parcel 10.462 acres and the second parcel 8.296 acres.
The lease is for 5 years with a 5 year option. The cost of the lease
is 5% of the audited profits net of either state or federal income
taxes conducted on the above described premises or a minimum of $4,000
per year, payable quarterly. The property shall be used for
receiving, processing and composting organic materials, and wholesale
and retail sale of finished horticultural products. Organic materials
shall include yard wastes, processing wastes, paper products and wood
chips. The Company must maintain $2,000,000 of insurance on the
premises.
14. Capital stock:
A) On May 17, 1996 the Company entered into a settlement agreement
with Select Acquisitions, Inc., Pasquale Dileo, an officer and
shareholders of Select Acquisitions, Inc. and a consultant and
shareholder of the Company, and Michael Papa, the former owner and
major shareholder of Select Acquisitions, Inc. as a result of various
disputes agreed to resolve any and all disputes by certain terms and
conditions. As a result of services provided, Select Acquisitions,
Inc. and Pasquale Dileo received stock in the Company. In settlement
with the disagreements of the shareholders of Select Acquisitions,
Inc., the Company issued 80,000 shares of its common stock to the
original shareholders, 100,000 shares to Michael Papa and 20,000
shares to Gordon N. Gemma, Esq. for outstanding legal fees. In
addition, Michael Papa is to receive from the Company $60,000 for
costs, expenses and other payments as a representative of Select
Acquisitions, Inc. and the Company.
B) On July 24, 1996 the Company entered into a consultant agreement
with Edward Rodriguez for a term of 2 years. The consultant is to
receive $200,00 by the issuance of 100,000 shares of the Company's
common stock and an option to purchase 500,000 shares of the Company's
common stock immediately exercisable expiring December 31, 2001.
C) On June 28, 1996 the Company entered into an agreement to acquire
all of the land application business and assets of R.C. Land Company,
Inc. and its 33 1/3% interest in American BIO-AG Corporation by the
issuance of 305,000 shares of common stock and other payments.
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Capital stock (continued):
D) In June and July 1996 the Company issued 583 shares of its common
stock each month as part of a consulting agreement dated May 31, 1996
with J.G.R. Associates.
E) On July 1, 1996 the Company issued 75,000 shares of its common
stock valued at $2.50 per share to Ronald Bryce for consulting
services as part of the asset purchase agreement with R.C. Land
Company, Inc.
F) The Company issued 6,056 shares to Robert Tardy and 72 shares to
Robert C. Myers in exchange for overtime compensations per their
consulting agreements. The agreed upon value of the shares if $5 per
share.
G) On September 9, 1996 the Company issued 52,540 shares of its
common stock values at $3.00 per share to Select Acquisitions, Inc.
for consulting and contract expenses paid on behalf of Compost America
Holding Co.
H) On October 11, 1996 the Company issued 51,000 shares at $2.09 per
share to Ronald Bryce for payment of accounts payable of American
BIO-Ag Corporation in the amount of $106,761.
I) On October 11, 1996 the Company issued 55,500 shares of stock
regarding the Newark Project to various individuals. The agreed upon
value of the stock was $2.50 per share.
J) On October 11, 1996 the Company issued 165,000 shares to
attorneys. The agreed upon value was $2.50 per share.
K) On October 11, 1996 the Company issued 110,000 shares to
consultants. The agreed upon value was $2.50 per share.
L) On October 11, 1996 the Company issued 83,500 shares to various
engineers, etc. The agreed upon value was $2.50 per share.
M) On October 23, 1996 the Company issued 3,000 shares of stock to
the law firm of Atkinson Debartolo & Kalapos regarding an agreement
which was terminated.
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Common Stock Purchase Warrants and Options:
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. Wortmann 300,000 options
Victor D. Wortmann 300,000 options
The options are exercisable immediately at $2.00 per share with an
expiration date of April 23, 2001. Robert and Victor Wortmann 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:
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-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Common Stock Purchase Warrants and Options (continued):
Summary of Warrants and Options Outstanding:
Exercise
10/31/96 Price Expiration
-------- -------- ----------
Warrants:
--------
Bedminster Bioconversion Corp 300,000 $ 6.00 03/01/01
300,000 .83 04/18/97
60,460 3.00 06/01/99
David Egarian 150,000 1.00/1.17 01/31/96-97
Robert W. Jones III 75,000 1.00/1.17 01/31/96-97
B. Michael Pisani 45,200 .92 06/01/99
Robert D. Long 5,800 .92 06/01/99
---------
936,460
---------
---------
Options:
Robert E. Wortmann 300,000 2.00 04/23/01
Victor D. Wortmann 300,000 2.00 04/23/01
Roger Tuttle 1,000,000 2.50 11/14/00
Peter Coker 100,000 2.00
50,000 5.00
50,000 9.00 06/30/01
Pasquale DiLeo 200,000 2.50 04/30/01
Mark Gasarch, Esq. 200,000 2.50 05/20/01
Edward Rodriguez 150,000 4.00
150,000 5.00
200,000 6.00 12/31/01
---------
2,700,000
---------
---------
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 SFAS-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 SFAS-123. The Company
has not recognized compensation on the granting of options or warrants to
employees and consultants since the fair value of warrants or options is
the same as or less than the exercise price.
F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. 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 July 31, 1996, the note for $640,072 has been extended from the
original due date to October 15, 1996. In addition, VRH Construction Corp.
has advanced additional funds amounting to $3,399,283 at October 31, 1996,
of which $1,543,866 is in two notes payable at 10% due October 15, 1996
and $1,855,417 is interest bearing at 10% per annum and payable on demand.
The total loans and notes outstanding at October 31, 1996 amounted to
$4,039,355. 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 $38,060 at October 31, 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 October 31, 1996 and October 31, 1995 all intercompany transactions
have been eliminated except for amounts due from R.C. Land Company, Inc.,
a former partner in the Joint Venture of American BIO-AG Corporation.
17. Employment Contracts:
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
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. Employment Contracts (continued):
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 October 31, 1996 unpaid accrued wages amounted to $351,000 for all
contract employees.
18. Long-term debt:
Rate 1996 1995 Maturity
---- ---- ---- --------
First Fidelity Bank (A) 10.75% $ - 0 - $ 3,492 01/20/96
First Fidelity Bank (A) 10.00% - 0 - 3,492 01/20/96
Teepak, Inc. (B) Prime & 2% 264,871 264,871 extended
Jonathan W. Frank (C) None - 0 - 200,000 indefinite
Mortgage payable-Rinker
Materials Corp. (D) 7% 3,730,871 - 0 - 04/01/98
Mortgage payable-
Jerry L. Montierth (E) 7% 276,829 - 0 - 02/01/15
Note payable, equipment (F) 10.75% 46,125 - 0 - 08/20/99
Note payable, equipment (G) 12.50% 102,049 - 0 - 06/05/00
Note payable, equipment (H) 9.50% 81,102 - 0 - 07/10/99
---------- --------
4,501,847 471,855
Less current portion 104,804 56,984
---------- --------
$4,397,043 $414,871
---------- --------
---------- --------
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%. As of September 15, 1996 the loan has been
extended.
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18. Long-term debt (continued):
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 October 31,
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%.
E) The mortgage payable to Jerry L. Montierth is payable in annual
installments of $26,783.99 including interest at 7% over 19 years. The
mortgage is secured by land located in Meridian, Cachise County,
Arizona.
F) Equipment which cost $59,920 is pledged as collateral for
the note which is payable in monthly installments of $1,541.
G) Equipment which cost $110,563 is pledged as collateral for
the note which is payable in monthly installments of $2,489.
H) Equipment which cost $93,104 is pledged as collateral for
the note which is payable in monthly installments of $2,459.
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18. Long-term debt (continued):
The maturities of the long-term debt summarized as follows:
Year ended April 30,
1997 $ 65,718
1998 3,967,958
1999 236,983
2000 61,495
2001 26,784
Thereafter 142,909
----------
$4,501,847
----------
----------
19. 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 $5,790,119 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2009 and 2012.
20. Deposits:
Deposit on land - Denton Farm, Arizona $77,475
Minalto Corporation - Business equipment 817
Robert Fellheimer - Rent security 1,525
VRH Construction - Rent security 4,000
-------
$83,817
-------
-------
21. Notes payable, bank:
The note payable to United Jersey Bank is due March 1, 1997, on demand, at
10% interest.
Notes payable, others:
The Company is obligated on a note payable to Roger Tuttle, President of
the Company, for $70,000 which is non-interest bearing, unsecured and
payable on demand.
F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
21. Notes payable, bank (continued):
The Company is obligated on a demand note to Foundation Systems which is
non-interest bearing and unsecured.
The Company is obligated for notes from American BIO-AG Corporation in the
amount of $110,250 and non-interest bearing, unsecured and payable on
demand. The notes are payable to Ronald Bryce for $35,250 and to Carl
Jones for $75,000.
The Company is obligated on two notes of $50,000 each payable April 1997
with interest at 10%. The notes can be converted to stock at a price of
$3.00 per share, 30 days prior to the due date.
The Company is obligated on a note of $53,000 which is payable December 15,
1997 with interest at 10%.
22. Subsequent events:
On November 24, 1996 the Company and Berwyn Capital Investments, Inc.
entered into an agreement for Berwyn Capital Investments, Inc., for a term
of 180 days, to arrange corporate equity, project debt, project mortgage
debt and project subordinated debt on behalf of the Company. The
anticipated equity financing is to amount to $3,000,000. As compensation
for this service:
A) A cash payment equal to 6% of any equity funds raised and 3.6% of the
proceeds of any debt offering.
B) Option to purchase common stock of $3.50 per share exercisable any time
within 5 years from the date of issuance with a value equal to 4%
(2.4% in the case of debt) of the funds raised.
Upon execution the Company and Ira Russack entered into an agreement for a
convertible 7% note for $100,000 due June 30, 1997, interest and
principals payable on the maturity date. In addition, the Company hereby
grants an option to purchase up to 125,000 shares of the Company's common
stock at a price of $1.00 per share through November 30, 2001. The note
is convertible at $3.00 per share based on the remaining principal amount
plus any acquired interest at the maturity date.
On November 25, 1996 the Company issued a convertible debenture for
$1,000,000 to Lionhart Global Appreciation Fund under a Regulation D
F-43
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
22. Subsequent events (continued):
offering. The total offering proceeds amounted to $1,030,000 of which
$30,000 is a fee to the agent, Kaplan Gottbetter & Levenson, LLP. The
debentures are in 10 units of $100,000 each at 10% with a maturity of
November 26, 1999. The interest is payable monthly commencing 30 days
from the agreement and the notes are redeemable after 90 days at option of
the Company. As security, the Company will escrow between 300,000 and
325,000 shares of common stock, pursuant to a registration statement
declared effective by the commission, to secure the payments and shall be
held by the escrow agent. The stock pledged shall be without restrictive
legend.
The debenture holder, upon default, has the right to sell, assign or
deliver shares without notice to or demand upon the Company. The holder
is entitled to receive dividends and other distribution but no right to
vote or subscribe.
The debenture holder has the right of conversion 150 days following date of
closing of note. The debenture is convertible (principal and interest)
into common stock based on the principal and interest outstanding divided
by the conversion price, the conversion price being 65% of the average
closing bid price for the 5 days preceding the closing or 65% of the
average closing bid price for the 5 days immediately preceding the date of
conversion.
The debentures are automatically converted to each issued and outstanding
debenture on the date which is 3 years after closing. Upon 90 days after
closing, at the option of the Company, the debentures may be redeemed
based on the following schedule:
Number of days Shares of
from closing date Principal common stock
----------------- --------- ------------
90 - 120 $1,000,000 80,000
121 - 150 1,000,000 100,000
150 or more 1,000,000 120,000
F-44
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
23. Supplemental schedule of non-cash investing and financing activities:
1996 1995
---- ----
May 1, 1995 issued 100,000 shares on
exercise of warrant by officer of
Corporation ($1,000)
Officers compensation 1,000
May 31, 1996 issued 200,000 shares of
common stock in settlement of Select
Acquisitions, Inc. ($ 500,000)
Legal and professional fees 50,000
Consulting 250,000
Liquidation of former Select Acquisitions,
Inc. for shareholder stock and issue of
Company stock 200,000
June 28, 1996 issuance of 305,000 shares
of common stock in purchase of land
application assets of R.C. Land Company,
Inc. by the Company ( 762,500)
Property, plant and equipment 762,500
June 30, 1996 and July 30, 1996 issued
179,194 shares of common stock for
consulting services ( 606,055)
Consulting services expense 606,055
September 9, 1996 issued 52,540 shares ( 157,620)
Construction in process, compost projects 85,000
Consulting fees 72,620
October 11, 1996 issued 3,000 shares ( 7,500)
Legal and professional fees 7,500
October 23, 1996 issued 465,000 shares ( 1,141,760)
Consulting, legal and professional fees 687,500
Payment of accounts payable 106,760
Construction in progress, compost projects 347,500
F-45
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
24. Earnings per share:
1996 1995
Primary Primary
------- -------
Number of shares:
Weighted average shares
outstanding 15,230,629 13,154,167
Incremental shares for
outstanding stock
warrants 936,460 917,012
Incremental shares for
outstanding stock
options 2,550,000 0
---------- ----------
18,717,089 14,071,179
---------- ----------
---------- ----------
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.
25. Impairment of investment in subsidiary:
On June 28, 1996, the Company, through its majority owned subsidiary,
Newark Recycling and Composting Company, Inc., acquired all the land
application assets of R.C. Land Company, Inc. for 305,000 shares of the
Company's common stock, $50,000 in cash and the assumption of a land
mortgage of $276,829. The assets acquired at their fair market value are
as follows:
1) All plans, permits and site specific
plans from State of Arizona $ 755,000
2) Various farm lands totaling 5,428
acres 580,000
3) Machinery and equipment 125,000
----------
1,460,000
Less mortgage assumed ( 276,829)
----------
Net asset value $1,183,171
----------
----------
F-46
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Impairment of investment in subsidiary (continued):
Management has determined that the fair value of the stock, due to its
restricted nature and in relation to comparable sales, is $2.50 per share
or $762,500. The acquired cost of the acquisition from R.C. Land Company,
Inc. was $812,500.
In addition, on June 28, 1996, Newark Recycling and Composting Company,
Inc. assigned these assets to American BIO-AG Corporation and acquired the
remaining 66 2/3% of American BIO-AG Corporation from R.C. Land Company,
Inc. and Twin Rivers Equities. The Company assumed all of the liabilities
of American BIO-AG Corporation amounting to $464,273 less the assets of
$132,669 for a total amount of $331,604 less the inter company loan of
$185,000.
The total investment in American BIO-AG Corporation by the Company is as
follows:
Assignment of R.C. Land $ 812,500
Liabilities assumed in acquisition
of American BIO-AG 146,604
Original basis 811,626
----------
Basis in American BIO-AG $1,770,730
----------
----------
The book value of American BIO-AG Corporation at June 30, 1996 after the
assignment of the assets of R.C. Land Company, Inc.:
Common stock $1,937,263
Deficit 1,082,563
----------
Net worth $ 854,700
----------
----------
The fair value of the assets of American BIO-AG Corporation based on the
present value of the expected future cash flow based on management
valuation and in outside appraisal information indicated a value of
$1,460,000 less the mortgage assumed of $276,829 plus the net liabilities
of American BIO-AG Corporation, before assignment of R.C. Land Company,
Inc.'s assets, of $146,604. The total fair value of American BIO-AG
Corporation is $1,329,775.
F-47
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Impairment of investment in subsidiary (continued):
The impairment loss to the Company would be the total cost basis of the
investment in American BIO-AG Corporation of $1,585,730 less the fair
value of the assets acquired of $1,329,775.
An impairment loss of $440,955 would be recognized in the operating
expenses of the Company under the caption "Impairment loss on investment
in subsidiary".
The Company has adopted the provision of SFAS-121 effective for fiscal
years beginning after December 15, 1995. As required by the Financial
Accounting Standards Board which requires recognition of impairment of
asset when events and circumstances indicate the carrying amount of those
assets will not be recovered in the future. The pronouncement further
states that goodwill identified with assets that are subject to impairment
loss should be eliminated before the carrying amount of any other assets
is reduced.
Basis of acquisition of American BIO-AG
Corporation $1,770,730
Net book value of the assets acquired 854,700
----------
Goodwill 916,030
----------
Base of acquisition $1,770,730
Fair value of assets 1,329,775
----------
Impairment loss 440,955 440,955
---------- ----------
Goodwill, net $ 475,075
----------
----------
F-48
<PAGE>
ITEM 2. 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 invessel 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 directors of the
Company and 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 October 31, 1996, the
Company has raised $603,097 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 October 31, 1996,
VRH Construction Corporation has loaned an additional $485,000 to the Company.
Other loans to the Company since April 30, 1996 through October 31, 1996 have
totalled $338,000. Total funds raised from the sale of common shares and loans
from shareholders and others from December 1993 through April 30, 1996 are
$6,473,457, plus an additional $1,426,097 since April 30, 1996 through October
31, 1996.
In October, 1996 the Company acquired all of the outstanding shares of
American Soil, Inc. of Ramsey, New Jersey ("ASI"). ASI is
<PAGE>
an eight-year old New Jersey Department of Environmental Protection Agency
permitted outdoor windrow composting company, located in Monmouth County, New
Jersey, which has generated revenues throughout its eight year history. ASI is
one of only two permitted windrow composting facilities in the State of New
Jersey, and is the only facility approved to accept, on an on-going basis, food
waste for composting.
The Company's waste procurement strategy employed during the past year for
its Newark, New Jersey composting facility should serve to increase
significantly ASI's yearly waste procurement, i.e. tip-fee revenues including
contract value. The Company's wholly-owned marketing subsidiary, Garden Life
Sales Company, will assist ASI by selling the compost after it has been cured, a
revenue generating benefit heretofore not available to ASI.
Additional and more significant revenues from operations are not
anticipated until 1999, when the Company's initial composting 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 and fund
ongoing corporate overhead expenses. The Company anticipates that it will be
able to secure these funds from the revenues of ASI and 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 facilities in Newark, New Jersey, Miami, Florida and Chicago,
Illinois prior to the end of 1997 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 during the next twelve months. The Company does expect to commence
construction of its Newark, New Jersey, Miami, Florida and Chicago, Illinois
composting facilities during the next twelve months, financing and weather
permitting.
On November 27, 1996, as per its 30-year put-pay contract, the Company paid
to the City of Miami, Florida a one-time "up-front" host fee of $1 million. This
"put-or-pay" contract, over its term, should generate in excess of $370 million
of revenues to the Company's subsidiary, Miami Recycling and Composting Company,
Inc., while using only half of the composting capacity of its Miami, Florida
facility.
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings None
Item 2. - Changes in Securities
(a) None
(b) None
(c) During the fiscal quarter ended October 31, 1996, the Company
sold the following securities, all being shares of its common stock, without
registering the securities under the Securities Act of 1933, as amended. There
were no underwriters involved in the sales, no underwriting discounts or
commissions and no sales other than for cash. In light of the small number of
purchasers and that all securities sold were restricted against subsequent
transfer, the Company believes that all sales were effected under an exemption
provided by Section 4(2) of the Securities Act of 1933, as amended, being sales
by an issuer not involving a public offering. The sales were:
Number Total
Date of Shares Offering Price Purchaser
- ----- --------- -------------- ---------
08/12/96 11,000 $ 33,000. Frances Hunter
08/29/96 1,000 $ 3,000. John & Madeline Cipollone
09/04/96 5,000 $ 15,000. Richard J. Verge
09/09/96 52,540 $157,620. Select Acquisitions, Inc.
09/11/96 1,600 $ 4,800. Anna Bakos
09/11/96 3,300 $ 9,900. John Smith
09/18/96 10,000 $ 30,000. Barbara Chellel
09/19/96 8,000 $ 15,000. Glenn Davis
09/25/96 13,000 $ 25,000. Victor Goldberg
09/25/96 6,500 $ 12,500. James Sheehan
09/25/96 5,500 $ 10,500. Chris J. Hooven
09/25/96 16,000 $ 32,000. Howard Taylor
09/25/96 13,000 $ 25,000. Kurt E. Meyers
09/25/96 12,000 $ 24,000. Jay R. Chiappa
09/25/96 30,000 $ 30,000. Joseph A. Leonetti
09/25/96 17,000 $ 33,000 Henry M. Rombo & Joseph Leonetti
09/25/96 10,000 $ 20,000 Christopher J. Chambers
10/09/96 6,000 $ 12,000 Henry M. Rombo
10/18/96 10,000 $ 20,000 James & Caroline Haas
10/23/96 500 $ 1,250 Thomas A. Kalapos
10/23/96 500 $ 1,250 Janet Z. Kalapos
10/23/96 1,000 $ 2,500 John F. De Bartolo
10/23/96 1,000 $ 2,500 Ursula S. Atkinson
Item 3. - Defaults Upon Senior Securities None
<PAGE>
Item 4. - Submission of Matters to a Vote of None
Security Holders
Item 5. - Other Information
On December 1, 1996 George S. Chu resigned as Senior Vice President and
Principal Financial and Accounting Officer of the Company. Roger E. Tuttle,
the Company's Principal Executive Officer, was appointed its Principal
Financial and Accounting Officer.
Item 6. - (a) Exhibits None
(b) Reports on Form 8-K
1. A Form 8-K was filed on October 28, 1996 regarding the
acquisition by the Company of all of the issued and outstanding
stock of American Soil, Inc.
<PAGE>
SIGNATURES
In accordance with the requirements 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.
December 18, 1996 (Registrant)
By /s/ Roger E. Tuttle
--------------------------------------------------
Roger E. Tuttle, President and Principal
Executive Officer, Principal
Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AUDITED FINANCIAL
STATEMENTS OF COMPOST AMERICA HOLDING COMPANY, INC. FOR THE FISCAL YEAR ENDED
APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> APR-30-1996
<PERIOD-END> OCT-31-1996
<CASH> 58,635
<SECURITIES> 0
<RECEIVABLES> 27,691
<ALLOWANCES> 0
<INVENTORY> 14,500
<CURRENT-ASSETS> 362,565
<PP&E> 15,603,806
<DEPRECIATION> 73,107
<TOTAL-ASSETS> 17,696,269
<CURRENT-LIABILITIES> 9,266,314
<BONDS> 4,397,043
0
0
<COMMON> 9,809,152
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,696,269
<SALES> 27,357
<TOTAL-REVENUES> 27,357
<CGS> 1,210
<TOTAL-COSTS> 1,210
<OTHER-EXPENSES> 816,683
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 143,114
<INCOME-PRETAX> (933,650)
<INCOME-TAX> 0
<INCOME-CONTINUING> (933,650)
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<NET-INCOME> (933,650)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
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