AS FILED: MAY 28, 1996 SEC FILE NO. 333-1592
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT #2
TO
FORM S-1/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
COMPOST AMERICA HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
NEW JERSEY 4953 22-2603175
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
-------------------
350 SOUTH MAIN STREET, SUITE 313
DOYLESTOWN, PENNSYLVANIA 18901
(215) 348-9788
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
-------------------
ROGER E. TUTTLE, PRESIDENT
350 SOUTH MAIN STREET, SUITE 313
DOYLESTOWN, PENNSYLVANIA 18901
(215) 348-9788
(Name, address including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES TO:
MARK GASARCH, ESQ.
1285 AVENUE OF THE AMERICAS
3RD FLOOR
NEW YORK, NEW YORK 10019
(212) 956-9595
(212) 956-7216 FAX NO.
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED TO BE REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, no par value
("Common Stock")............... 1,025,000 Shares $6.50 $6,662,500 $2,298
- --------------------------------------------------------------------------------------------------------
Total...................... $2,298
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
SHOWING THE LOCATION IN
THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
REGISTRATION STATEMENT LOCATION IN
ITEM NUMBER AND HEADING PROSPECTUS
- ----------------------- -----------
<C> <C>
1. Forepart of the Registration Statement and ........... Outside Front Cover Page
Outside Front Cover of Prospectus...
2. Inside Front and Outside Back Cover Pages of .......... Inside Front and Outside Back Cover
Prospectus... Page
3. Summary Information, Risk Factors and Ratio of......... Prospectus Summary; Risk Factors
Earnings to Fixed Charges...
4. Use of Proceeds........................................ Use of Proceeds
5. Determination of Offering Price........................ Not Applicable
6. Dilution............................................... N/A
7. Selling Security Holders............................... Selling Shareholders
8. Plan of Distribution................................... Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to Be Registered............. Description of Securities
10. Interest of Named Experts and Counsel.................. Experts; Legal Matters
11. Information with Respect to the Registrant.............
(a) Description of Business Company; Business;
(b) Description of Property Business (Property);
(c) Legal Proceedings Legal Matters;
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters Price Range of Common Stock; Dividend
Policy
(e) Financial Statements same
(f) Selected Financial Data Selected Financial Data
(g) Supplementary Financial Information Selected Financial Data
(h) Management's Discussion and Analysis of same
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with Experts
Accountants on Accounting and Financial
Disclosure
(j) Directors, Executive Officers, Promotors and Management; Principal Shareholders
Control Persons
(k) Executive Compensation Management (Compensation)
(l) Security Ownership of Certain Beneficial Principal Shareholders
Owners and Management
(m) Certain Relationships and Related Certain Transactions
Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........ Indemnification of Directors and
Officers (Part II, Item 14); Management
(Indemnification)
13. Other Expenses of Issuance and Distribution........... Part II, Item 13
14. Indemnification of Directors and Officers............. see 12 above
15. Recent Sales of Unregistered Securities............... Part II, Item 15
16. Exhibits and Financial Statement Schedules............ same
17. Undertakings.......................................... Part II, Item 17
</TABLE>
<PAGE>
PRELIMINARY PROSPECTUS DATED MAY 28, 1996
SUBJECT TO COMPLETION
PROSPECTUS
- ----------
1,025,000 SHARES
COMPOST AMERICA HOLDING COMPANY, INC.
COMMON STOCK
This Prospectus relates to an offering by twenty-one selling shareholders
(the "Selling Shareholders") of up to 1,025,000 shares of common stock, no par
value (the "Common Stock"), of Compost America Holding Company, Inc. (the
"Company"). The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Shareholders. See "Selling Shareholders".
The Common Stock may be offered from time to time by the Selling
Shareholders through ordinary brokerage transactions in the over-the-counter
market, in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices. See "Plan of Distribution".
Shares of the Company's Common Stock are traded on the Electronic Bulletin
Board ("Bulletin Board") of the National Association of Securities Dealers, Inc.
("NASD") under the symbol "CAHC". On May 24, 1996 the last reported sale price
of the Company's Common Stock on the Bulletin Board was $5.00 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
<PAGE>
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PRELIMINARY PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (the
"Registration Statement") on Form S-1 under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Common Stock of the Company
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and its Common Stock, reference
is made to the Registration Statement and the exhibits and schedules filed as a
part thereto. While the Company believes that statements contained in this
Prospectus regarding the contents of any contract or agreement or any other
document do contain all of the material elements thereof, such statements are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or agreement or document filed as an exhibit to the
Registration Statement, and the full text of each such statement is qualified in
its entirety by reference to such contract or document.
The Registration Statement and the exhibits thereto filed by the Company
with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Regional Offices of the
Commission at Seven World Trade Center, Suite 1300, New York, New York 10048,
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such information can be obtained by mail from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
As a result of this offering, the Company will be required to comply with
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, to file annual, quarterly
and other periodic reports with the Commission. Additionally, the Company will
be subject to the proxy solicitation requirements of the Exchange Act. The
Company intends to furnish its stockholders with annual reports containing
audited financial statements and a report thereon certified by its independent
certified public accountants, quarterly reports containing unaudited financial
statements and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
THE COMPANY
The Company was incorporated on August 20, 1981 in the State of New Jersey
under the name Alcor Energy and Recycling Systems, Inc. ("Alcor") for the
purpose of designing, constructing, managing and operating resource recovery
facilities. On January 23, 1995 Alcor acquired all of the outstanding shares of
Compost America Company of New Jersey, Ltd. ("CANJ"), which had been
incorporated on December 17, 1993 in the State of Delaware for similar purposes,
and subsequently changed its name to Compost America Holding Company, Inc. The
Company conducts its business directly and through its wholly-owned subsidiary
CANJ. The Company incorporated Garden Life Sales Company, Inc. in Delaware on
March 1, 1996 to handle future sales of compost by the Company. On June 15, 1995
the Company incorporated Compost America Technologies, Inc., a Delaware
corporation, as a wholly-owned subsidiary to license certain rights to
composting technology. CANJ itself has six subsidiaries, Newark Recycling and
Composting Company, Inc., incorporated in Delaware on May 10, 1994, and owned
75% by CANJ and 25% by Prince Georges Contractors, Inc., doing business as
Potomac Technologies, Inc. ("PTI"), an unaffiliated company, and five
wholly-owned subsidiaries, Monmouth Recycling and Composting Co., Inc.,
incorporated in Delaware on May 10, 1994, Chicago Recycling and Composting
Company, Inc., incorporated in Delaware on August 4, 1995, Gloucester Recycling
and Composting Company, Inc., incorporated in Delaware on August 15, 1994,
Philadelphia Recycling and Composting Company, Inc., incorporated in
Pennsylvania on March 8, 1995 and Miami Recycling and Composting Company, Inc.,
incorporated in Delaware on November 17, 1995. Unless otherwise indicated,
references to the Company includes the Company and its subsidiaries and CANJ and
its subsidiaries.
The Company is a development stage company which will construct and manage
enclosed organic material recycling compost manufacturing plants. Composting is
a method of converting the organic portion of garbage (Municipal Solid
Waste--"MSW") and sewage sludge into a peat moss like product with agronomic
benefits. The Company will be paid fees ("tipping fees"), just as landfills and
incinerators are paid, for receiving and processing the organic waste and sewage
sludge. The Company also intends to receive revenues from the sale of the
compost it produces. The Company hopes to be competitive by locating its plants
convenient to urban centers, thus eliminating the need to use local transfer
stations and reducing the transportation costs associated with hauling waste to
distant out-of-state landfills. The Company's first project will be a 200,000
square foot fully enclosed composting facility in Newark, New Jersey ("Newark
Project"), which is 75% owned by the Company through CANJ, and 25% owned by PTI.
The Company's executive offices are located at 350 South Main Street, Suite
313, Doylestown, Pennsylvania 18901. The Company's telephone number is (215)
348-9788; fax (215) 348-7183.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 1,025,000 shares of Common Stock. See
"Description of Securities."
Shares of Common Stock outstanding prior to
and after the offering..................... 14,226,702 (1)
Use of Proceeds.............................. The Company will not realize any proceeds
from the sale of the Common Stock offered
hereby.
Risk Factors................................. Investment in the Common Stock offered hereby
involves a high degree of risk. See "Risk
Factors". Significant Risk Factors include,
among others, No Operating History, Reliance
Upon Funding, Reliance Upon Project
Financing, Dependence Upon Key Personnel,
Possible Obsolescence of Technology and
Shares Available for Resale.
Bulletin Board Symbol:
Common Stock............................... CAHC
</TABLE>
- ------------
(1) Excludes up to 2,059,012 common shares issuable upon the exercise of certain
stock options and warrants.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from the consolidated financial statements appearing elsewhere in this
Prospectus. Such information should be read in conjunction with the consolidated
financial statements, including the Notes thereto.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
DEC. 17, 1993 NINE MONTHS DECEMBER 17, 1993
YEAR ENDED (INCEPTION) ENDED JAN. 31, (INCEPTION)
APRIL 30, TO APRIL 30, ---------------------- TO JAN. 31,
1995 1994 1996 1995 1996
---------- ------------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 6,500 $ 80,741 $ 3,288 $ 6,500 $ 90,529
Cost of operations.......... 672,687 239,088 457,916 250,162 1,369,691
---------- ------------- --------- --------- -----------------
Loss from operations........ (666,187) (158,347) (454,628) (243,662) (1,279,162)
---------- ------------- --------- --------- -----------------
Other charges:
Interest.................. 10,753 -- 155,110 5,741 165,863
Loss in joint venture and
minority interest....... 25,952 -- 24,267 -- 50,219
---------- ------------- --------- --------- -----------------
36,705 -- 179,377 5,741 216,082
---------- ------------- --------- --------- -----------------
Net Loss.................... $ (702,892) $(158,347) $(634,005) $(249,403) $(1,495,244)
Net (loss) per share........ $ (0.07) $ (0.03) $ (0.04) $ (0.03) $ (0.10)
</TABLE>
CONSOLIDATED BALANCE SHEETS DATA AS AT:
<TABLE>
<CAPTION>
JANUARY 31, 1996
-----------------------------
<S> <C> <C> <C>
APRIL 30, 1995 ACTUAL AS ADJUSTED(1)
-------------- ----------- --------------
Total assets........................................ $ 3,702,143 $ 8,809,394 $ 8,989,902
Working capital (deficit)........................... $ (1,219,916) $(5,596,162) $ (5,212,458)
Long-term debt, less current maturities............. $ 414,871 $ 264,871 $ 264,871
Total liabilities................................... $ 1,692,796 $ 6,526,692 $ 6,448,760
Shareholders' Equity................................ $ 2,009,347 $ 2,282,702 $ 2,544,142
</TABLE>
- ------------
(1) As adjusted to give effect to the issuance from January 31, 1996 to March
31, 1996 of $185,000 promissory notes, the issuance of 131,000 shares of
Common Stock for $329,500 and the results of operations during that period.
5
<PAGE>
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk, including, but not limited to, the risk factors described below.
Prospective investors should carefully consider the following risk factors
inherent in and effecting the business of the Company and this offering before
making an investment decision.
1. NO OPERATING HISTORY. The Company is a development stage company and, as
such, it is subject to all of the risks inherent in the establishment of a new
business enterprise, including the absence of an operating history, lack of
market recognition for its products and the need to develop new banking and
financial relationships. The Company has not yet demonstrated an ability to
finance and profitably operate any compost facilities, including those of the
type proposed to be built by the Company. See "BUSINESS--INTRODUCTION" and
"FINANCIAL STATEMENTS."
2. NO ASSURANCE OF PROFITABLE OPERATIONS. There can be no assurance that,
even if the Company is successful in financing and completing the development of
its compost projects, that such operations will be profitable. See
"BUSINESS--PROJECT DESCRIPTIONS" and "BUSINESS--PROJECT FINANCING."
3. RELIANCE UPON FUNDING FOR CONTINUED COMPANY VIABILITY. The Company is
reliant upon funding from sources other than operations, primarily loans from
shareholders and private sales of restricted securities, for its continued
viability. Through March 31, 1996 funds raised from such loans and sales have
totalled $5,446,107 since December, 1993. There can be no assurance that the
Company will be able to continue to raise such funds in the future, in which
event the future viability of the Company would be doubtful. See
"BUSINESS--INTRODUCTION" and "RECENT TRANSACTIONS".
4. RELIANCE UPON PROJECT FINANCING. The Company is reliant upon the issuance
of equity and debt to provide the funds necessary to finance the construction,
equipment and initial working capital for each of its compost manufacturing
plants. The Company and its bond underwriter are contemplating the issuance of
tax exempt bonds secured by these projects for this financing. There can be no
assurances that such tax exempt financing will be available or that the Company
will qualify for such financing, or that the security of each project, including
long term contracts, will be adequate. Should project financing through the sale
of tax exempt bonds prove to be unavailable to the Company, management would
have to explore alternate sources of financing, which may be more difficult to
obtain and be more costly to the Company. As a result, the Company may be unable
to fully implement its operating plan, may not be able to achieve its full
growth potential and its future viability would be doubtful. In addition, tax
exempt financing including a bond issue includes certain risk factors, such as:
. Such issuance of tax exempt bonds requires a bond allocation. The demand for
such bond allocations are extremely competitive since there is generally
insufficient bond allocations available for the number of projects which are
seeking to be financed with tax exempt bonds. There can be no assurance that a
bond allocation will be available when the Company's underwriter is ready to
purchase bonds on behalf of the Company.
. The Company's bond underwriter will require that the Company provide project
equity and/or subordinated debt at the bond closing. The Company has no
written agreements or arrangements for the provision of such financing
necessary for the bond financing. Without such commitments, it is unlikely
that a bond financing can be completed.
. The Company's bond underwriter is contemplating the issuance of unrated tax
exempt bonds without credit enhancement. The issuance of unrated bonds is a
"best efforts" private placement of securities. There can be no assurance that
there will be sufficient market demand from institutional investors to enable
the underwriter to sell the unrated bonds and thereby complete the project
financing.
. Additional permit modifications may be required by the bond underwriter. There
can be no assurance that the Company will be able to secure such permit
modifications.
6
<PAGE>
. Waste procurement contracts may be required by the bond underwriter. There can
be no assurance that the Company will be able to secure these contracts on
terms acceptable to the bond underwriter.
. A material operating expense assumption in the financial projections for the
Newark Project upon which the bond underwriter relies is the arrangement for
the tax abatement of property taxes on this facility. There can be no
assurance that this tax abatement can be arranged on a timely basis to
facilitate the issuance of the tax exempt bonds. See "BUSINESS--PROJECT
FINANCING".
5. COMPETITION IN THE WASTE INDUSTRY. The waste management industry in which
the Company plans to operate, is highly competitive and has for a number of
years been dominated by several large national and multi-national companies with
substantially higher market recognition and substantially greater financial
resources. Additionally, there are many other companies, virtually all of which
have greater financial resources and market recognition than the Company,
engaged in the collection, conversion and disposal of waste products.
Consequently, the Company will be competing with such other companies for a
share of the available market and no assurance can be given that in the future
it will be able to obtain an adequate commercial customer base to implement its
operating plan. See "BUSINESS--DISPOSAL ALTERNATIVES."
6. CONTROL BY MANAGEMENT. Messrs. Roger Tuttle, Victor Wortmann, Robert
Wortmann, Gary Sondermeyer, George Chu, John Fetter and Pasquale Dileo, each of
whom is an officer or a director, beneficially controls, in the aggregate,
11,672,717 shares of the Company's Common Stock representing 76.9% of the
Company's total issued and outstanding shares of Common Stock. The Company's
by-laws do not provide for cumulative voting. Accordingly, Messrs. Roger Tuttle,
Victor Wortmann, Robert Wortmann, Gary Sondermeyer, George Chu, John Fetter and
Pasquale Dileo will be able to elect a majority of the Board of Directors and
otherwise control the affairs of the Company. See "PRINCIPAL SHAREHOLDERS."
7. DEPENDENCE ON KEY PERSONNEL. The Company is substantially dependent on
the personal efforts and abilities of its operating officers and, in particular,
its President and Chief Executive Officer Roger Tuttle. The loss of any one of
these persons could have a materially adverse effect upon the Company's ability
to successfully carry on its business and achieve its long-term operating goals.
Additionally, as the Company begins commercial operations, it will require the
services of additional skilled personnel. There can be no assurance that it will
be able to attract persons with the requisite skills and training to meet its
future needs or, even if such persons are available, that they can be hired on
terms favorable to the Company. See "MANAGEMENT."
8. GOVERNMENT REGULATION OF COMPOSTING BUSINESS. The Company's planned
operations are subject to substantial regulation by federal, state and local
regulatory authorities. Specific regulations vary by state and locality. Local
siting approvals require differing levels of design documentation and process
definition, usually requiring public approvals in one or more public hearings.
Following local approval, the Company must apply for and receive air, water,
solid waste and sewage sludge processing permits from state environmental
protection agencies. These permits will generally include specific limits within
which the facilities must operate. In the case of air and water permits, these
include limits on offsite emission and discharge releases. Compost product
composition may also be regulated, requiring continual monitoring to assure
compost product quality. Continued compliance with this broad federal, state and
local regulatory network is essential and costly. Additionally, there can be no
assurance that additional, more restrictive regulations will not be enacted in
the future or that the Company will be in a position to comply with such new
regulations. Consequently, management is unable to predict the effect upon its
future operations of such regulations except that potential investors should be
aware that the failure to comply with such regulations may have a materially
adverse effect on the Company and its operations in the future. See
"BUSINESS--PROCESS DESCRIPTION" and "BUSINESS--FACILITIES SITINGS AND PERMITS".
9. UNCERTAINTY AS TO MANAGEMENT'S ABILITY TO CONTROL COSTS AND EXPENSES. Due
to its lack of operating history, the Company cannot accurately project, or give
any assurance, with respect to
7
<PAGE>
management's ability to control the Company's development or operating costs and
expenses. Consequently, even if the Company is successful in implementing
commercial operations (of which there can be no assurance), if management is not
able to adequately control costs and expenses, such operations may not generate
any profit or may result in operating losses. See "BUSINESS--INTRODUCTION."
10. NECESSITY FOR AND DIFFICULTY OF PERMITTING. There can be no assurances
that the Company will be able to obtain the permits necessary to operate its
organic recycling compost manufacturing centers presently under development. If
and when these permits are issued, the Company must then operate the centers in
conformance with the permits. Further, management is unable to predict the
amount of time which will be required to obtain all necessary permits. Any
delays in such process will delay the Company's ability to begin commercial
operations and may have an adverse impact upon the Company's future operations.
See "BUSINESS--FACILITIES SITINGS AND PERMITS."
11. NECESSITY FOR AND LACK OF ORGANIC WASTE SUPPLY CONTRACTS. As disclosed
above, management plans to secure a portion of the financing required for each
of its facilities based upon an assignment of revenue contracts with the
Company's customers. As of the date of this offering, no such contracts have, as
of yet, been entered into. Until the Company arranges these contracts, the
financing for its projects may not be secured as contemplated. See
"BUSINESS--INTRODUCTION" and "BUSINESS--PROJECT FINANCING."
12. POTENTIAL ENVIRONMENTAL LIABILITY. 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. In addition, any contaminants
which would remain in the finished compost may cause damage to plants or to land
to which the compost is applied. The Company has not projected and cannot
accurately quantify the costs resulting from any such contamination. As a
result, the potential impact on the Company's business is unknown. See
"BUSINESS--PROCESS DESCRIPTION."
13. NECESSITY OF PROFITABLE PRICING OF SUPPLY CONTRACTS. The Company will
depend upon the supply of MSW, organic waste and sewage sludge at available for
tipping fees and charges competitive with existing competitive disposal methods.
However, there can be no assurance that long term contracts for such a supply of
MSW or other organic wastes will be available at prices sufficient for the
Company to be profitable, or that the Company's tipping fees for short term or
open market MSW, organic waste and sewage sludge will generate sufficient
revenues for the Company to be profitable. See "BUSINESS--INTRODUCTION."
14. NO CONTRACTS FOR MARKETING OF COMPOST. The Company will produce
quantities of compost when its facilities are operating. There is no assurance
that the Company will be able to sell all of the compost it plans to produce. To
date, the Company has not entered into any contracts with users of compost for
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. In such event, the lack of anticipated revenues combined
with the additional costs would have a material adverse impact upon the
Company's future profits as well as its ability to continue its planned
composting operations. See "BUSINESS--COMPOST MARKETING."
15. LIABILITY ASSOCIATED WITH COMPOSTING The Company's processing and
manufacturing operations will be subject to inherent risks which could result in
property damage, personal injury, pollution or loss of production. See
"BUSINESS--PROCESS DESCRIPTION."
16. RISK OF INSUFFICIENT INSURANCE. While certain of the Company's products
carry express as well as implied warranties from their manufacturers, the
occurrence of an event not fully insured against and the determination of
liability of the Company for the consequent loss or damage, could result in
substantial losses to the Company. See "BUSINESS--PROCESS DESCRIPTION."
17. RELIANCE UPON PROPRIETARY TECHNOLOGY. The Company will use, under
license and contract, certain proprietary technology. However, there can be no
assurance that this proprietary technology
8
<PAGE>
would withstand challenge from competitors or that competitors will not gain
access to this technology or substantially similar technology. See
"BUSINESS--DESCRIPTION OF COMPOSTING TECHNOLOGY USED BY THE COMPANY."
18. POSSIBLE OBSOLESCENCE OF TECHNOLOGY. There can be no assurance that the
technology upon which the Company will rely will not become obsolete, leaving
the Company with no access to new technology needed to compete in the composting
industry. See "BUSINESS--DESCRIPTION OF COMPOSTING TECHNOLOGY USED BY THE
COMPANY."
19. IMPACT OF AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED
STOCK. The Company's Certificate of Incorporation authorizes the issuance of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
which could adversely effect the voting power or other rights of the holders of
the Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company, which could have the effect of
discouraging bids for the Company and, thereby, prevent shareholders from
receiving the maximum value for their shares. Although the Company has no
present intention to issue any shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. See "DESCRIPTION OF
SECURITIES."
20. NO DIVIDENDS. To date, the Company has not paid any cash or other
dividends on its Common Stock and does not anticipate paying dividends in the
foreseeable future. Moreover, the Company's ability to pay dividends on its
Common Stock in the future may be limited by future preferred stock issuances or
by lenders to the Company. See "DESCRIPTION OF SECURITIES" and "DIVIDEND
POLICY."
21. LIMITED LIABILITY OF OFFICERS AND DIRECTORS. The Company's Restated
Certificate of Incorporation provides that the Company shall indemnify its
directors and officers against certain liabilities incurred with their service
in such capacities to the fullest extent permitted under New Jersey laws. In
addition, the Restated Certificate of Incorporation provides that the personal
liability of directors and officers of the Company and its stockholders for
monetary damages will be limited. See "MANAGEMENT."
22. POSSIBLE VOLATILITY OF SECURITIES. The trading prices of the Common
Stock could be subject to wide fluctuations in response to quarterly variations
in operating results, announcements of material business events by the Company
or its competitors, significant changes in the environmental regulations related
to the Company's business, the significant increase in the public "float" for
the Company's Common Stock, from 199,500 freely tradable shares to 1,224,500
freely tradable shares, an increase of over 600%, as a result of this offering
and other events or factors or to general stock market volatility and
fluctuations in price and volume. See "PRICE RANGE OF COMMON STOCK."
23. SHARES AVAILABLE FOR RESALE AND POSSIBLE IMPACT UPON MARKET. The Company
presently has 14,226,702 shares of Common Stock issued and outstanding, of which
only 199,500 are "freely tradable." Upon the effective date of this offering, an
additional 1,025,000 shares will be freely tradable, and 13,002,202 shares are
and will be "restricted securities" as that term is defined in the Securities
Act of 1933, as amended (the "Act"), and in the future may be sold only in
compliance with Rule 144 under the Act. In general, under Rule 144 a person (or
group of persons whose shares are aggregated) who has beneficially owned
restricted shares of the Company for at least two years, including any person
who may be deemed to be an "affiliate" of the Company (as the term "affiliate"
is defined in Rule 144 of the Act to include an officer, director or principal
security holder of the Company), is entitled to sell in normal brokerage
transactions during the periods when certain information regarding the Company
is publicly available, within any three-month period, an amount of shares that
does not exceed the greater of (i) the average weekly trading volume in the
Company's
9
<PAGE>
shares during the four calendar weeks preceding such sale or (ii) 1% of the
total shares then outstanding. A person who has not been an "affiliate" of the
Company for the three months prior to a sale and who has held restricted shares
for at least three years would be entitled to sell such shares without
restriction. Sales of the Company's Common Stock by present stockholders
pursuant to Rule 144 or otherwise, may, in the future, have a depressive effect
on the price of the Common Stock. See "DESCRIPTION OF SECURITIES."
24. PENNY STOCK REGULATION. The Commission has adopted rules that regulate
broker-dealer practices in connection with transaction in "penny stocks." Penny
stocks generally are equity securities with price less than $5.00, other than
securities registered on certain national securities exchanges or listed on
NASDAQ. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document prepared by the Commission that provides information
about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation information
must be given to the customer orally or in writing prior to effecting the
transaction and must be given in writing before or with the customer's
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules, the broker-
dealer must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If the Company's securities do
become subject to the penny stock rules, investors in this Offering may find it
more difficult to sell such securities. See "PRICE RANGE OF COMMON STOCK."
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the shares offered
herein.
PRICE RANGE OF COMMON STOCK
The Company's shares of Common Stock presently are being traded on the
Electronic Bulletin Board of the NASD under the symbol "CAHC", and also are
listed in the "pink sheets" of the National Quotation Bureau, Inc. The following
table shows, for the calendar periods indicated, the range of reported high and
low bid quotations for these shares. Such prices necessarily reflect inter
dealer prices, without retail mark up, mark down or commission and may not
necessarily represent actual transactions.
There were no recorded bids for the common shares of Alcor during the period
May 1, 1993 through October 31, 1994, and no recorded bids or offers for the
common shares of Alcor or the Company during the period November 1, 1994 through
April 28, 1995. Furthermore, the Company has outstanding only 199,500 freely
tradable common shares prior to the effective date of this offering. On November
28, 1994 Alcor effected a 1 for 20 reverse split of the shares of its Common
Stock.
10
<PAGE>
QUARTERLY COMMON STOCK PRICE RANGE
<TABLE>
<CAPTION>
HIGH BID LOW BID
--------- ---------
<S> <C> <C>
1993/1994:
Quarter ended 7/31..................................................... no bid no bid
Quarter ended 10/31.................................................... no bid no bid
Quarter ended 1/31..................................................... no bid no bid
Quarter ended 4/30..................................................... no bid no bid
1994/1995:
Quarter ended 7/31..................................................... no bid no bid
Quarter ended 10/31.................................................... no bid no bid
Quarter ended 1/31..................................................... unpriced unpriced
Quarter ended 4/30..................................................... unpriced unpriced
1995/1996:
Quarter ended 7/31..................................................... $6.00 $4.00
Quarter ended 10/31.................................................... $6.50 $5.50
Quarter ended 1/31..................................................... $6.50 $5.75
Quarter ended 4/30..................................................... $6.00 $4.75
</TABLE>
As of April 30, 1996, there were approximately 230 holders of record of the
shares of the Company's Common Stock.
DIVIDEND POLICY
To date, the Company has not paid any cash or other dividends on its Common
Stock and does not anticipate paying dividends in the foreseeable future.
Moreover, the Company's ability to pay dividends on its Common Stock in the
future may be limited by future preferred stock issuances or by lenders. See
"DESCRIPTION OF SECURITIES".
11
<PAGE>
CAPITALIZATION
The following table sets forth the short term debt and capitalization of the
Company as of January 31, 1996, and as adjusted to give effect to the issuance
of $185,000 of promissory notes and the sale of 131,000 shares of common stock
for $329,500 and the results of operations since January 31, 1996 through March
31, 1996:
<TABLE>
<CAPTION>
JANUARY 31, 1996
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
----------- -----------
Short Term Debt, Including Current Maturities of Long Term Debt
(1)............................................................. $ 2,351,372 $ 2,356,130
----------- -----------
2,351,372 2,356,130
----------- -----------
Long Term Debt.................................................... $ 264,871 $ 264,871
----------- -----------
Shareholders' Equity (Deficit):
Preferred Stock, no par value 25,000,000 shares authorized; no
shares issued or outstanding...................................... $ 0 $ 0
Common Stock, no par value; 50,000,000 shares authorized;
13,706,467 shares issued and outstanding as at January 31, 1996 3,807,638
13,837,467 shares issued and outstanding As Adjusted.......... 4,137,138
Deficit Accumulated During The Development Stage(2)............. (1,495,244) (1,563,304)
Less: Subscriptions Receivable.................................. (29,692) (29,692)
----------- -----------
Total Shareholders' Equity........................................ $ 2,282,702 $ 2,544,142
----------- -----------
Total Capitalization.............................................. $ 4,998,945 $ 5,165,143
----------- -----------
----------- -----------
</TABLE>
- ------------
(1) Does not include amounts due to related parties.
(2) The increase in Deficit Accumulated During the Development Stage is
attributable to continued losses during the period February 1, 1996 through
March 31, 1996.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below was derived from the financial
statements included elsewhere in this Prospectus. The Company's financial
statements for the years ended April 30, 1995 and inception (December 17, 1993)
through April 30, 1994 were audited by Zeller Weiss & Kahn, certified public
accountants. This selected financial data should be read in conjunction with the
financial statements of the Company and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this Prospectus.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
DEC. 17, 1993 NINE MONTHS DECEMBER 17, 1993
YEAR ENDED (INCEPTION) ENDED JAN. 31, (INCEPTION)
APRIL 30, TO APRIL 30, ---------------------- TO JAN. 31,
1995 1994 1996 1995 1996
---------- ------------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 6,500 $ 80,741 $ 3,288 $ 6,500 $ 90,529
Cost of operations.......... 672,687 239,088 457,916 250,162 1,369,691
---------- ------------- --------- --------- -----------------
Loss from operations........ (666,187) (158,347) (454,628) (243,662) (1,279,162)
---------- ------------- --------- --------- -----------------
Other charges:
Interest.................. 10,753 -- 155,110 5,741 165,863
Loss in joint venture and
minority interest....... 25,952 -- 24,267 -- 50,219
---------- ------------- --------- --------- -----------------
36,705 -- 179,377 5,741 216,082
---------- ------------- --------- --------- -----------------
Net Loss.................... $ (702,892) $(158,347) $(634,005) $(249,403) $(1,495,244)
---------- ------------- --------- --------- -----------------
Net (loss) per share........ $ (0.07) $ (0.03) $ (0.04) $ (0.03) $ (0.10)
</TABLE>
CONSOLIDATED BALANCE SHEETS DATA AS AT:
<TABLE>
<CAPTION>
APRIL 30, 1995 JANUARY 31, 1996
-------------- ----------------
<S> <C> <C>
Total assets................................... $ 3,702,143 $ 8,809,394
Working capital (deficit)...................... $ (1,219,916) $ (5,596,162)
Long-term debt, less current maturities........ $ 414,871 $ 264,871
Total liabilities.............................. $ 1,692,796 $ 6,526,692
Shareholders' Equity......................... $ 2,009,347 $ 2,282,702
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, tested and begun commercial operations of
one or more of its compost project facilities currently in development.
Since a merger between a "public shell" and a "private operating company" is
considered to be a recapitalization of the operating company, with no
recognition of intangibles as a result of the merger, the acquisition of the
Company's subsidiary, Compost America Company of New Jersey, Ltd. (the "private
operating company"), on January 23, 1995, has been accounted for as a reverse
purchase of the assets and liabilities of the Company by Compost America Company
of New Jersey, Ltd. Accordingly, the consolidated financial statements
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 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 primarily from
the proceeds of the sale of its common stock and from loans made by VRH
Construction Corporation, a principal shareholder of the Company whose owners
are directors of the Company. The Company received $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, 1995,
the Company has raised an additional $1,236,860 through private sales of its
common stock. In addition, VRH Construction Corporation made loans to the
Company totalling $640,072 during the fiscal year ended April 30, 1995. Since
April 30, 1995, VRH Construction Corporation has loaned an additional $2,638,866
to the Company. Total funds raised from the sale of common shares and loans from
shareholders from December 1993 through March 31, 1996 are $5,446,107.
Significant revenues from operations are not anticipated until 1997. Until
that time, the Company anticipates that it will need an additional $3,000,000 to
meet current debt obligations, provide additional development capital for its
various projects and fund ongoing corporate overhead expenses. The Company
anticipates that it will be able to secure these funds from the sale of
additional common shares and/or the issuance of additional debt. In addition,
the Company expects to have completed project financing for the construction of
the Company's facility in Newark, New Jersey during the third calendar quarter
of 1996 and the Company may receive development fees and management fees in
connection with this project financing. However, there can be no assurance that
such funds will be readily available and/or, if available, will be sufficient to
meet the Company's debt obligations and to fund project and corporate operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
As At April 30, 1995
The Company's net working capital at April 30, 1995 was a negative
($1,219,916) compared to a negative ($474,802) at April 30, 1994. The net
decrease in working capital from 1994 to 1995 was primarily the result of the
issue of current debt by the Company to VRH Construction Corporation.
The Company's current ratio has decreased from 0.118 to 1 at April 30, 1994
to 0.045 to 1 at April 30, 1995. The decrease in the current ratio is primarily
the result of a loan in the amount of
14
<PAGE>
$640,072 made by VRH Construction Corporation to Newark Recycling & Composting
Co., Inc. due July 15, 1996. A second note from VRH Construction Corporation to
Newark Recycling & Composting Co., Inc. in the amount of $1,043,866 also comes
due on July 15, 1996. The Company intends to repay these two loans out of the
proceeds of the issuance of tax exempt bonds financing the Newark Project. The
Company has a third note due to VRH Construction Corporation in the amount of
$500,000 due July 15, 1996 which the Company intends to repay out of the
$3,000,000 working capital it seeks to raise.
As At January 31, 1996
The Company's net working capital as at January 31, 1996 was a negative
$5,596,162 as compared to a negative $1,219,916 as at April 30, 1995. This net
decrease in working capital of $4,376,246 was attributable primarily to a
$2,453,866 increase in notes due to VRH Construction Corporation, a $2,100,000
mortgage note payable to Praxair, a $118,640 increase in accounts payable and a
$94,388 increase in the current portion of long term debt. The Company did have
an increase in cash on hand of $48,318 as at January 31, 1996 as compared to
April 30, 1995, and a slightly improved current ratio of 0.08 to 1, up from
0.045 to 1.
During the year ended April 30, 1995, the Company raised $906,409 through
sales of Common Stock. Since April 30, 1995 and through March 31, 1996, the
Company has raised an additional $1,286,860 through sales of Common Stock. In
addition, the Company raised $640,072 as a loan from VRH Construction
Corporation during the year ended April 30, 1995 and an additional $2,638,866
since that date through March 31, 1996. The Company estimates that an additional
$3,000,000 in capital will be needed to finance ongoing development expenses and
general administrative expenses through April 30, 1997. In addition, the Company
anticipates the repayment of the short term notes due to VRH Construction
Corporation and to Praxair out of the proceeds of the Company's anticipated
project financings.
The Company will attempt to raise these funds through a combination of sales
of notes, convertible debt and/or common shares to its existing shareholders
and, possibly, to new investors. While there can be no assurance that the
Company will be successful in this regard, it is important to note that the
Company, since its inception, has been successful in raising sufficient working
capital to fund its project development activities. In addition, the Company
intends to include provisions for working capital in the project financing plans
for the Newark and Gloucester projects, which it expects to fund during the
calendar year 1996. However, the increased level of project construction and
development activity could easily create additional requirements for working
capital not presently envisioned by the Company.
RESULTS OF OPERATIONS
Fiscal Years Ended April 30, 1995 and April 30, 1994 (December 17, 1993
[inception] through April 30, 1994)
The Company had no net sales during the year ended April 30, 1995 and
$80,741 in net sales during the year ended April 30, 1994. Net sales in 1994
were related to the Springfield, New Jersey project, which subsequently was
discontinued.
The Company incurred a net loss of $702,892 for the fiscal year ending April
30, 1995 as compared to a net loss of $158,347 for the year ended April 30,
1994. The net losses in fiscal 1994 primarily were related to a non-recurring
research and development cost incurred on behalf of the Newark project. The
increased net loss for fiscal 1995 was the result of increased operating
expenses related to the Company's increased activities in the development and
acquisition of operating permits for five composting projects in the states of
Illinois, New Jersey and Florida.
The Company's research and development costs were $230,947 and $229,429 for
the fiscal years ended April 30, 1995 and 1994 respectively. The $229,429
research and development expense in 1994 was an expense related to the
acquisition of technology required for the Newark project. Other
15
<PAGE>
operating expenses were $436,740 and $9,659 for the fiscal years ended April 30,
1995 and 1994 respectively. The increase in other operating expenses from 1994
to 1995 was related to increased activity in the Company's five composting
projects which have resulted in the Company being awarded operating permits in
Newark, New Jersey and Chicago, Illinois.
The general and administrative expenses for the fiscal years ended April 30,
1995 and 1994 were $667,687 and $239,088 respectively. The increase in 1995 from
1994 reflects additional personnel employed at the Company's headquarters and
the costs related to expanded permit development and acquisition activities for
the Company's planned facilities in Illinois, New Jersey and Florida.
The Company does not believe inflation has had a material impact on its
business or operations during the past two years.
Nine Months Ended January 31, 1996 and January 31, 1995
The Company had no material net sales during the nine month period ending
January 31, 1996 or the corresponding nine month period ending January 31, 1995.
The Company recorded a net loss of $634,005 for the nine months ended
January 31, 1996, as compared to a net loss of $249,403 for the nine months
ended January 31, 1995. This $384,602 increase in net loss was due primarily to
a $212,754 increase in general and administrative expenses, from $245,162 up to
$457,916, attributable primarily to the costs related to the permitting and
development of the Company's various projects; a $149,369 increase in interest
expense attributable primarily to the Company's increased debt service
obligations; a net $41,835 increase in losses related to minority interests in
consolidated subsidiaries and a $66,102 increase in loss in equity in a joint
venture.
The Company does not believe that inflation has a material impact on its
business or operations.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires that Long-Lived Assets and certain identifiable intangibles to be held
and used by the Company be reviewed for impairment whenever events indicted that
the carrying amount of an asset may not be recoverable. The effective date of
SFAS No. 121 is for fiscal years beginning after December 15, 1995. The Company
does not believe that SFAS No. 121 will have an impact on its financial
statements.
16
<PAGE>
BUSINESS
INTRODUCTION
The Company is a development stage company in the business of developing
large scale organic waste recycling facilities which will process commercial and
residential food, soiled paper and coated cardboard, among other organic wastes,
which are found in municipal solid wastes ("organic waste") and sewage sludge
("biosolids") from municipal waste water plants into compost and, in the
business of the land application of biosolids. The Company through its
subsidiary entities, currently has five projects actively under development and
is negotiating for additional projects which it plans to acquire through
acquisition, merger or joint venture. To date, the Company has had no revenues
from operations and has been wholly dependent upon private financing.
The Company utilizes a combination of patented and proven technologies
currently in use at composting plants in Europe and the United States. The
Company plans to construct enclosed facilities, each capable of processing 300
to 700 tons per day of varying amounts of organic waste and biosolids. Initial
efforts have been concentrated (1) in New Jersey, where a progressive regulatory
environment, extensive waste supply and some of the highest organic waste and
biosolids disposal ("tipping") fees in the United States make it an attractive
market for the Company to develop composting facilities and where, in Newark,
New Jersey, the Company hopes shortly to commence construction of its first
enclosed composting facility; (2) in Florida, where the City of Miami has
entered into a 30 year "put or pay" contract with a corporation which the
Company recently has acquired, and where the Company, on March 29, 1996,
purchased property for which it has received a state composting permit; (3) in
Chicago, where a site has been optioned and a permit application has been filed
and a Facility Construction and Development Permit received for a composting
facility; (4) in Monmouth County, New Jersey, where an agreement has been
executed to acquire property where the Company believes a permit may be obtained
to build an invessel composting facility, and (5) in Gloucester City, New
Jersey, where a demonstration composting project is in the final stages of
planning and, upon proof of concept to the local Mayor and Council, will be
upgraded to full scale commercial facility. However, the Company has no prior
experience in operating a composting facility and there can be no assurance that
the Company, in fact, will be able to operate any of these facilities
profitably. See "BUSINESS--Project Descriptions" and "BUSINESS--Project
Financing" herein.
THE COMPOST INDUSTRY
Introduction
The Company believes that the compost industry has entered into a period
that should allow for rapid growth. Economic, legal and regulatory factors have
converged to create the impetus for the development of composting facilities
capable of converting the organic fraction of municipal solid waste ("MSW") and
sewage treatment plant biosolids into a "beneficial use product" called compost.
The Company hopes to capitalize on this opportunity by developing company owned
composting facilities to be operated by the Professional Services Group, Inc.,
an unaffiliated company which manages similar plants across the United States.
The Company expects that its composting facilities will have sufficient
resources to assure the efficient, effective and cost-competitive production of
high quality compost. The Company expects to be able to compete effectively on
price ("tipping fees") with landfills and incinerators and yet be
environmentally superior in that the organic fraction of municipal solid waste
and biosolids will be recycled into environmentally safe compost.
State of the Waste Industry
The quantity of solid waste and biosolids generated in the United States
each year continues to grow while the trends in managing this waste are
changing. Landfill capacity in many areas of the country continues to diminish
due to the stricter regulation of Subtitle D of the Federal Resource
Conservation and Recovery Act. Twelve states have less than five years of
available capacity remaining. Incineration has reached a ceiling in terms of
future growth due to environmental (Clean Air Act) and
17
<PAGE>
"NIMBY" (Not In My Backyard) concerns regarding the desirability of additional
incinerating capacity and future sites. Curbside recycling of glass, aluminum
and ferrous materials continues to grow, maturing from source separation
regulation to the common daily practice of many more Americans. This source
separation has, in turn, significantly increased the quality of the organic
content of the remaining non-recycled MSW, making composting a more efficient
alternative to either incineration or to landfilling. The "Ocean Dumping Act"
banned ocean dumping of sewerage sludge and therefore has benefitted land based
use alternatives. The "Clean Water Act" has resulted in dramatic increases in
the quantity of "clean" biosolids, creating further recycling (composting)
opportunities. The growth of recycling and composting can be expected to
continue as regulatory, environmental and economic pressures continue to
converge. Composting is a primary waste management method which the Company
believes, unlike landfills and incinerators, can be successfully built in urban
America.
Although the terms solid waste, garbage and trash are used as general terms,
approximately 70% of these wastes are "organic". Organic solid wastes include
the following:
Municipal and Residential Organic Waste
sewage sludge
septage
municipal solid waste
leaves
grass
tree stumps
stable waste
Christmas trees
Commercial Organic Waste
seafood
canning byproducts and residues
restaurant waste
food processing waste and residues
animal by-products and waste (including paunch manure)
pallets (wood, cardboard)
cardboard
paper
school waste
pharmaceutical non-medical waste
Solid Waste Trends
The United States each year generates over 200 million tons of solid waste,
of which approximately seventy percent, or 120 million tons, are organic
compostables. The United States Environmental Protection Agency ("EPA")
estimates that by the year 2000 the United States will generate in excess of 220
million tons of MSW per annum.
Disposal Alternatives
Approximately 62% of the solid waste generated in the United States goes to
landfill, 15% goes to energy incinerators, 1% to conventional incinerators, and
22% is recycled (source: EPA Characterization of MSW in the USA). These
percentages will continue to change due to economic, legal and regulatory trends
which emerged in the early 1990's. Recently, there has been a growing emphasis
on source reduction. Source reduction is not a disposal alternative. Rather, it
seeks to reduce the quantity of the disposable wastes at the outset. Packaging
in bulk, or leaving grass clippings on the lawn are two
18
<PAGE>
familiar examples of source reduction. Greater source reduction would reduce the
amount of organic compostables available to the Company.
Landfills. The number of landfills in the United States continues to decline
from approximately 30,000 in the 1970's to less than 3,600 today. The continued
reduction in the number of landfills will result from a combination of factors,
including increasingly stringent operating and environmental regulations,
renewed enforcement activities and a reluctance on the part of municipalities to
permit new landfills.
This continued closure of existing landfills will not only have a
significant impact on alternative technologies for disposing of organic solid
waste, but the higher cost of development, permitting and operating new landfill
space, along with increased transportation and transfer station fees, provides a
pricing floor allowing for the growth of alternative waste solutions and
technologies. Presently, landfill rates are highest along the Eastern seaboard
where disposal costs are in excess of $40 per ton. In some areas, such as
Florida, the Mid-Atlantic states and New England, disposal costs are in excess
of $64 a ton, and in northern New Jersey, New York City and Long Island,
disposal rates are in excess of $100 per ton. In many cases the solid waste is
initially delivered to a local transfer station for sorting and consolidation.
These transfer stations typically charge $20-50 per ton in addition to the
landfill fees.
Incineration. A volume reduction option for MSW is incineration. There are
presently less than 160 waste to energy plants in operation in the United States
with a total capacity of approximately 30 million tons per year. Typical plants
range from 400 tons per day to 2,000 tons per day. Incinerators do not dispose
of waste, they merely reduce the volume of waste going to landfills, typically
by about 90% (75% reduction by weight).
The use of incineration was the result of a significant increase in tipping
fees, the subsidizing of incinerator costs through electrical energy rates, the
acceptance of the technologies combined with operating and performance
guarantees by large credible companies and reductions in local landfill space
combined with pressures by municipalities to cap the escalation of long term MSW
disposal costs.
Local resistance to the development of new incineration plants will be a
significant deterrent to the growth of incineration as a solution to the solid
waste disposal problem.
Recycling. Recycling is recognized as a waste recovery strategy whereby
waste materials are beneficially converted into useful products. Initially,
recycling included only metals, plastics, glass and some paper. Today recycling
includes "organic materials" which represent up to seventy percent (70%) of the
solid waste stream.
Federal, state and local laws and regulations have played an increasingly
important role in the growth of recycling. Many states and the District of
Columbia have instituted recycling laws. Such states, including New York,
California, Florida, Illinois, Maryland, New Jersey, Ohio, Pennsylvania,
Connecticut and Massachusetts, have mandated recycling goals. Some states have
mandatory source separation laws.
Recycling methods include: (1) curbside collection, (2) drop off centers,
(3) MRF (material recovery facilities), (4) recycling centers (where commingled
recyclable materials are separated for recovery through manual and automated
techniques) and (5) composting facilities where the organic fraction of MSW and
sewage sludge are processed into compost.
The Company believes that the trend toward recycling should continue to
increase for numerous reasons, including:
1. Increasing consumer/business awareness regarding the environmental
concerns of waste disposal;
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2. The development of industry solutions to using recycled materials and
in creating new products, primarily resulting from the availability of
consistent, price competitive supplies of recycled materials;
3. A proliferation of mandatory recycling goals and laws; and
4. The economic and beneficial use of processing the organic fraction of
MSW and sewage sludges into compost.
The Interrelationship of Waste Management Methods. While each of these three
major waste management methods will be used at various times and locations,
composting should experience dramatic growth.
Compost facilities will recycle organic solid waste materials, including the
organic fraction of MSW and sewage sludge, so as to meet federally mandated
regulatory guidelines. While some portion of the various organic solid wastes
will be commingled and processed together, a significant portion of the
commercially generated waste will be source separated and not commingled.
Incinerators and/or refuse derived fuel facilities will seek to receive mostly
dry wastes and will seek to limit those items that are high in moisture or which
can be readily recycled (composted). Landfills will receive those wastes that
are not incinerated, recycled and/or composted.
The National Market
Organic recycling will require the use of in-vessel composting facilities
designed to meet all environmental regulations while producing a beneficial use
product (compost) using sewage sludge and the organic fraction of MSW as the
feed stock. The demand for organic recycling will be driven by higher tipping
fees, reduced local landfill space, higher incinerator costs and the overall
impact of urban development on a nationwide basis.
The Company hopes that this projected increased demand for organic recycling
will create the opportunity for the Company to expand its existing project base
from New Jersey, Chicago, Illinois, and Miami, Florida, into other major urban
areas in the United States. The Company estimates that within the next dozen
years there will be a significant demand for in-vessel composting facilities in
urban areas throughout the United States, each with a capacity of 300-500 tons
per day, capable of processing the organic fraction of MSW and sewage sludge.
Due to the capital constraints of municipalities, the lack of significant state
or Federal grants or loans, and the pressing need of rapidly satisfying federal
and state requirements, a significant number of these facilities can be expected
to be privately owned.
The Environment For Composting In New Jersey
The State of New Jersey has developed detailed waste management and
recycling plans which are beginning to be used as guidelines in other states.
They are described in more detail below.
In 1993, the New Jersey Department of Environmental Protection ("NJDEP"),
issued two comprehensive plans governing the strategy for managing New Jersey's
waste through the year 2003. These plans, the "Statewide Sludge Management Plan
Update", and the "Solid Waste Management State Plan Update 1993-2002", together
with Governor Whitman's current updates, are causing dramatic changes to the
waste industry in New Jersey. As a result, significant new business
opportunities, principally in the area of recycling and composting, have
developed. Important highlights of these plans include the following:
. The state must recycle sixty percent of its waste by January 1996.
. New Jersey must cease all waste exports and become one hundred percent self
sufficient in waste disposal by 2000.
. Sixty-one percent of New Jersey's sewage and two million tons per year of
solid waste which is now exported to other states must be recycled,
beneficially reused or disposed of within the state by 2000.
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. Composting is promoted; new incinerators are discouraged.
. One hundred eighty-six landfills which have been closed must be re-vegetated.
. Source separated food wastes are now exempt from county and state waste
control regulations.
. New Jersey's disposal fees remain the highest in the nation, averaging over
$90 per ton.
The implementation of these policies, along with the enactment of
complementary legislation, has created a fertile environment for the development
of in-vessel composting plants. Additional elements of the state's solid waste
and sewage sludge management plans include the following:
Regionalization
The state has moved away from its previous approach which called for each of
the twenty-one counties (and one district) to develop individual plans for waste
processing. Instead, the NJDEP is encouraging the development of regional
disposal facilities to serve more than one county.
County Solid Waste Plans
A requirement of New Jersey's solid waste plan is that each county must
submit a waste plan conforming to the objectives and requirements of the state
plan. The counties bear the primary responsibility for achieving self
sufficiency, recycling and source reduction goals established by the NJDEP. One
of the state's objectives is to manage organic wastes through composting.
Promoting The Development Of The Compost Industry
As a follow up to the development of the solid waste and sludge management
plans, New Jersey's governor issued Executive Order No. 91 in October 1993,
requiring state agencies to purchase recycled products. Specifically, all state
agencies must now utilize compost and soil amendments made from organic
materials in maintenance, landscaping and construction of public lands or
projects. These products shall be used in lieu of other non-recycled products
(i.e., farm topsoil, peat moss and chemical fertilizers). The purpose of this
legislation is to create new high volume end markets for compost, a product made
from recycled materials, so that more private compost facilities will be built.
Waste Hierarchy
The state's solid waste plan is based upon a hierarchy of waste handling and
disposal methods. The waste hierarchy, in order of priority, is as follows:
. Source reduction;
. Source separation and recycling;
. Composting of source separated waste;
. Materials recovery systems;
. Solid waste composting;
. In-state landfilling and regional incineration;
. Out-of-the-state landfilling (as a short-term measure only).
The economic, regulatory and legislative environments in New Jersey have
quickly evolved to create a favorable environment for the development of
in-vessel compost plants in the state. In order for the state to achieve its
recycling and waste self-sufficiency goals, the more than $300 million dollars
per year that is presently spent on disposing of waste out of state must be
re-channeled into recycling before the end of the decade. Given that statewide
recycling has already been in effect in New Jersey for over eight years, the
only realistic way to achieve the state's recycling and self-sufficiency goals
is through source separated organic waste composting.
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THE COMPANY'S RESPONSE
Introduction
With proven technologies and strategically located sites in New Jersey (3
sites), Chicago, Illinois and Miami, Florida, the Company believes that it is
poised to meet a significant portion of the organic recycling market demand. The
Company's agreements with a major construction contractor (VRH Construction
Corp.) and a facility operator (Professional Services Group, Inc.--the largest
private operator of wastewater treatment plants and composting sites in the
United States, an indirect subsidiary of Compagnie Generale des Eaux-- CGE)
should enhance its ability to identify, develop, finance, construct and operate
multiple sites simultaneously.
The Company, directly and through its subsidiaries and affiliates, is in the
business of recycling organic wastes including the organic waste fraction of MSW
and sewage sludge, by converting them into compost and other soil products which
it plans to sell, through its Garden Life Sales Company, Inc. subsidiary. The
process which the Company will employ is composting, or the controlled
decomposition of organic matter into humus (a component of soil). Like a
landfill or an incinerator operator, the Company will be paid to accept waste
from the generators of organic materials. In selected markets, like New Jersey,
Illinois and Florida, the Company believes that the opportunity to create a
profitable business based upon the efficiencies of receiving and processing
large volumes of organic waste is significant.
Description Of Composting Technology Used By The Company
The Company has licensed or contracted for three patented technologies, two
of which already have been permitted by the NJDEP. These three technologies will
be provided to the Company through agreements with Bedminster Bio Conversion
Corporation, D.J. Egarian and Associates and Compost Industries, LLC. The
Company's facilities will be similar to operating sites in Europe and the United
States. See "Process Description" below. A typical Company facility will convert
approximately 300 to 700 tons per day of organic materials including MSW and/or
sewage sludge into compost. However, there can be no assurance that this
technology will not become obsolete, or that the Company would have access to
any improvements in technology.
Process Description
There are four stages to the composting process:
(1) The first stage involves the receipt of the incoming organic
materials. Trucks entering the site will be weighed at a scale and will
unload the materials indoors onto a "tipping floor." The waste material will
be inspected and accepted. (Any unacceptable materials will either be
immediately removed by the trucker, or will be deposited into an on-site
container for later removal.)
(2) Stage two involves mixing the organic materials and commencing the
composting process. The material received will be loaded into rotary mixing
drums, called "Bio Wet Mills" 12 feet or greater in diameter and between 100
and 220 feet long, where it will be processed for 12 to 72 hours under
precise controls. When the desired characteristics of the organic fraction
have been reached, this thoroughly mixed and partially decomposed material
will be removed from the mixing drums and screened to remove any remaining
large and/or inert items. These removed inert materials will be placed in a
container for off-site disposal or recycling.
(3) In stage three, the remaining screened homogenized organic material
will be placed in an aerated composting/curing system for up to 90 days,
during which time the material will be agitated. Temperature and oxygen
monitors connected to a computerized monitoring system will indicate when
water and/or air needs to be added in order to maximize the rate of
biological activity (i.e., the composting process). When the desired compost
characteristics are reached, the cured compost will be removed.
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(4) During the final stage, the compost will be processed through
multiple 3/8 inch screens and placed into storage. There will be up to 90
days of final storage capacity at each facility or at satellite storage and
blending sites.
An objective of composting indoors in a controlled environment is to
optimize the processing time to convert the organic waste into compost. Another
objective is to maximize the volume processed for a given capital cost (which in
turn minimizes the capital cost per ton). A key to accomplishing these goals is
to monitor and control the composting process through the entire system.
Incoming waste materials are mixed to achieve the desired carbon to nitrogen
content, moisture level, pH, and material sizing. From the time decomposition
starts in the Bio Wet Mills to when it ends in curing area (which may include
agitated tunnel reactors), these and other process parameters are continuously
measured. The process variables which will be controlled so that composting
occurs at the fastest possible rate are: (a) the moisture content, (b) the
oxygen level, (c) the frequency of agitation (or turning of the material), (d)
temperature, (e) pH and (f) C/N ratio and (g) particle size. The Professional
Services Group facility operator will be responsible for managing the facilities
and monitoring the computerized control system to achieve optimal performance.
Odor Control
An important aspect of the facility's design is its odor control system. The
Company's plants will be completely enclosed, with doors opened only to accept
deliveries of organic waste materials and to ship finished compost. Each
facility will be under negative air pressure, meaning that air will be drawn
into the plant when the doors are opened. Process air within the facility will
be processed through a chemical filter and/or a bio-filter system, resulting in
the emission of only clean air, water vapor and carbon dioxide into the
atmosphere. The facilities are being designed so that there will be no negative
off-site impact generated by the composting facility.
Transportation Impact
All of the Company's sites are easily accessible from major state highways
and each will have sufficient on-site queuing to manage movement of in and
out-bound trucks. As a result, the transportation impact on the local business
communities will be minimal.
Noise
All composting operations will be within enclosed structures and the
operations will not generate excessive levels of noise, thus not adversely
impacting surrounding property owners. Noise levels will be within all State and
Federal noise parameters. Primary sources of noise will be trucks accessing the
site, the rotary drum motors and front end loaders which operate inside the
buildings. As a result, any impact from noise generated from the operations will
be minimal. Facilities will be located in industrial areas or on sites away from
residential areas.
Compost Marketing
Certain of the Company's principals were actively engaged in the marketing
of compost in New Jersey and Pennsylvania in the 1980's and early 1990's. They
contracted with various municipalities, including the City of Philadelphia,
Washington, D.C., and others, to market the compost produced at the
municipalities' sewage sludge composting facilities. The marketing activities
included performing research studies with agricultural departments in leading
universities, developing compost markets, and managing all aspects of the
transportation and application of the finished products.
All of the compost will be marketed under the GARDENLIFE or TURFLIFE trade
names. Compost and blend products made with compost, such as topsoil, will be
sold by Garden Life Sales Company, Inc. in combination with local landscape
supply companies. Garden Life Sales Company, Inc. has developed a variety of
markets for selling compost and blend products. Some of these users will include
landscapers, growers, greenhouses, sod farms, golf courses, municipalities,
schools and others.
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At present, Garden Life Sales Company, Inc. has had some of its product line
certified and approved by NOFA-NJ, the association of organic farmers in New
Jersey.
PROJECT DESCRIPTIONS
Newark Project
Newark Recycling and Composting Company, Inc., owned 75% by CANJ and 25% by
PTI, is developing a minimum 680 ton per day in-vessel composting facility
together with an 800,000 gallon per day biosolids dewatering facility located on
a 12 acre site in the East Ward of Newark, New Jersey, at the convergence of
Routes 78, 1, 9 and the New Jersey Turnpike. The plant is designed to compost
sewage sludge from any one or a combination of sludge generators from the New
Jersey/New York metropolitan area while utilizing source separated
food/paper/wood wastes as the bulking agent. The plant also is permitted to
dewater liquid sludge which may be provided from municipal and commercial
wastewater plants located in New Jersey. The City of Newark granted preliminary
approval to build the facility on November 21, 1994 and final site plan approval
on January 30, 1995. Final design drawings and plans have been submitted to the
NJDEP. NJDEP air permits have been received, and notice of intent to issue
facility operating permits operating permits was issued on August 2, 1995. Full
construction drawings have been completed and construction bids are being
received.
A final R.W. Beck market demand and feasibility report is anticipated in May
1996, together with final cost estimates, a guaranteed maximum price
construction contract from VRH Construction Corporation and a maximum
price/minimum thruput operations, maintenance and management contract from
Professional Services Group. The co-managing underwriters for the project, Paine
Webber Incorporated and Legg Mason Wood Walker, Incorporated, have advised the
Company that it anticipates a closing of approximately $70,000,000 in principal
amount of project revenue bonds of the New Jersey Economic Development Authority
in June of 1996 to finance this facility. Construction is anticipated to begin
immediately thereafter with completion as early as the fourth quarter of 1997.
Miami Project
The Company, through a subsidiary Miami Recycling and Composting Company,
Inc., acquired from Bedminster Bioconversion Corporation all of the outstanding
stock of its subsidiary Bedminster Seacor Miami Inc., a corporation developing a
150,000 ton per year MSW/sludge co-composting project in northwestern Dade
County. The project is based upon a 30 year put or pay contract between the City
of Miami and Bedminster Seacor Miami Inc. for the composting of all of its
residential MSW. The Company also purchased a 45 acre acceptable site which has
zoning and state approvals to construct the facility. The Dade County Industrial
Development Authority has authorized the issuance of up to $15,000,000 of tax
exempt bonds to finance the project and authorization for additional funds is
being sought.
Chicago Project
Chicago Recycling Company, Inc., a wholly owned subsidiary of the Company,
is developing an in-vessel composting facility for source separated organic
waste and sewage sludge on a site adjacent to a new materials recovery facility
and MSW transfer station, both under construction. The Company has entered into
an agreement to purchase the site for which all local approvals have been
received and applications for required State of Illinois permits were submitted,
with the state permit issued in December 1995. Although financing arrangements
have not been completed, the Company anticipates financing the project through
the issuance of tax-exempt municipal bonds by the local industrial development
authority.
Gloucester Project
Gloucester Recycling and Composting Company, Inc., a wholly owned subsidiary
of the Company, together with Compost Industries, LLC, Professional Services
Group, Inc., Tardy and Associates and others have organized a composting project
to demonstrate the collection and composting of source
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separated organic wastes from residential and commercial sources in an urban
setting. Compostable wastes will be collected from selected neighborhoods in
Gloucester City and from commercial establishments with compostable waste
streams that service the same area. Waste providers will include supermarkets,
fast food restaurants, convenience stores and other organic waste generators.
The organic wastes will be composted by the Company using a new patented
in-vessel composting system which the Company has licensed from Compost
Industries, LLC. Compost from the demonstration project will be tested and
analyzed for safety, nutrient content and physical characteristics.
Upon the successful operation of this Demonstration Project, the Company
plans to seek approval to construct a 300 ton per day food/fiber waste
composting facility at the same site. The materials to be processed will come
from surrounding New Jersey counties as well as from Philadelphia. The Company
anticipates that all required local approvals will be obtained by the first
quarter of 1997. The Company signed a thirty year lease/purchase agreement with
the City of Gloucester to purchase the property owned by the City.
Monmouth Project
Monmouth Recycling and Composting Co., a wholly owned subsidiary of the
Company, has entered into a purchase option agreement on 15 acres in Freehold
Township, Monmouth County, New Jersey. The property is adjacent to a permitted
outdoor windrow composting facility which the Company had signed an agreement to
purchase by June 30, 1996. This contract has been cancelled pending a review of
environmental permit questions. The outdoor facility is permitted to compost up
to 50,000 tons per year of supermarket produce waste and yard wastes. The
Company had intended to merge these two facilities, and may attempt to revie the
agreement if the environmental concerns are satisfactorally resolved.
The ability of the Company to successfully complete these projects is
dependent upon, among other factors, continued Company financing to cover
Company overhead, the completion of project financing to cover the costs of
project construction and the acquisition of all applicable permits to allow for
the construction and operation of the projects.
PROJECT FINANCING
On February 13, 1996 the Company entered into an agreement (the "Master
Letter Agreement") with Paine Webber Incorporated ("Paine Webber") pursuant to
which Paine Webber agreed to act as sole financial advisor and senior managing
underwriter for the Company's projects. On that same date the Company's 75%
owned subsidiary, Newark Recycling & Composting Co., Inc. ("NRCC") entered into
an agreement (the "Newark Project Letter Agreement") with Paine Webber pursuant
to which Paine Webber agreed to act as sole financial advisor and senior
managing underwriter for NRCC to raise up to $75 million in a senior-lien tax
exempt bond financing to finance the Newark Project. On that same date the
Company's wholly-owned subsidiary, Monmouth Recycling & Composting Co., Inc.
("MRCC") entered into an agreement (the "Monmouth Project Letter Addendum") with
Paine Webber pursuant to which Paine Webber agreed to act as sole financial
advisor and sole managing underwriter to raise up to $30 million in a
senior-lien tax-exempt bond financing to finance the Monmouth Project. Paine
Webber will act exclusively on behalf of the Company in those geographic areas
where the Company intends to operate composting facilities. All agreements with
Paine Webber are subject to certain terms and conditions as set forth therein.
Paine Webber anticipates a closing of approximately $70 million for the
Newark Project in June 1996, making funds available for the commencement of
construction for this Project immediately thereafter. Without this project
financing, the Company will be unable to construct or operate this proposed
facility, and the Company's future viability would be in doubt.
FACILITIES SITINGS AND PERMITS
Most aspects of location, construction and operation of composting
facilities are regulated by the states and subject to state and Federal
environmental laws. Obtaining local approvals and state air,
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water and operating permits is a detailed and complex process, in many cases
taking years to successfully complete. This is especially true where the compost
facility is to be located in or near urban areas. Representative approvals to be
obtained in most jurisdictions include Local Planning Boards, Zoning Boards,
Solid Waste and Water Disposal Boards, Composting Operation Permits, Air Permits
and Building Permits.
The Company's Permits
The Company believes that the permits it already has acquired, and its now
proven ability to acquire these permits, reflects the experience and expertise
of its management in this area, and provides the Company with an advantage over
possible competitors seeking to enter similar geographic markets. To date, the
Company has acquired or is in the process of acquiring the following permits for
each of its five projects:
Newark Project
1. November 21, 1994--City of Newark grants preliminary approval to build
the facility
2. January 30, 1995--City of Newark grants final site plan approval to build
the facility
3. September 26, 1995--New Jersey Department of Environmental Protection
("NJDEP") issues air quality regulation permit controlling emission limits
4. October 16, 1995--Application for a Treatment Works Approval for liquid
sludge storage and treatment is filed with NJDEP, with approval anticipated in
June 1996
5. October 25, 1995--NJDEP Division of Water Quality issues a New Jersey
Pollutant Discharge Elimination System permit for a 680 ton per day facility.
This permit controls the dewatering, lime stabilization, storage, transfer,
composting and distribution of sludge and organic bulking agent.
6. November 27, 1995--City of Newark Department of Engineering issues a Soil
Erosion and Sediment Control permit.
7. February 26, 1996--Company notified that Final Construction Approval has
been authorized by the City of Newark.
Gloucester Project
1. September 1, 1994--NJDEP Division of Solid Waste Management issues a
Demonstration Project Approval for a 10-ton per day in-vessel facility to
compost source separated organic waste, vegetative and food processing waste and
NJDEP Air Pollution Control Program issues a Temporary Certificate to Operate
Control Apparatus permit to demonstrate the feasibility of collecting and
composting source separated organic wastes from residential and commercial
sources.
Chicago Project
1. All local approvals received from Village of Riverdale, Illinois.
2. December 1, 1995--Illinois Environmental Protection Agency, Bureau of
Land, issues a construction and development permit for a facility to compost 350
tons per day of source separated organics and sewage sludge.
Miami Project
1. County zoning approvals to construct 285,000 ton per year MSW/sludge
co-composting project in western Dade County have been received.
In addition, the Company believes that it will benefit from the Interstate
Memorandum of Understanding under which the states of New Jersey, California,
Illinois and Massachusetts have signed a reciprocal technology transfer
agreement whereby the states will mutually accept support data
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and the results of demonstrations, evaluations and certifications of
environmental technologies that are conducted by the other member state
environmental agencies. Once fully established, this process should greatly
reduce the Company's permitting timeframes and application submission costs
since it already has obtained benchmark permits in New Jersey and Illinois.
The Company's Properties and Facilities
The Company leases an office at 350 South Main Street, Suite 313,
Doylestown, Pennsylvania. This office consists of approximately 2,000 square
feet of space used for administrative purposes only, which are leased from an
unaffiliated third party. The Company maintains its executive, finance and
accounting offices at 320 Grand Avenue, Englewood, New Jersey rent-free within
the offices VRH through March 31, 1996 and thereafter at $4,000 per month for
one year, and thereafter on a year by year basis. In December 1995 Newark
Recycling and Composting Company, Inc. purchased a 12 acre site in the East Ward
of Newark, New Jersey at the convergence of Routes 78, 1, 9 and the New Jersey
Turnpike on which the Newark project will be located.
On March 29, 1996 the Company purchased 45 acres in northwest Dade County,
Florida. The Company has entered into an option agreement to purchase the
properties for its projects in Chicago, Illinois and Monmouth County, New
Jersey. The Company has executed a lease/purchase agreement for the required
site for the Gloucester, New Jersey project from the City of Gloucester.
Employees
The Company presently employs a total of 7 persons, 2 of whom are
administrative personnel and 5 of whom are involved in project development. None
of the Company's employees are subject to collective bargaining agreements and
the Company has not experienced any labor difficulties, work stoppages or
strikes.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons were directors and officers of the Company as at March
31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Victor D. Wortmann, Sr....... 59 Chairman of the Board; Director
Roger E. Tuttle.............. 55 President and Principal Executive Officer; Director
John B. Fetter............... 45 Executive Vice President; Treasurer; Director
George S. Chu................ 47 Senior Vice President; Principal Financial Officer
Gary Sondermeyer............. 38 Vice President--operations
Robert E. Wortmann........... 57 Secretary; Director
Pasquale J. Dileo............ 44 Director
</TABLE>
The by-laws provide that the Directors of the Company serve until the next
annual meeting of shareholders and until their successors are duly appointed and
qualified. All officers serve at the pleasure of the Board of Directors. See
"Management--Indemnification" for a discussion of the indemnification of the
Company's officers and directors. Messrs. Tuttle and Fetter may be deemed
"parents and promoters" of the Company as those terms are defined in the rules
and regulations under the Act. There are at present no committees of the board
of directors.
VICTOR D. WORTMANN, SR. is a Director and Chairman of the Board. He has been
Chairman since January 1994. He is the President of VRH Construction Corporation
("VRH") which, along with his brother Robert E. Wortmann, he founded in 1958.
VRH specializes in facility construction at airports and supporting services.
Mr. Wortmann is the principal in charge of all phases of the construction
business for VRH. He has been the project executive for numerous projects
including terminal construction and expansions at JFK International Airport in
New York for American Airlines, Alitalia, British Airways, Eastern Airlines,
Flying Tigers, Northwest Airlines, Pan American and TWA. Mr. Wortmann is a
graduate of the University of Miami, School of Business (B.A. 1959). He is an
unsalaried part time employee of the Company.
ROGER E. TUTTLE is the Company's President, Chief Executive Officer and a
Director, and was its founder. He has twelve years experience in compost
research and in developing marketing programs for the beneficial use of compost,
serving as the President for Earthlife Sales Co. from 1988 through March 1990,
President of Bird Compost Management, Inc. from April 1990 through March 1992
and of Compost Management, Inc. from March 1992 until it was merged into the
Company. Mr. Tuttle was a founding board member of the Composting Council in
Washington, D.C., the industry trade association. He is a member of the New
Jersey Department of Environmental Protection sludge management task force,
responsible for developing a statewide sludge management plan, is a contributor
to the United States Environmental Protection Agency research on beneficial use
of organic waste.
Mr. Tuttle has conducted research and developed utilization plans for City
and State Governments on compost quality and use. He has consulted on plant
growth in compost, and has conducted research on mass balances of different
composting configurations. Mr. Tuttle has consulted on the startup of several
in-vessel composting facilities, has conducted a review of active and closed
compost facilities in the United States and has participated in the design and
implementation of programs for compost use for the revegetation of landfills and
strip mines. He is a nationally recognized speaker and has authored or
co-authored manuals and literature for use in the compost industry. Mr. Tuttle
is a graduate of Fairleigh Dickinson University (B.A. Economics,
Chemistry/Biology--1963 and M.B.A.--1969).
JOHN B. FETTER is the Company's Executive Vice President and Treasurer, and
is a Director, and has been affiliated with the Company since April 1992. He is
a co-founder of Chicago Recycling Company, subsequently acquired by the Company,
and has more than 20 years experience in engineering, construction management
and project development. In September 1991, he founded Foundation Systems, Inc.
("FSI"), an organization specializing in developing energy and environmental
projects
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and implementing energy strategy and strategic management programs for client
organizations, and has served as FSI's president since its founding. At FSI he
has consulted to the boards of municipal agencies as well as Fortune 500
companies across the United States on the integration of engineering and
economics into the design and construction of complex projects. From January
1985 through August 1991 he served as senior consultant, manager and later a
partner of Delian Corp. and its successor companies, and led the team which
developed the study which resulted in the construction of the Midland
Cogeneration Venture, the largest co-generation project in the United States.
Mr. Fetter has consulted on numerous environmental projects on topics ranging
from compliance strategies to environmental impact statements. He has
significant experience in financial, legal, and operational analyses, strategic
planning, project management, and systems implementation. He has developed state
of the art computer applications for management of engineering, environmental
compliance, transportation, construction, marketing and distribution
organizations. Mr. Fetter's extensive environmental background has included
management of environmental compliance projects for several firms and sites
requiring definition of policies and procedures for implementing CERCLA, RCRA,
and SARA legislation for manufacturing, process, and petrochemical facilities.
He has participated in the development of cogeneration and energy projects as
well as solid waste management projects. He has been responsible for planning,
scheduling, cost control and contract administration of construction projects
ranging from wastewater treatment facilities to nuclear generating facilities.
Mr. Fetter is a graduate of the University of Colorado (B.S. Chemical
Engineering--1975) and The University of Pennsylvania's Wharton School of
Business (M.B.A.--1981).
GEORGE S. CHU is the Company's Senior Vice President and Chief Financial
Officer. Mr. Chu, who joined the Company in August, 1995, has ten years of
financial experience in the structuring and financing of in excess of
$300,000,000 in mergers and acquisitions and in corporate equity and debt
placements. He was previously employed as a Managing Director with LINC
Financial Services, Inc., Chicago, Illinois, a finance company (1994-1995), as
Chief Operating Officer with Glenbeigh, Inc., West Palm Beach, Florida, a health
care company (1993), as a Managing Director with Rickel and Associates, Inc.,
Milburn, New Jersey, investment bankers (1991-1993), as a Vice President with
Van Kampen Merritt, Philadelphia, Pennsylvania, investment bankers (1987-1991),
as a Vice President with Butcher & Singer, Inc., Philadelphia, Pennsylvania,
investment bankers (1986-1987) and as a Manager with APM, Inc., New York, New
York, management consultants (1983-1986). Mr. Chu is a graduate of the Wharton
School of Business (M.B.A.--1983) and Adelphi University (Ph.D.--1979).
GARY SONDERMEYER, the Company's Vice President--operations, joined the
Company in January 1996. For the prior 16 years, he was employed by the State of
New Jersey, Department of Environmental Protection ("NJDEP"). From January 1988
through December 1995, when he left the Department, Mr. Sondermeyer was the
Assistant Director of Recycling and Planing, Division of Solid Waste Management
of NJDEP. In that capacity, he administered nine major program areas, including
statewide solid waste planning and coordination of the county planning process;
source reduction, recycling and markets development activities; special waste
planning for such materials as medical waste, contaminated soils and asbestos;
statewide sludge management planning and policy development; maintenance of New
Jersey's solid waste and recycling statistical database; the Division's
financial assistance program; registration of all solid and hazardous waste
facilities; the A-901 disclosure statement review program and New Jersey's Clean
Committee. His major responsibilities included updating the Statewide Solid
Waste Management Plan, processing county plan amendments, administration of New
Jersey's waste flow rules, providing technical assistance on recycling,
stimulating markets for recycled products, oversight of source reduction and
recycling programs for State offices, administering New Jersey's Medical Waste
Management Plan and updating the State's Sludge Management Plan. As Assistant
Director, he managed a staff of 90 professional and clerical employees. Mr.
Sondermeyer is a graduate of Cook College (B.S. 1979) and the Rutgers Graduate
School (Master of City and Regional Planning, 1984).
ROBERT E. WORTMANN, the Company's Secretary and a Director, is the Vice
President of VRH Construction Corporation. He, along with his brother, Victor D.
Wortmann, Sr. founded VRH in 1958. He is the principal in charge of all
estimating, and has been the project executive on numerous projects
29
<PAGE>
including the Delta Air Lines Terminal at LaGuardia Airport, the People Express
and Continental Terminals at Newark International Airport, the Air France and
Sabena Terminals at JFK Airport, the Port Authority of New York and New Jersey
Maintenance Complex, the Northwest Airlines Maintenance Complex at LaGuardia
Airport, and the current International Terminal at Newark Airport. Mr. Wortmann
is a graduate of the University of Miami, School of Engineering (B.S.C.E. 1961).
He spends approximately five hours per week on Company business, and receives no
compensation as either an officer or director of the Company.
PASQUALE ("PAT") J. DILEO, a Director of the Company, has been the President
of Select Acquisitions, Inc., a diversified holding company, since 1993. From
1989 through 1993 he was the president of Tinton Downs, Inc., a healthcare
development company. Prior thereto, from 1988 through 1989, he was employed by
Merrill Lynch Realty as Director of Commercial Real Estate. He is a 1976
graduate of Trenton State College with a degree in industrial arts education.
EXECUTIVE COMPENSATION
Set forth below is the aggregate annual remuneration of each of the only
three paid persons who are officers of the Company during the Company's most
recent fiscal year ended April 30, 1995 and the prior fiscal year (December 17,
1993 inception through April 30, 1994).
<TABLE>
<CAPTION>
AGGREGATE
REMUNERATION
YEAR ENDED APRIL 30,
NAME OF INDIVIDUAL OR CAPACITIES IN WHICH ---------------------
IDENTITY OF GROUP REMUNERATION RECEIVED 1995 1994
--------------------- ---------------------- ---- -----
<S> <C> <C> <C>
Roger E. Tuttle............................ President and CEO $60,000 40,000
John B. Fetter............................. Executive Vice President $60,000 30,000
Alfred A. Rattie........................... Vice President $60,000 30,000
</TABLE>
None of these three individuals received any bonuses, long term compensation
or other compensation, or were granted any stock options or SARs during the
Company's last completed fiscal year, or held any unexercised stock options at
the end of the Company's last completed fiscal year. During the Company's last
completed fiscal year, Roger Tuttle exercised stock options and acquired 213,167
shares of the Company's common stock for one cent per share, or a total of
$2,132, and John Fetter exercised stock options and acquired 200,000 shares of
the Company's common stock for one cent per share, or a total of $2,000. There
was no trading market for the Company's common shares at the time of the
exercise. The Company has no Long Term Incentive Plan. No director of the
Company receives any compensation for serving as a director.
The Company has no pension or profit sharing plans, and no group life,
health, hospitalization or medical reimbursement plan which would discriminate
in scope, terms or operation in favor of the officers or directors of the
Company. The Company has no Termination of Employment or Change-in-Control
Arrangements.
The Company has only one employment agreement, that with its Vice President,
Gary Sondermeyer. His agreement provides for employment as the Company's Vice
President of Operations through December 31, 2000 at an initial annual salary of
$90,000, with annual increases commensurate with the growth of the Company, plus
options to purchase 250,000 of the Company's common shares at $2.50 per share,
exercisable through December 31, 2000.
DIRECTOR COMPENSATION
No director of the Company receives or has received any compensation for
serving as a director.
CONSULTANTS
The Company has entered into a Consulting Agreement with Robert Tardy d/b/a
Tardy and Associates for a one year term commencing December 1, 1995 to consult
with the Company for a
30
<PAGE>
minimum of forty (40) hours per month on matters concerning the technology,
design, development and operation of the Company's composting facilities, and
the land application of sewage sludge and the beneficial use of compost. The
consultant is paid $4,000 per month for the first six months and $6,000 per
month for the second six months, plus expenses.
INDEMNIFICATION
Title 14A of the New Jersey Statutes, as amended, provides that, except in
cases of breach of duty of loyalty, bad faith, knowing violation of law or
receipt of improper personal benefit, an officer or director of a corporation
shall not be personally liable to a corporation or to its shareholders for
damages for breach of duty if and to the extent that liability has been
eliminated or limited in the corporation's certificate of incorporation.
The Company's restated certificate of incorporation provides that except to
the extent prohibited by law, no director or officer of the corporation shall be
personally liable to the corporation or its shareholders, provided that a
director or officer shall not be relieved from liability for any breach of duty
based upon an act or omission (a) in breach of such person's duty of loyalty to
the corporation or its shareholders; (b) not in good faith or involving a
knowing violation of the law or (c) resulting in receipt by such person of an
improper personal benefit. To the extent permitted by law, the corporation shall
defend, indemnify and hold its officers and directors harmless for all acts and
omissions in the performance of their duties for the corporation, provided that
such acts or omissions are made in good faith and do not involve a knowing
violation of the law nor result in an improper personal benefit to the officers
or directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against public policy as
expressed in that Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
31
<PAGE>
CERTAIN TRANSACTIONS
In January 1994, VRH Construction Corp.("VRH"), whose principals, Victor D.
Wortmann, Sr. and Robert E. Wortmann are Directors of the Company, acquired
100,000 shares of the common stock of Compost America Company of New Jersey,
Ltd. ("CANJ") for $5.00 per share, or a total of $500,000. CANJ was a privately
held company at the time and this price was established arbitrarily by its
management. These shares, as part of the January 1995 Reorganization, were
exchanged for 600,000 shares of the Company's Common Stock. At that time VRH
entered into a ten year construction management agreement with the Company. The
agreement grants to VRH exclusive rights to build all of the Company's New
Jersey compost facilities at a cost not to exceed a fixed price. In return for
this commitment, and for acting as the general contractor, VRH will receive a
fee equal to 10% of the guaranteed facility construction cost. The Company
believes that the terms of this agreement are more favorable to the Company than
could be obtained from an unrelated party.
Since May 1, 1994, VRH has made loans to the Company totalling $3,043,938.
These loans bear interest at ten (10%) percent per annum and are due July 15,
1996. Given that the Company is a development stage company and that these loans
are unsecured and are at a rate of interest only slightly above prime, the
Company does not believe that such loans would even be available from an
unrelated party. In addition, since May 1, 1994, Victor D. Wortmann, Sr. and his
family purchased additional shares of CANJ which, when exchanged for shares of
the Company, totalled 1,180,000 shares of the Company's common stock for a total
consideration of $75,750. During this same period, Robert E. Wortmann and his
family purchased additional shares of CANJ which, when exchanged for shares of
the Company, totalled 1,180,000 shares of the Company's common stock for a total
consideration of $75,750. CANJ was a privately-held company and the purchase
price of the CANJ shares was established arbitrarily by its management. In
December 1995 Robert E. Wortmann purchased 40,000 shares of the Company's common
stock directly from the Company for $2.50 per share, or a total of $100,000.
These shares were restricted as to transfer, and were acquired at a time when
the market price for the Company's common stock was approximately $5.00 per
share. On April 23, 1996 Victor D. Wortmann, Sr. and Robert E. Wortmann each
were granted options to purchase 300,000 shares of the Company's common stock at
$0.01 per share exercisable immediately through April 23, 2001 in consideration
for making high risk, unsecured loans to the Company.
32
<PAGE>
PRINCIPAL SHAREHOLDERS
As at March 31, 1996, the Company had 14,226,702 shares of its Common Stock
issued and outstanding. The following table sets forth certain information with
respect to each beneficial owner of five percent or more of the outstanding
shares of the Company's Common Stock, each officer and each director of the
Company and all officers and directors of the Company as a group. The Company
has no outstanding non-voting securities.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFITS OF PERCENT OF
OF BENEFICIAL OWNERS(1) OWNERSHIP CLASS
----------------------- ----------- ----------
<S> <C> <C>
George Chu........................................................... 100,000
413 West Mt. Airy Avenue
Philadelphia, PA 19119 *
Pasquale J. Dileo.................................................... 214,000
832 Bay Avenue
Toms River, NJ 08753 *
John B. Fetter....................................................... 2,828,612(2)
820 Gatemore Road
Bryn Mawr, PA 19010 19.9%
Select Acquisitions, Inc............................................. 866,640
832 Bay Avenue
Toms River, NJ 08753 6.1%
Gary Sondermeyer..................................................... 350,000(3)
622 White Swan Way
Langhorne, PA 19047 2.4%
Roger E. Tuttle...................................................... 3,875,105(4)
3105 Gibson Lane
Doylestown, PA 18901 27.2%
Robert E. Wortmann................................................... 2,192,500(5)
80 Knollwood Road
Upper Saddle River, NJ 07158 15.1%
Victor D. Wortmann, Sr............................................... 2,112,500(6)
47 Mill Glen Road
Upper Saddle River, NJ 07158 14.5%
Officers and Directors As a Group (7 persons)........................ 11,672,717(7) 76.9%
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise indicated, each person named in the table exercises sole
voting and investment power with respect to all shares beneficially owned.
(2) Includes 2,528,612 shares owned by John B. Fetter directly, 100,000 shares
owned by Marilyn S. Fetter, his wife, 100,000 shares owned by the John T.
Fetter Revocable Trust, of which John B. Fetter is a trustee and 100,000
shares owned by Katherine E. Fetter Revocable Trust, of which John B. Fetter
is a trustee.
(3) Includes no shares owned directly and 350,000 shares which may be acquired
within sixty (60) days upon the exercise of options.
(4) Includes 2,601,509 shares owned by Roger E. Tuttle directly, 106,000 shares
owned by William Tuttle, his son, 100,000 shares owned by Kristie Tuttle,
his daughter and 100,000 shares owned by Elizabeth Tuttle, his wife. Also
includes 967,596 shares over which Mr. Tuttle has voting control.
(5) Includes 802,500 shares owned by Robert E. Wortmann directly, 40,000 shares
owned by Mary Wortmann, his wife, 150,000 shares owned by Robert E.
Wortmann, Jr., his son, 150,000 shares owned by Erika Wortmann, his
daughter, 150,000 shares owned by Andrea Wortmann, his daughter and 600,000
shares owned by VRH Construction Corporation, a company controlled by Mr.
Wortmann and his brother, Victor D. Wortmann, Sr. Also included in the
holdings of Victor D.
(Footnotes continued on following page)
33
<PAGE>
(Footnotes continued from preceding page)
Wortmann, Sr. Also includes 300,000 shares which may be acquired within
sixty (60) days upon the exercise of options.
(6) Includes 812,500 shares owned by Victor D. Wortmann, Sr. directly, 200,000
shares owned by Victor D. Wortmann, Jr., his son, 200,000 shares owned by
Susan Ann Curran, his daughter and 600,000 shares owned by VRH Construction
Corporation, a company controlled by Mr. Wortmann and his brother, Robert E.
Wortmann. Also included in the holdings of Robert E. Wortmann. Also includes
300,000 shares which may be acquired within sixty (60) days upon the
exercise of options.
(7) Includes 950,000 shares which may be acquired within sixty (60) days upon
the exercise of options and warrants. As at March 31, 1996, the Company had
14,226,702 shares outstanding. An additional 2,059,012 shares were subject
to acquisition within sixty (60) days upon the exercise of options and
warrants, for a total of 16,185,714.
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, no par value per share, and 25,000,000 shares of
Preferred Stock, no par value per share. The following descriptions of the
capital stock are complete in all material and relevant terms but are qualified
in all respects by reference to the Certificate of Incorporation and amendments
thereto and By-Laws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. Prior to the
commencement of this offering, there were 14,226,702 shares of Common Stock and
no shares of Preferred Stock issued and outstanding.
COMMON STOCK
The holders of Common Stock elect all directors and are entitled to one vote
for each share held of record. All shares of Common Stock participate equally in
dividends, when, as and if declared by the Board of Directors and in net assets
on liquidation. All shares of Common Stock presently outstanding are duly
authorized, validly issued, fully paid and nonassessable by the Company. The
shares of Common Stock have no preference, conversion, exchange, preemptive or
cumulative voting rights.
NON-CUMULATIVE VOTING
The holders of shares of common stock do not have cumulative voting rights,
which means that the holders of more than 50% of such outstanding shares, voting
for the election of directors, can elect all of the directors to be elected, if
they so choose, and in such event, the holders of the remaining shares will not
he able, to elect any of the Company's directors.
PREFERRED STOCK
The Company is authorized to issue shares of preferred stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue shares of preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the shares of preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. The Company has no present intention to issue
any shares of its preferred stock.
TRANSFER AGENT
The Company's transfer agent is Chemical Mellon Shareholder Services, 450
West 33rd Street, New York, New York 10001.
34
<PAGE>
REPORTS TO SHAREHOLDERS
As a result of this offering, the Company will be required to comply with
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, to file annual, quarterly
and other periodic reports with the Commission. Additionally, the Company will
be subject to the proxy solicitation requirements of the Exchange Act. The
Company intends to furnish its stockholders with annual reports containing
audited financial statements and a report thereon certified by its independent
certified public accountants, quarterly reports containing unaudited financial
statements and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.
SHARES AVAILABLE FOR RESALE
The Company presently has 14,226,702 shares of Common Stock issued and
outstanding, of which only 199,500 are "freely tradable." Upon the effective
date of this offering, an additional 1,025,000 shares will be freely tradable,
for a total of 1,224,500, and the balance of 13,002,202 shares are and will
be "restricted securities" as that term is defined in the Securities Act, and in
the future may be sold only in compliance with Rule 144 under the Act. In
general, under Rule 144 a person (or group of persons whose shares are
aggregated) who has beneficially owned restricted shares of the Company for at
least two years, including any person who may be deemed to be an "affiliate" of
the Company (as the term "affiliate" is defined in Rule 144 of the Act), is
entitled to sell in normal brokerage transactions during the periods when
certain information regarding the Company is publicly available, within any
three-month period, an amount of shares that does not exceed the greater of (i)
the average weekly trading volume in the Company's shares during the four
calendar weeks preceding such sale or (ii) 1% of the total shares then
outstanding. A person who has not been an "affiliate" of the Company for the
three months prior to a sale and who has held restricted shares for at least
three years would be entitled to sell such shares without restriction. The
Company cannot predict how many, or when, any of these restricted shares
actually will be sold pursuant to Rule 144. Sales of the Company's Common Stock
by present stockholders pursuant to Rule 144 or otherwise, may, in the future,
have a depressive effect on the price of the Common Stock.
35
<PAGE>
SELLING SHAREHOLDERS
Up to 1,025,000 shares of Common Stock may be offered by twenty-one (21)
shareholders (the "Selling Shareholders") in connection with shares issued to
them for the purposes set forth herein. The Company has agreed to bear all
expenses (other than underwriting or selling commissions or any fees and
disbursements of counsel to such Selling Shareholders) in connection with the
registration of their shares.
The following table sets forth certain information with respect to persons
for whom the Company is registering shares for resale to the public. None of
such persons has held any position or office with the Company or any of its
affiliates within the past three years, except as indicated. The Company will
not receive any of the proceeds from the sale of such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES OWNED
---------------------------------------
<S> <C> <C> <C>
NAME OF SELLING SHAREHOLDER PRIOR TO BEING AFTER OFFERING
AND RELATIONSHIP WITH COMPANY OFFERING OFFERED AND PERCENTAGE
------------------------------ -------- --------- --------------
<CAPTION>
<S> <C> <C> <C>
VRH Construction Corp.(1)................................. 600,000 600,000 0--0%
Pasquale Dileo............................................ 214,000 214,000 0--0%
Mark Gasarch.............................................. 40,000 40,000 0--0%
William White............................................. 60,000 30,000 30,000--*
Edward Agostini........................................... 25,000 25,000 0--0%
Jonathan Frank............................................ 25,000 25,000 0--0%
R. Michael Pisani......................................... 137,200 22,000 115,200--*
Tony Cipollone............................................ 25,000 15,000 10,000--*
Robert M. Long............................................ 39,800 11,000 28,800--*
The Cavior Organization, Inc.............................. 10,000 10,000 0--0%
Dawn Papa................................................. 10,000 10,000 0--0%
William Tuttle (2)........................................ 106,000 6,000 100,000--*
Frank C. Lionetti Design, Inc............................. 5,000 5,000 0--0%
Gordon Gemma.............................................. 2,500 2,500 0--0%
Simone Palazzolo.......................................... 2,500 2,500 0--0%
All Service Mortgage of America, Inc...................... 2,000 2,000 0--0%
Jon Feldman............................................... 1,250 1,250 0--0%
Gary VanVorst............................................. 1,250 1,250 0--0%
Stencler Design, Ltd...................................... 1,000 1,000 0--0%
W. Scott Nixon............................................ 1,000 1,000 0--0%
John Johnston............................................. 500 500 0--0%
---------
TOTAL......................................... 1,025,000
</TABLE>
- ------------
* Less than 1%
(1) Owned by Victor D. Wortmann, Sr. and Robert E. Wortmann, directors of the
Company. Does not include shares owned by Victor D. Wortmann, Sr. or Robert
E. Wortmann or their families (See "Principal Shareholders").
(2) William Tuttle is the son of Roger Tuttle. Does not include shares owned by
Roger Tuttle or his family. (See "Principal Shareholders").
36
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock may be offered and sold from time to time by the Selling
Shareholders as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. The shares offered
hereby may be sold by one or more of the following methods, without limitation:
(a) a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (d) face-to-face transactions between sellers
and purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Shareholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts from
the Selling Shareholders in amounts to be negotiated immediately prior to the
sale. Such brokers and dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act, in
connection with such sales.
Under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the regulations thereto, any person engaged in a distribution of the shares
of Common Stock of the Company offered by this Prospectus may not simultaneously
engage in market-making activities with respect to the Common Stock of the
Company during the applicable "cooling off" periods prior to the commencement of
such distribution. In addition, and without limiting the foregoing, the Selling
Shareholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder including, without limitation, Rules 10b-6
and 10b-7, which provisions may limit the timing of purchases and sales of
Common Stock by the Selling Shareholders.
EXPERTS
The April 30, 1994 financial statements and the April 30, 1995 financial
statements included in this Prospectus have been examined by ZellerWeiss & Kahn,
CPAs, Independent Certified Public Accountants, to the extent and for the
periods set forth in their report appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
On October 10, 1995 Zeller Weiss & Kahn, CPAs replaced Rosen Seymour Shapss
Martin & Company, CPAs as accountants for CANJ by mutual agreement between
CANJ's board of directors and the resigning accountants. No report on CANJ's
financial statements issued by the resigning accountants contained an adverse
opinion or disclaimer of opinion or was qualified or modified as to uncertainty,
audit scope or accounting principles, nor were their any disagreements on any
matter of accounting principals or practices, financial statement disclosure or
auditing scope or procedure.
On March 1, 1995 Zeller Weiss & Kahn, CPAs replaced Fallon & Fallon as
accountants for Alcor (whose name was changed to the Company) by mutual
agreement between the Company's board of directors and the resigning
accountants. No report on Alcor's or the Company's financial statements issued
by the resigning accountants contained an adverse opinion or disclaimer of
opinion or was qualified or modified as to uncertainty, audit scope or
accounting principles, nor were their any disagreements on any matter of
accounting principals or practices, financial statement disclosure or auditing
scope or procedure.
LEGAL MATTERS
There are no material legal proceedings in which the Company is involved.
Certain legal matters, including the legality of the issuance of the shares
of Common Stock offered hereby, are being passed upon for the Company by Mark
Gasarch, Esq., 1285 Avenue of the Americas, New York New York 10019. Mark
Gasarch owns 125,000 shares of the Company's Common Stock and options to acquire
an additional 200,000 shares. See "Selling Shareholders".
37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
PERIOD ENDING APRIL 30, 1995 AND 1994 AND THE PERIOD
DECEMBER 17, 1993 (INCEPTION) TO APRIL 30, 1995
CONTENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent auditors' report................................................... F-2
Consolidated financial statements:
Balance sheet................................................................ F-3
Statement of income (loss)................................................... F-4
Statement of stockholders' equity............................................ F-5
Statement of cash flows...................................................... F-6
Notes to consolidated financial statements................................... F-7 to F-38
Supplementary information to consolidated financial statements:
Report of independent auditors on statement of operating expenses............ F-39
Schedule of operating expenses............................................... F-40
</TABLE>
F-1
<PAGE>
- --------------------------------------------------------------------------------
[ZELLER WEISS & KAHN LETTERHEAD]
[LOGO]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1084 Route 22 West Melvin H. Zeller, CPA
Mountainside, NJ 07092 Harold N. Binenstock, CPA
TEL: 908-789-0011 Stephen E. Rosenthal, CPA
FAX: 908-789-0027 Alfred J. Padovano, CPA
Leonard J. Krieger Jr., CPA
Philip E. Hunrath, CPA
Martin Sherman, CPA
Gary A. Sherman, CPA
Andrew M. Fingerhut, CPA
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Compost America Holding Company, Inc. and Subsidiaries
Doylestown, Pennsylvania
We have audited the accompanying consolidated balance sheet of Compost
America Holding Company, Inc. and Subsidiaries as of April 30, 1995 and 1994 and
the related statements of income (loss), stockholders' equity and cash flows,
for the periods ending April 30, 1995 and 1994 and for the period December 17,
1993 (inception) to April 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Compost America Holding
Company, Inc. and Subsidiaries as of April 30, 1995 and 1994 and the results of
its operations, changes in stockholders' equity and cash flows for the period
ending April 30, 1995 and 1994 and for the period December 17, 1993 (inception)
to April 30, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 9 the Company has been in the development stage since
December 17, 1993.
/S/ ZELLER WEISS & KAHN
February 9, 1996, except for
Note 11 (F) as to which the
date is April 22, 1996
Mountainside, New Jersey
F-2
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET--APRIL 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................. $ 9,409 $ 8,400
Accounts receivable.............................................. 55,361
Due from affiliated company, R.C. Land Company Inc............... 28,600
Due from affiliated company, American Bio-AG Corp................ 20,000
---------- ----------
Total current assets......................................... 58,009 63,761
---------- ----------
Investments in joint venture (Note 12A)............................ 167,358
---------- ----------
Plant, property and equipment (Note 18)
Automotive equipment............................................. 44,734
Office equipment................................................. 2,920
Construction in progress, Compost projects....................... 3,103,743 2,024,416
---------- ----------
47,654
Less depreciation................................................ 29,598
---------- ----------
3,121,799 2,024,416
---------- ----------
Other assets:
Restrictive covenant (Note 10B).................................. 245,833
Trademark costs, net of amortization of $220..................... 1,488
Organization costs, net of amortization of $1,458................ 5,621 2,128
Deposits (Note 20)............................................... 2,035
Options (Note 21)................................................ 100,000
---------- ----------
354,977 2,128
---------- ----------
$3,702,143 $2,090,305
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 22).................................... $ 50,000
Accounts payable and accrued expenses............................ 500,921 $ 284,708
Current portion of long-term debt (Note 18)...................... 56,984
Due to affiliated company, VRH Construction Corp. (Note 15)...... 640,072
Due affiliated company, Compost Management, Inc. (Note 15)....... 212,205
Due to affiliated company, Select Acquisitions, Inc. (Note 15)... 23,900 41,650
Payroll taxes payable............................................ 6,048
---------- ----------
Total current liabilities.................................... 1,277,925 538,563
---------- ----------
Long-term debt, net of current portion (Note 18)................... 414,871
---------- ----------
Contingencies and commitments (Note 13)
Minority interest in consolidated subsidiary....................... 0 0
---------- ----------
Stockholders' equity:
Common stock, no par value, 15,000,000 shares authorized
13,222,667 shares issued and outstanding in 1995 and 4,199,040
shares issued and outstanding in 1994 (Note 5)................. 2,899,278 1,710,089
Common stock warrant (Note 14)
Deficit accumulated during the development stage................. (861,239) (158,347)
Less: subscriptions receivable................................... (28,692)
---------- ----------
2,009,347 1,551,742
---------- ----------
$3,702,143 $2,090,305
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEAR DEC. 17, 1993 DEC. 17, 1993
ENDED (INCEPTION) (INCEPTION)
APRIL 30, TO APRIL 30, TO APRIL 30,
1995 1994 1995
----------- ------------- -------------
<S> <C> <C> <C>
Net sales............................................ $ 80,741 $ 80,741
Other revenues....................................... $ 6,500 6,500
----------- ------------- -------------
Total.......................................... 6,500 80,741 87,241
Cost of operations, transportation................... 5,000 5,000
----------- ------------- -------------
Gross income......................................... 1,500 80,741 82,241
General and administrative........................... 667,687 239,088 906,775
----------- ------------- -------------
Loss from operations................................. (666,187) (158,347) (824,534)
----------- ------------- -------------
Other non-operating expense:
Interest........................................... 10,753 10,753
----------- ------------- -------------
Loss before income tax expense....................... (676,940) (158,347) (835,287)
Income tax expense (Note 19)......................... 0 0 0
----------- ------------- -------------
(676,940) (158,347) (835,287)
----------- ------------- -------------
Minority interest in income of consolidated
subsidiaries......................................... 0 0 0
----------- ------------- -------------
(676,940) (158,347) (835,287)
----------- ------------- -------------
Loss in equity in joint venture...................... (25,952) (25,952)
----------- ------------- -------------
Net loss............................................. $ (702,892) $ (158,347) $(861,239)
----------- ------------- -------------
----------- ------------- -------------
Earnings per common share:
Primary............................................ $ (.07) $ (.03)
----------- -------------
----------- -------------
Weighted average number of common shares outstanding:
Primary............................................ 10,347,340 5,124,128
----------- -------------
----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK DURING THE
------------------------ DEVELOPMENT
SHARES AMOUNT STAGE
---------- ---------- -----------
<S> <C> <C> <C>
Balance, December 17, 1993
Issuance of common stock for technology,
December 28, 1993 (.0017 per sh.)(Note 5)........... 2,160,000 $ 3,600
Issuance of common stock for technology,
January 1, 1994 (1.207 per sh.)(Note 5)............. 840,000 1,013,875
Issuance of common stock
Jan 1, 1994--April 30, 1994 (.83 per sh.)(Note 5)... 830,400 692,000
Issuance of common stock for services,
April 30, 1994 (.0017 per sh.)(Note 5).............. 368,640 614
Net Loss April 30, 1994............................... $(158,347)
---------- ---------- -----------
Balance, April 30, 1994................................. 4,199,040 1,710,089 (158,347)
Issuance of common stock for settlement claim,
May 27, 1994 (.0017 per sh.)(Note 5)................ 24,000 40
Redemption of common stock
Sept. 29, 1994 (.83 per sh.)(Note 5)................ (60,000) (50,000)
Issuance of common stock
Oct. 3, 1994 (.83 per sh.)(Note 5).................. 60,000 50,000
Issuance of common stock
October and November, 1994 (.879 per sh.)(Note 5)... 369,600 325,000
Issuance of common stock
Nov. 1, 1994 (.417 per sh.)(Note 5)................. 120,000 50,000
Issuance of common stock for merger,
December 1, 1994 (.047 per sh.)(Note 5)............. 2,631,360 122,613
Exercise of warrants
Dec. 1, 1994 (.002 per sh.)(Note 5)................. 2,580,000 4,300
Issuance of common stock for acquisition,
Feb. 8, 1995 (.18 per sh.)(Note 5).................. 274,500 49,094
Issuance of common stock for private placement,
Feb. 11, 1995 (2.50 per sh.)(Note 5)................ 190,000 475,000
Exercise of warrants and options for legal services,
Feb. 11, 1995 (.03 per sh.)(Note 5)................. 2,714,167 63,142
Issuance of common stock for Chicago restructuring
agreement, Feb. 15, 1995 (.83 per sh.)(Note 5)...... 120,000 100,000
Net loss April 30, 1995............................... (702,892)
---------- ---------- -----------
Balance, April 30, 1995................................. 13,222,667 $2,899,278 $(861,239)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM
DECEMBER 17, 1993 DECEMBER 17, 1993
YEAR ENDED (INCEPTION) TO (INCEPTION) TO
APRIL 30, 1995 APRIL 30, 1994 APRIL 30, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
Operating activities:
Net loss..................................... $ (702,892) $ (158,347) $ (861,239)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization................................... 4,167 4,167
Depreciation................................... 3,030 3,030
Equity in loss of joint venture................ 25,952 25,952
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable..... 55,361 (55,361)
Increase (decrease) in accounts payable and
accrued expenses............................. 216,213 284,708 500,921
Increase in payroll taxes payable.............. 6,048 6,048
Changes in other assets and liabilities:
(Increase) decrease in due to/from affiliated
companies:
R.C. Land Company, Inc....................... (28,600) (28,600)
Compost Management, Inc...................... (212,205) 212,205
American Bio-AG Corp......................... (20,000) (20,000)
Select Acquisitions, Inc..................... (17,750) 41,650 23,900
-------------- ----------------- -----------------
Net cash (used in) provided by operating
activities................................. (670,676) 324,855 (345,821)
-------------- ----------------- -----------------
Investing activities:
Purchase of restrictive covenant............... (250,000) (250,000)
Purchase of construction in progress,
Compost projects............................. (758,745) (1,006,327) (1,765,072)
Purchase of property and equipment............. (2,920) (2,920)
Purchase of organizational costs............... (2,217) (2,128) (4,345)
Purchase of deposits........................... (1,525) (1,525)
Purchase of options............................ (100,000) (100,000)
Purchase of equity of joint venture............ (193,310) (193,310)
-------------- ----------------- -----------------
Net cash used in investing activities........ (1,308,717) (1,008,455) (2,317,172)
-------------- ----------------- -----------------
Financing activities:
Increase in due to affiliated company,
VRH Construction Corp........................ 640,072 640,072
Increase in notes payable...................... 50,000 50,000
Increase in long-term debt..................... 387,720 387,720
Proceeds from issuance of common stock......... 906,409 692,000 1,598,409
Payments on long-term debt..................... (3,799) (3,799)
-------------- ----------------- -----------------
Net cash provided by financing activities.... 1,980,402 692,000 2,672,402
-------------- ----------------- -----------------
Net increase in cash.............................. 1,009 8,400 9,409
Cash, beginning of period......................... 8,400
-------------- ----------------- -----------------
Cash, end of period............................... $ 9,409 $ 8,400 $ 9,409
-------------- ----------------- -----------------
-------------- ----------------- -----------------
Supplementary disclosure of cash flow information
Interest....................................... $ 10,753 $ 0 $ 10,753
Taxes.......................................... $ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities (Note 24)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it sells to
a multitude of users. The process which the Company will employ is composting,
or the controlled decomposition of organic matter into humus (a component of
soil). Like a landfill or an incinerator operator, the Company will be paid
"tipping fees" to accept waste from generators of these materials. In selected
markets like New Jersey, where the disposal costs are high, the economic
opportunity of taking in and processing large volumes of waste is significant.
The Company will operate a vegetative and selected food waste compost
facility in New Jersey and will continue the development of the indoor
composting projects currently in progress, which will convert organic materials
ordinarily disposed of in landfills or incinerators into a valuable end product
which is beneficial to the environment.
2. BUSINESS ORGANIZATION:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in the state
of New Jersey, with 1,000,000 authorized shares at no par value. On February 1,
1984 Alcor conducted an offering under Regulation A, an exemption from
registration under the Securities Act of 1933. On that date, 300,000 shares of
common stock were issued at $1.00 per share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000 to
7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert Spruance
Company and 750,000 shares to Peter English and his affiliates in return for all
outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three subsidiaries
due to the lack of sufficient capital needed to continue the operations of each.
Alcor sustained losses from both the disposition of the Gilbert Spruance Company
and The English Group, Inc.
On September 27, 1994, 650,000 shares issued to Peter English to acquire the
English Group, Inc. were returned pursuant to the disposal of the English Group,
Inc.
On September 29, 1994, Alcor issued 1,500,000 shares to two individuals for
cancelling $203,720 of loans due to these individuals.
On October 21, 1994, Alcor amended its Certificate of Incorporation to
increase its authorized common stock from 7,500,000 shares to 15,000,000 shares
with 5,490,000 shares issued and outstanding. Alcor, now inactive, pursued
finding a business partner either through merger or acquisition.
On November 28, 1994 the majority of Alcor stockholders agreed to a one for
twenty reverse split which reduced total outstanding shares to 274,500.
On January 23, 1995, Alcor entered into an Acquisition Agreement and Plan of
Reorganization with Compost America Company of New Jersey, Ltd., 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
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. BUSINESS ORGANIZATION:--(CONTINUED)
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).
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, only municipal solid waste
and sewage sludge that meets the Company specifications. It is possible that
some of the wastes accepted at a company facility may contain contaminants which
could cause environmental damage and result in liabilities.
The Company has not entered into any contracts with users of compost from
its facilities which are under development. Should the Company not be able to
sell the compost, the Company may have to give the compost away and pay for its
transportation costs.
The Company has no significant concentration of credit with any individual
counterparty or groups of counterparties.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Compost America Company of New
Jersey, Ltd. and its subsidiaries, Newark Recycling and Composting Co., Inc.,
Gloucester Recycling and Composting Company, Inc. and Monmouth Recycling and
Composting Co., Inc. Inter-company transactions and balances have been
eliminated in consolidation.
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.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Property and equipment:
Property and equipment are carried at cost. The Company computes
depreciation substantially by the straight-line method over the estimated useful
lives of the related assets.
Earnings per share:
Earnings per share has been computed based on the weighted average number of
shares of common stock outstanding during each period.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be "cash equivalents".
Construction in progress, Compost projects:
Project development costs consist of costs incurred for the development of
the Company's composting facilities. These costs included the architectural,
legal, structural and consulting engineering, artist rendering, planning board
approvals and other soft construction costs. Upon commencement of operations of
a facility, the costs associated with such project will be depreciated over the
estimated useful life of the facility.
Inventory:
Inventory will consist of compost and soil products at various stages of
conversion and will be stated at the lower of cost or market (first-in;
first-out).
Revenue recognition:
Tipping fees, the Company's principal source of revenue, will be recognized
upon receipt of the organic waste at the facility sites. The revenue generated
from the sale of compost and soil products will be recognized upon shipment from
facility sites. In addition the Company will receive payments from an affiliate
for services rendered relating to the land application of bio-solids.
Investments (equity method):
The Company accounts for investments in affiliated companies which
constitute 20% to 50% of the equity of the investor company by the equity
method.
Restrictive covenant:
The Company is amortizing a $250,000 restrictive covenant over an estimated
life of 15 years with a former employee of Compost Management, Inc., which
subsequently merged into Compost America Company of New Jersey, Ltd.
Amortization expense charged to operations for 1995 was $4,167.
Trademark cost:
The cost of trademarks acquired are being amortized on the straight-line
method over their remaining lives of 20 years.
Organization cost:
The Company amortizes organization cost over a period of 60 months on a
straight-line method.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Research and development:
The Company charges to research and development project costs associated
with projects which are not in the process of construction or permitted for
operation.
5. COMMON STOCK:
A. December 28, 1993
The Company issued 2,160,000 shares of common stock in exchange for the
original issuance by Compost America Company of New Jersey, Ltd. to Compost
Management, Inc. of 360,000 shares @ .001 per share for the contribution of all
ownership interest and development rights in all current composting projects
throughout the United States.
B. January 1, 1994
The Company issued to Select Acquisitions, Inc. 840,000 shares of common
stock for the original issuance by Compost America Company of New Jersey, Ltd.
of 140,000 shares in exchange for technology and the reimbursement to Bedminster
Bioconversion Corporation, an unrelated company, for all expenses of composting
projects previously entered into including all guarantees, land purchases and
development costs. Select Acquisitions, Inc. acquired such technology and right
by the issuance of its own 4 1/2% cumulative convertible preferred stock in the
amount of 200,000 shares at $10 per share. The parties agreed as of December 31,
1993, the settlement date, the total cash expended by Bedminster Bioconversion
Corporation was $1,013,875 including charges for technology. The value of the
stock issued being the actual cash expended by Bedminster Bioconversion
Corporation.
C. January 1, 1994--April 30, 1994
The Company issued 830,400 shares of common stock in exchange for 138,400
shares of Compost America Company of New Jersey, Ltd. originally issued for cash
at $5 per share or $692,000 in a "private placement", to raise $1,000,000.
D. April 30, 1994
The Company issued Select Acquisitions, Inc. 368,640 shares in exchange for
$61,440 shares of Compost America Company of New Jersey, Ltd. originally issued
for professional fees for structuring and assisting in the raising of $192,000
of capital contributions through a term sheet agreement and private placement.
E. May 27, 1994
The Company issued 24,000 shares pursuant to an agreement by Compost America
Company of New Jersey, Ltd. for 4,000 shares of common stock. According to the
agreement, Compost America Company of New Jersey, Ltd. made a commitment to be a
registered company by certain firm dates. If on those dates Compost America
Company of New Jersey, Ltd. was not a registered company, 2,000 shares would be
issued at the passing of each date, not to exceed 4,000 shares. The shares were
valued at Compost America Company of New Jersey, Ltd. par value of $.001 per
share. Additionally, the investor was also issued 24,000 warrants of Compost
America Company of New Jersey, Ltd. at the lower of $5.50 per share or the price
of the next offering. The warrants expire in five years.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMON STOCK:--(CONTINUED)
F. September 29, 1994
The Company redeemed 60,000 shares of common stock originally exchanged with
Compost America Company of New Jersey, Ltd. for 10,000 shares of common stock
issued to an unrelated Limited Partnership investor.
G. October 3, 1994
The Company immediately resold the redeemed stock to the principals of VRH
Construction Corp. for the same $50,000 and issued 60,000 shares.
H. October 11, 1994
The Company issued 369,600 shares in exchange for 61,600 shares of Compost
America Company of New Jersey, Ltd. common stock issued under a private
placement for $325,000. The private placement was originally offered for 200,000
shares at $5 per common share. The offering was oversold by 3,400 shares of
which the individual who purchased a large block of these shares waived
acceptance of the shares and his right to a refund, therefore, the Company
received excess funds of $17,000. This completed the January 3, 1994 private
placement.
I. November 1, 1994
The Company issued 120,000 shares for $50,000. Formerly these were 20,000
shares of Compost America of New Jersey, Ltd. which were converted at 6 to 1 in
the merger with Alcor.
J. December 1, 1994
The Company, subsequent to the a merger agreement of Compost Management,
Inc. and Compost America Company of New Jersey, Ltd., exchanged 2,631,360 shares
of its common stock for 438,560 shares of Compost America Company of New Jersey,
Ltd's common stock. The value of the shares being the net asset value of
statement of financial position of Compost Management, Inc. at December 1, 1994
which was $122,613 (see Note 7B). As a result of the merger of Compost America
Company of New Jersey, Ltd. and Compost Management, Inc. the surviving Company
was Compost America Company of New Jersey, Ltd which subsequently was acquired
by the Company.
K. December 1, 1994
Exercise of warrants originally issued by Compost America Company of New
Jersey, Ltd. previously exercised and exchanged with the Company's common stock.
Compost Management, Inc. exercised 280,000 warrants or 1,680,000 shares and the
principles of VRH Construction Corp. exercised 150,000 warrants or 900,000
shares all at a exercise price of $.01 per share.
L. February 8, 1995
The Company purchased the issued and outstanding stock of Compost America
Holding Company, Inc., formally Alcor Energy and Recycling Systems, Inc. in a
reverse acquisition purchase agreement with Compost America Company of New
Jersey, Ltd. Alcor, a publicly held company has 15,000,000 shares authorized and
5,490,000 shares outstanding. Prior to the merger, Alcor did a 20 for 1 reverse
split which left 274,500 shares outstanding. Compost America Company of New
Jersey, Ltd. assumed liabilities in the purchase of the public stock. The cost
associated with the purchase amounted to assumption of a settlement agreement
for a law suit between Alcor Energy and Recycling Systems, Inc.,
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMON STOCK:--(CONTINUED)
a former name of Compost America Holding Company, Inc. and Reade Advanced
Materials, a creditor, for $25,000 and closing costs of $24,094 for legal and
other expenses, total cost being $49,094.
M. February 11, 1995
The Company sold 190,000 shares unregistered restricted common stock at
$2.50 per share. These shares were issued by the Company in a private
transaction for a total of $475,000.
N. February 11, 1995
The Board of Directors of Compost America Holding Company, Inc. authorized a
non-qualified stock option plan (referred to as the performance option), to
directors and officers of the Company and designated professionals employed by
the Company who have tendered invaluable assistance in the efforts of the
Company to become viable. The option was granted for a period of three years
from the date of grant (February 11, 1995) and at an option price of $.01 per
share. The Company granted 1,913,167 option for common stock, all of which were
exercised on February 11, 1995 for $19,132. Of the 1,913,167 options granted and
exercised 400,000 shares were for consulting services rendered by FRW, L.L.C.,
principals of the law firm of Ehmann, Van Denbergh & Trainor.
O. February 11, 1995
The Board of Directors of Compost America Holding Company, Inc. approved the
issuance of stock options and warrants in the Company to holders of stock
options and warrants of Compost America Company of New Jersey, Ltd. in exchange
for their existing options and warrants. As a result of the merger of Compost
America Holding Company, Inc. and Compost America Company of New Jersey, Ltd.
shareholders of Compost America Company of New Jersey, Ltd. holding options and
warrants were not considered. The Board of Directors of Compost America Holding
Company, Inc. corrected this omission and granted options and warrants to those
shareholders.
The Company issued 901,000 options at $.01 per common share with an
expiration date of February 10, 1999. As of April 30, 1995, 801,000 options have
been exercised for $8,010 and 100,000 options are still outstanding. Of the
801,000 options exercised from the total 901,000 options granted, 156,000
options were issued to FRW, L.L.C., the principals of the law firm Ehmann, Van
Denbergh & Trainor, 120,000 were from Compost America Holding Company, Inc. for
services instrumental in assisting the Company to develop. In addition, the law
firm received 36,000 options of Compost America Holding Company, Inc. for offset
of legal bills of $36,000.
The Company also issued 784,000 warrants at various exercised prices
expiring February 10, 1999. As of April 30, 1995 no warrants have been
exercised.
P. February 15, 1995
The Company issued 120,000 shares to three individuals, the principals of
Foundation Systems, Inc., who entered into a joint venture with Compost America
Company of New Jersey, Ltd. for the purpose of constructing, owning and
operating an organic waste processing project to be located in South Chicago,
Illinois.
The individuals sold, conveyed, assigned and transferred into Compost
America Company of New Jersey, Ltd., all of their right, title and interest in
and to the assets which represented 50% of the venture as well as the
liabilities associated with the assets. The total cash expenditures made by the
individuals toward the joint venture amounted to $100,000. The Company then
owned 100% of the Chicago Project.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT--AMERICA BIO-AG COMPANY:
American BIO-AG Corporation was formed as a joint venture under the Restated
Joint Venture Agreement dated February 15, 1995 between R. C. Land Company, Twin
Rivers Equity Partnership and Compost America Holding Company, Inc.. American
BIO-AG Corporation was incorporated in the State of Delaware, January 11, 1995
(see Note 12 (A)).
The purpose of the joint venture was to develop, own and lease and operate
land application sites for the beneficial use of biosolids. Management of
American BIO-AG is being performed by executives from the three entities forming
American BIO-AG. Initially, sites are being developed in Arizona, Texas and
California. Compost America Holding Company, Inc. owns 33 1/3% of the joint
venture.
7. AGREEMENTS:
A) 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.
B) Agreement and Plan of Merger:
On December 1, 1994 Compost Management, Inc. and Compost America Company of
New Jersey, Ltd. was merged into Compost America Company of New Jersey, Ltd with
Compost America Company of New Jersey, Ltd. as the surviving Corporation, which
assumed and became liable for all obligations of Compost Management, Inc. At the
date of merger Compost Management, Inc. had issued and outstanding 200,000
shares of common stock which were exchanged for 438,560 shares of the common
stock of Compost America Company of New Jersey, Ltd. (see Note 5J).
The following is a summary of the balance sheet of Compost Management, Inc.
at December 1, 1994.
ASSETS
Cash............................................................ $ 925
Due to Compost America Company of New Jersey, Inc............... 187,722
Investment in Compost America Company of New Jersey, Inc........ 6,400
Property and equipment, net..................................... 18,166
Deferred project costs.......................................... 184,582
Trademark costs, net............................................ 1,485
Organizational costs, net....................................... 1,276
Deposits........................................................ 510
--------
Total assets.................................................. $401,066
--------
--------
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. AGREEMENTS:--(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Subscriptions payable........................................... $ 2,800
Notes payable, bank............................................. 10,783
Due to Teepak, Inc.............................................. 264,870
--------
Total liabilities............................................. 278,453
Shareholders' equity............................................ 122,613
--------
Total liabilities and shareholders' equity.................... $401,066
--------
--------
C) Compost America Company of New Jersey, Ltd. Subscription Agreement:
On January 5, 1994, VRH Construction Corp. purchased 100,000 shares of the
common stock of Compost America Company of New Jersey, Ltd. at $5 per share or
$500,000. In addition, the principals of VRH Construction Corp. were issued
150,000 warrants for Compost America Company of New Jersey, Ltd. common stock.
The purchase of the shares by the subscriber was in further consideration of the
Corporation granting to VRH Construction Corp. the exclusive right to act as the
Corporation's compost facility development construction manager (see
construction management and investment agreement).
D) Construction Management and Investment Agreement between Compost America
Company of New Jersey, Ltd. and VRH Construction Corp.:
On January 5, 1994 the Compost America Company of New Jersey, Ltd. entered
into an agreement with VRH Construction Corp. whereby VRH Construction Corp.
purchased 100,000 common shares at $5.00 per share and provided bonding and
construction management services to Compost America Company of New Jersey,
Ltd.'s Project Development in New Jersey for a term of 10 years. In addition,
Compost Management, Inc. and Select Acquisitions, Inc., major shareholders of
Compost America Company of New Jersey, Ltd., agreed that all the activities of
developing, construction and operations of the compost facilities in New Jersey
will be conducted by Compost America Company of New Jersey, Ltd. VRH
Construction Corp. will provide construction management services in accordance
with the terms set forth in the "Standard AIA Contract Document AIII".
E) Joint Venture Agreement between Compost Management, Inc. and Select
Acquisitions, Inc.:
On January 1, 1994, amended February 1, 1994, Compost Management, Inc. and
Select Acquisitions, Inc., agreed to have Compost Management, Inc. continue to
develop, operate and manage the organic waste recycling facilities and blending
sites in New Jersey and to enter into a management agreement related to such
activities. Select Acquisitions, Inc. was to provide working capital financing
and bonding for the composting facilities currently in development by Compost
Management, Inc. in New Jersey. As a result of the above, Compost Management,
Inc. and Select Acquisitions, Inc. formed Compost America Company of New Jersey
Ltd., to be the business entity to develop and operate organic waste recycling
facilities and top soil blending sites in New Jersey.
Compost America Company of New Jersey, Ltd.'s initial assets consisted of
the contribution by Compost Management, Inc. of all its ownership interest and
development rights in the following projects: Springfield Recycling and
Composting Co., LP, Monmouth Recycling and Composting Company, Jersey City
Recycling and Composting Company, Gloucester Recycling and Composting Company
and Cheiselhurst Recycling and Composting Company.
Select Acquisitions, Inc. was to fund $1.5 million of funding. Select
Acquisitions Inc. was unable provide the funding and an Amended and Restated
Joint Venture Agreement was agreed to on February 1, 1994, whereby Select
Acquisitions, Inc. was to raise $2,000,000 in a private offering and
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. AGREEMENTS:--(CONTINUED)
Compost Management, Inc. would contribute ownership interests and development
rights throughout the United States. In addition, Compost Management Inc.
entered into a management agreement with Compost America Company of New Jersey,
Ltd. for a term of 10 years with automatic extensions for 5 years. Key
executives and employees of Compost America Company of New Jersey, Ltd., were
granted a bonus package of 10% of Compost America Company of New Jersey Ltd. pre
tax cash flow. The provisions called for in this February 1, 1994 agreement
never were developed and none were ever executed.
The ownership of Compost America Company of New Jersey, Ltd. was to be owned
53.34% or 640,000 shares by Select Acquisitions, Inc., 30.0% or 360,000 shares
by Compost Management, Inc., 8.33% or 100,000 shares by VRH Construction Corp.
and 8.33% or 100,000 shares by the public.
As a result of the merger of Compost Management, Inc. into Compost America
Company of New Jersey, Ltd., and Select Acquisitions, Inc.'s inability to
provide the required funding, the above agreements were modified on July 24,
1995 but effective as of December 1, 1994 by an agreement of understanding.
Select Acquisitions, Inc. was issued 61,440 shares for raising $192,000 in a
private offering and 140,000 shares for its investment in Compost America
Company of New Jersey, Ltd. Compost Management, Inc. received 360,000 shares for
its investment in addition to 438,560 shares as a result of the merger and
280,000 shares on exercise of warrants.
F) Term sheet for transaction with Compost Management, Inc., Compost America
Company of New Jersey, Ltd. and Select Acquisitions, Inc.:
Effective January 1, 1994 Compost America Company of New Jersey, Ltd. and
Select Acquisitions, Inc. along with Compost Management, Inc. assumed all
responsibility for the Springfield Recycling and Composting Project and Compost
America Company of New Jersey, Ltd. and Select Acquisitions, Inc. assumed full
responsibility for all current guarantees provided by Bedminster Bioconversion
Corporation. Compost America Company of New Jersey, Ltd. and Select
Acquisitions, Inc. were to pay all costs and expenses due and payable, related
to the Springfield Project effective as of January 1, 1994 and shall reimburse
Bedminster Bioconversion Corporation for any costs and expenses paid after
January 1, 1994. Select Acquisitions, Inc. agreed to repay and guarantee the
reimbursement of Bedminster Bioconversion Corporation for all prior funding to
Compost Management, Inc. The balance at December 31, 1993 of reimbursed costs
amounted to $1,013,875 including drawings and engineering for the Newark
Project. Select issued to Bedminster Bioconversion Corporation $2,000,000 of
cumulative convertible preferred stock with a 4 1/2% annual dividend.
Bedminster Bioconversion Corporation ("BBC") was granted common stock
purchase warrants for 100,000 common shares of Compost America Company of New
Jersey, Ltd. at a price of $5 per share over a three year period (see Note 14).
Compost America Company of New Jersey, Ltd. was to reimburse Bedminster
Bioconversion Corporation for approved in advance costs for engineers and
consultants in designing and developing any project. Bedminster Bioconversion
Corporation was to receive a $250,000 developer's fee for each project plus a
fee equal to (a) 10% of the Digester cost or (b) 10% of the turnkey construction
costs. BBC was to receive a technology fee equal to the lesser of $3.50 per ton
of material processed in any such project or 5% of gross profits. BBC was to
receive an O&M contract and shall bill for such services on a cost plus 10%
basis. Provisions in this term agreement pertaining to Compost Management, Inc.
and Bedminster Bioconversion Corporation have been modified or eliminated by the
merger of Compost America Company of New Jersey, Ltd. and Compost Management,
Inc, on December 1, 1994.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. AGREEMENTS:--(CONTINUED)
G) Compost Marketing Agreement:
As of January 1, 1994 Compost America Company of New Jersey, Ltd. entered
into an agreement with Gardenlife Sales Company, a division of Compost
Management, Inc.
Gardenlife Sales Company entered into an exclusive agreement to market and
distribute all compost produced by the Compost America Company of New Jersey,
Ltd. at its facilities. The term of the agreement was for ten years. Gardenlife
Sales Company was to retain the first two dollar per cubic yard of all revenue
received from the sale of all compost produced at the organic recycling
facilities. Compost America Company of New Jersey, Ltd. was to be paid the next
one dollar per cubic yard, and thereafter all revenue over $3.00 was to be
shared 40% to Select Acquisition, Inc., 40% to Compost America Company of New
Jersey, Ltd. and 20% to Compost Management, Inc. As of December 1, 1994 this
agreement was cancelled.
H) Agreement between Compost America Company of New Jersey, Ltd. dated
January 15, 1995 and Select Acquisitions, Inc. terminated all prior agreements
including the "Amended and Restated Joint Venture Agreement".
I) Development Agreement:
On January 11, 1993 Compost Management, Inc. and Teepak, Inc. agreed to
develop an organic waste composting facility in South Chicago, Illinois. Compost
Management, Inc. was to develop, own and operate a site and to enter into waste
handling contracts with organic waste generators. Teepak, Inc. agreed to loan
funds to Compost Management, Inc. for the purpose of obtaining necessary permits
for the facility. Compost Management, Inc. was to provide financing for the
site, site development, equipment and startup. Teepak, Inc. agreed to enter into
a long term waste flow agreement with Compost Management, Inc. for disposal at
the facility. Teepak, Inc. was to have no ownership or other interest in the
site or the facility and agreed to loan to Compost Management, Inc.:
1) Reasonable travel and other out-of-pocket expenses of permitting the
facility (not to exceed $50,000).
2) $25,000 per month commencing with January 15, 1993 and thereafter by
invoice submitted by Compost Management, Inc. on February 15, 1993 and
for every month up to issuance of a permit or 8 months. If Compost
Management, Inc. was unsuccessful during this period, Teepak, Inc.
would extend for an additional 12 months, loans only for out-of-
pocket expenses, not to exceed $50,000.
The Teepak, Inc. loan was to be repaid by Compost Management, Inc. in
quarterly installments commencing three months after the start-up of the
facility to the extent of 50% of available cash flow. Any unpaid balance would
be due and payable the earlier of the second anniversary of the start-up date or
December 1, 1995. If Compost Management, Inc. failed to get permits at the end
of 12 months or Compost Management, Inc. ceased efforts, the loan was to be paid
in twenty-four months at the earlier of such dates. Interest shall accrue at 2%
over bank prime. The balance due Teepak, Inc. at April 30, 1995 amounted to
$264,871. This agreement has been modified such that the new due date for
payments is September 15, 1996 with no accrued interest unless repayments are
overdue (see Note 18).
J) Newark Recycling and Composting Company, Inc. Agreement:
The agreement dated May 1, 1994 is a modification of the original agreement
in principle dated June 16, 1992. The agreement between Compost America Company
of New Jersey, Ltd. and Prince Georges Contractors, Inc. d/b/a Potomac
Technologies (PTI) was to form a corporation to continue
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. AGREEMENTS:--(CONTINUED)
development activities previously undertaken, which were the development,
construction and operation of a sewer sludge composting facility in Newark, New
Jersey, called the Newark Recycling and Composting Company, Inc. Newark
Recycling and Composting Company, Inc. was to acquire the business activities of
Passaic Valley Management Group which was seeking to be short listed on the
Passaic Valley Sewer Commission RFQ/RFP process for contracting to manage its
sewer sludge for beneficial use through "land applications" and/or "composting".
VRH Construction Corp. a shareholder in Compost America Company of New Jersey,
Ltd., was to be the exclusive "construction manager" for each of the composting
facilities. Newark Recycling and Composting Company, Inc. had the objective of
earning a "development fee" for distribution to each of the shareholders and
David J. Egarian as follows:
David J. Egarian................................................ $150,000
Compost America Company of New Jersey, Ltd...................... $450,000
Potomac Technologies............................................ $300,000
Newark Recycling and Composting Company, Inc. will enter into a "Turnkey
Construction Contract" with VRH Construction Corp., who will receive a
"construction management fee" equal to 10% of the construction costs. The
ownership of Newark Recycling and Composting Company, Inc. shall be 75.0% to
Compost America Company of New Jersey, Ltd. and 25.0% to Prince Georges
Contractors, Inc. d/b/a Potomac Technologies ("PTI").
K) On March 21, 1994, Passaic Valley Management Group, LP, the trade name of
the joint venture between Compost America Company of New Jersey, Ltd., Potomac
Technologies and R.C. Land Company, Inc. entered into a "Sewage Sludge Land
Application Agreement". Passaic Valley Management Group, LP was engaged in the
development of organic waste composting facilities in Essex and Hudson Counties
in the State of New Jersey. R.C. Land Company, Inc. was developing and
permitting land application sites on property it owns and property owned by
others. The agreement called for the joint venture to deliver and arrange for
the unloading and land applications of the sewage sludge for beneficial use on
the Arizona land application sites. R.C. Land Company, Inc. was to receive a $5
per wet ton "use fee" plus a $6 per wet ton "land application fee" for the
actual land application of the sewage sludge. In addition, R.C. Land Company,
Inc. was to receive a $75,000 per year consulting fee if the joint venture
entered into a contractual agreement with the Passaic Valley Sewerage
Commission. This joint venture agreement was modified on February 15, 1995 in
the "Restated Joint Venture Agreement". Subsequently, on January 11, 1995
American BIO-AG Corporation was incorporated, (see Note 6). As of April 30, 1995
no agreement has been reached.
8. 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. As of April 30, 1995, 190,000 shares have been sold for a total
of $475,000. The offering has no expiration date.
On January 3, 1994 Compost America Company of New Jersey, Ltd. offered for
sale, in a private placement, 200,000 shares of common stock at $5 per share.
The offering was to expire February 20, 1994 but was extended to November 30,
1994 when the offering was terminated. The offering sold 138,400 shares of
common stock for a total of $692,000. Select Acquisitions, Inc. received 61,440
shares of common stock as a professional service fee for raising $192,000 of the
total. The total amount raised in the offering was $1,017,000 (see Note 5).
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:
The Company's operations have been centered around its organizing,
evaluating and developing the business of converting organic waste into compost
and other soil products and the start-up financing of its operations, including
the construction of the waste management and compost facility in Newark, New
Jersey and other compost facilities throughout the country. From December 17,
1993 through the period ending April 30, 1995 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 $734,970.
Projects in development:
Springfield Project:
The Company conducted research and development to establish the procedures
necessary to operate, blend and store compost produced at the Company's invessel
composting facility. One of the sites used to conduct this research was the
Woodhue Ltd./Bryony Ltd. outdoor windrow composting facility ("Woodhue/Bryony
facility") which the Company operated. A lease/asset purchase option agreement
was negotiated for this site. Until such time that an agreement was finalized,
the facility was under a month-to-month lease. Additional storing and blending
sites were also under negotiations. All costs incurred with the negotiations and
the operations of the Springfield facility are included in the statement of
operations for April 30, 1994 and 1995.
On September 29, 1993 Compost Management, Inc. entered into a Waste/Disposal
Recycling Agreement with Club Chef, Inc. ("Club Chef"). The term of this
agreement was for five years and was renewable by Club Chef for additional
one-year terms at the option of Club Chef. Pursuant to the terms and conditions
of the January 5, 1994 subscription agreement and the February 1, 1994 Amended
Joint Venture Agreement, Compost Management, Inc. assigned this contract to the
Company. The Company was to arrange for the collection of acceptable organic
wastes from Club Chef and beneficially reuse the material at an acceptable site.
Club Chef was to pay a service fee based on the weight of acceptable waste
delivered to the facility. The service fee was to be increased by five percent
(5%) on each anniversary of the commencement of the agreement.
Compost Management, Inc. entered into a Hauling Agreement with Super Kwik,
Inc. ("Super Kwik") on January 5, 1995 as amended May 19, 1994. Super Kwik was
responsible for providing the containers and hauling the organic waste from Club
Chef to a Company facility site. Super Kwik charged a per ton transportation fee
for waste delivered. The transportation fee was subject to an annual cost
escalation of 3% per year. In addition, for 36 months or 18,000 tons, whichever
occurs first, a capital reduction fee was also be paid to Super Kwik by the
Company. Subsequently this agreement was cancelled when Compost America Company
of New Jersey, Ltd. ceased operations at Woodhue.
On April 14, 1994, but effective as of January 1, 1994, through the Term
Sheet Agreement, the Company, Select Acquisitions, Inc. and Compost Management,
Inc. assumed all responsibility for the Woodhue/Bryony facility site from
Bedminster and the Springfield Recycling Company. Under this agreement the
Company and Select Acquisitions, Inc. assumed full responsibility for all
guarantees, land purchases and other agreements entered into. The Company and
Select Acquisitions, Inc. agreed to deliver to GE Capital a letter of credit to
replace the Bedminster letter of credit.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
The Company and Select Acquisitions, Inc. declined to provide the letter of
credit and in April 1994, the Company decided to cease its involvement in the
Springfield facility. Research and development expenses for the period April 30,
1994 and 1995 was $229,429 and $6,183 respectively.
Philadelphia Project:
In a joint venture, Bedminster and Secor Corporation ("Secor") with Compost
Management, Inc. and Hi-Tech Recycling Corporation ("Hi-Tech") as
sub-contractors, submitted a proposal to the City of Philadelphia. The proposal
called for the construction by Bedminster and Secor of an invessel co-composting
sewer sludge and municipal solid waste facility and for the marketing and
distribution of the compost and related blend products to be handled by Compost
Management, Inc. and Hi-Tech. Compost Management, Inc. through the terms of the
April 14, 1994 term sheet agreement, was to receive a $100,000 developer's fee
from Bedminster and $1.00 per ton for each ton of municipal solid waste
processed through the facility for the life of the project. In addition, Compost
Management, Inc.'s division, Gardenlife received the rights to market the
compost and agreed to utilize the services of Hi-Tech as a subcontractor.
Due to the financial relationships among the joint venture participants,
Compost Management, Inc. incurred the project costs for the year ended April 30,
1994. At the year ended April 30, 1995 the project opportunities did not fully
materialize. The venture as it existed with the participants at the time was
abandoned during the fiscal year beginning May 1, 1994. Currently, the Company
is pursuing the development of a merchant facility in Philadelphia. Total
project cost amounted to $34,076 at April 30, 1995 which has been expensed as
research and development.
Chicago Project:
In April 1993, CACC and Foundations Systems, Inc., as general partners and
Compost Management, Inc. and others, as limited partners, entered into a limited
partnership agreement to form an entity called South Chicago Recycling and
Composting Company, L.P. ("Chicago Partners"). The Chicago Partners initiated
the development of a 500-1,000 ton per day invessel composting facility in South
Chicago, Illinois. The Chicago Partners are currently negotiating and entering
into contracts and agreements for waste handling, site location, marketing and
other aspects of composting. The Company through Compost Management, Inc. was a
41.5% limited partner of the Chicago Facility. Funding for the Chicago Partners
has been provided by loans and advances from Teepak, Inc., commencing January
11, 1993. Total advance at April 30, 1995 amounted to $264,871.
On July 24, 1995, an agreement was executed whereby, effective as of
February 15, 1995, the amended and restated agreement date April 6, 1993 never
being filed with the Secretary of State of Pennsylvania, caused the limited
partnership to be void. As a result, the individual partners agreed to exchange
their interest, as did Compost Management, Inc., with Compost America Holding
Company, Inc. The individual partners, exclusive of Compost Management, Inc.,
for an assignment of the assets were issued 120,000 shares of Compost America
Holding Company, Inc. common stock at a par value of $.01 for their 58.5% of the
partnership. Compost America Company of New Jersey, Ltd. became the 100% owner
of the Chicago Project. On August 4, 1995, the Company incorporated the Chicago
Project under the name "Chicago Recycling and Composting Company, Inc.". Chicago
project costs as of April 30, 1995 amount to $396,899.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
Gloucester City--National Source Separated Organic Waste Demonstration
Project:
The Company, with a number of sponsors/partners, is developing an 18-month
pilot program to demonstrate the process of separating organic waste at its
source and transforming organic materials into compost at a compost site to be
operated by the Company. Sponsors/partners for the demonstration project are: 1)
The National Audubon Society; 2) The Grocery Industry (including The Food
Marketing Institute, Grocery Manufacturers Associates, Proctor & Gamble and The
New Jersey Food Council); 3) Bedminster; 4) Higgins Management, Inc.; 5) U.S.
Environmental Protection Agency; 6) America Forest & Paper Association; 7) U.S.
Conference of Mayors; 8) National Association of Counties; 9) Restaurant and
Foodservice Association; and 10) America Plastics Council.
The location of the demonstration project is a site located in Gloucester
City, New Jersey. A small-scale invessel composting facility will be installed
in a portable building and will process five to eight tons per day of organic
materials collected from the cities of Gloucester City and Cherry Hill and
various commercial accounts. Upon the successful start up and operation of the
pilot program it is anticipated that the Company will construct a 350 ton per
day invessel composting facility at the same site in Gloucester City.
On June 1, 1995 Gloucester Recycling and Composting Company, Inc. entered
into a lease with Gloucester City for 7.98 acres ("Parcel No.1") located in
Gloucester City, New Jersey. The term of the lease is for 24 months commencing
on the 7th day of March, 1996 and an option to extend the term for an additional
30 years. Rent for the first 24 months shall be $100 per month plus real estate
taxes. The 30 year extension is based on a benefit fee payment schedule for the
lease payments and the host community benefit charges. Following commercial
start-up payments shall begin in the amount of $82,745 and increase annually by
4% throughout the tax year with a computer price index increase or decrease for
the remainder of the term.
The total project cost at April 30, 1995 amounted to $231,305. The scheduled
start for the demonstration project is estimated by the 1st quarter of 1996.
Monmouth Project:
In August 1993, Compost Management, Inc. and Bio-Services entered into an
agreement in principle to form a joint venture named Monmouth Recycling and
Composting Company, Inc. ("Monmouth Facility") to develop a 300-500 ton per day
invessel composting facility in Howell Township, Monmouth County, New Jersey.
Bio-Services and the Company would each own 50% of the Monmouth Facility. On
January 31, 1994 the Company and Bio-Services entered into a conditional asset
purchase agreement whereby the Company would purchase Bio-Services' 50% interest
in the Monmouth Facility for $92,500. It is the position of the Securities and
Exchange Commission that the $92,500 should be expended as a deferred project
cost in the current period. The Company paid $17,500 on execution of the
agreement and three monthly installments of $25,000 each in March, April and May
1994. In addition, $407,500, as a purchase amount, was contingent upon the
Company acquiring all of permits for the Monmouth Facility, and the facility
being constructed.
In addition to this agreement Compost America Company of New Jersey, Ltd.
agreed to issue to Bio-Services warrants for the purchase of 100,000 shares of
Compost America Company of New Jersey, Ltd. common stock under the following
terms (see Note 14):
January 31, 1994-1995 @ $5.00 per share
January 31, 1995-1996 @ $6.00 per share
January 31, 1996-1997 @ $7.00 per share
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
Should Compost America Company of New Jersey, Ltd. issue a public offering
Bio-Services will have the right to "piggy back" its 100,000 shares in the
public offering. On December 1, 1994, Bio-Services released the 100,000 warrants
back to the Company unexercised. The warrants were in turn released to David
Egarian, 25,000 warrants, Rob Jones, 12,500 warrants, Ron Bryce, 12,500 warrants
and the remaining 50,000 were cancelled and withdrawn. On May 10, 1994 the
Monmouth Facility was incorporated in the State of Delaware as Monmouth
Recycling and Composting Company, Inc.
Should Compost America Company of New Jersey, Ltd. not proceed with the
project at any time in the future, and decide not to sell the project,
Bio-Services would have the right to repurchase rights for the sums of money
previously extended so as to be able to continue the development of the project.
Upon financing closing, all development expenses paid by Bio-Services and
the Company on behalf of the Monmouth Facility would have been reimbursed and a
development fee of $250,000 would have been paid to each of Bio-Services and the
Company. The Agreement in Principle called for the Monmouth Facility, at
financial closing, to enter into a technology agreement with ComTech
Environmental, a company principally owned by the Partners of Bio-Services,
whereby ComTech would receive a fee equal to $2.00 per cubic yard for all
finished compost produced at the Monmouth Facility for a period of ten years. In
October 1993, Bio-Services entered into a real estate contract to purchase
approximately 27 acres of land on which the Monmouth Facility will be
constructed at a price of $900,000. The contract contained provisions for
monthly option payments of $1,000 to be made until closing in February 1995 when
the balance of $900,000 would be due. Should the closing date be extended, there
were provisions for additional options payments to be made until closing occurs.
In January 1994, Bio-Services assigned the real estate contract to the Company.
The site was ultimately disapproved by Monmouth County, and a replacement site
was recommended in Freehold Township.
On March 1, 1995 an Asset Purchase Replacement Agreement was made between
Bio-Services, Inc., D.J. Egarian & Associates, Inc. and Compost America Company
of New Jersey, Ltd.. As part of this agreement, the "Asset Purchase Agreement"
between Compost America Company of New Jersey, Ltd. and Bio-Services signed on
January 31, 1994 for the purchase of the "Abate Property" was canceled as a
result of the site disapproval. A property identified as Block 92 Lot 37 located
in the Township of Freehold, New Jersey was selected as a replacement for the
"Abate Property" to allow the continued development by Compost America Company
of New Jersey, Ltd. of an indoor composting facility in Monmouth County. Compost
America Company of New Jersey, Ltd., as part of this agreement, signed an
"Option Purchase Agreement" with Brownfield Environmental, Inc. to purchase a
replacement property.
In addition, the $407,500 contingent purchase amount identified in the
January 31, 1994 "Asset Purchase Agreement" will be paid as follows:
1) Upon receipt of local approval from the Township of Freehold and
County approval and New Jersey Department of Environmental Protection,
Compost America Company of New Jersey, Ltd. will pay as
follows:
a) $27,416 to D.J. Egarian Associates, Inc.
b) $97,584 to Bio-Services
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
2) The remaining $282,500 will be paid upon receipt of all governmental,
environmental and building permits.
a) $61,959 to D.J. Egarian Associates, Inc.
b) $220,541 to Bio-Services
The terms of the original agreement were amended such that Bio-Services will
receive a marketing fee of $1.50 as opposed to $2.00 per cubic yard of finished
compost produced at the Freehold facility. This agreement also cancelled all
previous agreements pursuant to the Monmouth Recycling and Composting Company,
Inc. In addition, on March 3, 1995 mutual releases were signed by the parties
involved in the original Agreement in Principle for the purchase and assignment
of the "Abate Land Purchase Contract". Abate was paid for his release $2,500
plus engineering, survey and other plans provided for in William J. Mehr letter
of September 29, 1994.
On March 1, 1995, Compost America Company of New Jersey, Ltd. and Brownfield
Environmental, Inc. entered into an "Option Purchase Agreement" to purchase 15
acres in the Township of Freehold, County of Monmouth, State of New Jersey. The
purchase price is $600,000 payable in cash on or before February 14, 1996. An
extension for 12 months is at the exclusive option of the Company. The Company
shall pay a monthly option of $2,500 per month during the initial extension
period. The Company has an exclusive right to extend for a second extension
period of 18 months for a payment of $15,000 plus a monthly option payment of
$3,500 per month. The Company has a third extension for 6 months based on the
same terms as the second extension.
As part of the Monmouth County composting site, a consulting contract with
Michael J. Marchese on March 1, 1995 was instituted (see consulting agreements
Note 10 (E)). The total project costs incurred as at April 30, 1995 amounted to
$700,500.
Newark Project:
On June 16, 1992, as amended December 11, 1993, Compost Management, Inc.
entered into an agreement in principle with Bedminster and Potomac Technologies,
Inc. to form a joint venture named Newark Recycling and Composting Company, Inc.
("Newark Facility"), incorporated in the State of Delaware on May 10, 1994, to
develop a 500-1,000 ton per day invessel composting facility in Newark, New
Jersey ("Agreement in Principle"). Potomac Technologies, Inc. owned 25% and
Bedminster and the Company each owned 37 1/2% of the Newark Facility, as amended
December 11, 1992. Pursuant to the April 14, 1994 Term Sheet Agreement and the
February 1, 1994 Amended Joint Venture Agreement, the Company acquired
Bedminster's 37 1/2%. Pursuant to the Agreement in Principle, upon financial
closing all development expenses paid by the partners of the Newark Facility
will be reimbursed as well as a development fee of $900,000 to be paid to the
partners in accordance with a predetermined schedule.
In conjunction with the Agreement in Principle, the Newark Facility will pay
a consulting fee of $6,250 per month to a principal of Potomac Technologies,
Inc. until financial closing. In June 1993, on behalf of the Newark Facility,
Compost Management, Inc., Bedminster and Potomac Technologies entered into a
Site Development and Consulting Agreement with another firm which receives
$1,000 per month until financial closing at which time the firm will receive a
$150,000 development fee and, if operating cash flow is available, $38,889
annually in each of the nine subsequent years of commercial operations (see Note
10 (A)).
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
In October 1993, the Company and Potomac Technologies, Inc. d/b/a Passaic
Valley Management Group, LP, in response to a Request for Qualification issued
by the Passaic Valley Sewerage Commissioners, submitted a proposal for both
composting in Newark, New Jersey, and land application of sewer sludge in
Arizona and New Jersey.
On March 21, 1994, Passaic Valley Management Group, LP and R.C. Land
Company, Inc. (R.C. Land) entered into a sewer sludge land application agreement
("Sludge Agreement"). Under the Sludge Agreement, R.C. Land will receive a wet
ton use and land application fee. Should Passaic Valley Management Group, LP be
successful with its proposal to Passaic Valley Sewerage Commissioners for
composting, R.C. Land will also receive an annual fee for consultation services
for the length of the Passaic Valley Management Group, LP proposal for providing
back up land applications services (see Note 7 (F)). As of May 31, 1995, Passaic
Valley Management Group, LP was advised by Passaic Valley Sewerage Commission
that it was unsuccessful in its bid efforts.
On May 1, 1994 Newark Recycling and Composting Company, Inc. entered into a
marketing agreement with Gardenlife Sales Company, a division of Compost America
Holding Company, Inc. Gardenlife Sales Company has the obligation to market and
distribute all compost and other related products developed by Newark Recycling
and Composting Company, Inc. for a term of 25 years. Revenues received from the
sale of compost is allocated between the parties according to an agreed upon
formula. In the event that no revenue is being generated from the sale of
compost, Newark Recycling and Composting Company, Inc. will pay a management fee
to Gardenlife Sales Company to provide distribution management guaranteeing that
all compost is shipped from the plant. A transportation reserve account will be
established by the Company to provide transportation if required.
On May 1, 1994 Compost America Company of New Jersey, Ltd. entered into an
agreement with Potomac Technologies, Inc. to form Newark Recycling and
Composting Company, Inc. The Newark Facility was then incorporated in the State
of Delaware on May 10, 1994 as Newark Recycling and Composting Company, Inc.
The parties to the letter agreement on May 1, 1994 were changed and a new
agreement for the joint venture was modified in the "Newark Recycling and
Composting Company, Inc. Agreement".
On July 1, 1994, Newark Recycling and Composting Company, Inc. entered into
a termination of sale agreement with Edward J. Haefeli. Haefeli agreed to
terminate his right to purchase 11.69 acres of improved land in order to permit
Newark Recycling and Composting Company, Inc. to enter into an agreement to
purchase the premises from Linde Gases. At closing of the purchase of the
premises, Newark Recycling and Composting Company, Inc. shall pay to Haefeli
$250,000 in funds available plus a note in the amount of $594,000 payable over
10 years at prime + 1%, not to exceed 8%.
On July 14, 1994, Newark Recycling and Composting Company, Inc. entered into
a professional services agreement with R.W. Beck to provide a detailed
"Engineering Report" on the Newark facility. Compensation in the amount of
$23,000 shall be paid and increased as additional consulting is required.
On July 26, 1994, Newark Recycling and Composting Company, Inc., doing
business as Passaic Valley Management Group entered into a teaming agreement
with Professional Services Group, Inc. At the option of Newark Recycling and
Composting Company, Inc./Passaic Valley Management Group Professional Services
Group, Inc. will loan up to $500,000 to Newark Recycling and Composting Company,
Inc./Passaic Valley Management Group. In return, Newark Recycling and Composting
Company, Inc./Passaic Valley Management Group will subordinate to Professional
Services Group,
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
Inc. the management, operations and maintenance portion of any contract awarded
from the Passaic Valley Sewerage Commissioners.
On September 15, 1994, Newark Recycling and Composting Company, Inc. entered
into an engineering and technology agreement with D.J. Egarian & Associates.
D.J. Egarian & Associates granted a license to Newark Recycling and Composting
Company, Inc. to utilize D.J. Egarian & Associates's patented technology. Newark
Recycling and Composting Company, Inc. did compensate D.J. Egarian & Associates
$15,000 upon execution of the agreement and a pro rata share of $167,500 based
upon completion of engineering drawings. In addition, during construction D.J.
Egarian & Associates shall receive $5,000 per month site consultation through
completion of construction. A separate fee structure will be implemented upon
commencement of commercial operations of the facility.
In the event the Newark Recycling and Composting Company, Inc. should be
awarded a 20 year "put or pay" sewer sludge contract from Passaic Valley
Sewerage Commissioners, then D.J. Egarian & Associates will receive a one-time
fee of $150,000. Based upon the number of tons awarded D.J. Egarian & Associates
may be able to receive an additional $25,000 for each 50 tons.
On January 30, 1995 the Central Planning Board, City of Newark, New Jersey,
at a special public hearing, voted to grant a FINAL SITE APPROVAL subject to
compliance with all the conditions stipulated in the Department of Engineering
memorandum dated January 17, 1995.
On February 16, 1995, Converse Consultants East submitted their report to
D.J. Egarian disclosing their findings as to subsurface conditions and
foundations.
On March 14, 1995 R.W. Beck submitted an initial draft of the Technical
Review of the composting facility.
On March 27, 1995 Newark Recycling and Composting Company, Inc. requested
financial assistance from the New Jersey Economic Development Authority for an
in-vessel composting and composting facility in the amount of $73,790,000.
In conjunction with that request, it is expected that the interest on these
bonds, when issued, will be excludable from gross income of the holders thereof
for federal income tax purposes under Sec.103 of the Code.
On April 11, 1995, Newark Recycling and Composting Company, Inc. received
notice from the Permit Coordination Officer III for the State of New Jersey
Department of Environmental Protection. Newark Recycling and Composting ompany,
Inc.'s application had been reviewed for and found to be administratively
complete. The application was then forwarded to the Bureau of Pretreatment and
Residuals for technical review.
On April 11, 1995 the New Jersey Economic Development Authority passed a
resolution whereby Authority officers and staff are authorized to take all
actions necessary to proceed with the financing and to issue bonds to finance
the cost of the New Jersey project. Within 10 days the resolution was deemed
approved by the Governor and became effective.
On April 19, 1995, Newark Recycling and Composting Company, Inc. applied for
the allocation of $73,790,000 of "volume cap" by the State of New Jersey to
allow the project described herein to be fully financed on a tax-exempt basis.
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
On June 26, 1995, Newark Recycling and Composting Company, Inc. received
notice that its permit application was deemed technically complete.
On November 1, 1995, Newark Recycling and Composting Company, Inc. received
approval and permit from the New Jersey Pollutant Discharge Elimination System
to operate sludge process and distribution facilities throughout the State of
New Jersey.
As of April 30, 1995 total project cost for the Newark Project amounted to
$1,775,039.
10. CONSULTING CONTRACTS:
A) Site development and consulting agreement:
Compost Management, Inc. now Compost America Company of New Jersey, Ltd., as
of December 1, 1994 the date of the merger, Bedminster Bioconversion Corporation
and Potomac Technologies, Inc., entered into a letter agreement dated September
1, 1992 to form a partnership, Newark Recycling and Composting Company, Inc., to
develop an organic waste composting facility in Newark, New Jersey and to
utilize Gustav Heningberg Associates, Inc. to assist in various development
activities for this project. The term of this agreement shall be for 10 years
and may be extended or modified. The schedule of payments for consulting
services are as follows:
ANNUAL AMOUNTS
--------------
At closing of construction Financing......................... $150,000
Year 1....................................................... 38,888
Year 2....................................................... 38,889
Year 3....................................................... 38,889
Year 4....................................................... 38,889
Year 5....................................................... 38,889
Year 6....................................................... 38,889
Year 7....................................................... 38,889
Year 8....................................................... 38,889
Year 9....................................................... 38,889
--------------
$500,000
--------------
--------------
In years 2 through 10, the consulting fee is contingent on the availability
of operating cash flow from the facility. Any payments not made due to the lack
of operating cash flow shall not be made up in subsequent periods. Payments in
years 1 through 9 are to be made quarterly and are contingent on facility being
fully operational. Payments begin with commencement of operations.
In addition to the above, Gustav Heningberg Associates, Inc. and Robert
Holmes, shall receive $1,000 per month, and $1,500 per month respectively, as
development expense which shall cease on financial closing.
B) Agreement and release:
On January 31, 1995, Compost America Company of New Jersey, Ltd and Jonathan
W. Frank, a former employee of Compost Management, Inc. who was terminated as of
September 29, 1994, agreed to an accommodation for Frank to not discuss the
confidential information to a competing business in solid waste disposal in the
United States of America.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. CONSULTING CONTRACTS:--(CONTINUED)
For this Frank will receive payments totaling $250,000 which will be paid as
follows:
<TABLE>
<C> <S>
$ 25,000 To be paid within 10 days of final execution of this agreement
25,000 Due March 1, 1995
50,000 Due April 1, 1995
150,000 Due March 15, 1995 or upon the closing of the a public offering
of the Companies common stock which ever comes later. As of
April 30, 1995 this amount was unpaid
</TABLE>
C) Agreement in Principle:
On June 16, 1992, an "Agreement in Principle" was made between Compost
Management, Inc., Compost America Company of New Jersey, Ltd. (after the
December 1, 1994 merger), and Potomac Technologies, Inc. for a joint venture to
develop a composting facility in Newark, New Jersey. As part of this agreement,
Robert Jones, President of Potomac Technologies, Inc. will be paid a monthly
consulting fee of $6,250 per month to financial closing.
The agreement in principle was restated in a modified agreement, Newark
Recycling and Composting Company, Inc. Agreement dated May 1, 1994 (see Notes 7
(J) and 11 (B)).
D) Engineering and Technology Agreement:
On September 15, 1994, an "Engineering and Technology Agreement" for the
Newark Recycling and Composting Company, Inc., a subsidiary of Compost America
Company of New Jersey, Ltd. and D.J. Egarian & Associates, Inc., was signed, for
the right to use the licensed patent and engineering services provided by D.J.
Egarian & Associates, Inc. and David J. Egarian, to construct and operate an
organic waste composting facility at the Newark, New Jersey site.
The consulting fee for these services will be paid to either D.J. Egarian &
Associates, Inc. or David J. Egarian as follows:
<TABLE>
<C> <S>
$ 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
</TABLE>
Any additional services shall be billed as services are provided. At April
30, 1995, additional charges amounted to $36,525.
In addition, upon the commencement of commercial operations of the facility,
Egarian shall be paid the greater of an amount equal to 2% of distributable cash
flow per year or $75,000 per year.
If Newark Recycling and Composting Company, Inc. is awarded a 20 year "put
or pay" sewer sludge contract from the Passaic Valley Sewerage Commission to
compost a minimum of 200 wet tons per day, Egarian will receive a one time fee
of $150,000, and for each additional 50 wet tons awarded, Egarian will receive
an additional $25,000.
The term of this agreement is for 15 years from commencement of commercial
operations.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. CONSULTING CONTRACTS:--(CONTINUED)
E) Consulting Agreement between Compost America Company of New Jersey, Ltd.
and Michael J. Marchese dated March 1, 1995:
Michael J. Marchese will provide consulting services in obtaining local and
county approvals for the Monmouth County composting site. The following terms
for his consulting services are:
1) $1,000 month beginning 30 days from this agreement through the receipt
of local approval from the Township of Freehold to build a compost
facility on the property but no longer than 12 months.
2) $2,000 month thereafter until closing on the property.
3) $5,000 month until a total fee of $100,000 has been paid.
F) R.W. Beck Professional Services Agreement:
On July 14, 1994, the Company entered into a consulting engineering service
agreement for R.W. Beck to provide services to Newark Recycling and Composting
Co., Inc. The agreement called for a limited technical review of the proposed
system to compost selected portions of the solid waste stream. The fee for this
service shall be:
$ 5,000 upon execution of agreement
$18,000 upon completion of the technology review report
On March 14, 1995, R.W. Beck submitted the technological review report.
11. SUBSEQUENT EVENTS:
A) 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.
On March 1, 1996 the Company signed a stock purchase agreement with
Bedminster BioConversion Corporation.
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.
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS:--(CONTINUED)
Bedminster will be the supplier record of all "Eweson Digesters" the bridge
crane, "Feron Turning Equipment" and the floor aeration units to the composting
project undertaken by the Company pursuant to a solid waste service agreement
between the City of Miami, Florida and the Company. Such equipment supply
agreements will be at the equipment cost plus 10%. The agreement calls for
license fees and net distributable cash flow allocations.
As part of the acquisition of Bedminster Seacor Services Miami Corporation,
Miami Recycling and Composting Company, Inc. acquired the contract for real
property in Dade County, Florida. On March 29, 1996 Miami Recycling and
Composting Company, Inc. closed on the real estate contract for a purchase price
of $4,095,838.
B) On September 12, 1995, Compost America Holding Company, Inc., formerly
Alcor Energy and Recycling Systems, Inc., settled with Reade Advanced Materials
for $25,000 a law suit brought against Alcor prior to its merger with Compost
America Company of New Jersey, Ltd. The settlement consisted of $7,500 at
execution of agreement and 12 monthly payments of $1,458.33 commencing October
1, 1995.
C) Financial commitments and permits:
On August 24, 1995, the Company received a firm commitment from Legg Mason
Wood Walker, Incorporated, to Newark Recycling and Composting Company, Inc., to
raise an estimated $65,000,000 for the Newark Composting Project. Proposed
financing for the project will be by a bond issue through the New Jersey
Economic Development Authority.
On November 1, 1995, Newark Recycling and Composting Company, Inc. received
approval and permit from the New Jersey Pollutant Discharge Elimination System
to operate sludge process and distribution facilities throughout the State of
New Jersey.
The New Jersey Economic Development Authority regarding the Newark Recycling
and Composting Company, Inc. received a letter of intent from Paine Webber to
confirm the commitment to act as underwriter in connection with the sale by the
New Jersey Economic Development Authority of its solid waste disposal facility
revenue bonds, series 1996 in the approximate principle amount of $70,000,000.
In addition, Paine Webber also sent letters of intent for Monmouth Recycling and
Composting Company, Inc. for $30,000,000 and for Gloucester Recycling and
Composting Company, Inc. for $30,000,000.
On December 7, 1995, Legg Mason Wood Walker, Inc. sent a letter to the New
Jersey Economic Development Authority stating that they have agreed to act as
underwriter in connection with their firm commitment to raise the requisite
capital for the debt financing component of the composting projects proposed by
Gloucester Recycling and Composting Company, Inc., Monmouth Recycling and
Composting Company, Inc. and Newark Recycling and Composting Company, Inc.
On December 14, 1995, pursuant to Executive Order 185 and PL 1987 c 393, the
State Treasurer of New Jersey, Brian W. Clymer, allocated to the New Jersey
Economic Development Authority $130 million in tax exempt volume cap allocation
from the state's 1996 tax allocation. This allocation is to be reserved for the
issuance of private activity bonds on behalf ofNewark Recycling and Composting
Company, Inc.
On January 2, 1996, the New Jersey Economic Development Authority informed
the Company that the State Treasurer has allocated to the New Jersey Economic
Authority $130 million in 1996
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS:--(CONTINUED)
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.
D) Amendment to certificate of incorporation:
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.
E) Loan Agreement with VRH Construction Corp:
On December 26, 1995, Newark Recycling and Composting Company, Inc. and VRH
Construction Corp. signed a loan agreement whereby VRH Construction Corp. lent
$1,043,866 on a term loan basis. The Loan is due on January 15, 1996 with
interest at 10%. The loan has been extended to November 15, 1996.
F) 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 America Soil, Inc.
American Soil, Inc. has conducted the business of composting vegetative waste at
the site in the Township of Freehold, County of Monmouth, State of New Jersey.
The agreement calls for a purchase price of $750,000 payable as follows:
$ 37,500 On execution of agreement
12,500 On execution of agreement
425,000 On closing
125,000 On closing into an escrow account for the payment of liabilities
presently unknown
- ---------
$600,000
- ---------
- ---------
In addition, at closing, the Company will deposit $150,000 into an escrow
account for payment of accounts payable liabilities. After nine months any funds
remaining will be split 75% for the Company and 25% for the seller.
The Company will also take up to 4,000 cubic yards of screened non-sludge
compost per year, without charge, for the years 1996 through 1999. The major
assets acquired are the NJDEP and the federal, state and local permits and the
lease agreement between the seller and Freehold Township, New Jersey.
As of April 22, 1996 the stock purchase agreement has been terminated.
12. JOINT VENTURES:
A) American BIO-AG Corporation was incorporated in the State of Delaware on
January 11, 1995. The Corporation is owned 33-1/3% by each of the following
entities:
R.C. Land Company, Inc.
Twin River Equities
Compost America Holding Company, Inc.
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. JOINT VENTURES:--(CONTINUED)
The three entities are unrelated. The purpose of the joint venture will be
to develop, own or lease, operate and farm biosolids beneficial use land
application sites. The joint venture registered to do business in Arizona on
June 27, 1995. In addition, Professional Service Group desires to support the
joint venture company in its efforts to secure, develop and permit beneficial
use land application sites throughout the United States beginning first in the
South West where 365 day application prevail such as Texas, Arizona, New Mexico
and California. The initial land application sites to be developed by the joint
venture corporation are Arizona, Texas and New Jersey. Compost America Holding
Company, Inc. will arrange for a bridge loan in the amount of $750,000 which
will be repaid upon long-term financing. The loan is anticipated to be funded by
April 1, 1995 and repaid by June 30, 1995. As of April 30, 1995 the bridge loan
was not arranged. Compost America Holding Company, Inc. will arrange for
short-term funds from February 15, 1995 to April 1, 1995. Compost America
Holding Company, Inc. will also receive a development fee of $125,000 on
positive distributable cash flow. The joint venture corporation will sign a 15
year management contract with Mr. Bryce, President of R.C. Land Company, Inc.
for $150,000 salary per year to manage the joint venture beginning February 15,
1995 plus standard benefits in addition upon generation of positive cash flow. A
monthly director fee of $4,000 per month will be paid to each of the directors
after revenues commence. The Board of Directors shall be Ronald R. Bryce,
President, Robert Jones III, Vice President and Roger E. Tuttle, Secretary.
Roger Tuttle is also an officer, director and shareholder of Compost America
Holding Company, Inc.
The Company accounts for its investment in the joint venture on the equity
method. The condensed balance sheet and condensed income statement at April 30,
1995 is as follows:
ASSETS
Total current assets............................................ $127,373
Property and equipment.......................................... 7,662
Organization cost............................................... 410
--------
Total assets.................................................. $135,445
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities:
Short-term loans and advances:
Newark Recycling and Composting Company, Inc................ $ 20,000
--------
20,000
Stockholders' equity............................................ 115,445
--------
Total liabilities and stockholders' equity.................... $135,445
--------
--------
Gross income.................................................... 0
--------
--------
Loss from operations............................................ $(77,865)
--------
--------
As specified in regulation S-X, summarized financial information has been
presented for the joint venture corporation.
The joint venture does not meet the test for a significant subsidiary as
required under REG. Sec. 210-01 (w) as the total assets are less then 10% of
consolidatedassets.
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. JOINT VENTURES:--(CONTINUED)
Compost America Company of New Jersey, Ltd. investment account at April 30,
1995 is as follows:
Investment in joint venture..................................... $193,310
Loss for period................................................. (25,952)
--------
Equity balance April 30, 1995................................... $167,358
--------
--------
Management of the Corporation is shared equally by the three joint venture
partners.
B) Newark Recycling and Composting Company, Inc. was incorporated in the
State of Delaware on May 10, 1994 with Compost America Company of New Jersey,
Ltd. 75% and Potomac Technologies 25%. The purpose of the Corporation is to
continue development activities which were the development, construction and
operation of a sewer sludge composting facility in Newark, New Jersey. VRH
Construction Corp. is a shareholder in Compost America Holding Company, Inc. and
is the exclusive construction manager for the Newark composting facility.
Management of the corporation will be by consensus of the Board of Directors.
The Company has consolidated the financial statements of Newark Recycling and
Composting Company, Inc. with Compost America Company of New Jersey, Ltd. at
April 30, 1995. The Company reflects minority interest as another liability in
the balance sheet and as a reduction of net income or net loss in the income
statements (see Note 7 (J)).
13. CONTINGENCIES AND COMMITMENTS:
The Company conducts operations from a facility located in Doylestown, PA
under a one year operating lease. The lease commenced on December 1, 1994 and
expires on November 30, 1995. The facility is office use only. The annual rental
is $18,300 payable monthly at $1,525 per month. The Company has made a $1,525
security deposit. The Company is responsible for any or all repairs up to $100.
The Company must pay additional rent real estate taxes and all increases in fire
insurance. All utilities and janitorial services are included in the rent. The
Company shall have the right to review this lease for one additional year at the
base rate plus the consumer price index for the previous 12 months.
The Company leased office facilities under an operating lease in Doylestown,
PA. The lease was assumed by Compost America Company of New Jersey, Ltd. on
December 17, 1993 for 6,122 sq. ft. of office space. The lease expired on June
14, 1994 but was continued on a month to month basis until December 1, 1994. The
total rental, including a percentage of maintenance, real estate taxes and
insurance, amounted to $59,049 for the period May 1, 1994 to December 1, 1994.
The Company leases an automobile under a operating lease. The lease is
payable at $474.55 per month for 48 months. The lease commenced on May 25, 1993.
The minimum annual lease cost amounts to:
April 30, 1994.................................................. $5,801.60
April 30, 1995.................................................. $5,694.60
April 30, 1996.................................................. $5,694.60
April 30, 1997.................................................. $5,694.60
As part of the "Asset Purchase Replacement Agreement" dated March 1, 1995,
the Company is contingently obligated to pay an additional $407,500 toward the
acquisition of 50% interest in the Monmouth Recycling and Composting Company
from Bio Services, Inc. The obligation to pay this
F-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONTINGENCIES AND COMMITMENTS:--(CONTINUED)
amount is based on the "Option Purchase Agreement" with Brownfield
Environmental, Inc. to purchase the Township of Freehold property and upon
receipt by Compost America Company of New Jersey, Ltd. of local approval from
the Township of Freehold and County approval from Monmouth County and the N.J.
Department of Environmental Protection for "Inclusion of the project in the
Monmouth County Solid Waste Management Plan", which will allow Compost America
Company of New Jersey, Ltd. to build the indoor composting facility. Further
contingencies require that any remaining governmental, environmental and
building permits related to the construction of the "indoor composting facility"
be obtained in addition to the closing on the property and the project.
14. COMMON STOCK PURCHASE WARRANTS AND OPTIONS:
As of January 1, 1994, according to the "New and Amended Joint Venture
Agreement", Compost Management, Inc., prior to its merger into Compost America
Company of New Jersey, Ltd., on December 1, 1994, was issued 280,000 warrants @
$.01 per share to acquire 280,000 shares of common stock of Compost America
Company of New Jersey, Ltd. In addition, in a separate agreement, principals of
VRH Construction Corp. were issued 150,000 warrants of Compost America Company
of New Jersey, Ltd. common stock at $.01 per share. All warrants were exchanged
six for one after the merger. The warrants had a term of 5 years. As of April
30, 1995 all outstanding warrants have been exercised.
On January 31, 1994, as a provision of the "Asset Purchase Agreement",
regarding the Monmouth Recycling and Composting Project (Note 9). Bio-Services
Inc. was issued 100,000 warrants for the purchase of 100,000 shares of Compost
America Company of New Jersey, Ltd. common stock. The warrants were exercisable
as follows:
$5 per share...................................................... Year 1
$6 per share...................................................... Year 2
$7 per share...................................................... Year 3
Upon a secondary issue Bio-Services, Inc. will have the right to "piggy
back" its 100,000 shares on the secondary issue.
On December 1, 1994 Bio-Services, Inc. released the 100,000 warrants. They
were redistributed as follows:
David Egarian......................................... 25,000 $5/$6/$7
Rob Jones............................................. 12,500 $5/$6/$7
Ron Bryce............................................. 12,500 $5/$6/$7
Cancelled............................................. 50,000 $5/$6/$7
-------
100,000
-------
-------
On April 29, 1994, Compost America Company of New Jersey, Ltd. issued a
warrant for 100,000 shares of common stock to Bedminster Bioconversion
Corporation at an exercised price of $5 per share. The warrant expires on April
29, 1997.
On February 11, 1995, Compost America Holding Company, Inc., subsequent to
the merger with Compost America Holding Company of New Jersey, Ltd. on February
8, 1995, issued Compost
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMON STOCK PURCHASE WARRANTS AND OPTIONS:--(CONTINUED)
America Holding Company, Inc. warrants in the amount of 784,000 warrants for its
common stock to the following individuals and entities:
<TABLE>
<CAPTION>
EXERCISE
WARRANT HOLDER AMOUNT PRICE EXPIRATION
- -------------------------------------------- ------- ---------- ---------------------
<S> <C> <C> <C>
Bedminster Bioconversion (A)................ 300,000 $ 0.83 April 18, 1997
Bio-Services, Inc. (B)...................... 300,000 1.00/1.17 January 31, 1996/1997
B. Michael Pisani........................... 67,200 .92 June 1, 1999
Robert B. Long.............................. 16,800 .92 June 1, 1999
Gary Sandmeyer.............................. 100,000 .01 February 6, 1999
-------
784,000
-------
-------
</TABLE>
All of the 784,000 warrants were outstanding at April 30, 1995.
(A) The 300,000 warrants to Bedminster Bioconversion Corporation were part
of 360,460 warrants issued to Bedminster Bioconversion. The 60,460 warrants of
360,460 were part of the issued by the Board of Directors on April 30, 1995. The
360,460 warrants of Compost America Holding Company, Inc. were the result of an
agreed exchange of the 100,000 warrants issued to Bedminster Bioconversion
Corporation on April 29, 1994 (see Note 7F).
(B) The 300,000 warrants to Bio-Services, Inc. of Compost America Holding
Company, Inc. were exchanged by agreement for the 100,000 warrants of Compost
America Company of New Jersey, Inc. issued on January 31, 1994 (see Note 9).
As a result of the release of the warrants held by Bio-Services, Inc. the
following individuals received warrants previously issued to Bio-Services, Inc.
at the converted amounts.
<TABLE>
<CAPTION>
EXERCISE
WARRANT HOLDER AMOUNT PRICE EXPIRATION
- ----------------------------------------------- ------- -------- ---------------------
<S> <C> <C> <C>
David Egarian.................................. 150,000 $ 1/1.17 January 31, 1996/1997
Rob Jones...................................... 75,000 1/1.17 January 31, 1996/1997
Ron Bryce...................................... 75,000 1/1.17 January 31, 1996/1997
-------
300,000
-------
-------
</TABLE>
On February 11, 1995, in addition to the warrants listed above, the Board of
Directors of Compost America Holding Company, Inc. issued options to individuals
who were entitled to options of Compost America Company of New Jersey, Ltd.,
immediately prior to the date of the merger. There are a total of 901,000
authorized options @ $.01 per common share with an expiration date of February
10, 1997. As of April 30, 1995, 801,000 of the options have been exercised and
100,000 are still outstanding (see Note 5).
On February 11, 1995 the Board of Directors of Compost America Holding
Company, Inc. adopted and approved a non- qualified stock option plan to grant
to participants options to purchase its common stock. The Company granted
1,913,167 common stock options at $.01 per share. At April 30, 1995 all options
have been exercised.
On April 30, 1995 the Board of Directors approved the issuance of Compost
America Holding Company, Inc. warrants in exchange for warrants held by
individuals and other entities of Compost
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMON STOCK PURCHASE WARRANTS AND OPTIONS:--(CONTINUED)
America Company of New Jersey, Ltd. As a result the Company issued 133,012
warrants at an exercise price of $3.00 with an expiration date of June 1, 1999.
The warrants were issued to the following:
WARRANT HOLDER AMOUNT
- ----------------------------------------------------------------- -------
Bedminster Bioconversion Corporation............................. 60,460
David Egarian.................................................... 30,230
Ron Bryce........................................................ 15,115
Rob Jones........................................................ 15,115
B. Michael Pisani................................................ 9,674
Robert B. Long................................................... 2,418
-------
133,012
-------
-------
These warrants represent the reissuance of the 50,000 warrants cancelled by
Bio-Services, Inc. on December 31, 1994 which were for Compost America Company
of New Jersey, Ltd. All warrants are outstanding at April 30, 1995.
15. RELATED PARTY TRANSACTIONS:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in Compost
America Holding Company, Inc. as well as VRH Construction Corp. (see Note 5 and
7 (D)). VRH Construction Corp. as of April 30, 1995 has advanced $640,072 to the
Company. The amounts due to VRH Construction Corp. are included in a note
payable as of April 30, 1995 due January 15, 1996 with interest at 10%. The note
has been extended to July 15, 1996.
The Company has acquired all composting projects and technology from
Bedminster Bioconversion, Inc. through Select Acquisitions, Inc., a shareholder
in Compost America Company of New Jersey, Ltd. Select Acquisitions Inc. has
advanced $23,900 at April 30, 1995 and $41,650 at April 30, 1994. All advances
are expected to be paid in the current year. Bedminster Bioconversion, Inc., an
unrelated corporation, received stock purchase warrants (see Notes 5, 7 (F) and
14) 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., Monmouth Recycling and
Composting Co., Inc., Chicago Recycling and Composting Company, Inc. and
American BIO-AG Corporation. At April 30, 1995 all intercompany transactions
have been eliminated except for amounts due from R.C. Land Company, Inc., a
partner in the Joint Venture of American BIO-AG Corporation, and advances due
from American BIO-AG Corporation other than investments.
The Company has acquired technology and transacted composting agreements
with Compost Management, Inc., a shareholder of the Company. Compost Management,
Inc. was due $212,205 at April 30, 1994 and no balance at April 30, 1995, for
advances to the Company.
16. EMPLOYMENT CONTRACTS:
As stipulated in the Joint Venture Agreement, the Company has guaranteed and
agreed to pay its President, Roger Tuttle, $120,000 annually for a period of ten
years. The Company has similarly
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. EMPLOYMENT CONTRACTS:--(CONTINUED)
guaranteed agreements with its Vice Presidents, Alfred Rattie and Jonathan Frank
to be paid $90,000 annually. On January 31, 1995, as a closing agreement and
release, Jonathan Frank was terminated (see Note 10 (B)). At April 30, 1994,
accounts payable and accrued expenses included $75,000 for unpaid wages at that
date and on April 30, 1995, unpaid wages accrued amounted to $163,000. Roger
Tuttle, Alfred Rattie and Jonathan Frank were shareholders in Compost
Management, Inc., prior to the merger of Compost Management, Inc. into Compost
America Company of New Jersey, Ltd., on December 1, 1994.
Subsequent to the Joint Venture Agreement, all existing employment contracts
have been terminated. New employment agreements were entered into as of January
1, 1995 for all current executives but were unexecuted at April 30, 1995.
17. FINANCING PROJECTS:
The Company anticipates that the invessel composting facilities will be
funded through traditional debt and equity financing. The revenue value and
credit worthiness of guaranteed waste flow contracts will provide the necessary
debt coverage required for project financing. In addition, the Newark Project
has received a firm commitment from Legg Mason Wood Walker, Inc. for a New
Jersey Economic Development Authority bond issue for $65,000,000 (see Note 11C).
18. LONG TERM DEBT:
<TABLE>
<CAPTION>
RATE 1995 MATURITY
----- -------- ----------
<S> <C> <C> <C> <C>
Merchant Bank, N.A. (A)....................................... 10.75% $ 3,492 01/20/96
Merchant Bank, N.A. (A)....................................... 10.75% 3,492 01/20/96
Teepak, Inc. (B).............................................. 10.00% 264,871 09/15/96
Jonathan W. Frank (D)......................................... None 200,000 indefinite
--------
471,855
Less current Portion.......................................... 56,984
--------
$414,871
--------
--------
</TABLE>
A) The notes payable to Merchants Bank, N.A., Allentown, Pennsylvania is
payable in monthly installments aggregating $843 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, 1995 which was subsequently assumed by Compost America 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% with an effective rate of 10%.
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. LONG TERM DEBT:--(CONTINUED)
C) The note payable to Bio-Services, Inc. for the purchase of its 50%
interest in the Monmouth Recycling and Composting Company, Inc. (see Note 9,
Monmouth Project) is unsecured and non-interest bearing. The terms for repayment
of the original buy-out of $92,500 are as follows:
1) $17,500 Upon execution of agreement (January 31, 1994)
2) 25,000 Within 30 days (March 1, 1994)
3) 25,000 Within 60 days (April 4, 1994)
4) 25,000 Within 90 days (May 4, 1994)
-------
$92,500
-------
-------
D) 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.
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 $636,782 that may be offset against
future taxable income. The carryforward losses expire at the end of the years
2009 and 2010.
20. DEPOSITS:
Minalto Corporation--Business equipment........................... $ 510
Robert Fellheimer--Rent security.................................. 1,525
------
$2,035
------
------
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. OPTIONS:
On July 1, 1994, Newark Recycling and Composting Company, Inc. and Linde
Gases of Mid-Atlantic, Inc. ("Linde") entered into an Option and Purchase
Agreement for 11.69 acres, situated in the City of Newark, County of Essex and
State of New Jersey. In consideration of $50,000, (the option consideration),
Linde grants and conveys unto Newark Recycling and Composting Company, Inc. the
right and option to purchase the premises from the seller. The term of the
option is from July 1, 1994 to December 31, 1994, with two additional extensions
commencing January 1, 1995 to June 30, 1995 and July 1, 1995 to October 31,
1995. The additional extension required a $50,000 additional option payment for
each extension period. The total option payments amounted to $150,000 and are
non-refundable unless closing occurs. At October 31, 1995 the option was
extended by submission of security bond for the purchase of the land with a
closing date of December 15, 1995.
The purchase price of the property is $3,250,000 and all option payments
will be credited against the purchase price. The option balance at April 30,
1995 was $100,000.
22. NOTE PAYABLE, BANK:
The note payable to United Jersey Bank is due July 1, 1995, on demand, at
10% interest.
23. EARNINGS PER SHARE:
1995 1994
PRIMARY PRIMARY
---------- ---------
Number of shares:
Weighted average shares outstanding................. 8,881,882 3,904,128
Incremental shares for outstanding stock warrants... 1,366,500 1,220,000
Incremental shares for outstanding stock options.... 98,958
---------- ---------
10,347,340 5,124,128
---------- ---------
---------- ---------
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 1994 and 1995.
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
24. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
<CAPTION>
DECEMBER 17, 1993
YEAR ENDED (INCEPTION) TO
APRIL 30, 1995 APRIL 30, 1994
-------------- -----------------
<S> <C> <C>
Acquisition of deferred project costs for stock issued to
Select Acquisitions, Inc.................................... $ 1,013,875
Acquisition of deferred project costs for stock issued to
Select Acquisitions, Inc. and Compost Management, Inc....... 4,214
Issuance of capital stock for deferred project costs,
3,000,000 shares............................................ (1,018,089)
Acquisitions for issuance of capital stock:
Property and equipment net of depreciation.................. $ 18,166
Trademark costs............................................. 1,485
Organizational costs........................................ 1,276
Deposits.................................................... 510
Deferred project costs...................................... 184,582
Liabilities assumed:
Notes payable--bank......................................... (10,783)
Due to Teepak, Inc.......................................... (264,870)
Other assets and liabilities eliminated in merger with
Compost Management, Inc................................... 192,247
Issuance of capital stock for assets acquired less liabilities
assumed in merger with Compost Management, Inc., 2,631,360
shares...................................................... (122,613)
Issuance of capital stock for legal services, 36,000 shares... (36,000)
Issuance of capital stock for purchase of investments in
deferred Chicago Project, 120,000 shares.................... (100,000)
</TABLE>
F-38
<PAGE>
- --------------------------------------------------------------------------------
[ZELLER WEISS & KAHN LETTERHEAD]
[LOGO]
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
1084 Route 22 West Melvin H. Zeller, CPA
Mountainside, NJ 07092 Harold N. Binenstock, CPA
TEL: 908-789-0011 Stephen E. Rosenthal, CPA
FAX: 908-789-0027 Alfred J. Padovano, CPA
Leonard J. Krieger Jr., CPA
Philip E. Hunrath, CPA
Martin Sherman, CPA
Gary A. Sherman, CPA
Andrew M. Fingerhut, CPA
</TABLE>
REPORT OF INDEPENDENT AUDITORS ON STATEMENT OF OPERATING EXPENSES
Board of Directors
Compost America Holding Company, Inc. and subsidiaries
Doylestown, Pennsylvania
We have audited the consolidated financial statements of Compost America
Holding Company, Inc. and subsidiaries as of April 30, 1995 and 1994 and for the
periods then ended and for the period December 17, 1993 (inception) to April 30,
1995, our report thereon dated February 9, 1996. Our audit was made for the
purpose of forming an opinion on those financial statements taken as a whole. In
connection with our audit of these financial statements, we audited the
statement of operating expenses for the periods ended April 30, 1995 and 1994.
Such information has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, the statement
of operating expenses for the periods ended April 30, 1995 and 1994 and for the
period December 17, 1993 (inception) to April 30, 1995 present fairly, in all
material respects, the information stated therein, when considered in relation
to the consolidated financial statements taken as a whole.
/S/ ZELLER WEISS & KAHN
February 9, 1996
Mountainside, New Jersey
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE OF OPERATING EXPENSES
<TABLE>
<CAPTION>
CUMULATIVE FROM
YEAR DECEMBER 17, 1993 DECEMBER 17, 1993
ENDED (INCEPTION) TO (INCEPTION) TO
APRIL 30, 1995 APRIL 30, 1994 APRIL 30, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
Operating expenses:
Salaries.................................. $ 59,749 $ 59,749
Payroll taxes............................. 7,633 7,633
Amortization.............................. 4,167 4,167
Advertising............................... 646 $ 4,659 5,305
Automobile expense........................ 33,798 33,798
Bad debt charges.......................... 7,806 7,806
Bank charges.............................. 637 637
Building rental........................... 69,754 69,754
Carting expense........................... 394 394
Computer expense.......................... 849 849
Consultants............................... 19,100 5,000 24,100
Depreciation.............................. 3,030 3,030
Dues and subscriptions.................... 15,530 15,530
Employment Services....................... 600 600
Equipment rental.......................... 5,055 5,055
Insurance................................. 50,728 50,728
Licenses and permits...................... 266 266
Miscellaneous............................. 12,170 12,170
Office expense............................ 13,429 13,429
Option expense............................ 7,500 7,500
Outside services.......................... 871 871
Postage and deliveries.................... 5,795 5,795
Professional fees......................... 30,293 30,293
Research and development.................. 230,947 229,429 460,376
Taxes, other.............................. 395 395
Telephone................................. 32,076 32,076
Travel and entertainment.................. 51,069 51,069
Utilities................................. 3,400 3,400
-------------- ----------------- -----------------
$667,687 $ 239,088 $ 906,775
-------------- ----------------- -----------------
-------------- ----------------- -----------------
</TABLE>
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NINE MONTHS ENDED JANUARY 31, 1996 AND 1995 AND
FOR THE PERIOD DECEMBER 17, 1993 (INCEPTION) TO JANUARY 31, 1996
(UNAUDITED)
CONTENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Condensed consolidated financial statements:
Balance sheet............................................................... F-42
Statement of income (loss).................................................. F-43
Statement of stockholders' equity........................................... F-44
Statement of cash flows..................................................... F-45
Statement of operating expenses............................................. F-46
Notes to condensed consolidated financial statements........................ F-47 to F-67
</TABLE>
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31,
1996 APRIL 30,
(UNAUDITED) 1995
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 57,727 $ 9,409
Prepaid expense.................................................... 3,341
Due from affiliated company, R.C. Land Company Inc................. 28,600 28,600
Due from affiliated company, American Bio-AG Corp.................. 408,000 20,000
----------- ----------
Total current assets........................................... 497,668 58,009
----------- ----------
Investments in joint venture (Note 12A)............................. 284,403 167,358
----------- ----------
Plant, property and equipment (Note 17)
Land............................................................... 3,285,866
Transportation equipment........................................... 160,046 44,734
Office equipment................................................... 9,710 2,920
Construction in progress, Compost projects......................... 4,353,259 3,103,743
----------- ----------
7,808,881 3,151,397
Less accumulated depreciation...................................... 43,927 29,598
----------- ----------
7,764,954 3,121,799
Other assets:
Restrictive covenant (Note 10B).................................... 233,332 245,833
Trademark costs, net of amortization of $285....................... 1,422 1,488
Organization costs, net of amortization of $2,262.................. 6,397 5,621
Deposits........................................................... 2,154 2,035
Options (Note 19).................................................. 100,000
Deferred offering costs............................................ 19,064
----------- ----------
262,369 354,977
----------- ----------
$ 8,809,394 $3,702,143
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 20)...................................... $ 100,000 $ 50,000
Mortgage payable, Praxair (Note 7E)................................ 2,100,000
Accounts payable and accrued expenses.............................. 619,561 500,921
Current portion of long-term debt (Note 17)........................ 151,372 56,984
Due to affiliated company, VRH Construction Corp. (Note 15)........ 3,093,938 640,072
Due to affiliated company, Select Acquisitions, Inc. (Note 15)..... 23,900 23,900
Payroll taxes payable.............................................. 5,059 6,048
----------- ----------
Total current liabilities...................................... 6,093,830 1,277,925
----------- ----------
Long-term debt, net of current portion (Note 17).................... 264,871 414,871
----------- ----------
Contingencies and commitments (Note 13)
Minority interest in consolidated subsidiary........................ 167,991 0
----------- ----------
Stockholders' equity:
Preferred stock, no par value, authorized 25,000,000 shares, none
issued..............................................................
Common stock, no par value, 50,000,000 shares authorized; issued
and outstanding 13,706,467 shares at January 31, 1996 and
13,222,667
at April 30, 1995................................................ 3,807,638 2,899,278
Common stock warrants (Note 14)
Deficit accumulated during the development stage................... (1,495,244) (861,239)
Less: subscriptions receivable..................................... (29,692) (28,692)
----------- ----------
2,282,702 2,009,347
----------- ----------
$ 8,809,394 $3,702,143
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED CUMULATIVE FROM
JANUARY 31, DECEMBER 17, 1993
------------------------- (INCEPTION) TO
1996 1995 JANUARY 31, 1996
----------- ---------- -----------------
<S> <C> <C> <C>
Net sales......................................... $ 80,741
Other revenues.................................... $ 3,288 $ 6,500 9,788
----------- ---------- -----------------
Total....................................... 3,288 6,500 90,529
Cost of operations, transportation................ 5,000 5,000
----------- ---------- -----------------
Gross income...................................... 3,288 1,500 85,529
General and administrative........................ 457,916 245,162 1,364,691
----------- ---------- -----------------
Loss from operations.............................. (454,628) (243,662) (1,279,162)
----------- ---------- -----------------
Other non-operating expenses:
Interest........................................ 155,110 5,741 165,863
----------- ---------- -----------------
Loss before income tax expense.................... (609,738) (249,403) (1,445,025
Income tax expense (Note 18)...................... 0 0 0
----------- ---------- -----------------
(609,738) (249,403) (1,445,025)
Minority interest in loss of consolidated
subsidiaries.................................... 41,835 0 41,835
----------- ---------- -----------------
(567,903) (249,403) (1,403,190)
Loss in equity in joint venture................... (66,102) 0 (92,054)
----------- ---------- -----------------
Net loss.......................................... $ (634,005) $ (249,403) $(1,495,244)
----------- ---------- -----------------
----------- ---------- -----------------
Earnings per common share:
Primary......................................... $ (.04) $ (.03)
----------- ----------
----------- ----------
Weighted average number of common shares
outstanding:
Primary......................................... 14,406,505 8,460,620
----------- ----------
----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-43
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK DURING THE
------------------------ DEVELOPMENT
SHARES AMOUNT STAGE
---------- ---------- -----------
<S> <C> <C> <C>
Balance, April 30, 1994 (Restated)...................... 4,199,040 $1,710,089 $ (158,347)
Issuance of common stock for settlement claim,
May 27, 1994 (.0017 per sh.)(Note 5)................ 24,000 40
Redemption of common stock
Sept. 29, 1994 (.83 per sh.)(Note 5)................ (60,000) (50,000)
Issuance of common stock
Oct. 3, 1994 (.83 per sh.)(Note 5).................. 60,000 50,000
Issuance of common stock
October and November, 1994 (.879 per sh.)(Note 5)... 369,600 325,000
Issuance of common stock
Nov. 1, 1994 (.417 per sh.)(Note 5)................. 120,000 50,000
Issuance of common stock for merger,
December 1, 1994 (.047 per sh.)(Note 5)............. 2,631,360 122,613
Exercise of warrants
Dec. 1, 1994 (.002 per sh.)(Note 5)................. 2,580,000 4,300
Issuance of common stock for acquisition,
Feb. 8, 1995 (.18 per sh.)(Note 5).................. 274,500 49,094
Issuance of common stock for private placement,
Feb. 11, 1995 (2.50 per sh.)(Note 5)................ 190,000 475,000
Exercise of warrants and options for legal services,
Feb. 11, 1995 (.03 per sh.)(Note 5)................. 2,714,167 63,142
Issuance of common stock for Chicago restructuring
agreement, Feb. 15, 1995 (.83 per sh.)(Note 5)...... 120,000 100,000
Net loss April 30, 1995............................... (702,892)
---------- ---------- -----------
Balance, April 30, 1995................................. 13,222,667 2,899,278 (861,239)
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,
August 1995 ($2.50 per sh.)......................... 40,000 100,000
Issuance of common stock,
September 1995 ($2.50) per sh.)..................... 2,000 5,000
Issuance of common stock,
October 1995 ($2.50 per sh)......................... 45,000 112,500
Issuance of common stock, exercise of warrants,
Nov. 1, 1995 (.92 per share)........................ 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. 1995 (2.50 per sh.)............................ 52,200 130,500
Net loss January 31, 1996............................. (634,005)
---------- ---------- -----------
Balance, January 31, 1996............................... 13,706,467 $3,807,638 $(1,495,244)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
F-44
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
NINE MONTHS ENDED FROM
JANUARY 31, DECEMBER 17, 1993
------------------------ (INCEPTION) TO
1996 1995 JANUARY 31, 1996
----------- --------- -----------------
<S> <C> <C> <C>
Operating activities:
Net loss......................................... $ (634,005) $(249,403) $(1,495,244)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization....................................... 13,370 2,237 17,537
Depreciation....................................... 14,329 1,515 17,359
Loss in equity in joint venture.................... 66,102 92,054
Changes in operating assets and liabilities:
Increase in prepaid expenses....................... (3,341) (3,341)
Decrease in accounts receivable.................... 46,099
Increase (decrease) in accounts payable and accrued
expenses......................................... 118,640 (102,043) 619,561
Increase (decrease) in payroll taxes payable....... (989) 1,230 5,059
Changes in other assets and liabilities:
(Increase) decrease in due to/from affiliated
companies:
R.C. Land Company, Inc........................... (28,600)
American Bio-AG Corp. ........................... (388,000) (408,000)
Select Acquisitions, Inc......................... (5,000) 23,900
Deferred offering costs.......................... (19,064) () (19,064)
----------- --------- -----------------
Net cash used in operating activities............ (832,958) (305,365) (1,178,779)
----------- --------- -----------------
Investing activities:
Purchase of restrictive covenant................... (250,000)
Purchase of construction in progress, Compost
project.......................................... (1,081,525) (563,876) (2,846,597)
Purchase of property and equipment................. (3,407,969) (843) (3,410,889)
Purchase of organizational costs................... (1,580) (5,925)
Returned deposit additions......................... (119) (1,644)
Return (purchase) of options....................... 100,000 (100,000)
Purchase of equity of joint venture................ (183,147) (376,457)
----------- --------- -----------------
Net cash used in investing activities............ (4,574,340) (664,719) (6,891,512)
----------- --------- -----------------
Financing activities:
Increase in due to affiliated company,
VRH Construction Corp............................ 2,453,866 452,072 3,093,938
Increase in notes payable.......................... 50,000 100,000 100,000
Increase in mortgage payable....................... 2,100,000 2,100,000
Increase in long-term debt......................... 387,720
Proceeds from issuance of common stock............. 907,360 415,000 2,505,769
Payments on long-term debt......................... (55,610) (59,409)
----------- --------- -----------------
Net cash provided by financing activities........ 5,455,616 967,072 8,128,018
----------- --------- -----------------
Net increase (decrease) in cash....................... 48,318 (3,012) 57,727
Cash, beginning of period............................. 9,409 8,400 0
----------- --------- -----------------
Cash, end of period................................... $ 57,727 $ 5,388 $ 57,727
----------- --------- -----------------
----------- --------- -----------------
Supplementary disclosure of cash flow information
Interest........................................... $ 155,110 $ 5,741 $ 165,863
Taxes.............................................. $ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities (Note 25)
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF OPERATING EXPENSES
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED CUMULATIVE FROM
JANUARY 31, DECEMBER 17, 1993
-------------------- (INCEPTION) TO
1996 1995 JANUARY 31, 1996
-------- -------- -----------------
<S> <C> <C> <C>
Operating expenses:
Salaries.......................................... $ 47,336 $ 38,071 $ 107,085
Payroll taxes..................................... 9,278 3,817 16,911
Advertising....................................... 1,932 323 7,237
Amortization...................................... 13,370 2,237 17,537
Automobile expense................................ 15,238 18,965 49,036
Bad debt charges.................................. 3,903 7,806
Bank charges...................................... 882 350 1,519
Building rental................................... 13,725 35,502 83,479
Carting expense................................... 197 394
Computer expense.................................. 425 849
Consultants....................................... 7,500 10,800 31,600
Depreciation...................................... 14,329 1,515 17,359
Dues and subscriptions............................ 3,109 7,815 18,639
Employment Services............................... 300 600
Equipment rental.................................. 967 2,528 6,022
Insurance......................................... 29,719 27,433 80,447
Licenses and permits.............................. 228 133 494
Miscellaneous..................................... 1,713 6,085 13,883
Office expense.................................... 10,918 6,976 24,347
Option expense.................................... 3,750 7,500
Outside services.................................. 821 747 1,692
Postage and deliveries............................ 2,512 2,941 8,307
Printing.......................................... 17,796 17,796
Professional fees................................. 152,449 22,337 182,742
Repairs and maintenance........................... 2,533 2,533
Research and development.......................... 815 3,092 461,191
Taxes, other...................................... 16,807 198 17,202
Telephone......................................... 24,574 16,038 56,650
Training.......................................... 515 515
Travel and entertainment.......................... 68,492 26,984 119,561
Utilities......................................... 358 1,700 3,758
-------- -------- -----------------
$457,916 $245,162 $ 1,364,691
-------- -------- -----------------
-------- -------- -----------------
</TABLE>
F-46
<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 includedin the Company's April 30, 1995 annual report. 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
nine month period ended January 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended April 30, 1996.
1. NATURE OF BUSINESS:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it sells to
a multitude of users. The process which the Company will employ is composting,
or the controlled decomposition of organic matter into humus (a component of
soil). Like a landfill or an incinerator operator, the Company will be paid
"tipping fees" to accept waste from generators of these materials. In selected
markets like New Jersey, where the disposal costs are high, the economic
opportunity of taking in and processing large volumes of waste is significant.
The Company will operate a vegetative and selected food waste compost
facility in New Jersey and will continue the development of the indoor
composting projects currently in progress, which will convert organic materials
ordinarily disposed of in landfills or incinerators into a valuable end product
which is beneficial to the environment.
2. BUSINESS ORGANIZATION:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in the state
of New Jersey, with 1,000,000 authorized shares at no par value. On February 1,
1984 Alcor conducted an offering under Regulation A, an exemption from
registration under the Securities Act of 1933. On that date, 300,000 shares of
common stock were issued at $1.00 per share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000 to
7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert Spruance
Company and 750,000 shares to Peter English and his affiliates in return for all
outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three subsidiaries
due to the lack of sufficient capital needed to continue the operations of each.
Alcor sustained losses from both the disposition of the Gilbert Spruance Company
and The English Group, Inc.
On September 27, 1994, 650,000 shares issued to Peter English to acquire the
English Group, Inc. were returned pursuant to the disposal of the English Group,
Inc.
F-47
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. BUSINESS ORGANIZATION:--(CONTINUED)
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).
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, only municipal solid waste
and sewage sludge that meets the Company specifications. It is possible that
some of the wastes accepted at a company facility may contain contaminants which
could cause environmental damage and result in liabilities.
The Company has not entered into any contracts with users of compost from
its facilities which are under development. Should the Company not be able to
sell the compost, the Company may have to give the compost away and pay for its
transportation costs.
The Company has no significant concentration of credit with any individual
counterparty or groups of counterparties.
4. 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
F-48
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PRINCIPLES OF CONSOLIDATION:--(CONTINUED)
Recycling and Composting Company, Inc. and Compost America Technologies, 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
acquisition 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 liabilities acquired. All significant
inter-company profits and losses from transactions have been eliminated.
6. INVESTMENT--AMERICA BIO-AG COMPANY:
American BIO-AG Corporation was formed as a joint venture under the Restated
Joint Venture Agreement dated February 15, 1995 between R. C. Land Company, Twin
Rivers Equity Partnership and Compost America Holding Company, Inc. American
BIO-AG Corporation was incorporated in the State of Delaware, January 11, 1995
(see Note 12 (A)).
The purpose of the joint venture is to develop, own and lease and operate
land application sites for the beneficial use of biosolids. Management of
American BIO-AG is being performed by executives from the three entities forming
American BIO-AG. Initially, sites are being developed in Arizona, Texas and
California. Compost America Holding Company, Inc. owns 33 1/3% of the joint
venture.
7. AGREEMENTS:
A) 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. were issued 120,000 shares of common stock of Compost America
Holding Company, Inc. as consideration for their interest.
B) 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
F-49
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. AGREEMENTS:--(CONTINUED)
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:
<TABLE>
<S> <C>
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.
</TABLE>
Bedminster will be the supplier record of all "Eweson Digesters" the bridge
crane, "Feron Turning Equipment" and the floor aeration units to the composting
project undertaken by the Company pursuant to a solid waste service agreement
between the City of Miami, Florida and the Company. Such equipment supply
agreements will be at the equipment cost plus 10%. The agreement calls for
license fees and net distributable cash flow allocations.
As part of the acquisition of Bedminster Seacor Services Miami Corporation,
Miami Recycling and Composting Company, Inc. acquired the contract for real
property in Dade County, Florida. On March 29, 1996 Miami Recycling and
Composting Company, Inc. closed on the real estate contract for a purchase price
of $4,095,838.
C) Settlement of Alcor Energy and Recycling Systems, Inc. law suit:
On September 12, 1995, Compost America Holding Company, Inc., formerly Alcor
Energy and Recycling Systems, Inc., settled with Materials for $25,000 a law
suit brought against Alcor prior to its merger with Compost America Company of
New Jersey, Ltd. The settlement consisted of $7,500 at execution of agreement
and 12 monthly payments of $1,458.33 commencing October 1, 1995.
The Company is to make payments as follows:
November 14, 1995.............................................. $ 7,500.00
November 14, 1995.............................................. 2,916.66
December 1995 to September 1996................................ 14,583.34
----------
$25,000.00
----------
----------
D) Teaming Agreement between Compost America Technologies, Inc. and Compost
Industries, LLC.:
On August 15, 1995, Compost America Technologies, Inc., a wholly owned
subsidiary of Compost America Holding Company, Inc. and Compost Industries, LLC,
signed a Teaming Agreement for Compost Industries, LLC to supply proprietary
composting technology and equipment, proprietary shop and field fabrication
techniques and installation know-how relating to solid waste separating,
processing, recycling and composting. Compost Industries is to provide and
demonstrate its "Earthcycle Composting System" shop and field fabrication
techniques and equipment engineering and assistance for the Gloucester
Demonstration Project and if successful for the Gloucester Recycling and
Composting Project and also if requested for other full scale projects. Compost
Industries will provide a
F-50
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. AGREEMENTS:--(CONTINUED)
demonstration Earthcycle Composting System, at its expense, at a cost not to
exceed $600,000. At financial closing of the Gloucester full-scale project
Compost Industries will receive payments for all equipment supplies plus a 15%
engineering and equipment fee on the total project costs not to exceed
$12,200,000. In addition, Compost Industries shall receive at "financial
closing" 150% of its documented costs up to $600,000 and 33 1/3% of net
distributable cash flow from the full-scale project upon commercial acceptance
and 3.5% of the "total tip fee revenue" for the life of the Gloucester City
Project.
E) 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 31, 1995 and
July 1, 1995 and expiring October 31, 1995. At each extension date an additional
$50,000 option payment was required for a total at October 31, 1995 of $150,000.
The purchaser can exercise their option at any time during the option period and
extensions to purchase the property for a purchase price of $3,250,000. All
option payments are to be credited against the purchase price. In the event the
option is not exercised, all option payments will be forfeited.
On October 20, 1995, an Amendment to Option and Purchase Agreement was
signed whereby "Praxair" was substituted for the seller, Linde Gases of the
Mid-Atlantic, Inc. and Newark Recycling and Composting Company, Inc. exercised
the option and posted as security for the closing a security bond. The purchase
price was amended to $3,285,866 less the $150,000 in option payments. At closing
a deposit of $1,035,866 was to be paid together with a promissory note and
purchase money mortgage of $2,100,000 at 8% per annum, payable monthly, with a
maturity on August 31, 1996. The property was closed on December 15, 1995.
To accommodate the down payment VRH Construction Corp. loaned Newark
Recycling and Composting Company, Inc. $1,043,866 on a term loan basis on
demand. The loan was due on January 15, 1996 with interest at 10% per annum. The
loan has been extended to July 15, 1996. Compost America Holding Company, Inc.
has pledged as collateral to VRH Construction Corp. all its right, title and
interest in and to all shares of Newark Recycling and Composting Company, Inc.'s
capital stock that Compost America Holding Company, Inc. owns.
8. 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. As of April 30, 1995, 190,000 shares have been sold for a total
of $475,000. The offering has no expiration date. As of January 31, 1996, the
Company has sold 540,800 shares for a total of $1,352,000.
F-51
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 January 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 cumulative losses in connection with its
operations during this same period of $1,371,630.
Projects in development:
Chicago Project:
In April 1993, CACC and Foundations Systems, Inc., as general partners and
Compost Management, Inc. and others, as limited partners, entered into a limited
partnership agreement to form an entity called South Chicago Recycling and
Composting Company, L.P. ("Chicago Partners"). The Chicago Partners initiated
the development of a 500-1,000 ton per day invessel composting facility in South
Chicago, Illinois. The Chicago Partners are currently negotiating and entering
into contracts and agreements for waste handling, site location, marketing and
other aspects of composting. The Company through Compost Management, Inc. was a
41.5% limited partner of the Chicago Facility. Funding for the Chicago Partners
has been provided by loans and advances from Teepak, Inc., commencing January
11, 1993. Total advance at April 30, 1995 and January 31, 1996 amounted to
$264,871.
On July 24, 1995, an agreement was executed whereby, effective as of
February 15, 1995, the amended and restated agreement date April 6, 1993 never
being filed with the Secretary of State of Pennsylvania, caused the limited
partnership to be void. As a result, the individual partners agreed to exchange
their interest, as did Compost Management, Inc., with Compost America Holding
Company, Inc. The individual partners, exclusive of Compost Management, Inc.,
for an assignment of the assets were issued 120,000 shares of Compost America
Holding Company, Inc. common stock at a par value of $.01 for their 58.5% of the
partnership. Compost America Company of New Jersey, Ltd. became the 100% owner
of the Chicago Project. On August 4, 1995, the Company incorporated the Chicago
Project under the name "Chicago Recycling and Composting Company, Inc.". Chicago
project costs at January 31, 1996 amount to $413,902.
Gloucester City--National Source Separated Organic Waste Demonstration
Project:
The Company, with a number of sponsors/partners, is developing an 18-month
pilot program to demonstrate the process of separating organic waste at its
source and transforming organic materials into compost at a compost site to be
operated by the Company. Sponsors/partners for the demonstration project are: 1)
The National Audubon Society; 2) The Grocery Industry (including The Food
Marketing Institute, Grocery Manufacturers Associates, Proctor & Gamble and The
New Jersey Food Council); 3) Bedminster; 4) Higgins Management, Inc.; 5) U.S.
Environmental Protection Agency; 6) America Forest & Paper Association; 7) U.S.
Conference of Mayors; 8) National Association of Counties; 9) Restaurant and
Foodservice Association; and 10) America Plastics Council.
The location of the demonstration project is a site located in Gloucester
City, New Jersey. A small-scale invessel composting facility will be installed
in a portable building and will process five to eight tons per day of organic
materials collected from the cities of Gloucester City and Cherry Hill and
various commercial accounts. Upon the successful start up and operation of the
pilot program it is
F-52
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
anticipated that the Company will construct a 350 ton per day invessel
composting facility at the same site in Gloucester City.
On June 1, 1996 Gloucester Recycling and Composting Company, Inc. entered
into a lease with Gloucester City for 7.98 acres ("Parcel No.1") located in
Gloucester City, New Jersey. The term of the lease is for 24 months commencing
on the 7th day of March, 1996 and an option to extend the term for an additional
30 years. Rent for the first 24 months shall be $100 per month plus real estate
taxes. The 30 year extension is based on a benefit fee payment schedule for the
lease payments and the host community benefit charges. Following commercial
start-up payments shall begin in the amount of $82,745 and increase annually by
4% throughout the tax year with a computer price index increase or decrease for
the remainder of the term.
The total project cost at April 30, 1995 amounted to $231,305 and at January
31, 1996 amounted to $262,083. The scheduled start for the demonstration project
is estimated by the 1st quarter of 1996.
Monmouth Project:
On March 1, 1995 an Asset Purchase Replacement Agreement was made between
Bio-Services, Inc., D.J. Egarian & Associates, Inc. and Compost America Company
of New Jersey, Ltd.. As part of this agreement, the "Asset Purchase Agreement"
between Compost America Company of New Jersey, Ltd. and Bio-Services signed on
January 31, 1994 for the purchase of the "Abate Property" was canceled as a
result of the site disapproval. A property identified as Block 92 Lot 37 located
in the Township of Freehold, New Jersey was selected as a replacement for the
"Abate Property" to allow the continued development by Compost America Company
of New Jersey, Ltd. of an indoor composting facility in Monmouth County. Compost
America Company of New Jersey, Ltd., as part of this agreement, signed an
"Option Purchase Agreement" with Brownfield Environmental, Inc. to purchase a
replacement property.
In addition, the $407,500 contingent purchase amount identified in the
January 31, 1994 "Asset Purchase Agreement" will be paid as follows:
1) Upon receipt of local approval from the Township of Freehold and
County approval and New Jersey Department of Environmental Protection,
Compost America Company of New Jersey, Ltd. will pay as
follows:
a) $27,416 to D.J. Egarian Associates, Inc.
b) $97,584 to Bio-Services
2) The remaining $282,500 will be paid upon receipt of all governmental,
environmental and building permits.
a) $61,959 to D.J. Egarian Associates, Inc.
b) $220,541 to Bio-Services
The terms of the original agreement were amended such that Bio-Services will
receive a marketing fee of $1.50 as opposed to $2.00 per cubic yard of finished
compost produced at the Freehold facility. This agreement also cancelled all
previous agreements pursuant to the Monmouth Recycling and Composting Company,
Inc. In addition, on March 3, 1995 mutual releases were signed by the parties
involved in the original Agreement in Principle for the purchase and assignment
of the "Abate Land
F-53
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
Purchase Contract". Abate was paid for his release $2,500 plus engineering,
survey and other plans provided for in William J. Mehr letter of September 29,
1994.
On March 1, 1995, Compost America Company of New Jersey, Ltd. and Brownfield
Environmental, Inc. entered into an "Option Purchase Agreement" to purchase 15
acres in the Township of Freehold, County of Monmouth, State of New Jersey. The
purchase price is $600,000 payable in cash on or before February 14, 1996. An
extension for 12 months is at the exclusive option of the Company. The Company
shall pay a monthly option of $2,500 per month during the initial extension
period. The Company has an exclusive right to extend for a second extension
period of 18 months for a payment of $15,000 plus a monthly option payment of
$3,500 per month. The Company has a third extension for 6 months based on the
same terms as the second extension.
As part of the Monmouth County composting site, a consulting contract with
Michael J. Marchese on March 1, 1995 was instituted (see consulting agreements
Note 10 (E)). The total project costs incurred as at January 31, 1996 amounted
to $781,500.
Newark Project:
On May 1, 1994 Compost America Company of New Jersey, Ltd. entered into an
agreement with Potomac Technologies, Inc. to form Newark Recycling and
Composting Company, Inc. The Newark Facility was then incorporated in the State
of Delaware on May 10, 1994 as Newark Recycling and Composting Company, Inc.
The parties to the letter agreement on May 1, 1994 were changed and a new
agreement for the joint venture was modified in the "Newark Recycling and
Composting Company, Inc. Agreement".
On July 1, 1994, Newark Recycling and Composting Company, Inc. entered into
a termination of sale agreement with Edward J. Haefeli. Haefeli agreed to
terminate his right to purchase 11.69 acres of improved land in order to permit
Newark Recycling and Composting Company, Inc. to enter into an agreement to
purchase the premises from Linde Gases. At closing of the purchase of the
premises, Newark Recycling and Composting Company, Inc. shall pay to Haefeli
$250,000 in funds available plus a note in the amount of $594,000 payable over
10 years at prime + 1%, not to exceed 8%.
On July 14, 1994, Newark Recycling and Composting Company, Inc. entered into
a professional services agreement with R.W. Beck to provide a detailed
"Engineering Report" on the Newark facility. Compensation in the amount of
$23,000 shall be paid and increased as additional consulting is required.
On July 26, 1994, Newark Recycling and Composting Company, Inc., doing
business as Passaic Valley Management Group entered into a teaming agreement
with Professional Services Group, Inc. At the option of Newark Recycling and
Composting Company, Inc./Passaic Valley Management Group Professional Services
Group, Inc. will loan up to $500,000 to Newark Recycling and Composting Company,
Inc./Passaic Valley Management Group. In return, Newark Recycling and Composting
Company, Inc./Passaic Valley Management Group will subordinate to Professional
Services Group, Inc. the management, operations and maintenance portion of any
contract awarded from the Passaic Valley Sewerage Commissioners.
On September 15, 1994, Newark Recycling and Composting Company, Inc. entered
into an engineering and technology agreement with D.J. Egarian & Associates.
D.J. Egarian & Associates granted a license to Newark Recycling and Composting
Company, Inc. to utilize D.J. Egarian & Associates's patented technology. Newark
Recycling and Composting Company, Inc. did compensate D.J. Egarian & Associates
$15,000 upon execution of the agreement and a pro rata share of $167,500
F-54
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
based upon completion of engineering drawings. In addition, during construction
D.J. Egarian & Associates shall receive $5,000 per month site consultation
through completion of construction. A separate fee structure will be implemented
upon commencement of commercial operations of the facility.
In the event the Newark Recycling and Composting Company, Inc. should be
awarded a 20 year "put or pay" sewer sludge contract from Passaic Valley
Sewerage Commissioners, then D.J. Egarian & Associates will receive a one-time
fee of $150,000. Based upon the number of tons awarded D.J. Egarian & Associates
may be able to receive an additional $25,000 for each 50 tons.
On January 30, 1995 the Central Planning Board, City of Newark, New Jersey,
at a special public hearing, voted to grant a FINAL SITE APPROVAL subject to
compliance with all the conditions stipulated in the Department of Engineering
memorandum dated January 17, 1995.
On February 16, 1995, Converse Consultants East submitted their report to
D.J. Egarian disclosing their findings as to subsurface conditions and
foundations.
On March 14, 1995 R.W. Beck submitted an initial draft of the Technical
Review of the composting facility.
On March 27, 1995 Newark Recycling and Composting Company, Inc. requested
financial assistance from the New Jersey Economic Development Authority for an
in-vessel composting and composting facility in the amount of $73,790,000.
In conjunction with that request, it is expected that the interest on these
bonds, when issued, will be excludable from gross income of the holders thereof
for federal income tax purposes under Sec.103 of the Code.
On April 11, 1995, Newark Recycling and Composting Company, Inc. received
notice from the Permit Coordination Officer III for the State of New Jersey
Department of Environmental Protection. Newark Recycling and Composting Company,
Inc.'s application had been reviewed for and found to be administratively
complete. The application was then forwarded to the Bureau of Pretreatment and
Residuals for technical review.
On April 11, 1995 the New Jersey Economic Development Authority passed a
resolution whereby Authority officers and staff are authorized to take all
actions necessary to proceed with the financing and to issue bonds to finance
the cost of the New Jersey project. Within 10 days the resolution was deemed
approved by the Governor and became effective.
On April 19, 1995, Newark Recycling and Composting Company, Inc. applied for
the allocation of $73,790,000 of "volume cap" by the State of New Jersey to
allow the project described herein to be fully financed on a tax-exempt basis.
On June 26, 1995, Newark Recycling and Composting Company, Inc. received
notice that its permit application was deemed technically complete.
On November 1, 1995, Newark Recycling and Composting Company, Inc. received
approval and permit from the New Jersey Pollutant Discharge Elimination System
to operate sludge process and distribution facilities throughout the State of
New Jersey.
On December 14, 1995, pursuant to Executive Order 185 and PL 1987 c 393 the
State Treasurer of New Jersey, Brian W. Clymer, allocated to the New Jersey
Economic Development Authority, $130
F-55
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEVELOPMENT STAGE COMPANY:--(CONTINUED)
million in tax-exempt volume cap allocation from the state's 1996 tax
allocation. This allocation is to be reserved for the issuance of private
activity bonds on behalf of Newark Recycling and Composting Company.
On January 2, 1996 the New Jersey Economic Development Authority informed
the Company the State Treasurer has allocated to the New Jersey Economic
Development Authority $130 million in 1996 volume cap allocation on behalf of
the Company's composting projects for Newark, Gloucester and Monmouth. The
allocation will expire on March 29, 1996 in the event bonds are not issued.
As of January 31, 1996 total project cost for the Newark Project amounted to
$2,720,775.
10. CONSULTING CONTRACTS:
A) Site development and consulting agreement:
Compost Management, Inc. now Compost America Company of New Jersey, Ltd., as
of December 1, 1994 the date of the merger, Bedminster Bioconversion Corporation
and Potomac Technologies, Inc., entered into a letter agreement dated September
1, 1992 to form a partnership, Newark Recycling and Composting Company, Inc., to
develop an organic waste composting facility in Newark, New Jersey and to
utilize Gustav Heningberg Associates, Inc. to assist in various development
activities for this project. The term of this agreement shall be for 10 years
and may be extended or modified. The schedule of payments for consulting
services are as follows:
ANNUAL AMOUNTS
--------------
At closing of construction Financing......................... $150,000
Year 1....................................................... 38,888
Year 2....................................................... 38,889
Year 3....................................................... 38,889
Year 4....................................................... 38,889
Year 5....................................................... 38,889
Year 6....................................................... 38,889
Year 7....................................................... 38,889
Year 8....................................................... 38,889
Year 9....................................................... 38,889
--------------
$500,000
--------------
--------------
In years 2 through 10, the consulting fee is contingent on the availability
of operating cash flow from the facility. Any payments not made due to the lack
of operating cash flow shall not be made up in subsequent periods. Payments in
years 1 through 9 are to be made quarterly and are contingent on facility being
fully operational. Payments begin with commencement of operations.
In addition to the above, Gustav Heningberg Associates, Inc. and Robert
Holmes, shall receive $1,000 per month, and $1,500 per month respectively, as
development expense which shall cease on financial closing.
B) Agreement and release:
On January 31, 1995, Compost America Company of New Jersey, Ltd and Jonathan
W. Frank, a former employee of Compost Management, Inc. who was terminated as of
September 29, 1994, agreed to an accommodation for Frank to not discuss the
confidential information to a competing business in solid waste disposal in the
United States of America.
F-56
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. CONSULTING CONTRACTS:--(CONTINUED)
For this Frank will receive payments totaling $250,000 which will be paid as
follows:
$ 25,000.. To be paid within 10 days of final execution of this agreement
25,000... Due March 1, 1995
50,000... Due April 1, 1995
150,000.. Due March 15, 1995 or upon the closing of the a public offering
of the Companies common stock which ever comes later. As of
October 31, 1995 this amount was unpaid since no closing
occurred or public offering completed
C) Agreement in Principle:
On June 16, 1992, an "Agreement in Principle" was made between Compost
Management, Inc., Compost America Company of New Jersey, Ltd. (after the
December 1, 1994 merger), and Potomac Technologies, Inc. for a joint venture to
develop a composting facility in Newark, New Jersey. As part of this agreement,
Robert Jones, President of Potomac Technologies, Inc. will be paid a monthly
consulting fee of $6,250 per month to financial closing.
The agreement in principle was restated in a modified agreement, Newark
Recycling and Composting Company, Inc. Agreement dated May 1, 1994.
D) Engineering and Technology Agreement:
On September 15, 1994, an "Engineering and Technology Agreement" for the
Newark Recycling and Composting Company, Inc., a subsidiary of Compost America
Company of New Jersey, Ltd. and D.J. Egarian & Associates, Inc., was signed, for
the right to use the licensed patent and engineering services provided by D.J.
Egarian & Associates, Inc. and David J. Egarian, to construct and operate an
organic waste composting facility at the Newark, New Jersey site.
The consulting fee for these services will be paid to either D.J. Egarian &
Associates, Inc. or David J. Egarian as follows:
$ 15,000.. Upon execution of this agreement
$167,500.. Paid prorata on the percent of completion prior to the close of
project financing for engineering drawings.
$ 5,000.. Per month after commencement of the construction of the facility
through the completion of construction
Any additional services shall be billed as services are provided. At April
30, 1995 and January 31, 1996, additional charges amounted to $36,525 and
$193,393 respectively.
In addition, upon the commencement of commercial operations of the facility,
Egarian shall be paid the greater of an amount equal to 2% of distributable cash
flow per year or $75,000 per year.
If Newark Recycling and Composting Company, Inc. is awarded a 20 year "put
or pay" sewer sludge contract from the Passaic Valley Sewerage Commission to
compost a minimum of 200 wet tons per day, Egarian will receive a one time fee
of $150,000, and for each additional 50 wet tons awarded, Egarian will receive
an additional $25,000.
The term of this agreement is for 15 years from commencement of commercial
operations.
F-57
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. CONSULTING CONTRACTS:--(CONTINUED)
E) Consulting Agreement between Compost America Company of New Jersey, Ltd.
and Michael J. Marchese dated March 1, 1995:
Michael J. Marchese will provide consulting services in obtaining local and
county approvals for the Monmouth County composting site. The following terms
for his consulting services are:
1) $1,000 month beginning 30 days from this agreement through the receipt
of local approval from the Township of Freehold to build a compost
facility on the property but no longer than 12 months.
2) $2,000 month thereafter until closing on the property.
3) $5,000 month until a total fee of $100,000 has been paid.
F) R.W. Beck Professional Services Agreement:
On July 14, 1994, the Company entered into a consulting engineering service
agreement for R.W. Beck to provide services to Newark Recycling and Composting
Co., Inc. The agreement called for a limited technical review of the proposed
system to compost selected portions of the solid waste stream. The fee for this
service shall be:
$ 5,000 upon execution of agreement
$18,000 upon completion of the technology review report
On March 14, 1995, R.W. Beck submitted the technological review report.
G) 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.
11. SUBSEQUENT EVENTS:
A) Financial commitments and permits:
On November 1, 1995, Newark Recycling and Composting Company, Inc. received
approval and permit from the New Jersey Pollutant Discharge Elimination System
to operate sludge process and distribution facilities throughout the State of
New Jersey.
The New Jersey Economic Development Authority regarding the Newark Recycling
and Composting Company, Inc. received a letter of intent from Paine Webber to
confirm the commitment to act as underwriter in connection with the sale by the
New Jersey Economic Development Authority of its solid waste disposal facility
revenue bonds, series 1996 in the approximate principle amount of $70,000,000.
In addition, PaineWebber also sent letters of intent for Monmouth Recycling and
Composting Company, Inc. for $30,000,000 and for Gloucester Recycling and
Composting Company, Inc. for $30,000,000.
On December 7, 1995, Legg Mason Wood Walker, Inc. sent a letter to the New
Jersey Economic Development Authority stating that they have agreed to act as
underwriter in connection with their firm
F-58
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. SUBSEQUENT EVENTS:--(CONTINUED)
commitment to raise the requisite capital for the debt financing component of
the composting projects proposed by Gloucester Recycling and Composting Company,
Inc., Monmouth Recycling and Composting Company, Inc. and Newark Recycling and
Composting Company, Inc.
On December 14, 1995, pursuant to Executive Order 185 and PL 1987 c 393, the
State Treasurer of New Jersey, Brian W. Clymer, allocated to the New Jersey
Economic Development Authority $130 million in tax exempt volume cap allocation
from the state's 1996 tax allocation. This allocation is to be reserved for the
issuance of private activity bonds on behalf of Newark Recycling and Composting
Company, Inc.
On January 2, 1996, the New Jersey Economic Development Authority informed
the Company that the State Treasurer has allocated to the New Jersey Economic
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 arenot issued.
B) Amendment to certificate of incorporation:
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 shall be common stock without par and 25,000,000
shares shall be preferred stock with no par value.
C) Loan Agreement with VRH Construction Corp:
On December 26, 1995, Newark Recycling and Composting Company, Inc. and VRH
Construction Corp. signed a loan agreement whereby VRH Construction Corp. lent
$1,043,866 on a term loan basis. The Loan is due on January 15, 1996 with
interest at 10%. The loan has been extended to May 15, 1996.
D) 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 America Soil, Inc.
American Soil, Inc. has conducted the business of composting vegetative waste at
the site in the Township of Freehold, County of Monmouth, State of New Jersey.
The agreement calls for a purchase price of $750,000 payable as follows:
$ 37,500 On execution of agreement
12,500 On execution of agreement
425,000 On closing
125,000 On closing into an escrow account for the payment of liabilities
presently unknown
- ---------
$600,000
- ---------
- ---------
In addition, at closing, the Company will deposit $150,000 into an escrow
account for payment of accounts payable liabilities. After nine months any funds
remaining will be split 75% for the Company and 25% for the seller.
The Company will also take up to 4,000 cubic yards of screened non-sludge
compost per year, without charge, for the years 1996 through 1999. The major
assets acquired are the NJDEP and the federal, state and local permits and the
lease agreement between the seller and Freehold Township, New Jersey.
On April 22, 1996 the letter of intent for the purchase of American Soil,
Inc. was terminated.
F-59
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. JOINT VENTURES:
A) American BIO-AG Corporation was incorporated in the State of Delaware on
January 11, 1995. The Corporation is owned 33 1/3% by each of the following
entities:
R.C. Land Company, Inc.
Twin River Equities
Compost America Holding Company, Inc.
The three entities are unrelated. The purpose of the joint venture will be
to develop, own or lease, operate and farm biosolids beneficial use land
application sites. The joint venture registered to do business in Arizona on
June 27, 1995. In addition, Professional Service Group desires to support the
joint venture company in its efforts to secure, develop and permit beneficial
use land application sites throughout the United States beginning first in the
South West where 365 day application prevail such as Texas, Arizona, New Mexico
and California. The initial land application sites to be developed by the joint
venture corporation are Arizona, Texas and New Jersey. Compost America Holding
Company, Inc. will arrange for a bridge loan in the amount of $750,000 which
will be repaid upon long-term financing. The loan is anticipated to be funded by
April 1, 1995 and repaid by June 30, 1995. As of April 30, 1995 the bridge loan
was not arranged and as of October 31, 1995 has been extended indefinitely.
Compost America Holding Company, Inc. will arrange for short-term funds from
February 15, 1995 to April 1, 1995. Compost America Holding Company, Inc. will
also receive a development fee of $125,000 on positive distributable cash flow.
The joint venture corporation will sign a 15 year management contract with Mr.
Bryce, President of R.C. Land Company, Inc. for $150,000 salary per year to
manage the joint venture beginning February 15, 1995 plus standard benefits in
addition upon generation of positive cash flow. A monthly director fee of $4,000
per month will be paid to each of the directors after revenues commence. The
Board of Directors shall be Ronald R. Bryce, President, Robert Jones III, Vice
President and Roger E. Tuttle, Secretary. Roger Tuttle is also an officer,
director and shareholder of Compost America Holding Company, Inc.
The Company accounts for its investment in the joint venture on the equity
method. The condensed balance sheet and condensed income statement at January
31, 1996 is as follows:
ASSETS
Total current assets........................................... $ 473,978
Property and equipment......................................... 63,681
Other assets................................................... 70,410
---------
Total assets................................................. $ 608,069
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities:
Short-term loans and advances:
Notes and loans payable.................................... $ 156,500
Newark Recycling and Composting Company, Inc............... 185,000
---------
341,500
Stockholders' equity........................................... 266,569
---------
Total liabilities and stockholders' equity................... $ 608,069
---------
---------
Gross income................................................... 0
Loss from operations........................................... $(111,023)
---------
---------
F-60
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. JOINT VENTURES:--(CONTINUED)
As specified in regulation S-X, summarized financial information has been
presented for the joint venture corporation.
The joint venture does not meet the test for a significant subsidiary as
required under REG. Sec. 210-01 (w) as the total assets are less then 10% of
consolidated assets.
Compost America Company of New Jersey, Ltd. investment account at January
31, 1996 is as follows:
Investment in joint venture..................................... $429,502
Loss for period................................................. (37,008)
--------
Equity balance January 31, 1996................................. $392,494
--------
--------
Management of the Corporation is shared equally by the three joint venture
partners.
B) Newark Recycling and Composting Company, Inc. was incorporated in the
State of Delaware on May 10, 1994 with Compost America Company of New Jersey,
Ltd. 75% and Potomac Technologies 25%. The purpose of the Corporation is to
continue development activities which were the development, construction and
operation of a sewer sludge composting facility in Newark, New Jersey. VRH
Construction Corp. is a shareholder in Compost America Holding Company, Inc. and
is the exclusive construction manager for the Newark composting facility.
Management of the corporation will be by consensus of the Board of Directors.
The Company has consolidated the financial statements of Newark Recycling and
Composting Company, Inc. with Compost America Company of New Jersey, Ltd. at
April 30, 1995 and January 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.
13. CONTINGENCIES AND COMMITMENTS:
The Company conducts operations from a facility located in Doylestown, PA
under a one year operating lease. The lease commenced on December 1, 1994 and
expires on November 30, 1995. The facility is office use only. The annual rental
is $18,300 payable monthly at $1,525 per month. The Company has made a $1,525
security deposit. The Company is responsible for any or all repairs up to $100.
The Company must pay additional rent real estate taxes and all increases in fire
insurance. All utilities and janitorial services are included in the rent. The
Company shall have the right to review this lease for one additional year at the
base rate plus the consumer price index for the previous 12 months.
The Company leased office facilities under an operating lease in Doylestown,
PA. The lease was assumed by Compost America Company of New Jersey, Ltd. on
December 17, 1993 for 6,122 sq. ft. of office space. The lease expired on June
14, 1994 but was continued on a month to month basis until December 1, 1994. The
total rental, including a percentage of maintenance, real estate taxes and
insurance, amounted to $59,049 for the period May 1, 1994 to December 1, 1994.
The Company leases an automobile under a operating lease. The lease is
payable at $474.55 per month for 48 months. The lease commenced on May 25, 1993.
The minimum annual lease cost amounts to:
April 30, 1996.................................................. $2,847.30
April 30, 1997.................................................. $5,694.60
F-61
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. CONTINGENCIES AND COMMITMENTS:--(CONTINUED)
As part of the "Asset Purchase Replacement Agreement" dated March 1, 1995,
the Company is contingently obligated to pay an additional $407,500 toward the
acquisition of 50% interest in the Monmouth Recycling and Composting Company
from Bio Services, Inc. The obligation to pay this amount is based on the
"Option Purchase Agreement" with Brownfield Environmental, Inc. to purchase the
Township of Freehold property and upon receipt by Compost America Company of New
Jersey, Ltd. of local approval from the Township of Freehold and County approval
from Monmouth County and the N.J. Department of Environmental Protection for
"Inclusion of the project in the Monmouth County Solid Waste Management Plan",
which will allow Compost America Company of New Jersey, Ltd. to build the indoor
composting facility. Further contingencies require that any remaining
governmental, environmental and building permits related to the construction of
the "indoor composting facility" be obtained in addition to the closing on the
property and the project.
14. COMMON STOCK PURCHASE WARRANTS AND OPTIONS:
As of January 1, 1994, according to the "New and Amended Joint Venture
Agreement", Compost Management, Inc., prior to its merger into Compost America
Company of New Jersey, Ltd., on December 1, 1994, was issued 280,000 warrants @
$.01 per share to acquire 280,000 shares of common stock of Compost America
Company of New Jersey, Ltd. In addition, in a separate agreement, principals of
VRH Construction Corp. were issued 150,000 warrants of Compost America Company
of New Jersey, Ltd. common stock at $.01 per share. All warrants were exchanged
six for one after the merger. The warrants had a term of 5 years. As of April
30, 1995 and January 31, 1996 all outstanding warrants have been exercised.
On January 31, 1994, as a provision of the "Asset Purchase Agreement",
regarding the Monmouth Recycling and Composting Project (Note 9). Bio-Services
Inc. was issued 100,000 warrants for the purchase of 100,000 shares of Compost
America Company of New Jersey, Ltd. common stock. The warrants were exercisable
as follows:
$5 per share...................................................... Year 1
$6 per share...................................................... Year 2
$7 per share...................................................... Year 3
Upon a secondary issue Bio-Services, Inc. will have the right to "piggy
back" its 100,000 shares on the secondary issue.
On December 1, 1994 Bio-Services, Inc. released the 100,000 warrants. They
were redistributed as follows:
David Egarian......................................... 25,000 $5/$6/$7
Rob Jones............................................. 12,500 $5/$6/$7
Ron Bryce............................................. 12,500 $5/$6/$7
Cancelled............................................. 50,000
-------
100,000
-------
-------
On April 29, 1994, Compost America Company of New Jersey, Ltd. issued a
warrant for 100,000 shares of common stock to Bedminster Bioconversion
Corporation at an exercised price of $5 per share. The warrant expires on April
29, 1997.
F-62
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMON STOCK PURCHASE WARRANTS AND OPTIONS:--(CONTINUED)
On February 11, 1995, Compost America Holding Company, Inc., subsequent to
the merger with Compost America Holding Company of New Jersey, Ltd. on February
8, 1995, issued Compost America Holding Company, Inc. warrants in the amount of
784,000 warrants for its common stock to the following individuals and entities:
<TABLE>
<CAPTION>
EXERCISE
WARRANT HOLDER AMOUNT PRICE EXPIRATION
-------------- ------- ---------- ---------------------
<S> <C> <C> <C>
Bedminster Bioconversion (A)................ 300,000 $ 0.83 April 18, 1997
Bio-Services, Inc. (B)...................... 300,000 1.00/1.17 January 31, 1996/1997
B. Michael Pisani........................... 67,200 .92 June 1, 1999
Robert B. Long.............................. 16,800 .92 June 1, 1999
Gary Sandmeyer.............................. 100,000 .01 February 6, 1999
-------
784,000
-------
-------
</TABLE>
All of the 784,000 warrants were outstanding at April 30, 1995. As of
January 31, 1996, 33,000 warrants have been exercised.
(A) The 300,000 warrants to Bedminster Bioconversion Corporation were part
of 360,460 warrants issued to Bedminster Bioconversion. The 60,460 warrants of
360,460 were part of those issued by the Board of Directors on April 30, 1995.
The 360,460 warrants of Compost America Holding Company, Inc. were the result of
an agreed exchange of the 100,000 warrants issued to Bedminster Bioconversion
Corporation on April 29, 1994.
(B) The 300,000 warrants to Bio-Services, Inc. of Compost America Holding
Company, Inc. were exchanged by agreement for the 100,000 warrants of Compost
America Company of New Jersey, Inc. issued on January 31, 1994.
As a result of the release of the warrants held by Bio-Services, Inc. the
following individuals received warrants previously issued to Bio-Services, Inc.
at the converted amounts.
<TABLE>
<CAPTION>
EXERCISE
WARRANT HOLDER AMOUNT PRICE EXPIRATION
-------------- ------- -------- ---------------------
<S> <C> <C> <C>
David Egarian.................................. 150,000 $ 1/1.17 January 31, 1996/1997
Rob Jones...................................... 75,000 1/1.17 January 31, 1996/1997
Ron Bryce...................................... 75,000 1/1.17 January 31, 1996/1997
-------
300,000
-------
-------
</TABLE>
On February 11, 1995, in addition to the warrants listed above, the Board of
Directors of Compost America Holding Company, Inc. issued options to individuals
who were entitled to options of Compost America Company of New Jersey, Ltd.,
immediately prior to the date of the merger. There are a total of 901,000
authorized options @ $.01 per common share with an expiration date of February
10, 1997. As of April 30, 1995, 801,000 of the options have been exercised and
100,000 are still outstanding. As of January 31, 1996 all of the options have
been exercised.
On February 11, 1995 the Board of Directors of Compost America Holding
Company, Inc. adopted and approved a non-qualified stock option plan to grant to
participants options to purchase its common stock. The Company granted 1,913,167
common stock options at $.01 per share. At April 30, 1995 all options have been
exercised.
F-63
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. COMMON STOCK PURCHASE WARRANTS AND OPTIONS:--(CONTINUED)
On April 30, 1995 the Board of Directors approved the issuance of Compost
America Holding Company, Inc. warrants in exchange for warrants held by
individuals and other entities of Compost America Company of New Jersey, Ltd. As
a result the Company issued 133,012 warrants at an exercise price of $3.00 with
an expiration date of June 1, 1999. The warrants were issued to the following:
WARRANT HOLDER AMOUNT
-------------- -------
Bedminster Bioconversion Corporation............................. 60,460
David Egarian.................................................... 30,230
Ron Bryce........................................................ 15,115
Rob Jones........................................................ 15,115
B. Michael Pisani................................................ 9,674
Robert B. Long................................................... 2,418
-------
133,012
-------
-------
These warrants represent the reissuance of the 50,000 warrants cancelled by
Bio-Services, Inc. on December 31, 1994 which were for Compost America Company
of New Jersey, Ltd. All warrants are outstanding at April 30, 1995 and October
31, 1995.
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 $0.01 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 recognize compensation expense of
$1,200,000 at April 30, 1996 based on a discounted fair market value of $2.00
per share.
As part of the employment agreements, the following options were granted as
part of an incentive stock option plan to the following employees:
Gary Sondermeyer.......................... 250,000 @ $2.50 per share
Expiration 12/31/00
Roger Tuttle.............................. 1,000,000 @ $2.50 per share
Expiration 11/14/00
Gilbert Sandler........................... 25,000 @ $3.00 per share
Expiration 04/15/01
15. RELATED PARTY TRANSACTIONS:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in Compost
America Holding Company, Inc. as well as VRH Construction Corp. VRH Construction
Corp. as of April 30, 1995 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, 1996 with interest at 10%. As of January 31, 1996, the note for
$640,072 has been extended for 120 days from the original due date of January
15, 1996 to July 15, 1996. In addition, VRH Construction Corp. has advanced
additional funds amounting to
F-64
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. RELATED PARTY TRANSACTIONS:--(CONTINUED)
$2,453,866 at January 31, 1996, of which $1,543,866 is in two notes payable at
10% due July 15, 1996 and $910,000 is non interest bearing and payable on
demand. The total loans and notes outstanding at January 31, 1996 amounted to
$3,093,938. All advances are anticipated to be paid back upon completion of the
Economic Development Bond Funding.
The Company has acquired all composting projects and technology from
Bedminster Bioconversion, Inc. through Select Acquisitions, Inc., a shareholder
in Compost America Company of New Jersey, Ltd. Select Acquisitions Inc. has
advanced $23,900 at January 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 April 30, 1995 and January 31, 1996 all intercompany transactions have been
eliminated except for amounts due from R.C. Land Company, Inc., a partner in the
Joint Venture of American BIO-AG Corporation, and advances due from American
BIO-AG Corporation other than investments.
16. EMPLOYMENT CONTRACTS:
As stipulated in the Joint Venture Agreement, the Company has guaranteed and
agreed to pay its President, Roger Tuttle, $120,000 annually for a period of ten
years. The Company has similarly guaranteed agreements with its Vice Presidents,
Alfred Rattie and Jonathan Frank to be paid $90,000 annually. On January 31,
1995, as a closing agreement and release, Jonathan Frank was terminated (see
Note 10 (B)). Roger Tuttle, Alfred Rattie and Jonathan Frank were formally
shareholders in Compost Management, Inc., prior to the merger of Compost
Management, Inc. into Compost America Company of New Jersey, Ltd., on December
1, 1994.
Subsequent to the Joint Venture Agreement, all existing employment contracts
have been terminated. New employment agreements were entered into as of January
1, 1995 for all current executives. These new employment agreements as of
October 31, 1995 have not been approved by the Board of Directors or signed by
the individuals. Wages have been accrued based on the new terms for annual
salaries of each executive of $60,000. As of January 31, 1996 an employment
agreement with Roger Tuttle was signed and approved. As President, through
November 14, 2000, Roger Tuttle is to receive a salary of $225,000 and annual
increases based on performance including all general executive benefits and will
participate in the statutory incentive stock option plan. As part of his
compensation, Mr. Tuttle shall receive an option to purchase 1,000,000 shares of
common stock at $2.50 per share expiring November 14, 2000. Mr. Tuttle shall
also receive a $500,000 one-time signing bonus deferred until the Company
attains sales of not less than $5,000,000 for one quarter. As of April 30, 1995
and January 31, 1996, unpaid accrued wages amounted to $163,000 and $233,000
respectively.
As of January 1, 1996, a new employment agreement was signed by a new
executive officer, Gary Sondermeyer, for a term from January 1, 1996 to December
31, 2000. The initial basic annual salary will be $90,000 thereafter increases
shall be based on the Company growth. In addition, the executive shall receive
the usual fringe benefits and participate in a Company statutory incentive stock
option plan to purchase 250,000 shares of common stock at $2.50 per share for a
period of 5 years.
As of April 15, 1996 the Company entered into a compensation agreement with
Gilbert Sandler (Real Vest Capital Corporation) to act as financial advisor to
the Board of Directors. Compensation
F-65
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. EMPLOYMENT CONTRACTS:--(CONTINUED)
shall be $150,000 upon closing of the bond financing for Newark Recycling and
Composting Company and a warrant for 250,000 shares of common stock at $3.00 per
share expiring on April 15, 2001.
17. LONG TERM DEBT:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
RATE 1996 1995 MATURITY
--------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
First Fidelity Bank (A)...................... 10.75% $ 686 $ 3,492 01/20/96
First Fidelity Bank (A)...................... 10.75% 686 3,492 01/20/96
Teepak, Inc. (B)............................. Prime & 2% 264,871 264,871 09/15/96
Jonathan W. Frank (C)........................ None 150,000 200,000 indefinite
----------- ---------
416,243 471,855
Less current portion......................... 151,372 56,984
----------- ---------
$ 264,871 $ 414,871
----------- ---------
----------- ---------
</TABLE>
A) The notes payable to Merchants Bank, N.A., Allentown, Pennsylvania is
payable in monthly installments aggregating $843 per month, including interest.
The notes were originally for 60 months with automotive equipment at a cost of
$44,734 pledged as collateral.
B) The loan payable to Teepak, Inc. is for advances to Compost Management,
Inc. prior to its merger with Compost America Company of New Jersey, Ltd. on
December 1, 1995 which was subsequently assumed by Compost Holding Company, Inc.
for the purpose of obtaining necessary permits for a compost facility in
Riverdale, Illinois. The loans commenced on January 11, 1993 with repayment
terms as follows:
1) After permits are issued Compost America Holding Company, Inc. shall
repay the loan in quarterly installments commencing three months after
the start up of the facility to the extent of 50% of available
cash flow from the facility.
2) If the facility does not receive the necessary permits by September
15, 1996, the entire amount of the loans will be repaid in 24 equal
installments. Any overdue payments shall bear interest at a
rate equal to the prime rate plus 2%.
C) The obligation to Jonathan W. Frank originally for $250,000 is for a
restrictive covenant not to disclose the confidential information acquired as an
employee of the Company to a composting business in solid waste disposal in the
United States of America. The obligation is unsecured and non interest bearing.
Payments are as follows:
$ 25,000 Upon agreement (January 31, 1995)
25,000 On March 1, 1995
50,000 On April 1, 1995 (not paid on due date but in subsequent period)
150,000 Upon closing of the public offering of the Company's common
stock
- ---------
$250,000
- ---------
- ---------
The obligation is expected to be paid in full within less than one year. As
a result, no imputed interest has been computed.
F-66
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. INCOME TAXES:
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes" as
of inception, December 17, 1993. FASB Statement No. 109 is required for all
fiscal years beginning after December 15, 1992. This statement requires that
deferred taxes be established for all temporary differences between book and tax
basis of assets and liabilities. There was no cumulative effect of adoption or
current effect on continuing operations mainly because the Company has been in a
development stage since inception, December 17, 1993, and has sustained net
operating losses during this period. The Company has made no provision for a
deferred tax asset due to the net operating loss carryforward because a
valuation allowance has been provided which is equal to the deferred tax asset.
It cannot be determined at this time that a deferred tax asset is more likely
than not to be realized.
The Company has a loss carryforward of $1,371,630 that may be offset against
future taxable income. The carryforward losses expire at the end of the years
2009 and 2011.
19. NOTE PAYABLE, BANK:
The note payable to United Jersey Bank of $100,000 is due February 1,1996,
on demand, with interest at prime plus 1% billed monthly.
20. EARNINGS PER SHARE:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
PRIMARY PRIMARY
---------------- ----------------
<S> <C> <C>
Number of shares:
Weighted average shares outstanding.......... 13,500,489 5,793,493
Incremental shares for outstanding stock
warrants.................................... 906,016 2,667,127
Incremental shares for outstanding stock
options..................................... 0 0
---------------- ----------------
14,406,505 8,460,620
---------------- ----------------
---------------- ----------------
</TABLE>
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 January 31, 1996 and January 31,
1995.
F-67
<PAGE>
- ------------------------------------------ -----------------------------------
- ------------------------------------------ -----------------------------------
NO DEALER, SALESMAN OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS 1,025,000 SHARES
PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN COMPOST AMERICA
THE AFFAIRS OF THE COMPANY SINCE THE DATE HOLDING COMPANY, INC.
HEREOF. THIS PRO SPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SHARES OF COMMON STOCK
OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
----------------- -------------------
PROSPECTUS
TABLE OF CONTENTS -------------------
PAGE
----
Additional Information................ 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 10
Price Range of Common Stock........... 10
Dividend Policy....................... 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 17
Management............................ 28
Certain Transactions.................. 32
Principal Shareholders................ 33
Description of Securities............. 34
Selling Shareholders.................. 36
Plan of Distribution.................. 37
Experts............................... 37
Legal Matters......................... 37 , 1996
Index to Financial Statements......... F-1
- ------------------------------------------ -----------------------------------
- ------------------------------------------ -----------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
ESTIMATED
EXPENSE
---------
Registration Fee-Securities and Exchange Commission.............. $ 2,298
Accounting Fees and Expenses*....................................
Legal Fees and Expenses*.........................................
Blue Sky Fees and Expenses*......................................
Printing and Engraving*..........................................
Miscellaneous*...................................................
---------
Total*........................................................... $
---------
- ------------
* To be completed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Title 14A of the New Jersey Statutes, as amended, provides that, except in
cases of breach of duty of loyalty, bad faith, knowing violation of law or
receipt of improper personal benefit, an officer or director of a corporation
shall not be personally liable to a corporation or to its shareholders for
damages for breach of duty if and to the extent that liability has been
eliminated or limited in the corporation's certificate of incorporation.
Title 14A provides for indemnity and authorizes other action to protect any
person who is or was serving as a director, officer, employee or agent of a
corporation or who is or was serving, at the request of the corporation, as a
director, officer, trustee, employee or agent of any domestic or foreign
corporation or any partnership, joint venture, sole proprietorship , trust or
other enterprise, whether or not for profit, or any director, officer, employee
or agent of any constituent corporation absorbed by the indemnifying corporation
in consolidation or merger (such person being referred to as a "corporate
agent"). Any corporation is given the power to indemnify a corporate agent who
is or was a party to or was a party to or threatened to be made a party to. any
proceeding by reason of the fact that the corporate agent was serving or had
served the corporation at the request of the corporation as a corporate agent,
against his expenses and liabilities in connection with such a proceeding if the
proceeding is not one brought by or on behalf of the corporation and if: (1)
Such corporate agent acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and (2) with
respect to any criminal proceeding, such corporate agent had no reasonable cause
to believe his conduct was unlawful and against his expenses if the proceeding
is brought by or in the right of the corporation and if such corporate agent
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation; provided, however, that no
indemnification shall be provided in respect of any claim, issue or matter as to
which such corporate agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such
proceeding was brought shall determine, upon application, that despite an
adjudication of liability, but in view of all of the circumstances of the case
the corporate agent is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. Unless otherwise ordered by the court,
such indemnification may be made in a specific case only upon a determination
that the corporate agent had met applicable standards of conduct. Unless
otherwise provided in the corporation's certificate of incorporation or its
by-laws, such determination shall be made by the board of directors or a
committee thereof, acting by a majority vote of a quorum consisting of directors
who were not parties to or otherwise involved in the proceeding or by
independent legal counsel, in written opinion, if designated by a majority vote
of a quorum of disinterested directors or by shareholders if authorized by the
certificate of incorporation, by-laws, resolution of the board of directors or
resolution of the shareholders. Expenses incurred by the corporate agent in
connection with such a proceeding may
II-1
<PAGE>
be paid by the corporation in advance of the final disposition of the proceeding
as authorized by the board of directors upon their receipt of an undertaking of
the corporate agent to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified. A corporation is authorized to
purchase and maintain insurance on behalf of its corporate agents.
Article SECOND of the Registrant's restated certificate of incorporation
provides that:
(3) Except to the extent prohibited by law, no director or officer of
the corporation shall be personally liable to the corporation or its
shareholders, provided that a director or officer shall not be relieved from
liability for any breach of duty based upon an act or omission.
(a) in breach of such person's duty of loyalty to the corporation or
its shareholders;
(b) not in good faith or involving a knowing violation of the law or
(c) resulting in receipt by such person of an improper personal
benefit
(4) To the extent permitted by law, the corporation shall defend,
indemnify and hold its officers and directors harmless for all acts and
omissions in the performance of their duties for the corporation, provided
that such acts or omissions are made in good faith and do not involve a
knowing violation of the law nor result in an improper personal benefit to
the officers or directors.
No other statute, charter provision, by-law, contract or other arrangement
insures or indemnifies any controlling person, director or officer of the
Registrant against liability incurred in such capacity.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission (the "Commission") such indemnification is against public
policy as expressed in that Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. On December 28, 1993 Compost America Company of New Jersey, Ltd. issued
360,000 of its common shares to Compost Management, Inc. in exchange for the
contribution by Compost Management, Inc. to Compost America Company of New
Jersey, Ltd. of all of the ownership interest and development rights held by
Compost Management, Inc. in all current composting projects throughout the
United States. As part of the January 1995 Reorganization, the Company issued
2,160,000 of its common shares to Compost Management, Inc. in exchange for all
of these 360,000 common shares of Compost America Company of New Jersey, Ltd.
2. On January 1, 1994 Compost America Company of New Jersey, Ltd. issued
140,000 of its common shares to Select Acquisitions, Inc. ("Select") in exchange
for technology relating to composting projects. Select had acquired this
technology from Bedminster Bioconversion Corporation, an unrelated company, by
issuing to Bedminster 200,000 shares of Select's 4 1/2% cumulative convertible
preferred stock for $10 per share, or a value of $2,000,000, which is greater
than the $1,013,875 amount that Bedminster itself had expended for this
technology, and for development costs pursuant to specific composting projects.
As part of the January 1995 Reorganization, the Company issued 840,000 of its
common shares to Select Acquisitions, Inc. in exchange for all of these 140,000
common shares of Compost America Company of New Jersey, Ltd.
II-2
<PAGE>
3. During the period January 1, 1994 through April 30, 1994,Compost America
Company of New Jersey, Ltd. issued 138,400 of its common shares to five entities
for $5.00 per share, or a total of $692,000, in a private placement of its
unregistered common shares. As part of the January 1995 Reorganization, the
Company issued 830,000 of its common shares to these five entities in exchange
for all of these 138,400 common shares of Compost America Company of New Jersey,
Ltd.
4. On April 30, 1994 Compost America Company of New Jersey, Ltd. issued
61,440 of its common shares to Select Acquisitions, Inc. for professional fees
values at $614. As part of the January 1995 Reorganization, the Company issued
368,640 of its common shares to Select Acquisitions, Inc. in exchange for all of
these 61,440 common shares of Compost America Company of New Jersey, Ltd.
5. On May 27, 1994 Compost America Company of New Jersey, Ltd. issued 4,000
of its common shares to two individuals, valued at $4.00, as a penalty for
failing to meet certain commitments. As part of the January 1995 Reorganization,
the Company issued 24,000 of its common shares to these two individuals, in
exchange for all of these 4,000 common shares of Compost America Company of New
Jersey, Ltd.
6. During the period September 29, 1994 through October 3, 1994 Compost
America Company of New Jersey, Ltd. paid $50,000 to redeem 10,000 of its common
shares from Coubert Dennis, Ltd., an unrelated limited partnership, as a
termination payment. Compost America Company of New Jersey, Ltd. then sold these
10,000 common shares to VRH Construction Corporation, Inc. for $50,000. As part
of the January 1995 Reorganization, the Company issued 60,000 of its common
shares to VRH Construction Corporation, Inc. in exchange for all of these 10,000
common shares of Compost America Company of New Jersey, Ltd.
7. On October 11, 1994 Compost America Company of New Jersey, Ltd. issued
61,600 of its common shares to five entities for $5.00 per share, plus an
additional payment from one investor of $17,000, or a total of $325,000, in a
private placement of its unregistered common shares. As part of the January 1995
Reorganization, the Company issued 369,600 of its common shares to these five
entities individuals in exchange for all of their 61,600 common shares of
Compost America Company of New Jersey, Ltd.
8. On December 1, 1994 Compost America Company of New Jersey, Ltd. issued
438,560 of its common shares to three individuals who were the shareholders of
Compost Management, Inc., as part of the merger of Compost Management, Inc. into
Compost America Company of New Jersey, Ltd., with Compost America Company of New
Jersey, Ltd. as the surviving company. These shares were valued at $122,613,
that being the net asset value of Compost Management, Inc. as at December 1,
1994. As part of the January 1995 Reorganization, the Company issued 2,631,360
of its common shares to these three individuals in exchange for all of their
438,560 common shares of Compost America Company of New Jersey, Ltd.
9. On December 1, 1994 Compost America Company of New Jersey, Ltd. issued
20,000 of its common shares to three individuals who had invested $100,000 and
owned the rights to 9% of an organic waste processing plant to be located in
Chicago, Illinois in exchange for this 9% interest, as a result of which
transaction Compost America Company of New Jersey, Ltd. then owned 100% of this
project. As part of the January 1995 Reorganization, the Company issued 120,000
of its common shares to these three individuals in exchange for all of their
20,000 common shares of Compost America Company of New Jersey, Ltd.
10. On December 1, 1994 Compost America Company of New Jersey, Ltd. issued
280,000 of its common shares to Compost Management, Inc. upon the exercise by
Compost Management, Inc. of 280,000 warrants to purchase these 280,000 common
shares at $0.01 per share, or a total of $2,800. As part of the January 1995
Reorganization, the Company issued 1,680,000 of its common shares to Compost
Management, Inc. in exchange for all of its 280,000 common shares of Compost
America Company of New Jersey, Ltd.
II-3
<PAGE>
11. On December 1, 1994 Compost America Company of New Jersey, Ltd. issued
150,000 of its common shares to VRH Construction Corporation, Inc. upon the
exercise by VRH Construction Corporation, Inc. of 150,000 warrants to purchase
these 150,000 common shares at $0.01 per share, or a total of $1,500. As part of
the January 1995 Reorganization, the Company issued 900,000 of its common shares
to VRH Construction Corporation, Inc. in exchange for all of its 150,000 common
shares of Compost America Company of New Jersey, Ltd.
As a result of transactions 1 through 11 above, Compost America Company of
New Jersey, Ltd. had 1,654,000 common shares issued and outstanding.
12. On September 29, 1994 Alcor Energy and Recycling Systems, Inc. ("Alcor")
issued 1,500,000 shares of its common stock to two individuals for cancelling
$203,720 of loans due to these individuals.
13. 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.
14. On November 28, 1994 the majority of Alcor stockholders agreed to a one
for twenty reverse split of its common stock which reduced Alcor's total
outstanding common shares to 274,500.
15. On January 23, 1995, Alcor entered into an Acquisition Agreement and
Plan of Reorganization with Compost America Company of New Jersey, Ltd. 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 issued 9,924,000 shares of its common stock in exchange for all of the
1,654,000 outstanding common shares of Compost America Company of New Jersey,
Ltd., with Compost America Company of New Jersey, Ltd. thereby becoming a
wholly-owned subsidiary of Alcor Energy Recycling Systems, Inc. Compost America
Company of New Jersey, Ltd. then effected a 2.41831 for 1 split of its common
shares, as a result of which it had 4,000,000 common shares issued and
outstanding, all owned by Alcor.
16. On February 8, 1995, Alcor Energy and Recycling Systems, Inc., changed
its name to Compost America Holding Company, Inc. (the "Company").
17. On February 11, 1995 the Company granted non-qualified stock options to
purchase 1,913,167 of its common shares at $0.01 per share to certain officers,
directors and consultants of the Company, which options were exercised on
February 11, 1995 for $19,131.67 and the 1,913,167 common shares were issued to
these individuals.
18. On February 11, 1995 the Company granted non-qualified options to
purchase 901,000 of its common shares at $0.01 per share through February 10,
1999 to seven entities who previously had held options to purchase common shares
of Compost America Company of New Jersey, Ltd. in exchange for the cancellation
of those options. All 901,000 of these options have been exercised, at a total
cost of $9,010, and these 901,000 common shares have been issued to five
entities. The Company also issued warrants to purchase 917,012 of its common
shares at various exercise prices through February 10, 1999 to entities who
previously had held warrants to purchase common shares of Compost America
Company of New Jersey, Ltd. in exchange for the cancellation of these warrants.
On November 1, 1995 two individuals exercised 33,000 of these warrants at $0.92
per share and acquired 33,000 common shares for $30,360. As at January 31, 1996,
the balance of 884,012 of these warrants had not been exercised.
19. Between February 2, 1995 and March 31, 1996 the Company sold 667,800
unregistered restricted common shares to fifty-two individuals in a private
transaction for $2.50 per share, or a total of $1,669,500 and 4,000 unregistered
restricted common shares to one individual in a private transaction for $3.00
per share, or a total of $4,000.
Each of the foregoing transactions was exempt from registration under the
Act pursuant to the provisions of Section 4(2) thereof as not involving a public
offering. With respect to each transaction, no person acting on the Company's
behalf offered or sold the securities by means of any form of general
II-4
<PAGE>
solicitation or general advertising. All offerees were furnished, during the
course of the transaction and prior to the consummation thereof, with the same
kind of information that is specified in the appropriate form of registration
statement, including a description of the securities being offered, the
Company's business and financial condition and the use of proceeds or other
consideration from the offering. All offerees were given the right to request
such further information and documents from the Company as they desired in order
to evaluate the merits and risks of the investment to the extent such
information and documents could be furnished by the Company without unreasonable
effort or expense. Each investor represented in writing that he acquired these
securities for his own account and not for purposes of a distribution thereof. A
legend was placed on the certificates stating that the securities had not been
registered under the Act and setting forth the restrictions on their
transferability and sale. Stop transfer instructions were noted on the Company's
transfer ledger by the Company's transfer agent. Each purchaser further signed a
written agreement that the securities will not be sold without registration
under the Act or unless an exemption from the registration provisions of the Act
is available and the availability is established to the satisfaction of the
Company and its counsel.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Registration Statement.
<TABLE>
<C> <S>
2.1 --Acquisition Agreement and Plan of Reorganization*
2.2 --Certificate of Merger*
3.1 --Restated Certificate of Incorporation*
3.2 --Certificate of Amendment to Certificate of Incorporation*
3.3 --By Laws*
4.1 --Specimen Stock Certificate*
5.1 --Opinion of Mark Gasarch, Esq.**
10.1 --Employment Agreement of Gary Sondermeyer*
16.1 --Letter Regarding Change in Certifying Accountant from Rosen Seymour Shapss Martin &
Company*
16.2 --Letter Regarding Change in Certifying Accountant from Fallon & Fallon*
23.1 --Consent of Zeller Weiss & Kahn, Certified Public Accountants**
23.2 --Consent of Mark Gasarch, Esq. (included in Exhibit 5.1)**
24.1 --Power of Attorney with respect to certain signatures in the Registration Statement*
99.1 --Master Letter Agreement dated February 13, 1996 between Paine Webber Incorporated
and the Company*
99.2 --Newark Project Letter Agreement dated February 13, 1996 between Paine Webber
Incorporated and Newark Recycling & Composting Co., Inc.*
99.3 --Monmouth Project Letter Addendum dated February 13, 1996 between Paine Webber
Incorporated and Monmouth Recycling & Composting Co., Inc.*
99.4 --Project Financing Commitments of Legg Mason Wood Walker, Incorporated*
</TABLE>
- ------------
* Previously filed.
** Filed herewith.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or ales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, theretofore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer of
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this amendment to this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Doylestown, State of Pennsylvania, on May 28, 1996.
COMPOST AMERICA HOLDING COMPANY, INC.
/s/ ROGER E. TUTTLE
.......................................
Roger E. Tuttle
President and Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
TITLE DATE SIGNATURE
----- ---- ---------
<S> <C> <C>
ROGER E. TUTTLE May 28, 1996 /s/ ROGER E. TUTTLE
President, Principal Executive .....................................
Officer, Director Roger E. Tuttle
GEORGE S. CHU* May 28, 1996 /s/ ROGER E. TUTTLE
Senior Vice President, .....................................
Principal Financial and George S. Chu*
Accounting Officer
JOHN B. FETTER* May 28, 1996 /s/ ROGER E. TUTTLE
Executive Vice President, .....................................
Treasurer, Director John B. Fetter*
VICTOR D. WORTMANN* May 28, 1996 /s/ ROGER E. TUTTLE
Chairman, Director .....................................
Victor D. Wortmann*
ROBERT E. WORTMANN* May 28, 1996 /s/ ROGER E. TUTTLE
Secretary, Director .....................................
Robert E. Wortmann*
PASQUALE E. DILEO May 28, 1996 /s/ ROGER E. TUTTLE
Director .....................................
Pasquale E. Dileo*
</TABLE>
*By: /s/ ROGER E. TUTTLE
..............................
Roger E. Tuttle,
Attorney-in-Fact
II-7
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential No.
- ------- --------------
2.1 Acquisition Agreement and
Plan of Reorganization*
2.2 Certificate of Merger*
3.1 Restated Certificate of Incorporation*
3.2 Certificate of Amendment to Certificate
of Incorporation*
3.3 By Laws*
4.1 Specimen Stock Certificate*
5.1 Opinion of Mark Gasarch, Esq.** 118
10.1 Employment Agreement of Gary Sondermeyer*
16.1 Letter Regarding Change in Certifying
Accountant from Rosen Seymour Shapss
Martin & Company*
16.2 Letter Regarding Change in Certifying
Accountant from Fallon & Fallon*
23.1 Consent of Zeller Weiss & Kahn,
Certified Public Accountants** 120
23.2 Consent of Mark Gasarch, Esq. (Included in his Opinion
filed as Exhibit 5.1)**
24.1 Power of Attorney with respect to certain
signatures in the Registration Statement*
99.1 Master Letter Agreement dated February 13,
1996 between Paine Webber Incorporated
and the Company*
99.2 Newark Project Letter Agreement dated February
13, 1996 between Paine Webber Incorporated
and Newark Recycling & Composting Co., Inc.*
99.3 Monmouth Project Letter Addendum dated February
13, 1996 between Paine Webber Incorporated
and Monmouth Recycling & Composting Co., Inc.*
99.4 Project Financing Commitment of Legg Mason
Wood Walker, Incorporated*
* Previously filed
** Filed Herewith
Exhibit 5.1
Opinion of Mark Gasarch, Esq.
<PAGE>
MARK GASARCH
[LETTERHEAD]
May 28, 1996
Compost America Holding Company, Inc.
350 South Main Street, Suite 313
Doylestown, Pennsylvania 18901
Gentlemen:
Compost America Holding Company, Inc. (the "Company") has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-1 (Registration No. 333-1592) and proposes to file Amendment No. 2
thereto, of which this opinion is to be a part, relating to the proposed sale by
certain shareholders of the Company ("Selling Shareholders") of 1,025,000
previously issued shares of the Company's common stock, no par value ("Common
Stock") (The Registration Statement, as amended, is hereinafter referred to as
the "Registration Statement").
I have acted as counsel in connection with certain of the transactions that
are the subject matter of the Registration Statement and am familiar with the
various corporate proceedings relating thereto. I have examined such corporate
records of the Company and such other instruments, documents and certificates as
I have deemed necessary as a basis for this opinion.
For the purpose of this opinion, I have assumed that (i) the proposed
transactions are carried out as set forth in the Registration Statement, (ii)
the Commission shall have issued an order under the Securities Act of 1933, as
amended, declaring effective the Registration Statement, and (iii) all requisite
authorizations, approvals, consents or exemptions under the securities laws of
the various states and other jurisdictions of the United States, shall have
been obtained.
Based upon the foregoing, I am of the opinion that the shares of Common
Stock to be sold by the Selling Shareholders in accordance with the Registration
Statement, are duly authorized, and were legally issued, fully paid and non-
assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as part of, or as an exhibit to, any document that
may be filed with respect to the proposed transactions under the securities laws
of the various states and other jurisdictions of the United States. I also
consent to the reference to myself under "Legal Matters" in the Prospectus which
is a part of the Registration Statement.
Very truly yours,
/s/ Mark Gasarch
Mark Gasarch
MG:be
Exhibit 23.1
Consent of Zeller Weiss & Kahn,
Certified Public Accountants
<PAGE>
[ZELLER WEISS & KAHN LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this registration statement on Form S-1
(File No.333-1592) of our report dated February 9, 1996, except for note 11(F)
as to which the date is April 22, 1996, on our audits of the financial
statements and financial statement schedules of Compost America Holding
Company, Inc. We also consent to the reference to our firm under the caption
"Experts".
/s/ Zeller Weiss & Kahn
Zeller Weiss & Kahn
Moutainside, New Jersey
May 28, 1996
