<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended July 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act; For the
transition period from to
Commission File #0-27832
COMPOST AMERICA HOLDING COMPANY, INC.
................................................................................
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2603175
- - ---------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Grand Avenue Englewood, New Jersey 07631
- - --------------------------------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
Issuers's telephone number, including area code: (201)541-9393
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1. Common Stock - 15,177,966 shares outstanding as at July 31, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
1285 Ave. of the Americas
3rd Floor
New York, New York 10019
<PAGE>
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of July 31, 1996 F-2
Statement of income for the three months
ended July 31, 1996 and 1995 and for the period
December 17, 1993 (inception) to July 31, 1996 F-3
Statement of stockholders' equity as of July 31, 1996 F-4
Statement of cash flows for the three months ended
July 31, 1996 and 1995 and for the period
December 17, 1993 (inception) to July 31, 1996 F-5
Statement of operating expenses for the three months
ended July 31, 1996 and 1995 and for the period
December 17, 1993 (inception) to July 31, 1996 F-6
Notes to condensed consolidated financial statements F-7 - F-38
Item 2. Management's discussion and analysis of
financial condition
Part II. Other information
Signatures
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
THREE MONTHS ENDED JULY 31, 1996 AND 1995 AND
FOR THE PERIOD DECEMBER 17, 1993 (INCEPTION) TO JULY 31, 1996
(UNAUDITED)
CONTENTS
Page
Condensed consolidated financial statements:
Balance sheet F-2
Statement of income (loss) F-3
Statement of stockholders' equity F-4
Statement of cash flows F-5
Statement of operating expenses F-6
Notes to condensed consolidated financial statements F-7 to F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET - JULY 31, 1996
ASSETS
Current assets:
Cash $ 1,527
Prepaid expenses 410,701
Due from affiliated company, R.C. Land Company Inc. 55,384
Due from affiliated company, American Soil, Inc. 348,566
----------
Total current assets 816,178
----------
Investments in joint venture (Note 12A) 0
----------
Plant, property and equipment (Note 17)
Land 8,441,441
Transportation equipment 160,046
Office equipment 153,861
Construction in progress, Compost projects 5,769,650
----------
14,524,998
Less accumulated depreciation 62,550
----------
14,462,448
----------
Other assets:
Restrictive covenant (Note 8(B)) 225,000
Trademark costs, net of amortization of $326 1,384
Organization costs, net of amortization of $3,342 5,319
Deposits (Note 19) 79,817
Option deposit 12,500
----------
324,020
----------
$15,602,646
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 20) $ 100,000
Notes payable, others 200,250
Accounts payable and accrued expenses 1,774,250
Mortgages payable - Praxair Corp. 2,100,000
Current portion of long-term debt (Note 17) 9,296
Due to affiliated company, VRH Construction Corp.
(Note 15) 3,855,855
Reserve for land replacement 85,375
Due to affiliated company, Select Acquisitions,
Inc. (Note 15) 38,060
Payroll taxes payable 39,345
----------
Total current liabilities 8,202,431
----------
Long-term debt, net of current portion (Note 17) 4,264,647
----------
Contingencies and commitments (Note 13)
Minority interest in consolidated subsidiary 86,657
----------
Stockholders' equity:
Preferred stock, no par value, 25,000,000 shares
authorized; none issued
Common stock, no par value, 50,000,000
shares authorized; 15,289,455 shares issued
and outstanding 7,935,072
Common stock warrants (Note 14)
Deficit accumulated during the development stage ( 4,856,469)
Less: subscriptions receivable ( 29,692)
----------
3,048,911
----------
$15,602,646
----------
----------
See notes to condensed consolidated financial statements.
F-2
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
(UNAUDITED)
Cumulative from
Three months ended December 17, 1993
July 31, (inception) to
1996 1995 July 31, 1996
---- ---- --------------
Net sales $ 0 $ 0 $ 80,741
Other revenues 53,454
----------- ----------- ----------
Total 0 0 134,195
Cost of operations, transportation 0 0 17,342
----------- ----------- ----------
Gross income 0 0 116,853
General and administrative 995,819 219,315 3,385,099
----------- ----------- ----------
Loss from operations ( 995,819) ( 219,315) ( 3,268,246)
----------- ----------- ----------
Other non-operating expenses:
Interest 139,516 434,500
Loss impairment 916,038 916 038
----------- ----------- ----------
1,055,554 1,350,538
----------- ----------- ----------
Loss before income tax expense ( 2,051,373) ( 219,315) ( 4,618,784)
Income tax expense (Note 18) 0 0 0
----------- ----------- ----------
( 2,051,373) ( 219,315) ( 4,618,784)
Minority interest in loss
of consolidated subsidiaries 42,552 0 123,170
----------- ----------- ----------
( 2,008,821) ( 219,315) ( 4,495,614)
Loss in equity in joint venture ( 13,603) ( 18,504) ( 360,855)
----------- ----------- ----------
Net loss ($ 2,022,424) ($ 237,819) ($4,856,469)
----------- ----------- ----------
----------- ----------- ----------
Loss per common share:
Primary and fully diluted ($0.11) ($0.02)
----- -----
----- -----
Weighted average number of
common shares outstanding:
Primary 18,522,574 14,244,846
See notes to condensed consolidated financial statements.
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(Deficit)
Accumulated
During the
Common Stock Development
Shares Amounts Stage
------ ------- -----------
Balance, April 30, 1995 13,222,667 $2,899,278 ($ 861,239)
Issuance of common stock, exercise of
warrants May 1, 1995 (.01 per sh.) 100,000 1,000
Issuance of common stock, May 1995
(2.50 per sh.) 20,000 50,000
Issuance of common stock, June 1995
(2.50 per sh.) 70,000 175,000
Issuance of common stock, Aug. 1995
(2.50 per sh.) 40,000 100,00
Issuance of common stock, Sept. 1995
(2.50 per sh.) 2,000 5,000
Issuance of common stock, Oct. 1995
(2.50 per sh.) 45,000 112,500
Issuance of common stock, Nov. 1, 1995
(.92 per sh.) 33,000 30,360
Issuance of common stock, Nov. 1995
(2.50 per sh.) 36,000 90,000
Issuance of common stock, Dec. 1995
(2.50 per sh.) 85,600 214,000
Issuance of common stock, Jan. 1996
(2.50 per sh.) 52,200 130,500
Issuance of common stock, Feb. 1996
(2.50 per sh.) 87,000 217,500
Issuance of common stock, Feb. 1996
(0 per sh.) 500
Issuance of common stock in acquisition
of Bedminster Seacor Services Miami
Corporation March 1, 1996
(2.50 per sh.) 200,000 500,000
Issuance of common stock,
March 1996 (2.50 per sh.) 40,000 100,000
March 1996 (3.00 per sh.) 4,000 12,000
Issuance of common stock,
April 1996 (2.50 per sh.) 48,600 121,500
April 1996 (3.00 per sh.) 2,500 7,500
Issuance of common stock in settlement of
American 810-AG Corporation
April 30, 1996 (2.50 per sh.) 83,333 208,332
Issuance of common stock for services
April 30, 1996 (2.00 per sh.) 267,000 534,000
Issuance of common stock in settlement of
debt April 30, 1996 (6.00 per sh.) 25,000 150,000
Issuance of common stock for services
April 30, 1996 (2.34 per sh.) 40,000 93,404
Issuance of common stock in payment of
employees for excess services
April 30, 1996 (5.00 per sh.) 17,962 89,810
Net loss April 30, 1996 ( 1,972,806)
---------- ---------- ----------
Balances, April 30, 1996 14,522,362 $5,841,684 ($2,834,045)
---------- ---------- ----------
---------- ---------- ----------
(Deficit)
Accumulated
During the
Common Stock Development
Shares Amounts Stage
------ ------- -----------
Balance, April 30, 1996 14,522,362 $5,841,684 ($2,834,045)
Issuance of common stock
May 1996 ($3.00 per sh.) 41,534 124,602
Issuance of common stock
settlement agreement with
Select Acquisitions,
May 31, 1996 ($2.50 per sh.) 200,000 500,000
Issuance of common stock,
June 1996 ($3.00 per sh.) 24,930 74,790
Issuance of common stock for
for acquisition of assets
June 28, 1996 ($2.50 per sh.) 305,000 762,500
Issuance of common stock in
payment to consultants for
excess services, June 30, 1996
($5.00 per sh.) 3,128 15,640
Issuance of common stock
consulting agreement
June 30, 1996 ($2.50 per sh.) 583 1,458
Issuance of common stock
July 1996 ($2.00 per sh.) 16,335 49,005
Issuance of common stock
for services, July 24, 1996
($4.00 per sh.) 100,000 400,000
Issuance of common stock
consulting agreement
July 31, 1996 ($2.50 per sh.) 583 1,457
Issuance of common stock
consulting agreement services,
July 1, 1996 ($2.50 per sh.) 75,000 187,500
Charge deferred offering
cost to stock proceed ( 23,564)
Net loss July 31, 1996 ( 2,022,424)
---------- ---------- ----------
Balance, July 31, 1996 15,289,455 $7,935,072 ($4,856,469)
---------- ---------- ----------
---------- ---------- ----------
See Notes to condensed consolidated financial statements. F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
from
Three months ended December 17, 1993
July 31, (Inception) to
1996 1995 July 31, 1996
---- ---- -------------
<S> <C> <C> <C>
Operating activities:
Net loss ($2,022,424) ($237,819) ($ 4,856,469)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization 4,567 3,455 26,990
Depreciation 7,340 3,801 30,781
Loss in equity in joint venture 16,455 18,504 363,707
Stock issued for professional services 206,055 791,055
Stock issued in settlement of shareholder dispute 500,000 500,000
Write down of impaired investment in American BIO-AG 916,038 916,038
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses 44,851 ( 10,701)
Increase (decrease) in accounts payable and
accrued expenses 324,597 20,415 1,817,654
Increase (decrease) in payroll taxes payable 21,365 2,670 39,345
Changes in other assets and liabilities:
Increase (decrease) in cash from affiliated companies:
R.C. Land Company, Inc. ( 26,784) ( 55,384)
American Bio-AG Corp. 185,000 ( 106,400)
Select Acquisitions, Inc. 14,160 38,060
American Soil Company, Inc. ( 173,566) ( 348,566)
Deferred offering costs 20,564
---------- -------- -----------
Net cash provided from (used in) operating activities 38,218 ( 295,374) ( 747,490)
---------- -------- -----------
Investing activities:
Purchase of restrictive covenant ( 250,000)
Purchase of construction in progress, Compost project ( 267,405) ( 230,495) ( 3,711,961)
Purchase of land, property and equipment ( 416,221) ( 7,948,116)
Reserve for land replacements 85,375
Purchase of organizational costs ( 5,925)
Increase (decrease) in deposits receivable ( 61,036) ( 12,965) ( 79,307)
Return (purchase) of options ( 12,500) 50,000 ( 12,500)
Purchase of equity in American BIO-AG Corporation ( 331,606) ( 189,100) ( 1,109,765)
---------- -------- -----------
Net cash used in investing activities ( 1,088,768) ( 382,560) ( 13,032,199)
---------- -------- -----------
Financing activities:
Increase in due to affiliated company, VRH
Construction Corp. 346,667 497,000 3,855,855
Increase (decrease) in notes payable, bank ( 50,000) 100,000
Increase in notes payable, other 200,250 200,250
Increase in mortgage payable 2,100,000
Increase in long-term debt 276,829 4,395,420
Proceeds from issuance of common stock 224,833 224,999 3,189,102
Payments on long-term debt ( 2,364) ( 59,411)
---------- -------- -----------
Net cash provided by financing activities 1,048,579 669,635 13,781,216
---------- -------- -----------
Net increase (decrease) in cash ( 1,971) ( 8,299) 1,527
Cash, beginning of period 3,498 9,409 0
---------- -------- -----------
Cash, end of period $ 1,527 $ 1,110 $ 1,527
---------- -------- -----------
---------- -------- -----------
Supplementary disclosure of cash flow information
Interest $ 0 $ 0 $ 294,984
Taxes $ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities (Note 22)
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATING EXPENSES
(UNAUDITED)
Cumulative from
Three months ended December 17, 1993
July 31, (inception) to
1996 1995 JULY 31, 1996
---- ---- -------------
Operating expenses:
Salaries $100,110 $ 14,136 $ 229,138
Payroll taxes 3,068 604 24,437
Advertising 5,935 1,500 13,990
Amortization 4,567 3,455 26,990
Automobile expense 4,113 4,684 72,933
Bad debt charges 7,806
Bank charges 801 363 3,335
Building rental 4,575 4,575 92,629
Carting expense 394
Computer expense 849
Consultants 253,415 29,291 837,980
Depreciation 7,340 3,801 30,781
Dues and subscriptions 520 125 18,922
Employment Services 600
Equipment rental 1,579 2,542 8,334
Insurance 14,867 13,786 108,396
Licenses and permits 1,534
Miscellaneous 4,421 25,848
Office expense 2,396 5,818 40,289
Option expense 7,500
Outside services 239 2,409
Postage and deliveries 1,350 844 14,824
Printing 705 20,500
Professional fees 19,077 79,864 447,594
Repairs and maintenance 250 4,780
Research and development 460,376
Settlement of shareholder
dispute 500,000 500,000
Taxes, other 29,902 600 77,993
Telephone 16,405 10,352 90,785
Training 530
Travel and entertainment 23,885 37,962 208,242
Utilities 720 62 4,911
-------- -------- ----------
$995,819 $219,315 $3,385,099
-------- -------- ----------
-------- -------- ----------
See notes to condensed consolidated financial statements.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed financial statements of Compost America Holding
Company, Inc. and its Subsidiaries have been prepared pursuant to the
rules and regulations of The Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes included
in the Company's April 30, 1996 annual report on Form 10KSB. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended July 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ended April 30, 1997.
1. Nature of business:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it
sells to a multitude of users. The process which the Company will employ
is composting, or the controlled decomposition of organic matter into
humus (a component of soil). Like a landfill or an incinerator operator,
the Company will be paid "tipping fees" to accept waste from generators of
these materials. In selected markets like New Jersey, where the disposal
costs are high, the economic opportunity of taking in and processing large
volumes of waste is significant.
The Company will operate a vegetative and selected food waste compost
facility in New Jersey and will continue the development of the indoor
composting projects currently in progress, which will convert organic
materials ordinarily disposed of in landfills or incinerators into a
valuable end product which is beneficial to the environment.
2. Business organization:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in the
state of New Jersey, with 1,000,000 authorized shares at no par value. On
February 1, 1984 Alcor conducted an offering under Regulation A, an
exemption from registration under the Securities Act of 1933. On that
date, 300,000 shares of common stock were issued at $1.00 per share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000 to
7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert
Spruance Company and 750,000 shares to Peter English and his affiliates in
return for all outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three
subsidiaries due to the lack of sufficient capital needed to continue the
operations of each. Alcor sustained losses from both the disposition of
the Gilbert Spruance Company and The English Group, Inc.
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
On September 27, 1994, 650,000 shares issued to Peter English to acquire
the English Group, Inc. were returned pursuant to the disposal of the
English Group, Inc.
On September 29, 1994, Alcor issued 1,500,000 shares to two individuals
for cancelling $203,720 of loans due to these individuals.
On October 21, 1994, Alcor amended its Certificate of Incorporation to
increase its authorized common stock from 7,500,000 shares to 15,000,000
shares with 5,490,000 shares issued and outstanding. Alcor, now inactive,
pursued finding a business partner either through merger or acquisition.
On November 28, 1994 the majority of Alcor stockholders agreed to a one
for twenty reverse split which reduced total outstanding shares to
274,500.
On January 23, 1995, Alcor entered into an Acquisition Agreement and Plan
of Reorganization with Compost America Company of New Jersey, Ltd.,
incorporated in the state of Delaware on December 17, 1993. Compost
America Company of New Jersey, Ltd. had 5,000,000 shares, .01 par value of
common stock authorized, of which 1,654,000 shares were issued and
outstanding. Alcor exchanged 9,924,000 shares of its common stock for all
of the outstanding common stock of Compost America Company of New Jersey,
Ltd.
On February 8, 1995, Alcor Energy and Recycling Systems, Inc., changed its
name to Compost America Holding Company, Inc. (Company).
On December 4, 1995, the directors of the Company approved an amendment to
the Certificate of Incorporation to increase the authorized shares to
issue 75,000,000 shares of which 50,000,000 shares shall be common stock
without par and 25,000,000 shares shall be preferred stock with no par
value.
3. Nature of operations, risks and uncertainties:
The waste management industry in which the Company plans to operate as a
processor of municipal solid waste, sewage sludge and commercial organic
waste, is highly competitive and has been traditionally dominated by
several large and well recognized national and multi-national companies
with substantially greater financial resources in comparison to the
financial resources available to the Company.
There can be no assurance that the Company will be able to obtain the
required federal, state and local permits necessary to operate its
composting facilities presently under development.
The Company plans to contract for and to process, municipal solid waste
and sewage sludge that meets the Company specifications. It is possible
that some of the wastes accepted at a company facility may contain
contaminants which could cause environmental damage and result in
liabilities.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Nature of operations, risks and uncertainties (continued):
The Company has not entered into any contracts with users of compost from
its facilities which are under development. Should the Company not be
able to sell the compost, the Company may have to give the compost away
and pay for its transportation costs.
The Company has no significant concentration of credit with any individual
counterparty or groups of counterparties.
4. Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Compost America Company of
New Jersey, Ltd. and its subsidiaries, Newark Recycling and Composting
Co., Inc., Gloucester Recycling and Composting Company, Inc., Monmouth
Recycling and Composting Co., Inc., Chicago Recycling and Composting
Company, Inc., Miami Recycling and Composting Company, Inc., Compost
America Technologies, Inc., Bedminster Seacor Services Miami Corporation,
Garden Life Sales Company, Inc. and American BIO-AG Corporation. Inter-
company transactions and balances have been eliminated in consolidation.
5. Principles of reorganization:
The acquisition of the Company's subsidiary, Compost America Company of
New Jersey, Ltd., on January 23, 1995 has been accounted for as a reverse
purchase of the assets and liabilities of the Company by Compost America
Company of New Jersey, Ltd. Accordingly, the consolidated financial
statements represents assets, liabilities and operations of only Compost
America Company of New Jersey, Ltd. prior to January 23, 1995 and the
combined assets, liabilities and operations for the ensuing period. The
financial statements reflect the purchase of the stock of Alcor Energy and
Recycling Systems, Inc., the former name of Compost America Holding
Company, Inc., by Compost America Company of New Jersey, Ltd. for stock
and the assumption of liabilities of $49,094, this amount being the
historical cost of the assets and liabilities acquired. All significant
inter-company profits and losses from transactions have been eliminated.
6. Investment - American BIO-AG Corporation:
American BIO-AG Corporation was formed as a joint venture under the
RESTATED JOINT VENTURE AGREEMENT dated February 15, 1995 between R. C.
Land Company, Twin Rivers Equity Partnership and Compost America Holding
Company, Inc.. American BIO-AG Corporation was incorporated in the State
of Delaware, January 11, 1995 (see Note 11(5) & 12(A)).
The purpose of the joint venture was to develop, own and lease and operate
land application sites for the beneficial use of biosolids. Management of
American BIO-AG is being performed by executives from the three entities
forming American BIO-AG. Initially, sites are being developed in Arizona,
Texas and California. Compost America Holding Company, Inc. owns 33 1/3%
of the joint venture.
As of June 28, 1996 American BIO-AG Corporation was restructured with
Compost America Holding Company, Inc. owning 75% and Twin Rivers Equity
owning 25% of Newark Recycling and Composting Company, Inc. which acquired
100% of American BIO-AG Corporation, Inc.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Investment - American BIO-AG Corporation (continued):
The financial statements reflect American BIO-AG Corporation as a 33 1/3%
investment under the equity method of accounting through June 30, 1996 and
consolidated as a 100% owned subsidiary from July 1, 1996 to July 31,
1996.
7. Agreements:
A) Compost America Holding Company, Inc.
1) American BIO-AG Corporation:
On June 28, 1996 Compost America Holding Company, Inc., Twin River
Equities and R.C. Land Company, Inc. each a 33 1/3% owner in the Joint
Venture, American BIO-AG Corporation formed an agreement to sell their
ownership in American BIO-AG Corporation to Newark Recycling and
Composting Company, Inc. In addition, R.C. Land Company, Inc. will sell
all of its land applications business assets to Newark Recycling and
Composting Company, Inc. who will assign these assets and become the 100%
owner of American BIO-AG Corporation. Newark Recycling and Composting
Company, Inc. is owned 75% by Compost America Holding Company, Inc. and
25% by Potomac Technologies, Inc. As consideration, R.C. Land Company,
Inc., for its contribution of assets and stock ownership of American BIO-
AG Corporation, will receive 305,000 shares of Compost America Holding
Company, Inc.'s restricted stock at a fair value of $2.50 per share and
$50,000 payable $5,000 on June 21, 1996, $20,000 on June 28, 1996 and
$25,000 on July 31, 1996. Additionally, Newark Recycling and Composting
Company, Inc. will make a one year loan to R.C. Land Company, Inc. in
the amount of $150,000 at 15% per annum and secured by 60,000 registered
shares of Compost America Holding Company, Inc.
As part of this agreement, Ronald K. Bryce, the 100% owner of R.C. Land
Company, Inc., received 83,333 shares of common stock of the Company and
cancelled 75,000 Compost America Holding Company, Inc. stock purchase
warrants. Newark Recycling and Composting Company, Inc., now 100% owner
of American BIO-Ag Corporation, also assumed all outstanding accounts
payable of American BIO-AG Corporation as of June 28, 1996 in the amount
of $104,286. The assets acquired from R.C. Land Company, Inc. consisted
of:
1) All plan of operation with all site specific plans with the State
of Arizona's Department of Environmental Quality
2) Various farms lands 5,428 acres
3) Intellectual property, name and experience in land application
business
4) Various equipment
5) 33 1/3% ownership in American BIO-AG Corporation Joint Venture
The value of the transaction with R.C. land Company, Inc. was computed
based on the fair value of the 305,000 shares at $2.50 per share plus
50,000 in cash plus 33 1/3% of the negative book value assumed of $110,525
of American BIO-AG Corporation. The total value attributable to the
acquisition of R.C. Land Company, Inc.'s assets and equity in American
BIO-AG Corporation amounted to $923,035 plus the mortgages assumed of
$276,829 for a net value of $1,199,864.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
1) American BIO-AG Corporation (continued):
Compost America Holding Company, Inc. and Twin Rivers Equities
(Potomac Technologies, Inc.) contributed to Newark Recycling and
Composting Company, Inc their 33 1/3% interest in American BIO-AG
Corporation, the value being the net book value of the assets
acquired.
2) Settlement Agreement:
In July 1996 the Company and Ehmann, Van Denbergh & Trainor, P.C. made
a tentative agreement to settle a disagreement between the Company and
the law firm concerning the validity of billings from the law firm and
when and in what amount and manner the Company bills should be paid.
The original amount due Ehmann, Van Denbergh and Trainor, P.C.
amounted to $603,807 and in a desire to settle, agrees to $500,000 as
a settlement amount. Payments to be made as follows:
$ 50,000 due June 14, 1996
50,000 due June 28, 1996
400,000 monthly installments of $20,000, or payment in full
upon closing of the Newark financing
Ehmann, Van Denbergh & Trainor, P.C. also agreed to give the Company
an option to purchase back 500,000 shares of its common stock at $4.00
per share until October 31, 1997 in installments of 50,000 shares. In
the event of default the note shall bear interest at 4% over prime
from date of default.
3) Registration Statement:
On June 7, 1996 the Company became effective as to it's S-1
Registration Statement which registered 1,353,100 shares of the
Company's common stock solely for selling shareholders.
4) Consulting Agreement John B. Ferre:
On June 10, 1996 the Company and John B. Ferre, a shareholder in the
Company, entered into a consulting agreement regarding Chicago
Recycling and Composting Company, Inc., to provide services in
developing lowest cost electric power contracts with power providers.
The consultant will provide, for a term of 5 years, advice concerning
the types of electric equipment best suited to operate the Company's
composting facilities and negotiate the lowest cost electrical power
contracts. The consultant will receive $5,000 per month commencing
June 10, 1996 which shall accrue and be deferred until payable from
operating revenues of the Chicago Composting and Recycling Company,
Inc. facility. At this time consultant shall also be reimbursed for
accrued expenses incurred.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
B) Chicago Recycling and Composting Company, Inc.
1) Chicago Restructuring Agreement:
On July 24, 1995, effective as of February 15, 1995, pursuant to an
agreement between Compost America Holding Company, Inc. and
Foundations Systems, Inc. to convey, sell and transfer unto Compost
America Holding Company, Inc. all of Foundation Systems, Inc. rights,
title and interest in and to the assets of the Chicago Recycling and
Composting Project. The interest acquired represented 50% of the
Joint Venture between the two companies. The principals of Foundation
Systems, Inc. as consideration for their interest were issued 120,000
shares of common stock of Compost America Holding Company, Inc.
2) Conditional Agreement of Sale:
On May 5, 1994 the Indiana Harbor Belt Railroad and Chicago Recycling
and Composting Company, Inc. entered into an agreement to purchase a
parcel of land containing 14 acres. The purchase price shall be
$420,000 with $42,000 down and the balance at closing. The price of
the property is based on $30,000 per acre or fraction thereof. Any
differences in actual acreage will amend purchase price to conform.
The closing shall be 30 days from completion of due diligence or 365
days from May 5, 1994. The contract included many contingencies to be
satisfied in order to close.
As of April 30, 1996 the $42,000 deposit was never made but the
contract was still in effect.
On September 1, 1995 the agreement of sale was extended to March 31,
1996.
On March 31, 1996 the agreement of sale was extended to July 31, 1996,
subsequently extended to December 31, 1996.
3) Real Estate Lease:
On March 20, 1996 Chicago Recycling and Composting Company, Inc. and
Hub Cap City entered into a lease agreement for the premises located
at 13831 Ashland Avenue, Riverdale, Illinois 60627. The lease is for
a term of 36 months beginning on the date Chicago Recycling and
Composting Company, Inc. purchases the property. The lease will
automatically renew for a period of three years unless terminated.
The lease payment is $500 per month for a total of $6,000 annually,
any renewals are on the same terms.
4) Easement Agreement:
On March 20, 1996 Chicago Recycling and Composting Company, Inc. and
Hub Cap City entered into an easement agreement such that Hub Cap City
gives and conveys an easement for ingress and egress over, upon and
across two separate 20 foot wide portions of the Hub Cap City parcel
to provide access for necessary utility lines, sewer and water lines
or such other access to public facilities as may reasonably be
necessary, to and from the public roadway.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
C) Gloucester Recycling and Composting Company, Inc.
1) Lease Agreement, Gloucester City, New Jersey
On July 1, 1995 Gloucester City (lessor) and Gloucester Recycling and
Composting Company, Inc. (lessee) entered into a lease agreement for
certain real property located in Gloucester City, New Jersey
containing approximately 7.98 acres and also Parcel No. 2 (Block 120,
Lot 1) if acquired by Gloucester City. Approximately 12 acres of
Parcel No.2 shall be dedicated for the full scale, permanent
composting facility. The lease shall commence on March 7, 1996 for an
initial term of 24 consecutive months. With the lessor's consent the
lessee shall have the right and option to extend the term for an
additional 30 years. The rent is based on a rent formula.
For the fist 24 months the rent shall be $100 per month plus all site
improvements to Parcel No. 1 to develop a "demonstration composting
facility" for the 30 year extended term.
1) Lessee's redemption of Parcel No. 1.
2) Lessee's payments to lessor in accordance with the "host
community benefit fee schedule" for the extended term.
The benefit fee payment schedule is as follows:
1) Payments in lieu of taxes
a) Taxes due Camden County and District School taxes to be
paid by lessee following receipt of the NJDEP full scale,
permanent composting facility permit.
b) Municipal purpose taxes beginning twelve months following
the date of commercial operation.
c) The initial payment following commercial start-up is
$82,745 with annual escalations of 4%.
2) Lease payments begin the end of the first full month of
commercial operations and shall be equal to the mortgage
expense resulting from the acquisition of Parcel No. 2.
3) Host Community Benefit
Payments are based on tons of all organic waste received at
the composting facility at the rate of $2.40 per ton which
shall be applied against "site clean-up" costs. Actual cash
payments shall begin after the amount is fully paid except a
$.35 per ton shall be paid for the first calendar year.
Following the site clean-up application the rate shall be
$2.75 per ton through the tenth year. After the ten years the
payment shall be adjusted annually based on the average tip
fee. There is a maximum fee of $100,000 should tip fees fall
below $65.00 per ton. In addition, $1.25 per ton will be paid
to lessor for organic waste in excess of 100,000 tons.
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc.
1) Option Purchase Agreement:
On March 1, 1995 Compost America Company of New Jersey, Ltd. (CANJ)
and Brown Field Environmental, Inc. entered into an agreement to
purchase a tract of land, together with improvements in Freehold
Township in the County of Monmouth, described as Lot 37 in Block 92
which is an area of 15 acres. The purchase price will be $600,000
with an estimated closing date of February 14, 1996. CANJ has the
exclusive option to extend the closing for an additional 12 months by
paying $2,500 per month during the extension period. As of April 30,
1996 the contract was extended for the initial 12 months to February
14, 1997. CANJ has an additional exclusive right to extend the
closing for a second extension of 18 months by payment of a $15,000
fee plus a non-refundable option payment per month of $3,500.
2) Stock Purchase Agreement:
On December 4, 1995, the Company entered into a stock purchase
agreement to acquire 100% of all the issued and outstanding stock of
American Soil, Inc. with Robert F. Young, Jr. (seller) and American
Soil, Inc. American Soil, Inc. has conducted the business of
composting vegetative waste at the site in the Township of Freehold,
County of Monmouth, State of New Jersey. The agreement calls for a
purchase price of $750,000 payable as follows:
$ 37,500 On execution of agreement
12,500 On execution of agreement
425,000 On closing
125,000 On closing into an escrow account for the
-------- payment of liabilities presently unknown
$600,000
--------
--------
In addition, at closing, the Company will deposit $150,000 into an
escrow account for payment of accounts payable liabilities. After
nine months any funds remaining will be split 75% for the Company and
25% for the seller.
The Company will also take up to 4,000 cubic yards of screened non-
sludge compost per year, without charge, for the years 1996 through
1999. The major assets acquired are the NJDEP and the federal, state
and local permits and the lease agreement between the seller and
Freehold Township, New Jersey.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
On April 22, 1996 the agreement for the purchase of American Soil,
Inc. was terminated by the principals of American Soil, Inc.
Negotiations were immediately undertaken and Compost America Holding
Company, Inc. and American Soil, Inc. retroactively agreed to an April
1, 1996 amendment to the Stock Purchase Agreement whereby the parties
agreed to:
a) Compost America Holding Company, Inc. paid a non-refundable
payment of $37,500.
b) Compost America Holding Company, Inc. paid a non-refundable
payment should closing not take place of $12,500.
c) Compost America Holding Company, Inc. paid a non-refundable
payment of $125,000 on April 1, 1996.
d) On or before closing the Company shall pay American Soil, Inc.
$310,000 or 85,000 shares of Compost America Holding Company,
Inc.
e) The Company will make available $150,000 to pay American Soil,
Inc.'s account payable liabilities or other indebtedness in
excess of $35,000. Any amounts remaining shall be given to
American Soil, Inc. in stock at a price of $5 per share.
f) The Company shall provide an additional escrow of $125,000 for
nine months to pay liabilities in excess of $150,000 over the
first $35,000. The escrow is to pay any unknown liabilities
and any environmental clean-up. Any remaining funds shall be
distributed to the seller.
g) The Company is to provide 4,000 cubic yards of screened non-
sludge compost per year at no charge from 1996 through 1999.
h) The Company will also pay up to $30,000 per month for monthly
operating expenses.
i) The Company will pay the cost of additional stone freight and
bulldozer equipment up to $19,250.
j) The firm and final closing date is June 30, 1996. The Company
put up 100,000 shares to guarantee closing in the name of
Robert F. Young, Jr. These shares are to be returned upon
closing or forfeited if closing does not occur. As of
September 6, 1996, the Company has not issued the 100,000
shares and has not closed on the purchase of American Soil,
Inc. The contract is still pending and has been extended.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
Financial statements of American Soil, Inc. have not been provided since
the proposed acquisition does not meet with the test for a significant
subsidiary as required under Reg Section 210-02 (W). The combined
investment in and advances at the proposed acquisition date amounted to
$869,250 which does not exceed 10% of consolidated assets at July 31,
1996.
3) Meher & LaFrance Retainer Agreement:
On May 29, 1996 the Company entered into a Retainer Agreement with the
law firm of Meher & LaFrance to provide legal services regarding the
Township of Freehold, to provide appearances before municipal and
other governmental boards, committees and agencies, compliance with
the Monmouth County Solid Waste Management Plan and required
permitting procedures of the New Jersey Department of Environmental
Protection, through final site plan approvals. The Company shall
maintain a $1,500 retainer deposit and will be billed monthly based on
an hourly basis of time expended at standard hourly rates.
E) Newark Recycling and Composting Company, Inc. (continued):
1) Option and Purchase Agreement:
On July 1, 1994, Newark Recycling and Composting Company, Inc. and
Linde Gases of the Mid-Atlantic, Inc. entered into an agreement for an
option to purchase approximately 11.69 acres of real property together
with the buildings and improvements in the City of Newark, Essex
County, New Jersey. The option called for a $50,000 option payment on
date of agreement for a term from July 1, 1994 to December 31, 1994
with a provision to extend the option term for up to two additional
periods commencing January 1, 1995 and expiring June 30, 1995 and July
1, 1995 and expiring October 31, 1995. At each extension date an
additional $50,000 option payment was required for a total at October
31, 1995 of $150,000. The purchaser can exercise their option at any
time during the option period and extensions to purchase the property
for a purchase price of $3,250,000. All option payments are to be
credited against the purchase price. In the event the option is not
exercised, all option payments will be forfeited.
On October 20, 1995, an Amendment to Option and Purchase Agreement was
signed whereby "Praxair" was substituted for the seller, Linde Gases
of the Mid-Atlantic, Inc. and Newark Recycling and Composting Company,
Inc. exercised the option and posted as security for the closing a
security bond. The purchase price was amended to $3,285,866 less the
$150,000 in option payments. At closing a deposit of $1,035,866 was
to be paid together with a promissory note and purchase money mortgage
of $2,100,000 at 8% per annum, payable monthly, with a maturity on
August 31, 1996 which has been extended to November 30, 1996. The
property was closed on December 15, 1995.
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc. (continued):
1) Option and Purchase Agreement (continued):
To accommodate the down payment VRH Construction Corp. loaned Newark
Recycling and Composting Company, Inc. $1,043,866 on a term loan basis
on demand. The loan was due on January 15, 1996 with interest at 10%
per annum. The loan has been extended to October 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.
F) Miami Recycling and Composting Company, Inc.:
1) Letter Agreement with Bedminster BioConversion Corporation:
On June 9, 1995, the Company entered into a letter agreement, as a
modification of proposals dated May 3rd and 20th, 1995, for Compost
America Company of New Jersey, Ltd. to acquire 100% of the outstanding
stock of Bedminster Seacor Services Miami Corporation, from Bedminster
Bioconversion Corporation. Bedminster Seacor Services Miami
Corporation has agreed to enter into a 30 year "put or pay" solid
waste service agreement in which the City of Miami Florida and
Bedminster agree to design, construct and operate a facility having an
annual capacity of at least 150,000 tons. The charges will be $52.50
per ton.
As consideration for the acquisition of 100% of stock of Bedminster
Seacor Services Miami Corporation from Bedminster Bioconversion
Corporation, Bedminster Bioconversion Corporation shall receive:
200,000 Shares of common stock of Miami Recycling and
CompostingCompany, Inc.
300,000 Warrants to purchase shares of the common stock of
Miami Recycling and Composting Company, Inc. at $6.00
per share for a term of 5 years.
Bedminster will be the supplier of record of all "Eweson Digesters"
the bridge crane, "Fecon Turning Equipment" and the floor aeration
units to the composting project undertaken by the Company pursuant to
a solid waste service agreement between the City of Miami, Florida and
the Company. Such equipment supply agreements will be at the
equipment cost plus 10%. The agreement calls for license fees and net
distributable cash flow allocations.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
1) Letter Agreement with Bedminster Bioconversion Corporation
(continued):
As part of the acquisition of Bedminster Seacor Services Miami
Corporation, Miami Recycling and Composting Company, Inc. acquired the
contract for real property in Dade County, Florida. On March 29, 1996
Miami Recycling and Composting Company, Inc. closed on the real estate
contract for a purchase price of $4,095,838.
2) Stock Purchase Agreement:
On March 1, 1996 Miami Recycling and Composting Company, Inc., a
wholly owned subsidiary of Compost America Holding Company, Inc,
entered into an agreement for all of the issued and outstanding shares
of common stock of Bedminster Seacor Services Miami Corporation by the
issuance of 200,000 shares of Compost America Holding Company, Inc.'s
common stock and 300,000 warrants to purchase shares of Compost
America Holding Company, Inc.'s common stock at $6.00 per share for a
term of 5 years from March 1, 1996 from Bedminster Bioconversion
Corporation. In addition Ronald K. Bryce would receive 83,333 shares
of the Company's common stock. The fair value of the shares was $2.50
per share based on current sales of the Company's stock.
In addition, Miami Recycling and Composting Company, Inc. agreed to a
equipment supply arrangement for certain solid waste services at cost
of equipment plus 10% provided that Miami Recycling and Composting
Company, Inc. shall be entitled to utilize Curing Technologies
developed by Bedminster Bioconversion Corporation. As part of the
Stock Purchase Agreement Bedminster Bioconversion Corporation will be
paid a license fee of $200,000 upon financing of the Miami Project, a
supplemental license fee of $300,000, three years after commencement
of commercial operation of the Miami Project and an additional
$300,000, six years after commercial operation. Bedminster
Bioconversion Corporation shall also receive 20% of the net
distributable cash flow allowable to the revenues received.
Additionally. Miami Recycling and Composting Company, Inc. agreed to
pay up to $170,000 within 60 days for accounts payable as part of the
Stock Purchase Agreement. Roger Tuttle, President of Miami Recycling
and Composting Company, Inc., has personally guaranteed the payments
of these payables.
On July 11, 1996 and on July 16, 1996 the Stock Purchase Agreement was
amended to change the stock issued for the purchase of Bedminster
Seacor Miami Corporation from Miami Recycling and Composting Company,
Inc. to Compost America Holding Company, Inc. and to change the
license fee to Bedminster Bioconversion Corporation to $400,000 upon
financing of the Miami Project, a supplemental license fee of $200,000
three years after commencement operations and an additional $200,000
six years after commencement.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
As of March 1, 1996 the condensed balance sheet of Bedminster Seacor
Services Miami Corporation was as follows:
ASSETS
Current assets:
Due to Miami Recycling and Composting
Company, Inc. $ 17,927
--------
Total current assets 17,927
Construction in progress - compost projects 482,073
--------
Total assets $500,000
--------
--------
LIABILITIES AND SHAREHOLDERS EQUITY
Shareholders equity:
Common stock $736,036
Deficit ( 236,036)
--------
$500,000
--------
--------
3) Land Purchase Contract:
On March 29, 1996 Bedminster Seacor Services Miami Corporation, a
wholly owned subsidiary of Miami Recycling and Composting Company,
Inc., purchased a parcel of land in the Northwest quarter of
Section 30, Township South, Range 40 East, Dade County Florida for
$4,095,838 plus closing costs from Rinker Materials Corporation.
Rinker Materials Corporation gave a mortgage of $3,730,870.75 at 7%
per annum commencing May 1,1996 and continuing for the next 22 months.
All interest and principal is due on April 1, 1998. As of March 29,
1996 all contracts have been assigned to Miami Recycling and
Composting Company, Inc.
4) On October 29, 1993 Bedminster Seacor Services Miami Corporation
entered a Solid Waste Agreement with the City of Miami, Florida to
provide an efficient and environmentally acceptable method of solid
waste disposal. The agreement calls for Bedminster Seacor Services
Miami Corporation to construct, operate and maintain a facility on a
designated site which has the capacity to process at least 204,000
tons of acceptable waste. During start-up and prior to the
commencement date of the operation, the city shall pay a service fee
of $63.50 per ton for waste delivered to and accepted by the facility.
Upon commencing of operations Bedminster Seacor Services Miami
Corporation shall receive the unit billing rate for the first five
years of $63.50 per ton and thereafter at a rate based on an
escalation factor.
5) On October 20, 1994 the agreement with the City of Miami was amended
such that the capacity has been reduced from 204,000 to 183,000.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
6) On November 13, 1995 Bedminster Seacor Services Miami Corporation
restated the Compost Recycling Agreement between the City of Miami,
Florida and Bedminster Seacor Services Miami Corporation. The
restated agreement set forth for Bedminster Seacor Services Miami
Corporation to design, construct, operate and maintain the facility on
the site and to pay the cost of construction. The facility shall have
the capacity to process at least 150,000 tons of acceptable waste.
During start-up and prior to the commencement of operations, the city
shall pay Bedminster Seacor Services Miami Corporation a service fee
of $52.00 per ton for acceptable waste delivered to the facility. On
the commencement date of operations, the city will pay Bedminster
Seacor Services Miami Corporation a service fee for the processing
capacity equal to the unit billing rate multiplied by the greater of
(1) the number of tons of waste accepted at the facility and disposed
at Bedminster Seacor Services Miami Corporation's cost pursuant to the
terms or (2) 1/12th of the guaranteed annual tonnage minus the bypass
waste rejected at the facility. The unit billing rate is equal to
$52.00 per ton and escalated yearly in accordance with an escalation
factor.
In September 1996, in a first amendment to the restated Compost
Recycling Agreement, the amendment effective date was changed to
November 13, 1996 and the initial payment by Bedminster Seacor
Services Miami Corporation to the City of Miami to secure the
performance of the Company's obligations under the restated agreement
shall be one million three hundred and fifty thousand dollars
($1,350,000) payable $100,000 in September 1996 and the balance of
$1,250,000 dollars, plus interest at 10% per annum, payable at the
earlier of the financial closing of the funding for the Miami Compost
Project or September 1, 1997. If payments are not received the City
of Miami shall have the right to terminate this agreement.
7) All the agreements with Bedminster Seacor Services Miami Corporation
ave been assigned to Miami Recycling and Composting Company, Inc.
subsequent to the acquisition of Bedminster Seacor Services Miami
Corporation by Miami Recycling and Composting Company, Inc. and its
parent company Compost America Holding Company, Inc. on March 1, 1996.
8. Consulting Contracts:
A) Engineering and Technology Agreement:
On September 15, 1994, an "Engineering and Technology Agreement" for
the Newark Recycling and Composting Company, Inc., a subsidiary of
Compost America Company of New Jersey, Ltd. and D.J. Egarian &
Associates, Inc., was signed, for the right to use the licensed 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.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
A) Engineering and Technology Agreement:
The consulting fee for these services will be paid to either D.J.
Egarian & Associates, Inc. or David J. Egarian as follows:
$ 15,000 Upon execution of this agreement
$167,500 Paid prorata on the percent of completion prior to
the close of project financing for engineering
drawings.
$ 5,000 Per month after commencement of the construction
of the facility through the completion of
construction
Any additional services shall be billed as services are provided.
B) Consulting Agreement between Compost America Company of New Jersey,
Ltd. and Michael J. Marchese dated March 1, 1995:
Michael J. Marchese will provide consulting services in obtaining
local and county approvals for the Monmouth County composting site.
The following terms for his consulting services are:
1) $1,000 month beginning 30 days from this agreement through
the receipt of local approval from the Township of Freehold
to build a compost facility on the property but no longer
than 12 months.
2) $2,000 month thereafter until closing on the property.
3) $5,000 month after closing.
4) To a maximum of $100,000
At July 31, 1996 total advanced payments amounted to $64,000.
C) Consulting Agreement with Robert Tardy d/b/a Tardy and Associates:
On December 1, 1995, a Consulting Agreement was signed with Robert
Tardy d/b/a/ Tardy and Associates and the Company for consulting
services regarding the technology and operational aspects of the
production of compost from municipal solid wastes, other organics and
sewage sludge. The term is for one year starting December 1, 1995.
The consultant is to receive $4,000 per month on the last day of each
month commencing with the month of December 1995 for six months and
$6,000 per month for the next six months. In addition, the consultant
is to receive expense reimbursement based on Company policy.
As additional consideration for consulting services in excess of the
basic services of 40 hours per month the Company shall, on a quarterly
basis, issue to the consultant one share of common stock for each $5
of compensation accrued in excess of the basic service.
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
D) Underwriter Counsel Agreement, Wolf, Block, Schorr, Solis-Cohen P.C.:
On April 1, 1996 the Board of Directors of the Company approved the
utilization of Wolf, Block, Schorr, Solis-Cohen P.C. a underwriter for
the Company's proposed project financing anticipated in New Jersey and
its first five project financing in other states. Wolf, Block,
Schorr, Solis-Cohen P.C. will be compensated $160,000 for the Newark,
New Jersey closing which included its Newark and Monmouth Projects.
In addition, they shall receive as compensation $110,000 for each of
the next five non-New Jersey projects.
E) Ronald K. Bryce Consulting Agreement:
On July 1, 1996 the Company entered into a consulting agreement with
Ronald K. Bryce to provide consulting and advice in the development of
the Company's composting facilities. The Consultant shall receive
$4,000 per month from July 1996 to December 1996 and $6,500 per month
from January 1997 to June 30, 1997. Additionally, the Company shall
issue 75,000 common shares of the Company to be registered before
September 1, 1996. Expenses are to be reimbursed not to exceed $1,850
per month without prior approval of the Company.
F) Peter Coker Consulting Agreement:
On June 24, 1996 the Company entered into an agreement with Peter
Coker to provide financial consulting services. The term is for a
period of 5 years from June 24, 1996 with compensation as follows:
1) 25,000 shares of unregistered common stock for previously
rendered services.
2) As compensation for current services the following options to
purchase:
100,000 shares at $2.00 per share
50,000 shares at $5.00 per share
50,000 shares at $9.00 per share
All options to expire on June 30, 2001. The Company shall also
reimburse consultant for out-of-project expenses.
G) Pasquale Dileo Consulting Agreement:
On April 30, 1996 the Company executed a consulting agreement with
Pasquale Dileo, a shareholder in the Company, to provide expertise in
shareholder broker-dealer relations for public companies. The
agreements for a term of three years with compensation at $5,000 per
month plus a one-time fee of $25,000 and 100,000 shares of the
Company;s restricted common stock. The consultant shall also be
reimbursed for out-of-pocket expenses. In consideration for
consulting services in excess of basic services (200 hours per month)
the Company grants the consultant the option to purchase 200,000
shares of the Company's common stock at a price of $2.50 per share for
five years.
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
H) Mark Gasarch Consulting Agreement:
On May 20, 1996 the Company entered into a consulting agreement with
Mark Gasarch, Esq. to provide legal services in the areas of Corporate
and Federal Securities Law for a term of one year and for 2 additional
consecutive one year terms at the option of the Company. The
consultant will be paid a one time fee of $10,000 and $8,000 per month
commencing with the month of private funding by a certain financial
group or Newark Recycling and Composting Company, Inc. upon financial
closing. The consultant shall be reimbursed for out-of-pocket
expenses. In addition, for excess services over basic service (60
hours per month) the consultant will be issued 500 shares of common
stock for each 10 hours in excess of 60 hours per month. In addition,
the Company granted the consultant the option to purchase 200,000
shares at $2.50 per share for a term of five years.
I) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into a consulting agreement with Jose Ferre to provide consulting
services regarding the tax free bond financing of the Miami Project.
Ferre shall receive as compensation a development fee equal to 1% of
the capital costs of the Miami Composting facility with a minimum fee
of $400,000. Additionally, Jose Ferre is granted an option to
purchase 15% of the Miami Recycling facility for a two year period
commencing with the start of commercial operations. The purchase
price of the option shall be commercially reasonable and in accordance
with industry standards and norms for projects of this type at date of
acquisition.
J) Consulting Service:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into an agreement with Dade County Bioconversion Corporation, which
superseded the December 28, 1994 agreement with South Florida
Bioconversion Corporation, to provide consulting services in the
construction and operation of the Miami Composting facility. Dade
County Bioconversion Corporation has selected Mr. Orlando Garcia, Jr.
as its representative. Mr. Garcia is to receive 8,000 shares of
Compost America Holding Company, Inc.'s common stock upon the awarding
of the contract and commencement of construction of the Miami
Composting facility certain individuals will be paid a success fee
equal to 1% of the capital costs of the Miami Composting facility
subject to a minimum of $400,000 payable $100,000 at financial closing
and $100,000 at the end of the next three twelve month periods. In
addition, unrestricted common stock of Compost America Holding
Company, Inc. of 25,000 shares will be issued to the same individuals
upon financial closing of the Miami Composting facility. Upon
commercial operation of the Miami Composting facility Dade
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
J) Consulting Service (continued):
County Bioconversion Corporation will be paid a consulting fee based
upon the amount of the solid waste processed at the compost plant and
paid by the City of Miami in the amount of a tipping fee of $1.30 per
ton of solid waste processed at the compost plant.
K) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into a consulting agreement with Antonio Zamura, Ereleo Pena and Pedro
Roig to provide consulting services to Miami Recycling and Composting
Company, Inc. for the period beginning with May 31, 1996 and
terminating on the commencement of commercial operations. The
consultants will consult with and advise the Company concerning
governmental relations, lobbying and public relations with various
sectors of the community . The consultant shall assist in the
financial closing and the commencement of commercial operations.
Compensation for the consultants will be $3,500 per month commencing
on January 1, 1997 through the month of commencement of commercial
operations. Thereafter the consultants shall receive 1,752
unregistered shares of the common stock of Compost America Holding
Company, Inc. on the last day of each month.
L) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc. entered
into an agreement with J.G.R. Associates to provided consulting
services in public relations and advertising. The term of this
agreement is May 31, 1996 and terminates on the commencement of
commercial operations. The Company will pay the consultant $3,500 per
month which will be paid as follows: $1,750 in cash each month plus
583 shares of common stock of Compost America Holding Company, Inc.
which will be issued each month.
M) On July 24, 1996 the Company entered into a consulting agreement with
Edward Rodriguez to provide financial consulting services. The
consultant will assist the Company in developing, studying and
evaluating financial, merger and acquisition proposals and assist in
negotiations. As compensation the consultant, for a term of two
years, will receive $400,000 in the form of stock of the Company.
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
M) (continued):
The consultant will receive 100,000 shares of the Company's common
stock to be registered under an S-8 filing and 500,000 stock options
exercisable immediately as follows:
150,000 @ $4.00 Expiration December 31, 2001
150,000 @ 5.00 Expiration December 31, 2001
200,000 @ 6.00 Expiration December 31, 2001
After the exercise of the options the consultant must complete certain
mailing of investor packages before stock can be registered under Form
S-8 filing. Registration of the stock will be in stages from
immediately upon completion of mailing of 100,000 packages to investors,
3 months after completion and 6 months after completion.
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 July 31, 1996 the Company has secured required financing
through various private placement offerings and through related
companies, Compost Management, Inc., Select Acquisitions, Inc. and
VRH Construction Corp. The Company has acquired losses in connection
with its operations during this same period of $4,856,469.
Projects in development:
GLOUCESTER CITY - NATIONAL SOURCE SEPARATED ORGANIC WASTE DEMONSTRATION
PROJECT:
The Company, with a number of sponsors/partners, is developing an
18-month pilot program to demonstrate the process of separating organic
waste at its source and transforming organic materials into compost at a
compost
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
GLOUCESTER CITY - NATIONAL SOURCE SEPARATED ORGANIC WASTE DEMONSTRATION
PROJECT (continued):
site to be operated by the Company. Sponsors/partners for the
demonstration project are: 1) The National Audubon Society; 2) The
Grocery Industry (including The Food Marketing Institute, Grocery
Manufacturers Associates, Proctor & Gamble and The New Jersey Food
Council); 3) Bedminster; 4) Higgins Management, Inc.; 5) U.S.
Environmental Protection Agency; 6) America Forest & Paper
Association; 7) U.S. Conference of Mayors; 8) National Association of
Counties; 9) Restaurant and Foodservice Association; and 10) America
Plastics Council.
The location of the demonstration project is a site located in
Gloucester City, New Jersey. A small-scale invessel composting facility
will be installed in a portable building and will process five to eight
tons per day of organic materials collected from the cities of
Gloucester City and Cherry Hill and various commercial accounts. Upon
the successful start up and operation of the pilot program it is
anticipated that the Company will construct a 350 ton per day invessel
composting facility at the same site in Gloucester City.
On June 1, 1995 Gloucester Recycling and Composting Company, Inc.
entered into a lease with Gloucester City for 7.98 acres ("Parcel No.1")
located in Gloucester City, New Jersey. The term of the lease is for 24
months commencing on the 7th day of March, 1996 and an option to extend
the term for an additional 30 years. Rent for the first 24 months shall
be $100 per month plus real estate taxes. The 30 year extension is
based on a benefit fee payment schedule for the lease payments and the
host community benefit charges. Following commercial start-up payments
shall begin in the amount of $82,745 and increase annually by 4%
throughout the tax year with a computer price index increase or decrease
for the remainder of the term.
The total project cost at July 31, 1996 amounted to $267,423. The
estimated scheduled start for the demonstration project was the first
quarter of 1996. This date has been extended.
NEWARK PROJECT:
On January 2, 1996 the New Jersey Economic Development Authority
informed the Company the State Treasurer has allocated to the New Jersey
Economic Development Authority $130 million in 1996 volume cap
allocation on behalf of the Company's composting projects for Newark,
Gloucester and Monmouth. The allocation will expire on March 29, 1996
in the event bonds are not issued but has been extended to September 30,
1996 and further extended to November 30, 1996.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
NEWARK PROJECT (continued):
On June 17, 1996 the New Jersey Economic Development Authority reduced the
volume cap allocation for Newark Recycling and Composting Company, Inc.
from $130 million to $85 million and extended the effective date to
September 30, 1996 and which was further extended to November 30, 1996.
As of July 31, 1996 total project cost for the Newark Project amounted to
$3,610,448. In addition the property for the Newark Project has been
acquired at a cost of $3,285,866.
MIAMI PROJECT:
On November 17, 1995 Compost America Holding Company, Inc. formed it's
wholly owned subsidiary Miami Recycling and Composting Company, Inc., a
Delaware Corporation. On March 1, 1996 Compost America Holding Company,
Inc. acquired 100% of all the issued and outstanding stock of Bedminster
Seacor Services Miami Corporation. The purpose was for Miami Recycling
and Composting Company, Inc., a subsidiary of Compost America Holding
Company, Inc., to operate and own a composting facility in Miami, Florida.
Bedminster Seacor Services Miami Corporation will be the supplier of all
"Eweson Digesters", the bridge crane, Fecon Turning Equipment" and the
floor aeration units to the composting project. In addition Bedminster
Seacor Services Miami Corporation will assign all contracts, permits, land
purchase options and agreements with the City of Miami for composting.
On March 29, 1996 Miami Recycling and Composting Company, Inc. closed on
the purchase of a parcel of land in Dade County, Florida from Rinker
Materials Corporation which it plans to develop into a large scale organic
waste recycling facility which will process commercial and residential
food, soils, paper, cardboards, other organic wastes and sewage sludge
(biosolids) from municipal waste water plants into compost.
As of July 31, 1996 Miami Recycling and Composting Company, Inc. has
acquired a land site at a cost of $4,116,246 and construction in progress
costs of $593,577.
10. Private Placements and Private Offerings:
On February 15, 1995, later revised on August 15, 1995, Compost America
Holding Company, Inc. offered for sale, in a private offering, restricted
shares of common stock to private individuals, no par value, at an
offering price of $2.50 per share and $3.00 per share. From February 15,
1995 to July 31, 1996 774,364 shares have been sold for a total of
$1,964,892. The offering has no expiration date.
11. Joint ventures:
A) The Company and two other entities formed a joint venture. The
purpose of the joint venture is to develop, own or lease, operate and
farm biosolids beneficial use land application sites. The joint
venture registered to do business in Arizona on June 27, 1995. In
addition, Professional Service Group desires to support the joint
venture company in its efforts to secure, develop and permit
beneficial use
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Joint ventures (continued):
A) (continued):
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 June 28, 1996 the
bridge loan was not arranged. Compost America Holding Company, Inc.
has arranged for short-term funds from February 15, 1995 to June 28,
1996. Compost America Holding Company, Inc. will also receive a
development fee of $125,000 on positive distributable cash flow. The
joint venture corporation will sign a 15 year management contract with
Mr. Bryce, President of R.C. Land Company, Inc. for $150,000 salary
per year to manage the joint venture beginning February 15, 1995 plus
standard benefits in addition, upon the Company's generation of
positive cash flow. In April of 1996 the Company issued 83,333 shares
of its common stock as compensation for unpaid management fees and
expenses to Mr. Ronald Bryce. The Company has valued these shares at
a fair value of $2.50 per share or $208,332. This amount has been
capitalized as part of the cost of the investment in American BIO-AG
Corporation by the Company. A monthly director fee of $4,000 per
month will be paid to each of the directors after revenues commence.
The Board of Directors shall be Ronald R. Bryce, President, Robert
Jones III, Vice President and Roger E. Tuttle, Secretary. Roger
Tuttle is also an officer, director and shareholder of Compost America
Holding Company, Inc.
The Company accounts for its investment in the joint venture on the
equity method. The condensed balance sheet and income statement as of
and for the period ended June 28, 1996 are as follows:
ASSETS
Total current assets $ 77,475
Property and equipment, net 28,410
Deposits, land acquisitions 26,783
--------
Total assets $132,668
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Total liabilities:
Short-term loans and advances:
Notes and loans payable $133,750
Newark Recycling and Composting Company, Inc. 185,000
Accounts payable and accrued expenses 113,322
Compost America Holding Company, Inc. 32,202
--------
464,274
Shareholders' equity (deficiency) ( 331,606)
--------
Total liabilities and stockholders' equity $132,668
--------
--------
Gross income 0
--------
--------
Loss from operations ($ 40,808)
--------
--------
As specified in regulation S-X, summarized financial information
has been presented for the joint venture corporation.
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Joint ventures (continued):
A) (continued):
The joint venture does not meet the test for a significant
subsidiary as required under REG. Section 210-01 (w) as the total
assets are less than 10% of consolidated assets.
Compost America Company of New Jersey, Ltd. investment account and
loans at June 28, 1996 is as follows:
Investment in joint venture, loans and advances $825,239
Loss for period ( 13,603)
--------
Equity balance June 28, 1996 $811,636
--------
--------
Management of the Corporation is shared equally by the three joint
venture partners.
On June 28, 1996 the Company, through its majority owned subsidiary,
Newark Recycling and Composting Company, Inc., purchased all of the
land application business assets of R.C. Land Company and all the
ownership interests of Compost America Holding Company, Inc., Twin
River Equities and R.C. Land Company, Inc.'s in American BIO-AG
Corporation. Newark Recycling and Composting Company, Inc. became the
100% owner of the entity American BIO-AG Corporation. Newark
Recycling and Composting Company, Inc. is owned 75% by Compost America
Holding Company, Inc. and 25% owned by Potomac Technologies. For the
period July 1, 1996 to July 31, 1996 American BIO-AG Corporation has
been included in the consolidated financial statements of the Company.
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 July 31, 1996. The Company reflects
minority interest as another liability in the balance sheet and as a
reduction of net income or net loss in the income statements
(see Note 7 (J)).
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Contingencies and Commitments:
A) The Company conducts operations from a facility located in Doylestown,
PA under a one year operating lease. The lease commenced on December
1, 1994 and expires on November 30, 1995. The facility is office use
only. The annual rental is $18,300 payable monthly at $1,525 per
month. The Company has made a $1,525 security deposit. The Company is
responsible for any or all repairs up to $100. The Company must pay
additional rent real estate taxes and all increases in fire insurance.
All utilities and janitorial services are included in the rent. The
Company shall have the right to review this lease for one additional
year at the base rate plus the consumer price index for the previous
12 months.
B) The Company leased office facilities under an operating lease in
Doylestown, PA. The lease was assumed by Compost America Company of
New Jersey, Ltd. on December 17, 1993 for 6,122 sq. ft. of office
space. The lease expired on June 14, 1994 but was continued on a
month to month basis until December 1, 1994. The total rental,
including a percentage of maintenance, real estate taxes and
insurance, amounted to $59,049 for the period May 1, 1994 to December
1, 1994.
C) On May 1, 1996 the Company entered into a lease agreement for office
facilities located at 320 Grand Avenue, Englewood, New Jersey 07631
for a term of five years. The Company will pay a rental of $4,000 per
month plus electricity and real estate taxes over the base year.
The minimum annual rentals are as follows:
April 30, 1997 $48,000
April 30, 1998 48,000
April 30, 1999 48,000
April 30, 2000 48,000
D) The Company leases an automobile under a operating lease. The lease
is payable at $474.55 per month for 48 months. The lease commenced on
May 25, 1993. The minimum annual lease payments during the next year
amount to $5,695.
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Contingencies and Commitments (continued):
E) As part of the "Asset Purchase Replacement Agreement" dated March 1,
1995, the Company is contingently obligated to pay an additional
$407,500 toward the acquisition of 50% interest in the Monmouth
Recycling and Composting Company from Bio Services, Inc. The
obligation to pay this amount is based on the "Option Purchase
Agreement" with Brownfield Environmental, Inc. to purchase the
Township of Freehold property and upon receipt by Compost America
Company of New Jersey, Ltd. of local approval from the Township of
Freehold and County approval from Monmouth County and the N.J.
Department of Environmental Protection for "Inclusion of the project
in the Monmouth County Solid Waste Management Plan", which will allow
Compost America Company of New Jersey, Ltd. to build the indoor
composting facility. Further contingencies require that any remaining
governmental, environmental and building permits related to the
construction of the "indoor composting facility" be obtained in
addition to the closing on the property and the project.
As of July 31, 1996 the Company has advanced $25,000 towards this
balance as an indication of good faith with Bio-Services, Inc.
13. Capital stock:
A) On May 17, 1996 the Company entered into a settlement agreement with
Select Acquisitions, Inc., Pasquale Dileo, an officer and shareholders
of Select Acquisitions, Inc. and a consultant and shareholder of the
Company, and Michael Papa, the former owner and major shareholder of
Select Acquisitions, Inc. as a result of various disputes agreed to
resolve any and all disputes by certain terms and conditions. As a
result of services provided, Select Acquisitions, Inc. and Pasquale
Dileo received stock in the Company. In settlement with the
disagreements of the shareholders of Select Acquisitions, Inc., the
Company issued 80,000 shares of its common stock to the original
shareholders, 100,000 shares to Michael Papa and 20,000 shares to
Gordon N. Gemma, Esq. for outstanding legal fees. In addition,
Michael Papa is to receive from the Company $60,000 for costs,
expenses and other payments as a representative of Select
Acquisitions, Inc. and the Company.
B) On July 24, 1996 the Company entered into a consultant agreement with
Edward Rodriguez for a term of 2 years. The consultant is to receive
$400,00 by the issuance of 100,000 shares of the Company's common
stock and an option to purchase 500,000 shares of the Company's common
stock immediately exercisable expiring December 31, 2001.
C) On June 28, 1996 the Company entered into an agreement to acquire all
of the land application business and assets of R.C. Land Company, Inc.
and its 33 1/3% interest in American BIO-AG Corporation by the
issuance of 305,000 shares of common stock and other payments.
F-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Capital stock (continued):
D) In June and July 1996 the Company issued 583 shares of its common
stock each month as part of a consulting agreement dated May 31, 1996
with J.G.R. Associates.
E) On July 1, 1996 the Company issued 75,000 shares of its common stock
valued at $2.50 per share to Ronald Bryce for consulting services as
part of the asset purchase agreement with R.C. Land Company, Inc.
F) The Company issued 3,056 shares to Robert Tardy and 72 shares to
Robert C. Myers in exchange for overtime compensations per their
consulting agreements. The agreed upon value of the shares if $5 per
share.
14. Common Stock Purchase Warrants and Options:
On April 23, 1996 the Company's Board of Directors approved the granting
of stock options for the continued financial support of the Company to:
Robert E. Wortman 300,000 options
Victor D. Wortman 300,000 options
The options are exercisable immediately at $2.00 per share with an
expiration date of April 23, 2001. Robert and Victor Wortman are both
principals of VRH Construction Corporation and shareholders as well as
officers and directors of the Company. The Company will not recognize
compensation expense at April 30, 1996 because the fair market value of
the stock is $2.00 per share which is the same as the option price.
As part of the employment agreements, the following options were granted
as part of an incentive stock option plan to the following employees:
Gary Sondermeyer 250,000 @ $2.50 per share
Expiration 12/31/00
Roger Tuttle 1,000,000 @ $2.50 per share
Expiration 11/14/00
On May 20, 1996 the Company executed an option agreement for Diana E.
McCarthy, Esq. for services rendered. Upon financial closing of each of
the following projects, Diana E. McCarthy, Esq. shall be issued the
following options to purchase Compost America Holding Company, Inc. common
stock:
Newark Project - 300,000 options to purchase 300,000
shares at $2.50 per share for 5 years
Gloucester City Project - 100,000 options to purchase 100,000
shares at $2.50 per share for 5 years
Monmouth County Project - 100,000 options to purchase 100,000
shares at $2.50 per share for 5 years
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
Summary of Warrants and Options Outstanding:
Exercise
07/31/96 Price Expiration
------- ----- ----------
Warrants:
--------
Bedminster Bioconversion Corp 300,000 $ 6.00 03/01/01
300,000 .83 04/18/97
60,460 3.00 06/01/99
David Egarian 150,000 1.00/1.17 01/31/96-97
Robert W. Jones III 75,000 1.00/1.17 01/31/96-97
B. Michael Pisani 45,200 .92 06/01/99
Robert D. Long 5,800 .92 06/01/99
Gary Sondermeyer 100,000 .01 02/06/99
---------
1,036,460
---------
---------
OPTIONS:
Robert E. Wortman 300,000 2.00 04/23/01
Victor D. Wortman 300,000 2.00 04/23/01
Diana E. McCarthy, Esq. 500,000 1.50 Indefinite
Gary Sondermeyer 250,000 2.50 12/31/00
Roger Tuttle 1,000,000 2.50 11/14/00
Peter Coker 100,000 2.00
50,000 5.00
50,000 9.00 06/30/01
Pasquale DiLeo 200,000 2.50 04/30/01
Mark Gasarch, Esq. 200,000 2.50 05/20/01
Edward Rodriguez 150,000 4.00
150,000 5.00
200,000 6.00 12/31/01
---------
3,450,000
---------
---------
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted the
principles of SFAS-123 "Accounting for Stock Based Compensation" effective
for fiscal year beginning after December 15, 1995, which is based on fair
value. There is no significant difference between compensation cost
recognized by APB-25 and the fair value method of SFAS-123. The Company
has not recognized compensation on the granting of options or warrants to
employees and consultants since the fair value of warrants or options is
the same as or less than the exercise price.
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Related Party Transactions:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in
Compost America Holding Company, Inc. as well as VRH Construction Corp.
VRH Construction Corp. as of April 30, 1996 has advanced $640,072 to the
Company. The amount due to VRH Construction Corp. is included in a note
payable as of April 30, 1995 due January 15, 1995 with interest at 10%.
As of July 31, 1996, the note for $640,072 has been extended from the
original due date to October 15, 1996. In addition, VRH Construction Corp.
has advanced additional funds amounting to $3,215,783 at July 31, 1996, of
which $1,543,866 is in two notes payable at 10% due October 15, 1996 and
$1,671,917 is interest bearing at 10% per annum and payable on demand.
The total loans and notes outstanding at July 31, 1996 amounted to
$3,855,855. All advances are anticipated to be paid back upon completion
of the Economic Development Bond Funding.
The Company has acquired all composting projects and technology from
Bedminster Bioconversion, Inc. through Select Acquisitions, Inc., a
shareholder in Compost America Company of New Jersey, Ltd. Select
Acquisitions Inc. has advanced $38,060 at July 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 July 31, 1996 and July 31, 1995 all intercompany transactions have been
eliminated except for amounts due from R.C. Land Company, Inc., a former
partner in the Joint Venture of American BIO-AG Corporation.
16. Employment Contracts:
As of January 1, 1996, a new employment agreement was signed by a new
executive officer, Gary Sondermeyer, for a term from January 1, 1996 to
December 31, 2000. The initial basic annual salary will be $90,000
thereafter increases shall be based on the Company growth. In addition,
the executive shall receive the usual fringe benefits and participate in a
Company statutory incentive stock option plan to purchase 250,000 shares
of common stock at $2.50 per share for a period of 5 years.
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. Employment Contracts (continued):
As of May 1, 1996 Roger Tuttle and the Company executed an employment
agreement, the terms of which supersede all previous agreements. The term
is for ten years effective May 1, 1996. The compensation shall be
$225,000 per annum in monthly payments from May 1, 1996 to April 30, 1997
with annual increases during the term of the agreement based on growth of
the Company but not less than the increase in the consumer price index.
In addition, Roger Tuttle shall receive an annual bonus based on 5% of any
increase in consolidated net income beginning April 30, 1996. Roger
Tuttle shall also receive the following:
1) Reimbursement of all business related expenses
2) An automobile allowance of $500 per month
3) A one-time signing bonus of $500,000 upon achieving sales of
$5,000,000 in any quarter
4) Medical and health insurance
5) Employer grants employee a 1,000,000 shares option to purchase
1,000,000 shares of common stock at $2.50 per share for five
years
As of July 31, 1996 unpaid accrued wages amounted to $306,000 for all
contract employees.
17. Long-term debt:
<TABLE>
<CAPTION>
Rate 1996 1995 Maturity
---- ---- ---- --------
<S> <C> <C> <C> <C>
First Fidelity Bank (A) 10.75% $ 686 $ 3,492 01/20/96 Past due
First Fidelity Bank (A) 10.75% 686 3,492 01/20/96 Past due
Teepak, Inc. (B) Prime & 2% 264,871 264,871 09/15/96
Jonathan W. Frank (C) None 200,000 indefinite
Mortgage payable-Rinker
Materials Corp. (D) 7% 3,730,871 04/01/98
Mortgage payable-
Jerry L. Montierth (E) 7% 276,829 02/01/15
---------- --------
4,273,943 471,855
Less current portion 9,296 56,984
---------- --------
$4,264,647 $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.
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. Long-term debt (continued):
B) The loan payable to Teepak, Inc. is for advances to Compost
Management, Inc. prior to its merger with Compost America Company of
New Jersey, Ltd. on December 1, 1994 which was subsequently assumed by
Compost Holding Company, Inc. for the purpose of obtaining necessary
permits for a compost facility in Riverdale, Illinois. The loans
commenced on January 11, 1993 with repayment terms as follows:
1) After permits are issued Compost America Holding Company, Inc.
shall repay the loan in quarterly installments commencing
three months after the start up of the facility to the
extent of 50% of available cash flow from the facility.
2) If the facility does not receive the necessary permits by
September 15, 1996, the entire amount of the loans will be
repaid in 24 equal installments. Any overdue payments shall
bear interest at a rate equal to the prime rate plus 2%.
C) The obligation to Jonathan W. Frank originally for $250,000 is for a
restrictive covenant not to disclose the confidential information
acquired as an employee of the Company to a composting business in
solid waste disposal in the United States of America. The obligation
is unsecured and non interest bearing. Payments are as follows:
$ 25,000 Upon agreement (January 31, 1995)
25,000 On March 1, 1995
50,000 On April 1, 1995
(not paid on due date but in subsequent period)
150,000 Upon closing of the public offering of the
-------- Company's common stock
$250,000
--------
--------
The obligation is expected to be paid in full within less than one year.
As a result, no imputed interest has been computed. As of April 30, 1996
the $150,000 was paid by the issuance of 25,000 shares of the Company's
common stock.
D) The mortgage payable to Rinker Materials Corporation is secured by
land which costs $4,095,838 and is payable on April 1, 1998 with all
principal and accrued interest at 7%.
E) The mortgage payable to Jerry L. Montierth is payable in annual
installments of $26,783.99 including interest at 7% over 19 years.
The mortgage is secured by land located in Meridian, Cachise County,
Arizona.
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18. Income taxes:
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes"
as of inception, December 17, 1993. FASB Statement No. 109 is required
for all fiscal years beginning after December 15, 1992. This statement
requires that deferred taxes be established for all temporary differences
between book and tax basis of assets and liabilities. There was no
cumulative effect of adoption or current effect on continuing operations
mainly because the Company has been in a development stage since
inception, December 17, 1993, and has sustained net operating losses
during this period. The Company has made no provision for a deferred tax
asset due to the net operating loss carryforward because a valuation
allowance has been provided which is equal to the deferred tax asset. It
cannot be determined at this time that a deferred tax asset is more likely
than not to be realized.
The Company has a loss carryforward of $4,856,469 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2009 and 2012.
19. Deposits:
Deposit on land - Denton Farm, Arizona $77,475
Minalto Corporation - Business equipment 817
Robert Fellheimer - Rent security 1,525
-------
$79,817
-------
-------
20. Notes payable, bank:
The note payable to United Jersey Bank is due August 1, 1996, on demand,
at 10% interest.
Notes payable, others:
The Company is obligated on a note payable to Roger Tuttle, President of
the Company, for $50,000 which is non-interest bearing, unsecured and
payable on demand.
The Company is obligated on a demand note to Foundation Systems which is
non-interest bearing and unsecured.
The Company is obligated for noted from American BIO-AG Corporation in the
amount of $110,250 and non-interest bearing, unsecured and payable on
demand. The notes are payable to Ronald Bryce for $32,250 and to Carl
Jones for $75,000.
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
21. Supplemental schedule of non-cash investing and financing activities:
1996 1995
---- ----
May 1, 1995 issued 100,000 shares on
exercise of warrant by officer of
Corporation ($1,000)
Officers compensation 1,000
May 31, 1996 issued 200,000 shares of
common stock in settlement of Select
Acquisitions, Inc. ($500,000)
Legal and professional fees 50,000
Consulting 250,000
Liquidation of former Select Acquisitions,
Inc. for shareholder stock and issue of
Company stock 200,000
June 28, 1996 issuance of 305,000 shares
of common stock in purchase of land
application assets of R.C. Land Company,
Inc. by the Company ( 762,500)
Property, plant and equipment 762,500
June 30, 1996 and July 30, 1996 issued
179,194 shares of common stock for
consulting services ( 606,055)
Consulting services expense 606,055
22. Earnings per share:
1996 1995
Primary Primary
------- -------
Number of shares:
Weighted average shares
outstanding 14,852,781 13,327,834
Incremental shares for
outstanding stock
warrants 1,036,460 133,012
Incremental shares for
outstanding stock
options 2,633,333 784,000
---------- ----------
18,522,574 14,244,846
---------- ----------
---------- ----------
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. Shares that would be
outstanding assuming exercise of dilutive stock options and warrants, all
of which are considered to be common stock equivalents. Fully diluted
earnings per share are the same as primary earnings per share for 1996 and
1995.
F-38
<PAGE>
ITEM 2. PLAN OF OPERATION
Introduction
The Company is a "development stage" company and has not generated
significant operating revenues from its inception to date. The Company does not
expect to generate any significant operating revenues until the Company has
successfully financed, constructed and begun commercial operations of one or
more of its compost project facilities currently in development. Since a merger
between a "public shell" and a "private operating company" is considered to be a
recapitalization of the operating company, with no recognition of intangibles as
a result of the merger, the acquisition of the Company's subsidiary, Compost
America Company of New Jersey, Ltd. (the "private operating company"), on
January 23, 1995, has been accounted for as a reverse purchase of the assets and
liabilities of the Company by Compost America Company of New Jersey, Ltd.
Accordingly, the consolidated financial statements represent assets, liabilities
and operations of only Compost America Company of New Jersey, Ltd. prior to
January 23, 1995 and the combined assets, liabilities and operations of both
companies for the ensuing period. The financial statements reflect the purchase
of the stock of Alcor Energy and Recycling Systems, Inc. (the "public shell"),
the former name of Compost America Holding Company, Inc., by Compost America
Company of New Jersey, Ltd. for stock and the assumption of liabilities of
$49,094, this amount being the historical cost of the assets and liabilities
acquired. All significant inter-company profits and losses from transactions
have been eliminated.
Since its inception, the Company has met its liquidity needs from the
proceeds of the sale of its common stock and from loans made by VRH Construction
Corporation, a principal shareholder of the Company whose owners are directors
of the Company. The Company received $1,365,860 from private sales of its common
stock during the fiscal year ended April 30, 1996, $906,409 from private sales
of its common stock during the fiscal year ended April 30, 1995 and $692,000
during the period December 1993 through April 30, 1994. Since April 30, 1996
through July 31, 1996, the Company has raised an additional $248,396 through
private sales of its common stock. In addition, VRH Construction Corporation
made loans to the Company totalling $2,869,116 during the fiscal year ended
April 30, 1996 and $640,072 during the fiscal year ended April 30, 1995. Since
April 30, 1996 through July 31, 1996, VRH Construction Corporation has loaned an
additional $385,000 to the Company. Total funds raised from the sale of common
shares and loans from shareholders from December 1993 through April 30, 1996 are
$6,473,457, plus an additional $723,396 since April 30, 1996 through July 31,
1996.
Significant revenues from operations are not anticipated until 1998, when
the Company's initial projects will be fully constructed and operational. Until
that time, the Company anticipates that it will need an additional $3,000,000 to
meet current debt obligations, provide additional development capital for its
various
<PAGE>
projects and fund ongoing corporate overhead expenses. The Company anticipates
that it will be able to secure these funds from the sale of additional common
shares and/or the issuance of additional debt. In addition, the Company expects
to have completed project financing for the construction of the Company's
facility in Newark, New Jersey prior to the end of 1996 and the Company may
receive development fees and management fees in connection with this project
financing.
The Company does not expect to perform any significant product research and
development and does not expect any significant changes in the number of
employees in the current fiscal year. The Company does expect to commence
construction of its Newark composting facility during the current fiscal year,
and, financing and weather permitting, may also commence construction of its
Miami and Chicago facilities.
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings None
Item 2. - Changes in Securities None
Item 3. - Defaults Upon Senior Securities None
Item 4. - Submission of Matters to a Vote of None
Security Holders
Item 5. - Other Information None
Item 6. - (a) Exhibits None
(b) Reports on Form 8-K None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: COMPOST AMERICA HOLDING COMPANY, INC.
September 18, 1996 (Registrant)
By /s/ Roger E. Tuttle
-----------------------------------------------
Roger E. Tuttle, President and Principal
Executive Officer
By /s/ George S. Chu
-----------------------------------------------
George S. Chu, Senior Vice President,
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AUDITED FINANCIAL
STATEMENTS OF COMPOST AMERICA HOLDING COMPANY, INC. FOR THE FISCAL QUARTER ENDED
JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 1,527
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 816,178
<PP&E> 15,524,998
<DEPRECIATION> 62,550
<TOTAL-ASSETS> 15,602,646
<CURRENT-LIABILITIES> 8,202,431
<BONDS> 4,264,647
0
0
<COMMON> 7,935,072
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,602,646
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,911,657
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,516
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,022,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,022,424)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
