<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended October 31, 1997
[ ] 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 - 35,475,354 shares outstanding as at November
30, 1997.
Transitional Small Business Disclosure Format (check one):
Yes_____ No X
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
1285 Ave. of the Americas
3rd Floor
New York, New York 10019
<PAGE>
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of October 31, 1997 F-2
Statement of income for the six months
ended October 31, 1997 and 1996 and for the period
December 17, 1993 (inception) to October 31, 1997 F-3
Statement of stockholders' equity as of October 31, 1997 F-4--F-5
Statement of cash flows for the six months
ended October 31, 1997 and 1996 and for the period
December 17, 1993 (inception) to October 31, 1997 F-6
Statement of operating expenses for the six months
ended October 31, 1997 and 1996 and for the period
December 17, 1993 (inception) to October 31, 1997 F-7
Notes to condensed consolidated financial statements F-8--F-42
Item 2. Plan of operations
Part II. Other Information
Signatures
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 AND
FOR THE PERIOD DECEMBER 17, 1993 (INCEPTION) TO OCTOBER 31, 1997
CONTENTS
PAGE
Condensed consolidated financial statements:
Balance sheet F-2
Statement of income (loss) F-3
Statement of stockholders' equity F-4--F-5
Statement of cash flows F-6
Statement of operating expenses F-7
Notes to condensed consolidated financial statements F-8--F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET--OCTOBER 31, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 171,640
Accounts receivable 44,086
Loan receivable 94,053
Prepaid expenses 135,037
-----------
Total current assets 444,816
-----------
Plant, property and equipment:
Land 8,466,441
Site improvements 174,519
Transportation equipment 160,046
Office equipment 71,051
Machinery & equipment 609,247
Construction in progress, Compost projects 7,763,570
-----------
17,244,874
Less accumulated depreciation 227,399
-----------
17,017,475
-----------
Other assets:
Excess of cost over assets acquired, net of
amortization of $19,324 455,761
Town of Freehold lease acquisition cost, net of
amortization of $57,008 803,853
Intangible assets, net of amortization of $51,510 238,675
Option deposit 62,500
City of Miami contract performance fee 1,000,000
-----------
2,560,789
-----------
$20,023,080
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Mortgages payable--Praxair Corp $2,100,000
Current portion of long-term debt 4,211,200
Notes payable, bank 100,000
Notes payable, others 234,750
Notes payable, shareholder 70,000
Due to related parties 4,523,574
Accounts payable, accrued expenses and payroll
taxes payable 4,710,871
Reserve for land replacement 85,375
-----------
Total current liabilities 16,035,770
-----------
Long-term debt, net of current portion 1,534,625
-----------
Contingencies and commitments
Minority interest in consolidated subsidiary 0
-----------
Stockholders' equity:
Preferred stock, Series A, no par value, 25,000,000 shares
authorized; none issued
Convertible preferred stock, Series B, no par value,
5,000,000 shares authorized; 801,000 shares issued and
outstanding (aggregate liquidation preference $2,002,500) 2,002,500
Common stock, no par value, 50,000,000 shares authorized;
20,487,643 shares issued and outstanding 13,276,759
Deficit accumulated during the development stage (12,797,882)
Less: subsecriptions receivable (28,692)
-----------
2,452,685
-----------
$20,023,080
-----------
-----------
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED CUMULATIVE FROM
OCTOBER 31, OCTOBER 31, DECEMBER 17, 1993
------------------------------ ---------------------------- (INCEPTION) TO
1997 1996 1997 1996 OCTOBER 31, 1997
------------- --------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 0 $ 0 $ 0 $ 0 $ 80,741
Other revenues......................... 95,032 27,357 232,868 27,357 433,789
------------- --------------- ------------- ------------- ----------------
Total........................... 95,032 27,357 232,868 27,357 514,530
Cost of operations, transportation..... 7,322 1,210 22,106 1,210 50,252
------------- --------------- ------------- ------------- ----------------
Gross income........................... 87,710 26,147 210,762 26,147 464,278
General and administrative............. 1,879,757 859,769 3,398,414 2,771,626 10,795,484
------------- --------------- ------------- ------------- ----------------
Loss from operations................... (1,792,047) (833,622) (3,187,652) (2,745,479) (10,331,206)
------------- --------------- ------------- ------------- ----------------
Other non-operating expenses:
Interest............................... 550,291 143,114 854,582 282,630 2,315,648
------------- --------------- ------------- ------------- ----------------
Loss before income tax expense......... (2,342,338) (976,736) (4,042,234) (3,028,109) (12,646,854)
Income tax expense (Note 19)........... 0 0 0 0 0
------------- --------------- ------------- ------------- ----------------
(2,342,338) (976,736) (4,042,234) (3,028,109) (12,646,854)
Minority interest in loss of
consolidated subsidiaries............ 0 43,086 0 85,638 209,827
------------- --------------- ------------- ------------- ----------------
(2,342,338) (933,650) (4,042,234) (2,942,471) (12,437,027)
Loss in equity in joint venture........ 0 0 0 (13,603) (360,855)
------------- --------------- ------------- ------------- ----------------
Net loss............................... ($2,342,338) ($933,650) ($4,042,234) ($2,956,074) ($12,797,882)
------------- --------------- ------------- ------------- ----------------
------------- --------------- ------------- ------------- ----------------
Loss per common share:
Primary and fully diluted............ ($0.09) ($0.05) ($0.17) ($0.02)
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
Fully diluted.......................... ($0.09) ($0.05) ($0.17) ($0.02)
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
Weighted average number of
common shares outstanding:
Primary............................ 24,973,686 18,076,140 24,027,366 17,797,588
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
Fully diluted...................... 24,973,686 18,076,140 24,027,366 17,797,588
------------- --------------- ------------- -------------
------------- --------------- ------------- -------------
</TABLE>
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 INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK DURING THE
-------------------------- DEVELOPMENT
SHARES AMOUNT STAGE
------------ ------------ ------------
<S> <C> <C> <C>
Balance, April 30, 1997 17,707,841 10,611,169 ( 8,755,648)
Issuance of common stock for services, May 7, 1997 (.50 per sh.) 180,800 90,400
Issuance of common stock for services, May 8, 1997 (.50 per sh.) 63,500 31,750
Issuance of common stock for services, May 2, 1997 (.50 per sh.) 300,000 150,000
Issuance of common stock, June 1, 1997 (.50 per sh.) 15,000 7,500
Issuance of common stock for services, June 2, 1997 (.50 per sh.) 140,000 70,000
Issuance of common stock for services, June 9, 1997 (.50 per sh.) 245,000 122,500
Issuance of common stock for services, June 11, 1997 (.50 per sh.) 50,600 25,300
Issuance of common stock for payment of accounts payable, June 11, 1997
(5.00 per sh.) 4,536 22,680
Issuance of common stock for financial advisory services, August 1,
1997 (.50 per sh.) 80,000 40,000
Issuance of common stock for financial advisory services, August 1,
1997 (.50 per sh.) 20,000 10,000
Issuance of common stock for services, August 1, 1997 (.50 per sh.) 1,500 750
Issuance of common stock for professional services August 1, 1997
(.50 per sh.) 25,000 12,500
Issuance of common stock for services, August 11, 1997 (.50 per sh.) 35,000 17,500
Issuance of common stock, August 15, 1997 (2.00 per sh.) 250,000 500,000
Issuance of common stock for services, August 18, 1997 (1.00 per sh.) 90,000 90,000
Issuance of common stock for services, August 18, 1997 (.50 per sh.) 40,000 20,000
Issuance of common stock for services, August 18, 1997 (1.50 per sh.) 200,000 300,000
Issuance of common stock for services, August 18, 1997 (2.00 per sh.) 30,000 60,000
Issuance of common stock for services, August 18, 1997 (.50 per sh.) 100,000 50,000
Issuance of common stock, September 13, 1997 (2.00 per sh.) 250,000 500,000
</TABLE>
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 STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
Common Stock DURING THE
DEVELOPMENT
SHARES AMOUNT STAGE
------------ ------------ ---------------
<S> <C> <C> <C>
Issuance of common stock for services,
September 25, 1997 (.50 per sh.) 5,000 2,500
Issuance of common stock for services,
September 25, 1997 (2.18 per sh.) 6,800 14,860
Issuance of common stock for services,
September 25, 1997 (1.75 per sh.) 200 350
Issuance of common stock, October 1, 1997
(1.07 per sh.) 186,666 200,000
Issuance of common stock for services,
October 6, 1997 (2.00 per sh.) 76,000 152,000
Issuance of common stock, October 6, 1997
(1.50 per sh.) 300,000 450,000
Redemption of common stock, October 6, 1997
(4.25 per sh.) (300,000) (1,275,000)
Issuance of common stock, October 6, 1997
(4.25 per sh.) 194,200 825,000
Issuance of common stock for services,
October 15, 1997 (.50 per sh.) 150,000 75,000
Issuance of stock, October 20, 1997
(2.50 per sh.) 40,000 100,000
Net loss, October 31, 1997 4,042,234
------------ ------------ ---------------
Balance, October 31, 1997 20,487,643 $ 13,276,759 ($ 12,797,882)
------------ ------------ ---------------
------------ ------------ ---------------
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK
SHARES AMOUNT
--------- ------------
<S> <C> <C>
Issuance of preferred stock,
Series B, July 3, 1997 (2.50 per sh.) 400,000 1,000,000
Issuance of preferred stock,
Series B, August 18, 1997 (2.50 per sh.) 1,000 2,500
Issuance of preferred stock,
Series B, September 9, 1997 (2.50 per sh.) 400,000 1,000,000
------------ -----------
801,000 $ 2,002,500
------------ -----------
------------ -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS CUMULATIVE
ENDED FROM
OCTOBER 31, DECEMBER 17, 1993
--------------------------------------- (INCEPTION) TO
1997 1996 OCTOBER 31, 1997
------------------ ------------------- -----------------
<S> <C> <C> <C>
Operating activities:
Net loss............... ($4,042,234) ($2,956,074) ($12,797,882)
Adjustments to
reconcile net cash
and equivalents
provided by operating
activities:
Amortization........... 20,752 21,974 126,164
Depreciation........... 93,852 23,098 195,630
Loss in equity in joint
venture.............. 0 13,603 360,855
Stock issued for
professional
services............. 1,335,410 788,675 3,498,935
Shareholder
settlement........... 0 500,000 500,000
Loss in equity of
minority interest.... 0 (129,209)
Impairment loss........ 440,955 440,955
Changes in operating
assets and
liabilities:
(Increase) decrease in
prepaid expenses..... 38,081 (156,187) (135,037)
Increase in accounts
payable and accrued
expenses............. 580,748 971,209 4,883,715
(Increase) decrease in
accounts
receivable........... (17,997) (27,691) (44,086)
(Increase) decrease in
loans receivable..... (94,053) (94,053)
Increase (decrease) in
inventory............ (14,500)
Changes in other assets
and liabilities:
Increase (decrease) in
cash from
affiliated companies:
R.C. Land Company,
Inc.................. 0 28,600 0
American Bio-AG
Corp................. 0 185,0000
American Soil Company,
Inc.................. 0 175,0000
Due to affiliate....... 0 14,160 78,060
Deferred offering
costs................ 0 20,564 0
----------- --------- ------------
Net cash provided from
(used in) operating
activities........... (2,085,441) 28,386 (3,115,953)
----------- --------- -----------
Investing activities:
Purchase of restrictive
covenant............. 0 0 (250,000)
Purchase of
construction in
progress, Compost
project.............. (613,793) (2,513,655) (5,280,834)
Purchase of land,
property and
equipment............ 0 (968,700) (8,406,871)
Purchase of
organizational
costs................ 0 0 (5,925)
Reduction (purchase) of
equity in American
BIO-AG Corporation... 0 (331,606) 624,636
City of Miami
performance fee...... 0 0 (1,000,000)
Lease acquisition
cost................. 0 0 (463,361)
Reserve for land
replacement.......... 0 0 85,375
(Increase) decrease in
deposits
receivable........... (23,475) (65,546) (29,306)
Return (purchase) of
option deposits...... (25,000) (20,000) (62,500)
Increase in cost in
excess of assets
acquired............. 0 (1,087,395) (1,694,199)
--------- ----------- -----------
Net cash used in
investing
activities........... (662,268) (4,986,902) (16,482,985)
--------- ----------- -----------
Financing activities:
Increase in advances
from affiliated
companies............ 60,000 530,167 4,445,514
Increase (decrease) in
notes payable,
shareholder.......... (20,000) 0 70,000
Increase (decrease) in
notes payable,
bank................. 0 0 100,000
Increase (decrease) in
notes payable,
other................ (371,300) 423,250 234,750
Increase in mortgage
payable.............. 0 0 2,100,000
Increase in other
long-term debt....... 0 444,039 6,004,154
Payments on long-term
debt................. (67,363) (1,372) (195,263)
Proceeds from issuance
of preferred stock... 2,002,500 0 2,002,500
Proceeds from issuance
of common stock...... 1,307,500 3,617,569 5,008,923
--------- --------- ----------
Net cash provided by
financing
activities........... 2,911,337 5,013,653 19,770,578
--------- --------- ----------
Net increase (decrease)
in cash.............. 163,628 55,137 171,640
Cash, beginning of
period............... 8,012 3,498 0
--------- ------------ ------------
Cash, end of period.... $ 171,640 $ 58,635 $ 171,640
--------- ------------ ------------
--------- ------------ ------------
Supplementary
disclosure of cash
flow information
Interest............... $ 220,107 $ 5,697 $ 754,395
Taxes.................. $ 0 $ 0 $ 0
Supplemental schedule
of non-cash investing
and financing activities
</TABLE>
See notes to condensed consolidated financial statements.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATING EXPENSES
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED CUMULATIVE FROM
OCTOBER 31, OCTOBER 31, DECEMBER 17, 1993
------------------------ -------------------------- (INCEPTION) TO
1997 1996 1997 1996 OCTOBER 31, 1997
------------ ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Salaries............................... $ 126,927 $ 97,317 $ 263,010 $ 197,427 $ 997,327
Payroll taxes.......................... 3,711 4,316 17,464 7,384 67,359
Advertising............................ 36,811 36,811 5,935 84,866
Amortization........................... 10,376 17,407 20,752 21,974 126,164
Automobile expense..................... 8,659 4,134 15,241 8,247 103,055
Bad debt charges....................... 55,384 55,384 63,190
Bank charges........................... 106 320 2,466 1,121 7,955
Building rental........................ 7,958 28,575 25,525 33,150 180,879
Carting expense........................ 394
Computer expense....................... 8,500 9,349
Consultants............................ 984,786 359,621 1,885,835 613,036 4,159,330
Depreciation........................... 46,921 15,758 93,842 23,098 195,620
Dues and subscriptions................. 2,645 160 2,645 680 24,115
Employment Services.................... 600
Equipment rental....................... 2,318 2,558 20,989
Financing fees......................... 72,687 72,687 72,687
Impairment loss in consolidated
subsidiary........................... (475,083) 440,955 440,955
Insurance.............................. 23,271 28,257 44,961 43,124 232,485
Landlease.............................. 3,543 14,714
Licenses and permits................... 8,226 578 8,226 578 18,652
Miscellaneous.......................... 20 1,000 20 1,000 28,482
Office expense......................... 13,207 4,298 15,671 8,273 68,757
Option expense......................... 84,975
Outside services....................... 445 119 684 3,853
Penalties & fines...................... 7,173 7,173 18,322
Postage and deliveries................. 4,432 4,037 6,576 5,387 29,544
Printing............................... 44,967 45,672 86,819
Professional fees...................... 352,600 569,955 656,091 589,032 1,784,214
Repairs and maintenance................ 1,014 813 6,975 1,063 25,263
Research and development............... 15,000 15,000 15,000 15,000 490,376
Settlement of shareholder dispute...... 3,000 3,000 500,000 518,000
Sitework............................... 2,731
Stock expense.......................... 5,719 5,539 (579) 5,539 14,550
Supplies............................... 14,500
Taxes, other........................... 37,377 32,058 69,750 61,960 248,710
Telephone.............................. 11,917 23,764 16,775 40,169 166,554
Travel and entertainment............... 91,315 19,090 95,353 42,975 375,141
Utilities.............................. 1,581 2,059 2,424 2,779 14,008
------------ ---------- ------------ ------------ -----------------
....................................... $ 1,879,757 $ 859,769 $ 3,398,414 $ 2,771,626 $ 10,795,484
------------ ---------- ------------ ------------ -----------------
------------ ---------- ------------ ------------ -----------------
</TABLE>
See notes to condensed consolidated financial statements.
F-7
<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, 1997 annual report on Form 10-KSB. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the six
month period ended October 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended April 30, 1998.
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, Florida and Illinois
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-8
<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.
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.
On June 18, 1997, the Company amended its Certificate of Incorporation to
designate a class of preferred shares as Series B preferred stock. The
designation shall be $2.50 Series B convertible preferred stock, authorized
5,000,000 shares. The liquidation value shall be $2.50 per share. The
shares will be no par value. Each share of Series B preferred stock is
convertible into one share of common stock at any time after September 15,
1997.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
On October 30, 1997, Compost America Holding Company, Inc. amended its
Certificate of Incorporation and the Board of Directors approved a
resolution as follows:
"The number of directors of the corporation and the length of the term
of each such director shall be set forth in the by-laws of the
corporation."
The by laws state the number of directors shall be no more than 15 nor
less than 3.
On October 30, 1997, the Company adopted a resolution creating a Series A
exchangeable redeemable preferred stock, no par value. The Company is
authorized to issue an aggregate of 25,000,000 shares of preferred stock.
The maximum number of shares of Series A preferred stock shall be 169,000
shares. The Series A preferred stock are cumulative non compounding 8% per
annum. The Series A preferred shareholders have a voluntary redemptive
right to redeem all or any of their shares of Series A preferred stock
which shall equal the sum of $100 per share and all accrued dividends on
such share to the date fixed for redemption. On November 3, 2004, the
Company shall redeem all the shares of Series A preferred stock then
outstanding. At any time after November 3, 2000, the Series A preferred
stock are exchangeable for 9% senior subordinated notes due November 3,
2004.
On November 3, 1997, the Board of Directors adopted a resolution to
designate a Series C preferred stock which will be redeemable convertible
preferred stock, no par value per share. The maximum number of shares of
Series C preferred stock shall be 91,000 shares. Dividends shall be at
the rate of 20% per annum through May 3, 1999. The dividend is
non-cumulative, non-compounded payable when and if declared by the Company.
The Series C preferred stock shall be convertible into shares of common
stock. The preferred Series C stock is valued at $100 for conversion.
Of the Series A and Series C preferred stock, Wasteco Ventures Limited
received 77% of all authorized shares and Robert Longo received 23% of the
balance.
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.
F-10
<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):
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.
4. Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Compost America Company of New
Jersey, Ltd. and its subsidiaries, Newark Recycling and Composting Co.,
Inc., Gloucester Recycling and Composting Company, Inc., Monmouth Recycling
and Composting Co., Inc., Chicago Recycling and Composting Company, Inc.,
Miami Recycling and Composting Company, Inc., Compost America Technologies,
Inc., Bedminster Seacor Services Miami Corporation, Garden Life Sales
Company, Inc., American Soil, 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 Holding Company, Inc. 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. Construction in progress, Compost projects:
Project development costs consist of costs incurred for the development of
the Company's composting facilities. These costs included the
architectural, legal, structural and consulting engineering, artist
rendering, planning board approvals and other construction costs. Upon
commencement of operations of a facility, the costs associated with such
project will be depreciated over the estimated useful life of the facility.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock:
A. May 7, 1997
The Company issued 180,800 shares of common stock to three individuals for
financial consulting services. The fair value is estimated to be $.50 per
share or $90,400.
B. May 8, 1997
The Company issued 63,500 shares of common stock to West St. Front Trust
for financial consulting services. The fair value is estimated to be $.50
per share or $31,750.
C. May 21, 1997
The Company issued 300,000 shares of common stock to an attorney. The fair
value is estimated to be $.50 per share or $150,000.
D. June 1, 1997
The Company entered into a subscription agreement with three individuals
entitling each individual to 5,000 shares of the Company's unregistered
common stock at a price of $.50 per share. These same individuals loaned
the Company $22,500 each in the form of a convertible note (see note 19).
E. June 2, 1997
The Company issued 140,000 shares of common stock for various professional
services. The fair value is estimated to be $.50 per share or $70,000.
F. June 9, 1997
The Company issued 245,000 of common stock to Ronald Bryce for consulting
services. The fair value is estimated to be $.50 per share or $122,500.
G. June 11, 1997
The Company issued 50,600 shares of common stock to Lancaster Consulting,
Inc. for consulting services. The fair value is estimated to be $.50 per
share or $25,300.
H. June 11, 1997
The Company issued 4,536 shares of common stock to Robert Tardy for
payment of accounts payable. The fair value is estimated to be $5.00 or
$22,680.
I. August 1, 1997
The Company issued 100,000 shares of unregistered common stock as part of a
consulting agreement. 80,000 were issued to Caneterbury Companies, Inc.,
and 20,000 were issued to Gelvin Stevenson, at a value of $.50 per share.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
J. August 1, 1997
The Company issued 1,500 shares of unregistered common stock to Lawrence
Weiner for professional services regarding the Newark Project at a value of
$.50 per share.
K. August 1, 1997
The Company issued 25,000 shares of unregistered common stock to Mathieson
Aitken Jemison LLP for professional services at a value of $.50 per share.
L. August 5 and September 13, 1997
The Company issued on each date 250,000 shares of common unregistered stock
for $2.00 per share and an option on each date for 100,000 shares at $2.00
per share exercisable through July 31, 2002 to Aryeh Trading Corporation.
The agreement provides for an offering defined in Rule 501 for three units
of 250,000 common shares plus nontransferable options to purchase 100,000
restricted common shares at $2.00 per common share, exercisable through
July 31, 2002. The price per unit is $500,000.
M. August 11, 1997
The Company issued 35,000 shares of common stock to Robert W. Jones III as
a provision in the consulting agreement dated September 7, 1996. The
consulting agreement provided for a $75,000 annual salary for three years
payable $6,250 per month or 15,000 shares of the Company's common stock.
In addition, upon execution of this agreement 17,500 shares shall be issued
one year from execution of this agreement and an additional 17,500 shares
two years from execution of this agreement. The Company is to file Form
S-8 not later than 10 days after filing the Company's quarterly report on
Form 10-QSB for fiscal quarters ending July 31, 1996, July 31, 1997 and
July 31, 1998, respectively. Consultant agrees to sell no more than 1,250
of the shares per month the first year and 1,500 of the shares per month in
each of the second and third year. To the extent that the proceeds from
the sale of the shares in any given month is less than $6,250 the Company
will pay the balance to the consultant in cash within 30 days of written
notice. Past due amounts shall incur a 1.5% per month late charge. In
addition, the consultant is granted an immediately exercisable option to
purchase 100,000 shares of the Company's common stock through December 31,
2001 at the following prices: 50,000 at $2.00 and 50,000 shares at $3.00
per share. The consultant is to provide consulting services and advice
pertaining to the compost development and business affairs of Newark
Recycling and Composting Company and the Company.
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
N. August 18, 1997
On February 21, 1997, the Company and Tomas Andres Mestre entered into a
consulting agreement for 10 years to provide consulting services and advice
pertaining to the Company's development of its composting facilities
throughout the State of Florida and the Company's business affairs. On
August 18, 1997 the Company, as part of this consulting agreement, paid the
sum of $300,000 by the issuance of 200,000 shares of common stock
registered in the consultants name.
O. August 18, 1997
The Company issued 40,000 shares of unregistered common stock to Mark
Gasarch for legal services valued at $20,000.
P. August 18, 1997
The Company issued 30,000 shares of unregistered common stock to William
Stockman at a value of $.50 per share as a provision of the consulting
agreement with Lancaster Consultants, Inc.
Q. August 18, 1997
The Company issued 100,000 shares of unregistered common stock to J. Mark
Strong as a consulting fee for raising capital for the Company. The stock
was valued at $.50 per share.
R. September 23 and 25, 1997
The Company issued the following shares of common unregistered stock to the
following consultants and the value of services provided by each.
Richard Kish 5,000 shares $ .50 per share
Robert J. Tardy 6,800 shares $2.18 per share
George C. Kane 200 shares $1.75 per share
S. October 1, 1997
The Company issued 186,666 shares of common stock to Ira Russack in
exchange for $200,000 in notes payable by the Company to Ira Russack due
September 1997.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
T. October 6, 1997
The Company issued Lancaster Consultants, Inc. 270,120 shares of common
stock. 76,000 shares were issued for services as part of the original
agreement at $2.00 per share and a cashless conversion of the 300,000
exercisable options at $1.50 per share at a current market value of $4.25
per share which resulted in a net stock acquisition in the cashless
transaction of 194,120 shares.
U. October 15, 1997
The Company issued 150,000 shares of common stock to Harron Transport, Inc.
at $.50 per share in contemplation of the issuance of a loan to the Company
in November 1997.
V. October 20, 1997
The Company issued for cash 40,000 shares of unregistered common stock to
Robert and Elizabeth Ebner for a cash payment of $100,000 or $2.50 per
share.
8. Preferred stock:
A. August 18, 1997
The Company entered into a subscription agreement with Mark Gasarch,
attorney for the Company, for 1,000 shares of Class B preferred shares of
the Company at $2.50 per share.
B. July 3, 1997 and September 9, 1997
The Company entered into a subscription agreement with Paul Harron for
400,000 shares on each occasion of Class B preferred shares for $2.50 per
share for $1,000,000 in a private offering under Rule 501(a). The preferred
stock is convertible into common stock at the rate of one common share per
one Class B share. On November 3, 1997, 400,000 of the Class B preferred
shares were converted to a $1,000,000 promissory note.
9. Agreements:
1) On September 15, 1996 the Company entered into a Lock-Up Agreement
with John B. Fetter, owner of 2,528,612 shares of the Company's common
stock, who agreed for a period of 12 months not to sell 2,300,000
shares of his stock and for an additional 12 months will not sell
2,000,000 shares of his stock.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
2) On October 1, 1996 the Company and individual shareholders agreed to a
modified Lock-Up Agreement for shares that they owned for 6 months
(October 1, 1996 to March 31, 1997) not to sell their shares. The
shareholders and shares are as follows:
Registered
Shareholder Shares
----------- ----------
William C. Hurtt, Trustee (A) 100,000
William Callari (B) 80,000
A) William C. Hurtt, Trustee will lock-up 37,500 unregistered
shares with a mutually agreed extension for 3 months for 12,500
unregistered shares. Additional extensions may be available;
during the extension term the shareholder agrees to not sell
more than 7 1/2% of the registered shares. As consideration for
the Lock-Up Agreement the Company will issue 26,000 unregistered
shares of common stock.
B) William Callari will lock-up 30,000 unregistered shares with a
mutually agreed extension for 3 months for 10,000 unregistered
shares. Additional extensions may be available; during the
extension term the shareholder agrees to not sell more than 7 1/2%
of the registered shares. As consideration for this Lock-Up
Agreement the Company will issue 20,800 unregistered shares of
common stock.
3) On October 9, 1996 the Company and Bruce Boltuch entered into an
agreement for a convertible 10% note for $50,000 payable on April 9,
1997. The note, at the option of the holder, is convertible 30 days
prior to the maturity date into unregistered common shares of the
Company at a conversion price of $3.00 per principal amount of this
note for one share. The note was paid off August 11, 1997. On
October 9, 1996, the Company issued a six month $50,000 convertible
note at 10% to Charles Lanktree with a maturity date of April 9, 1997.
Interest to be paid monthly. The note is non recourse on any
shareholder or officer of the Company and is an obligation of the
Company only. The note is convertible 30 days prior to maturity into
common shares of the Company at a conversion price of $3.00 per share.
The note is collateralized by 20,000 registered shares of the Company's
common stock held in escrow. The collateral is transferred if the
unpaid principal and unpaid interest are not paid on the maturity date
plus 15 days. As of July 31, 1997, the note was unpaid. On May 19,
1997 an agreement to extend the maturity to July 9, 1997 at 12%
interest was agreed to. On May 19, 1997, Bruce Boltuch received an
option to purchase 7,500 shares of registered tradeable stock at
$2.00 per share and 2,500 shares of registered common stock of the
Company for granting the extension for payment of the note. The notes
were paid off September 24, 1997.
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
4) On October 9, 1996 the Company entered into a Lock-Up of Insiders
Shares Agreement for a period of 16 months from the date of October 9,
1996. The following is a list of shareholders and their respective
shares as per this agreement.
Shareholder Shares
----------- ------
Andrea Wortmann 150,000
Robert E. Wortmann, Jr. 150,000
Victor D. Wortmann, Sr. 812,500
Roger E. Tuttle 2,433,509
Robert E. Wortmann 802,500
Victor D. Wortmann, Jr. 200,000
Elizabeth Tuttle 100,000
Erika Wortmann 150,000
Kristie Tuttle 100,000
Select Acquisitions 1,308,640
Susan Ann Curran 200,000
William Tuttle 100,000
Mary Wortmann 40,000
---------
6,547,149
---------
---------
5) On October 15, 1996 the Company and Brokerage Services Management,
Inc. entered into an agreement for a convertible 10% note for $53,000
with a maturity of December 15, 1996, interest and principal payable
on maturity. The note, at the option of the holder, is convertible
6 days prior to the maturity date into unregistered common shares of
the Company at a conversion price of $3.00 per principal amount of
this note for one share. The note has been paid down to $27,000.
6) On November 24, 1996 the Company and Berwyn Capital Investments, Inc.
entered into an agreement for Berwyn Capital Investments, Inc., for a
term of 180 days, to arrange corporate equity, project debt, project
mortgage debt and project subordinated debt on behalf of the Company.
The anticipated equity financing is to amount to $3,000,000. As
compensation for this service:
A) A cash payment equal to 6% of any equity funds raised and 3.6% of
the proceeds of any debt offering.
B) Option to purchase common stock of $3.50 per share exercisable
any time within 5 years from the date of issuance with a value
equal to 4% (2.4% in the case of debt) of the funds raised. Upon
execution the Company will issue as a retainer 5,000 shares of
common stock. In consideration of the amount due under A) the
amount due shall be reduced by $15,000.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
7) On December 3, 1996 the Company and Ira Russack entered into an
agreement for a convertible 8% note for $100,000 due June 30, 1997,
and extended to August 15, 1997, interest and principals payable on
the maturity date. On January 16, 1997 the Company and Ira Russack
entered into an agreement for a convertible 10% note for $100,000 due
December 15, 1997, interest and principals payable on the maturity
date. The notes are convertible at $3.00 per share based on the
remaining principal amount plus any accrued interest at the maturity
date. These notes were converted into 186,666 shares of common stock
at October 1, 1997.
8) In March 1997, the Company and M. H. Meyerson & Co., Inc. entered into
an agreement for Meyerson to perform investment banking services on a
non-exclusive basis for a period of three years. Such services will
be performed as requested by the Company on a best efforts basis and
will include assistance in mergers, acquisitions and internal capital
structuring and the placement of new debt and equity issues.
Consideration for the services is an option to purchase 1,000,000
shares of unregistered common stock of the Company. The option
expires on March 31, 2002. The option shall vest and become
irrevocable as follows:
Option to purchase 250,000 common shares at $2.50 per share on
date of agreement.
Option to purchase 250,000 common shares at $3.00 per share on
October 1, 1997.
Option to purchase 250,000 common shares at $3.00 per share on
April 1, 1998.
Option to purchase 250,000 common shares at $3.00 per share on
October 1, 1998.
Upon signing of this agreement, the Company will pay Meyerson $25,000
as a non-accountable and non-refundable expense allowance. Meyerson
shall be entitled to additional compensation to be agreed upon in
advance of any transaction proposed or executed by Meyerson.
9) On March 20, 1997, the Company issued a $8,500 note to an affiliated
company of Charles Lanktree at 10% interest due May 8, 1997. Interest
and principal payable at maturity. The note was paid on September 24,
1997.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
10) On April 30, 1997, the Company issued three $25,000 notes to Mark G.
Milask, Philip Wagner and Dr. Paul Smalheiser at 8% due September 30,
1998. The notes are convertible at $2.00 per common share at any time
prior to maturity. In addition, each payee was granted an option to
purchase 50,000 shares of the Company's unregistered common stock at
$2.00 per share, expiring March 31, 2002. Interest payable at date of
maturity.
11) On April 30, 1997, the Company issued a $50,000 note at 10% to Donald
A. Kaplan with a maturity of September 30, 1998. Interest is payable
at maturity. In addition, the Company granted an option to purchase
100,000 shares of common stock at $2.00 per share through March 31,
2002. The note is convertible into unregistered common shares at
$2.00 per share at any time prior to maturity. The holder of the note
is entitled to registration rights when available and will be able to
take advantage of any piggy-back registration.
12) 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 first 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.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
12) Lease Agreement, Gloucester City, New Jersey (continued):
1) Payments in lieu of taxes (continued):
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 rate of $.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, a rate of $1.25 per ton will be paid to
lessor for organic waste in excess of 100,000 tons.
13) Stock Purchase Agreement:
On October 2, 1996 a second amendment to the Stock Purchase Agreement
was signed between Compost America Holding Company, Inc., Robert F.
Young, Jr. and American Soil, Inc. The amendment extended the closing
date to October 2, 1996. The closing occurred October 2, 1996. In
addition, the following amendments were agreed to:
a) Under the first amendment Robert F. Young, Jr. was to be issued
100,000 shares of unregistered common stock, however these shares
were never issued. As a result, no sooner than January 5, 1997
and no later than January 8, 1997 Robert F. Young, Jr. shall be
issued 150,000 shares of registered stock. To secure the
Company's obligation to issue the stock, Roger E. Tuttle has
agreed to deliver to the escrow agent 150,000 shares of his stock
in the Company. These shares are valued at $2.65 or a total
amount of $397,500.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
13) Stock Purchase Agreement (continued):
b) At closing the Company will place $132,500 cash or 50,000 shares
of unregistered common stock of the Company owned by Roger and
Elizabeth Tuttle into an escrow account to be held by the escrow
agent for 9 months for the payment of any unknown liabilities
more than 90 days prior to the closing date that are more than
$5,000 and any environmental clean-up that may be required by
law. This provision is in lieu of the $150,000 in the second
amendment.
c) At closing the Company paid Isdaner & Company $20,000 and
Richards & O'Neil LLP $21,457.
d) At the closing the Company paid $325,000 as amended for the first
amendment of $310,000.
e) At closing the Company assumed all assets and liabilities of
American Soil, Inc.
f) The combined investment and advances to American Soil, Inc. was
$1,019,248 which was allocated as follows:
Net assets of American Soil, Inc. $ 158,387
Value of lease with the Town of
Freehold which expires April 27, 2004 860,861
----------
$1,019,248
----------
----------
Financial statements of American Soil, Inc. have not been provided since
the acquisition does not meet with the test for a significant subsidiary as
required under Reg Section 210-02 (W). The combined investment in and
advances at the proposed acquisition date amounted to $1,019,248 which did
not exceed 10% of consolidated assets at April 30, 1996.
14) 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 plus
closing costs was 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. Praxair has commenced a foreclosure
action on the property owned by Newark Recycling and Composting
Company, Inc. in furtherance of having their note paid as well as
unpaid interest, expenses and attorney fees. On November 3, 1997 this
obligation was satisfied.
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
15) In September 1996, in a first amendment to the restated Compost
Recycling Agreement, the amendment effective date was changed to
November 13, 1996 and the initial payment by Bedminster Seacor
Services Miami Corporation to the City of Miami to secure the
performance of the Company's obligations under the restated agreement
shall be one million three hundred and fifty thousand dollars
($1,350,000), payable $100,000 in September 1996 and the balance of
$1,250,000 dollars, plus interest at 10% per annum, payable at the
earlier of the financial closing of the funding for the Miami Compost
Project or September 1, 1997. If payments are not received, the City
of Miami shall have the right to terminate this agreement.
On November 21, 1996, Miami Recycling and Composting Company, Inc.
paid $1,000,000 to the City of Miami. This fulfills the 30 year "put
or pay" contract requirement between the Company and the City of Miami.
The Company has classified this payment as an other asset under the
classification "Cost of Miami Contract performance fee" and is being
amortized over a term of 35 years from the contract date. The fee is
an initial payment for service performance of Bedminster Seacor
Services, Inc. under this agreement.
16) All the agreements with Bedminster Seacor Services Miami Corporation
have been assigned to Miami Recycling and Composting Company, Inc.
subsequent to the acquisition of Bedminster Seacor Services Miami
Corporation by Miami Recycling and Composting Company, Inc. and its
parent company Compost America Holding Company, Inc. on March 1, 1996.
17) On July 4, 1997, the Company entered into an agreement with Canterbury
Companies, Inc. and Gelvin Stevenson for financial advisory services.
The agreement provides for Canterbury Companies, Inc. to use the best
efforts to fairly present to potential investors the merits of
investing in Compost America. As compensation, the consultant will
receive $6,000 upon signing of agreement and a monthly retainer of
$2,500 per month for 6 months. Services will continue on a month to
month basis after 6 months. In addition, the Company will issue
160,000 shares of common stock, 100,000 shares issued and vested at
execution of agreement and 60,000 over the next two quarters based on
satisfactory performance.
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts:
A) 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.
B) 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 will receive $400,000
in the form of stock of the Company for a term of two years.
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 exercising the options the consultant must complete certain
mailing of investor packages before stock can be registered under the
Form S-8 filing. Registration of the stock will be in stages starting
immediately upon completion of mailing of 100,000 packages to
investors, 3 months after completion and 6 months after completion.
C) On October 2, 1996 the Company and Robert F. Young, Jr. entered into a
consulting agreement. Robert F. Young, Jr. was the original owner and
developer of American Soil, Inc. which on October 2, 1996 was acquired
by the Company. The consultant is to assist the Company in the
transition of management control of American Soil, Inc. with the
Company and to provide the following objectives:
1) Obtain a minimum of a 20 year lease from the Freehold Township
for a 350-500 ton per day invessel composting facility.
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts:
C) (continued):
2) Secure all acquired local approvals to develop the
"Brownfield" property, directly adjacent to the American Soil,
Inc. site, for compost storage and blending operations.
3) Obtain approval from the Monmouth County Board of Chosen
Freeholders of an amendment to the Monmouth County district
solid waste management plan to authorize a 350-500 ton per day
in-vessel composting facility for source separated organic
material on the American Soil, Inc. property.
For services rendered, the consultant shall receive $5,000 per month
for a term of 3 months through January 2, 1997. If objective (1) is
achieved within 2 months after the end of the term the consultant
shall receive a bonus of $15,000 and 10,000 shares of registered
common stock of the Company. If objective (2) and/or (3) are achieved
within 2 months after the end of the term of the agreement, the
consultant shall receive $15,000 and 10,000 shares of restricted
common stock of the Company for each objective achieved.
The Company will also provide health coverage for a six month period
from October 2, 1996 to April 2, 1997.
After the term of this agreement the consultant can be engaged at the
rate of $100 per hour either in cash or common stock of the Company by
mutual agreement.
The consultant shall receive reimbursement for expenses not to exceed
$1,500 per month. In addition the consultant has requested the
Company to pay $15,000 per year for three years to Cornell College of
Art, Architecture and Planning for research.
If objective (1) is achieved within 4 months after the beginning of
the term, the consultant shall receive a bonus payment of $15,000 in
cash and 8,333 shares of common stock of the Company. Additionally if
objective (2) and or (3) are achieved within 4 months after the
beginning of the term of this agreement $15,000 in cash and 8,333
shares of common stock of the Company will be paid for each completed
objective.
D) On February 21, 1997, the Company entered into a 10 year consulting
agreement with Tomas Andres Mestre to provide expert consulting service
in the management of solid waste and sewer sludge and in business
development in Florida. As compensation, the Company will pay the
consultant as follows:
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
D) (continued):
1) On or before February 28, 1997, the Company shall pay $300,000 by
delivering 200,000 shares of the Company's common stock. The
Company is to file a registration statement on Form S-8 covering
the shares within 30 days.
2) On or before February 28, 1997, the Company shall deliver to he
consultant options to purchase 500,000 shares at $2.00 per share
through December 31, 2007.
3) On or before February 28, 1997, but in no event later than
issuance of the registered shares in 1) above the Company shall
pay a fee of $250,000.
4) Upon financial closing (sale of bonds, public offerings or such
other financial arrangements of any composting facility in the
state of Florida) of the North Dade Composting facility the
consultant shall be paid a development fee of $500,000 and 50% of
the total of any and all development fees in excess of $1,000,000
paid pursuant to financial closing.
5) Upon financial closing of the North Dade Composting Facility and
each and every additional composting facility in Florida, the
Company shall grant the consultant an option for 100,000 shares
of common stock at $2.00 per share for a period of 10 years.
6) Upon the commencement of commercial operations of the North Dade
Composting Facility and the commencement of commercial operations
of each and every additional facility in Florida, the Company
shall grant to the consultant options to purchase an additional
75,000 shares of common stock at $2.00 per share for 10 years.
7) Upon each additional closing (other than North Dade) the
consultant will be paid a development fee of $250,000 and 50% of
any and all development fees in excess of $500,000.
8) The Company shall exclusively contract with the consultant for
trucking services in the State of Florida at competitive rates.
In addition, the Company shall enter into an exclusive contract
for agriculture land applications in Florida.
In addition to the above, the Company shall convey to the consultant a
19.9% equity ownership interest in Miami Recycling and Composting Company,
Inc., a subsidiary of the Company. The consultant will also receive a
management fee equal to 30% of distributable net income of Miami Recycling
Composting Company and any other business enterprises in the State of
Florida.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
E) On January 1, 1997, the Company entered into a financial consulting
agreement with Lancaster Consultants, Inc. to provide financial
consulting services and advise pertaining to the Company's business
affairs and in raising debt and equity funding, developing, studying
and evaluating financing, merger and acquisition proposals, prepare
reports and studies thereon. The agreement is for a term of 2 years.
As compensation the Company shall pay the consultant by issuing a
stock certificate for 300,000 shares of its common stock valued at
$2.50 per share simultaneously with the execution of this agreement.
The securities shall be registered on Form S-8 with the Securities
and Exchange Commission. On June 20, 1997, the Company amended the
consultant agreement and changed the compensation to $200,000 which
payment was made by the Company issuing a stock certificate for
100,000 shares of its common stock upon execution of this agreement.
The shares shall be registered on Form S-8 not later than 30 days
after the filing the Company's annual report on Form 10-KSB, for the
fiscal year ended April 30, 1996. In addition, the Company has
granted the consultants immediately exercisable options to purchase
300,000 Rule 144 shares of the Company's common stock through
December 31, 2001 at the exercise price of $1.50 per share. All
options maybe exercised on a "cashless" basis.
On October 6, 1997, the Company modified the January 1, 1997 agreement
and issued 76,000 shares of common stock to Lancaster Consultants,
Inc. and 30,000 shares of common stock to William Stockman at $.50 per
share.
F) On January 23, 1997, the Company entered into an agreement with Quirk
Carson Peppet to act on a non-exclusive basis to provide financial
advisory service and be the placement agent for certain financial
advisory and investment banking services. As compensation, the
consultant shall receive the following:
a) Upon acceptance, the Company will issue warrants for 100,000
shares at $2.50 per share for 5 years.
b) Upon closing of a private placement of any equity securities, the
Company will pay the consultant 6% of the aggregate gross
proceeds. In addition, the consultant shall receive warrants
equal to 4% of the common shares or equivalent issued in the
private placement at the price of the shares issued in the
private placement for 5 years.
c) Upon closing of a private placement of any equity security by
investors introduced by the Company, the consultant will get 3%
of the aggregate gross proceeds and 2% in warrants.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
G) On May 21, 1997, the Company entered into a consulting agreement with
J. Mark Strong for two years to provide consulting services regarding:
1) creation and development of an initial "web site", 2) ongoing
updating of the "web site", 3) Advising the Company in the placement
of the Company's Class A preferred stock offering. The offering shall
be the placement by the Company no later than June 30, 1997 of a
minimum of $2,000,000 and up to a maximum of $5,000,000 of Class A
preferred stock and 4) the creation and production of a Company video.
As compensation the consultant shall receive 5,000 unregistered shares
of common stock for every 100,000 Class A preferred shares sold. In
addition for other services, the consultant is granted an option to
purchase 150,000 unregistered shares of common stock at $2.00 per
share expiring on June 20, 2001. Consultant shall also receive
expense reimbursement in excess of $200. The consultant also agreed
to a restrictive covenant for three years from date of termination of
this agreement.
H) On June 23, 1997, the Company and Robert Tardy d/b/a Tardy and
Associates revised a consulting agreement originally dated December 1,
1995 with the following provisions: 1) The term of this agreement is
extended for 3 years commencing January 1, 1997 through December 31,
1999. 2) Consultant will submit invoices to the Company for services
rendered for the month on the last day of each month. Compensation
shall be $5,000 per month for basic service, the first 40 hours of
each month. Excess service shall be paid by the issuance of
unregistered shares at the rate of $120 per hour valued at closing
market price on the date of the invoice. 3) The Company shall
reimburse for actual and necessary costs directly related to services
provided. 4) An interest charge of 1% per month on any unpaid
balances. On September 9, 1997, the Company issued 6,800 shares of
its unregistered common stock at a value of $14,860 at an average
price of $2.55 per share.
11. Development stage company:
The Company's operations have been centered around its organizing,
evaluating and developing the business of converting organic waste into
compost and other soil products and the start-up financing of its
operations, including the construction of the waste management and compost
facility in Newark, New Jersey and other compost facilities throughout the
country. From December 17, 1993 through the period ending October 31, 1997
the Company has secured required financing through a public offering,
various private placement offerings and from the related companies,
Compost Management, Inc., Select Acquisitions, Inc. and VRH Construction
Corp. The Company has incurred losses in connection with its operations
during this same period of $12,797,882.
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Minority interest in consolidated subsidiary:
Newark Recycling and Composting Company, Inc. was incorporated in the State
of Delaware on May 10, 1994 with Compost America Company of New Jersey,
Ltd. 75% and Potomac Technologies 25%. The purpose of the Corporation is
to continue development activities which were the development, construction
and operation of a sewer sludge composting facility in Newark, New Jersey.
VRH Construction Corp. is a shareholder in Compost America Holding Company,
Inc. and is the exclusive construction manager for the Newark composting
facility. Management of the corporation will be by consensus of the Board
of Directors. The Company has consolidated the financial statements of
Newark Recycling and Composting Company, Inc. with Compost America Company
of New Jersey, Ltd. at October 31, 1997. 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. The minority shareholder
account has been reduced to zero at October 31, 1997 as a result of loss
allocations. The Company has increased its portion of losses from
subsidiary in excess of capital investment of the minority interest.
Compost America Florida Holding Company (Miami Recycling and Composting
Company, Inc.) was incorporated in the State of Florida on November 17, 1995
with Compost America Holding Company at 80.1% and Tomas Andres Mestre, a
consultant located in Miami, Florida owning 19.9% for services rendered.
The purpose of the corporation is to develop a composting facility and other
projects and business enterprises in Florida. Mestre shall be paid a
management fee equal to 30% of the distributable net income from all
Florida facilities.
13. Contingencies and commitments:
A) The Company leased office facilities under an operating lease in
Doylestown, PA. The lease was assumed by Compost America Company of
New Jersey, Ltd. on December 17, 1993 for 6,122 sq. ft. of office
space. The lease expired on June 14, 1994 but was continued on a
month to month basis until December 1, 1994. The total rental,
including a percentage of maintenance, real estate taxes and
insurance, amounted to $59,049 for the period May 1, 1994 to December
1, 1994. The lease has been extended to December 31, 1997. As of
July 28, 1997 the lease was abandoned and the Company is contingently
liable on the lease until to December 31, 1997 in the amount of
$18,240.
B) On May 1, 1996 the Company entered into a five year lease agreement
for office facilities located at 320 Grand Avenue, Englewood, New
Jersey. The Company will pay a rental of $4,000 per month plus
electricity and real estate taxes over the base year.
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and commitments (continued):
B) (continued):
The minimum annual rentals are as follows:
April 30, 1998 $48,000
April 30, 1999 48,000
April 30, 2000 48,000
April 30, 2001 48,000
C) The Company leases an automobile under a operating lease. The lease
is payable at $593.00 per month for 36 months. The lease commenced on
June 19, 1997. The minimum annual lease payments during the next year
amount to $7,116.
D) 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. The purchase is contingent upon 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". The approval would allow Compost America Holding
Company, Inc. to build an indoor compost facility. Further
contingencies require that any remaining governmental, environmental
and building permits related to the construction of the "indoor
composting facility" be obtained in addition to the closing on the
property and the project.
As of October 31, 1997 the Company has advanced $25,000 towards this
balance as an indication of good faith with Bio-Services, Inc.
E) On October 2, 1996 the Company was assigned a lease commitment with
the Township of Freehold, New Jersey for two parcels of land located
in the Township of Freehold, County of Monmouth, State of New Jersey.
One parcel is 10.462 acres and the second parcel 8.296 acres. The
lease is for 5 years with a 5 year option. The cost of the lease is
5% of the audited profits net of either state or federal income taxes
conducted on the above described premises or a minimum of $4,000 per
year, payable quarterly. The property shall be used for receiving,
processing and composting organic materials, and wholesale and retail
sale of finished horticultural products. Organic materials shall
include yard wastes, processing wastes, paper products and wood chips.
The Company must maintain $2,000,000 of insurance on the premises.
F-29
<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:
Summary of warrants and options outstanding:
Exercise
10/31/97 Price Expiration
Warrants:
-------- -------- -------- ----------
Bedminster Bioconversion Corp 300,000 $ 6.00 3/01/01
300,000 .83 02/15/00
60,460 3.00 06/01/99
David Egarian 150,000 1.00/1.17 02/15/00
Robert W. Jones III 75,000 1.00/1.17 02/15/00
75,000 1.17 02/15/00
B. Michael Pisani 45,200 .92 06/01/99
Robert D. Long 5,800 .92 06/01/99
Quirk Carson Peppet 100,000 2.50 01/24/02
---------
1,111,460
---------
---------
Options:
-------
Robert E. Wortmann 300,000 2.00 04/23/01
Victor D. Wortmann 300,000 2.00 04/23/01
Roger Tuttle 1,000,000 2.50 11/14/00
Peter Coker 100,000 2.00
50,000 5.00
50,000 9.00 06/30/01
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
M.H. Meyerson & Co. 1,000,000 3.00 03/31/02
Mark G. Milask 25,000 2 .00 03/31/02
Philip Wagner 50,000 2.00 03/31/02
Dr. Paul Smalheiser 25,000 2.00 03/31/02
Donald Kaplan 100,000 2.00 03/31/02
F-30
<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 (continued):
Exercise
10/31/97 Price Expiration
Options (continued):
-------- -------- -------- ----------
Robert W. Jones III 50,000 2.00 12/31/01
50,000 3.00 12/31/01
Allan S. Miller 100,000 2.00 07/31/02
Aryeh Trading Corporation 100,000 2.00 07/31/02
100,000 2.00 07/31/02
J. Mark Strong 150,000 2.00 06/20/01
Berwyn Capital Corporation 33,334 2.50 01/30/02
Adam S. Gottbetter, Esq. 40,000 1.50 06/30/00
Bruce Boltuch 7,500 2.00 05/19/97
Michael A. Benages 50,000 2.00 12/31/01
Jose Ferre 5,000 2.00 12/31/01
Erelio Pena 5,000 2.00 12/31/01
Pedro Roig 5,000 2.00 12/31/01
Julio Rebull 5,000 2.00 12/31/01
Orlando Garcia, Jr. 5,000 2.00 12/31/01
Armando Oliveros 5,000 2.00 12/31/01
Anthony Zamora 5,000 2.00 12/31/01
Arsenio Milian 5,000 2.00 12/31/01
Robert T. Schlak 10,000 2.00 12/31/01
---------
4,430,834
---------
F-31
<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):
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.
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 is included in a note payable with interest at 10%
and was due January 31, 1997. The note has been extended from the original
due date to December 31, 1998. In addition, VRH Construction Corp. has
advanced additional funds amounting to $3,484,283 at October 31, 1997, of
which $1,543,866 is payable at 10% due December 31, 1998 and $1,940,417 is
interest bearing at 10% per annum and payable on demand. The total loans
and notes outstanding at October 31, 1997 amounted to $4,124,355. As of
October 31, 1997 the notes and loans were consolidated into two mortgage
notes, $2,998,688 for Newark Recycling & Composting Company, Inc. plus
accrued interest of $689,793 and $1,125,667 for Compost America Holding
Company, Inc. plus accrued interest of $195,426. The mortgages are
collateralized by all inventory, accounts receivable, equipment and all the
assets of the Company. The due date of the two mortgages is December 31,
1998. In addition VRH has advances additional funds through October 31,
1997 for a total due of $4,114,555. 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 $78,060 at October 31, 1997. Bedminster
Bioconversion, Inc., an unrelated corporation, received stock purchase
warrants as indicated in the notes to consolidated financial statements.
There are numerous agreements and intercompany transactions between Compost
America Holding Company, Inc. and its subsidiary, Compost America Company
of New Jersey, Ltd. and with its related subsidiaries, Newark Recycling and
Composting Co., Inc., Gloucester Recycling and Composting Company, Inc. and
Monmouth Recycling and Composting Co., Inc. Chicago Recycling and
Composting Company, Inc. and American BIO-AG Corporation. At October 31,
1997 all intercompany transactions have been eliminated.
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Related party transactions (continued):
The Company, at July 31, 1997, has received a loan from Roger Tuttle, the
President of Compost America Holding Company, Inc., in the amount of
$70,000.
The Company is obligated on a note payable to John Fetter also known as
Foundation Systems, in the amount of $90,000 plus miscellaneous expenses
and advances of $231,159 on behalf of the Chicago Project.
16. Employment contracts:
As of May 1, 1997 Roger Tuttle and the Company executed an amended
employment agreement, the terms of which supersede all previous agreements.
The term is for seven years effective May 1, 1997. The compensation shall
be $350,000 per annum of which $125,000 shall not be paid or accrued until
the Company has sufficient cash resources to make payments. There will be
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 the
Company's net income up to $25,000,000 and 2% of the remainder. Roger
Tuttle shall also receive the following:
1) Reimbursement of all business related expenses
2) A Company provided automobile.
3) A one-time signing bonus of $500,000 at such time the
Company's common shares have been listed on the "NASDAQ
Small Cap Market".
4) Medical, health and dental insurance
5) Employer grants employee a 1,000,000 shares option to
purchase 1,000,000 shares of common stock at $2.50 per share
for five years
As of October 31, 1997 unpaid accrued wages amounted to $831,000 for all
contract employees. Roger Tuttle has the right to convert any amounts due
him into unregistered shares of the Company's common stock at $2.00 per
share.
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. Employment contracts (continued):
The Company modified and amended the employment agreement dated May 1, 1997
with Roger Tuttle. The effective date of this amendment is August 1, 1997.
The term of employment is 7 years from August 1, 1997.
During the term the executive shall receive a base annual salary of
$350,000. Of this $125,000 shall not be paid or accrued until the Company
has sufficient cash resources to make this payment. In addition, the
executive will receive a bonus equal to 5% of the Company's consolidated
net income on the first $25,000,000 and 2% on the excess over $25,000,000.
The executive is immediately vested in a 1,000,000 stock option at $2.50
per share. At the option of the executive, payment for the option can be
in cash or by a "cashless exercise".
On August 1, 1997, the Company entered into an employment agreement with
Allan S. Miller for an executive position in the Company to manage project
development and render services required by the Company's President. The
term of this agreement is from the date of the agreement until July 31,
2002. Compensation shall be $150,000 annual salary plus a bonus. The
bonus shall be paid for each financial closing, defined as the proceed or
funding sufficient to allow the commencement and ultimate completion of the
development, construction and commencement of commercial operations of an
in vessel composting facility. The bonus on the first financial closing is
$75,000 and one-tenth of one percent of subsequent financial closings. The
bonus, at Mr. Allan S. Miller's option, shall be paid in cash or in
unregistered common shares of the Company, which shall be valued at the
greater of $2.00 per share or the average closing sale price of the
Company's common shares for the 30 day trading pays immediately prior to
the date of payment of the bonus. In addition, the Company shall issue
options to purchase 100,000 unregistered common shares at an option price
of $2.00 per share which will vest upon execution of this agreement and
expire on July 31, 2002. The employee shall also be entitled to
participate in any stock bonus, purchase of option plan, bonus of profit
sharing plan, reimbursement of reasonable expenses and an automobile
allowance of $600 per month. The employee must also agree to a restrictive
covenant for the term of this agreement and for two years after
termination, the employee shall assign any future inventions and technical
data to the Company as convents to the employment agreement.
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. 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 $12,759,382 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2009 and 2013.
18. Intangible assets:
Restrictive covenant $250,000
Trademark costs 3,287
Organization costs 7,081
Deposits 29,817
--------
290,185
Less accumulated amortization 51,510
--------
$238,675
--------
--------
19. Note payable, bank:
The note payable is due to Summit Bank in the amount of $100,000 at 9 1/2%
interest payable on demand.
20. Notes payable, other:
Carl Jones, American BIO-AG Corp., loan payable,
unsecured on demand $ 75,000
Ron Bryce, American BIO-AG Corp., loan payable,
unsecured on demand 35,250
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
20. Notes payable, other (continued):
Brokerage Service Management, Inc., Compost America
Holding Company, Inc., note payable due on demand
and unsecured at 10% 27,000
Helen S. Janklow Trust, Compost America Holding
Company, Inc., 9% convertible note due June 1,
1998 or the first closing of the municipal bond
financing for any of the corporations composting
facilities 22,500
Richard J. Verge, Compost America Holding Company,
Inc., 9% convertible note due June 1, 1998 or the
first closing of the municipal bond financing for
any of the corporations composting facilities 22,500
Walter W. Peine, Compost America Holding Company,
Inc., 9% convertible note due June 1, 1998 or the
first closing of the municipal bond financing for
any of the corporations composting facilities 22,500
Mark Stella, Compost America Holding Company, Inc.,
loan payable, unsecured on demand 15,000
Peter May, Compost America Holding Company, Inc.,
loan payable, unsecured on demand 15,000
--------
$234,750
--------
--------
21. Mortgage payable - Praxair Corp.
The $2,100,000 mortgage is payable at 8% interest payable monthly. The
mortgage was due September 1996 and extended to December 1996. Interest
has been accrued to July 31, 1997 but payments have not been made. Praxair
has commenced a foreclosure action on the property owned by Newark
Recycling and Composting Company, Inc. in furtherance of having their note
paid as well as unpaid interest, expenses and attorney fees. The mortgage,
interest and fees were paid on November 3, 1997.
22. Notes payable, shareholder:
The Company is obligated on a note payable to Roger Tuttle, president of
the Company, for $70,000 which is non-interest bearing, unsecured and
payable on demand.
23. Payroll taxes payable:
The Company is in arrears for payment of prior and current years payroll
taxes to federal and state taxing authorities in the amount of $150,517.
Interest and penalties have been accrued on these amounts. The Company is
at risk, including the officers, for responsibility for tax payment under
the trust fund recovery systems. The Internal Revenue Service can cause
liens to be recorded and judgements to be filed.
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
24. Long-term debt:
Rate Current Long-term Maturity
---- ------- --------- --------
Teepak, Inc. Prime & 2% $ 264,871 Indefinite
Rinker Materials Corp. 7% $3,730,871 04/01/98
Jerry L. Montierth 7% 7,924 261,499 02/01/15
Equipment notes:
Center Capital Corp. 12.34% 14,244 46,115 02/05/02
Concord Commercial 8.95% 77,406 116,108 04/09/00
AT&T Capital Corp. 12.53% 29,868 45,847 06/10/00
General Electric Capital 10.75% 18,497 7,707 02/23/99
Orix Credit Alliance, Inc. 9.50% 29,502 24,586 07/20/99
Notes payable, others:
Mark G. Milask 8% 25,000 09/30/98
Philip Wanger 8% 25,000 09/30/98
Dr. Paul Smalheiser 8% 25,000 09/30/98
Donald M. Kaplan 10% 50,000 09/30/98
Lionhart Global Appreciation
Fund, convertible debenture 10% 800,000 11/26/99
Due to shareholders 0% 200,000 05/12/98
--------- ---------
4,233,312 1,566,733
Less, unamortized discount 22,112 32,108
--------- ---------
$4,211,200 $1,534,625
--------- ---------
--------- ---------
A) The loan payable to Teepak, Inc. is for advances to Compost
Management, Inc. prior to its merger with Compost America Company of
New Jersey, Ltd. on December 1, 1994 which was subsequently assumed by
Compost Holding Company, Inc. for the purpose of obtaining necessary
permits for a compost facility in Riverdale, Illinois. The loans
commenced on January 11, 1993 with repayment terms as follows:
1) After permits are issued Compost America Holding Company, Inc.
shall repay the loan in quarterly installments commencing three
months after the start up of the facility to the extent of 50%
of available cash flow from the facility.
2) If the facility does not receive the necessary permits by
September 15, 1996, the entire amount of the loans will be repaid
in 24 equal installments. Any overdue payments shall bear
interest at a rate equal to the prime rate plus 2%. As of
September 15, 1996 the loan has been extended, indefinitely.
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
24. Long-term debt (continued):
B) 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%.
C) The mortgage payable to Jerry L. Montierth is payable in annual
installments of $26,784 including interest at 7% over 19 years. The
mortgage is secured by land located in Meridian, Cochise County,
Arizona.
D) Equipment which cost $53,500 is pledged as collateral for the note
which is payable in monthly installments of $1,187.
E) Equipment which cost $202,995 is pledged as collateral for the note
which is payable in monthly installments of $6,450.
F) Equipment which cost $110,563 is pledged as collateral for the note
which is payable in monthly installments of $2,489.
G) Equipment which cost $59,920 is pledged as collateral for the note
which is payable in monthly installments of $1,541.
H) Equipment which cost $93,104 is pledged as collateral for the note
which is payable in monthly installments of $2,459.
I) Notes payable to the following are due September 30, 1998 and are
unsecured:
1) Mark G. Milask
2) Philip Wanger
3) Dr. Paul Smalheiser
4) Donald Kaplan
J) On November 25, 1996 the Company issued a convertible debenture for
$1,000,000 to Lionhart Global Appreciation Fund under a Regulation D
offering. The total offering proceeds amounted to $1,030,000 of which
$30,000 is a fee to the agent, Kaplan Gottbetter & Levenson, LLP. The
debentures are in 10 units of $100,000 each at 10% with a maturity of
November 26, 1999. The interest is payable monthly commencing 30 days
from the agreement and the notes are redeemable after 90 days at
option of the Company. As security, the Company will escrow between
300,000 and 325,000 shares of common stock, pursuant to a registration
statement declared effective by the commission, to secure the payments
and shall be held by the escrow agent. The stock pledged shall be
without restrictive legend. On May 20, 1997 the security of 300,000
shares was redeemed and the note was reduced to $800,000.
F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
24. Long-term debt (continued):
J) (continued):
The debenture holder, upon default, has the right to sell, assign or
deliver shares without notice to or demand upon the Company. The
holder is entitled to receive dividends and other distribution but no
right to vote or subscribe.
The debenture holder has the right of conversion 150 days following
date of closing of note. The debenture is convertible (principal and
interest) into common stock based on the principal and interest
outstanding divided by the conversion price, the conversion price
being 65% of the average closing bid price for the 5 days preceding
the closing or 65% of the average closing bid price for the 5 days
immediately preceding the date of conversion.
The debentures are automatically converted to each issued and
outstanding debenture on the date which is 3 years after closing.
Upon 90 days after closing, at the option of the Company, the
debentures may be redeemed based on the following schedule:
Number of days Shares of
from closing date Principal common stock
----------------- --------- ------------
90 - 120 $1,000,000 80,000
121 - 150 1,000,000 100,000
150 or more 1,000,000 120,000
K) The amount due to shareholders is due in one year.
The maturities of the long-term debt summarized as follows:
Year ended April 30,
1998 $4,011,200
1999 140,830
2000 1,071,384
2001 20,692
2002 12,996
Thereafter 488,723
----------
$5,745,825
----------
----------
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Impairment of investment in subsidiary:
The Company has adopted the provision of SFAS-121 effective for fiscal
years beginning after December 15, 1995. As required by the Financial
Accounting Standards Board which requires recognition of impairment of
asset when events and circumstances indicate the carrying amount of those
assets will not be recovered in the future. The pronouncement further
states that goodwill identified with assets that are subject to impairment
loss should be eliminated before the carrying amount of any other assets is
reduced.
Basis of acquisition of American BIO-AG
Corporation $1,770,730
Net book value of the assets acquired
(American BIO-AG Corporation) 854,700
---------
Goodwill (excess of cost over the value of
the assets acquired) 916,030
---------
Base of acquisition $1,770,730
Fair value of investment in American
BIO-AG Corporation 1,329,775
---------
Impairment loss 440,955 440,955
--------- ---------
Goodwill, net excess value over the assets
acquired $ 475,075
---------
---------
26. Subsequent events:
A) On November 3, 1997, the Company entered into an acquisition agreement
with Robert Longo and EPIC, Inc. F/K/A R.J. Longo Construction Co.,
Inc. for 3,547,182 common shares of the Company for 100% of the shares
of EPIC, Inc. Also issued were 39,000 shares of Series A preferred
stock, 21,000 shares of Series C preferred stock with an aggregate
value of $6,000,000. The purchase price of the Company was
$33,000,000 which was paid by the assumption of equipment debt
$7,056,292, the preferred stock as above and cash of $20,000,000 in
exchange for 100 shares of the 1,000 shares authorized of EPIC, Inc.
The acquisition included net book value of assets acquired of
$4,065,756 with an original cost of $17,478,004 and the City of New
York 15 year, 340 million, contract for organic waste removal.
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
26. Subsequent events (continued):
A) (continued):
The contract also included an employment agreement with Robert J.
Longo, the former owner of EPIC, Inc. (Environmental Protection
Improvement Company, Inc.) to be employed by the Company (EPIC, Inc.)
which will be a wholly owned subsidiary of Compost America Holding
Company, Inc., as its President and Chief Executive Officer for a term
of November 3, 1997 to September 15, 2002. Compensation shall be
$325,000 annual salary plus for each year after April 30, 1998 an
annual bonus at the option of the executive, either in cash or
unregistered common shares of the Company values at the greater of
$2.00 per share or 80% of the last price of the shares on the date
payment is due. The bonus shall be computed to the extent that the
Company's (EPIC, Inc.) earnings before interest, taxes, depreciation
and amortization ("EBITDA") on average assets in any fiscal year
exceed 15.2% in such fiscal year. The amount by which "EBITDA" shall
be entitled to is 10%
As additional compensation, the executive shall be issued, by the
Company, options to purchase 1,500,000 unregistered shares of the
Company's common stock at an option price of $1.00 per share. 540,000
will vest immediately upon execution of this agreement, 200,000 on
September 15, 1998, 200,000 on September 15, 1999, 200,000 on
September 15, 2000, 200,000 on September 15, 2001 and 200,000 on
September 15, 2002. All options not exercised shall expire on
September 16,2002.
Additionally, the Company entered into employment agreements with
executive officers of EPIC, Inc., Jay Waxenbaum and Kevin Walsh. Jay
Waxenbaum shall be employed as Vice President of Operations for a term
ending September 15, 2002. Compensation of $125,000 annual salary and
an annual bonus based on above formula after April 30, 1998 at 5%. In
addition, the executive is granted options to purchase 300,000
unregistered shares of the Company at $1.00 per share according to the
following schedule:
50,000 options exercisable immediately
50,000 options September 15, 1998
50,000 options September 15, 1999
50,000 options September 15, 2000
50,000 options September 15, 2001
50,000 options September 15, 2002
All unregistered options shall expire on September 16, 2002.
Kevin Walsh shall be employed as Vice President and Chief Financial
Officer for a term ending September 15, 2002. Compensation of
$150,000 annual salary and an annual bonus based on above formula
after April 30, 1998 of 5% In addition, the executive is granted
options to purchase 300,000 unregistered shares of the Company at
$1.00 per share vesting immediately with an expiration date of
September 15, 2002.
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
26. Subsequent events (continued):
A) (continued):
The acquisition of EPIC, Inc. included all the assets including
equipment, vehicles and improvements and all other assets of EPIC,
Inc. less excludable assets of $3,286,513 and all excess cash as of
the closing date in excess of $1,000,000, excess working capital which
exceeds a 1.5 ratio, all retainages held by the Bank of New York, all
officer loans of $819,000 by Robert Longo and all receivables from
affiliates totaling $2,699,826.
B) Wasteco Stock Purchase Agreement:
On November 3, 1997, the Company and Wasteco Ventures Limited, a
corporation organized under the laws of the British Virgin Islands,
entered into a stock purchase agreement to issue 130,000 shares of
preferred stock Series A, 70,000 shares of preferred stock Series C
and 11,490,609 shares of common stock for an aggregate price of
$20,000,000. The above shares were issued simultaneously with the
closing of the purchase agreement of all the common stock of R.J.
Longo Construction Co., Inc. from its shareholder Robert J. Longo and
the Robert J. and Andrea Longo Charitable Trust. The stock issued to
Wasteco represents 77% of the authorized preferred stock Series A and
77% of the authorized preferred stock Series C. The Company also has
outstanding 801,000 shares of preferred stock Series B.
27. Earnings per share:
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. All convertible
securities which are antidilutive have been included in the earnings per
share computation. The number of shares used in the computations was
24,027,366.
Following is a recalculation of the weighted average number of shares
actually outstanding with the number of shares used in the computations of
primary and fully diluted earnings per share:
Primary
1997 1996
---- -------
Primary and fully diluted:
Computed above for primary
earnings per share 18,485,072 13,154,167
Stock options 1,111,460
Stock warrants 4,430,834 917,012
---------- ----------
24,027,366 14,071,179
---------- ----------
---------- ----------
F-42
<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 directors of
the Company, by VRH Construction Corporation, a principal shareholder of the
Company whose owners are directors of the Company, and by other individuals
and institutions not affiliated with the Company. The Company received
$737,154 from private sales of its common stock during the fiscal year ended
April 30, 1997, $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, 1997 through
October 31, 1997, the Company has raised an additional $1,107,500 through
private sales of its common stock. In addition, since April 30, 1997 through
October 31, 1997, the Company received $2,000,000 from the issuance of its
Series B Preferred Stock.
In addition, VRH Construction Corporation made loans to the Company
totalling $555,167 during the fiscal year ended April 30, 1997, $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, 1997 through October 31, 1997, VRH
Construction Corporation has loaned an additional $60,000 to the Company,
while other loans to the Company during that same period have totalled
$92,500.
<PAGE>
Total funds raised from the sale of common shares and loans from
shareholders from December 1993 through April 30, 1997 are $9,651,578, plus
an additional $3,260,000 (including $2,000,000 from the sale of Preferred
Shares) since April 30, 1997 through October 31, 1997.
Significant revenues from operations of composting facilities are not
anticipated until 1999, when the Company's initial projects will be fully
constructed and operational. Until that time, the Company anticipates that it
will need an additional $3,000,000 to meet current debt obligations, provide
additional development capital for its various projects and fund ongoing
corporate overhead expenses. The Company anticipates that it will be able to
secure these funds from the sale of additional common and/or preferred shares
and/or the issuance of additional debt. In addition, the Company expects to
have completed project financing for the construction of the Company's
facilities in Miami, Florida and Newark, New Jersey prior to the end of the
current fiscal year and the Company may receive development fees and
management fees in connection with this project financing. In addition, on
November 3, 1997 the Company acquired all of the outstanding shares of EPIC,
Inc. F/K/A R. J. Longo Construction Co., Inc. (see note 26 to consolidated
financial statements). It is anticipated that this subsidiary will generate
approximately $1.5 - $2.0 million in cash flow to the Company over the next
twelve months.
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, except that it acquired approximately
15 new employees as a result of the EPIC, Inc. acquisition set forth above.
The Company does expect to commence construction of its Miami, Florida and
Newark, New Jersey composting facilities during the current fiscal year.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. 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 second quarter ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1998. For further information, refer to the consolidated statements
and footnotes thereto included in the Company's annual report on Form 10-KSB
for the year ended April 30, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings None not Previously
Reported
Item 2. - Changes in Securities
(a) None
(b) None
(c) During the fiscal quarter ended October 31, 1997, the Company
issued 1,780,286 shares of its common stock as follows:
Date # of Shares Issued To For Price
08/01/97 126,500 four consultants services $0.50/share
08/05/97 250,000 private investor cash $2.00/share
08/18/97 495,000 six consultants services $0.50-$2.00/sh
09/13/97 250,000 private investor cash $2.00/share
09/25/97 12,000 three consultants services $0.50-$2.18/sh
10/06/97 456,786 two private investors cash $1.07-$4.25/sh
10/15/97 150,000 consultant services $0.50/share
10/20/97 40,000 private investor cash $2.50/share
These shares were issued without registering the securities under the Securities
Act of 1933, as amended. There were no underwriters involved in the transaction,
and no underwriting discounts or commissions In light of the small number of
recipients and that all securities issued were restricted against subsequent
transfer, the Company believes that this issuance of securities was effected
under an exemption provided by Section 4(2) of the Securities Act of 1933, as
amended, being sales by an issuer not involving a public offering.
Item 3. - Defaults Upon Senior Securities None
Item 4. - Submission of Matters to a Vote of Security Holders
On October 30, 1997 at a special meeting of shareholders the shareholders of the
Company approved a resolution amending the Company's Articles of Incorporation
such that the number of directors of the Company and the length of the term of
each director shall be as specified in the Company's by-laws. The vote was
12,467,150 in favor, none opposed, 13,000 abstained from voting and no broker
non-votes.
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.
December 19, 1997 (Registrant)
By /s/ Roger E. Tuttle
-------------------------------------------------
Roger E. Tuttle, President and Principal
Executive Officer, Principal
Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE UNAUDITED
FINANCIAL STATEMENTS OF COMPOST AMERICA HOLDING COMPANY, INC. FOR THE FISCAL
QUARTER ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 171640
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<RECEIVABLES> 44086
<ALLOWANCES> 0
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<CURRENT-ASSETS> 444816
<PP&E> 17244874
<DEPRECIATION> 227399
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<COMMON> 13248067
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