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 January 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
Identification No.) or organization)
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 - 16,545,407 shares outstanding as at January 31, 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>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NINE MONTHS ENDED JANUARY 31, 1997 AND 1996 AND
FOR THE PERIOD DECEMBER 17, 1993 (INCEPTION) TO OCTOBER 31, 1996
(UNAUDITED)
CONTENTS
Page
Condensed consolidated financial statements:
Balance sheet F-2
Statement of income (loss) F-3
Statement of stockholders' equity F-4
Statement of cash flows F-5
Statement of operating expenses F-6
Notes to condensed consolidated financial statements F-7 to F-46
<PAGE>
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of January 31, 1997 F-2
Statement of income (loss) for the nine months
ended January 31, 1997 and 1996 and for the period
December 17, 1993 (inception) to January 31, 1997 F-3
Statement of stockholders' equity as of January 31, 1997 F-4
Statement of cash flows for the nine months ended
January 31, 1997 and 1996 and for the period
December 17, 1993 (inception) to January 31, 1997 F-5
Statement of operating expenses for the six months
ended January 31, 1997 and 1996 and for the period
December 17, 1993 (inception) to January 31, 1997 F-6
Notes to condensed consolidated financial statements F-7 - F-46
Item 2. Plan of Operations
Part II. Other information
Signatures
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET - JANUARY 31, 1997
(UNAUDITED)
ASSETS
Current assets:
Cash $ 25,973
Accounts receivable 19,047
Prepaid expenses 158,133
----------
Total current assets 203,153
----------
Investments in joint venture (Note 6) 0
----------
Plant, property and equipment (Note 18)
Land 8,483,441
Site improvements 174,519
Transportation equipment 160,046
Office equipment 153,861
Machinery & equipment 302,477
Construction in progress, Compost projects 7,621,794
-----------
16,896,138
Less accumulated depreciation 110,147
----------
16,785,991
----------
Other assets:
Excess of cost over assets acquired, net of
amortization of $3,484 (Note 24) 471,601
Lease acquisition cost, net of amortization of $44,388 990,432
Restrictive covenant 216,668
Trademark costs, net of amortization of $394 1,313
Organization costs, net of amortization of $4,077 4,584
Deposits 83,816
Option deposit 27,500
-----------
1,795,914
-----------
$18,785,058
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank (Note 7) $ 100,000
Notes payable, others (Note 7) 451,250
Accounts payable and accrued expenses 2,822,076
Mortgages payable - Praxair Corp. 2,100,000
Current portion of long-term debt (Note 18) 89,460
Due to affiliated company, VRH Construction Corp. (Note 16) 4,064,355
Reserve for land replacement 85,375
Due to affiliated company, Select Acquisitions, Inc. (Note 16) 38,060
Due to affiliated company, Foundation Systems (Note 16) 90,000
Due to officer (Note 16) 90,000
Payroll taxes payable 185,020
-----------
Total current liabilities 10,115,596
-----------
Long-term debt, net of current portion (Note 18) 5,341,215
-----------
Contingencies and commitments (Note 13)
Minority interest in consolidated subsidiary (Note 12) 361
-----------
Stockholders' equity:
Preferred stock, no par value, 25,000,000 shares
authorized; none issued
Common stock, no par value, 50,000,000
shares authorized; 16,545,407 shares issued
and outstanding (Note 14) 9,597,452
Common stock warrants (Note 15)
Deficit accumulated during the development stage ( 6,238,874)
Less: subscriptions receivable ( 30,692)
-----------
3,327,886
-----------
$18,785,058
===========
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>
Cumulative from
Three months ended Nine months ended December 17, 1993
January 31, January 31, (inception) to
1997 1996 1997 1996 January 31, 1997
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Net sales $ 0 $ 0 $ 97,555 $ 3,288 $ 80,741
Other revenues 70,198 3,288 151,009
----------- ----------- ----------- ----------- ----------
Total 70,198 3,288 97,555 3,288 231,750
Cost of operations, transportation 5,841 7,051 24,392
----------- ----------- ----------- ----------- ----------
Gross income 64,357 3,288 90,504 3,288 207,358
General and administrative 635,098 220,379 3,162,354 457,916 5,551,634
----------- ----------- ----------- ----------- ----------
Loss from operations ( 570,741) ( 217,091) ( 3,071,850) ( 454,628) ( 5,344,276)
----------- ----------- ----------- ----------- ----------
Other non-operating expenses:
Interest 165,595 122,011 448,225 155,110 743,209
----------- ----------- ----------- ----------- ----------
165,595 122,011 448,225 155,110 743,209
----------- ----------- ----------- ----------- ----------
Loss before income tax expense ( 736,336) ( 339,102) ( 3,520,075) ( 609,738) ( 6,087,485)
Income tax expense (Note 19) 0 0 0 0 0
----------- ----------- ----------- ----------- ----------
( 736,336) ( 339,102) ( 3,520,075) ( 609,738) ( 6,087,485)
Minority interest in loss
of consolidated subsidiaries 43,210 41,131 128,848 41,835 209,466
----------- ----------- ----------- ----------- ----------
( 693,126) ( 297,971) ( 3,391,227) ( 567,903) ( 5,878,019)
Loss in equity in joint venture ( 29,094) ( 13,603) ( 66,102) ( 360,855)
----------- ----------- ----------- ----------- ----------
Net loss ($ 693,126) ($ 327,065) ($ 3,404,830) ($ 634,005) ($6,238,874)
=========== =========== =========== =========== ==========
Loss per common share:
Primary and fully diluted ($0.03) ($0.02) ($0.18) ($0.04)
===== ===== ===== =====
Weighted average number of
common shares outstanding:
Primary and fully diluted 20,035,449 14,512,501 19,442,846 14,406,505
========== ========== ========== ==========
</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 STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ------ -----
<S> <C> <C> <C>
Balance, April 30, 1995 13,222,669 $2,899,278 ($ 861,239)
Issuance of common stock, exercise of
warrants May 1, 1995 (.01 per sh.) 100,000 1,000
Issuance of common stock, May 1995 (2.50 per sh.) 20,000 50,000
Issuance of common stock, June 1995 (2.50 per sh.) 70,000 175,000
Issuance of common stock Aug. 1995 (2.50 per sh.) 40,000 100,000
Issuance of common stock, Sept. 1995 (2.50 per sh.) 2,000 5,000
Issuance of common stock, Oct. 1995 (2.50 per sh.) 45,000 112,500
Issuance of common stock, Nov. 1, 1995 (.92 per sh.) 33,000 30,360
Issuance of common stock, Nov. 1995 (2.50 per sh.) 36,000 90,000
Issuance of common stock, Dec. 1995 (2.50 per sh.) 85,600 214,000
Issuance of common stock, Jan. 1996 (2.50 per sh.) 52,200 130,500
Issuance of common stock, Feb. 1996 (2.50 per sh.) 87,000 217,500
Issuance of common stock, Feb. 1996 (0 per sh.) 500
Issuance of common stock in acquisition of
Bedminster Seacor Services Miami Corporation
March 1, 1996 (2.50 per sh.) 200,000 500,000
Issuance of common stock,
March 1996 (2.50 per sh.) 40,000 100,000
March 1996 (3.00 per sh.) 4,000 12,000
Issuance of common stock,
April 1996 (2.50 per sh.) 48,600 121,500
April 1996 (3.00 per sh.) 2,500 7,500
Issuance of common stock in settlement of American
BIO-AG Corporation April 30, 1996 (2.50 per sh.) 83,333 208,332
Issuance of common stock for services April 30, 1996
(2.00 per sh.) 267,000 534,000
Issuance of common stock in settlement of debt April
30, 1996 (6.00 per sh.) 25,000 150,000
Issuance of common stock for services April 30, 1996
(2.34 per sh.) 40,000 93,404
Issuance of common stock in payment of employees for
excess services April 30, 1996 (5.00 per sh.) 17,962 89,810
Net loss, April 30, 1996 ( 1,972,806)
---------- ---------- ----------
Balance, April 30, 1996 14,522,364 $5,841,684 ($2,834,045)
========== ========== ==========
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ------ -----
<S> <C> <C> <C>
Balance, April 30, 1996 14,522,364 $5,841,684 ($2,834,045)
Issuance of common stock, May 1996
($3.00 per sh.) 41,534 124,602
Issuance of common stock settlement agreement
with Select Acquisitions, May 31, 1996
(2.50 per sh.) 200,000 500,000
Issuance of common stock, June 1996 (3.00 per sh.) 24,930 74,790
Issuance of common stock for acquisition of assets,
June 28, 1996 (2.50 per sh.) 305,000 762,500
Issuance of common stock in payment to consultants
for excess services, June 30, 1996 (5.00 per sh) 3,138 15,690
Issuance of common stock, consulting agreement
June 30, 1996 (2.50 per sh.) 583 1,458
Issuance of common stock, July 1996 (2.00 per sh.) 16,335 49,005
Issuance of common stock, consulting agreement
July 31, 1996 (2.50 per sh.) 583 1,457
Issuance of common stock consulting agreement
services, July 1, 1996 (2.50 per sh.) 75,000 187,500
Charge deferred offering cost to stock proceed (23,564)
Issuance of common stock for services July 24,
1996 (1.00 per sh.) 400,000 400,000
Issuance of common stock, August 1996 (3.00 per sh.) 12,000 36,000
Issuance of common stock, September 9, 1996
(3.00 per sh.) 52,540 157,620
Issuance of common stock, September 1996
(1.00 per sh.) 83,000 83,000
Issuance of common stock, September 1996
(3.00 per sh.) 67,900 203,700
Issuance of common stock for payment of accounts
payable October 11, 1996 (2.09 per sh.) 51,000 106,760
1996 (1.49 per sh.) 414,000 616,000
Issuance of common stock for services October 23,
1996 (2.00 per sh.) 3,000 6,000
Issuance of common stock, October 1996 (1.00 per sh.) 8,000 8,000
Issuance of common stock, October 1996 (3.00 per sh.) 8,000 24,000
Issuance of common stock for services, December 1,
1996 (.09 per sh.) 100,000 9,000
Issuance of common stock for services, December 1,
1996 (1.00 per sh.) 1,000 1,000
Issuance of common stock for services, December 1,
1996 (2.50 per sh.) 5,500 13,750
Issuance of common stock consulting agreement services,
January 8, 1997 (2.65 per sh.) 150,000 397,500
Net loss, January 31, 1997 ( 3,404,829)
---------- --------- ----------
Balance, January 31, 1997 16,545,407 $9,597,452 ($6,238,874)
========== ========== ==========
</TABLE>
F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative
from
Nine Months ended December 17, 1993
January 31, (Inception) to
1997 1996 January 31, 1997
---- ---- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss ($3,404,829) ($ 634,005) ($ 6,238,874)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization 61,574 13,370 83,997
Depreciation 60,138 14,329 83,579
Loss in equity in joint venture 13,603 66,102 360,855
Stock issued for professional services 570,605 1,155,605
Shareholder settlement 500,000 500,000
Loss in equity of minority interest ( 128,847) ( 128,847)
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses ( 102,581) ( 3,341) ( 158,133)
Increase in accounts payable and accrued expenses 1,519,183 118,640 3,012,240
Increase (decrease) in payroll taxes payable 167,040 ( 989) 185,020
Increase (decrease) in accounts receivable ( 19,047) ( 19,047)
Changes in other assets and liabilities:
Increase (decrease) in cash from
affiliated companies:
R.C. Land Company, Inc. 28,600
American Bio-AG Corp. 185,000 ( 388,000)
American Soil Company, Inc. 175,000
Select Acquisitions, Inc. 14,160 38,060
Deferred offering costs 20,564 ( 19,064)
---------- ---------- -----------
Net cash provided from (used in) operating activities ( 339,837) ( 832,958) ( 1,125,545)
---------- ---------- -----------
Investing activities:
Purchase of restrictive covenant ( 250,000)
Purchase of construction in progress, Compost project ( 1,479,299) ( 1,081,525) ( 4,923,855)
Purchase of land, property and equipment ( 1,572,537) ( 3,407,969) ( 9,104,432)
Purchase of organizational costs ( 1,580) ( 5,925)
Reduction (purchase) of equity in American BIO-AG
Corporation 624,636 ( 183,147) ( 153,523)
Reserve for land replacement 85,375
Increase (decrease) in deposits receivable ( 65,035) ( 119) ( 83,306)
Return (purchase) of option deposits ( 27,500) 100,000 ( 27,500)
Increase in cost in excess of assets acquired ( 475,085) ( 475,085)
---------- ---------- -----------
Net cash used in investing activities ( 2,994,820) ( 4,574,340) ( 14,938,251)
---------- ---------- -----------
Financing activities:
Increase in advances from affiliated company, VRH
Construction Corp. 555,167 2,453,866 4,064,355
Increase in loans from officers 90,000 90,000
Increase in loans from Foundations Systems, Inc. 90,000 90,000
Increase in notes payable, bank 50,000 100,000
Increase in notes payable, other 451,250 451,250
Increase in mortgage payable 2,100,000 2,100,000
Increase in other long-term debt 1,458,417 5,577,008
Payments on long-term debt ( 24,856) ( 55,610) ( 84,267)
Proceeds from issuance of common stock 737,154 907,360 3,701,423
---------- ---------- -----------
Net cash provided by financing activities 3,357,132 5,455,616 16,089,769
---------- ---------- -----------
Net increase in cash 22,475 48,318 25,973
Cash, beginning of period 3,498 9,409 0
---------- ---------- -----------
Cash, end of period $ 25,973 $ 57,727 $ 25,973
========== ========== ===========
Supplementary disclosure of cash flow information
Interest $ 468,225 $ 155,110 $ 743,209
Taxes $ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities (Note 22)
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATING EXPENSES
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative from
Three months ended Six months ended December 17, 1993
January 31, January 31, (inception) to
1997 1996 1997 1996 January 31, 1997
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Salaries $216,987 $ 33,100 $ 414,414 $ 47,336 $ 543,442
Payroll taxes 11,315 7,584 12,763 9,278 34,132
Advertising 432 1,932 8,055
Amortization 39,600 2,069 61,574 13,370 83,997
Automobile expense 2,149 9,992 10,396 15,238 79,216
Bad debt charges 55,384 63,190
Bank charges 670 1,791 882 4,325
Building rental 22,150 4,575 55,300 13,725 143,354
Carting expense 394
Computer expense 849
Consultants 142,936 5,000 755,972 7,500 1,340,537
Depreciation 25,190 6,727 60,138 14,329 83,579
Dues and subscriptions 120 2,509 800 3,109 19,202
Employment Services 600
Equipment rental 820 820 967 7,575
Insurance 34,977 11,534 78,101 29,719 171,630
Licenses and permits 1,100 1,678 228 3,212
Impairment loss on consolidated
subsidiary 440,955 440,955
Miscellaneous 1,498 122 2,541 1,713 28,389
Office expense 4,510 8,231 10,918 46,124
Option expense 7,500
Outside services 710 1,394 821 3,564
Postage and deliveries 2,410 973 7,797 2,512 21,271
Printing 3,560 17,796 49,232 17,796 69,027
Professional fees 56,661 60,591 413,193 152,449 841,710
Repairs and maintenance 1,005 844 2,068 2,533 6,598
Research and development 815 15,000 815 475,376
Settlement of shareholder
dispute 500,000 500,000
Stock expense 1,991 7,530 7,530
Sitework 2,126 2,126 2,126
Taxes, other 32,378 15,032 82,488 16,807 130,579
Training 515 515
Telephone 13,099 9,050 53,268 24,574 127,648
Travel and entertainment 18,405 26,563 61,380 68,492 245,737
Utilities 3,241 46 6,020 358 10,211
-------- -------- ---------- -------- ----------
$635,098 $220,379 $3,162,354 $457,916 $5,551,634
======== ======== ========== ======== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed financial statements of Compost America Holding
Company, Inc. and its Subsidiaries have been prepared pursuant to the rules and
regulations of The Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's April 30, 1996 annual report on Form 10KSB. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended January 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1997.
1. Nature of business:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it
sells to a multitude of users. The process which the Company will employ
is composting, or the controlled decomposition of organic matter into
humus (a component of soil). Like a landfill or an incinerator operator,
the Company will be paid "tipping fees" to accept waste from generators of
these materials. In selected markets like New Jersey, where the disposal
costs are high, the economic opportunity of taking in and processing large
volumes of waste is significant.
The Company will operate a vegetative and selected food waste compost
facility in New Jersey and will continue the development of the indoor
composting projects currently in progress, which will convert organic
materials ordinarily disposed of in landfills or incinerators into a
valuable end product which is beneficial to the environment.
2. Business organization:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in the
state of New Jersey, with 1,000,000 authorized shares at no par value. On
February 1, 1984 Alcor conducted an offering under Regulation A, an
exemption from registration under the Securities Act of 1933. On that
date, 300,000 shares of common stock were issued at $1.00 per share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000 to
7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert
Spruance Company and 750,000 shares to Peter English and his affiliates in
return for all outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three subsidiaries
due to the lack of sufficient capital needed to continue the operations of
each. Alcor sustained losses from both the disposition of the Gilbert
Spruance Company and The English Group, Inc.
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
On September 27, 1994, 650,000 shares issued to Peter English to acquire
the English Group, Inc. were returned pursuant to the disposal of the
English Group, Inc.
On September 29, 1994, Alcor issued 1,500,000 shares to two individuals for
cancelling $203,720 of loans due to these individuals.
On October 21, 1994, Alcor amended its Certificate of Incorporation to
increase its authorized common stock from 7,500,000 shares to 15,000,000
shares with 5,490,000 shares issued and outstanding. Alcor, now inactive,
pursued finding a business partner either through merger or acquisition.
On November 28, 1994 the majority of Alcor stockholders agreed to a one for
twenty reverse split which reduced total outstanding shares to 274,500.
On January 23, 1995, Alcor entered into an Acquisition Agreement and Plan
of Reorganization with Compost America Company of New Jersey, Ltd.,
incorporated in the state of Delaware on December 17, 1993. Compost
America Company of New Jersey, Ltd. had 5,000,000 shares, .01 par value of
common stock authorized, of which 1,654,000 shares were issued and
outstanding. Alcor exchanged 9,924,000 shares of its common stock for all
of the outstanding common stock of Compost America Company of New Jersey,
Ltd.
On February 8, 1995, Alcor Energy and Recycling Systems, Inc., changed its
name to Compost America Holding Company, Inc. (Company).
On December 4, 1995, the directors of the Company approved an amendment to
the Certificate of Incorporation to increase the authorized shares to
issue 75,000,000 shares of which 50,000,000 shares shall be common stock
without par and 25,000,000 shares shall be preferred stock with no par
value.
3. Nature of operations, risks and uncertainties:
The waste management industry in which the Company plans to operate as a
processor of municipal solid waste, sewage sludge and commercial organic
waste, is highly competitive and has been traditionally dominated by
several large and well recognized national and multi-national companies
with substantially greater financial resources in comparison to the
financial resources available to the Company.
There can be no assurance that the Company will be able to obtain the
required federal, state and local permits necessary to operate its
composting facilities presently under development.
The Company plans to contract for and to process, municipal solid waste and
sewage sludge that meets the Company specifications. It is possible that
some of the wastes accepted at a company facility may contain contaminants
which could cause environmental damage and result in liabilities.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Nature of operations, risks and uncertainties (continued):
The Company has not entered into any contracts with users of compost from
its facilities which are under development. Should the Company not be able
to sell the compost, the Company may have to give the compost away and pay
for its transportation costs.
The Company has no significant concentration of credit with any individual
counterparty or groups of counterparties.
4. Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Compost America Company of
New Jersey, Ltd. and its subsidiaries, Newark Recycling and Composting
Co., Inc., Gloucester Recycling and Composting Company, Inc., Monmouth
Recycling and Composting Co., Inc., Chicago Recycling and Composting
Company, Inc., Miami Recycling and Composting Company, Inc., Compost
America Technologies, Inc., Bedminster Seacor Services Miami Corporation,
Garden Life Sales Company, Inc., American BIO-AG Corporation and American
Soil, Inc. Inter-company transactions and balances have been eliminated in
consolidation.
5. Principles of reorganization:
The acquisition of the Company's subsidiary, Compost America Company of New
Jersey, Ltd., on January 23, 1995 has been accounted for as a reverse
purchase of the assets and liabilities of the Company by Compost America
Company of New Jersey, Ltd. Accordingly, the consolidated financial
statements represents assets, liabilities and operations of only Compost
America Company of New Jersey, Ltd. prior to January 23, 1995 and the
combined assets, liabilities and operations for the ensuing period. The
financial statements reflect the purchase of the stock of Alcor Energy and
Recycling Systems, Inc., the former name of Compost America Holding
Company, Inc., by Compost America Company of New Jersey, Ltd. for stock
and the assumption of liabilities of $49,094, this amount being the
historical cost of the assets and liabilities acquired. All significant
inter-company profits and losses from transactions have been eliminated.
6. Investment - American BIO-AG Corporation:
American BIO-AG Corporation was formed as a joint venture under the
Restated Joint Venture Agreement dated February 15, 1995 between R. C.
Land Company, Twin Rivers Equity Partnership and Compost America Holding
Company, Inc.. American BIO-AG Corporation was incorporated in the State
of Delaware, January 11, 1995.
The purpose of the joint venture was to develop, own and lease and operate
land application sites for the beneficial use of biosolids. Management of
American BIO-AG is being performed by executives from the three entities
forming American BIO-AG. Initially, sites are being developed in Arizona,
Texas and California. Compost America Holding Company, Inc. owns 33 1/3%
of the joint venture.
As of June 28, 1996 American BIO-AG Corporation was reorganized by Compost
America Holding Company, Inc. and Twin Rivers Equity acquiring 100% of the
stock of American BIO-AG Corporation through their ownership of 75% and
25% respectively in Newark Recycling and Composting Company, Inc.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Investment - American BIO-AG Corporation (continued):
The financial statements reflect American BIO-AG Corporation consolidated
as a 100% owned subsidiary as of January 31, 1997 (See Notes 7(a)(1), 11
and 24.
7. Agreements:
A) Compost America Holding Company, Inc.
1) American BIO-AG Corporation:
On June 28, 1996 Compost America Holding Company, Inc., Prince Georges
Contractors, Inc. d/b/a Twin River Equities and R.C. Land Company,
Inc. each a 33 1/3% owner in the Joint Venture, American BIO-AG
Corporation formed an agreement to sell their ownership in American
BIO-AG Corporation to Newark Recycling and Composting Company, Inc.
In addition, R.C. Land Company, Inc. will sell all of its land
applications business assets to Newark Recycling and Composting
Company, Inc. who will assign these assets and become the 100% owner
of American BIO-AG Corporation. Newark Recycling and Composting
Company, Inc. is owned 75% by Compost America Holding Company, Inc.
and 25% by Potomac Technologies, Inc. As consideration, R.C. Land
Company, Inc., for its contribution of assets and stock ownership of
American BIO-AG Corporation, will receive 305,000 shares of Compost
America Holding Company, Inc.'s restricted stock at a fair value of
$2.50 per share and $50,000 payable $5,000 on June 21, 1996, $20,000
on June 28, 1996 and $25,000 on July 31, 1996. Additionally, Newark
Recycling and Composting Company, Inc. will make a one year loan to
R.C. Land Company, Inc. in the amount of $150,000 at 15% per annum
and secured by 60,000 registered shares of Compost America Holding
Company, Inc.
On September 30, 1996 the Company issued 51,000 registered shares of
common stock to Ronald K. Bryce for a release of $150,000 loan
provided for in the June 28, 1996 Asset Purchase Agreement and the
payment of all prior American BIO-AG accounts payables.
As part of this agreement, Ronald K. Bryce, the 100% owner of R.C.
Land Company, Inc., received 83,333 shares of common stock of the
Company and cancelled 75,000 Compost America Holding Company, Inc.
stock purchase warrants. The assets acquired from R.C. Land Company,
Inc. consisted of:
1) All plan of operation with all site specific plans with the State
of Arizona's Department of Environmental Quality
2) Various farms lands 5,428 acres
3) Intellectual property, name and experience in land application
business
4) Various equipment
5) 33 1/3% ownership in American BIO-AG Corporation Joint Venture
The value of the transaction with R.C. land Company, Inc. was computed
based on the fair value of the 305,000 shares at $2.50 per share plus
50,000 in cash plus 33 1/3% of the liabilities assumed in the amount
of $146,604 of American BIO-AG Corporation. The total fair value
attributable to the acquisition of R.C. Land Company, Inc.'s assets
and equity in American BIO-AG Corporation amounted to $2,047,559 less
the mortgages assumed of $276,829 for a net value of $1,770,730.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
1) American BIO-AG Corporation (continued):
Prince Georges Contractors, Inc. d/b/a Twin Rivers Equities (Potomac
Technologies, Inc.) contributed 8 1/3% of its ownership of American
BIO-AG to Compost America Holding Company, Inc.
2) Settlement Agreement:
On July 31, 1996 the Company and Ehmann, Van Denbergh & Trainor, P.C.
entered into an agreement to settle a disagreement between the
Company and the law firm concerning the validity of billings from the
law firm and when and in what amount and manner the Company bills
should be paid. The original amount due Ehmann, Van Denbergh and
Trainor, P.C. amounted to $685,810 and in a desire to settle, agrees
$500,000 as a settlement amount. Payments to be made as follows:
$ 50,000 due June 14, 1996
50,000 due June 28, 1996
400,000 represented by a note calling for monthly
installments of $20,000 commencing
November 1996 (except $40,000 per month
in January, February and March 1997), or
payment in full upon closing of the
financing of any compost facility. The
note is secured by a security interest in
the assets of the Company and its
subsidiaries.
Ehmann, Van Denbergh & Trainor, P.C. also agreed to give the Company
an option to purchase back 500,000 shares of its common stock at
$4.00 per share until October 31, 1997 in installments of 50,000
shares. In the event of default the note shall bear interest at 4%
over prime from date of default.
3) Registration Statement:
On June 7, 1996 the Company became effective as to it's S-1
Registration Statement which registered 1,353,100 shares of the
Company's common stock solely for selling shareholders.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
4) 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.
5) On October 1, 1996 the Company and individual shareholders agreed
to a modified Lock-Up Agreement for shares that they owned for 6
months (October 1, 1996 to March 31, 1997) not to sell their
shares. The shareholders and shares are as follows:
Shareholder Shares
----------- ------
William C. Hurtt, Trustee (A) 100,000
William Callari (B) 80,000
A) William C. Hurtt, Trustee will lock-up 37,500 unregistered
shares with a mutually agreed extension for 3 months for
12,500 unregistered shares. Additional extensions may be
available; during the extension term the shareholder agrees
to not sell more than 7 1/2% of the registered shares. As
consideration for the Lock-Up Agreement the Company will
issue 26,000 unregistered shares of common stock.
B) William Callari will lock-up 30,000 unregistered shares with
a mutually agreed extension for 3 months for 10,000
unregistered shares. Additional extensions may be available;
during the extension term the shareholder agrees to not sell
more than 7 1/2% of the registered shares. As consideration
for this Lock-Up Agreement the Company will issue 20,800
unregistered shares of common stock.
6) On October 9, 1996 the Company and Bruce Boltuch entered into an
agreement for a convertible 10% note for $50,000 payable on April
9, 1997. The note, at the option of the holder, is convertible 30
days prior to the maturity date into unregistered common shares
of the Company at a conversion price of $3.00 per principal
amount of this note for one share.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
7) On October 9, 1996 the Company entered into a Lock-Up of Insiders
Shares Agreement for a period of 16 months from the date of
October 9, 1996. The following is a list of shareholders and
their respective shares as per this agreement.
Shareholder Shares
----------- ------\
Andrea Wortmann 150,000
Robert E. Wortmann 150,000
Victor D. Wortmann 812,500
Roger E. Tuttle 2,433,509
Robert E. Wortmann 802,500
Victor D. Wortmann, Jr. 200,000
Elizabeth Tuttle 100,000
Erika Wortmann 150,000
Kristie Tuttle 100,000
Select Acquisitions 1,308,640
Susan Ann Curian 200,000
William Tuttle 100,000
Mary Wortmann 40,000
---------
6,547,149
=========
8) 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.
9) 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.
10) On November 26, 1996 the Company and Ira Russack entered into an
agreement for a convertible 8% note for $500,000 due June 30,
1997, interest and principals payable on the maturity date. In
addition, the Company hereby grants an option to purchase up to
125,000 shares of the Company's common stock at a price of $1.00
per share through November 30, 2001. The note is convertible at
$3.00 per share based on the remaining principal amount plus any
acquired interest at the maturity date. As of January 31, 1997
only $200,000 had been advanced to the Company and none of the
options have been issued.
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
B) Chicago Recycling and Composting Company, Inc.
1) Chicago Restructuring Agreement:
On July 24, 1995, effective as of February 15, 1995, pursuant to
an agreement between Compost America Holding Company, Inc. and
Foundations Systems, Inc. to convey, sell and transfer unto
Compost America Holding Company, Inc. all of Foundation Systems,
Inc. rights, title and interest in and to the assets of the
Chicago Recycling and Composting Project. The interest acquired
represented 50% of the Joint Venture between the two companies.
The principals of Foundation Systems, Inc. as consideration for
their interest were issued 120,000 shares of common stock of
Compost America Holding Company, Inc.
2) Conditional Agreement of Sale:
On May 5, 1994 the Indiana Harbor Belt Railroad and Chicago
Recycling and Composting Company, Inc. entered into an agreement
to purchase a parcel of land containing 14 acres. The purchase
price shall be $420,000 with $42,000 down and the balance at
closing. The price of the property is based on $30,000 per acre
or fraction thereof. Any differences in actual acreage will amend
purchase price to conform. The closing shall be 30 days from
completion of due diligence or 365 days from May 5, 1994. The
contract included many contingencies to be satisfied in order to
close.
As of April 30, 1996 the $42,000 deposit was never made but the
contract was still in effect.
On September 1, 1995 the agreement of sale was extended to March
31, 1996.
On March 31, 1996 the agreement of sale was extended to July 31,
1996, subsequently extended to December 31, 1996.
3) Real Estate Lease:
On March 20, 1996 Chicago Recycling and Composting Company, Inc.
and Hub Cap City entered into a lease agreement for the premises
located at 13831 Ashland Avenue, Riverdale, Illinois 60627. The
lease is for a term of 36 months beginning on the date Chicago
Recycling and Composting Company, Inc. purchases the property.
The lease will automatically renew for a period of three years
unless terminated. The lease payment is $500 per month for a
total of $6,000 annually, any renewals are on the same terms.
4) Easement Agreement:
On March 20, 1996 Chicago Recycling and Composting Company, Inc.
and Hub Cap City entered into an easement agreement such that Hub
Cap City gives and conveys an easement for ingress and egress
over, upon and across two separate 20 foot wide portions of the
Hub Cap City parcel to provide access for necessary utility
lines, sewer and water lines or such other access to public
facilities as may reasonably be necessary, to and from the public
roadway.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
C) Gloucester Recycling and Composting Company, Inc.
1) Lease Agreement, Gloucester City, New Jersey
On July 1, 1995 Gloucester City (lessor) and Gloucester Recycling
and Composting Company, Inc. (lessee) entered into a lease
agreement for certain real property located in Gloucester City,
New Jersey containing approximately 7.98 acres and also Parcel
No. 2 (Block 120, Lot 1) if acquired by Gloucester City.
Approximately 12 acres of Parcel No.2 shall be dedicated for the
full scale, permanent composting facility. The lease shall
commence on March 7, 1996 for an initial term of 24 consecutive
months. With the lessor's consent the lessee shall have the right
and option to extend the term for an additional 30 years. The
rent is based on a rent formula.
For the fist 24 months the rent shall be $100 per month plus all
site improvements to Parcel No. 1 to develop a "demonstration
composting facility" for the 30 year extended term.
1) Lessee's redemption of Parcel No. 1.
2) Lessee's payments to lessor in accordance with the "host
community benefit fee schedule" for the extended term.
The benefit fee payment schedule is as follows:
1) Payments in lieu of taxes
a) Taxes due Camden County and District School taxes to be
paid by lessee following receipt of the NJDEP full
scale, permanent composting facility permit.
b) Municipal purpose taxes beginning twelve months
following the date of commercial operation.
c) The initial payment following commercial start-up is
$82,745 with annual escalations of 4%.
2) Lease payments begin the end of the first full month of
commercial operations and shall be equal to the mortgage
expense resulting from the acquisition of Parcel No. 2.
3) Host Community Benefit
Payments are based on tons of all organic waste received at
the composting facility at the rate of $2.40 per ton which
shall be applied against "site clean-up" costs. Actual cash
payments shall begin after the amount is fully paid except a
$.35 per ton shall be paid for the first calendar year.
Following the site clean-up application the rate shall be
$2.75 per ton through the tenth year. After the ten years
the payment shall be adjusted annually based on the average
tip fee. There is a maximum fee of $100,000 should tip fees
fall below $65.00 per ton. In addition, $1.25 per ton will
be paid to lessor for organic waste in excess of 100,000
tons.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc.
1) Option Purchase Agreement:
On March 1, 1995 Compost America Company of New Jersey, Ltd.
(CANJ) and Brownfield Environmental, Inc. entered into an
agreement to purchase a tract of land, together with improvements
in Freehold Township in the County of Monmouth, described as Lot
37 in Block 92 which is an area of 15 acres. The purchase price
will be $600,000 with an estimated closing date of February 14,
1996. CANJ has the exclusive option to extend the closing for an
additional 12 months by paying $2,500 per month during the
extension period. As of April 30, 1996 the contract was extended
for the initial 12 months to February 14, 1997. CANJ has an
additional exclusive right to extend the closing for a second
extension of 18 months by payment of a $15,000 fee plus a
non-refundable option payment per month of $3,500.
2) Stock Purchase Agreement:
On December 4, 1995, the Company entered into a stock purchase
agreement to acquire 100% of all the issued and outstanding stock
of American Soil, Inc. with Robert F. Young, Jr. (seller) and
American Soil, Inc. American Soil, Inc. has conducted the
business of composting vegetative waste at the site in the
Township of Freehold, County of Monmouth, State of New Jersey.
The agreement calls for a purchase price of $750,000 payable as
follows:
$ 37,500 On execution of agreement
12,500 On execution of agreement
425,000 On closing
125,000 On closing into an escrow account for the
--------- payment of liabilities presently unknown
$600,000
---------
In addition, at closing, the Company will deposit $150,000 into
an escrow account for payment of accounts payable liabilities.
After nine months any funds remaining will be split 75% for the
Company and 25% for the seller.
The seller is entitled to receive up to 4,000 cubic yards of
screened non-sludge compost per year, without charge, for the
years 1996 through 1999. The major assets acquired are the NJDEP
and the federal, state and local permits and the lease agreement
between the seller and Freehold Township, New Jersey.
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
On April 22, 1996 the agreement for the purchase of American
Soil, Inc. was terminated by the principals of American Soil,
Inc. Negotiations were immediately undertaken and Compost America
Holding Company, Inc. and American Soil, Inc. retroactively
agreed to an April 1, 1996 amendment to the Stock Purchase
Agreement whereby the parties agreed to:
a) Compost America Holding Company, Inc. paid a non-refundable
payment of $37,500.
b) Compost America Holding Company, Inc. paid a refundable
payment should closing not take place of $12,500.
c) Compost America Holding Company, Inc. paid a non-refundable
payment of $125,000 on April 1, 1996.
d) On or before closing the Company shall pay American Soil,
Inc. $310,000 or 85,000 shares of Compost America Holding
Company, Inc.
e) The Company will make available $150,000 to pay American
Soil, Inc.'s account payable liabilities or other
indebtedness in excess of $35,000. Any amounts remaining
shall be given to American Soil, Inc. in stock at a price of
$5 per share.
f) The Company shall provide an additional escrow of $125,000
for nine months to pay liabilities in excess of $150,000
over the first $35,000. The escrow is to pay any unknown
liabilities and any environmental clean-up. Any remaining
funds shall be distributed to the seller.
g) The seller is entitled to receive 4,000 cubic yards of
screened non-sludge compost per year at no charge from 1996
through 1999.
h) The Company will also pay up to $30,000 per month for
monthly operating expenses.
i) The Company will pay the cost of additional stone freight
and bulldozer equipment up to $19,250.
j) The firm and final closing date is June 30, 1996. The
Company put up 100,000 shares to guarantee closing in the
name of Robert F. Young, Jr. These shares are to be returned
upon closing or forfeited if closing does not occur. As of
September 6, 1996, the Company has not issued the 100,000
shares and has not closed on the purchase of American Soil,
Inc. The contract is still pending and has been extended.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
On October 2, 1996 a second amendment to the Stock Purchase
Agreement was signed between Compost America Holding Company,
Inc., Robert F. Young, Jr. and American Soil, Inc. The amendment
extended the closing date to October 2, 1996. The closing
occurred October 2, 1996. In addition, the following amendments
were agreed to:
a) Under the first amendment Robert F. Young, Jr. was to be
issued 100,000 shares of unregistered common stock, these
shares were never issued. As a result, no sooner than
January 5, 1997 and no later than January 8, 1997 Robert F.
Young, Jr. shall be issued 150,000 shares of registered
stock. To secure the Company's obligation to issue the
stock, Roger E. Tuttle has agreed to deliver to escrow agent
150,000 shares of the Company which he owns. These shares
are valued at $2.65 or a total amount of $397,500.
b) At closing the Company will place $132,500 cash or 50,000
shares of unregistered common stock of the Company owned by
Roger and Elizabeth Tuttle into an escrow account to be held
by the escrow agent for 9 months for the payment of any
unknown liabilities more than 90 days prior to the closing
date that are more than $5,000 and any environmental
clean-up that may be required by law. This provision is in
lieu of the $150,000 in the second amendment.
c) At closing the Company paid Isdaner & Company $20,000 and
Richards & O'Neil LLP $21,457.
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 $1,168,207 which was allocated as follows:
Net assets of American Soil, Inc. $ 158,387
Value of lease with the Town of
Freehold which expires April 27, 2004 1,034,820
----------
$1,193,207
==========
Financial statements of American Soil, Inc. have not been provided since
the acquisition does not meet with the test for a significant subsidiary as
required under Reg ss. 210-02 (W). The combined investment in and advances
at the proposed acquisition date amounted to $1,168,207 which does not
exceed 10% of consolidated assets at January 31, 1997.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
D) Monmouth Recycling and Composting Company, Inc. (continued):
3) Meher & LaFrance Retainer Agreement:
On May 29, 1996 the Company entered into a Retainer Agreement
with the law firm of Meher & LaFrance to provide legal services
regarding the Township of Freehold, to provide appearances before
municipal and other governmental boards, committees and agencies,
compliance with the Monmouth County Solid Waste Management Plan
and required permitting procedures of the New Jersey Department
of Environmental Protection, through final site plan approvals.
The Company shall maintain a $1,500 retainer deposit and will be
billed monthly based on an hourly basis of time expended at
standard hourly rates.
E) Newark Recycling and Composting Company, Inc.:
1) Option and Purchase Agreement:
On July 1, 1994, Newark Recycling and Composting Company, Inc.
and Linde Gases of the Mid-Atlantic, Inc. entered into an
agreement for an option to purchase approximately 11.69 acres of
real property together with the buildings and improvements in the
City of Newark, Essex County, New Jersey. The option called for a
$50,000 option payment on date of agreement for a term from July
1, 1994 to December 31, 1994 with a provision to extend the
option term for up to two additional periods commencing January
1, 1995 and expiring June 30, 1995 and July 1, 1995 and expiring
October 31, 1995. At each extension date an additional $50,000
option payment was required for a total at October 31, 1995 of
$150,000. The purchaser can exercise their option at any time
during the option period and extensions to purchase the property
for a purchase price of $3,250,000. All option payments are to be
credited against the purchase price. In the event the option is
not exercised, all option payments will be forfeited.
On October 20, 1995, an Amendment to Option and Purchase
Agreement was signed whereby "Praxair" was substituted for the
seller, Linde Gases of the Mid-Atlantic, Inc. and Newark
Recycling and Composting Company, Inc. exercised the option and
posted as security for the closing a security bond. The purchase
price was amended to $3,285,866 less the $150,000 in option
payments. At closing a deposit of $1,035,866 was to be paid
together with a promissory note and purchase money mortgage of
$2,100,000 at 8% per annum, payable monthly, with a maturity on
August 31, 1996 which has been extended to Aprril 1, 1997. The
property was closed on December 15, 1995.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc. (continued):
1) Option and Purchase Agreement (continued):
To accommodate the down payment VRH Construction Corp. loaned
Newark Recycling and Composting Company, Inc. $1,043,866 on a
term loan basis on demand. The loan was due on January 15, 1996
with interest at 10% per annum. The loan has been extended to
January 2, 1997. Compost America Holding Company, Inc. has
pledged as collateral to VRH Construction Corp. all its right,
title and interest in and to all shares of Newark Recycling and
Composting Company, Inc.'s capital stock that Compost America
Holding Company, Inc. owns.
F) Miami Recycling and Composting Company, Inc.:
1) Letter Agreement with Bedminster BioConversion Corporation:
On June 9, 1995, the Company entered into a letter agreement, as
a modification of proposals dated May 3rd and 20th, 1995, for
Compost America Company of New Jersey, Ltd. to acquire 100% of
the outstanding stock of Bedminster Seacor Services Miami
Corporation, from Bedminster Bioconversion Corporation.
Bedminster Seacor Services Miami Corporation has agreed to enter
into a 30 year "put or pay" solid waste service agreement in
which the City of Miami Florida and Bedminster agree to design,
construct and operate a facility having an annual capacity of at
least 150,000 tons. The charges will be $52.50 per ton.
Asconsideration for the acquisition of 100% of stock of
Bedminster Seacor Services Miami Corporation from Bedminster
Bioconversion Corporation, Bedminster Bioconversion Corporation
shall receive:
200,000 Shares of common stock of Miami Recycling and
Composting Company, Inc.
300,000 Warrants to purchase shares of the common stock
of Miami Recycling and Composting Company, Inc.
at $6.00 per share for a term of 5 years.
Bedminster will be the supplier of record of all "Eweson
Digesters" the bridge crane, "Fecon Turning Equipment" and the
floor aeration units to the composting project undertaken by the
Company pursuant to a solid waste service agreement between the
City of Miami, Florida and the Company. Such equipment supply
agreements will be at the equipment cost plus 10%. The agreement
calls for license fees and net distributable cash flow
allocations.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
1) Letter Agreement with Bedminster Bioconversion Corporation
(continued):
As part of the acquisition of Bedminster Seacor Services Miami
Corporation, Miami Recycling and Composting Company, Inc.
acquired the contract for real property in Dade County, Florida.
On March 29, 1996 Miami Recycling and Composting Company, Inc.
closed on the real estate contract for a purchase price of
$4,095,838.
2) Stock Purchase Agreement:
On March 1, 1996 Miami Recycling and Composting Company, Inc., a
wholly owned subsidiary of Compost America Holding Company, Inc,
entered into an agreement for all of the issued and outstanding
shares of common stock of Bedminster Seacor Services Miami
Corporation by the issuance of 200,000 shares of Compost America
Holding Company, Inc.'s common stock and 300,000 warrants to
purchase shares of Compost America Holding Company, Inc.'s common
stock at $6.00 per share for a term of 5 years from March 1, 1996
from Bedminster Bioconversion Corporation. In addition Ronald K.
Bryce would receive 83,333 shares of the Company's common stock.
The fair value of the shares was $2.50 per share based on current
sales of the Company's stock.
In addition, Miami Recycling and Composting Company, Inc. agreed
to a equipment supply arrangement for certain solid waste
services at cost of equipment plus 10% provided that Miami
Recycling and Composting Company, Inc. shall be entitled to
utilize Curing Technologies developed by Bedminster Bioconversion
Corporation. As part of the Stock Purchase Agreement Bedminster
Bioconversion Corporation will be paid a license fee of $200,000
upon financing of the Miami Project, a supplemental license fee
of $300,000, three years after commencement of commercial
operation of the Miami Project and an additional $300,000, six
years after commercial operation. Bedminster Bioconversion
Corporation shall also receive 20% of the net distributable cash
flow allowable to the revenues received. Additionally. Miami
Recycling and Composting Company, Inc. agreed to pay up to
$170,000 within 60 days for accounts payable as part of the Stock
Purchase Agreement. Roger Tuttle, President of Miami Recycling
and Composting Company, Inc., has personally guaranteed the
payments of these payables.
On July 11, 1996 and on July 16, 1996 the Stock Purchase
Agreement was amended to change the stock issued for the purchase
of Bedminster Seacor Miami Corporation from Miami Recycling and
Composting Company, Inc. to Compost America Holding Company, Inc.
and to change the license fee to Bedminster Bioconversion
Corporation to $400,000 upon financing of the Miami Project, a
supplemental license fee of $200,000 three years after
commencement operations and an additional $200,000 six years
after commencement.
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
As of March 1, 1996 the condensed balance sheet of Bedminster
Seacor Services Miami Corporation was as follows:
ASSETS
Current assets:
Due to Miami Recycling and Composting
Company, Inc. $ 17,927
--------
Total current assets 17,927
Construction in progress - compost projects 482,073
--------
Total assets $500,000
========
LIABILITIES AND SHAREHOLDERS EQUITY
Shareholders equity:
Common stock $736,036
Deficit ( 236,036)
--------
$500,000
========
3) Land Purchase Contract:
On March 29, 1996 Bedminster Seacor Services Miami Corporation, a
wholly owned subsidiary of Miami Recycling and Composting
Company, Inc., purchased a parcel of land in the Northwest
quarter of Section 30, Township South, Range 40 East, Dade County
Florida for $4,095,838 plus closing costs from Rinker Materials
Corporation. Rinker Materials Corporation gave a mortgage of
$3,730,870.75 at 7% per annum commencing May 1,1996 and
continuing for the next 22 months. All interest and principal is
due on April 1, 1998. As of March 29, 1996 all contracts have
been assigned to Miami Recycling and Composting Company, Inc.
4) On October 29, 1993 Bedminster Seacor Services Miami Corporation
entered a Solid Waste Agreement with the City of Miami, Florida
to provide an efficient and environmentally acceptable method of
solid waste disposal. The agreement calls for Bedminster Seacor
Services Miami Corporation to construct, operate and maintain a
facility on a designated site which has the capacity to process
at least 204,000 tons of acceptable waste. During start-up and
prior to the commencement date of the operation, the city shall
pay a service fee of $63.50 per ton for waste delivered to and
accepted by the facility. Upon commencing of operations
Bedminster Seacor Services Miami Corporation shall receive the
unit billing rate for the first five years of $63.50 per ton and
thereafter at a rate based on an escalation factor.
5) On October 20, 1994 the agreement with the City of Miami was
amended such that the capacity has been reduced from 204,000 to
183,000.
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
6) On November 13, 1995 Bedminster Seacor Services Miami Corporation
restated the Compost Recycling Agreement between the City of
Miami, Florida and Bedminster Seacor Services Miami Corporation.
The restated agreement set forth for Bedminster Seacor Services
Miami Corporation to design, construct, operate and maintain the
facility on the site and to pay the cost of construction. The
facility shall have the capacity to process at least 150,000 tons
of acceptable waste. During start-up and prior to the
commencement of operations, the city shall pay Bedminster Seacor
Services Miami Corporation a service fee of $52.00 per ton for
acceptable waste delivered to the facility. On the commencement
date of operations, the city will pay Bedminster Seacor Services
Miami Corporation a service fee for the processing capacity equal
to the unit billing rate multiplied by the greater of (1) the
number of tons of waste accepted at the facility and disposed at
Bedminster Seacor Services Miami Corporation's cost pursuant to
the terms or (2) 1/12th of the guaranteed annual tonnage minus
the bypass waste rejected at the facility. The unit billing rate
is equal to $52.00 per ton and escalated yearly in accordance
with an escalation factor.
In September 1996, in a first amendment to the restated Compost
Recycling Agreement, the amendment effective date was changed to
November 13, 1996 and the initial payment by Bedminster Seacor
Services Miami Corporation to the City of Miami to secure the
performance of the Company's obligations under the restated
agreement shall be one million three hundred and fifty thousand
dollars ($1,350,000) payable $100,000 in September 1996 and the
balance of $1,250,000 dollars, plus interest at 10% per annum,
payable at the earlier of the financial closing of the funding
for the Miami Compost Project or September 1, 1997. If payments
are not received the City of Miami shall have the right to
terminate this agreement.
On November 21, 1996, Miami Recycling and Composting Company,
Inc. paid $1,000,000 to the City of Miami. This fulfills the 30
year "put or pay" contract requirement between the Company and
the City of Miami.
7) All the agreements with Bedminster Seacor Services Miami
Corporation have been assigned to Miami Recycling and Composting
Company, Inc. subsequent to the acquisition of Bedminster Seacor
Services Miami Corporation by Miami Recycling and Composting
Company, Inc. and its parent company Compost America Holding
Company, Inc. on March 1, 1996.
8. Consulting Contracts:
A) Engineering and Technology Agreement:
On September 15, 1994, an "Engineering and Technology Agreement"
for the Newark Recycling and Composting Company, Inc., a
subsidiary of Compost America Company of New Jersey, Ltd. and
D.J. Egarian & Associates, Inc., was signed, for the right to use
the licensed
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
A) Engineering and Technology Agreement (continued):
patent and engineering services provided by D.J. Egarian &
Associates, Inc. and David J. Egarian, to construct and operate
an organic waste composting facility at the Newark, New Jersey
site.
The consulting fee for these services will be paid to either D.J.
Egarian & Associates, Inc. or David J. Egarian as follows:
$ 15,000 Upon execution of this agreement
$167,500 Paid prorata on the percent of completion prior
to the close of project financing for
engineering drawings.
$ 5,000 Per month after commencement of the
construction of the facility through the
completion of construction
Any additional services shall be billed as services are provided.
B) Consulting Agreement between Compost America Company of New
Jersey, Ltd. and Michael J. Marchese dated March 1, 1995:
Michael J. Marchese will provide consulting services in obtaining
local and county approvals for the Monmouth County composting
site. The following terms for his consulting services are:
1) $1,000 month beginning 30 days from this agreement through
the receipt of local approval from the Township of Freehold
to build a compost facility on the property but no longer
than 12 months.
2) $2,000 month thereafter until closing on the property.
3) $5,000 month after closing.
4) To a maximum of $100,000
At January 31, 1997 total advanced payments amounted to
$100,000.
On October 2, 1996 the Company entered into a new agreement
with Michael J. Marchese, which revised the agreement dated
March 1, 1995, to assist the Company in obtaining certain
agreements with Freehold Township and Monmouth County for
approval of the Company's Monmouth
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
B) Consulting Agreement between Compost America Company of New
Jersey, Ltd. and Michael J. Marchese dated March 1, 1995
(continued):
County in-vessel composting project. The term of the agreement is
for 12 months beginning October 2, 1996 and ending October 2,
1997. The consultant will assist the Company in:
a) Obtainment of a minimum 20 year lease from Freehold
Township for a 350-500 ton per day invessel composting
facility on the American Soil, Inc. property.
b) Secure all required local approvals to develop the
"Brownfield" property.
c) Obtain approval of the Monmouth County Board of Chosen
Freeholders for an in-vessel composting facility on the
American Soil, Inc. property.
The agreed compensation for this service shall be $7,500 per
month payable for the term of the agreement by the issuance of
18,000 shares of the Company's common stock. In addition
consultant shall be paid any remaining fees unpaid from the March
1, 1995 agreement.
As a bonus incentive to the consultant
C) Consulting Agreement with Robert Tardy d/b/a Tardy and
Associates:
On December 1, 1995, a Consulting Agreement was signed with
Robert Tardy d/b/a/ Tardy and Associates and the Company for
consulting services regarding the technology and operational
aspects of the production of compost from municipal solid wastes,
other organics and sewage sludge. The term is for one year
starting December 1, 1995. The consultant is to receive $4,000
per month on the last day of each month commencing with the month
of December 1995 for six months and $6,000 per month for the next
six months. In addition, the consultant is to receive expense
reimbursement based on Company policy.
As additional consideration for consulting services in excess of
the basic services of 40 hours per month the Company shall, on a
quarterly basis, issue to the consultant one share of common
stock for each $5 of compensation accrued in excess of the basic
service.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
D) Underwriter Counsel Agreement, Wolf, Block, Schorr, Solis-Cohen:
On April 1, 1996 the Board of Directors of the Company approved
the utilization of Wolf, Block, Schorr, Solis-Cohen as
underwriter counsel for the Company's proposed project financing
anticipated in New Jersey and its first five project financing in
other states. Wolf, Block, Schorr, Solis-Cohen will be
compensated $160,000 for the Newark, New Jersey closing which
included its Newark and Monmouth Projects. In addition, they
shall receive as compensation $110,000 for each of the next five
non-New Jersey projects.
E) Ronald K. Bryce Consulting Agreement:
On July 1, 1996 the Company entered into a consulting agreement
with Ronald K. Bryce to provide consulting and advice in the
development of the Company's composting facilities. The
Consultant shall receive $4,000 per month from July 1996 to
December 1996 and $6,500 per month from January 1997 to June 30,
1997. Additionally, the Company shall issue 75,000 common shares
of the Company to be registered before September 1, 1996.
Expenses are to be reimbursed not to exceed $1,850 per month
without prior approval of the Company.
F) Peter Coker Consulting Agreement:
On June 24, 1996 the Company entered into an agreement with Peter
Coker to provide financial consulting services. The term is for a
period of 5 years from June 24, 1996 with compensation as
follows:
1) 25,000 shares of unregistered common stock for
previously rendered services.
2) As compensation for current services the following
options to purchase:
100,000 shares at $2.00 per share
50,000 shares at $5.00 per share
50,000 shares at $9.00 per share
All options to expire on June 30, 2001. The Company
shall also reimburse consultant for out-of-project
expenses.
G) Pasquale Dileo Consulting Agreement:
On April 30, 1996 the Company executed a consulting agreement
with Pasquale Dileo, a shareholder in the Company, to provide
expertise in shareholder broker-dealer relations for public
companies. The agreements for a term of three years with
compensation at $5,000 per month plus a one-time fee of $25,000
and 100,000 shares of the Company;s restricted common stock. The
consultant shall also be reimbursed for out-of-pocket expenses.
In consideration for consulting services in excess of basic
services (200 hours per month) the Company grants the consultant
the option to purchase 200,000 shares of the Company's common
stock at a price of $2.50 per share for five years.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
H) Mark Gasarch Consulting Agreement:
On May 20, 1996 the Company entered into a consulting agreement
with Mark Gasarch, Esq. to provide legal services in the areas of
Corporate and Federal Securities Law for a term of one year and
for 2 additional consecutive one year terms at the option of the
Company. The consultant will be paid a one time fee of $10,000
and $8,000 per month commencing with the month of private funding
by a certain financial group or Newark Recycling and Composting
Company, Inc. upon financial closing. The consultant shall be
reimbursed for out-of-pocket expenses. In addition, for excess
services over basic service (60 hours per month) the consultant
will be issued 500 shares of common stock for each 10 hours in
excess of 60 hours per month. In addition, the Company granted
the consultant the option to purchase 200,000 shares at $2.50 per
share for a term of five years.
I) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc.
entered into a consulting agreement with Jose Ferre to provide
consulting services regarding the tax free bond financing of the
Miami Project. Ferre shall receive as compensation a development
fee equal to 1% of the capital costs of the Miami Composting
facility with a minimum fee of $400,000. Additionally, Jose Ferre
is granted an option to purchase 15% of the Miami Recycling
facility for a two year period commencing with the start of
commercial operations. The purchase price of the option shall be
commercially reasonable and in accordance with industry standards
and norms for projects of this type at date of acquisition.
J) Consulting Service:
On May 31, 1996 Miami Recycling and Composting Company, Inc.
entered into an agreement with Dade County Bioconversion
Corporation, which superseded the December 28, 1994 agreement
with South Florida Bioconversion Corporation, to provide
consulting services in the construction and operation of the
Miami Composting facility. Dade County Bioconversion Corporation
has selected Mr. Orlando Garcia, Jr. as its representative. Mr.
Garcia is to receive 8,000 shares of Compost America Holding
Company, Inc.'s common stock upon the awarding of the contract
and commencement of construction of the Miami Composting facility
certain individuals will be paid a success fee equal to 1% of the
capital costs of the Miami Composting facility subject to a
minimum of $400,000 payable $100,000 at financial closing and
$100,000 at the end of the next three twelve month periods. In
addition, unrestricted common stock of Compost America Holding
Company, Inc. of 25,000 shares will be issued to the same
individuals upon financial closing of the Miami Composting
facility. Upon commercial operation of the Miami Composting
facility Dade
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
J) Consulting Service (continued):
County Bioconversion Corporation will be paid a consulting fee
based upon the amount of the solid waste processed at the compost
plant and paid by the City of Miami in the amount of a tipping
fee of $1.30 per ton of solid waste processed at the compost
plant.
K) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc.
entered into a consulting agreement with Antonio Zamura, Ereleo
Pena and Pedro Roig to provide consulting services to Miami
Recycling and Composting Company, Inc. for the period beginning
with May 31, 1996 and terminating on the commencement of
commercial operations. The consultants will consult with and
advise the Company concerning governmental relations, lobbying
and public relations with various sectors of the community . The
consultant shall assist in the financial closing and the
commencement of commercial operations. Compensation for the
consultants will be $3,500 per month commencing on January 1,
1997 through the month of commencement of commercial operations.
Thereafter the consultants shall receive 1,752 unregistered
shares of the common stock of Compost America Holding Company,
Inc. on the last day of each month.
L) Consulting Services:
On May 31, 1996 Miami Recycling and Composting Company, Inc.
entered into an agreement with J.G.R. Associates to provided
consulting services in public relations and advertising. The term
of this agreement is May 31, 1996 and terminates on the
commencement of commercial operations. The Company will pay the
consultant $3,500 per month which will be paid as follows: $1,750
in cash each month plus 583 shares of common stock of Compost
America Holding Company, Inc. which will be issued each month. As
of January 31, 1997 only 1,166 shares have been issued and no
cash payments have been made.
M) On July 24, 1996 the Company entered into a consulting agreement
with Edward Rodriguez to provide financial consulting services.
The consultant will assist the Company in developing, studying
and evaluating financial, merger and acquisition proposals and
assist in negotiations. As compensation the consultant, for a
term of two years, will receive $400,000 in the form of stock of
the Company.
The consultant will receive 100,000 shares of the Company's
common stock to be registered under an S-8 filing and 500,000
stock options exercisable immediately as follows:
150,000 @ $4.00 Expiration December 31, 2001
150,000 @ 5.00 Expiration December 31, 2001
200,000 @ 6.00 Expiration December 31, 2001
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
M) (continued):
After the exercise of the options the consultant must complete
certain mailing of investor packages before stock can be
registered under Form S-8 filing. Registration of the stock will
be in stages from immediately upon completion of mailing of
100,000 packages to investors, 3 months after completion and 6
months after completion.
N) On October 2, 1996 the Company and Robert F. Young, Jr. entered
into a consulting agreement. Robert F. Young, Jr. was the
original owner and developer of American Soil, Inc. which on
October 2, 1996 was acquired by the Company. The consultant is to
assist the Company in the transition of management control of
American Soil, Inc. with the Company and to provide the following
objectives:
1) Obtain a minimum of a 20 year lease from the Freehold
Township for a 350-500 ton per day invessel composting
facility.
2) Secure all acquired local approvals to develop the
"Brownfield" property, directly adjacent to the
American Soil, Inc. site, for compost storage and
blending operations.
3) Obtain approval from the Monmouth County Board of
Chosen Freeholders of an amendment to the Monmouth
County district solid waste management plan to
authorize a 350-500 ton per day in-vessel composting
facility for source separated organic material on the
American Soil, Inc. property.
For services rendered the consultant shall receive $5,000 per
month for a term of 3 months through January 2, 1997. If
objective (1) is achieved within 2 months after the end of the
term the consultant shall receive a bonus of $15,000 and 10,000
shares of registered common stock of the Company. If objective
(2) and/or (3) are achieved within 2 months after the end of the
term of the agreement, the consultant shall receive $15,000 and
10,000 shares of restricted common stock of the Company for each
objective achieved.
The Company will also provide health coverage for a six month
period from October 2, 1996 to April 2, 1997.
After the term of this agreement the consultant can be engaged at
the rate of $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.
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
N) (continued):
If objective (1) is achieved within 4 months after the beginning
of the term, the consultant shall receive a bonus payment of
$15,000 in cash and 8,333 shares of common stock of the Company.
Additionally if objective (2) and or (3) are achieved within 4
months after the beginning of the term of this agreement $15,000
in cash and 8,333 shares of common stock of the Company will be
paid for each completed objective.
O) On May 30, 1996 the Company signed a retained agreement with Mehr
& LaFrance, Attorneys at Law, to provide legal service related to
the obtaining of rights for compost operations, as well as
development rights on the Freehold Township property, which
American Soil, Inc. presently leases, within Monmouth County Soil
Waste Management Plan and required permitting procedures of the
New Jersey Department of Environmental Protection. Compensation
shall be based on the standard hourly billing rates of the firm
from $170 per hour to $200 per hour.
9. Development stage company:
The Copany's operations have been centered around its organizing,
evaluating and developing the business of converting organic waste
into compost and other soil products and the start-up financing of
its operations, including the construction of the waste management
and compost facility in Newark, New Jersey and other compost
facilities throughout the country. From December 17, 1993 through
the period ending January 31, 1997 the Company has secured required
financing through various private placement offerings and through
related companies, Compost Management, Inc., Select Acquisitions,
Inc. and VRH Construction Corp. The Company has incurred losses in
connection with its operations during this same period of
$6,238,874.
Projects in development:
Gloucester City - National Source Separated Organic Waste
Demonstration Project:
The Company, with a number of sponsors/partners, is developing an
18-month pilot program to demonstrate the process of separating
organic waste at its source and transforming organic materials into
compost at a compost
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Gloucester City - National Source Separated Organic Waste
Demonstration Project (continued):
site to be operated by the Company. Sponsors/partners for the
demonstration project are: 1) The National Audubon Society; 2) The
Grocery Industry (including The Food Marketing Institute, Grocery
Manufacturers Associates, Proctor & Gamble and The New Jersey Food
Council); 3) Bedminster; 4) Higgins Management, Inc.; 5) U.S.
Environmental Protection Agency; 6) America Forest & Paper
Association; 7) U.S. Conference of Mayors; 8) National Association of
Counties; 9) Restaurant and Foodservice Association; and 10) America
Plastics Council.
The location of the demonstration project is a site located in
Gloucester City, New Jersey. A small-scale invessel composting
facility will be installed in a portable building and will process
five to eight tons per day of organic materials collected from the
cities of Gloucester City and Cherry Hill and various commercial
accounts. Upon the successful start up and operation of the pilot
program it is anticipated that the Company will construct a 350 ton
per day invessel composting facility at the same site in Gloucester
City.
On June 1, 1995 Gloucester Recycling and Composting Company, Inc.
entered into a lease with Gloucester City for 7.98 acres ("Parcel
No.1") located in Gloucester City, New Jersey. The term of the lease
is for 24 months commencing on the 7th day of March, 1996 and an
option to extend the term for an additional 30 years. Rent for the
first 24 months shall be $100 per month plus real estate taxes. The 30
year extension is based on a benefit fee payment schedule for the
lease payments and the host community benefit charges. Following
commercial start-up payments shall begin in the amount of $82,745 and
increase annually by 4% throughout the tax year with a computer price
index increase or decrease for the remainder of the term.
The total project cost at January 31, 1997 amounted to $268,223. The
estimated scheduled start for the demonstration project was the first
quarter of 1996. This date has been extended.
Newark Project:
On January 2, 1996 the New Jersey Economic Development Authority
informed the Company the State Treasurer has allocated to the New
Jersey Economic Development Authority $130 million in 1996 volume cap
allocation on behalf of the Company's composting projects for Newark,
Gloucester and Monmouth. The allocation will expire on March 29, 1996
in the event bonds are not issued but has been extended to September
30, 1996 and further extended until after January 31, 1997.
On June 17, 1996 the New Jersey Economic Development Authority reduced
the volume cap allocation for Newark Recycling and Composting Company,
Inc. from $130 million to $85 million and extended the effective date
to September 30, 1996 and which was further extended until after
January 31, 1997.
As of January 31, 1997 total project cost for the Newark Project
amounted to $4,235,078. In addition the property for the Newark
Project has been acquired at a cost of $3,327,866.
F-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
Miami Project:
On November 17, 1995 Compost America Holding Company, Inc. formed it's
wholly owned subsidiary Miami Recycling and Composting Company, Inc.,
a Delaware Corporation. On March 1, 1996 Compost America Holding
Company, Inc. acquired 100% of all the issued and outstanding stock of
Bedminster Seacor Services Miami Corporation. The purpose was for
Miami Recycling and Composting Company, Inc., a subsidiary of Compost
America Holding Company, Inc., to operate and own a composting
facility in Miami, Florida. Bedminster Seacor Services Miami
Corporation will be the supplier of all "Eweson Digesters", the bridge
crane, Fecon Turning Equipment" and the floor aeration units to the
composting project. In addition Bedminster Seacor Services Miami
Corporation will assign all contracts, permits, land purchase options
and agreements with the City of Miami for composting.
On March 29, 1996 Miami Recycling and Composting Company, Inc. closed
on the purchase of a parcel of land in Dade County, Florida from
Rinker Materials Corporation which it plans to develop into a large
scale organic waste recycling facility which will process commercial
and residential food, soils, paper, cardboards, other organic wastes
and sewage sludge (biosolids) from municipal waste water plants into
compost.
As of January 31, 1997 Miami Recycling and Composting Company, Inc.
has acquired a land site at a cost of $4,116,246 and construction in
progress costs of $1,297,076.
10. Private Placements and Private Offerings:
On February 15, 1995, later revised on August 15, 1995, Compost
America Holding Company, Inc. offered for sale, in a private offering,
restricted shares of common stock to private individuals, no par
value, at an offering price of $2.50 per share and $3.00 per share.
From February 15, 1995 to October 31, 1996 950,264 shares have been
sold for a total of $2,319,592. The offering has no expiration date.
11. Investment in American BIO-AG Corporation:
The Company and two other entities formed a joint venture. The purpose
of the joint venture is to develop, own or lease, operate and farm
biosolids beneficial use land application sites. The joint venture
registered to do business in Arizona on June 27, 1995. In addition,
Professional Service Group desires to support the joint venture
company in its efforts to secure, develop and permit beneficial use
land application sites throughout the United States beginning first in
the South West where 365 day application prevail such as Texas,
Arizona, New Mexico and California. The initial land application sites
to be developed by the joint venture corporation are Arizona, Texas
and New Jersey. Compost America Holding Company, Inc. will arrange for
a bridge loan in the amount of $750,000 which will be repaid upon
long-term financing. The
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Investment in American BIO-AG Corporation (continued):
loan is anticipated to be funded by April 1, 1995 and repaid by June
30, 1995. As of June 28, 1996 the bridge loan was not arranged.
Compost America Holding Company, Inc. has arranged for short-term
funds from February 15, 1995 to June 28, 1996. Compost America Holding
Company, Inc. will also receive a development fee of $125,000 on
positive distributable cash flow. The joint venture corporation will
sign a 15 year management contract with Mr. Bryce, President of R.C.
Land Company, Inc. for $150,000 salary per year to manage the joint
venture beginning February 15, 1995 plus standard benefits in
addition, upon the Company's generation of positive cash flow. In
April of 1996 the Company issued 83,333 shares of its common stock as
compensation for unpaid management fees and expenses to Mr. Ronald
Bryce. The Company has valued these shares at a fair value of $2.50
per share or $208,332. This amount has been capitalized as part of the
cost of the investment in American BIO-AG Corporation by the Company.
A monthly director fee of $4,000 per month will be paid to each of the
directors after revenues commence. The Board of Directors shall be
Ronald R. Bryce, President, Robert Jones III, Vice President and Roger
E. Tuttle, Secretary. Roger Tuttle is also an officer, director and
shareholder of Compost America Holding Company, Inc.
The Company accounted for its investment in the joint venture on the
equity method through the period ended June 30, 1996.
On June 28, 1996 the Company, through its majority owned subsidiary,
Newark Recycling and Composting Company, Inc., purchased all of the
land application business assets of R.C. Land Company and all the
ownership interests of Compost America Holding Company, Inc., Twin
River Equities and R.C. Land Company, Inc.'s in American BIO-AG
Corporation. Newark Recycling and Composting Company, Inc. became the
100% owner of the entity American BIO-AG Corporation. Newark Recycling
and Composting Company, Inc. is owned 75% by Compost America Holding
Company, Inc. and 25% owned by Potomac Technologies. For the period
October 1, 1996 to January 31, 1997 American BIO-AG Corporation has
been included in the consolidated financial statements of the Company.
12. Minority interest in consolidated subsidiary:
Newark Recycling and Composting Company, Inc. was incorporated in the
State of Delaware on May 10, 1994 with Compost America Company of New
Jersey, Ltd. 75% and Potomac Technologies 25%. The purpose of the
Corporation is to continue development activities which were the
development, construction and operation of a sewer sludge composting
facility in Newark, New Jersey. VRH Construction Corp. is a
shareholder in Compost America Holding Company, Inc. and is the
exclusive construction manager for the Newark composting facility.
Management of the corporation will be by consensus of the Board of
Directors. The Company has consolidated the financial statements of
Newark Recycling and Composting Company, Inc. with Compost America
Company of New Jersey, Ltd. at January 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.
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and Commitments:
A) The Company conducts operations from a facility located in
Doylestown, PA under a one year operating lease. The lease
commenced on December 1, 1994 and expires on November 30, 1995.
The facility is office use only. The annual rental is $18,300
payable monthly at $1,525 per month. The Company has made a
$1,525 security deposit. The Company is responsible for any or
all repairs up to $100. The Company must pay additional rent real
estate taxes and all increases in fire insurance. All utilities
and janitorial services are included in the rent. The Company
shall have the right to review this lease for one additional year
at the base rate plus the consumer price index for the previous
12 months.
B) The Company leased office facilities under an operating lease in
Doylestown, PA. The lease was assumed by Compost America Company
of New Jersey, Ltd. on December 17, 1993 for 6,122 sq. ft. of
office space. The lease expired on June 14, 1994 but was
continued on a month to month basis until December 1, 1994. The
total rental, including a percentage of maintenance, real estate
taxes and insurance, amounted to $59,049 for the period May 1,
1994 to December 1, 1994.
C) On May 1, 1996 the Company entered into a lease agreement for
office facilities located at 320 Grand Avenue, Englewood, New
Jersey 07631 for a term of five years. The Company will pay a
rental of $4,000 per month plus electricity and real estate taxes
over the base year.
The minimum annual rentals are as follows:
April 30, 1997 $48,000
April 30, 1998 48,000
April 30, 1999 48,000
April 30, 2000 48,000
D) The Company leases an automobile under a operating lease. The
lease is payable at $474.55 per month for 48 months. The lease
commenced on May 25, 1993. The minimum annual lease payments
during the next year amount to $5,695.
E) As part of the "Asset Purchase Replacement Agreement" dated March
1, 1995, the Company is contingently obligated to pay an
additional $407,500 toward the acquisition of 50% interest in the
Monmouth Recycling and Composting Company from Bio Services, Inc.
The obligation to pay this amount is based on the "Option
Purchase Agreement" with Brownfield Environmental, Inc. to
purchase the Township of Freehold property and upon receipt by
Compost America Company of New Jersey, Ltd. of local approval
from the Township of Freehold and County approval from Monmouth
County and the N.J. Department of Environmental Protection for
"Inclusion of the project in the Monmouth County
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and Commitments (continued):
E) (continued):
Solid Waste Management Plan", which will allow Compost America
Company of New Jersey, Ltd. to build the indoor composting
facility. Further contingencies require that any remaining
governmental, environmental and building permits related to the
construction of the "indoor composting facility" be obtained in
addition to the closing on the property and the project.
As of January 31, 1997 the Company has advanced $25,000 towards
this balance as an indication of good faith with Bio-Services,
Inc.
F) On October 2, 1996 the Company was assigned a lease commitment
with the Township of Freehold, New Jersey for two parcels of land
located in the Township of Freehold, County of Monmouth, State of
New Jersey. One parcel 10.462 acres and the second parcel 8.296
acres. The lease is for 5 years with a 5 year option. The cost of
the lease is 5% of the audited profits net of either state or
federal income taxes conducted on the above described premises or
a minimum of $4,000 per year, payable quarterly. The property
shall be used for receiving, processing and composting organic
materials, and wholesale and retail sale of finished
horticultural products. Organic materials shall include yard
wastes, processing wastes, paper products and wood chips. The
Company must maintain $2,000,000 of insurance on the premises.
14. Capital stock:
A) On May 17, 1996 the Company entered into a settlement agreement
with Select Acquisitions, Inc., Pasquale Dileo, an officer and
shareholders of Select Acquisitions, Inc. and a consultant and
shareholder of the Company, and Michael Papa, the former owner
and major shareholder of Select Acquisitions, Inc. as a result of
various disputes agreed to resolve any and all disputes by
certain terms and conditions. As a result of services provided,
Select Acquisitions, Inc. and Pasquale Dileo received stock in
the Company. In settlement with the disagreements of the
shareholders of Select Acquisitions, Inc., the Company issued
80,000 shares of its common stock to the original shareholders,
100,000 shares to Michael Papa and 20,000 shares to Gordon N.
Gemma, Esq. for outstanding legal fees. In addition, Michael Papa
is to receive from the Company $60,000 for costs, expenses and
other payments as a representative of Select Acquisitions, Inc.
and the Company. These shares were valued at $2.50 per share.
B) On July 24, 1996 the Company entered into a consultant agreement
with Edward Rodriguez for a term of 2 years. The consultant is to
receive $400,00 by the issuance of 400,000 shares of the
Company's common stock and an option to purchase 500,000 shares
of the Company's common stock immediately exercisable expiring
December 31, 2001.
C) On June 28, 1996 the Company entered into an agreement to acquire
all of the land application business and assets of R.C. Land
Company, Inc. and its 33 1/3% interest in American BIO-AG
Corporation by the issuance of 305,000 shares of common stock and
other payments.
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Capital stock (continued):
D) In June and July 1996 the Company issued 583 shares of its common
stock each month as part of a consulting agreement dated May 31,
1996 with J.G.R. Associates.
E) On July 1, 1996 the Company issued 75,000 shares of its common
stock valued at $2.50 per share to Ronald Bryce for consulting
services as part of the asset purchase agreement with R.C. Land
Company, Inc.
F) On June 30, 1996 the Company issued a total of 3,066 shares to
Robert Tardy and 72 shares to Robert C. Myers in exchange for
overtime compensations per their consulting agreements. The
agreed upon value of the shares was $5 per share which was the
value of the service provided.
G) On September 9, 1996 the Company issued 52,540 shares of its
common stock values at $3.00 per share to Select Acquisitions,
Inc. for consulting and contract expenses paid on behalf of
Compost America Holding Co.
H) On October 11, 1996 the Company issued 51,000 shares at $2.09 per
share to Ronald Bryce for payment of accounts payable of American
BIO-Ag Corporation in the amount of $106,761.
I) On October 11, 1996 the Company issued 55,500 shares of stock
regarding the Newark Project to various individuals. The agreed
upon value of the stock was $102,250 or $1.84 per share average
price for the services provided.
J) On October 11, 1996 the Company issued 165,000 shares to
attorneys. The agreed upon value was $180,000 or $1.09 per share
average price for the services provided.
K) On October 11, 1996 the Company issued 110,000 shares to
consultants. The agreed upon value was $199,500 or $1.81 per
share average price for the services provided.
L) On October 11, 1996 the Company issued 83,500 shares to various
engineers, etc. The agreed upon value was $134,250 or $1.22 per
share average price for the services provided.
M) On October 23, 1996 the Company issued 3,000 shares of stock to
the law firm of Atkinson Debartolo & Kalapos regarding an
agreement which was terminated at a value of $2.00 per share or
$6,000.
N) On December 1, 1996 the Company issued 100,000 shares to a former
employee as compensation for services provided. The shares were
valued at $.09 per share for the services provided.
O) On December 1, 1996 the Company issued 6,500 shares of common
stock, 1,000 shares at $1.00 per share and 5,500 at $2.50 per
share for services.
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Capital stock (continued):
P) On January 8, 1997, as part of the acquisition agreement for
American Soil, Inc., the Company issued 150,000 shares of stock
to Ronald Bryce, the former owner of American Soil, Inc. The fair
value of the stock was valued at $2.65 per share based on the
asset value of American Soil, Inc.
15. Common Stock Purchase Warrants and Options:
On April 23, 1996 the Company's Board of Directors approved the
granting of stock options for the continued financial support of
the Company to:
Robert E. Wortmann 300,000 options
Victor D. Wortmann 300,000 options
The options are exercisable immediately at $2.00 per share with
an expiration date of April 23, 2001. Robert and Victor Wortmann
are both principals of VRH Construction Corporation and
shareholders as well as officers and directors of the Company.
The Company will not recognize compensation expense at April 30,
1996 because the fair market value of the stock is $2.00 per
share which is the same as the option price.
As part of the employment agreements, the following options were
granted:
Roger Tuttle 1,000,000 @ $2.50 per share
Expiration 11/14/00
On May 20, 1996 the Company executed an option agreement for
Diana E. McCarthy, Esq. for services rendered. Upon financial
closing of each of the following projects, Diana E. McCarthy,
Esq. shall be issued the following options to purchase Compost
America Holding Company, Inc. common stock:
Newark Project - 300,000 options to purchase 300,000
shares at $2.50 per share for 5 years
Gloucester City Project - 100,000 options to purchase 100,000
shares at $2.50 per share for 5 years
Monmouth County Project - 100,000 options to purchase 100,000
shares at $2.50 per share for 5 years
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Common Stock Purchase Warrants and Options (continued):
Summary of Warrants and Options Outstanding:
Exercise
01/31/97 Price Expiration
-------- ----- ----------
Warrants:
Bedminster Bioconversion Corp 300,000 $ 6.00 03/01/01
300,000 .83 04/18/97
60,460 3.00 06/01/99
David Egarian 150,000 1.00/1.17 01/31/96-97
Robert W. Jones III 75,000 1.00/1.17 01/31/96-97
B. Michael Pisani 45,200 .92 06/01/99
Robert D. Long 5,800 .92 06/01/99
---------
936,460
========
Options:
Robert E. Wortmann 300,000 2.00 04/23/01
Victor D. Wortmann 300,000 2.00 04/23/01
Roger Tuttle 1,000,000 2.50 11/14/00
Peter Coker 100,000 2.00
50,000 5.00
50,000 9.00 06/30/01
Pasquale DiLeo 200,000 2.50 04/30/01
Mark Gasarch, Esq. 200,000 2.50 05/20/01
Edward Rodriguez 150,000 4.00
150,000 5.00
200,000 6.00 12/31/01
---------
2,700,000
=========
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which
is based on the intrinsic value of equity instruments and has not
adopted the principles of SFAS-123 "Accounting for Stock Based
Compensation" effective for fiscal year beginning after December 15,
1995, which is based on fair value. There is no significant difference
between compensation cost recognized by APB-25 and the fair value
method of SFAS-123. The Company has not recognized compensation on the
granting of options or warrants to employees and consultants since the
fair value of warrants or options is the same as or less than the
exercise price.
F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. Related Party Transactions:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in
Compost America Holding Company, Inc. as well as VRH Construction
Corp. VRH Construction Corp. as of April 30, 1996 has advanced
$640,072 to the Company. The amount due to VRH Construction Corp. is
included in a note payable as of April 30, 1995 due January 15, 1995
with interest at 10%. As of January 31, 1997, the note for $640,072
has been extended from the original due date to April 1, 1997. In
addition, VRH Construction Corp. has advanced additional funds
amounting to $3,424,283 at January 31, 1997, of which $1,543,866 is
payable at 10% due April 1, 1997 and $1,880,417 is interest bearing at
10% per annum and payable on demand. The total loans and notes
outstanding at January 31, 1997 amounted to $4,064,355. All advances
are anticipated to be paid back upon completion of the Economic
Development Bond Funding.
The Company has acquired all composting projects and technology from
Bedminster Bioconversion, Inc. through Select Acquisitions, Inc., a
shareholder in Compost America Company of New Jersey, Ltd. Select
Acquisitions Inc. has advanced $38,060 at October 31, 1996. Bedminster
Bioconversion, Inc., an unrelated corporation, received stock purchase
warrants as indicated in the notes to consolidated financial
statements. There are numerous agreements and intercompany
transactions between Compost America Holding Company, Inc. and its
subsidiary, Compost America Company of New Jersey, Ltd. and with its
related subsidiaries, Newark Recycling and Composting Co., Inc.,
Gloucester Recycling and Composting Company, Inc. and Monmouth
Recycling and Composting Co., Inc. Chicago Recycling and Composting
Company, Inc. and American BIO-AG Corporation. At January 31, 1997 and
January 31, 1996 all intercompany transactions have been eliminated
except for amounts due from R.C. Land Company, Inc., a former partner
in the Joint Venture of American BIO-AG Corporation.
The Company, at January 31, 1997, has received loans from Roger
Tuttle, the President of Compost America Holding Company, Inc. and
Foundation Systems, Inc., the Principal of which is John Fetter, an
officer and shareholder in the Company, in the amount of $90,000 each.
17. Employment Contracts:
As of May 1, 1996 Roger Tuttle and the Company executed an employment
agreement, the terms of which supersede all previous agreements. The
term is for ten years effective May 1, 1996. The compensation shall be
$225,000 per annum in monthly payments from May 1, 1996 to April 30,
1997 with annual increases during the term of the agreement based on
growth of the Company but not less than the increase in the consumer
price index. In addition, Roger Tuttle shall receive an annual bonus
based on 5% of any increase in consolidated net income beginning April
30, 1996. Roger Tuttle shall also receive the following:
1) Reimbursement of all business related expenses
2) An automobile allowance of $500 per month
3) A one-time signing bonus of $500,000 upon achieving sales of
$5,000,000 in any quarter
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. Employment Contracts (continued):
4) Medical and health insurance
5) Employer grants employee a 1,000,000 shares option to
purchase 1,000,000 shares of common stock at $2.50 per share
for five years
As of January 31, 1997 unpaid accrued wages amounted to $519,750 for
all contract employees.
18. Long-term debt:
<TABLE>
<CAPTION>
Rate Current Long-term Maturity
---- ------- --------- --------
<S> <C> <C> <C> <C>
Teepak, Inc. (A) Prime & 2% $ 264,871 extended
Mortgage payable-Rinker
Materials Corp. (B) 7% 3,730,871 04/01/98
Mortgage payable-
Jerry L. Montierth (C) 7% $ 26,784 250,045 02/01/15
Note payable, equipment (D) 10.75% 18,497 21,463 08/20/99
Note payable, equipment (E) 12.50% 29,868 62,225 06/05/00
Note payable, equipment (F) 9.50% 29,502 44,237 07/10/99
Convertible debenture-
Lionhart (G) 10.00% 1,000,000 11/26/99
-------- ----------
104,651 5,373,712
Less unamortized discount 15,191 32,497
-------- ----------
$ 89,460 $5,341,215
======== ==========
</TABLE>
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.
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%.
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18. Long-term debt (continued):
C) The 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, Cachise
County, Arizona. The February 1, 1997 payment has not been made
as of the statement date.
D) Equipment which cost $59,920 is pledged as collateral for the
note which is payable in monthly installments of $1,541.
E) Equipment which cost $110,563 is pledged as collateral for the
note which is payable in monthly installments of $2,489.
F) Equipment which cost $93,104 is pledged as collateral for the
note which is payable in monthly installments of $2,459.
G) 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.
The debenture holder, upon default, has the right to sell, assign
or deliver shares without notice to or demand upon the Company.
The holder is entitled to receive dividends and other
distribution but no right to vote or subscribe.
The debenture holder has the right of conversion 150 days
following date of closing of note. The debenture is convertible
(principal and interest) into common stock based on the principal
and interest outstanding divided by the conversion price, the
conversion price being 65% of the average closing bid price for
the 5 days preceding the closing or 65% of the average closing
bid price for the 5 days immediately preceding the date of
conversion.
The debentures are automatically converted to each issued and
outstanding debenture on the date which is 3 years after closing.
Upon 90 days after closing, at the option of the Company, the
debentures may be redeemed based on the following schedule:
Number of days Shares of
from closing date Principal common stock
----------------- --------- ------------
90 - 120 $1,000,000 80,000
121 - 150 1,000,000 100,000
150 or more 1,000,000 120,000
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
18. Long-term debt (continued):
The maturities of the long-term debt summarized as follows:
Year ended April 30,
1997 $ 42,453
1998 3,952,766
1999 220,530
2000 1,045,232
2001 26,784
Thereafter 53,450
----------
$5,341,215
==========
19. Income taxes:
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes" as of inception, December 17, 1993. FASB Statement No. 109 is
required for all fiscal years beginning after December 15, 1992. This
statement requires that deferred taxes be established for all
temporary differences between book and tax basis of assets and
liabilities. There was no cumulative effect of adoption or current
effect on continuing operations mainly because the Company has been in
a development stage since inception, December 17, 1993, and has
sustained net operating losses during this period. The Company has
made no provision for a deferred tax asset due to the net operating
loss carryforward because a valuation allowance has been provided
which is equal to the deferred tax asset. It cannot be determined at
this time that a deferred tax asset is more likely than not to be
realized.
The Company has a loss carryforward of $6,238,874 that may be offset
against future taxable income. The carryforward losses expire at the
end of the years 2009 and 2012.
20. Deposits:
Deposit on land - Denton Farm, Arizona $77,475
Minalto Corporation - Business equipment 816
Robert Fellheimer - Rent security 1,525
VRH Construction - Rent security 4,000
-------
$83,816
=======
21. Notes payable, bank:
The note payable to United Jersey Bank is due March 1, 1997, on
demand, at 10% interest.
Notes payable, others:
The Company is obligated on a note payable to Roger Tuttle, President
of the Company, for $90,000 which is non-interest bearing, unsecured
and payable on demand.
F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
21. Notes payable, bank (continued):
The Company is obligated on a demand note to Foundation Systems which
is non-interest bearing and unsecured in the amount of $90,000..
The Company is obligated for notes from American BIO-AG Corporation in
the amount of $110,250 which are non-interest bearing, unsecured and
payable on demand. The notes are payable to Ronald Bryce for $35,250
and to Carl Jones for $75,000.
The Company is obligated on two notes of $50,000 each payable April
1997 with interest at 10%. The notes can be converted to stock at a
price of $3.00 per share, 30 days prior to the due date.
The Company is obligated on a note of $1,000 which is payable December
15, 1997 with interest at 10% to Brokerage Services,Inc.
22. Supplemental schedule of non-cash investing and financing activities:
1996 1995
---- ----
May 1, 1995 issued 100,000 shares on
exercise of warrant by officer of
Corporation ($1,000)
Officers compensation 1,000
May 31, 1996 issued 200,000 shares of
common stock in settlement with Select
Acquisitions, Inc. ($500,000)
Legal and professional fees 50,000
Consulting 250,000
Liquidation of former Select Acquisitions,
Inc. shareholder disputes for stock of
the Company 200,000
June 28, 1996 issuance of 305,000 shares
of common stock in purchase of land
application assets of R.C. Land Company,
Inc. by the Company ( 762,500)
Property, plant and equipment 762,500
June 30, 1996 and July 30, 1996 issued
479,304 shares of common stock for
consulting services ( 606,105)
Consulting services expense 606,105
F-43
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
22. Supplemental schedule of non-cash investing and financing activities
(continued):
1996 1995
---- ----
October 11, 1996 issued 3,000 shares
for legal services ( 6,000)
Legal and professional fees 6,000
October 11, 1996 issued 465,000 shares
of common stock for services and
outstanding accounts payable ( 722,760)
Consulting, legal and professional
fees 218,000
Payment of accounts payable 106,760
Construction in progress, compost
projects 398,000
December 1, 1996, issued 256,500 shares
of common stock for services rendered
and consulting agreement ( 421,250)
Consulting services 10,000
Investment in acquisition of American
Soil, Inc. 397,500
Newark Project cost 13,750
23. Earnings per share:
1997 1996
Primary Primary
------- -------
Number of shares:
Weighted average shares
outstanding 15,806,386 13,500,489
Incremental shares for
outstanding stock
warrants 936,460 906,016
Incremental shares for
outstanding stock
options 2,700,000 0
---------- ----------
19,442,846 14,406,505
========== ==========
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding. Shares that would be
outstanding assuming exercise of dilutive stock options and warrants,
all of which are considered to be common stock equivalents. Fully
diluted earnings per share are the same as primary earnings per share
for 1997 and 1996.
F-44
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
24. Impairment of investment in subsidiary:
On June 28, 1996, the Company, through its majority owned subsidiary,
Newark Recycling and Composting Company, Inc., acquired all the land
application assets of R.C. Land Company, Inc. for 305,000 shares of
the Company's common stock, $50,000 in cash and the assumption of a
land mortgage of $276,829. The assets acquired at their fair market
value are as follows:
1) All plans, permits and site specific
plans from State of Arizona $ 755,000
2) Various farm lands totaling 5,428
acres 580,000
3) Machinery and equipment 125,000
----------
1,460,000
Less mortgage assumed ( 276,829)
----------
Net asset value $1,183,171
==========
Management has determined that the fair value of the stock, due to its
restricted nature and in relation to comparable sales, is $2.50 per
share or $762,500. The acquired cost of the acquisition from R.C. Land
Company, Inc. was $812,500 ($762,000 plus $50,000 cash).
In addition, on June 28, 1996, Newark Recycling and Composting
Company, Inc. assigned these assets to American BIO-AG Corporation and
acquired the remaining 66 2/3% of American BIO-AG Corporation from
R.C. Land Company, Inc. and Twin Rivers Equities. The Company assumed
all of the liabilities of American BIO-AG Corporation amounting to
$464,273 less the assets acquired of $132,669 for a net amount of
$331,604 less the inter company loan of $185,000 or $146,604.
The total investment in American BIO-AG Corporation by the Company is
as follows:
Assignment of R.C. Land $ 812,500
Liabilities assumed in acquisition
of American BIO-AG 146,604
Original basis 811,626
----------
Basis in American BIO-AG $1,770,730
==========
F-45
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
24. Impairment of investment in subsidiary (continued):
The book value of American BIO-AG Corporation at June 30, 1996 after
the assignment of the assets of R.C. Land Company, Inc.:
Common stock $1,937,263
Deficit 1,082,563
Net worth $ 854,700
==========
The fair value of the assets of American BIO-AG Corporation at the
present value of the expected future cash flow based on management
valuation and an outside appraisal indicated a value of $1,460,000
less the mortgage assumed of $276,829 plus the net liabilities of
American BIO-AG Corporation, before assignment of R.C. Land Company,
Inc.'s assets, of $146,604. The total fair value of American BIO-AG
Corporation is $1,329,775 ($1,460,000 - $276,829 + $146,604) which is
the value of the investment in American BIO-AG Corporation.
The impairment loss to the Company would be the total cost basis of
the investment in American BIO-AG Corporation of $1,770,730 less the
fair value of the assets acquired of $1,329,775.
Animpairment loss of $440,955 would be recognized in the operating
expenses of the Company under the caption "Impairment loss on
investment in subsidiary".
The Company has adopted the provision of SFAS-121 effective for fiscal
years beginning after December 15, 1995. As required by the Financial
Accounting Standards Board which requires recognition of impairment of
asset when events and circumstances indicate the carrying amount of
those assets will not be recovered in the future. The pronouncement
further states that goodwill identified with assets that are subject
to impairment loss should be eliminated before the carrying amount of
any other assets is reduced.
Basis of acquisition of American BIO-AG
Corporation $1,770,730
Net book value of the assets acquired
(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
==========
F-46
<PAGE>
Item 2. Plan of Operation
Introduction
The Company is a "development stage" company and has not generated
significant operating revenues from its inception to date. The Company does not
expect to generate any significant operating revenues until the Company has
successfully financed, constructed and begun commercial operations of one or
more of its invessel compost project facilities currently in development. Since
a merger between a "public shell" and a "private operating company" is
considered to be a recapitalization of the operating company, with no
recognition of intangibles as a result of the merger, the acquisition of the
Company's subsidiary, Compost America Company of New Jersey, Ltd. (the "private
operating company"), on January 23, 1995, has been accounted for as a reverse
purchase of the assets and liabilities of the Company by Compost America Company
of New Jersey, Ltd. Accordingly, the consolidated financial statements represent
assets, liabilities and operations of only Compost America Company of New
Jersey, Ltd. prior to January 23, 1995 and the combined assets, liabilities and
operations of both companies for the ensuing period. The financial statements
reflect the purchase of the stock of Alcor Energy and Recycling Systems, Inc.
(the "public shell"), the former name of Compost America Holding Company, Inc.,
by Compost America Company of New Jersey, Ltd. for stock and the assumption of
liabilities of $49,094, this amount being the historical cost of the assets and
liabilities acquired. All significant inter-company profits and losses from
transactions have been eliminated.
Since its inception, the Company has met its liquidity needs from the
proceeds of the sale of its common stock and from loans made by directors of the
Company and by VRH Construction Corporation, a principal shareholder of the
Company whose owners are directors of the Company and by other individuals and
entities not affiliated with the Company. The Company received $1,365,860 from
private sales of its common stock during the fiscal year ended April 30, 1996,
$906,409 from private sales of its common stock during the fiscal year ended
April 30, 1995 and $692,000 during the period December 1993 through April 30,
1994. Since April 30, 1996 through January 31, 1997, the Company has raised
$603,097 through private sales of its common stock. In addition, VRH
Construction Corporation made loans to the Company totalling $2,869,116 during
the fiscal year ended April 30, 1996 and $640,072 during the fiscal year ended
April 30, 1995. Since April 30, 1996 through January 31, 1997, VRH Construction
Corporation has loaned an additional $510,000 to the Company. Other loans to the
Company since April 30, 1996 through January 31, 1997 have totalled $1,598,000.
Total funds raised from the sale of common shares and loans from shareholders
and others from December 1993 through April 30, 1996 are $6,473,457, plus an
additional $2,711,097 since April 30, 1996 through January 31, 1997.
<PAGE>
In October, 1996 the Company acquired all of the outstanding shares of
American Soil, Inc. of Ramsey, New Jersey ("ASI"). ASI is an eight-year old New
Jersey Department of Environmental Protection Agency permitted outdoor windrow
composting company, located in Monmouth County, New Jersey, which has generated
revenues throughout its eight year history. ASI is one of only two permitted
windrow composting facilities in the State of New Jersey, and is the only
facility approved to accept, on an on-going basis, food waste for composting.
The Company's waste procurement strategy employed during the past year for
its Newark, New Jersey composting facility should serve to increase
significantly ASI's yearly waste procurement, i.e. tip-fee revenues including
contract value. The Company's wholly-owned marketing subsidiary, Garden Life
Sales Company, will assist ASI by selling the compost after it has been cured, a
revenue generating benefit heretofore not available to ASI.
Additional and more significant revenues from operations are not
anticipated until 1999, when the Company's initial composting projects will be
fully constructed and operational. Until that time, the Company anticipates that
it will need an additional $3,000,000 to meet current debt obligations and fund
ongoing corporate overhead expenses. The Company anticipates that it will be
able to secure these funds from the revenues of ASI and from the sale of
additional common shares and/or the issuance of additional debt. In addition,
the Company expects to have completed project financing for the construction of
the Company's facilities in Newark, New Jersey, Miami, Florida and Chicago,
Illinois prior to the end of 1997 and the Company may receive development fees
and management fees in connection with this project financing.
The Company does not expect to perform any significant product research and
development and does not expect any significant changes in the number of
employees during the next twelve months. The Company does expect to commence
construction of its Newark, New Jersey, Miami, Florida and Chicago, Illinois
composting facilities during the next twelve months, financing and weather
permitting.
On November 27, 1996, as per its 30-year put-pay contract, the Company
paid to the City of Miami, Florida a one-time "up-front" host fee of $1 million.
This "put-or-pay" contract, over its term, should generate in excess of $370
million of revenues to the Company's subsidiary, Miami Recycling and Composting
Company, Inc., while using only half of the composting capacity of its Miami,
Florida facility.
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings None
Item 2. - Changes in Securities
(a) None
(b) None
(c) During the fiscal quarter ended January 31, 1997, the Company
issued 150,000 shares of its common stock, without registering the securities
under the Securities Act of 1933, as amended. There were no underwriters
involved in the transaction, no underwriting discounts or commissions and no
sales for cash. These 150,000 shares were issued to Robert F. Young, Jr. on
January 10, 1997 as part of the acquisition by the Company of all of the
outstanding shares of American Soil, Inc. In light of the small number of
purchasers (one) 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 None
Security Holders
Item 5. - Other Information None
Item 6. - (a) Exhibits None
(b) Reports on Form 8-K None
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: COMPOST AMERICA HOLDING COMPANY, INC.
March 21, 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>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE UNAUDITED
FINANCIAL STATEMENTS OF COMPOST AMERICA HOLDING COMPANY, INC. FOR THE QUARTER
ENDED JANUARY 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-30-1997
<PERIOD-END> JAN-31-1997
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