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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the fiscal year ended April 30, 1997
Commission File #0-27832
COMPOST AMERICA HOLDING COMPANY, INC.
................................................................
(Exact name of registrant as specified in its charter)
New Jersey 22-2603175
____________________________ __________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 Grand Avenue Englewood, New Jersey 07631
_____________________________________________ _______________
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (201)541-9393
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
1. Common Shares, no par value
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
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [X]
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State the issuer's revenues for its most recent fiscal year:
$147,466
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked price of such stock, as of a specified date within the past 60
days - $ 17,564,645 (approximate as of July 31, 1997)
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 - 18,707,277 shares outstanding as at July 31, 1997.
Documents Incorporated By Reference - None
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
1285 Ave. of the Americas
3rd Floor
New York, New York 10019
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PART I
ITEM 1.
DESCRIPTION OF BUSINESS
BACKGROUND
The Company was incorporated on August 20, 1981 in the State of New Jersey
under the name Alcor Energy and Recycling Systems, Inc. ("Alcor") for the
purpose of designing, constructing, managing and operating resource recovery
facilities. On January 23, 1995 Alcor acquired all of the outstanding shares of
Compost America Company of New Jersey, Ltd. ("CANJ"), which had been
incorporated on December 17, 1993 in the State of Delaware for similar purposes,
and subsequently changed its name to Compost America Holding Company, Inc. The
Company conducts its business directly, through its wholly-owned subsidiary
CANJ, and through its wholly-owned subsidiary American Soil, Inc., a New York
corporation. The Company has two other wholly-owned subsidiaries, both presently
inactive; Compost America Technologies, Inc., incorporated in Delaware on June
15, 1995 to license certain rights to composting technology and Gardenlife Sales
Company, Inc., incorporated in Delaware on March 1, 1996 to handle future sales
of produced compost by the Company. CANJ itself has six subsidiaries, Newark
Recycling and Composting Company, Inc. ("NRCC"), incorporated in Delaware on May
10, 1994, owned 75% by CANJ and 25% by Prince Georges Contractors, Inc., doing
business as Potomac Technologies, Inc. ("PTI"), an unaffiliated company, with
NRCC itself owning 100% of American Bio-Ag, and five wholly-owned subsidiaries,
Monmouth Recycling and Composting Co., Inc., incorporated in Delaware on May 10,
1994, Chicago Recycling and Composting Company, Inc., incorporated in Delaware
on August 4, 1995, Gloucester Recycling and Composting Company, Inc.,
incorporated in Delaware on August 15, 1994, Philadelphia Recycling and
Composting Company, Inc., incorporated in Pennsylvania on March 8, 1995 and
Miami Recycling and Composting Company, Inc., incorporated in Delaware on
November 17, 1995, which itself owns all of the outstanding common stock of
Bedminster Seacor Services Miami Corporation, a Florida corporation. Unless
otherwise indicated, references to the Company includes the Company and its
subsidiaries and CANJ and its subsidiaries.
The Company is a development stage company which, through its
subsidiaries, will construct, manage and own enclosed organic material recycling
compost manufacturing plants. Composting is a method of converting the organic
portion of garbage (Municipal Solid Waste--"MSW") and sewage sludge into a peat
moss like product with agronomic benefits. The Company will be paid fees
("tipping fees"), just as landfills and incinerators are paid, for receiving and
processing the organic waste and sewage sludge. The Company also will receive
revenues from the sale of the compost it produces. The Company anticipates that
it will be competitive with
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other waste management options by locating its plants convenient to urban
centers, thus eliminating the need to use local transfer stations and reducing
the transportation costs associated with hauling waste to distant out-of-state
landfills. The Company's first two projects will be a 200,000 square foot fully
enclosed composting facility in Newark, New Jersey ("Newark Project"), which is
75% owned by the Company through CANJ, and 25% owned by PTI, and a 200,000
square foot fully enclosed composting facility in Dade County, Florida ("Miami
Project").
The Company's executive offices are located at 320 Grand Avenue,
Englewood, New Jersey 07631-4355. The Company's telephone number is (201)
541-9393; fax (201) 541-1303.
INTRODUCTION
The Company is a development stage company in the business of developing
large scale Company owned organic waste recycling facilities which will process
commercial and residential food, soiled paper and coated cardboard, among other
organic wastes, which are found in municipal and commercial solid wastes
("organic waste") and sewage sludge ("biosolids") from municipal waste water
plants into compost and, in the business of the land application of biosolids.
The Company through its subsidiary entities, currently has five projects
actively under development and is negotiating for additional projects which it
plans to acquire through acquisition, merger or joint venture. To date, the
Company has had no significant revenues from operations and has utilized private
financing for the development of each of its projects and for general corporate
expenses.
The Company uses a combination of patented and proven technologies
currently in use at composting plants in Europe and the United States. The
Company plans to construct fully enclosed, environmentally sound facilities,
each capable of processing 300 to 700 tons per day of varying amounts of organic
waste and biosolids. Initial efforts have been concentrated (1) in New Jersey,
where a progressive regulatory environment, extensive waste supply and some of
the highest organic waste and biosolids disposal ("tipping") fees in the United
States make it a most attractive market for the Company to develop composting
facilities and where, in Newark, New Jersey and Miami, Florida, the Company
hopes shortly to commence construction of its first enclosed composting
facilities; (2) in Florida, where the City of Miami has entered into a 30 year
"put or pay" contract with a corporation which the Company recently has
acquired, and where the Company, on March 29, 1996, purchased property for which
it has received a state composting permit; (3) in Chicago, where a site has been
optioned and a permit application has been filed and a Facility Construction and
Development Permit received for a composting facility; (4) in Monmouth County,
New Jersey, where an agreement has been executed to acquire property where the
Company believes a permit may be obtained to build an
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invessel composting facility, and (5) in Gloucester City, New Jersey, where a
demonstration composting project is in the final stages of planning and, upon
proof of concept to the local Mayor and Council, will be upgraded to a full
scale commercial facility.
THE COMPOST INDUSTRY
INTRODUCTION
The Company believes that the compost industry has entered into a period
that should allow for rapid growth. Economic, legal and regulatory factors have
converged to create the impetus for the development of composting facilities
capable of converting the organic fraction of municipal and commercial solid
waste ("MSW") and sewage treatment plant biosolids into a "beneficial use
product" called compost.The Company hopes to capitalize on this opportunity by
developing company owned composting facilities to be constructed by Black and
Veatch Corporation and to be operated by the Professional Services Group, Inc.,
unaffiliated companies which construct and manage similar plants across the
United States. The Company expects that its composting facilities will have
sufficient resources to assure the efficient, effective and cost-competitive
production of high quality compost. The Company expects to be able to compete
effectively on price ("tipping fees") with landfills and incinerators and yet be
environmentally superior in that the organic fraction of municipal and
commercial solid waste and biosolids will be recycled into environmentally safe
compost.
STATE OF THE WASTE INDUSTRY
The quantity of solid waste and biosolids generated in the United States
each year continues to grow while the trends in managing this waste are
changing. Landfill capacity in many areas of the country continues to diminish
due to the stricter regulation of Subtitle D of the Federal Resource
Conservation and Recovery Act. Twelve states have less than five years of
available capacity remaining. Incineration has reached a ceiling in terms of
future growth due to environmental (Clean Air Act) and "NIMBY" (Not In My
Backyard) concerns regarding the desirability of additional incinerating
capacity and future sites. Curbside recycling of plastic, glass, aluminum,
ferrous and clean paper materials continues to grow, maturing from source
separation regulation to the common daily practice of almost 100,000,000
Americans. The source separation of plastic, glass, aluminum and ferrous
materials has, in turn, significantly increased the quality of the organic
content of the remaining waste, making composting a more efficient alternative
to either incineration or to landfilling. The "Ocean Dumping Act" banned ocean
dumping of sewage sludge and has mandated land based use alternatives. The
"Clean Water Act" has resulted in dramatic increases in the quantity of "clean"
biosolids, creating further recycling (composting) opportunities. The growth of
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recycling and composting can be expected to continue as regulatory,
environmental and economic pressures continue to converge. Composting is a
primary waste management method which the Company believes, unlike landfills and
incinerators, can be successfully built in urban America.
Although the terms solid waste, garbage and trash are used as general
terms, approximately 70% of these wastes are "organic". Solid wastes include the
following:
Municipal and Residential Organic Waste
sewage sludge
septage
municipal solid waste
leaves
grass
tree stumps
stable waste
Christmas trees
Commercial Organic Waste
meat, fish, fowl processing waste
canning byproducts and residues
restaurant waste
produce processing waste
animal by-products and waste (including paunch manure)
pallets (wood, cardboard)
waxed and coated cardboard
soiled paper
school paper and cafeteria waste
grocery store waste
Solid Waste Trends
The United States each year generates approximately 300 million tons of
solid waste, of which approximately seventy percent, or 120 million tons, are
organic compostables and approximately 200 million tons of biosolids from sewage
sludge and commercial waste water plants. The following milestones have occurred
which created forces of change which had the effect of permanently restructuring
America's waste management industry and created a significant composting
opportunity:
* The Federal Ocean Dumping Ban of 1988 prohibited ocean disposal of all
municipal biosolids after December 31, 1991. As a result, domestic
treatment works which had been ocean dumping were forced to develop land
based management strategies, such as composting, which offered the
beneficial use of biosolids.
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* The Part 258 municipal solid waste landfill regulations of 1993 established
minimum requirements for new and existing landfills. These national
regulations put new standards in place for landfill location restrictions,
operational requirements, design standards, groundwater monitoring,
corrective action, closure and post-closure care and financial assurance.
The result has been the closure of "open dumps" and the upgrading of
existing facilities. The Company believes that this will result in higher
landfill tipping fees and reduced capacity as substandard facilities must
spend money to upgrade, or close.
* The 40 CPR Part 503 regulations of 1993 set national standards for the
management of biosolids. These regulations establish the characteristics
that biosolids must meet for different processes and land application. They
also transform the highest quality biosolids from a waste material, heavily
regulated by state and federal law, into a product that can move freely in
commerce with no regulations beyond the production point. This results in a
level playing field throughout the United States for the distribution of
compost products to end users.
* The Federal Clean Water Act of 1977 resulted in substantial funding to
state and local governments through the "Construction Grants Program" to
upgrade domestic treatment works. Through this upgrade, domestic treatment
works advanced beyond primary treatment to add secondary microbial
treatment and chemical tertiary treatment. This resulted in a production of
higher quantities of biosolids. In addition, under the National Pollutant
Discharge Elimination System permitted program, industrial pretreatment
resulted in substantially cleaner biosolids which are ideal for composting
and use as a landscape/manufactured topsoil product in commerce.
* The cessation of Federal Clean Water Act funding to state and local
governments has fueled the movement to privatization for the development of
new capacity for biosolids management, such as through in-vessel composting
facilities constructed by the Company.
* The creation of the National Compost Council by Proctor & Gamble and
environmental groups in 1990 which serves as an independent source of
unbiased technical expertise in the composting field. The Council has
published significant literature and guidance on proper composting
procedures and serves as a national clearinghouse of technical information,
bringing a high profile and level of creditability to composting.
* The national proliferation of recycling programs throughout the late 1980's
and 1990's which have removed the vast
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majority of inorganic materials from the municipal waste stream. Nearly
every state has adopted voluntary, and in some cases mandatory, recycling
goals. In all cases, initial efforts focused on newspaper, aluminum cans
and glass containers. Many programs have been expanded to capture plastics,
tin/bimetal cans, white goods, household hazardous waste, waste oil
collection, universal waste and pollution prevention programs help ensure
that any materials of concern are managed separate from municipal waste.
* The continuing decline of urban centers led to the development, in the
1980's, of an effort to clean up and make use of the property located at
the heart of urban America. These properties are at the center of biosolids
and solid waste generation and cities want to increase their tax base and
to generate jobs. Unlike incinerators and landfills, the development of
in-vessel composting facilities becomes a compatible land use desirable to
local governments. Proximity near the source of waste generations also
reduces transportation costs and provides economies of scale which make
in-vessel composting a desirable waste management method.
DISPOSAL ALTERNATIVES
INTRODUCTION. Approximately 62% of the solid waste generated in the United
States goes to landfill, 15% goes to energy incinerators, 1% to conventional
incinerators, and 22% is recycled (source: EPA Characterization of MSW in the
USA). These percentages will continue to change due to economic, legal and
regulatory trends which emerged in the early 1990's.
SOURCE REDUCTION. Recently, there has been an attempt to emphasize on
source reduction. However, source reduction is not a disposal alternative.
Rather, it seeks to reduce the quantity of the disposable wastes at the outset.
Packaging in bulk, or leaving grass clippings on the lawn are two examples of
proposed source reduction steps. Source reduction would most likely not reduce
the amount of organic compostables available to the Company, since the materials
composted by the Company are not subject to source reduction.
LANDFILLS. The number of landfills in the United States continues to
decline from approximately 30,000 in the 1970's to less than 3,600 today. The
continued reduction in the number of landfills will result from a combination of
factors, including increasingly stringent operating and environmental
regulations, renewed enforcement activities and a reluctance on the part of
municipalities to permit new landfills.
This continued closure of existing landfills will not only have a
significant impact on alternative technologies for disposing of organic solid
waste, but the higher cost of development,
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permitting and operating new landfill space, along with increased transportation
and transfer station fees, will create a pricing floor allowing for the growth
of alternative waste solutions and technologies specifically emphasizing
composting. Disposal costs, including transportation, transfer station thruput
fees and landfill tip fees, are highest along the Eastern seaboard. In some
areas, such as Florida, the Mid-Atlantic states and New England, disposal costs
are in excess of $60 a ton, and in northern New Jersey, disposal rates are in
excess of $100 per ton.
INCINERATION. A volume reduction option for municipal and commercial waste
is incineration. There are presently less than 160 waste to energy plants in
operation in the United States with a total capacity of approximately 30 million
tons per year. Typical plants range from 400 tons per day to 2,000 tons per day.
Incinerators do not dispose of waste, they merely reduce the volume of waste
going to landfills, typically by about 90% (75% reduction by weight).
The use of incineration was the result of a significant increase in tipping
fees, the subsidizing of incinerator costs through electrical energy rates, the
acceptance of the technologies combined with operating and performance
guarantees by large credible companies and reductions in local landfill space
combined with pressures by municipalities to cap the escalation of long term MSW
disposal costs.
Local resistance to the development of new incineration plants will be a
significant deterrent to the growth of incineration as a solution to the solid
waste disposal problem. Additionally, the subsidizing through electrical energy
rates will be eliminated.
RECYCLING. Recycling is recognized as a waste recovery strategy whereby
waste materials are beneficially converted into useful products.
Initially,recycling included only metals, plastics, glass and some paper. Today
recycling includes "organic materials" which represent up to seventy percent
(70%) of the solid waste stream. The Company believes that composting is the
only viable method to recycle organic waste materials.
Federal, state and local laws and regulations have played an increasingly
important role in the growth of recycling. Many states and the District of
Columbia have instituted recycling laws. Such states, including New York,
California, Florida, Illinois, Maryland, New Jersey, Ohio, Pennsylvania,
Connecticut and Massachusetts, have mandated recycling goals. Some states have
mandatory source separation laws.
Recycling methods include: (1) curbside collection, (2) drop off centers,
(3) MRF (material recovery facilities), (4) recycling centers (where commingled
recyclable materials are separated for recovery through manual and automated
techniques) and (5)
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composting facilities where the organic fraction of MSW and sewage sludge are
processed into compost.
The Company believes that the trend toward recycling should continue to
increase for numerous reasons, including:
1. Increasing consumer/business awareness regarding the environmental
concerns of waste disposal;
2. The development of industry solutions to using recycled materials
and in creating new products, primarily resulting from the availability of
consistent, price competitive supplies of recycled materials;
3. A proliferation of mandatory recycling goals and laws; and
4. The economic and beneficial use of processing the organic fraction
of MSW and sewage sludges into compost.
The Interrelationship of Waste Management Methods. While each of these
three major waste management methods will be used at various times and
locations, composting should experience dramatic growth.
Compost facilities will recycle organic waste materials, including the
organic fraction of MSW and sewage sludge, so as to meet federally mandated
regulatory guidelines. While some portion of the various organic waste materials
will be commingled with plastic, glass and metals and processed together, a
significant portion of the commercially generated waste will be source separated
and not commingled, thereby offering a significant opportunity for composting.
Incinerators and/or refuse derived fuel facilities will seek to receive
mostly dry wastes and will seek to limit those items that are high in nitrogen
and moisture or which can be readily recycled (composted). Landfills will
receive those wastes that are not incinerated, recycled and/or composted.
THE NATIONAL MARKET
Organic recycling will require the use of in-vessel composting facilities
designed to meet all environmental regulations while producing a beneficial use
product (compost) using sewage sludge and the organic fraction of MSW as the
feed stock. The demand for organic recycling will be driven by higher tipping
fees, reduced local landfill space, higher incinerator costs and the overall
impact of urban development on a nationwide basis.
The Company believes that this projected increased demand for organic
recycling will create the opportunity for the Company to
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expand its existing project base from New Jersey, Chicago, Illinois, and Miami,
Florida, into other major urban areas in the United States. The Company
estimates that within the next ten years there will be a significant demand for
in-vessel composting facilities in urban areas throughout the United States,
each with a capacity of 300-500 tons per day, capable of processing the organic
fraction of MSW and sewage sludge. Furthermore, given to the capital constraints
of municipalities, the lack of significant state or Federal grants or loans, and
the pressing need of rapidly satisfying federal and state requirements, the
Company believes that a significant number of these facilities can be expected
to be privately owned.
THE ENVIRONMENT FOR COMPOSTING IN NEW JERSEY
In 1993, the New Jersey Department of Environmental Protection
("NJDEP"),issued two comprehensive plans governing the strategy for managing New
Jersey's waste through the year 2003. These plans, the "Statewide Sludge
Management Plan Update", and the "Solid Waste Management State Plan Update
1993-2002", together with Governor Whitman's current updates, are addressing the
major problems in the waste industry in New Jersey. As a result, significant new
business opportunities, principally in the area of recycling and composting,
have developed. Important highlights of these plans include the following:
* The state must recycle sixty percent of its total waste stream and fifty
percent of its municipal waste stream by December 31, 1995. Through
calendar year 1993, the State reported having achieved a 53% total waste
stream rate (including construction debris and junked cars) and a 40%
municipal waste stream rate.
* New Jersey must cease all waste exports and become one hundred percent self
sufficient by December 31, 1999. Over the past seven years, new in-state
capacity and increased recycling have reduced exports from four million to
two million tons per year.
* Sixty-one percent of New Jersey's sewage and two million tons per year of
solid waste which is now exported to other states must be recycled,
beneficially reused or disposed of within the state by December 31, 1999.
* Composting is promoted; new incinerators are discouraged.
* One hundred sixty-eight landfills which have been closed must be
re-vegetated. Over 400 additional sites which closed prior to the State's
Sanitary Landfill Closure Statute being passed also may require
re-vegetation in the future.
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* Source separated food wastes are now exempt from county waste control
regulations.
* Leaves are banned from landfill disposal or incineration statewide and
grass is a prohibited waste type for acceptance in some State issued
incinerator permits.
The implementation of these policies, along with the enactment of
complementary legislation, has created a fertile environment for the development
of in-vessel composting plants. Therefore the Company has targeted three of its
first five facilities in the State of New Jersey. Additional elements of the
state's solid waste and sewage sludge management plans include the following:
Regionalization
The state has moved away from its previous approach which called for each
of the twenty-one counties (and one special district) to develop individual
plans for waste processing. Instead, the NJDEP is encouraging the development of
regional disposal facilities to serve more than one county. This sets the stage
for partnerships in the development of new source separated organics and MSW
composting facilities between counties which currently export waste, as well as
counties using landfills which wish to preserve capacity and counties which
incinerate and wish to reduce emissions (such as SO2 from grass) and improve Btu
values, which generally are diminished by high organic waste content.
County Solid Waste Plans
A requirement of New Jersey's solid waste plan is that each county must
submit a waste plan conforming to the objectives and requirements of the state
plan. The counties bear the primary responsibility for achieving self
sufficiency, recycling and source reduction goals established by the NJDEP. One
of the state's objectives is to manage organic wastes through composting.
Permitting Improvements
The NJDEP is involved in a comprehensive effort to streamline and improve
its overall permitting capabilities. The NJDEP recently announced a new food
waste permit which is simpler and less costly than previously required municipal
solid waste or sludge permits. The State also recently announced a program to
pursue "performance partnership agreements" where traditional operational
requirements are maintained, but programs for advanced environmental protection
will be voluntary, selected by facility owner/operators and memorialized in
consent agreements entered with the State. The benefit of entering such
agreements will be reduced bureaucratic requirements and reduced reporting and
inspection which will bring compliance costs down for the Company's planned New
Jersey facilities.
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Promoting The Development Of The Compost Industry
As a follow up to the development of the solid waste and sludge management
plans, New Jersey's governor issued Executive Order No. 91 in October 1993,
requiring state agencies to purchase recycled products. Specifically, all state
agencies must now utilize compost and soil amendments made from organic
materials in maintenance, landscaping and construction of public lands or
projects. These products shall be used in lieu of other non-recycled products
(i.e., farm topsoil, peat moss and chemical fertilizers). The purpose of this
legislation is to create new high volume end markets for compost, a product made
from recycled materials, so that more private compost facilities will be built.
Waste Hierarchy
The state's solid waste plan is based upon a hierarchy of waste handling
and disposal methods. The waste hierarchy, in order of priority, is as follows:
* Source reduction;
* Source separation and recycling;
* Composting of source separated waste;
* Materials recovery systems;
* Solid waste composting;
* In-state landfilling and regional incineration;
* Out-of-the-state landfilling (as a short-term measure only).
The economic, regulatory and legislative environments in New Jersey have
quickly evolved to create a favorable environment for the development of
in-vessel compost plants in the state. In order for the state to achieve its
recycling and waste self-sufficiency goals, the more than $300 million dollars
per year that is presently spent on disposing of waste out of state must be
re-channeled into recycling before the end of the decade. Given that statewide
mandatory recycling has already been in effect in New Jersey for over eight
years, the only realistic way to achieve the state's recycling and
self-sufficiency goals is through source separated organic waste composting.
Other Key Factors Supporting the Company's Plans for New Jersey
In addition to the policy framework outlined above which is supportive of
developing in-vessel composting systems, a number of other key factors reinforce
the Company's initial efforts to focus on project development in the State of
New Jersey.
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* Source Separated Organic material is considered a "recyclable commodity" in
New Jersey if destined for composting. It is therefore exempt from "flow
control" and can move as a "product in commerce."
* New Jersey has had mandatory recycling in place for eight years and has
achieved a 40% MSW recycling rate. These advanced recycling programs in
each town already have removed a large percentage of inorganic material,
such as glass, aluminum, tin and bimetal cans, and plastics, thereby
creating cleaner organic waste streams.
* In terms of pricing, New Jersey has some of the highest tipping fees in the
United States, particularly in the northeastern part of the State
surrounding the Newark project site. The average tipping fee for commercial
landfill, incineration and transfer station facilities in the immediate
area of the Newark facility is nearly $102 per ton.
* From a disposal standpoint, only three facilities exist in the entire
northeastern region of the State; two mass burn incinerators and one
landfill. The landfill has less than one year of remaining capacity and
virtually no chance of being expanded. All other MSW is exported to
out-of-state landfills through expensive transfer station operations.
* The are no new disposal facilities in the development, planning or
construction stage in all of New Jersey other than those of the Company.
* Distances to major commercial out-of-state disposal facilities are
significant from most of New Jersey, and especially from its northeastern
area. For example, distances from Newark to Waste Management Inc.'s GROWS
and Tulleytown Landfills in Lower Bucks County, Pennsylvania are about 120
miles round trip, and the distance to the Empire Landfill in Taylor,
Pennsylvania is about 200 miles round trip. Since distances to commercial
out-of-state disposal facilities are too great for direct haul
transportation from the northeastern region, the use of expensive transfer
stations presently is required.
* Should waste flow regulations be eliminated, the nearest out-of-state
disposal facilities may be heavily used beyond permitted and logistical
capabilities leading to long lines, time delay and heightened regulatory
scrutiny by state and local enforcement agencies. Solid waste haulers are
primarily in the "collection" industry. Being able to move quickly in and
out of the Company's Newark facility will be of great utility to these
haulers, for whom "time is money."
* Should waste flow regulations be eliminated, demand for the
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use of out-of-state landfills will increase, no doubt leading to an
increase in their tipping fees. These higher tipping fees will be supported
by the baseline requirements of the U.S.E.P.A.'s Part 258 landfill
requirements
* Should "Economic Flow Control" strategies be implemented, rates will be
market based and should stay in the range of $70 to $80 per ton.
* Most solid waste movement will be from northeastern New Jersey and New York
City to points west, bringing it past the Company's New Jersey facilities.
THE COMPANY'S RESPONSE
INTRODUCTION
With proven technologies and strategically located sites in Newark, New
Jersey, Chicago, Illinois and Miami, Florida, along with the possible
acquisition of existing operating companies, the Company believes that it is
poised to meet a significant portion of the organic recycling market demand.
The Company, directly and through its subsidiaries and affiliates, is in
the business of recycling organic wastes including the organic waste fraction of
MSW and sewage sludge, by converting them into compost and other soil products
which it plans to sell, through its Gardenlife Sales Company, Inc. subsidiary.
The process which the Company will employ is composting, or the controlled
decomposition of organic matter into humus (a component of soil). Like a
landfill or an incinerator operator, the Company will be paid to accept waste
from the generators of organic materials. In selected markets, like New Jersey,
Illinois and Florida, the Company believes that the opportunity to create a
profitable business based upon the efficiencies of receiving and processing
large volumes of organic waste into compost is significant.
TEAMING
While each of the Company's composting facilities will be owned and
operated through a different Company subsidiary, the various projects will be
designed, engineered, constructed and, once "on-line", operated by "teaming
partners", non-affiliated entities who are proven leaders in their own core
competencies. These strategic teaming partners either already have executed
teaming agreements with the Company, or will do so shortly. The Company intends
to use the same teaming partners as it develops its in-vessel composting
facilities throughout the United States. The efforts of all project teaming
partners are coordinated through the
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Company, and all technology development, siting, permitting, waste procurement,
financing and compost marketing will be done by the Company itself "in house."
The Company's principal teaming partners are their core competencies are:
Engineering, Procurement and Construction - Black & Veatch
Operations - Professional Services Group
Construction - VRH Construction Corp.
Financing - Paine Webber Inc.
Feasibility Consultant - R. W. Beck
Composting Facility Consultant - Robert Tardy & Associates
Biosolids Land Application & Composting - Potomac Industries, Inc.
BLACK & VEATCH. Established in 1915, Black & Veatch has evolved into one of the
largest and most respected engineering and construction companies in the world.
With more than 4,800 professionals and 45 offices around the world, the firm is
constantly ranked among the top 10 firms in various design and construction
categories according to leading environmental and construction industry
publications. Black & Veatch Environmental Enterprises provides turnkey services
- - project development, engineering, financing, procurement, construction and
operation services - and program/construction management for public and private
sector environmental projects. Black & Veatch will serve as the Engineering,
Procurement and Construction contractor for the Company's projects and will
provide a seamless transition to Professional Services Group for the actual
operation of the facility.
PROFESSIONAL SERVICES GROUP. Professional Services Group ("PSG") is the nation's
leading operator of municipal wastewater treatment facilities. PSG is a
subsidiary of Air & Water Technologies ("AWT"), which itself is controlled by
Compagnie Generale des Eaux ("CGE"), the world's largest municipal services
company will revenues in excess of $30 billion. PSG has extensive experience in
the operation of composting facilities, currently operating biosolids and/or
municipal solid waste composting facilities in Baltimore, Maryland; Schenectady,
New York; Bristol, Tennessee/Virginia; Hickory, North Carolina; Southbridge,
Massachusetts; and Wright County, Minnesota. PSG will operate the Company's
composting facilities.
VRH CONSTRUCTION. VRH Construction is one of the nation's top 200 construction
management companies. It has participated in managing large projects at La
Guardia, Kennedy and Newark airports. The Port Authority of New York and New
Jersey is a major and steady client as are all the major airlines which provide
services at these various airports.
PAINE WEBBER, INC. Paine Webber, Inc. is a leading full-service
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firm with a distinguished 115-year history. Paine Webber has an internationally
recognized corporate brand name and a strong reputation for quality client
service. Paine Webber serves the investment and capital needs of over two
million clients, including individuals, institutions, corporations, state and
local governments and public agencies in the United States and abroad. Among the
firm's key businesses are private client brokerage, investment banking,
municipal securities, real estate, institutional equity and fixed income sales
and trading, research, international asset management and transaction services.
Paine Webber will serve as senior underwriter and financial advisor for all of
the Company's projects and has executed an exclusive Master Letter Agreement to
perform this function.
R. W. BECK. R. W. Beck's Solid Waste Practice provides a complete range of
services in the fields of engineering, planning, management, economics,
environmental analysis and operations analysis. The Solid Waste Practice works
with all types of solid waste systems including landfills, incinerators,
recycling systems, material recovery facilities and refuse derived fuel plants.
This diverse range of knowledge and skills makes R. W. Beck particularly expert
in evaluating composting systems within a complete solid waste management
overview. R. W. Beck has 12 offices and over 650 employees nationwide.
ROBERT TARDY & ASSOCIATES. The principal of Robert Tardy & Associates, Robert
Tardy, is a nationally recognized expert in compost facility design. Mr. Tardy
directed all aspects of The Composting Council's Operating Guide, which has
become a composting industry standard. Mr. Tardy has eleven years experience in
biosolids management and has been engaged as a technical consultant for the
Newark composting facility.
POTOMAC TECHNOLOGIES, INC. Potomac Technologies, Inc. ("PTI") has successfully
performed many contracts related to the operation, maintenance and construction
of wastewater treatment facilities. PTI maintains the distinction of being one
of the only minority -owned entities in the United States engaged in the
business of managing biosolids. From 1984 to 1991, PTI successfully performed
the composting of biosolids for the city of Washington, D.C. and presently is a
subcontractor to a joint venture under contract with the District of Columbia to
beneficially use approximately 1,000 wet tons per day of biosolids through land
application. PTI is a 25% equity partner in the Company's Newark project.
DESCRIPTION OF COMPOSTING TECHNOLOGY USED BY THE COMPANY
The Company has licensed or contracted for three patented technologies, one
of which already has been permitted by the NJDEP. These three technologies will
be provided to the Company through agreements with Bedminster Bio Conversion
Corporation, D.J. Egarian
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and Associates and Compost Industries, LLC. The Company's facilities will be
similar to operating sites in Europe and the United States. See "Process
Description" below. A typical Company facility will convert approximately 300 to
700 tons per day of organic waste materials including MSW and/or sewage sludge
into compost.
PROCESS DESCRIPTION
There are four stages to the composting process:
(1) The first stage involves the receipt of the incoming organic waste
materials. Trucks entering the site will be weighed at a scale and will unload
the materials indoors onto a "tipping floor." The waste material will be
inspected and accepted. (Any unacceptable materials will either be immediately
removed by the trucker, or will be deposited into an on-site container for later
removal.)
(2) Stage two involves mixing the organic materials and commencing the
composting process. The material received will be loaded into rotary mixing
drums, called "Bio Wet Mills" 12 feet or greater in diameter and between 100 and
220 feet long, where it will be processed for 12 to 72 hours under precise
controls. The rotary action of the drums causes the heterogenous and varied
carbonaceous and nitrogenous organic waste material to be reduced in size to
less than one inch while homogenizing the entire mix. When the desired
characteristics have been reached, this thoroughly mixed and partially
decomposed material will be discharged from the mixing drums and screened to
remove any remaining large and/or inert items. These removed inert materials
will be placed in a container for recycling or offsite disposal.
(3) In stage three, the screened homogenized organic material will be
placed in an aerated composting/curing system for up to 90 days, during which
time the material will be agitated and processed through biological activity.
Temperature, oxygen and moisture monitors connected to a computerized monitoring
system will indicate when water and/or air needs to be added in order to
maximize the rate of biological activity (i.e., the composting process). When
the desired compost characteristics are reached, the cured compost will be
removed.
(4) During the final stage, the compost will be processed through
multiple 3/8 inch screens and placed into storage. There will be up to 90 days
of final storage capacity at each facility or at satellite storage and blending
sites.
The objective of composting indoors in a controlled environment is to
optimize the processing time to convert the organic waste into compost. Another
objective is to maximize the volume processed for a given capital cost (which in
turn minimizes
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the capital cost per ton). A key to accomplishing these goals is to monitor and
control the composting process through the entire system. Incoming waste
materials are mixed to achieve the desired carbon to nitrogen content, moisture
level, pH, and material sizing. From the time decomposition starts in the Bio
Wet Mills to when it ends in curing area, these and other process parameters are
continuously measured. The process variables which will be controlled so that
composting occurs at the fastest possible rate are: (a) the moisture content,
(b) the oxygen level, (c) the frequency of agitation (or turning of the
material), (d)temperature, (e) pH and (f) C/N ratio and (g) particle size. The
Professional Services Group facility operator will be responsible for managing
the facilities and monitoring the computerized control system to achieve optimal
performance.
ODOR CONTROL
An important aspect of the facility's design is its odor control system.
The Company's plants will be completely enclosed, with doors opened only to
accept deliveries of organic waste materials and to ship finished compost. Each
facility will be under negative air pressure, meaning that air will be drawn
into the plant when the doors are opened. Process air within the facility will
be processed through a chemical filter and/or a bio-filter system, resulting in
the emission of only clean air, water vapor and carbon dioxide into the
atmosphere. The facilities are being designed so that there will be no negative
off-site impact generated by the composting facility.
TRANSPORTATION IMPACT
All of the Company's sites are easily accessible from major state highways
and each will have sufficient on-site queuing to manage movement of in and
out-bound trucks. As a result, the transportation impact on the local business
communities will be minimal.
NOISE
All composting operations will be within enclosed structures and the
operations will not generate excessive levels of noise, thus not adversely
impacting surrounding property owners. Noise levels will be within all State and
Federal noise parameters. Primary sources of noise will be trucks accessing the
site, the rotary drum motors and front end loaders which operate inside the
buildings. As a result, any impact from noise generated from the operations will
be minimal. Facilities will be located in industrial areas or on sites away from
residential areas.
COMPOST MARKETING
Certain of the Company's principals were actively engaged in
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the marketing of compost in New Jersey and Pennsylvania in the 1980's and early
1990's. They contracted with various municipalities, including the City of
Philadelphia, Washington, D.C., and others, to market the compost produced at
the municipalities' sewage sludge composting facilities. The marketing
activities included performing research studies with agricultural departments in
leading universities, developing compost markets, and managing all aspects of
the transportation and application of the finished products.
All of the compost will be marketed under the GARDENLIFE or TURFLIFE
tradenames. Compost and blend products made with compost, such as topsoil, will
be sold by Garden Life Sales Company, Inc. in combination with local landscape
supply companies. Garden Life Sales Company, Inc. has developed a variety of
markets for selling compost and blend products. Some of these users will include
landscapers, growers, greenhouses, sod farms, golf courses,
municipalities,schools and others.
At present, Garden Life Sales Company, Inc. has had some of its product
line certified and approved by NOFA-NJ, the association of organic farmers in
New Jersey.
PROJECT DESCRIPTIONS
NEWARK PROJECT
Newark Recycling and Composting Company, Inc., owned 75% by CANJ and 25% by
PTI, is developing a 1200 ton per day in-vessel composting facility located on a
12 acre site in the East Ward of Newark, New Jersey, at the convergence of
Routes 78, 1, 9 and the New Jersey Turnpike. The plant is designed to compost
sewage sludge from any one or a combination of sludge generators from the New
Jersey/New York metropolitan area while utilizing source separated
food/paper/wood wastes as the bulking agent. The plant also is permitted to
dewater liquid sludge which may be provided from municipal and commercial
wastewater plants located in New Jersey. The City of Newark granted preliminary
approval to build the facility on November 21, 1994 and final site plan approval
on January 30, 1995. Final design drawings and plans have been submitted to the
NJDEP. NJDEP air permits have been received, and notice of intent to issue
facility operating permits was issued on August 2, 1995.
A final R.W. Beck market demand and feasibility report is anticipated in
December, 1997, together with final cost estimates, a guaranteed maximum price
construction contract from Black and Veatch Construction Corporation and a
maximum price/minimum thruput operations, maintenance and management contract
from Professional Services Group. The managing underwriter for the project,
Paine Webber Incorporated, has advised the Company that it anticipates a closing
of approximately $75,000,000 in principal amount of project
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revenue bonds of the New Jersey Economic Development Authority in early 1998 to
finance this facility. Construction is anticipated to begin immediately
thereafter.
MIAMI PROJECT
The Company, through a subsidiary Miami Recycling and Composting
Company,Inc., acquired from Bedminster Bioconversion Corporation all of the
outstanding stock of its subsidiary Bedminster Seacor Services Miami
Corporation, a corporation developing a 150,000 ton per year MSW/sludge
co-composting project in northwestern Dade County. The project is based upon a
30 year put or pay contract between the City of Miami and Bedminster Seacor
Services Miami Corporation for the composting of all of its residential MSW. The
Company also purchased a 45 acre acceptable site which has zoning and state
approvals to construct the facility. The Dade County Industrial Development
Authority has authorized the issuance of up to $15,000,000 of tax exempt bonds
to finance the project and authorization for additional funds is being sought.
CHICAGO PROJECT
Chicago Recycling Company, Inc., a wholly owned subsidiary of the Company,
is developing an in-vessel composting facility for source separated organic
waste and sewage sludge on a site adjacent to a new materials recovery facility
and MSW transfer station, both under construction. The Company has entered into
an agreement to purchase the site for which all local approvals have been
received and applications for required State of Illinois permits were
submitted,with the state permit issued in December 1995. Although financing
arrangements have not been completed, the Company anticipates financing the
project through the issuance of tax-exempt municipal bonds by the local
industrial development
authority.
GLOUCESTER PROJECT
Gloucester Recycling and Composting Company, Inc., a wholly owned
subsidiary of the Company, together with Compost Industries, LLC, Professional
Services Group, Inc., Tardy and Associates and others have organized a
composting project to demonstrate the collection and composting of source
separated organic wastes from residential and commercial sources in an urban
setting. Compostable wastes will be collected from selected neighborhoods in
Gloucester City and from commercial establishments with compostable wastestreams
that service the same area. Waste providers will include supermarkets,fast food
restaurants, convenience stores and other organic waste generators. The organic
wastes will be composted by the Company using a new patented in-vessel
composting system which the Company has licensed from Compost Industries, LLC.
Compost from the demonstration project will be tested and analyzed
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for safety, nutrient content and physical characteristics.
Upon the successful operation of this Demonstration Project, the Company
plans to seek approval to construct a food/fiber waste composting facility at
the same site. The materials to be processed will come from surrounding New
Jersey counties as well as from Philadelphia. The Company anticipates that all
required local approvals will be obtained by the first quarter of 1998. The
Company signed a thirty year lease/purchase agreement with the City of
Gloucester to purchase the property owned by the City.
MONMOUTH PROJECT
Monmouth Recycling and Composting Co., a wholly owned subsidiary of the
Company, has entered into a purchase option agreement on 15 acres in Freehold
Township, Monmouth County, New Jersey. The property is adjacent to a permitted
outdoor windrow composting facility which the Company had signed an agreement,
amended various times, to purchase by June 30, 1996, and did purchase in October
1996. The outdoor facility is permitted to compost up to 50,000 tons per year of
supermarket produce waste and yard wastes. The Company had intended to merge
these two facilities, and may attempt to revive the agreement if the
environmental concerns are satisfactorily resolved.
COMPANY FINANCING
The ability of the Company to successfully complete these projects is
dependent upon, among other factors, continued Company financing to cover
Company overhead, the completion of project financing to cover the costs of
project construction and the acquisition of all applicable permits to allow for
the construction and operation of the projects.
PROJECT FINANCING
On February 13, 1996 the Company entered into an agreement (the "Master
Letter Agreement") with Paine Webber Incorporated ("Paine Webber") pursuant to
which Paine Webber agreed to act as sole financial advisor and senior managing
underwriter for the Company's projects. On that same date the Company's 75%owned
subsidiary, Newark Recycling & Composting Co., Inc. ("NRCC") entered into an
agreement (the "Newark Project Letter Agreement") with Paine Webber pursuant to
which Paine Webber agreed to act as sole financial advisor and senior managing
underwriter for NRCC to raise approximately $75 million in a senior-lien tax
exempt bond financing to finance the Newark Project. On that same date the
Company's wholly-owned subsidiary, Monmouth Recycling & Composting Co.,
Inc.("MRCC") entered into an agreement (the "Monmouth Project Letter Addendum")
with Paine Webber pursuant to which Paine Webber agreed to act as sole financial
advisor and sole managing underwriter to raise up to $30 million in a
senior-lien tax-exempt
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bond financing to finance the Monmouth Project. Paine Webber will act
exclusively on behalf of the Company in those geographic areas where the Company
intends to operate composting facilities. All agreements with Paine Webber are
subject to certain terms and conditions as set forth therein.
Paine Webber anticipates a closing of approximately $75 million for the
Newark Project in early 1998, making funds available for the commencement of
construction for this Project immediately thereafter. In addition, Paine Webber
anticipates a closing of approximately $50 million for the Miami Project in the
last quarter of 1997, making funds available for the commencement of
construction for this Project immediately thereafter. Without this project
financing, the Company will be unable to construct or operate these proposed
facilities, and the Company's future viability would be in doubt.
FACILITIES SITINGS AND PERMITS
Most aspects of location, construction and operation of composting
facilities are regulated by the states and subject to state and Federal
environmental laws. Obtaining local approvals and state air, water and operating
permits is a detailed and complex process, in many cases taking years to
successfully complete. This is especially true where the compost facility is to
be located in or near urban areas. Representative approvals to be obtained in
most jurisdictions include Local Planning Boards, Zoning Boards, Solid Waste and
Water Disposal Boards, Composting Operation Permits, Air Permits and Building
Permits.
THE COMPANY'S PERMITS
The Company believes that the permits it already has acquired, and its now
proven ability to acquire these permits, reflects the experience and expertise
of its management in this area, and provides the Company with an advantage over
possible competitors seeking to enter similar geographic markets. To date, the
Company has acquired or is in the process of acquiring the following permits for
each of its five projects:
NEWARK PROJECT
1. November 21, 1994--City of Newark grants preliminary approval to build
the facility
2. January 30, 1995--City of Newark grants final site plan approval to
build the facility
3. September 26, 1995--New Jersey Department of Environmental
Protection("NJDEP") issues air quality regulation permit controlling emission
limits
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4. October 16, 1995--Application for a Treatment Works Approval for liquid
sludge storage and treatment is filed with NJDEP, with approval anticipated in
June 1996
5. October 25, 1995--NJDEP Division of Water Quality issues a New Jersey
Pollutant Discharge Elimination System permit for a 680 ton per day facility.
This permit controls the dewatering, lime stabilization, storage,
transfer,composting and distribution of sludge and organic bulking agent.
6. November 27, 1995--City of Newark Department of Engineering issues a
Soil Erosion and Sediment Control permit.
7. February 26, 1996--Company notified that Final Construction Approval has
been authorized by the City of Newark.
8. August 6 1996--Treatment Works Approval issued.
9. December 26, 1996--Essex County Solid Waste Plan approval to process up
to 1,200 TPD authorized (issued December 30, 1996)
10. January 1997--Remedial Action Workplan for site completed. Approval for
remediation issued by NJDEP Division of Responsible Party Site Remediation on
June 11, 1997.
11. February 1997--Phase I Environmental Audit completed. State of New
Jersey recommends no further action needed.
12. April 1, 1997--Air Quality Permit Modification issued to allow the
processing of 1200 TPD.
13. April 29, 1997--Stream Encroachment Waiver issued.
14. June 4, 1997--Authorization for Freshwater Wetlands Statewide General
Permit issued.
15. June 4, 1997--Facility accepted in the State of New Jersey Solid Waste
Plan for up to 1200 TPD.
GLOUCESTER PROJECT
1. September 1, 1994--NJDEP Division of Solid Waste Management issues a
Demonstration Project Approval for a 10-ton per day in-vessel facility to
compost source separated organic waste, vegetative and food processing waste and
NJDEP Air Pollution Control Program issues a Temporary Certificate to Operate
Control Apparatus permit to demonstrate the feasibility of collecting and
composting source separated organic wastes from residential and commercial
sources.
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CHICAGO PROJECT
1. All local approvals to operate and construct received from Village of
Riverdale, Illinois.
2. December 1, 1995--Illinois Environmental Protection Agency, Bureau of
Land, issues a construction and development permit for a facility to compost 350
tons per day of source separated organics and sewage sludge.
3. January 14, 1997 --Village of Riverdale approved the Host Community
Agreement and Real Estate Tax Abatement resolution. The Village of Riverdale
Engineer previously had approved the site infrastructure plans.
MIAMI PROJECT
1. County zoning approvals to construct 285,000 ton per year MSW/sludge
co-composting project in western Dade County have been received.
2. A state composting permit has been received.
In addition, the Company believes that it will benefit from the Interstate
Memorandum of Understanding under which the states of New Jersey, California,
Illinois and Massachusetts have signed a reciprocal technology transfer
agreement whereby the states will mutually accept support data and the results
of demonstrations, evaluations and certifications of environmental technologies
that are conducted by the other member state environmental agencies. Once fully
established, this process should greatly reduce the Company's permitting
timeframes and application submission costs since it already has obtained
benchmark permits in New Jersey and Illinois.
EMPLOYEES
The Company presently employs a total of 8 persons, one is an officer of
the Company, 2 of whom are administrative personnel and 5 of whom are involved
in project development. None of the Company's employees are subject to
collective bargaining agreements and the Company has not experienced any labor
difficulties, work stoppages or strikes.
ITEM 2.
DESCRIPTION OF PROPERTY
The Company maintains its executive, finance and accounting offices at 320
Grand Avenue, Englewood, New Jersey rent-free within the offices VRH through
March 31, 1996 and thereafter at $4,000 per month for five years, plus real
estate taxes and electricity over
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the base year.
In December 1995 Newark Recycling and Composting Company, Inc. purchased a
12 acre site in the East Ward of Newark, New Jersey at the convergence of Routes
78, 1, 9 and the New Jersey Turnpike on which the Newark project will be
located.
On March 29, 1996 the Company purchased 45 acres in northwest Dade County,
Florida. The Company has entered into an option agreement to purchase the
properties for its projects in Chicago, Illinois and Monmouth County, New
Jersey. The Company has executed a lease/purchase agreement for the required
site for the Gloucester, New Jersey project from the City of Gloucester.
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.
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 (See Note 7(C)(1) of Notes to
Consolidated Financial Statements).
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.
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ITEM 3.
LEGAL PROCEEDINGS
There are no material legal proceedings in which the Company is involved
except that, in 1997, an action was commenced by Praxair, Inc. and Praxair
Foundation in Superior Court of New Jersey, Essex County, Law Division, against
Newark Recycling and Composting Company, Inc. seeking payment in full of a
$2,100,000 note and mortgage, as well as unpaid interest, expenses and
attorney's fees and, in a second action, commenced by the same plaintiffs in
Superior Court of New Jersey, Essex County, Chancery Division, seeking to
foreclose on the property on which the Newark Project would be developed, which
property is collateral for the note. The Company is seeking to refinance this
note and mortgage, and believes that by making certain payments on account,
these actions will be held in abeyance pending this refinancing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares of Common Stock presently are being traded on the
Electronic Bulletin Board of the NASD under the symbol "CAHC", and also are
listed in the "pink sheets" of the National Quotation Bureau, Inc. The following
table shows, for the calendar periods indicated, the range of reported high and
low bid quotations for these shares. Such prices necessarily reflect inter
dealer prices, without retail mark up, mark down or commission and may not
necessarily represent actual transactions.
There were no recorded bids for the common shares of Alcor during the
period May 1, 1993 through October 31, 1994, and no recorded bids or offers for
the common shares of Alcor or the Company during the period November 1, 1994
through April 28, 1995. Furthermore, the Company has outstanding only 199,500
freely tradable common shares prior to the effective date of this offering. On
November 28, 1994 Alcor effected a 1 for 20 reverse split of the shares of its
Common Stock.
Quarterly Common Stock Price Range
High Bid Low Bid
---------- ----------
1994/1995:
Quarter ended 7/31.............. no bid no bid
Quarter ended 10/31............. no bid no bid
Quarter ended 1/31.............. unpriced unpriced
Quarter ended 4/30.............. unpriced unpriced
1995/1996:
Quarter ended 7/31.............. $6.00 $4.00
Quarter ended 10/31............. $6.50 $5.50
Quarter ended 1/31.............. $6.50 $5.75
Quarter ended 4/30............... $6.00 $4.75
1996/1997:
Quarter ended 7/31............ $5.50 $4.38
Quarter ended 10/31............. $5.25 $4.13
Quarter ended 1/31............ $5.00 $3.13
Quarter ended 4/30............ $3.88 $1.72
As of July 31, 1997, there were approximately 360 holders of record of the
shares of the Company's Common Stock.
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To date, the Company has not paid any cash or other dividends on its Common
Stock and does not anticipate paying dividends in the foreseeable future.
Moreover, the Company's ability to pay dividends on its Common Stock in the
future may be limited by future preferred stock issuances or by lenders.
During the fiscal quarter ended April 30, 1997, the Company issued 282,434
shares of its common stock, without registering the securities under the
Securities Act of 1933, as amended, to 12 individuals for services rendered
valued at $0.50 per share. There were no underwriters involved in the
transaction, and no underwriting discounts or commissions. In light of the small
number of purchasers 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. A complete listing of all issuances of unregistered
common shares by the Company during its fiscal year ended April 30, 1997 may be
found in Notes to Consolidated Financial Statements, Note 5, AA through TT.
ITEM 6. PLAN OF OPERATION
Introduction
The Company is a "development stage" company and has not generated
significant operating revenues from its inception to date. The Company does not
expect to generate any significant operating revenues until the Company has
successfully financed, constructed and begun commercial operations of one or
more of its compost project facilities currently in development. Since a merger
between a "public shell" and a "private operating company" is considered to be a
recapitalization of the operating company, with no recognition of intangibles as
a result of the merger, the acquisition of the Company's subsidiary, Compost
America Company of New Jersey, Ltd. (the "private operating company"), on
January 23, 1995, has been accounted for as a reverse purchase of the assets and
liabilities of the Company by Compost America Company of New Jersey, Ltd.
Accordingly, the consolidated financial statements represent assets, liabilities
and operations of only Compost America Company of New Jersey, Ltd. prior to
January 23, 1995 and the combined assets, liabilities and operations of both
companies for the ensuing period. The financial statements reflect the purchase
of the stock of Alcor Energy and Recycling Systems, Inc. (the "public shell"),
the former name of Compost America Holding Company, Inc., by Compost America
Company of New Jersey, Ltd. for stock and the assumption of liabilities of
$49,094, this amount being the historical cost of the assets and liabilities
acquired. All significant inter-company profits and losses from transactions
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have been eliminated.
Since its inception, the Company has met its liquidity needs from the
proceeds of the sale of its common stock and from loans made by directors of the
Company, by VRH Construction Corporation, a principal shareholder of the Company
whose owners are directors of the Company, and by other individuals and
institutions not affiliated with the Company. The Company received $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 April 30, 1997, the Company has raised an
additional $737,154 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 April
30, 1997, VRH Construction Corporation has loaned an additional $555,167 to the
Company. Other loans to the Company since April 30, 1996 through April 30, 1997
have totalled $1,885,800.
Total funds raised from the sale of common shares and loans from
shareholders from December 1993 through April 30, 1996 are $6,473,457, plus an
additional $3,178,121 since April 30, 1996 through April 30, 1997.
Significant revenues from operations are not anticipated until 1999, when
the Company's initial projects will be fully constructed and operational. Until
that time, the Company anticipates that it will need an additional $3,000,000 to
meet current debt obligations, provide additional development capital for its
various projects and fund ongoing corporate overhead expenses. The Company
anticipates that it will be able to secure these funds from the sale of
additional common shares and/or the issuance of additional debt. In addition,
the Company expects to have completed project financing for the construction of
the Company's facilities in Miami, Florida and Newark, New Jersey prior to the
end of the current fiscal year and the Company may receive development fees and
management fees in connection with this project financing.
The Company does not expect to perform any significant product research and
development and does not expect any significant changes in the number of
employees in the current fiscal year. The Company does expect to commence
construction of its Miami, Florida and Newark, New Jersey composting facilities
during the current fiscal year, and, financing and weather permitting, may also
commence construction of its Chicago facility.
28
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
(a) Consolidated Balance Sheet as at April 30, 1997
(b) Consolidated Statement of Income (Loss) for the fiscal years ended
April 30, 1997, April 30, 1996 and December 17, 1993 (inception) through
April 30, 1997
(c) Consolidated Statement of Stockholders' Equity from December 17, 1993
(inception) through April 30, 1997
(d) Consolidated Statement of Cash Flows for the fiscal years ended April 30,
1997, April 30, 1996 and December 17, 1993 (inception) through April 30,
1997
(e) Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 10, 1995 Zeller Weiss & Kahn, CPAs replaced Rosen Seymour Shapss
Martin & Company, CPAs as accountants for CANJ by mutual agreement between
CANJ's Board of Directors and the resigning accountants. No report on CANJ's
financial statements issued by the resigning accountants contained an adverse
opinion or disclaimer of opinion or was qualified or modified as to uncertainty,
audit scope or accounting principles, nor were their any disagreements on any
matter of accounting principals or practices, financial statement disclosure or
auditing scope or procedure.
29
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
The following persons were directors and officers of the Company as at July
31, 1997.
Name Age Position(s)
- ------------------------- ----------- ------------------------
Victor D. Wortmann, Sr. 60 Chairman of the Board;
Director
Roger E. Tuttle 57 President and
Principal Executive
and Financial
Officer; Director
John B. Fetter 46 Executive Vice Presi-
dent; Treasurer;
Director
Alfred A. Rattie 43 Vice President--
Marketing
Robert E. Wortmann 58 Secretary; Director
Pasquale J. Dileo 45 Director
The by-laws provide that the Directors of the Company serve until the next
annual meeting of shareholders and until their successors are duly appointed and
qualified. All officers serve at the pleasure of the Board of Directors. There
are at present no committees of the board of directors.
Victor D. Wortmann, Sr. is a Director and Chairman of the Board. He has
been Chairman since January 1994. He is the President of VRH Construction
Corporation ("VRH") which, along with his brother Robert E. Wortmann, he founded
in 1958. VRH specializes in facility construction at airports and supporting
services. Mr. Wortmann is the principal in charge of all phases of the
construction business for VRH. He has been the project executive for numerous
projects including terminal construction and expansions at JFK International
Airport in New York for American Airlines, Alitalia, British Airways, Eastern
Airlines, Flying Tigers, Northwest Airlines, Pan American and TWA. Mr. Wortmann
is a graduate of the University of Miami, School of Business (B.A. 1959). He is
an unsalaried part time employee of the Company.
Roger E. Tuttle is the Company's President, Chief Executive and Financial
Officer and a Director, and was its founder. He has twelve years experience in
compost research and in developing
30
<PAGE>
marketing programs for the beneficial use of compost, serving as the President
for Earthlife Sales Co. from 1988 through March 1990, President of Bird Compost
Management, Inc. from April 1990 through March 1992 and of Compost Management,
Inc. from March 1992 until it was merged into the Company. Mr. Tuttle was a
founding board member of the Composting Council in Washington, D.C., the
industry trade association. He is a member of the New Jersey Department of
Environmental Protection sludge management task force, responsible for
developing a statewide sludge management plan, is a contributor
to the United States Environmental Protection Agency research on beneficial use
of organic waste.
Mr. Tuttle has conducted research and developed utilization plans for City
and State Governments on compost quality and use. He has consulted on plant
growth in compost, and has conducted research on mass balances of different
composting configurations. Mr. Tuttle has consulted on the startup of several
in-vessel composting facilities, has conducted a review of active and closed
compost facilities in the United States and has participated in the design and
implementation of programs for compost use for the revegetation of landfills and
strip mines. He is a nationally recognized speaker and has authored or
co-authored manuals and literature for use in the compost industry. Mr. Tuttle
is a graduate of Fairleigh Dickinson University (B.A. Economics,
Chemistry/Biology--1963 and M.B.A.--1969).
John B. Fetter is the Company's Executive Vice President and Treasurer, and
is a Director, and has been affiliated with the Company since April 1992. He is
a co-founder of Chicago Recycling Company, subsequently acquired by the Company,
and has more than 20 years experience in engineering, construction management
and project development. In September 1991, he founded Foundation Systems, Inc.
("FSI"), an organization specializing in developing energy and environmental
projects and implementing energy strategy and strategic management programs for
client organizations, and has served as FSI's president since its founding. At
FSI he has consulted to the boards of municipal agencies as well as Fortune 500
companies across the United States on the integration of engineering and
economics into the design and construction of complex projects. From January
1985 through August 1991 he served as senior consultant, manager and later a
partner of Delian Corp. and its successor companies, and led the team which
developed the study which resulted in the construction of the Midland
Cogeneration Venture, the largest co-generation project in the United States.
Mr. Fetter has consulted on numerous environmental projects on topics
ranging from compliance strategies to environmental impact statements. He has
significant experience in financial, legal, and operational analyses, strategic
planning, project management, and systems implementation. He has developed state
of the art computer applications for management of engineering, environmental
31
<PAGE>
compliance, transportation, construction, marketing and distribution
organizations. Mr. Fetter's extensive environmental background has included
management of environmental compliance projects for several firms and sites
requiring definition of policies and procedures for implementing CERCLA, RCRA,
and SARA legislation for manufacturing, process, and petrochemical facilities.
He has participated in the development of cogeneration and energy projects as
well as solid waste management projects. He has been responsible for planning,
scheduling, cost control and contract administration of construction projects
ranging from wastewater treatment facilities to nuclear generating facilities.
Mr. Fetter is a graduate of the University of Colorado (B.S. Chemical
Engineering--1975) and The University of Pennsylvania's Wharton School of
Business (M.B.A.--1981).
Alfred A. Rattie, the Company's Vice-President of Marketing, is responsible
for directing the Company's compost marketing and land application efforts. He
has twelve years experience in compost research and in developing marketing
programs for the beneficial use of compost, serving as the Vice President for
Earthlife Sales Co. from 1988 through March 1990, Vice President of Bird Compost
Management, Inc. from April 1990 through March 1992 and of Compost Management,
Inc. from March 1992 until it was merged into the Company. Mr. Rattie is a
charter member of New Jersey SCORE (Statewide Committee for Organic Recycling
Education), the Governor's group formed to address the state's organic waste
supply problems. His expertise has allowed him to develop a working
relationship with the New Jersey Department of Environmental Policy as he has
permitted over 25 large compost use projects within the state. In addition, he
has co-authored technical literature on compost use and is a frequent speaker
concerning compost issues. Mr. Rattie is a graduate of Pennsylvania State
University (B.A.- 1975).
Robert E. Wortmann, the Company's Secretary and a Director, is the Vice
President of VRH Construction Corporation. He, along with his brother, Victor D.
Wortmann, Sr. founded VRH in 1958. He is the principal in charge of all
estimating, and has been the project executive on numerous projects including
the Delta Air Lines Terminal at La Guardia Airport, the People Express and
Continental Terminals at Newark International Airport, the Air France and Sabena
Terminals at JFK Airport, the Port Authority of New York and New Jersey
Maintenance Complex, the Northwest Airlines Maintenance Complex at La Guardia
Airport, and the current International Terminal at Newark Airport. Mr. Wortmann
is a graduate of the University of Miami, School of Engineering (B.S.C.E. 1961).
He spends approximately five hours per week on Company business, and receives no
compensation as either an officer or director of the Company.
Pasquale ("Pat") J. Dileo, a Director of the Company, has been the
President of Select Acquisitions, Inc., a diversified holding
32
<PAGE>
company, since 1993. From 1989 through 1993 he was the president of Tinton
Downs, Inc., a healthcare development company. Prior thereto, from 1988 through
1989, he was employed by Merrill Lynch Realty as Director of Commercial Real
Estate. He is a 1976 graduate of Trenton State College with a degree in
industrial arts
education.
ITEM 10.
EXECUTIVE COMPENSATION
(b) SUMMARY COMPENSATION TABLE
Name Annual Compensation All
and Fiscal Other Other
Principal Year Annual Compen-
Position Ended Salary Bonus Comp. Long-Term Comp. Sation
- -------- ----- ------ ----- ------ --------------- -------
Roger E. 4/30/97 $ 60,000 none none none none
Tuttle, 4/30/96 $ 60,000 none none none none
Pres. CEO 4/30/95 $ 60,000 none none none none
John B. 4/30/97 $ none none none none none
Fetter, 4/30/96 $ 10,000 none none none none
Vice-Pres. 4/30/95 $ 30,000 none none none none
Alfred A. 4/30/97 $60,000 none none none none
Rattie, 4/30/96 $60,000 none none none none
Vice-Pres. 4/30/95 $60,000 none none none none
Gary Son- 4/30/97 n/a n/a n/a n/a n/a
dermeyer, 4/30/96 $30,000 none none 250,000 shares none
Vice-Pres. 4/30/95 n/a n/a n/a n/a n/a
George S. 4/30/97 $ n/a n/a n/a n/a n/a
Chu, 4/30/96 $ 7,500 none none none none
Vice-Pres. 4/30/95 n/a n/a n/a n/a n/a
(c) OPTIONS/SAR GRANTS TABLE
Number of %age of
Shares Total
Under- Options
lying Granted
Options in Fiscal Exercise or Base Expiration
Name Granted Year Price per Share Date
- ---- ------- -------- -------------------------
R. Tuttle 1,000,000 35% $2.50 11/14/2000
J. Fetter none n/a n/a n/a
A. Rattie none n/a n/a n/a
G. S'meyer n/a n/a n/a n/a
G. Chu n/a n/a n/a n/a
33
<PAGE>
(d) AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUE TABLE
Number of
Shares Under Value of
Unexercised Unexercised
Shares Options at In-The-Money
Acquired Value Fy-end; All Options at
Name On Exerc. realized Exercisable Fy-end
- ------------ --------- -------- ------------- ------------
R. Tuttle none none 1,000,000 n/a
J. Fetter none none none n/a
A. Rattie none none none n/a
G. S'meyer none none none n/a
G. Chu none none none n/a
Note: The market price of the Registrant's common stock at the 4/30/97
fiscal year end was $2.25 per share.
(e) LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
None of the persons included in (b) above were covered by any plans.
(f) COMPENSATION OF DIRECTORS
No Director of the Registrant is compensated for serving as a director.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
None of the persons included in (b) above were covered by any employment
contracts, termination of employment or change-in-control arrangements other
than as set forth in the employment agreement set forth herein.
On May 10, 1996 the Company entered into an employment agreement with its
President, Roger E. Tuttle. His agreement provides for employment as the
Company's President through November 14, 2000 at an initial annual salary of
$225,000, with annual increases commensurate with the growth of the Company,
plus options to purchase 1,000,000 shares of the Company's common stock at $2.50
per share exercisable through November 14, 2000. In addition, he receives a
one-time bonus of $500,000 the first time that the Company attains sales of
$5,000,000 for any one quarter.
On November 16, 1996 Gary Sondermeyer resigned as a vice-president of the
Company and his employment agreement was
34
<PAGE>
terminated by mutual agreement. On December 1, 1996 George Chu resigned as a
vice-president of the Company. He did not have an employment agreement.
(h) REPORT ON REPRICING OF OPTIONS/SARS
None
ITEM 11.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has only one class of voting securities, its Common Stock, no
par value. As at July 31, 1997, the Company had 18,707,277 shares of its Common
Stock issued and outstanding. The following table sets forth certain information
with respect to each beneficial owner of five percent or more of the outstanding
shares of the Company's Common Stock, each officer and each director of the
Company and all officers and directors of the Company as a group.
Amount and
Nature of
Name and Address Benefits of Percent of
of Beneficial Owners (A) Ownership Class
- ------------------------ ----------- ----------
Pasquale J. Dileo 562,360(1) 3.0%
832 Bay Avenue
Toms River, NJ 08753
(Director)
John B. Fetter 2,748,610(2) 14.7%
820 Gatemore Road
Bryn Mawr, PA 19010
(Vice President, Trea-
surer, Director)
Alfred A. Rattie 595,000 3.2%
29 East Ridge Avenue
Sellersville, PA 18960
(Vice President)
Select Acquisitions, Inc. 423,360 2.3%
832 Bay Avenue
Toms River, NJ 08753
Roger E. Tuttle 4,407,105(4) 22.4%
3105 Gibson Lane
Doylestown, PA 18901
(President, CEO,
Director)
35
<PAGE>
Robert E. Wortmann 2,002,358(5) 10.5%
80 Knollwood Road
Upper Saddle River, NJ 07158
(Secretary, Director)
Victor D. Wortmann, Sr. 1,922,358(6) 10.1%
47 Mill Glen Road
Upper Saddle River, NJ 07158
(Director)
Officers and Directors As 11,832,933(7) 58.3%
As A Group (6 Persons)
- ---------------
* Less than 1%
(A) Unless otherwise indicated, each person named in the table exercises sole
voting and investment power with respect to all shares beneficially owned.
(1) Includes 139,000 shares owned directly by Mr. Dileo and 423,360 shares owned
by Select Acquisitions, Inc., of which Mr. Dileo is President.
(2) Includes 2,528,610 shares owned by John B. Fetter directly, 100,000 shares
owned by Marilyn S. Fetter, his wife and 120,000 shares owned by various trusts,
of which John B. Fetter is a trustee.
(4) Includes 2,333,509 shares owned by Roger E. Tuttle directly, 6,000 shares
owned by William Tuttle, his son and 100,000 shares owned by Elizabeth Tuttle,
his wife. Also includes 967,596 shares over which Mr. Tuttle has voting control
and 1,000,000 shares which may be acquired within sixty (60) days upon the
exercise of options.
(5) Includes 807,500 shares owned by Robert E. Wortmann directly, 40,000 shares
owned by Mary Wortmann, his wife, 150,000 shares owned by Robert E. Wortmann,
Jr., his son, 150,000 shares owned by Erika Wortmann, his daughter, 150,000
shares owned by Andrea Wortmann, his daughter and 404,858 shares owned by VRH
Construction Corporation, a company controlled by Mr. Wortmann and his brother,
Victor D. Wortmann, Sr. Also included in the holdings of Victor D. Wortmann, Sr.
Also includes 300,000 shares which may be acquired within sixty (60) days upon
the exercise of options.
(6) Includes 817,500 shares owned by Victor D. Wortmann, Sr. directly, 200,000
shares owned by Victor D. Wortmann, Jr., his son, 200,000 shares owned by Susan
Ann Curran, his daughter and 404,858 shares owned by VRH Construction
Corporation, a company controlled by Mr. Wortmann and his brother, Robert E.
Wortmann. Also included
36
<PAGE>
in the holdings of Robert E. Wortmann. Also includes 300,000 shares which may be
acquired within sixty (60) days upon the exercise of options.
(7) Includes 1,600,000 shares which may be acquired within sixty (60) days upon
the exercise of options and warrants. As at July 31, 1996, the Company had
18,707,277 shares outstanding. An additional 4,561,460 shares were subject to
acquisition within sixty (60) days upon the exercise of options and warrants,
for a total of 23,268,737.
ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1994, VRH Construction Corp.("VRH"), whose principals, Victor D.
Wortmann, Sr. and Robert E. Wortmann are Directors of the Company, acquired
100,000 shares of the common stock of Compost America Company of New Jersey,
Ltd. ("CANJ") for $5.00 per share, or a total of $500,000. CANJ was a privately
held company at the time and this price was established arbitrarily by its
management. These shares, as part of the January 1995 Reorganization, were
exchanged for 600,000 shares of the Company's Common Stock. At that time VRH
entered into a ten year construction management agreement with the Company. The
agreement grants to VRH exclusive rights to build all of the Company's New
Jersey compost facilities at a cost not to exceed a fixed price. In return for
this commitment, and for acting as the general contractor, VRH will receive a
fee equal to 10% of the guaranteed facility construction cost.
From May 1, 1994 through April 30, 1997, VRH has made loans to the Company
totalling $4,064,355. These loans bear interest at ten (10%) percent per annum
and are due October 1, 1997. In addition, since May 1, 1994, Victor D. Wortmann,
Sr. and his family purchased additional shares of CANJ which, when exchanged for
shares of the Company, totalled 1,180,000 shares of the Company's common stock
for a total consideration of $75,750. During this same period, Robert E.
Wortmann and his family purchased additional shares of CANJ which, when
exchanged for shares of the Company, totalled 1,180,000 shares of the Company's
common stock for a total consideration of $75,750. CANJ was a privately-held
company and the purchase price of the CANJ shares was established arbitrarily by
its management. In December 1995 Robert E. Wortmann purchased 40,000 shares of
the Company's common stock directly from the Company for $2.50 per share, or a
total of $100,000. These shares were restricted as to transfer, and were
acquired at a time when the market price for the Company's common stock was
approximately $5.00 per share. On April 23, 1996 Victor D. Wortmann, Sr. and
Robert E. Wortmann each were granted options to purchase 300,000 shares of the
Company's common stock at $0.01 per share exercisable immediately through April
23, 2001 in consideration for making high
37
<PAGE>
risk, unsecured loans to the Company.
The Company leases its executive offices from VRH Construction Company, as
set forth in Item 2 herein.
George Chu, former Vice President of the Company, exercised options and
acquired 100,000 shares of the Company's common stock on May 1, 1995 for $1,000.
Gary Sondermeyer, former Vice President of the Company, exercised options
and acquired 100,000 shares of the Company's common stock on July 1, 1996 for
$1,000.
Employment agreement of Roger E. Tuttle, and compensation of Gary
Sondermeyer, Roger E. Tuttle, Alfred Rattie, George Chu and John Fetter are set
forth in Item 10 above.
In addition to the transactions set forth above, issuances of the Company's
common shares to its officers, directors and Select Acquisitions, Inc. are set
forth in the Notes to Consolidated Financial Statements included herein,
specifically note 5 (Common Stock), note 7 (Agreements), note 14 (Common Stock
Purchase Warrants and Options), note 15 (Related Party Transactions) and Note 16
(Employment Contracts).
ITEM 13.
EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits required by Item 601 of Regulation S-B
2. Plan of Acquisition,
Reorganization, etc. (1)
3. Articles of Incorporation (1)
and By-Laws
4. Instruments defining (1)
the Rights of Security
Holders
9. Voting Trust Agreement None
10. Material Contracts Employment Agreement
of Roger E. Tuttle (1)
11. Statement re Computation See Note 28 to
of Per Share Earnings Financial Statements
13. Annual or Quarterly Reports none
16. Letter on Change in (1)
Certifying Accountant
38
<PAGE>
18. Letter on Change in none
Accounting Principles
21. Subsidiaries of the see Part I, Item 1,
Registrant Background,
herein
22. Published Report Regarding none
Matters Submitted to Vote
23. Consents of Experts and not applicable
Counsel
24. Power of Attorney none
27. Financial Data Schedule not required
28. Reports to State Insurance not applicable
Regulatory Authorities
99. Additional Exhibits None
(1) Incorporated by Reference to Registration Statement on Form S-1; File No.
333-1592; effective June 7, 1996
(b) Reports on Form 8-K during the last quarter - None
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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.
August 12, 1997 (Registrant)
By: /s/ ROGER E. TUTTLE
Roger E. Tuttle, President and Principal
Executive Officer, Principal
Financial and Acocunting
Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
ROGER E. TUTTLE August 12, 1997 By: /s/ ROGER E. TUTTLE
President, Principal Executive Roger E. Tuttle
Officer, Director
JOHN B. FETTER August 12, 1997 By: /s/ JOHN B. FETTER
Executive Vice President, John B. Fetter
Treasurer, Director
VICTOR D. WORTMANN August 12, 1997 By: /s/ VICTOR D. WORTMANN
Chairman, Director Victor D. Wortmann
ROBERT E. WORTMANN August 12, 1997 By: /s/ ROBERT E. WORTMANN
Secretary, Director Robert E. Wortmann
PASQUALE J. DILEO August 12, 1997 By: /s/ PASQUALE J. DIELO
Director Pasquale J. Dileo
Roger E. Tuttle, John B. Fetter, Victor D. Wortmann, Robert E. Wortmann and
Pasquale J. DiLeo constitute all of the members of the Registrant's Board of
Directors.
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
PERIOD ENDING APRIL 30, 1997 AND THE PERIOD DECEMBER 17, 1993
(INCEPTION) TO APRIL 30, 1997
CONTENTS
Page
Independent auditors' report F-2
Consolidated financial statements:
Balance sheet F-3
Statement of income (loss) F-4
Statement of stockholders' equity F-5 - F-7
Statement of cash flows F-8
Notes to consolidated financial statements F-9 - F-80
Supplementary information to consolidated financial statements:
Report of independent auditors on statement of operating expenses F-81
Schedule of operating expenses F-82
<PAGE>
[LETTERHEAD OF ZELLER WEISS & KAHN]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Compost America Holding Company, Inc. and Subsidiaries
Doylestown, Pennsylvania
We have audited the accompanying consolidated balance sheet of Compost
America Holding Company, Inc. and Subsidiaries as of April 30, 1997 and the
related statements of income (loss), stockholders' equity and cash flows, for
the periods ending April 30, 1997 and April 30, 1996 and for the period December
17, 1993 (inception) to April 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly,
in all material respects, the financial position of Compost America Holding
Company, Inc. and Subsidiaries as of April 30, 1997 and the results of its
operations, changes in stockholders' equity and cash flows for the periods
ending April 30, 1997 and April 30, 1996 and for the period December 17, 1993
(inception) to April 30, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 9 the Company has been in the development stage since
December 17, 1993.
/s/ Zeller Weiss & Kahn
July 31, 1997
Mountainside, New Jersey
F-2
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET - APRIL 30, 1997
ASSETS
Current assets:
Cash $ 8,012
Accounts receivable 26,089
Prepaid expenses 173,118
-----------
Total current assets 207,219
-----------
Investments in joint venture 0
-----------
Plant, property and equipment
Land 8,466,441
Site improvements 174,519
Transportation equipment 160,046
Office equipment 71,051
Machinery & equipment 609,247
Construction in progress, Compost projects 7,149,777
-----------
16,631,081
Less accumulated depreciation 133,547
-----------
16,497,534
-----------
Other assets:
Excess of cost over assets acquired, net of
amortization of $13,384 461,701
Town of Freehold lease acquisition cost, net of
amortization of $51,332 809,529
Restrictive covenant, net of amortization of $37,501 212,499
Trademark costs, net of amortization of $390 1,317
Organization costs, net of amortization of $4,483 4,178
Deposits 6,342
Option deposit 37,500
City of Miami contract performance fee 1,000,000
-----------
2,533,066
-----------
$19,237,819
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Mortgages payable - Praxair Corp. $ 2,100,000
Current portion of long-term debt 3,870,277
Notes payable, bank 100,000
Notes payable, others 606,050
Notes payable, shareholder 90,000
Due to affiliated company, Foundation Systems 321,159
Due to affiliated company, Select Acquisitions, Inc. 78,060
Due to affiliated company, VRH Construction Corp. 4,064,355
Accounts payable and accrued expenses 3,943,730
Payroll taxes payable 209,073
Reserve for land replacement 85,375
-----------
Total current liabilities 15,468,079
-----------
Long-term debt, net of current portion 1,942,911
-----------
Contingencies and commitments
Minority interest in consolidated subsidiary 0
-----------
Stockholders' equity:
Preferred stock, no par value, 25,000,000 shares
authorized; none issued
Common stock, no par value, 50,000,000
shares authorized; 17,707,841 shares issued
and outstanding 10,611,169
Common stock warrants
Deficit accumulated during the development stage ( 8,755,648)
Less: subscriptions receivable ( 28,692)
-----------
1,826,829
-----------
$19,237,819
-----------
-----------
See notes to consolidated financial statements.
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
Cumulative
from
Dec. 17, 1993
Year Year (Inception)
Ended Ended to
April 30, April 30, April 30,
1997 1996 1997
---- ---- ----
Net sales $ 80,741
Other revenues $ 147,466 $ 46,954 200,921
----------- ---------- ----------
Total 147,466 46,954 281,662
Cost of operations, transportation 10,803 12,342 28,146
----------- ---------- ----------
Gross income 136,663 34,612 253,516
General and administrative 5,007,790 1,482,505 7,397,070
----------- ---------- ----------
Loss from operations ( 4,871,127) ( 1,447,893) ( 7,143,554)
Other non-operating expense:
Interest 1,166,082 284,231 1,461,066
----------- ---------- ----------
Loss before income tax expense ( 6,037,209) ( 1,732,124) ( 8,604,620)
Income tax expense 0 0 0
----------- ---------- ----------
( 6,037,209) ( 1,732,124) ( 8,604,620)
Minority interest in (income) loss
of consolidated subsidiaries 129,209 80,618 209,827
----------- ---------- ----------
( 5,908,000) ( 1,651,506) ( 8,394,793)
Loss in equity in joint venture ( 13,603) ( 321,300) ( 360,855)
----------- ---------- ----------
Net loss ($ 5,921,603) ($1,972,806) ($8,755,648)
----------- ---------- ----------
----------- ---------- ----------
Earnings per common share:
Primary ( .31) ($.13)
---- ----
---- ----
Weighted average number of
common shares outstanding:
Primary 19,063,308 14,749,518
----------- ----------
----------- ----------
See notes to consolidated financial statements.
F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
Balance, December 17, 1993 ------ ------ -----------
<S> <C> <C> <C>
Issuance of common stock for technology,
December 28, 1993 (.0017 per sh.) 2,160,000 $ 3,600
Issuance of common stock for technology,
January 1, 1994 (1.207 per sh.) 840,000 1,013,875
Issuance of common stock January 1, 1994 - April 30,
1994 (.83 per sh.) 830,400 692,000
Issuance of common stock for services, April 30,
1994 (.0017 per sh.) 368,640 614
Net Loss April 30, 1994 ($ 158,347)
---------- ----------- ----------
Balance, April 30, 1994 4,199,040 1,710,089 ( 158,347)
Issuance of common stock for settlement claim,
May 27, 1994 (.0017 per sh.) 24,000 40
Redemption of common stock September 29, 1994
(.83 per sh.) ( 60,000) ( 50,000)
Issuance of common stock October 3, 1994
(.83 per sh.) 60,000 50,000
Issuance of common stock October and November,
1994 (.879 per sh.) 369,600 325,000
Issuance of common stock November 1, 1994
(.417 per sh.) 120,000 50,000
Issuance of common stock for merger, December 1,
1994 (.047 per sh.) 2,631,360 122,613
Exercise of warrants December 1, 1994
(.002 per sh.) 2,580,000 4,300
Issuance of common stock for acquisition,
February 8, 1995 (.18 per sh.) 274,500 49,094
Issuance of common stock for private placement,
February 11, 1995 (2.50 per sh.) 190,000 475,000
Exercise of warrants and options for legal services,
February 11, 1995 (.03 per sh.) 2,714,169 63,142
Issuance of common stock for Chicago restructuring
agreement, February 15, 1995 (.83 per sh.) 120,000 100,000
Net loss April 30, 1995 ( 702,892)
---------- ----------- ----------
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, August 1995 (2.50 per sh.) 40,000 100,000
Issuance of common stock, September 1996
(2.50 per sh.) 2,000 5,000
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ------ -----------
<S> <C> <C> <C>
Issuance of common stock, October 1995 (2.50 per sh.) 45,000 112,500
Issuance of common stock, November 1, 1995
(.92 per sh.) 33,000 30,360
Issuance of common stock, November 1995 (2.50 per sh.) 36,000 90,000
Issuance of common stock, December 1995 (2.50 per sh.) 85,600 214,000
Issuance of common stock, January 1996, (2.50 per sh.) 52,200 130,500
Issuance of common stock, February 1996,
(2.50 per sh.) 87,000 217,500
Issuance of common stock, February 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)
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
services, July 1, 1996 (2.50 per sh.) 75,000 187,500
Issuance of common stock for services July 24,
1996 (1.00 per sh.) 400,000 400,000
Issuance of common stock, consulting agreement,
July 31, 1996 (2.50 per sh.) 583 1,457
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During The
Common Stock Development
Shares Amount Stage
------ ------ -----------
<S> <C> <C> <C>
Charge deferred offering cost to stock proceeds ( 23,564)
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
Issuance of common stock for services October 11,
1996 (1.49 per sh.) 414,000 608,500
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
Issuance of common stock for services, February 17,
1997 (.50 per sh.) 198,594 99,297
Issuance of common stock for services, February 27,
1997 (1.00 per sh.) 880,000 880,000
Issuance of common stock for services, February 27,
1997 (.50 per sh.) 5,000 2,500
Issuance of common stock for services, March 26,
1997 (.50 per sh.) 78,840 39,420
Net loss, April 30, 1997 ( 5,921,603)
---------- ----------- ----------
Balance, April 30, 1997 17,707,841 $10,611,169 ($8,755,648)
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Year Ended December 17, 1993
April 30, (Inception) to
1997 1996 April 30, 1997
---- ---- --------------
<S> <C> <C> <C>
Operating activities:
Net loss ($5,921,603) ($ 1,972,806) ($ 8,755,648)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Amortization 82,989 18,256 105,412
Depreciation 78,337 20,411 101,778
Loss in equity in joint venture 13,603 321,300 360,855
Stock issued for professional services 1,578,525 585,000 2,163,525
Shareholder settlement 500,000 500,000
Loss in equity of minority interest ( 129,209) ( 129,209)
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses ( 117,566) ( 55,552) ( 173,118)
Increase in accounts payable and accrued expenses 2,600,837 992,136 4,093,894
Increase (decrease) in payroll taxes payable 191,093 11,932 209,073
Increase (decrease) in accounts receivable ( 26,089) ( 26,089)
Changes in other assets and liabilities:
Increase (decrease) in cash from affiliated companies:
R.C. Land Company, Inc. 28,600
American Bio-AG Corp. 185,000 ( 165,000)
American Soil Company, Inc. 175,000 ( 175,000)
Select Acquisitions, Inc. 54,160 78,060
Deferred offering costs 20,564 ( 20,564)
---------- ----------- -----------
Net cash provided from (used in) operating activities ( 685,759) ( 439,887) ( 1,471,467)
---------- ----------- -----------
Investing activities:
Purchase of restrictive covenant ( 250,000)
Purchase of construction in progress, Compost project ( 1,222,485) ( 1,679,484) ( 4,667,041)
Purchase of land, property and equipment ( 874,976) ( 7,528,975) ( 8,406,871)
Purchase of organizational costs ( 1,580) ( 5,925)
Reduction (purchase) of equity in American BIO-AG
Corporation 624,636 624,636
City of Miami performance fee ( 1,000,000) ( 1,000,000)
Lease acquisition cost ( 463,361) ( 463,361)
Reserve for land replacement 85,375 85,375
Increase (decrease) in deposits receivable 12,440 ( 16,746) ( 5,831)
Return (purchase) of option deposits ( 37,500) 100,000 ( 37,500)
Increase in cost in excess of assets acquired ( 475,085) ( 584,849) ( 1,253,244)
---------- ----------- -----------
Net cash used in investing activities ( 3,436,331) ( 9,626,259) ( 15,379,762)
---------- ----------- -----------
Financing activities:
Increase in advances from affiliated company, VRH
Construction Corp. 555,167 2,869,116 4,064,355
Increase in notes payable, officers 90,000 90,000
Increase in loans from Foundations Systems, Inc. 321,159 321,159
Increase in notes payable, bank 50,000 100,000
Increase in notes payable, other 606,050 606,050
Increase in mortgage payable 2,100,000 2,100,000
Increase in other long-term debt 1,885,563 3,730,871 6,004,154
Payments on long-term debt ( 68,489) ( 55,612) ( 127,900)
Proceeds from issuance of common stock 737,154 1,365,860 3,701,423
---------- ----------- -----------
Net cash provided by financing activities 4,126,604 10,060,235 16,859,241
---------- ----------- -----------
Net increase (decrease) in cash 4,514 ( 5,911) 8,012
Cash, beginning of period 3,498 9,409 0
---------- ----------- -----------
Cash, end of period $ 8,012 $ 3,498 $ 8,012
---------- ----------- -----------
---------- ----------- -----------
Supplementary disclosure of cash flow information
Interest $ 239,804 $ 284,231 $ 534,288
Taxes $ 0 $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of business:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it
sells to a multitude of users. The process which the Company will employ
is composting, or the controlled decomposition of organic matter into humus
(a component of soil). Like a landfill or an incinerator operator, the
Company will be paid "tipping fees" to accept waste from generators of
these materials. In selected markets like New Jersey, where the disposal
costs are high, the economic opportunity of taking in and processing large
volumes of waste is significant.
The Company will operate a vegetative and selected food waste compost
facility in New Jersey and will continue the development of the indoor
composting projects currently in progress, which will convert organic
materials ordinarily disposed of in landfills or incinerators into a
valuable end product which is beneficial to the environment.
2. Business organization:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in the
state of New Jersey, with 1,000,000 authorized shares at no par value. On
February 1, 1984 Alcor conducted an offering under Regulation A, an
exemption from registration under the Securities Act of 1933. On that
date, 300,000 shares of common stock were issued at $1.00 per share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000 to
7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert
Spruance Company and 750,000 shares to Peter English and his affiliates in
return for all outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three subsidiaries
due to the lack of sufficient capital needed to continue the operations of
each. Alcor sustained losses from both the disposition of the Gilbert
Spruance Company and The English Group, Inc.
On September 27, 1994, 650,000 shares issued to Peter English to acquire
the English Group, Inc. were returned pursuant to the disposal of the
English Group, Inc.
On September 29, 1994, Alcor issued 1,500,000 shares to two individuals for
cancelling $203,720 of loans due to these individuals.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
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.
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.
On June 18, 1997, the Company amended its Certificate of Incorporation to
designate a class of preferred shares as Series B preferred stock. The
designation shall be $2.50 Series B convertible preferred stock, authorized
5,000,000 shares. The liquidation value shall be $2.50 per share. The
shares will be no par value. Each share of Series B preferred stock is
convertible into one share of common stock at any time after September 15,
1997.
3. Nature of operations, risks and uncertainties:
The waste management industry in which the Company plans to operate as a
processor of municipal solid waste, sewage sludge and commercial organic
waste, is highly competitive and has been traditionally dominated by
several large and well recognized national and multi-national companies
with substantially greater financial resources in comparison to the
financial resources available to the Company.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Nature of operations, risks and uncertainties (continued):
There can be no assurance that the Company will be able to obtain the
required federal, state and local permits necessary to operate its
composting facilities presently under development.
The Company plans to contract for and to process, municipal solid waste and
sewage sludge that meets the Company specifications. It is possible that
some of the wastes accepted at a company facility may contain contaminants
which could cause environmental damage and result in liabilities.
4. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Compost America Company of
New Jersey, Ltd. and its subsidiaries, Newark Recycling and Composting
Co., Inc., Gloucester Recycling and Composting Company, Inc., Monmouth
Recycling and Composting Co., Inc., Chicago Recycling and Composting
Company, Inc., Miami Recycling and Composting Company, Inc., Compost
America Technologies, Inc., Bedminster Seacor Services Miami Corporation,
Garden Life Sales Company, Inc., American Soil, Inc. and American BIO-AG
Corporation. Inter-company transactions and balances have been eliminated
in consolidation.
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.
Property and equipment:
Property and equipment are carried at cost. The Company computes
depreciation substantially by the straight-line method over the estimated
useful lives of the related assets.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Summary of significant accounting policies (continued):
Earnings per share:
Earnings per share has been computed based on the weighted average number
of shares of common stock outstanding during each period.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be "cash equivalents".
Construction in progress, Compost projects:
Project development costs consist of costs incurred for the development of
the Company's composting facilities. These costs included the
architectural, legal, structural and consulting engineering, artist
rendering, planning board approvals and other construction costs. Upon
commencement of operations of a facility, the costs associated with such
project will be depreciated over the estimated useful life of the
facility.
Inventory:
Inventory will consist of compost and soil products at various stages of
conversion and will be stated at the lower of cost or market (first-in;
first-out).
Revenue recognition:
Tipping fees, the Company's principal source of revenue, will be recognized
upon receipt of the organic waste at the facility sites. The revenue
generated from the sale of compost and soil products will be recognized
upon shipment from facility sites. In addition the Company will receive
payments from an affiliate for services rendered relating to the land
application of bio-solids.
Investments (equity method):
The Company accounts for investments in affiliated companies which
constitute 20% to 50% of the equity of the investor company by the equity
method.
Restrictive covenant:
The Company is amortizing a $250,000 restrictive covenant over an estimated
life of 15 years with a former employee of Compost Management, Inc., which
subsequently merged into Compost America Company of New Jersey, Ltd.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Summary of significant accounting policies (continued):
Trademark cost:
The cost of trademarks acquired are being amortized on the straight-line
method over their remaining lives of 20 years.
Organization cost:
The Company amortizes organization cost over a period of 60 months on a
straight-line method.
Research and development:
The Company charges to research and development project costs associated
with projects which are not in the process of construction or permitted
for operation.
Impairment:
As required under FAS 121, effective for fiscal years beginning after
December 15, 1994, the Company recognizes an impairment loss when the
excess of the carrying amount of the asset exceeds the fair value of the
asset.
Deferred offering expense:
The Company recorded expenses associated with the registration statement
for a S-1 filing as a deferred expense and deducted from the proceeds of
the offering upon being effective. Any offerings not completed are
charges to operations when realized.
5. Common stock:
A. December 28, 1993
The Company issued 2,160,000 shares of common stock in exchange for the
original issuance by Compost America Company of New Jersey, Ltd. to Compost
Management, Inc. of 360,000 shares @ .001 per share for the contribution of
all ownership interest and development rights in all current composting
projects throughout the United States.
B. January 1, 1994
The Company issued to Select Acquisitions, Inc. 840,000 shares of common
stock for the original issuance by Compost America Company of New Jersey,
Ltd. of 140,000 shares in exchange for technology and the reimbursement to
Bedminster Bioconversion Corporation, an unrelated company, for all
expenses of composting projects previously entered into including all
guarantees, land purchases and development costs. Select Acquisitions,
Inc. acquired such technology and right by the issuance of its own 4 1/2%
cumulative convertible preferred stock in the amount of 200,000 shares at
$10 per share. The parties agreed as of December 31, 1993, the settlement
date, the total cash expended by Bedminster Bioconversion Corporation was
$1,013,875 including charges for technology. The value of the stock issued
being the actual cash expended by Bedminster Bioconversion Corporation.
F-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
C. January 1, 1994 - April 30, 1994
The Company issued 830,400 shares of common stock in exchange for 138,400
shares of Compost America Company of New Jersey, Ltd. originally issued for
cash at $5 per share or $692,000 in a "private placement", to raise
$1,000,000.
D. April 30, 1994
The Company issued Select Acquisitions, Inc. 368,640 shares in exchange for
61,440 shares of Compost America Company of New Jersey, Ltd. originally
issued for professional fees for structuring and assisting in the raising
of $192,000 of capital contributions through a term sheet agreement and
private placement.
E. May 27, 1994
The Company issued 24,000 shares pursuant to an agreement by Compost
America Company of New Jersey, Ltd. for 4,000 shares of common stock.
According to the agreement, Compost America Company of New Jersey, Ltd.
made a commitment to be a registered company by certain firm dates. If on
those dates Compost America Company of New Jersey, Ltd. was not a
registered company, 2,000 shares would be issued at the passing of each
date, not to exceed 4,000 shares. The shares were valued at Compost
America Company of New Jersey, Ltd. par value of $.01 per share.
Additionally, the investor was also issued 24,000 warrants of Compost
America Company of New Jersey, Ltd. at the lower of $5.50 per share or the
price of the next offering. The warrants expire in five years.
F. September 29, 1994
The Company redeemed 60,000 shares of common stock originally exchanged
with Compost America Company of New Jersey, Ltd. for 10,000 shares of
common stock issued to an unrelated Limited Partnership investor.
G. October 3, 1994
The Company immediately resold the redeemed stock to the principals of VRH
Construction Corp. for the same $50,000 and issued 60,000 shares.
H. October 11, 1994
The Company issued 369,600 shares in exchange for 61,600 shares of Compost
America Company of New Jersey, Ltd. common stock issued under a private
placement for $325,000. The private placement was originally offered for
200,000 shares at $5 per common share. The offering was oversold by 3,400
shares of which the individual who purchased a large block of these shares
waived acceptance of the shares and his right to a refund, therefore, the
Company received excess funds of $17,000. This completed the January 3,
1994 private placement.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
I. November 1, 1994
The Company issued 120,000 shares for $50,000. Formerly these were 20,000
shares of Compost America of New Jersey, Ltd. which were converted at 6 to
1 in the merger with Alcor.
J. December 1, 1994
The Company, subsequent to the a merger agreement of Compost Management,
Inc. and Compost America Company of New Jersey, Ltd., exchanged 2,631,360
shares of its common stock for 438,560 shares of Compost America Company of
New Jersey, Ltd's common stock. The value of the shares being the net
asset value of statement of financial position of Compost Management, Inc.
at December 1, 1994 which was $122,613. As a result of the merger of
Compost America Company of New Jersey, Ltd. and Compost Management, Inc.
the surviving Company was Compost America Company of New Jersey, Ltd which
subsequently was acquired by the Company.
K. December 1, 1994
Exercise of warrants originally issued by Compost America Company of New
Jersey, Ltd. previously exercised and exchanged with the Company's common
stock. Compost Management, Inc. exercised 280,000 warrants or 1,680,000
shares and the principals of VRH Construction Corp. exercised 150,000
warrants or 900,000 shares all at a exercise price of $.01 per share.
L. February 8, 1995
The Company purchased the issued and outstanding stock of Compost America
Holding Company, Inc., formally Alcor Energy and Recycling Systems, Inc. in
a reverse acquisition purchase agreement with Compost America Company of
New Jersey, Ltd. Alcor, a publicly held company has 15,000,000 shares
authorized and 5,490,000 shares outstanding. Prior to the merger, Alcor
did a 20 for 1 reverse split which left 274,500 shares outstanding.
Compost America Company of New Jersey, Ltd. assumed liabilities in the
purchase of the public stock. The cost associated with the purchase
amounted to assumption of a settlement agreement for a law suit between
Alcor Energy and Recycling Systems, Inc., a former name of Compost America
Holding Company, Inc. and Reade Advanced Materials, a creditor, for $25,000
and closing costs of $24,094 for legal and other expenses, total cost being
$49,094.
M. February 11, 1995
The Company sold 190,000 shares unregistered restricted common stock at
$2.50 per share. These shares were issued by the Company in a private
transaction for a total of $475,000.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
N. February 11, 1995
The Board of Directors of Compost America Holding Company, Inc. authorized
a non-qualified stock option plan (referred to as the performance option),
to directors and officers of the Company and designated professionals
employed by the Company who have tendered invaluable assistance in the
efforts of the Company to become viable. The option was granted for a
period of three years from the date of grant (February 11, 1995) and at an
option price of $.01 per share. The Company granted 1,913,167 option for
common stock, all of which were exercised on February 11, 1995 for $19,132.
Of the 1,913,167 options granted and exercised 400,000 shares were for
consulting services to be rendered by FRW, L.L.C., principals of the law
firm of Ehmann, Van Denbergh & Trainor.
O. February 11, 1995
The Board of Directors of Compost America Holding Company, Inc. approved
the issuance of stock options and warrants in the Company to holders of
stock options and warrants of Compost America Company of New Jersey, Ltd.
in exchange for their existing options and warrants. As a result of the
merger of Compost America Holding Company, Inc. and Compost America Company
of New Jersey, Ltd. shareholders of Compost America Company of New Jersey,
Ltd. holding options and warrants were not considered. The Board of
Directors of Compost America Holding Company, Inc. corrected this omission
and granted options and warrants to those shareholders.
The Company issued 901,000 options at $.01 per common share with an
expiration date of February 10, 1999. As of April 30, 1995, 801,000
options have been exercised for $8,010 and 100,000 options are still
outstanding. Of the 801,000 options exercised from the total 901,000
options granted, 156,000 options were issued to FRW, L.L.C., the principals
of the law firm Ehmann, Van Denbergh & Trainor, 120,000 were from Compost
America Holding Company, Inc. for services instrumental in assisting the
Company to develop. In addition, the law firm received 36,000 options of
Compost America Holding Company, Inc. for offset of legal bills of $36,000.
The Company also issued 784,000 warrants at various exercised prices
expiring February 10, 1999. As of April 30, 1996 33,000 warrants @ .92
have been exercised.
P. February 15, 1995
The Company issued 120,000 shares to three individuals, the principals of
Foundation Systems, Inc., who entered into a joint venture with Compost
America Company of New Jersey, Ltd. for the purpose of constructing, owning
and operating an organic waste processing project to be located in South
Chicago, Illinois.
The individuals sold, conveyed, assigned and transferred into Compost
America Company of New Jersey, Ltd., all of their right, title and interest
in and to the assets which represented 50% of the venture as well as the
liabilities associated with the assets. The total cash expenditures made
by the individuals toward the joint venture amounted to $100,000. The
Company then owned 100% of the Chicago Project.
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
Q. May 1, 1995
The Company issued 100,000 shares upon exercise of options by George Chu,
an officer of the Company, for services rendered at $.01 per share.
R. May 1, 1995 - April 30, 1996
The Company issued 532,900 shares of its unrestricted common stock to
private individuals at no par value at an offering price of $2.50 - $3.00
per share. The proceeds amounted to $1,316,000 at $2.50 per share and
$19,500 at $3.00 per share.
S. November 1, 1995
Two individuals exercise part of their warrants for the purchase of 33,000
shares of unregistered common stock of the Company at $.92 per shares.
T. February 1, 1996
The Company recorded the issue of 500 shares of unregistered common stock
which were omitted unintentionally as a result of the merger of Compost
Management, Inc. into Compost America Company of New Jersey, Inc.
U. March 1, 1996
The Company issued 200,000 shares of its common stock in exchange for all
the issued and outstanding shares of Bedminster Seacor Services Miami
Corporation owned by Bedminster Bioconversion Corporation. The fair value
being the price of the most recent private sales of $2.50 per share.
Bedminster Bioconversion Corporation received stock valued at $500,000.
V. April 30, 1996
The Company issued 83,333 shares of its common stock as part of the
settlement for the assets purchased from R.C. Land and management fees to
Ronald Bryce as part of the February 15, 1995 assessment. The fair value
of stock was valued at $2.50 per share of $208,332. These shares were
issued prior to April 30, 1996 before the June 28, 1996 R.C. Land Agreement
was executed.
W. April 30, 1996
The Company issued to Select Acquisitions, Inc. 267,000 shares of common
stock for prior services to the Company at a value of $2.00 per share.
X. April 30, 1996
The Company issued Jonathan Frank 25,000 shares of common stock in
settlement of amounts due to Jonathan Frank of $150,000 on February 28,
1996.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
Y. April 30, 1996
The Company issued 40,000 shares of common stock to William Spier, an
accountant and King and Spalding, a law firm for services rendered in prior
years and in settlement of past obligation. 25,000 shares for accounting
services were valued at $50,000 or $2.00 per share. 15,000 shares for
legal fees were valued at $43,404 or $2.89 per share.
Z. April 30, 1996
The Company issued 17,962 shares of common stock as part of a consulting
agreement with Robert Tardy and Robert R. Meyers for services in excess of
their basic service agreement at $5.00 per share.
AA. 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.
BB. 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. The price of the stock was based on
$2.50 per share.
CC. 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.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
DD. 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.
EE. 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.
FF. 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.
GG. 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.
HH. 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.
II. 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.
JJ. 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.
KK. 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.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
LL. 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.
MM. 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.
NN. 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.
OO. 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.
PP. January 8, 1997
As part of the acquisition agreement for American Soil, Inc., the Company
issued 150,000 shares of stock to Robert Young, 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.
QQ. February 17, 1997
The Company issued 198,594 shares of the Companies common stock for
consulting services by individuals. The estimated fair value was $.50 per
share or $99,297.
RR. February 24, 1997
The Company issued 880,000 shares of the Companies common stock for
services. The stock was registered in a S-8 Registration and offered for
sale by the consultants. The fair value was estimated at $1.00 per share
or $880,000.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Common stock (continued):
SS. February 27, 1997
The Company issued 5,000 shares of the Companies common stock for
consulting services to Berwyn Capital Corporation. The fair value is
estimated to be $.50 or $2,500.
TT. March 26, 1997
The Company issued 78,840 shares of common stock to three individuals for
consulting service regarding the Miami Project. The fair value is
estimated to be $.50 or $39,420.
6. 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 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
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Investment in American BIO-AG Corporation:
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 April 30, 1997 American
BIO-AG Corporation has been included in the consolidated financial
statements of the Company.
7. Agreements:
A) Compost America Holding Company, Inc.:
1) Settlement Agreement:
On May 17, 1996, the Company and Pasquale Dileo, doing business as
Select Acquisitions, Inc., and Michael Papa entered into a settlement
agreement. Select Acquisitions, Inc. was acquired by Pasquale Dileo
from Michael Papa. Select Acquisitions, Inc. and Pasquale Dileo have
provided various services to the Company for which it received
restricted common stock. As a result of disputes and in the interest
of resolving these disputes this settlement agreement was executed.
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
The settlement consisted of the following:
A) Compost America Holding Company, Inc. will issue within 14 days
of this agreement 80,000 shares of restricted common stock to the
original shareholders of Select Acquisitions, Inc.
B) Within 14 days of this agreement the Company will issue 100,000
shares of restricted common stock of the Company to Michael Papa
and 20,000 shares to Gordan N. Gemma, Esq.
C) Within 14 days Pasquale Dileo will issue 150,000 shares of Select
Acquisitions, Inc. to Michael Papa.
D) Within 30 days Select Acquisitions, Inc. and/or the Company will
pay Michael Papa $60,000.
2) Shareholder Settlement Agreement:
On April 27, 1996 the original shareholders of Select Acquisitions,
Inc. and Compost America Holding Company, Inc. entered into a
settlement agreement. All of the conditions of this agreement pertain
to transactions on the books of Select Acquisitions, Inc. except as
part of this agreement, 267,000 shares of the Company's common stock
of which 150,000 is to be included in the S-1 Registration Statement
to be issued to Select Acquisitions, Inc. in payment for prior service
to the Company.
3) On May 25, 1996, Diana McCarthy revoked her agreement with the Company
and renounced her rights to any stock options.
4) 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
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
4) American BIO-AG Corporation (continued):
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-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
4) American BIO-AG Corporation (continued):
Compost America Holding Company, Inc. and Twin Rivers Equities
(Potomac Technologies, Inc.) contributed to Newark Recycling and
Composting Company, Inc. the value being the net book value of the
assets required.
5) Settlement Agreement:
On July 31, 1996 the Company and Ehmann, Van Denbergh & Trainor, P.C.
entered into an agreement to settle a disagreement between the Company
and the law firm concerning the validity of billings from the law firm
and when and in what amount and manner the Company bills should be
paid. The original amount due Ehmann, Van Denbergh and Trainor, P.C.
amounted to $685,810 and in a desire to settle, agrees to $500,000 as
a settlement amount. Payments to be made as follows:
$ 50,000 due June 14, 1996
50,000 due June 28, 1996
400,000 represented by a note calling for monthly installments
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.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
6) 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.
7) 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.
8) On October 1, 1996 the Company and individual shareholders agreed to a
modified Lock-Up Agreement for shares that they owned for 6 months
(October 1, 1996 to March 31, 1997) not to sell their shares. The
shareholders and shares are as follows:
Registered
Shareholder Shares
----------- ------
William C. Hurtt, Trustee (A) 100,000
William Callari (B) 80,000
A) William C. Hurtt, Trustee will lock-up 37,500 unregistered shares
with a mutually agreed extension for 3 months for 12,500
unregistered shares. Additional extensions may be available;
during the extension term the shareholder agrees to not sell more
than 7 1/2% of the registered shares. As consideration for the
Lock-Up Agreement the Company will issue 26,000 unregistered
shares of common stock.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
8) (continued):
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.
9) 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. On October 9, 1996, the Company issued a six
month $50,000 convertible note at 10% to Charles Lanktree with a
maturity date of April 9, 1997. Interest to be paid monthly. The
note is non recourse on any shareholder or officer of the Company and
is an obligation of the Company only. The note is convertible 30 days
prior to maturity into common shares of the Company at a conversion
price of $3.00 per share. The note is collateralized by 20,000
registered shares of the Company's common stock held in escrow. The
collateral is transferred if the unpaid principal and unpaid interest
are not paid on the maturity date plus 15 days. As of April 30, 1997,
the note was unpaid. On May 19, 1997 an agreement to extend the
maturity to July 9, 1997 at 12% interest was agreed to. On May 19,
1997, Bruce Boltuch received an option to purchase 7,500 shares of
registered tradeable stock at $2.00 per share and 2,500 shares of
registered common stock of the Company for granting the extension for
payment of the note.
10) 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.
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
10) (continued):
Shareholder Shares
----------- ------
Andrea Wortmann 150,000
Robert E. Wortmann, Jr. 150,000
Victor D. Wortmann, Sr. 812,500
Roger E. Tuttle 2,433,509
Robert E. Wortmann 802,500
Victor D. Wortmann, Jr. 200,000
Elizabeth Tuttle 100,000
Erika Wortmann 150,000
Kristie Tuttle 100,000
Select Acquisitions 1,308,640
Susan Ann Curran 200,000
William Tuttle 100,000
Mary Wortmann 40,000
---------
6,547,149
---------
---------
11) 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.
12) 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.
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
13) On December 3, 1996 the Company and Ira Russack entered into an
agreement for a convertible 8% note for $100,000 due June 30, 1997,
and extended to August 15, 1997, interest and principals payable on
the maturity date. On January 16, 1997 the Company and Ira Russack
entered into an agreement for a convertible 10% note for $100,000 due
December 15, 1997, interest and principal payable on the maturity
date. The notes are convertible at $3.00 per share based on the
remaining principal amount plus any acquired interest at the maturity
date.
14) In March 1997, the Company and M. H. Meyerson & Co., Inc. entered into
an agreement for Meyerson to perform investment banking services on a
non-exclusive basis for a period of three years. Such services will
be performed as requested by the Company on a best efforts basis and
will include assistance in mergers, acquisitions and internal capital
structuring and the placement of new debt and equity issues.
Consideration for the services is an option to purchase 1,000,000
shares of unregistered common stock of the Company. The option
expires on March 31, 2002. The option shall vest and become
irrevocable as follows:
Option to purchase 250,000 common shares at $2.50 per share on date of
agreement.
Option to purchase 250,000 common shares at $3.00 per share on October
1, 1997.
Option to purchase 250,000 common shares at $3.00 per share on April
1, 1998.
Option to purchase 250,000 common shares at $3.00 per share on October
1, 1998.
Upon signing of this agreement, the Company will pay Meyerson $25,000 as a
non-accountable and non-refundable expense allowance. Meyerson shall be
entitled to additional compensation to be agreed upon in advance of any
transaction proposed or executed by Meyerson.
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
A) Compost America Holding Company, Inc. (continued):
15) On March 20, 1997, the Company issued a $8,500 note to an affiliated
company of Charles Lanktree at 10% interest due May 8, 1997. Interest
and principal payable at maturity. The note was not paid on May 8,
1997 and is delinquent.
16) On April 30, 1997, the Company issued three $25,000 notes to Mark G.
Milask, Philip Wagner and Dr. Paul Smalheiser at 8% due September 30,
1998. The notes are convertible at $2.00 per common share at any time
prior to maturity. In addition, each payee was granted an option to
purchase 50,000 shares of the Company's unregistered common stock at
$2.00 per share, expiring March 31, 2002. Interest payable at date of
maturity.
17) On April 30, 1997, the Company issued a $50,000 note at 10% to Donald
A. Kaplan with a maturity of September 30, 1998. Interest is payable
at maturity. In addition, the Company granted an option to purchase
100,000 shares of common stock at $2.00 per share through March 31,
2002. The note is convertible into unregistered common shares at
$2.00 per share at any time prior to maturity. The holder of the note
is entitled to registration rights when available and will be able to
take advantage of any piggy-back registration.
18) On February 13, 1996, the Company entered into a master letter
agreement with Paine Webber Incorporated to act as a sole financial
advisor and senior managing underwriter for the Company and its
various subsidiaries in connection with the financing of certain waste
disposal facilities, certain ancillary equipment and certain related
development costs (the projects). As compensation, the Company will
pay a success fee, equity placement fee, underwriter fee, discount fee
and out of pocket expenses and in no event shall Paine Webber be
entitled to less than 10% of all fees and discounts paid in connection
with the underwriting of bonds for any project financing. The term of
the agreement is for twenty four months. As of September 16, 1996 the
term has been extended to September 16, 1998.
B) Chicago Recycling and Composting Company, Inc.
1) Chicago Restructuring Agreement:
On July 24, 1995, effective as of February 15, 1995, pursuant to an
agreement between Compost America Holding Company, Inc. and
Foundations Systems, Inc. to convey, sell and transfer unto Compost
America Holding Company, Inc. all of Foundation Systems, Inc. rights,
title and interest in and to the assets of the Chicago Recycling and
Composting Project. The interest acquired represented 50% of the
Joint Venture between the two companies. The principals of Foundation
Systems, Inc. as consideration for their interest were issued 120,000
shares of common stock of Compost America Holding Company, Inc.
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
B) Chicago Recycling and Composting Company, Inc. (continued):
2) Conditional Agreement of Sale:
On May 5, 1994 the Indiana Harbor Belt Railroad and Chicago Recycling
and Composting Company, Inc. entered into an agreement to purchase a
parcel of land containing 14 acres. The purchase price shall be
$420,000 with $42,000 down and the balance at closing. The price of
the property is based on $30,000 per acre or fraction thereof. Any
differences in actual acreage will amend purchase price to conform.
The closing shall be 30 days from completion of due diligence or 365
days from May 5, 1994. The contract included many contingencies to be
satisfied in order to close.
As of April 30, 1997 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. As of April 30, 1997 no
formal extensions have been granted.
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-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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.
As of April 30, 1997 no formal extensions have been granted.
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-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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
$1,019,248 which was allocated as follows:
Net assets of American Soil, Inc. $ 158,387
Value of lease with the Town of
Freehold which expires April 27, 2004 860,861
----------
$1,019,248
----------
----------
Financial statements of American Soil, Inc. have not been provided since
the acquisition does not meet with the test for a significant subsidiary as
required under Reg Section 210-02 (W). The combined investment in and
advances at the proposed acquisition date amounted to $1,019,248 which did
not exceed 10% of consolidated assets at April 30, 1996.
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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) Retainer Agreement with Fischbein, Badillo, Wagner and Itzler:
On December 4, 1995 the Company entered into a contract with
Fischbein, Badillo, Wagner and Itzler to provide legal advice,
guidance and other legal services in connection with the Newark
Recycling Project. As consideration the law firm shall receive a
monthly retainer fee of $6,000 for a term of ten months. The first
two month retainer was paid on December 4, 1995. The agreement also
calls for reimbursement of expenses.
2) Loan Agreement with VRH Construction Corp:
On December 26, 1995, Newark Recycling and Composting Company, Inc.
and VRH Construction Corp. signed a loan agreement whereby VRH
Construction Corp. lent $1,043,866 on a term loan basis. The Loan was
due on January 15, 1996 with interest at 10%. The loan has been
extended to October 1, 1997.
3) 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
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
E) Newark Recycling and Composting Company, Inc. (continued):
3) Option and Purchase Agreement (continued):
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 plus
closing costs was paid together with a promissory note and purchase
money mortgage of $2,100,000 at 8% per annum, payable monthly, with a
maturity on August 31, 1996 which has been extended to April 1, 1997.
As of April 30, 1997, there has been no formal extension. The
property was closed on December 15, 1995.
To accommodate the down payment VRH Construction Corp. loaned Newark
Recycling and Composting Company, Inc. $1,043,866 on a term loan basis
on demand. The loan was due on January 15, 1996 with interest at 10%
per annum. The loan has been extended to 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.
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
1) Letter Agreement with Bedminster BioConversion Corporation (continued):
As consideration for the acquisition of 100% of stock of Bedminster
Seacor Services Miami Corporation from Bedminster Bioconversion
Corporation, Bedminster Bioconversion Corporation shall receive:
200,000 Shares of common stock of Compost America Holding
Company Inc.
300,000 Warrants to purchase shares of the common stock of
Compost America Holding 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.
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.
F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
2) Stock Purchase Agreement (continued):
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.
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
--------
--------
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
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.
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.
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
F) Miami Recycling and Composting Company, Inc. (continued):
6) (continued):
In September 1996, in a first amendment to the restated Compost
Recycling Agreement, the amendment effective date was changed to
November 13, 1996 and the initial payment by Bedminster Seacor
Services Miami Corporation to the City of Miami to secure the
performance of the Company's obligations under the restated agreement
shall be one million three hundred and fifty thousand dollars
($1,350,000) payable $100,000 in September 1996 and the balance of
$1,250,000 dollars, plus interest at 10% per annum, payable at the
earlier of the financial closing of the funding for the Miami Compost
Project or September 1, 1997. If payments are not received the City
of Miami shall have the right to terminate this agreement.
On November 21, 1996, Miami Recycling and Composting Company, Inc.
paid $1,000,000 to the City of Miami. This fulfills the 30 year "put
or pay" contract requirement between the Company and the City of
Miami.
The Company has classified this payment as an other asset under the
classification "Cost of Miami Contract performance fee" and is being
amortized over a term of 35 years from the contract date. The fee is
an initial payment for service performance of Bedminster Seacor
Services, Inc. under this agreement.
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.
G) Compost America Technologies, Inc.
1) Teaming Agreement between Compost America Technologies, Inc. and
Compost Industries, LLC.:
On August 15, 1995, Compost America Technologies, Inc., a wholly owned
subsidiary of Compost America Holding Company, Inc. and Compost
Industries, LLC, signed a Teaming Agreement for Compost Industries,
LLC to supply proprietary composting technology and equipment,
proprietary shop and field fabrication techniques and installation
know-how relating to solid waste separating, processing, recycling and
composting. Compost Industries is to provide and demonstrate its
"Earthcycle Composting System" shop and field fabrication techniques
and equipment engineering and assistance for the Gloucester
Demonstration Project and if successful for the Gloucester Recycling
and Composting Project and also if requested for other full scale
projects. Compost Industries will provide a demonstration Earthcycle
Composting System, at its expense, at a cost not to exceed $600,000.
At financial closing of the Gloucester full-scale project Compost
Industries will receive payments for all equipment supplies plus a
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Agreements (continued):
G) Compost America Technologies, Inc (continued):
1) Teaming Agreement between Compost America Technologies, Inc. and
Compost Industries, LLC. (continued):
15% engineering and equipment fee on the total project costs not to
exceed $12,200,000. In addition, Compost Industries shall receive at
"financial closing" 150% of its documented costs up to $600,000 and 33
1/3% of net distributable cash flow from the full-scale project upon
commercial acceptance and 3.5% of the "total tip fee revenue" for the
life of the Gloucester City Project.
8. Consulting Contracts:
A) Engineering and Technology Agreement:
On September 15, 1994, an "Engineering and Technology Agreement" for
the Newark Recycling and Composting Company, Inc., a subsidiary of
Compost America Company of New Jersey, Ltd. and D.J. Egarian &
Associates, Inc., was signed, for the right to use the licensed patent
and engineering services provided by D.J. Egarian & Associates, Inc.
and David J. Egarian, to construct and operate an organic waste
composting facility at the Newark, New Jersey site.
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
F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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):
At April 30, 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
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-43
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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.
F-44
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
G) 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.
H) 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.
I) 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-45
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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 April 30, 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-46
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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.
F-47
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
N) (continued):
After the term of this agreement the consultant can be engaged at the
rate of $100 per hour either in cash or common stock of the Company by
mutual agreement.
The consultant shall receive reimbursement for expenses not to exceed
$1,500 per month. In addition the consultant has requested the
Company to pay $15,000 per year for three years to Cornell College of
Art, Architecture and Planning for research.
If objective (1) is achieved within 4 months after the beginning of
the term, the consultant shall receive a bonus payment of $15,000 in
cash and 8,333 shares of common stock of the Company. Additionally if
objective (2) and or (3) are achieved within 4 months after the
beginning of the term of this agreement $15,000 in cash and 8,333
shares of common stock of the Company will be paid for each completed
objective.
O) On June 10, 1996, the Company and John B. Fetter, a shareholder in the
Company, entered into a consulting agreement regard Chicago Recycling
and Composting Company, Inc. to provide services in developing lowest
cost electric power contracts with power providers. The consultant
will provide, for a term of 5 years, advice concerning the types of
electrical equipment best suited to operate the Company's composting
facilities and negotiate the lowest cost electrical power contracts.
The consultant will receive $5,000 per month commencing June 10, 1996
and shall accrue and be deferred until payable from operating revenues
of the Chicago Composting and Recycling Company, Inc. facility. At
this time consultant shall also be reimbursed for accrued expenses
incurred.
P) On February 21, 1997, the Company entered into a consulting agreement
with Tomas Andres Mestre to provide expert consulting service in the
management of solid waste and sewer sludge and in business development
in Florida for a period of 10 years. As compensation,
F-48
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
P) (continued):
the Company will pay the consultant as follows:
1) On or before February 28, 1997, the Company shall pay $300,000 by
delivering 200,000 shares of the Company's common stock. The
Company is to file a registration statement on Form S-8 covering
the shares within 30 days.
2) On or before February 28, 1997, the Company shall deliver to the
consultant options to purchase 500,000 shares at $2.00 per share
through December 31, 2007.
3) On or before February 28, 1997, but in no event later than
issuance of the registered shares in 1) above the Company shall
pay a fee of $250,000.
4) Upon financial closing (sale of bonds, public offerings or such
other financial arrangements of any composting facility in the
state of Florida) of the North Dade Composting facility the
consultant shall be paid a development fee of $500,000 and 50% of
the total of any and all development fees in excess of $1,000,000
paid pursuant to financial closing.
5) Upon financial closing of the North Dade Composting Facility and
each and every additional composting facility in Florida, the
Company shall grant the consultant an option for 100,000 share of
common stock at $2.00 per share for a period of 10 years.
6) Upon the commencement of commercial operations of the North Dade
Composting Facility and the commencement of commercial operations
of each and every additional facility in Florida, the Company
shall grant to the consultant options to purchase an additional
75,000 shares of common stock at $2.00 per share for 10 years.
7) Upon each additional closing (other than North Dade) the
consultant will be paid a development fee of $250,000 and 50% of
any and all development fees in excess of $500,000.
8) The Company shall exclusively contract with the consultant for
trucking services in the State of Florida at competitive rates.
In addition, the Company shall enter into an exclusive contract
for agriculture land applications in Florida.
F-49
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Consulting Contracts (continued):
P) (continued):
In addition to the above, the Company shall convey to the consultant a
19.9% equity ownership interest in Miami Recycling and Composting
Company, Inc., a subsidiary of the Company. The consultant will also
receive a management fee equal to 30% of distributable net income of
Miami Recycling Composting Company and any other business enterprises
in the State of Florida.
Q) On January 23, 1997, the Company entered into an agreement with Quirk
Carson Peppet to act on a non-exclusive basis to provide financial
advisory service and be the placement agent for certain financial
advisory and investment banking services. As compensation, the
consultant shall receive the following:
a) Upon acceptance, the Company will issue warrants for 100,000
shares at $2.50 per share for 5 years.
b) Upon closing of a private placement of any equity securities, the
Company will pay the consultant 6% of the aggregate gross
proceeds. In addition, the consultant shall receive warrants
equal to 4% of the common shares or equivalent issued in the
private placement at the price of the shares issued in the
private placement for 5 years.
c) Upon closing of a private placement of any equity security by
investors introduced by the Company, the consultant will get 3%
of the aggregate gross proceeds and 2% in warrants.
9. Development stage company:
The Company's operations have been centered around its organizing,
evaluating and developing the business of converting organic waste into
compost and other soil products and the start-up financing of its
operations, including the construction of the waste management and compost
facility in Newark, New Jersey and other compost facilities throughout the
country. From December 17, 1993 through the period ending April 30, 1997
the Company has secured required financing through a public offering,
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 $8,755,648.
F-50
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
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 site to
be operated by the Company. Sponsors/partners for the demonstration
project are: 1) The National Audubon Society; 2) The Grocery Industry
(including The Food Marketing Institute, Grocery Manufacturers Associates,
Proctor & Gamble and The New Jersey Food Council); 3) Bedminster; 4)
Higgins Management, Inc.; 5) U.S. Environmental Protection Agency; 6)
America Forest & Paper Association; 7) U.S. Conference of Mayors; 8)
National Association of Counties; 9) Restaurant and Foodservice
Association; and 10) America Plastics Council.
The location of the demonstration project is a site located in Gloucester
City, New Jersey. A small-scale invessel composting facility will be
installed in a portable building and will process five to eight tons per
day of organic materials collected from the cities of Gloucester City and
Cherry Hill and various commercial accounts. Upon the successful start up
and operation of the pilot program it is anticipated that the Company will
construct a 350 ton per day invessel composting facility at the same site
in Gloucester City.
On June 1, 1995 Gloucester Recycling and Composting Company, Inc. entered
into a lease with Gloucester City for 7.98 acres ("Parcel No.1") located in
Gloucester City, New Jersey. The term of the lease is for 24 months
commencing on the 7th day of March, 1996 and an option to extend the term
for an additional 30 years. Rent for the first 24 months shall be $100 per
month plus real estate taxes. The 30 year extension is based on a benefit
fee payment schedule for the lease payments and the host community benefit
charges. Following commercial start-up payments shall begin in the amount
of $82,745 and increase annually by 4% throughout the tax year with a
computer price index increase or decrease for the remainder of the term.
The total project cost at April 30, 1997 amounted to $268,623. The
estimated scheduled start for the demonstration project was the first
quarter of 1996. This date has been extended.
F-51
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
CHICAGO PROJECT:
In April 1993, CACC and Foundations Systems, Inc., as general partners and
Compost Management, Inc. and others, as limited partners, entered into a
limited partnership agreement to form an entity called South Chicago
Recycling and Composting Company, L.P. ("Chicago Partners"). The Chicago
Partners initiated the development of a 500-1,000 ton per day invessel
composting facility in South Chicago, Illinois. The Chicago Partners are
currently negotiating and entering into contracts and agreements for waste
handling, site location, marketing and other aspects of composting. The
Company through Compost Management, Inc. was a 41.5% limited partner of the
Chicago Facility. Funding for the Chicago Partners has been provided by
loans and advances from Teepak, Inc., commencing January 11, 1993. Total
advance at April 30, 1995 amounted to $264,871.
On May 5, 1994, the Company and Indiana Belt Railroad contracted to
purchase 14 acres at a price of $420,000. No closing has taken place as of
April 30, 1997.
On July 24, 1995, an agreement was executed whereby, effective as of
February 15, 1995, the amended and restated agreement date April 6, 1993
never being filed with the Secretary of State of Pennsylvania, caused the
limited partnership to be void. As a result, the individual partners
agreed to exchange their interest, as did Compost Management, Inc., with
Compost America Holding Company, Inc. The individual partners, exclusive
of Compost Management, Inc., for an assignment of the assets were issued
120,000 shares of Compost America Holding Company, Inc. common stock at a
par value of $.01 for their 58.5% of the partnership. Compost America
Company of New Jersey, Ltd. became the 100% owner of the Chicago Project.
On August 4, 1995, the Company incorporated the Chicago Project under the
name "Chicago Recycling and Composting Company, Inc.". Chicago project
costs as of April 30, 1996 amount to $462,122 and for April 30, 1997
amounted to $779,676.
MONMOUTH PROJECT:
In August 1993, Compost Management, Inc. and Bio-Services entered into an
agreement in principle to form a joint venture named Monmouth Recycling and
Composting Company, Inc. ("Monmouth Facility") to develop a 300-500 ton per
day invessel composting facility in Howell Township, Monmouth County, New
Jersey. Bio-Services and the Company would each own 50 % of the Monmouth
Facility. On January 31, 1994 the Company and Bio-Services entered into a
conditional asset purchase agreement whereby the Company would purchase
Bio-Services' 50% interest in the Monmouth Facility for $92,500. It is the
position of management that in accordance with
F-52
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
MONMOUTH PROJECT (continued):
generally accepted accounting principles that the $92,500 should be
expended as a deferred project cost chargeable to operations in the current
period. The Company paid $17,500 on execution of the agreement and three
monthly installments of $25,000 each in March, April and May 1994. In
addition, $407,500, as a purchase amount, was contingent upon the Company
acquiring all of the related permits for the Monmouth Facility, and the
facility being constructed.
In addition to this agreement Compost America Company of New Jersey, Ltd.
agreed to issue to Bio-Services warrants for the purchase of 100,000 shares
of Compost America Company of New Jersey, Ltd. common stock under the
following terms (see Note 14):
January 31, 1994-1995 @ $5.00 per share
January 31, 1995-1996 @ $6.00 per share
January 31, 1996-1997 @ $7.00 per share
Should Compost America Company of New Jersey, Ltd. issue a public offering
Bio-Services will have the right to "piggy back" its 100,000 shares in the
public offering. On December 1, 1994, Bio-Services released the 100,000
warrants back to the Company unexercised. The warrants were in turn
released to David Egarian, 25,000 warrants, Rob Jones, 12,500 warrants, Ron
Bryce, 12,500 warrants and the remaining 50,000 were cancelled and
withdrawn. On May 10, 1994 the Monmouth Facility was incorporated in the
State of Delaware as Monmouth Recycling and Composting Company, Inc.
Should Compost America Company of New Jersey, Ltd. not proceed with the
project at any time in the future, and decide not to sell the project,
Bio-Services would have the right to repurchase rights for the sums of
money previously extended so as to be able to continue the development of
the project.
Upon financing closing, all development expenses paid by Bio-Services and
the Company on behalf of the Monmouth Facility would have been reimbursed
and a development fee of $250,000 would have been paid to each of
Bio-Services and the Company. The Agreement in Principle called for the
Monmouth Facility, at financial closing, to enter into a technology
agreement with ComTech Environmental, a company principally owned by the
Partners of Bio-Services, whereby ComTech would receive a fee equal to
$2.00 per cubic yard for all finished compost produced at the Monmouth
Facility for a period of ten years. In October 1993, Bio-Services entered
into a real estate contract to purchase approximately 27 acres of land on
which the Monmouth Facility will be constructed at a price of $900,000.
The contract contained provisions for monthly option payments
F-53
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
MONMOUTH PROJECT (continued):
of $1,000 to be made until closing in February 1995 when the balance of
$900,000 would be due. Should the closing date be extended, there were
provisions for additional options payments to be made until closing occurs.
In January 1994, Bio-Services assigned the real estate contract to the
Company. The site was ultimately disapproved by Monmouth County, and a
replacement site was recommended in Freehold Township.
On March 1, 1995 an ASSET PURCHASE REPLACEMENT AGREEMENT was made between
Bio-Services, Inc., D.J. Egarian & Associates, Inc. and Compost America
Company of New Jersey, Ltd.. As part of this agreement, the "Asset
Purchase Agreement" between Compost America Company of New Jersey, Ltd. and
Bio-Services signed on January 31, 1994 for the purchase of the "Abate
Property" was canceled as a result of the site disapproval. A property
identified as Block 92 Lot 37 located in the Township of Freehold, New
Jersey was selected as a replacement for the "Abate Property" to allow the
continued development by Compost America Company of New Jersey, Ltd. of an
indoor composting facility in Monmouth County. Compost America Company of
New Jersey, Ltd., as part of this agreement, signed an "Option Purchase
Agreement" with Brownfield Environmental, Inc. to purchase a replacement
property.
In addition, the $407,500 contingent purchase amount identified in the
January 31, 1994 "Asset Purchase Agreement" will be paid as follows:
1) Upon receipt of local approval from the Township of Freehold and
County approval and New Jersey Department of Environmental Protection
approval, Compost America Company of New Jersey, Ltd. will pay as
follows:
a) $27,416 to D.J. Egarian Associates, Inc.
b) $97,584 to Bio-Services
2) The remaining $282,500 will be paid upon receipt of all governmental
approvals, environmental approvals and building permits.
a) $61,959 to D.J. Egarian Associates, Inc.
b) $220,541 to Bio-Services
The terms of the original agreement were amended such that Bio-Services
will receive a marketing fee of $1.50 as opposed to $2.00 per cubic yard of
finished compost produced at the Freehold facility. This agreement also
cancelled all previous agreements pursuant to the Monmouth Recycling and
Composting Company, Inc. In addition, on March 3, 1995 mutual releases
were signed by the parties involved in the original Agreement in
F-54
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
MONMOUTH PROJECT (continued):
Principle for the purchase and assignment of the "Abate Land Purchase
Contract". Abate was paid for his release $2,500 plus engineering, survey
and other plans provided for in William J. Mehr letter of September 29,
1994.
On March 1, 1995, Compost America Company of New Jersey, Ltd. and
Brownfield Environmental, Inc. entered into an "Option Purchase Agreement"
to purchase 15 acres in the Township of Freehold, County of Monmouth, State
of New Jersey. The purchase price is $600,000 payable in cash on or before
February 14, 1996. An extension for 12 months is at the exclusive option
of the Company. The Company shall pay a monthly option of $2,500 per month
during the initial extension period. The Company has an exclusive right to
extend for a second extension period of 18 months for a payment of $15,000
plus a monthly option payment of $3,500 per month. The Company has a third
extension for 6 months based on the same terms as the second extension.
On April 1, 1995 the Company paid $25,000 toward the $407,500 contingent
liability in order to extend the due date to June 30, 1996. No further
payments have been made and no further extension have been granted.
As part of the Monmouth County composting site, a consulting contract with
Michael J. Marchese on March 1, 1995 was instituted (see consulting
agreements). The total project costs incurred as at April 30, 1997
amounted to $877,992.
NEWARK PROJECT:
On June 16, 1992, as amended December 11, 1993, Compost Management, Inc.
entered into an agreement in principle with Bedminster and Potomac
Technologies, Inc. to form a joint venture named Newark Recycling and
Composting Company, Inc. ("Newark Facility"), incorporated in the State of
Delaware on May 10, 1994, to develop a 500-1,000 ton per day invessel
composting facility in Newark, New Jersey ("Agreement in Principle").
Potomac Technologies, Inc. owned 25% and Bedminster and the Company each
owned 37-1/2% of the Newark Facility, as amended December 11, 1992.
Pursuant to the April 14, 1994 Term Sheet Agreement and the February 1,
1994 Amended Joint Venture Agreement, the Company acquired Bedminster's
37-1/2%. Pursuant to the Agreement in Principle, upon financial closing
all development expenses paid by the partners of the Newark Facility will
be reimbursed as well as a development fee of $900,000 to be paid to the
partners in accordance with a predetermined schedule.
F-55
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
NEWARK PROJECT (continued):
In conjunction with the Agreement in Principle, the Newark Facility will
pay a consulting fee of $6,250 per month to a principal of Potomac
Technologies, Inc. until financial closing. In June 1993, on behalf of the
Newark Facility, Compost Management, Inc., Bedminster and Potomac
Technologies entered into a Site Development and Consulting Agreement with
another firm which receives $1,000 per month until financial closing at
which time the firm will receive a $150,000 development fee and, if
operating cash flow is available, $38,889 annually in each of the nine
subsequent years of commercial operations.
In October 1993, the Company and Potomac Technologies, Inc. d/b/a Passaic
Valley Management Group, LP, in response to a Request for Qualification
issued by the Passaic Valley Sewerage Commissioners, submitted a proposal
for both composting in Newark, New Jersey, and land application of sewer
sludge in Arizona and New Jersey.
On March 21, 1994, Passaic Valley Management Group, LP and R.C. Land
Company, Inc. (R.C. Land) entered into a sewer sludge land application
agreement ("Sludge Agreement"). Under the Sludge Agreement, R.C. Land will
receive a wet ton use and land application fee. Should Passaic Valley
Management Group, LP be successful with its proposal to Passaic Valley
Sewerage Commissioners for composting, R.C. Land will also receive an
annual fee for consultation services for the length of the Passaic Valley
Management Group, LP proposal for providing back up land applications
services (see Note 7 (E)(2)). As of May 31, 1995, Passaic Valley
Management Group, LP was advised by Passaic Valley Sewerage Commission that
it was unsuccessful in its bid efforts.
On May 1, 1994 Newark Recycling and Composting Company, Inc. entered into a
marketing agreement with Gardenlife Sales Company, a division of Compost
America Holding Company, Inc. Gardenlife Sales Company has the obligation
to market and distribute all compost and other related products developed
by Newark Recycling and Composting Company, Inc. for a term of 25 years.
Revenues received from the sale of compost is allocated between the parties
according to an agreed upon formula. In the event that no revenue is being
generated from the sale of compost, Newark Recycling and Composting
Company, Inc. will pay a management fee to Gardenlife Sales Company to
provide distribution management guaranteeing that all compost is shipped
from the plant. A transportation reserve account will be established by
the Company to provide transportation if required.
On May 1, 1994 Compost America Company of New Jersey, Ltd. entered into an
agreement with Potomac Technologies, Inc. to form Newark Recycling and
Composting Company, Inc. The Newark Facility was then incorporated in the
State of Delaware on May 10, 1994 as Newark Recycling and Composting
Company, Inc.
F-56
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
NEWARK PROJECT (continued):
The parties to the letter agreement on May 1, 1994 were changed and a new
agreement for the joint venture was modified in the "Newark Recycling and
Composting Company, Inc. Agreement".
On July 1, 1994, Newark Recycling and Composting Company, Inc. entered into
a termination of sale agreement with Edward J. Haefeli. Haefeli agreed to
terminate his right to purchase 11.69 acres of improved land in order to
permit Newark Recycling and Composting Company, Inc. to enter into an
agreement to purchase the premises from Linde Gases. At closing of the
purchase of the premises, Newark Recycling and Composting Company, Inc.
shall pay to Haefeli $250,000 in funds available plus a note in the amount
of $594,000 payable over 10 years at prime + 1%, not to exceed 8%.
On July 14, 1994, Newark Recycling and Composting Company, Inc. entered
into a professional services agreement with R.W. Beck to provide a detailed
"Engineering Report" on the Newark facility. Compensation in the amount of
$23,000 shall be paid and increased as additional consulting is required.
On July 26, 1994, Newark Recycling and Composting Company, Inc., doing
business as Passaic Valley Management Group entered into a teaming
agreement with Professional Services Group, Inc. At the option of Newark
Recycling and Composting Company, Inc./Passaic Valley Management Group
Professional Services Group, Inc. will loan up to $500,000 to Newark
Recycling and Composting Company, Inc./Passaic Valley Management Group. In
return, Newark Recycling and Composting Company, Inc./Passaic Valley
Management Group will subordinate to Professional Services Group, Inc. the
management, operations and maintenance portion of any contract awarded from
the Passaic Valley Sewerage Commissioners.
On September 15, 1994, Newark Recycling and Composting Company, Inc.
entered into an engineering and technology agreement with D.J. Egarian &
Associates. D.J. Egarian & Associates granted a license to Newark
Recycling and Composting Company, Inc. to utilize D.J. Egarian &
Associates's patented technology. Newark Recycling and Composting Company,
Inc. did compensate D.J. Egarian & Associates $15,000 upon execution of the
agreement and a pro rata share of $167,500 based upon completion of
engineering drawings. In addition, during construction D.J. Egarian &
Associates shall receive $5,000 per month site consultation through
completion of construction. A separate fee structure will be implemented
upon commencement of commercial operations of the facility.
F-57
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
NEWARK PROJECT (continued):
In the event the Newark Recycling and Composting Company, Inc. should be
awarded a 20 year "put or pay" sewer sludge contract from Passaic Valley
Sewerage Commissioners, then D.J. Egarian & Associates will receive a
one-time fee of $150,000. Based upon the number of tons awarded D.J.
Egarian & Associates may be able to receive an additional $25,000 for each
50 tons.
On January 30, 1995 the Central Planning Board, City of Newark, New Jersey,
at a special public hearing, voted to grant a FINAL SITE APPROVAL subject
to compliance with all the conditions stipulated in the Department of
Engineering memorandum dated January 17, 1995.
On February 16, 1995, Converse Consultants East submitted their report to
D.J. Egarian disclosing their findings as to subsurface conditions and
foundations.
On March 14, 1995 R.W. Beck submitted an initial draft of the Technical
Review of the composting facility.
On March 27, 1995 Newark Recycling and Composting Company, Inc. requested
financial assistance from the New Jersey Economic Development Authority for
an in-vessel composting and composting facility in the amount of
$73,790,000.
In conjunction with that request, it is expected that the interest on these
bonds, when issued, will be excludable from gross income of the holders
thereof for federal income tax purposes under Section 103 of the Code.
On April 11, 1995, Newark Recycling and Composting Company, Inc. received
notice from the Permit Coordination Officer III for the State of New Jersey
Department of Environmental Protection. Newark Recycling and Composting
Company, Inc.'s application had been reviewed for and found to be
administratively complete. The application was then forwarded to the
Bureau of Pretreatment and Residuals for technical review.
On April 11, 1995 the New Jersey Economic Development Authority passed a
resolution whereby Authority officers and staff are authorized to take all
actions necessary to proceed with the financing and to issue bonds to
finance the cost of the New Jersey project. Within 10 days the resolution
was deemed approved by the Governor and became effective.
On April 19, 1995, Newark Recycling and Composting Company, Inc. applied
for the allocation of $73,790,000 of "volume cap" by the State of New
Jersey to allow the project described herein to be fully financed on a
tax-exempt basis.
On June 26, 1995, Newark Recycling and Composting Company, Inc. received
notice that its permit application was deemed technically complete.
F-58
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Development stage company (continued):
NEWARK PROJECT (continued):
On November 1, 1995, Newark Recycling and Composting Company, Inc. received
approval and permit from the New Jersey Pollutant Discharge Elimination
System to operate sludge process and distribution facilities throughout the
State of New Jersey.
The New Jersey Economic Development Authority regarding the Newark
Recycling and Composting Company, Inc. received a letter of intent from
Paine Webber to confirm the commitment to act as underwriter in connection
with the sale by the New Jersey Economic Development Authority of its solid
waste disposal facility revenue bonds, series 1996 in the approximate
principle amount of $70,000,000. In addition, Paine Webber also sent
letters of intent for Monmouth Recycling and Composting Company, Inc. for
$30,000,000 and for Gloucester Recycling and Composting Company, Inc. for
$30,000,000.
On December 7, 1995, Legg Mason Wood Walker, Inc. sent a letter to the New
Jersey Economic Development Authority stating that they have agreed to act
as underwriter in connection with their firm commitment to raise the
requisite capital for the debt financing component of the composting
projects proposed by Gloucester Recycling and Composting Company, Inc.,
Monmouth Recycling and Composting Company, Inc. and Newark Recycling and
Composting Company, Inc.
On December 14, 1995, pursuant to Executive Order 185 and PL 1987 c 393 the
State Treasurer of New Jersey, Brian W. Clymer, allocated to the New Jersey
Economic Development Authority, $130 million in tax-exempt volume cap
allocation from the state's 1996 tax allocation. This allocation is to be
reserved for the issuance of private activity bonds on behalf of Newark
Recycling and Composting Company.
On January 2, 1996 the New Jersey Economic Development Authority informed
the Company the State Treasurer has allocated to the New Jersey Economic
Development Authority $130 million in 1996 volume cap allocation on behalf
of the Company's composting projects for Newark, Gloucester and Monmouth.
The allocation will expire on March 29, 1996 in the event bonds are not
issued but has been extended to September 30, 1996.
On June 17, 1996 the New Jersey Economic Development Authority reduced the
volume cap allocation for Newark Recycling and Composting Company, Inc.
from $130 million to $85 million and extended the effective date to
September 30, 1996.
As of April 30, 1997 total project cost for the Newark Project amounted to
$4,360,463. In addition the property for the Newark Project has been
acquired at a cost of $3,310,866.
F-59
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO 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 April 30, 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 $862,240.
10. Joint Ventures:
A) American BIO-AG Corporation was incorporated in the State of Delaware
on January 11, 1995. The Corporation is owned 33-1/3% by each of the
following entities:
R.C. Land Company, Inc.
Twin River Equities
Compost America Holding Company, Inc.
The three entities are unrelated. The purpose of the joint venture
will be to develop, own or lease, operate and farm biosolids
beneficial use land application sites. The joint venture registered
to do business in Arizona on June 27, 1995. In addition, Professional
Service Group desires to support the joint venture company in its
efforts to secure, develop and permit beneficial use land application
sites throughout the United States beginning first
F-60
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Joint ventures (continued):
in the South West where 365 day application prevail such as Texas, Arizona,
New Mexico and California. The initial land application sites to be
developed by the joint venture corporation are Arizona, Texas and New
Jersey. Compost America Holding Company, Inc. will arrange for a bridge
loan in the amount of $750,000 which will be repaid upon long-term
financing. The loan is anticipated to be funded by April 1, 1995 and
repaid by June 30, 1995. As of April 30, 1995 the bridge loan was not
arranged. Compost America Holding Company, Inc. has arranged for
short-term funds from February 15, 1995 to April 30, 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
generation of positive cash flow. A monthly director fee of $4,000 per
month will be paid to each of the directors after revenues commence. The
Board of Directors shall be Ronald R. Bryce, President, Robert Jones III,
Vice President and Roger E. Tuttle, Secretary. Roger Tuttle is also an
officer, director and shareholder of Compost America Holding Company, Inc.
The Company accounts for its investment in the joint venture on the equity
method.
The joint venture does not meet the test for a significant subsidiary as
required under REG. Section 210-01 (w) as the total assets are less then
10% of consolidated assets.
Compost America Holding Company, Inc. investment account at June 28, 1996
is as follows:
Investment in joint venture, loans and advances $825,239
Loss for period ( 13,603)
--------
Equity balance June 28, 1996 $811,636
--------
--------
Management of the Corporation is shared equally by the three joint venture
partners.
As of July 28, 1996 100% of American BIO-AG was acquired by Newark
Recycling and Composting Company, Inc.
F-61
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Joint ventures (continued):
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
Company of New Jersey, Ltd. and 25% owned by Potomac Technologies.
For the period July 1, 1996 to July 31, 1996 American BIO-AG
Corporation has been included in the consolidated financial statements
of the Company.
B) Newark Recycling and Composting Company, Inc. was incorporated in the
State of Delaware on May 10, 1994 with Compost America Company of New
Jersey, Ltd. 75% and Potomac Technologies 25%. The purpose of the
Corporation is to continue development activities which were the
development, construction and operation of a sewer sludge composting
facility in Newark, New Jersey. VRH Construction Corp. is a
shareholder in Compost America Holding Company, Inc. and is the
exclusive construction manager for the Newark composting facility.
Management of the corporation will be by consensus of the Board of
Directors. The Company has consolidated the financial statements of
Newark Recycling and Composting Company, Inc. with Compost America
Company of New Jersey, Ltd. at July 31, 1996. The Company reflects
minority interest as another liability in the balance sheet and as a
reduction of net income or net loss in the income statements
11. 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 April 30, 1997. The Company reflects minority
interest as another liability in the balance sheet and as a reduction of
net income or net loss in the income statements. The minority shareholder
account has been reduced to zero at April 30, 1997 as a result of loss
allocations. The Company has increased its portions of losses from
subsidiary in excess of capital investment of the minority interest.
F-62
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Minority interest in consolidated subsidiary (continued):
Compost America Florida Holding Company (Miami Recycling and Composting
Company, Inc.) was incorporated in the State of Florida on November 17,
1995 with Compost America Holding Company at 80.1% and Tomas Andres Mestre,
a consultant located in Miami, Florida owning 19.9% for services rendered.
The purpose of the corporation is to develop a composting facility, other
projects and business enterprises in Florida. Mestre shall be paid a
management fee equal to 30% of the distributable net income from all
Florida facilities.
12. Contingencies and Commitments:
A) The Company leased office facilities under an operating lease in
Doylestown, PA. The lease was assumed by Compost America Company of
New Jersey, Ltd. on December 17, 1993 for 6,122 sq. ft. of office
space. The lease expired on June 14, 1994 but was continued on a
month to month basis until December 1, 1994. The total rental,
including a percentage of maintenance, real estate taxes and
insurance, amounted to $59,049 for the period May 1, 1994 to December
1, 1994. The lease has been extended to December 31, 1997. As of
July 28, 1997 the lease was abandoned and the Company is contingently
liable to December 31, 1997. Annual rental for April 30, 1997
amounted to $18,300.
B) 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, 1998 $48,000
April 30, 1999 48,000
April 30, 2000 48,000
April 30, 2001 48,000
C) The Company leases an automobile under a operating lease. The lease
is payable at $474.55 per month for 48 months. The lease commenced on
May 25, 1993. The minimum annual lease payments during the next year
amount to $5,695.
F-63
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Contingencies and Commitments:
D) As part of the "Asset Purchase Replacement Agreement" dated March 1,
1995, the Company is contingently obligated to pay an additional
$407,500 toward the acquisition of 50% interest in the Monmouth
Recycling and Composting Company from Bio Services, Inc. The
obligation to pay this amount is based on the "Option Purchase
Agreement" with Brownfield Environmental, Inc. to purchase the
Township of Freehold property and upon receipt by Compost America
Company of New Jersey, Ltd. of local approval from the Township of
Freehold and County approval from Monmouth County and the N.J.
Department of Environmental Protection for "Inclusion of the project
in the Monmouth County Solid Waste Management Plan", which will allow
Compost America Company of New Jersey, Ltd. to build the indoor
composting facility. Further contingencies require that any remaining
governmental, environmental and building permits related to the
construction of the "indoor composting facility" be obtained in
addition to the closing on the property and the project.
As of April 30, 1997 the Company has advanced $25,000 towards this
balance as an indication of good faith with Bio-Services, Inc.
E) On October 2, 1996 the Company was assigned a lease commitment with
the Township of Freehold, New Jersey for two parcels of land located
in the Township of Freehold, County of Monmouth, State of New Jersey.
One parcel 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.
13. 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
April 30, 1997 950,264 shares have been sold for a total of $2,319,592.
The offering has no expiration date.
F-64
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options:
On January 31, 1994, as a provision of the "Asset Purchase Agreement",
regarding the Monmouth Recycling and Composting Project. Bio-Services Inc.
was issued 100,000 warrants for the purchase of 100,000 shares of Compost
America Company of New Jersey, Ltd. common stock. The warrants were
exercisable as follows:
$5 per share Year 1
$6 per share Year 2
$7 per share Year 3
Upon a secondary issue Bio-Services, Inc. will have the right to "piggy
back" its 100,000 shares on the secondary issue.
On December 1, 1994 Bio-Services, Inc. released the 100,000 warrants. They
were redistributed as follows:
David Egarian 25,000 $5/$6/$7
Robert W. Jones III 12,500 $5/$6/$7
Ronald K. Bryce 12,500 $5/$6/$7
Cancelled 50,000
-------
100,000
-------
-------
On April 29, 1994, Compost America Company of New Jersey, Ltd. issued a
warrant for 100,000 shares of common stock to Bedminster Bioconversion
Corporation at an exercised price of $5 per share. The warrant expires on
April 29, 1997.
On February 11, 1995, Compost America Holding Company, Inc., subsequent to
the merger with Compost America Holding Company of New Jersey, Ltd. on
February 8, 1995, issued Compost America Holding Company, Inc. warrants
F-65
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
in the amount of 784,000 warrants for its common stock to the following
individuals and entities:
Exercise
Warrant Holder Amount Price Expiration
-------------- ------ ----- ----------
Bedminster Bioconversion (A) 300,000 $ 0.83 February 15, 2000
Bio-Services, Inc. (B) 300,000 1.00/1.17 January 31, 1996/1997
B. Michael Pisani 67,200 .92 June 1, 1999
Robert B. Long 16,800 .92 June 1, 1999
Gary Sondermeyer 100,000 .01 February 6, 1999
-------
784,000
-------
-------
(A) The 300,000 warrants to Bedminster Bioconversion Corporation were part
of 360,460 warrants issued to Bedminster Bioconversion. The 60,460
warrants of 360,460 were part of those issued by the Board of
Directors on April 30, 1995. The 360,460 warrants of Compost America
Holding Company, Inc. were the result of an agreed exchange of the
100,000 warrants issued to Bedminster Bioconversion Corporation on
April 29, 1994.
(B) The 300,000 warrants to Bio-Services, Inc. of Compost America Holding
Company, Inc. were exchanged by agreement for the 100,000 warrants of
Compost America Company of New Jersey, Inc. issued on January 31,
1994.
As a result of the release of the warrants held by Bio-Services, Inc.
the following individuals received warrants previously issued to
Bio-Services, Inc. at the converted amounts.
Exercise
Warrant Holder Amount Price Expiration
-------------- ------ ----- ----------
David Egarian 150,000 $1/1.17 January 31, 1996/1997
Robert W. Jones III 75,000 1/1.17 January 31, 1996/1997
Ronald K. Bryce 75,000 1/1.17 January 31, 1996/1997
-------
300,000
-------
-------
F-66
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
On April 30, 1995 the Board of Directors approved the issuance of Compost
America Holding Company, Inc. warrants in exchange for warrants held by
individuals and other entities of Compost America Company of New Jersey,
Ltd. As a result the Company issued 133,012 warrants at an exercise price
of $3.00 with an expiration date of June 1, 1999. The warrants were issued
to the following:
Warrant Holder Amount
-------------- ------
Bedminster Bioconversion Corporation 60,460
David Egarian 30,230
Ronald K. Bryce 15,115
Robert W. Jones III 15,115
B. Michael Pisani 9,674
Robert B. Long 2,418
-------
133,012
-------
-------
These warrants represent the reissuance of the 50,000 warrants cancelled by
Bio-Services, Inc. on December 31, 1994 which were for Compost America
Company of New Jersey, Ltd. All warrants are outstanding at April 30,
1997.
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 November 26, 1996, the Company issued options to Ira Russack, for loan
service, of 125,000 common shares at $1.00 per share through November 30,
2001. The option price is based on the current value of the stock.
F-67
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. 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 02/15/00
60,460 3.00 06/01/99
David Egarian 150,000 1.00/1.17 02/15/00
Robert W. Jones III 75,000 1.00/1.17 02/15/00
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
Mark Gasarch, Esq. 200,000 2.50 05/20/01
Edward Rodriguez 150,000 4.00
150,000 5.00
200,000 6.00 12/31/01
M.H. Meyerson & Co. 1,000,000 3.00 03/31/02
Mark G. Milask 25,000 2.00 03/31/02
Philip Wagner 25,000 2.00 03/31/02
Dr. Paul Smalheiser 25,000 2.00 03/31/02
Donald Kaplan 50,000 2.00 03/31/02
---------
3,625,000
---------
---------
F-68
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Common Stock Purchase Warrants and Options (continued):
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted the
principles of SFAS-123 "Accounting for Stock Based Compensation" effective
for fiscal year beginning after December 15, 1995, which is based on fair
value. There is no significant difference between compensation cost
recognized by APB-25 and the fair value method of SFAS-123. The Company
has not recognized compensation on the granting of options or warrants to
employees and consultants since the fair value of warrants or options is
the same as or less than the exercise price.
15. Related Party Transactions:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in Compost
America Holding Company, Inc. as well as VRH Construction Corp. VRH
Construction Corp. as of April 30, 1996 has advanced $640,072 to the
Company. The amount due is included in a note payable with interest at 10%
and was due January 31, 1997. The note has been extended from the original
due date to October 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 October 1, 1997 and $1,880,417 is
interest bearing at 10% per annum and payable on demand. The total loans
and notes outstanding at April 30, 1997 amounted to $4,064,355. As of
April 30, 1997 the notes and loans were consolidated with additional loans
made after April 30, 1997, into two mortgage notes, $2,998,688 for Newark
Recycling & Composting Company, Inc. plus accrued interest of $600,068 and
$1,078,000 for Compost America Holding Company, Inc. plus accrued interest
of $164,254. The mortgages are collateralized by all inventory, accounts
receivable, equipment and all the assets of the Company. All advances are
anticipated to be paid back upon completion of the Economic Development
Bond Funding.
The Company has acquired all composting projects and technology from
Bedminster Bioconversion, Inc. through Select Acquisitions, Inc., a
shareholder in Compost America Company of New Jersey, Ltd. Select
Acquisitions Inc. has advanced $78,060 at April 30, 1997. Bedminster
Bioconversion, Inc., an unrelated corporation, received stock purchase
warrants as indicated in the notes to consolidated financial statements.
There are numerous agreements and intercompany transactions between
F-69
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Related Party Transactions:
Compost America Holding Company, Inc. and its subsidiary, Compost America
Company of New Jersey, Ltd. and with its related subsidiaries, Newark
Recycling and Composting Co., Inc., Gloucester Recycling and Composting
Company, Inc. and Monmouth Recycling and Composting Co., Inc. Chicago
Recycling and Composting Company, Inc. and American BIO-AG Corporation. At
April 30, 1997 all intercompany transactions have been eliminated.
The Company, at April 30, 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. In addition, expenses were
accrued for advances made by Foundation Systems and amounted to $231,159.
16. 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
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 April 30, 1997 unpaid accrued wages amounted to $663,500 for all
contract employees.
F-70
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Income taxes:
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes"
as of inception, December 17, 1993. FASB Statement No. 109 is required for
all fiscal years beginning after December 15, 1992. This statement
requires that deferred taxes be established for all temporary differences
between book and tax basis of assets and liabilities. There was no
cumulative effect of adoption or current effect on continuing operations
mainly because the Company has been in a development stage since inception,
December 17, 1993, and has sustained net operating losses during this
period. The Company has made no provision for a deferred tax asset due to
the net operating loss carryforward because a valuation allowance has been
provided which is equal to the deferred tax asset. It cannot be determined
at this time that a deferred tax asset is more likely than not to be
realized.
The Company has a loss carryforward of $8,755,648 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2009 and 2013.
18. Deposits:
Minolta Corporation - Business equipment $ 817
Robert Fellheimer - Rent security 1,525
VRH Construction - Rent security 4,000
------
$6,342
------
------
19. Notes payable, bank:
The notes payable, bank is due to Summit Bank for $100,000 at 9 1/2%
interest payable on demand.
20. Notes payable, other:
Carl Jones, American BIO-AG Corp., loan payable,
unsecured on demand $ 75,000
Ron Bryce, American BIO-AG Corp., loan payable,
unsecured on demand 35,250
Charles Lanktree, Compost America Holding
Company, Inc., convertible note due July 9, 1997
at 10%. The note has been extended through August 1997 50,000
F-71
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. Notes payable, other (continued):
Bruce Boltuch, Compost America Holding Company,
Inc., convertible note due July 9, 1997 at 10%.
The note has been extended through August 1997 50,000
Brokerage Service Management, Inc., Compost America
Holding Company, Inc., note payable due on demand
and unsecured at 10% 77,000
Ira Russack, Compost America Holding Company, Inc.,
convertible note due June 30, 1997 at 8% and is
unsecured. The note has been extended through
August 15, 1997 100,000
Ira Russack, Compost America Holding Company, Inc.,
convertible note due December 15, 1997 at 10% and is
unsecured. 100,000
Charles Lanktree, Compost America Holding Company,
Inc., notes payable, unsecured payable on demand at 10% 8,500
Lancaster Consultants, Compost America Holding Company,
Inc., loans payable, unsecured on demand at 10%
effective rate 110,300
--------
$606,050
--------
--------
21. Mortgage payable - Praxair Corp.
The $2,100,000 mortgage is payable at 8% interest payable monthly. The
mortgage was due September 1996 and extended to December 1996. Interest has
been accrued to April 30, 1997 but payments have not been made. Praxair has
commenced a foreclosure action on the property owned by Newark Recycling
and Composting Company, Inc. in furtherence of having their note paid as
well as unpaid interest, expenses and attorneys fees.
22. Due to affiliated company Foundations Systems:
The Company is obligated on a note payable to John Fetter also known as
Foundation Systems for a $90,000 note plus miscellaneous charges of
$231,159 on behalf of the Chicago Project.
23. Notes payable, shareholder:
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.
24. Payroll taxes payable:
The Company is in arrears for filing and payment of prior and current years
payroll taxes to federal and state taxing authorities in the amount of
$209,073. Interest and penalties have been accrued on these amounts. The
Company is at risk, including the officers, for responsibility for tax
payment under the trust fund recovery systems. The Internal Revenue
Service can cause leins to be recorded and judgements to be filed.
F-72
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. Long-term debt:
<TABLE>
<CAPTION>
Rate Current Long-term Maturity
---- ------- --------- --------
<S> <C> <C> <C> <C>
Teepak, Inc. Prime & 2% $ 264,871 Indefinite
Rinker Materials Corp. 7% $3,730,871 04/01/98
Jerry L. Montierth 7% 7,924 261,499 02/01/15
Equipment notes:
Center Capital Corp. 12.34% 14,244 53,415 02/05/02
Concord Commercial 8.95% 77,406 154,811 04/09/00
AT&T Capital Corp. 12.53% 29,868 62,225 06/10/00
General Electric Capital 10.75% 18,497 16,955 02/23/99
Orix Credit Alliance, Inc. 9.50% 29,502 39,337 07/20/99
Notes payable, others:
Mark G. Milask 8% 25,000 09/30/98
Philip Wanger 8% 25,000 09/30/98
Dr. Paul Smalheiser 8% 25,000 09/30/98
Donald M. Kaplan 10% 50,000 09/30/99
Lionhart Global Appreciation
Fund, convertible debenture 10% 1,000,000 11/26/99
---------- ----------
3,908,312 1,978,113
Less, unamortized discount 38,035 35,202
---------- ----------
$3,870,277 $1,942,911
---------- ----------
---------- ----------
</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-73
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. 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, Cochise County,
Arizona.
D) Equipment which cost $53,500 is pledged as collateral for the note
which is payable in monthly installments of $1,187.
E) Equipment which cost $202,995 is pledged as collateral for the note
which is payable in monthly installments of $6,450.
F) Equipment which cost $110,563 is pledged as collateral for the note
which is payable in monthly installments of $2,489.
G) Equipment which cost $59,920 is pledged as collateral for the note
which is payable in monthly installments of $1,541.
H) Equipment which cost $93,104 is pledged as collateral for the note
which is payable in monthly installments of $2,459.
I) Notes payable to the following are due September 30, 1998 and are
unsecured:
1) Mark G. Milask
2) Philip Wanger
3) Dr. Paul Smalheiser
4) Donald Kaplan
J) On November 25, 1996 the Company issued a convertible debenture for
$1,000,000 to Lionhart Global Appreciation Fund under a Regulation D
offering. The total offering proceeds amounted to $1,030,000 of which
$30,000 is a fee to the agent, Kaplan Gottbetter & Levenson, LLP. The
debentures are in 10 units of $100,000 each at 10% with a maturity of
November 26, 1999. The interest is payable monthly commencing 30 days
from the agreement and the notes are redeemable after 90 days at
option of the Company. As security, the Company will escrow between
300,000 and 325,000 shares of common stock, pursuant to a registration
statement declared effective by the commission, to secure the payments
and shall be held by the escrow agent. The stock pledged shall be
without restrictive legend.
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.
F-74
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. Long-term debt (continued):
J) (continued):
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
The maturities of the long-term debt summarized as follows:
Year ended April 30,
1998 $3,870,277
1999 292,653
2000 1,131,624
2001 17,641
2002 12,270
Thereafter 488,723
----------
$5,813,188
----------
----------
F-75
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26. 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-76
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26. 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.
An impairment loss of $440,955 would be recognized in the operating
expenses of the Company under the caption "Impairment loss on investment
in subsidiary".
The Company has adopted the provision of SFAS-121 effective for fiscal
years beginning after December 15, 1995. As required by the Financial
Accounting Standards Board which requires recognition of impairment of
asset when events and circumstances indicate the carrying amount of those
assets will not be recovered in the future. The pronouncement further
states that goodwill identified with assets that are subject to impairment
loss should be eliminated before the carrying amount of any other assets
is reduced.
Basis of acquisition of American BIO-AG
Corporation $1,770,730
Net book value of the assets acquired
(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-77
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27. Supplemental schedule of non-cash investing and financing activities:
Year
Ended
April 30, 1997
--------------
Officers compensation
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
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 ( 715,260)
Consulting, legal and professional
fees 210,500
Payment of accounts payable 106,760
Construction in progress, compost
projects 398,000
F-78
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
27. Supplemental schedule of non-cash investing and financing activities
(continued):
Year
Ended
April 30, 1997
--------------
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
February and March 1997, the Company
issued 1,012,934 shares of common stock ( 1,021,217)
Consulting service and legal 1,007,920
Construction in progress 13,297
Year
Ended
April 30, 1997
--------------
Issuance of capital stock for management services ($ 1,000)
Professional fees 1,000
Issuance of capital stock in acquisition of
Bedminster Seacor Services Miami Corporation ( 500,000)
Assets acquired 500,000
Issuance of capital stock in settlement
of debt to Jonathan Frank ( 150,000)
Note due to Jonathan Frank 150,000
Issuance of capital stock for legal,
accounting and consulting services ( 717,214)
Legal - accounts payable 43,404
Accounting 50,000
Consulting 623,810
Issuance of capital stock for investment
in American BIO-AG Corporation ( 208,332)
Investment - American BIO-AG Corporation 208,332
F-79
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28. Earnings per share:
1997 1996
Primary Primary
------- -------
Number of shares:
Weighted average shares
outstanding 15,781,015 13,654,892
Incremental shares for
outstanding stock
warrants 936,460 877,960
Incremental shares for
outstanding stock
options 2,345,833 216,666
---------- ----------
19,063,308 14,749,518
---------- ----------
---------- ----------
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-80
<PAGE>
[LETTERHEAD OF ZELLER WEISS & KAHN]
REPORT OF INDEPENDENT AUDITORS' ON STATEMENT OF OPERATING EXPENSES
------------------------------------------------------------------
Board of Directors
Compost America Holding Company, Inc. and subsidiaries
Doylestown, Pennsylvania
We have audited the consolidated financial statements of Compost America
Holding Company, Inc. and subsidiaries as of April 30, 1997 and 1996 and for the
periods then ended and for the period December 17, 1993 (inception) to April 30,
1997, our report thereon dated July 31, 1997. Our audit was made for the
purpose of forming an opinion on those financial statements taken as a whole.
In connection with our audit of these financial statements, we audited the
statement of operating expenses for the periods ended April 30, 1997 and 1996.
Such information has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, the statement
of operating expenses for the periods ended April 30, 1997 and 1996 and for the
period December 17, 1993 (inception) to April 30, 1997 present fairly, in all
material respects, the information stated therein, when considered in relation
to the consolidated financial statements taken as a whole.
/s/ Zeller Weiss & Kahn
July 31, 1997
Mountainside, New Jersey
F-81
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATING EXPENSES
Cumulative from
Year Ended December 17, 1993
April 30, (Inception) to
1997 1996 April 30, 1997
---- ---- --------------
Operating expenses:
Salaries $ 605,289 $ 69,279 $ 734,317
Payroll taxes 28,526 13,736 49,895
Advertising 40,000 2,750 48,055
Amortization 82,989 18,256 105,412
Automobile expense 18,994 35,022 87,814
Bad debt charges 55,384 63,190
Bank charges 2,955 1,897 5,489
Building rental 67,300 18,300 155,354
Carting expense 394
Computer expense 849
Consultants 1,688,930 560,465 2,273,495
Depreciation 78,337 20,411 101,778
Dues and subscriptions 3,068 2,872 21,470
Employment Services 600
Equipment rental 11,676 1,700 18,431
Insurance 93,995 42,801 187,524
Land lease expense 11,171 11,171
Licenses and permits 8,892 1,268 10,426
Impairment loss in consolidated
subsidiary 440,955 440,955
Miscellaneous 2,614 13,678 28,462
Office expense 15,193 24,464 53,086
Option expense 77,475 84,975
Outside services 1,564 1,299 3,734
Penalties and fines 11,149 11,149
Postage and deliveries 9,494 7,679 22,968
Printing 67,024 19,795 86,819
Professional fees 699,606 398,224 1,128,123
Repairs and maintenance 13,758 4,530 18,288
Research and development 15,000 475,376
Settlement of shareholder
dispute 515,000 515,000
Stock expense 15,129 15,129
Sitework 2,731 2,731
Supplies 14,500 14,500
Taxes, other 130,869 47,696 178,960
Telephone 75,399 42,304 149,779
Travel and entertainment 95,431 133,288 279,788
Utilities 7,393 791 11,584
---------- ---------- ----------
$5,007,790 $1,482,505 $7,397,070
---------- ---------- ----------
---------- ---------- ----------
F-82
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE AUDITED FINANCIAL
STATEMENTS OF COMPOST AMERICA HOLDING COMPANY, INC. FOR THE FISCAL YEAR ENDED
APRIL 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 8,012
<SECURITIES> 0
<RECEIVABLES> 26,089
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 207,219
<PP&E> 16,631,081
<DEPRECIATION> 133,547
<TOTAL-ASSETS> 19,237,819
<CURRENT-LIABILITIES> 15,468,079
<BONDS> 1,942,911
0
0
<COMMON> 10,611,169
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,237,819
<SALES> 147,666
<TOTAL-REVENUES> 147,666
<CGS> 10,803
<TOTAL-COSTS> 10,803
<OTHER-EXPENSES> 5,007,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,166,082
<INCOME-PRETAX> (6,037,209)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,921,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,921,603)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
