<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended January 31, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Exchange
Act; For the transition period from to
Commission File #0-27832
COMPOST AMERICA HOLDING COMPANY, INC.
................................................................
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2603175
- ---------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation or organization)
Identification No.)
320 Grand Avenue Englewood, New Jersey 07631
- --------------------------------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
Issuers's telephone number, including area code: (201)541-9393
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X__ No_____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1. Common Stock - 36,980,805 shares outstanding as at February 28, 1998.
Transitional Small Business Disclosure Format (check one):
Yes_____ No X
PLEASE ADDRESS ALL CORRESPONDENCE TO: Mark Gasarch, Esq.
40 West 57th Street
33rd Floor
New York, New York 10019
<PAGE>
INDEX
Part I. Financial Information
Item 1. Condensed consolidated financial statements:
Balance sheet as of January 31, 1998 F-2
Statement of income (loss) for the nine months ended
January 31, 1998 and 1997 F-3
Statement of stockholders' equity as of January 31,
1998 F-4 - F-6
Statement of deficit F-7
Statement of cash flows for the nine months ended
January 31, 1998 and 1997 F-8
Statement of cost of operations for the nine months
ended January 31, 1998 and 1997 F-9
Statement of general and administrative expenses for
the nine months ended January 31, 1998 and 1997 F-10
Notes to condensed consolidated financial statements F-11 - F-56
Item 2. Plan of operations
Part II. Other information
Signatures
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NINE MONTHS ENDED JANUARY 31, 1998 AND 1997
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed consolidated financial statements:
Balance sheet F-2
Statement of income (loss) F-3
Statement of stockholders' equity F-4 - F-6
Statement of deficit F-7
Statement of cash flows F-8
Statement of cost of operations F-9
Statement of general and administrative expenses F-10
Notes to condensed consolidated financial statements F-11 - F-56
</TABLE>
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET - JANUARY 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash $ 87,825
Project fund trust account, First Union Bank 90,000,000
Accounts receivable 3,661,785
Loan receivable 94,053
Accrued interest receivable 296,250
Prepaid expenses 679,831
Escrow receivable 225,000
Prepaid financing fees 396,203
------------
Total current assets 95,440,947
Plant, property and equipment:
Land 9,090,056
Site improvements 174,519
Transportation equipment 160,047
Office equipment 71,051
Machinery & equipment 12,726,263
Construction in progress, Compost projects 7,988,979
------------
30,210,915
Less accumulated depreciation 796,802
------------
29,414,113
------------
Other assets:
Town of Freehold lease acquisition cost, net of
amortization of $59,846 801,015
Intangible assets, net of amortization of $56,078 277,357
City of New York contract, net of amortization of $315,777
18,630,896
City of Miami contract performance fee 1,000,000
Acquisition costs, net of amortization of $62,253 1,228,798
Excess of cost over assets acquired, net of
amortization of $22,294 452,791
------------
22,390,857
------------
$147,245,917
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 5,121,173
Notes payable, bank 100,000
Notes payable, others 3,034,750
Notes payable, shareholder 70,000
Bonds payable 90,000,000
Due to related parties 4,523,574
Accounts payable, accrued expenses and payroll
taxes payable 7,930,760
Reserve for land replacement 85,375
------------
Total current liabilities 110,865,632
------------
Long-term debt, net of current portion 9,534,850
------------
Contingencies and commitments
Series A, redeemable preferred stock, liquidation value of $100 per share plus
accumulated dividends authorized 169,000 shares issued and outstanding 169,000
shares (aggregate
liquidation preference $16,900,000) 6,140,985
Series C redeemable preferred stock, liquidation value of
$100 per share plus non-cumulative non-compounded dividend as declared by the
Company's board of directors authorized 91,000 shares, issued and outstanding
91,000 shares (aggregate
liquidation preference $9,100,000) 4,664,042
------------
10,805,027
------------
Stockholders' equity:
Preferred stock, convertible, Series B, no par value, 24,997,400 shares
authorized, 401,000 shares issued and outstanding (aggregate liquidation
preference $1,002,500) 1,002,500
Common stock, no par value, 50,000,000 shares authorized,
35,913,443 shares issued and outstanding 29,403,241
Deficit ( 14,335,191)
Less: subscriptions receivable ( 30,142)
------------
16,040,408
------------
$147,245,917
------------
------------
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 4,523,698 $ 0 $ 4,523,698 $ 97,555
Other revenues 86,591 70,198 319,459 0
----------- ----------- ----------- -----------
Total 4,610,289 70,198 4,843,157 97,555
Cost of operations 3,269,059 5,841 3,291,165 7,051
----------- ----------- ----------- -----------
Gross income 1,341,230 64,357 1,551,992 90,504
General and administrative 1,843,868 635,098 5,242,282 3,162,354
----------- ----------- ----------- -----------
Income (loss) from operations ( 502,638) ( 570,741) ( 3,690,290) ( 3,071,850)
----------- ----------- ----------- -----------
Other non-operating income (expenses):
Interest income 430,362 0 430,362 0
Interest expense ( 907,184) ( 165,595) ( 1,761,766) ( 448,225)
----------- ----------- ----------- -----------
( 476,822) ( 165,595) ( 1,331,404) ( 448,225)
----------- ----------- ----------- -----------
Loss before income tax expense ( 979,460) ( 736,336) ( 5,021,694) ( 3,520,075)
Income tax expense 0 0 0 0
----------- ----------- ----------- -----------
( 979,460) ( 736,336) ( 5,021,694) ( 3,520,075)
Minority interest in loss
of consolidated subsidiaries 0 43,210 0 128,848
----------- ----------- ----------- -----------
( 979,460) ( 693,126) ( 5,021,694) ( 3,391,227)
Loss in equity in joint venture 0 0 0 ( 13,603)
----------- ----------- ----------- -----------
Net loss ( 979,460) ( 693,126) ( 5,021,694) ( 3,404,830)
Accretion of preferred stock to
redemption value ( 340,027) ( 340,027)
----------- ----------- -----------
Net loss applicable to common
shareholders ($ 1,319,487) ($ 693,126) ($ 5,361,721) ($ 3,404,830)
----------- ----------- -----------
----------- ----------- -----------
Loss per common share ($0.03) ($0.03) ($0.19) ($0.18)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Loss per share assuming dilution ($0.03) ($0.03) ($0.19) ($0.18)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding:
Primary 41,480,344 20,035,449 28,847,418 19,442,846
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted 41,480,344 20,035,449 28,847,418 19,442,846
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Balance, April 30, 1997 17,707,841 $10,611,169
Issuance of common stock for services, May 7,
1997 (.50 per sh.) 180,800 90,400
Issuance of common stock for services, May 8,
1997 (.50 per sh.) 63,500 31,750
Issuance of common stock for services, May 12,
1997 (.50 per sh.) 300,000 150,000
Issuance of common stock, June 1, 1997
(.50 per sh.) 15,000 7,500
Issuance of common stock for services, June 2,
1997 (.50 per sh.) 140,000 70,000
Issuance of common stock for services, June 9,
1997 (.50 per sh.) 245,000 122,500
Issuance of common stock for services, June 11,
1997 (.50 per sh.) 50,600 25,300
Issuance of common stock for payment of accounts
payable, June 11, 1997 (5.00 per sh.) 4,536 22,680
Issuance of common stock for financial advisory
services, August 1, 1997 (.50 per sh.) 80,000 40,000
Issuance of common stock for financial advisory
services, August 1, 1997 (.50 per sh.) 20,000 10,000
Issuance of common stock for services, August 1,
1997 (.50 per sh.) 1,500 750
Issuance of common stock for professional services,
August 1, 1997 (.50 per sh.) 25,000 12,500
Issuance of common stock for services, August 11,
1997 (.50 per sh.) 35,000 17,500
Issuance of common stock, August 15,1997 (2.00
per sh.) 250,000 500,000
Issuance of common stock for services, August 18,
1997 (1.00 per sh.) 90,000 90,000
Issuance of common stock for services, August 18,
1997 (.50 per sh.) 40,000 20,000
Issuance of common stock for services, August 18,
1997 (1.50 per sh.) 200,000 300,000
Issuance of common stock for services, August 18,
1997 (2.00 per sh.) 30,000 60,000
Issuance of common stock for services, August 18,
1997 (.50 per sh.) 100,000 50,000
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
Shares Amount
------ ------
<S> <C> <C>
Issuance of common stock, September 13, 1997
(2.00 per sh.) 250,000 500,000
Issuance of common stock for services, September 25,
1997 (.50 per sh.) 5,000 2,500
Issuance of common stock for services, September 25,
1997 (2.18 per sh.) 6,800 14,860
Issuance of common stock for services, September 25,
1997 (1.75 per sh.) 200 350
Issuance of common stock, October 1, 1997 (1.07
per sh.) 186,666 200,000
Issuance of common stock for services, October 6,
1997 (2.00 per sh.) 76,000 152,000
Issuance of common stock, October 6, 1997 (1.50
per sh.) 300,000 450,000
Redemption of common stock, October 6, 1997 (4.25
per sh.) ( 300,000) ( 1,275,000)
Issuance of common stock, October 6, 1997 (4.25
per sh.) 194,120 825,000
Issuance of common stock for services, October 15,
1997 (.50 per sh.) 150,000 75,000
Issuance of common stock, October 20, 1997 (2.50 per sh.) 40,000 100,000
Issuance of common stock for purchase of
R.J. Longo Construction Co., Inc., (aka EPIC),
November 3, 1997 (1.04 per sh.) 3,447,182 3,585,000
Issuance of common stock, November 3, 1997,
(1.04 per sh.) 11,490,609 11,950,000
Issuance of common stock for services,
January 6, 1998 (1.00 per sh.) 104,580 104,580
Issuance of common stock for purchase of land,
January 20, 1998 (1.00 per sh.) 200,000 200,000
Issuance of common stock for payment of Class
A preferred stock dividend, January 21, 1998
(1.86 per sh.) 116,991 217,822
Issuance of common stock for services January 21,
1998 (1.00 per sh.) 10,120 10,120
Issuance of common stock for services, January 21,
1998 (.50 per sh.) 20,000 10,000
Issuance of common stock for services, January 21,
1998 (3.06 per sh.) 6,098 18,660
Issuance of common stock for services, January 22,
1998 (1.00 per sh.) 30,300 30,300
---------- -----------
Balance, January 31, 1998 35,913,443 $29,403,241
---------- -----------
---------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Series A
Preferred Stock
Shares Amount
------ -------
<S> <C> <C>
Issuance of preferred stock, Series A, November
3, 1997 (35.00 per sh.) 39,000 $1,365,000
Issuance of preferred stock, Series A, November
3, 1997 (35.00 per sh.) 130,000 4,550,000
Accretion of preferred stock to redemption value 225,985
------- ----------
169,000 $6,140,985
------- ----------
------- ----------
</TABLE>
<TABLE>
<CAPTION>
Series B
Preferred Stock
Shares Amount
------ ------
<S> <C> <C>
Issuance of preferred stock, Series B, July 3,
1997 (2.50 per sh.) 400,000 $1,000,000
Issuance of preferred stock, Series B, August 18,
1997 (2.50 per sh.) 1,000 2,500
Issuance of preferred stock, Series B, September 9,
1997 (2.50 per sh.) 400,000 1,000,000
Conversion of preferred stock, Series B, November
3, 1997 into note payable (2.50 per sh.) (400,000) ( 1,000,000)
------- ----------
401,000 $1,002,500
------- ----------
------- ----------
</TABLE>
<TABLE>
<CAPTION>
Series C
Preferred Stock
Shares Amount
------ ------
<S> <C> <C>
Issuance of preferred stock, Series C, November
3, 1997 (50.00 per sh.) 21,000 $1,050,000
Issuance of preferred stock, Series C, November
3, 1997 (50.00 per sh.) 70,000 3,500,000
Accretion of preferred stock to redemption value 114,042
------ ----------
91,000 $4,664,042
------ ----------
------ ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Balance, May 1, 1997 ($ 8,755,648)
Net loss for the nine months ended January 31, 1998 ( 5,361,721)
-----------
( 14,117,369)
Dividends paid on preferred stock ( 217,822)
-----------
Balance, January 31, 1998 ($14,335,191)
-----------
-----------
</TABLE>
See notes to condensed consolidated financial statements.
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
January 31,
1998 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss applicable to common shareholders ($ 5,361,721) ($3,404,829)
Adjustments to reconcile net cash and
equivalents provided by operating activities:
Amortization 409,157 61,574
Accretion 340,027
Depreciation 663,255 60,138
Loss in equity in joint venture 13,603
Stock issued for professional services 1,509,070 570,605
Shareholder settlement 500,000
Loss in equity of minority interest ( 128,847)
Changes in operating assets and liabilities:
Increase in prepaid expenses ( 506,713) ( 102,581)
Increase in accounts payable and accrued expenses 3,777,957 1,519,183
Increase in accounts receivable ( 3,635,696) ( 19,047)
Increase in loans receivable ( 94,053)
Increase in payroll taxes payable 167,040
Increase in accrued interest receivable ( 296,250)
Project Fund Trust Account ( 90,000,000)
Escrow receivable ( 225,000)
Finance fees ( 396,203)
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
American Soil Company, Inc. 175,000
Select Acquisitions, Inc. 14,160
Deferred offering costs 20,564
------------ ----------
Net cash used in operating activities ( 93,816,170) ( 339,837)
------------ ----------
Investing activities:
Purchase of construction in progress, Compost project ( 839,202) ( 1,479,299)
Purchase of land, property and equipment ( 12,740,631) ( 1,572,537)
Reduction (purchase) of equity in American BIO-AG Corporation 624,636
Increase in deposits receivable ( 66,725) ( 65,035)
Return (purchase) of option deposits 37,500 ( 27,500)
Increase in excess of cost over assets acquired ( 475,085)
Purchase of acquisition cost ( 1,291,051)
Cash for business acquisition ( 18,946,673)
------------
Net cash used in investing activities ( 33,846,782) ( 2,994,820)
------------ ----------
Financing activities:
Increase in advances from affiliated companies 60,000 555,167
Increase (decrease) in notes payable, shareholder ( 20,000) 90,000
Increase in loans from Foundation Systems, Inc. 90,000
Decrease in notes payable, other 2,428,700 451,250
Increase in mortgage payable ( 2,100,000)
Increase in other long-term debt 9,135,456 1,458,417
Payments on long-term debt ( 292,621) ( 24,856)
Proceeds from issuance of preferred stock 11,727,500
Proceeds from issuance of common stock 16,803,730 737,154
Increase in bond payable 90,000,000
------------ ----------
Net cash provided by financing activities 127,742,765 3,357,132
------------ ----------
Net increase in cash 79,813 22,475
Cash, beginning of period 8,012 3,498
------------ ----------
Cash, end of period $ 87,825 $ 25,973
------------ ----------
------------ ----------
Supplementary disclosure of cash flow information:
Interest $ 637,133 $ 448,225
Taxes $ 0 $ 0
Supplemental schedule of non-cash investing and
financing activities
</TABLE>
See notes to condensed consolidated financial statements.
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF COST OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cost of goods sold:
Payroll $ 612,899 $ 0 $ 612,899 $ 0
Payroll taxes 69,798 0 69,798 0
Consultants 48,224 0 48,224 0
Depreciation 229,635 0 229,635 0
Equipment rental 211,790 0 211,790 0
Equipment moves 2,401 0 2,401 0
Equipment repairs 196,546 0 196,546 0
Gas and oil 80,983 0 80,983 0
Hauling 233,988 5,841 256,094 7,051
Insurance 23,819 0 23,819 0
Landfill costs 356,603 0 356,603 0
Other direct costs 146,383 0 146,383 0
Permits 4,106 0 4,106 0
Rail transportation 993,219 0 993,219 0
Repairs - rail cars 5,104 0 5,104 0
Union benefits 52,080 0 52,080 0
Vehicle licenses 1,481 0 1,481 0
---------- ------ ---------- ------
$3,269,059 $5,841 $3,291,165 $7,051
---------- ------ ---------- ------
---------- ------ ---------- ------
</TABLE>
See notes to condensed consolidated financial statements.
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENT OF GENERAL AND ADMINISTRATIVE EXPENSES
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
January 31, January 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C>
Operating expenses:
Salaries $ 392,533 $216,987 $ 655,543 $ 414,414
Payroll taxes 4,310 11,315 21,774 12,763
Advertising 34,649 71,460
Amortization 388,405 39,600 409,157 61,574
Automobile expense 22,010 2,149 37,251 10,396
Bad debt charges 55,384
Bank charges 3,085 670 5,551 1,791
Building rental 45,435 22,150 70,960 55,300
Carting expense
Computer expense 8,500
Consultants 355,007 142,936 2,240,842 755,972
Depreciation 339,778 25,190 433,620 60,138
Dues and subscriptions 1,067 120 3,712 800
Employment Services
Equipment rental 8,413 820 10,971 820
Financing fees 6,008 78,695
Impairment loss in
consolidated subsidiary 440,955
Insurance 1,563 34,977 46,524 78,101
Landlease 7,085 10,628
Licenses and permits 1,245 1,100 9,471 1,678
Miscellaneous 6,806 1,498 6,826 2,541
Office expense 23,018 38,689 8,231
Option expense
Outside services 964 710 1,083 1,394
Penalties & fines 7,173
Postage and deliveries 1,473 2,410 8,049 7,797
Printing 3,560 49,232
Professional fees 25,868 56,661 681,959 413,193
Repairs and maintenance 19,077 1,005 26,052 2,068
Research and development 15,000 15,000
Settlement of shareholder dispute 3,000 500,000
Sitework 2,126 2,126
Stock expense 6,998 1,991 6,419 7,530
Supplies
Taxes, other 72,208 32,378 141,958 82,488
Telephone 37,548 13,099 54,323 53,268
Travel and entertainment 32,782 18,405 128,135 61,380
Utilities 6,533 3,241 8,957 6,020
---------- -------- ---------- ----------
$1,843,868 $635,098 $5,242,282 $3,162,354
---------- -------- ---------- ----------
---------- -------- ---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
F-10
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed financial statements of Compost America Holding
Company, Inc. and its Subsidiaries have been prepared pursuant to the rules and
regulations of The Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. These interim condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes included in the Company's April 30, 1997 annual report on Form 10-KSB. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended January 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1998.
1. Nature of business:
The Company is in the process of developing the business of converting and
recycling organic waste into compost and other soil products, which it
sells to a multitude of users. The process which the Company will employ
is composting, or the controlled decomposition of organic matter into
humus (a component of soil). Like a landfill or an incinerator operator,
the Company will be paid "tipping fees" to accept waste from generators of
these materials. In selected markets like New Jersey, Florida and Illinois
where the disposal costs are high, the economic opportunity of taking in
and processing large volumes of waste is significant.
The Company will operate a yard waste, vegetative and selected food waste
compost facility in New Jersey and will continue the development of its
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.
The Company transports solid waste and biosolids by rail and truck and is
capable of rail-hauling anywhere in the continental United States.
2. Business organization:
Compost America Holding Co. Inc., formerly known as Alcor Energy and
Recycling Systems, Inc. (Alcor) was incorporated on August 20, 1981 in the
state of New Jersey, with 1,000,000 authorized shares at no par value. On
February 1, 1984 Alcor conducted an offering under Regulation A, an
exemption from registration under the Securities Act of 1933. On that
date, 300,000 shares of common stock were issued at $1.00 per share.
On June 29, 1992, Alcor was authorized to amend its Certificate of
Incorporation to increase authorized common stock shares from 1,000,000 to
7,500,000 shares.
On June 29, 1992, Alcor issued 3,000,000 shares of common stock to Capital
Pacific Management, Inc. for all the outstanding shares of the Gilbert
Spruance Company and 750,000 shares to Peter English and his affiliates in
return for all outstanding shares of the English Group, Inc.
On December 10, 1992 and January 1993, Alcor disposed of three subsidiaries
due to the lack of sufficient capital needed to continue the operations of
each. Alcor sustained losses from both the disposition of the Gilbert
Spruance Company and The English Group, Inc.
F-11
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
On September 27, 1994, 650,000 shares issued to Peter English to acquire
the English Group, Inc. were returned pursuant to the disposal of the
English Group, Inc.
On September 29, 1994, Alcor issued 1,500,000 shares to two individuals for
cancelling $203,720 of loans due to these individuals.
On October 21, 1994, Alcor amended its Certificate of Incorporation to
increase its authorized common stock from 7,500,000 shares to 15,000,000
shares with 5,490,000 shares issued and outstanding. Alcor, now inactive,
pursued finding a business partner either through merger or acquisition.
On November 28, 1994 the majority of Alcor stockholders agreed to a one for
twenty reverse split which reduced total outstanding shares to 274,500.
On January 23, 1995, Alcor entered into an Acquisition Agreement and Plan
of Reorganization with Compost America Company of New Jersey, Ltd.,
incorporated in the state of Delaware on December 17, 1993. Compost
America Company of New Jersey, Ltd. had 5,000,000 shares, .01 par value of
common stock authorized, of which 1,654,000 shares were issued and
outstanding. Alcor exchanged 9,924,000 shares of its common stock for all
of the outstanding common stock of Compost America Company of New Jersey,
Ltd.
On February 8, 1995, Alcor Energy and Recycling Systems, Inc., changed its
name to Compost America Holding Company, Inc. (Company).
On December 4, 1995, the directors of the Company approved an amendment to
the Certificate of Incorporation to increase the authorized shares to
issue 75,000,000 shares of which 50,000,000 shares shall be common stock
without par and 25,000,000 shares shall be preferred stock with no par
value.
On June 7, 1996, the Company became effective as to its S-1 Registration
Statement which registered 1,353,100 shares of the Company's common stock
solely for selling shareholders.
On June 18, 1997, the Company amended its Certificate of Incorporation to
designate a class of preferred shares as Series B preferred stock. The
designation shall be $2.50 Series B convertible preferred stock,
authorized 5,000,000 shares. The liquidation value shall be $2.50 per
share. The shares will be no par value. Each share of Series B preferred
stock is convertible into one share of common stock at any time after
September 15, 1997.
F-12
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Business organization (continued):
On October 30, 1997, Compost America Holding Company, Inc. amended its
Certificate of Incorporation and the Board of Directors approved a
resolution as follows:
"The number of directors of the corporation and the length of the term
of each such director shall be set forth in the by-laws of the
corporation."
The by laws state the number of directors shall be no more than 15 nor
less than 3.
On October 30, 1997, the Company adopted a resolution creating a Series A
exchangeable redeemable preferred stock, no par value. The Company is
authorized to issue an aggregate of 25,000,000 shares of preferred stock.
The maximum number of shares of Series A preferred stock shall be 169,000
shares. The Series A preferred stock are cumulative non compounding 8% per
annum. The Series A preferred shareholders have a voluntary redemptive
right to redeem all or any of their shares of Series A preferred stock
which shall equal the sum of $100 per share and all accrued dividends on
such share to the date fixed for redemption. On November 3, 2004, the
Company shall redeem all the shares of Series A preferred stock then
outstanding. At any time after November 3, 2000, the Series A preferred
stock are exchangeable for 9% senior subordinated notes due November 3,
2004.
On November 3, 1997, the Board of Directors adopted a resolution creating a
Series C redeemable convertible preferred stock, no par value. The maximum
number of shares of Series C preferred stock shall be 91,000 shares.
Dividends shall be at the rate of 20% per annum through May 3, 1999 (the
"early redemption period"). After the early redemption period, dividends
shall be at the rate of 8% per annum. The dividend is non-cumulative,
non-compounded payable when and if declared by the Company. Following the
last day of the early redemption period, the Series C preferred stock
shall be convertible into shares of common stock. The preferred Series C
stock is valued at $100 for redemption.
Of the Series A and Series C preferred stock, Wasteco Ventures Limited
received 77% of all authorized shares and Robert Longo received the
balance of 23%.
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 and waste transportation, 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-13
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Nature of operations, risks and uncertainties (continued):
There can be no assurance that the Company will be able to obtain the
required federal, state and local permits necessary to operate its
composting facilities presently under development.
The Company plans to contract for and to process, municipal solid waste and
sewage sludge that meets the Company specifications. It is possible that
some of the wastes accepted at a company facility may contain contaminants
which could cause environmental damage and result in liabilities.
4. Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, Compost America Company of
New Jersey, Ltd. The following are subsidiaries of the Company: 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., American BIO-AG Corporation and R.J. Longo Construction Co.,
Inc. Inter-company transactions and balances have been eliminated in
consolidation.
5. Principles of reorganization:
The acquisition of the Company's subsidiary, Compost America Company of New
Jersey, Ltd., on January 23, 1995 has been accounted for as a reverse
purchase of the assets and liabilities of the Company by Compost America
Company Holding Company, Inc. Accordingly, the consolidated financial
statements represents assets, liabilities and operations of only Compost
America Company of New Jersey, Ltd. prior to January 23, 1995 and the
combined assets, liabilities and operations for the ensuing period. The
financial statements reflect the purchase of the stock of Alcor Energy and
Recycling Systems, Inc., the former name of Compost America Holding
Company, Inc., by Compost America Company of New Jersey, Ltd. for stock
and the assumption of liabilities of $49,094, this amount being the
historical cost of the assets and liabilities acquired. All significant
inter-company profits and losses from transactions have been eliminated.
6. Construction in progress, Compost projects:
Project development costs consist of costs incurred for the development of
the Company's composting facilities. These costs included the
architectural, legal, structural and consulting engineering, artist
rendering, planning board approvals and other construction costs. Upon
commencement of operations of a facility, the costs associated with such
project will be depreciated over the estimated useful life of the
facility.
F-14
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock:
A. May 7, 1997
The Company issued 180,800 shares of common stock to three individuals for
financial consulting services. The fair value is estimated to be $.50 per
share or $90,400.
B. May 8, 1997
The Company issued 63,500 shares of common stock to West St. Front Trust
for financial consulting services. The fair value is estimated to be $.50
per share or $31,750.
C. May 21, 1997
The Company issued 300,000 shares of common stock to an attorney. The fair
value is estimated to be $.50 per share or $150,000.
D. June 1, 1997
The Company entered into a subscription agreement with three individuals
entitling each to 5,000 shares of the Company's unregistered common stock
at a price of $.50 per share. These same individuals loaned the Company
$22,500 each in the form of a convertible note (see note 20).
E. June 2, 1997
The Company issued 140,000 shares of common stock for various professional
services. The fair value is estimated to be $.50 per share or $70,000.
F. June 9, 1997
The Company issued 245,000 of common stock to Ronald Bryce for consulting
services. The fair value is estimated to be $.50 per share or $122,500.
G. June 11, 1997
The Company issued 50,600 shares of common stock to Lancaster Consulting,
Inc. for consulting services. The fair value is estimated to be $.50 per
share or $25,300.
H. June 11, 1997
The Company issued 4,536 shares of common stock to Robert Tardy for payment
of accounts payable. The fair value is estimated to be $5.00 or $22,680.
I. August 1, 1997
The Company issued 100,000 shares of unregistered common stock as part of a
consulting agreement of which 80,000 shares were issued to Canterbury
Company, Inc., and 20,000 shares were issued to Gelvin Stevenson, at a
value of $.50 per share.
F-15
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
J. August 1, 1997
The Company issued 1,500 shares of unregistered common stock to Lawrence
Weiner for professional services regarding the Newark Project at a value
of $.50 per share.
K. August 1, 1997
The Company issued 25,000 shares of unregistered common stock to Mathieson
Aitken Jemison LLP for professional services at a value of $.50 per share.
L. August 15 and September 13, 1997
On each date, the Company issued 250,000 shares of common unregistered
stock for $2.00 per share and an option for 100,000 shares at $2.00 per
share exercisable through July 31, 2002 to Aryeh Trading Corporation. The
agreement between Aryeh Trading Corporation and the Company provides for
an offering defined in Rule 501 for three units of 250,000 common shares
plus nontransferable options to purchase 100,000 restricted common shares
at $2.00 per common share, exercisable through July 31, 2002. The price
per unit is $500,000.
M. August 11, 1997
The Company issued 35,000 shares of common stock to Robert W. Jones III
pursuant to a provision in the consulting agreement dated September 7,
1996. The consulting agreement provided for an annual salary of $75,000
for three years payable $6,250 per month or 15,000 shares of the Company's
common stock. In addition, upon execution of this agreement 17,500 shares
shall be issued one year from execution of this agreement and an
additional 17,500 shares shall be issued two years from execution of this
agreement. The Company is to file Form S-8 not later than 10 days after
filing the Company's quarterly report on Form 10-QSB for fiscal quarters
ending July 31, 1996, July 31, 1997 and July 31, 1998, respectively.
Consultant agrees to sell no more than 1,250 of the shares per month the
first year and 1,500 of the shares per month in each of the second and
third years. To the extent that the proceeds from the sale of the shares
in any given month is less than $6,250 the Company will pay the balance to
the consultant in cash within 30 days of written notice. Past due amounts
shall incur a 1.5% per month late charge. In addition, the consultant is
granted an immediately exercisable option to purchase 100,000 shares of
the Company's common stock through December 31, 2001 at the following
prices: 50,000 at $2.00 and 50,000 shares at $3.00 per share. The
consultant is to provide consulting services and advice pertaining to the
compost development and business affairs of Newark Recycling and
Composting Company and the Company.
F-16
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
N. August 18, 1997
On February 21, 1997, the Company and Tomas Andres Mestre entered into a
consulting agreement for 10 years to provide consulting services and
advice pertaining to the Company's development of its composting
facilities throughout the State of Florida and the Company's business
affairs. On August 18, 1997, as part of this consulting agreement, the
Company paid the sum of $300,000 by the issuance of 200,000 shares of
common stock registered in the consultants name.
O. August 18, 1997
The Company issued 40,000 shares of unregistered common stock to Mark
Gasarch for legal services valued at $20,000.
P. August 18, 1997
The Company issued 90,000 shares to Ronald K. Bryce in accordance with the
Asset Purchase Agreement and subsequently filed an S-8 registration of
these shares with the SEC.
Q. August 18, 1997
The Company issued 30,000 shares of unregistered common stock to William
Stockman at a value of $2.00 per share as a provision of the consulting
agreement with Lancaster Consultants, Inc.
R. August 18, 1997
The Company issued 100,000 shares of unregistered common stock to J. Mark
Strong as a consulting fee for assisting the Company to create a webpage
and advise on structuring a preferred stock offering. The stock was valued
at $.50 per share.
S. September 13, 1997
The Company issued 250,000 unregistered common shares to Aryeh Trading
Corporation pursuant to an agreement between these parties.
T. September 23 and 25, 1997
The Company issued shares of common unregistered stock to the following
consultants based on the value of services provided by each.
Richard Kish 5,000 shares $ .50 per share
Robert J. Tardy 6,800 shares $2.18 per share
George C. Kane 200 shares $1.75 per share
U. October 1, 1997
The Company issued 186,666 shares of common stock to Ira Russack in
exchange for $200,000 in notes payable by the Company to Ira Russack due
September 1997.
F-17
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
V. October 6, 1997
The Company issued 270,120 shares of common stock to Lancaster Consultants,
Inc. Of the 270,120 shares, 76,000 shares were issued at $2.00 per share
for services as part of the original agreement and a cashless conversion
of the 300,000 exercisable options at $1.50 per share at a current market
value of $4.25 per share which resulted in a net stock acquisition in the
cashless transaction of 194,120 shares.
W. October 15, 1997
The Company issued 150,000 shares of common stock to Harron Transport, Inc.
at $.50 per share for the issuance of a loan to the Company in November
1997.
X. October 20, 1997
The Company issued 40,000 shares of unregistered common stock at $2.50 per
share to Robert and Elizabeth Ebner for a cash payment of $100,000.
Y. November 3, 1997
The Company issued 3,447,182 shares of common stock to Robert J. Longo for
the purchase of R.J. Longo Construction Co., Inc. for $1.02 per share.
Z. November 3, 1997
The Company issued 11,490,609 shares of common stock to Wasteco Ventures
Limited for a cash payment of $11,750,000 or $1.02 per share.
AA. January 6, 21, and 22, 1997
The Company issued 145,000 shares of common stock to various individuals at
$1.00 per share for services. The individuals exercised their options at
$.01.
BB. January 20, 1998
The Company issued 200,000 shares of common stock to three individuals at
$1.00 per share for the purchase of land in Freehold Township, New Jersey.
CC. January 21, 1998
The Company issued 116,991 shares of common stock at $1.86 for payment of
dividends on Class A preferred stock. The fair value is estimated to be
$217,822.
F-18
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Common stock (continued):
DD. January 21, 1998
The Company issued 20,000 shares of common stock to Bruce Boltuch at $.50
per share for consulting services and financial extension. The stock was
valued at $10,000.
EE. January 21, 1998
The Company issued 6,098 shares of common stock to Robert Tardy for
services. The fair value is estimated to be $3.06 or $18,660.
8. Preferred stock:
A. August 18, 1997
The Company entered into a subscription agreement with Mark Gasarch,
attorney for the Company, for 1,000 shares of Class B preferred shares of
the Company at $2.50 per share.
B. July 3, 1997 and September 9, 1997
The Company entered into a subscription agreement with Paul Harron for
400,000 shares on each occasion of Class B preferred shares for $2.50 per
share for $1,000,000 in a private offering under Rule 501(a). The
preferred stock is convertible into common stock at the rate of one common
share per one Class B share. On November 3, 1997, 400,000 of the Class B
preferred shares were converted to a $1,000,000 promissory note.
C. November 3, 1997
The Company entered into a subscription agreement with Robert J. Longo for
39,000 shares of Series A preferred stock of the Company at $35.00 per
share.
D. November 3, 1997
The Company entered into a subscription agreement with Wasteco Ventures
Limited for 130,000 shares of Series A preferred stock of the Company at
$35.00 per share.
E. November 3, 1997
The Company entered into a subscription agreement with Robert J. Longo for
21,000 shares of Series C preferred stock of the Company at $50.00 per
share.
F. November 3, 1997
The Company entered into a subscription agreement with Wasteco Ventures
Limited for 70,000 shares of Series C preferred stock of the Company at
$50.00 per share.
F-19
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Preferred stock (continued):
The Series A preferred stock shall rank superior to the common stock, no
par value per share of the Company on a parity with all shares of the
Company's Series C convertible redeemable preferred stock. The holders of
record of shares of Series A preferred stock are entitled to a cumulative
non-compounded dividend equal to 8% per annum, payable when and if
declared by the board of directors and upon any exchange or redemption of
the Series A preferred stock. Dividend on stock may be paid either in
cash, or at the election of the Company, by delivery of additional shares
of common stock.
For the purpose of dividend payments, each share of common stock will be
deemed to have a market value equal to ninety percent (90%) of the
"average share price" for the ten (10) consecutive trading days preceding
the dividend payment date. After November 3, 1999, all dividends on the
Series A preferred stock must be paid in cash. Dividends on shares of the
Series A preferred stock will be cumulative on a daily basis from the date
of initial issuance on such shares of Series A preferred stock.
Except as set forth in the preceding sentence, unless full cumulative
dividends on the Series A preferred stock have been paid, no dividends
(other than in common stock of the Company) may be paid or declared or set
aside for payment or other distribution made upon the common stock or any
other junior stock of the Company or on a parity with Series A preferred
stock as to dividends, nor may any common stock or any other junior stock
or parity stock of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any payment be made to or available for
a sinking fund for the redemption of any shares of such stock); provided
that any such junior stock or parity stock may be converted into or
exchanged for stock of the Company ranking junior to the Series A
preferred stock as to dividends.
Except as provided above and except as otherwise required by New Jersey
law, the Series A preferred stock shall have no voting rights.
In the event of liquidation, dissolution or winding up the affairs of the
Company, whether voluntary or involuntary, after payment or provision for
payment of debts and other liabilities of the Company, the holders of
shares of the Series A preferred stock then outstanding, pari passu with
the holders of shares of Series C preferred stock, shall be entitled to
receive, out of the assets of the Company whether such assets are capital
or surplus of any nature, before any distribution shall be made to the
holders of the common stock or any other junior stock, an amount (the
"liquidation preference") per share equal to $100 per share of the Series
A preferred stock, plus cumulative and unpaid dividends at the rate of 8%
per annum through the date of liquidation, dissolution or winding up,
whether or not declared, and no more, before any payment shall be made or
any asset distributed to the holders of the common stock or any other
junior stock.
F-20
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Preferred stock (continued):
Voluntary Redemption
Subject to the right of the holders of Series A preferred stock to effect
an exchange of their shares of Series A preferred stock at any time prior
to 5:00 p.m. New York City time on the date fixed for redemption and
subject to compliance with the provisions of this Section 6(a), the
Company shall have the right, exercisable at any time on not more than
sixty (60) days and not less than fifteen (15) days prior to written to
the holders of Series A preferred stock (the "Voluntary Redemption
Notice"), to redeem all or any portion of the shares of Series A preferred
stock at a redemption price for each share of Series A preferred stock to
be redeemed (the "Voluntary Redemption Price") which shall equal to the
sum of (i) $100 per share, and (ii) all accrued dividends on such share to
the date fixed for redemption (the "Voluntary Redemption Date"). If the
Company redeems less than all of the outstanding shares of Series A
preferred stock on any Voluntary Redemption Date, such redemption shall be
effected on a pro-rata basis among the holders of record.
Mandatory Redemption
On November 3, 2004 (the "Mandatory Redemption Date"), the Company shall
redeem all of the shares of Series A preferred stock than outstanding at a
redemption price for each share of Series A preferred stock to be redeemed
(the "Mandatory Redemption Price") equal to the sum of (i) $100 per share,
and (ii) all accrued dividends on such share to the Mandatory Redemption
Date.
The Series C preferred stock shall rank superior to the common stock, no
par value per share, of the Company on a parity with all shares of the
Company's Series A exchangeable redeemable preferred stock subordinate and
junior to all indebtness of the Company now or hereafter existing and
prior to the Series B preferred stock as to liquidation and other payment
rights as provided and to any other payment rights as provided and to any
other class or series of capital stock of the Company hereafter created,
in each case as to dividends and distributions of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or
involuntary.
The holders of record of shares of Series C preferred stock are entitled to
a non-cumulative non-compounded dividend as set forth below, payable as,
when and if declared by the Company's Board of Directors and upon
redemption of the Series C preferred stock. Dividends on the Series C
preferred stock shall be at the rate of 20% per annum through May 3, 1999
payable on the earlier of the last day of the early redemption period and
the redemption of the shares of Series C preferred stock.
F-21
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Preferred stock (continued):
After the early redemption period, dividends on the Series C preferred
stock shall be at the rate of 8% per annum, payable when and if declared
by the Company's Board of Directors, semi-annually by the Company, on June
30th and December 31 of each year. All dividends paid after the early
redemption period must be paid in cash.
The Series C preferred stock shall have the following class voting rights:
In the event of the liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Company,
the holders of shares of the Series C preferred stock then outstanding
shall be entitled to receive all of the assets of the Company whether such
assets are capital or surplus of any nature. Before any distribution shall
be made to the holders of the common stock or any other junior stock, the
Series C preferred stockholder is entitled to liquidation preference equal
to $100.00 per share of the Series C preferred stock.
9. Agreements:
1) On September 15, 1996 the Company entered into a Lock-Up Agreement
with John B. Fetter, owner of 2,528,612 shares of the Company's
common stock, who agreed for a period of 12 months not to sell
2,300,000 shares of his stock and for an additional 12 months will
not sell 2,000,000 shares of his stock.
2) On October 1, 1996 the Company and individual shareholders agreed to
a modified Lock-Up Agreement for shares that they owned for 6 months
(October 1, 1996 to March 31, 1997) not to sell their shares. The
shareholders and shares are as follows:
<TABLE>
<CAPTION>
Registered
Shareholder Shares
----------- -----------
<S> <C> <C>
William C. Hurtt, Trustee (A) 100,000
William Callari (B) 80,000
</TABLE>
F-22
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
A) William C. Hurtt, Trustee will lock-up 37,500 unregistered
shares with a mutually agreed extension for 3 months for
12,500 unregistered shares. Additional extensions may be
available; during the extension term the shareholder agrees
to not sell more than 7 1/2% of the registered shares. As
consideration for the Lock-Up Agreement the Company will
issue 26,000 unregistered shares of common stock.
B) William Callari will lock-up 30,000 unregistered shares with
a mutually agreed extension for 3 months for 10,000
unregistered shares. Additional extensions may be available;
during the extension term the shareholder agrees to not sell
more than 7 1/2% of the registered shares. As consideration
for this Lock-Up Agreement the Company will issue 20,800
unregistered shares of common stock.
3) On October 9, 1996 the Company and Bruce Boltuch entered into an
agreement for a convertible 10% note for $50,000 payable on April 9,
1997. The note, at the option of the holder, is convertible 30 days
prior to the maturity date into unregistered common shares of the
Company at a conversion price of $3.00 per principal amount of this
note for one share. The note was paid off August 11, 1997. On October
9, 1996, the Company issued a six month $50,000 convertible note at
10% to Charles Lanktree with a maturity date of April 9, 1997.
Interest is to be paid monthly. The note is non recourse on any
shareholder or officer of the Company and is an obligation of the
Company only. The note is convertible 30 days prior to maturity into
common shares of the Company at a conversion price of $3.00 per
share. The note is collateralized by 20,000 registered shares of the
Company's common stock held in escrow. The collateral is transferred
if the unpaid principal and unpaid interest are not paid on the
maturity date plus 15 days. As of July 31, 1997, the note was unpaid.
On May 19, 1997 an agreement to extend the maturity to July 9, 1997
at 12% interest was agreed to. On May 19, 1997, Bruce Boltuch
received an option to purchase 7,500 shares of registered tradeable
stock at $2.00 per share and 2,500 shares of registered common stock
of the Company for granting the extension for payment of the note.
The notes were paid off September 24, 1997.
4) On October 9, 1996 the Company entered into a Lock-Up of Insiders
Shares Agreement for a period of 16 months from the date of October
9, 1996. The following is a list of shareholders and their respective
shares as per this agreement.
F-23
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
<TABLE>
<CAPTION>
Shareholder Shares
----------- ---------
<S> <C>
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
---------
---------
</TABLE>
5) On October 15, 1996 the Company and Brokerage Services Management,
Inc. entered into an agreement for a convertible 10% note for $53,000
with a maturity of December 15, 1996, interest and principal payable
on maturity. The note, at the option of the holder, is convertible 6
days prior to the maturity date into unregistered common shares of
the Company at a conversion price of $3.00 per principal amount of
this note for one share. The note has been paid down to $27,000.
6) On November 24, 1996 the Company and Berwyn Capital Investments, Inc.
entered into an agreement for Berwyn Capital Investments, Inc., for a
term of 180 days, to arrange corporate equity, project debt, project
mortgage debt and project subordinated debt on behalf of the Company.
The anticipated equity financing is to amount to $3,000,000. As
compensation for this service:
A) A cash payment equal to 6% of any equity funds raised
and 3.6% of the proceeds of any debt offering.
B) Option to purchase common stock of $3.50 per share
exercisable any time within 5 years from the date of
issuance with a value equal to 4% (2.4% in the case of debt)
of the funds raised. Upon execution the Company will issue
as a retainer 5,000 shares of common stock. In consideration
of the amount due under A) the amount due shall be reduced
by $15,000.
Compost America Holding Company, Inc. entered into an agreement with
Berwyn Capital Investments, Inc. which agreed that the Company would
pay $120,000 cash portion due (60% of $120,000 by November 24, 1997
and the remaining 40% of the $120,000 within 60 days). The Company
agreed to the imposition of the severe penalties, if the Company did
not make payments on a timely basis, which included a sequential
reduction in the option exercise price (down to one cent per share).
The additional issuance of weekly options, and reimbursement of
Berwyn Capital Investments, Inc. legal expenses incurred in an action
to enforce the November agreement.
F-24
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
To date, the Company has not paid any of the remaining $120,000 as
scheduled. As a result, weekly penalty options which have been exercising
at one cent per share to the principal individuals of Berwyn Capital
Investments, Inc.
The Company has a fair value for the compensation of the stock issued on
conversion for the stock at $1.00 per share in exchange for the stock
purchased at $.01 per share.
7) On December 3, 1996 the Company and Ira Russack entered into an
agreement for a convertible 8% note for $100,000 due June 30, 1997,
and extended to August 15, 1997, interest and principals payable on
the maturity date. On January 16, 1997 the Company and Ira Russack
entered into an agreement for a convertible 10% note for $100,000 due
December 15, 1997, interest and principals payable on the maturity
date. The notes are convertible at $3.00 per share based on the
remaining principal amount plus any accrued interest at the maturity
date. These notes were converted into 186,666 shares of common stock
at October 1, 1997.
8) In March 1997, the Company and M. H. Meyerson & Co., Inc. entered
into an agreement for Meyerson to perform investment banking services
on a non-exclusive basis for a period of three years. Such services
will be performed as requested by the Company on a best efforts basis
and will include assistance in mergers, acquisitions and internal
capital structuring and the placement of new debt and equity issues.
Consideration for the services is an option to purchase 1,000,000
shares of unregistered common stock of the Company. The option
expires on March 31, 2002. The option shall vest and become
irrevocable as follows:
Option to purchase 250,000 common shares at $2.50 per share on
date of agreement.
Option to purchase 250,000 common shares at $3.00 per share on
October 1, 1997.
Option to purchase 250,000 common shares at $3.00 per share on
April 1, 1998.
Option to purchase 250,000 common shares at $3.00 per share on
October 1, 1998.
Upon signing of this agreement, the Company will pay Meyerson $25,000
as a non-accountable and non-refundable expense allowance. Meyerson
shall be entitled to additional compensation to be agreed upon in
advance of any transaction proposed or executed by Meyerson.
9) On March 20, 1997, the Company issued a $8,500 note to an affiliated
company of Charles Lanktree at 10% interest due May 8, 1997. Interest
and principal payable at maturity. The note was paid on September 24,
1997.
F-25
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
10) On April 30, 1997, the Company issued three $25,000 notes to Mark G.
Milask, Philip Wagner and Dr. Paul Smalheiser at 8% due September 30,
1998. The notes are convertible at $2.00 per common share at any time
prior to maturity. In addition, each payee was granted an option to
purchase 50,000 shares of the Company's unregistered common stock at
$2.00 per share, expiring March 31, 2002. Interest payable at date of
maturity.
11) On April 30, 1997, the Company issued a $50,000 note at 10% to Donald
A. Kaplan with a maturity of September 30, 1998. Interest is payable
at maturity. In addition, the Company granted an option to purchase
100,000 shares of common stock at $2.00 per share through March 31,
2002. The note is convertible into unregistered common shares at
$2.00 per share at any time prior to maturity. The holder of the note
is entitled to registration rights when available and will be able to
take advantage of any piggy-back registration.
12) Lease Agreement, Gloucester City, New Jersey
On July 1, 1995 Gloucester City (lessor) and Gloucester Recycling and
Composting Company, Inc. (lessee) entered into a lease agreement for
certain real property located in Gloucester City, New Jersey
containing approximately 7.98 acres and also Parcel No. 2 (Block 120,
Lot 1) if acquired by Gloucester City. Approximately 12 acres of
Parcel No.2 shall be dedicated for the full scale, permanent
composting facility. The lease shall commence on March 7, 1996 for an
initial term of 24 consecutive months. With the lessor's consent the
lessee shall have the right and option to extend the term for an
additional 30 years. The rent is based on a rent formula.
For the first 24 months the rent shall be $100 per month plus all site
improvements to Parcel No. 1 to develop a "demonstration composting
facility" for the 30 year extended term.
1) Lessee's redemption of Parcel No. 1.
2) Lessee's payments to lessor in accordance with the "host
community benefit fee schedule" for the extended term.
The benefit fee payment schedule is as follows:
1) Payments in lieu of taxes
a) Taxes due Camden County and District School taxes to be
paid by lessee following receipt of the NJDEP full scale,
permanent composting facility permit.
F-26
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
12) Lease Agreement, Gloucester City, New Jersey (continued):
1) Payments in lieu of taxes (continued):
b) Municipal purpose taxes beginning twelve months following
the date of commercial operation.
c) The initial payment following commercial start-up is
$82,745 with annual escalations of 4%.
2) Lease payments begin the end of the first full month of
commercial operations and shall be equal to the mortgage
expense resulting from the acquisition of Parcel No. 2.
3) Host Community Benefit
Payments are based on tons of all organic waste received at
the composting facility at the rate of $2.40 per ton which
shall be applied against "site clean-up" costs. Actual cash
payments shall begin after the amount is fully paid except a
rate of $.35 per ton shall be paid for the first calendar
year. Following the site clean-up application the rate shall
be $2.75 per ton through the tenth year. After the ten years
the payment shall be adjusted annually based on the average
tip fee. There is a maximum fee of $100,000 should tip fees
fall below $65.00 per ton. In addition, a rate of $1.25 per
ton will be paid to lessor for organic waste in excess of
100,000 tons.
13) Stock Purchase Agreement:
On October 2, 1996 a second amendment to the Stock Purchase Agreement
was signed between Compost America Holding Company, Inc., Robert F.
Young, Jr. and American Soil, Inc. The amendment extended the
closing date to October 2, 1996. The closing occurred October 2,
1996. In addition, the following amendments were agreed to:
a) Under the first amendment Robert F. Young, Jr. was to be issued
100,000 shares of unregistered common stock, however these
shares were never issued. As a result, no sooner than January
5, 1997 and no later than January 8, 1997 Robert F. Young, Jr.
shall be issued 150,000 shares of registered stock. To secure
the Company's obligation to issue the stock, Roger E. Tuttle
has agreed to deliver to the escrow agent 150,000 shares of his
stock in the Company. These shares are valued at $2.65 or a
total amount of $397,500.
F-27
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
13) Stock Purchase Agreement (continued):
b) At closing the Company will place $132,500 cash or 50,000 shares
of unregistered common stock of the Company owned by Roger and
Elizabeth Tuttle into an escrow account to be held by the
escrow agent for 9 months for the payment of any unknown
liabilities more than 90 days prior to the closing date that
are more than $5,000 and any environmental clean-up that may be
required by law. This provision is in lieu of the $150,000 in
the second amendment.
c) At closing the Company paid Isdaner & Company $20,000 and
Richards & O'Neil LLP $21,457.
d) At the closing the Company paid $325,000 as amended for the
first amendment of $310,000.
e) At closing the Company assumed all assets and liabilities of
American Soil, Inc.
f) The combined investment and advances to American Soil, Inc. was
$1,019,248 which was allocated as follows:
<TABLE>
<S> <C>
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
</TABLE>
Financial statements of American Soil, Inc. have not been provided since
the acquisition does not meet with the test for a significant subsidiary
as required under Reg ss. 210-02 (W). The combined investment in and
advances at the proposed acquisition date amounted to $1,019,248 which did
not exceed 10% of consolidated assets at April 30, 1996.
14) On October 20, 1995, an Amendment to Option and Purchase Agreement
was signed whereby "Praxair" was substituted for the seller, Linde
Gases of the Mid-Atlantic, Inc. and Newark Recycling and Composting
Company, Inc. exercised the option and posted as security for the
closing a security bond. The purchase price was amended to $3,285,866
less the $150,000 in option payments. At closing a deposit of
$1,035,866 plus closing costs was paid together with a promissory
note and purchase money mortgage of $2,100,000 at 8% per annum,
payable monthly, with a maturity on August 31, 1996. Praxair has
commenced a foreclosure action on the property owned by Newark
Recycling and Composting Company, Inc. in furtherance of having their
note paid as well as unpaid interest, expenses and attorney fees. On
November 3, 1997 this obligation was satisfied.
F-28
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
15) On November 21, 1996, Miami Recycling and Composting Company, Inc.
paid $1,000,000 to the City of Miami. This fulfills the 30 year "put
or pay" contract requirement between the Company and the City of
Miami.
The Company has classified this payment as an other asset under the
classification "Cost of Miami Contract performance fee" and is being
amortized over a term of 35 years from the contract date. The fee is
an initial payment for service performance of Bedminster Seacor
Services, Inc. under this agreement.
16) All the agreements with Bedminster Seacor Services Miami Corporation
have been assigned to Miami Recycling and Composting Company, Inc.
subsequent to the acquisition of Bedminster Seacor Services Miami
Corporation by Miami Recycling and Composting Company, Inc. and its
parent company Compost America Holding Company, Inc. on March 1,
1996.
17) On July 4, 1997, the Company entered into an agreement with
Canterbury Companies, Inc. and Gelvin Stevenson for financial
advisory services. The agreement provides for Canterbury Companies,
Inc. to use the best efforts to fairly present to potential investors
the merits of investing in Compost America. As compensation, the
consultant will receive $6,000 upon signing of agreement and a
monthly retainer of $2,500 per month for 6 months. Services will
continue on a month to month basis after 6 months. In addition, the
Company will issue 160,000 shares of common stock, 100,000 shares
issued and vested at execution of agreement and 60,000 over the next
two quarters based on satisfactory performance.
18) On January 26, 1998, the Company, Monmouth Recycling & Composting
Co., Inc., a subsidiary of the Company, Brownfield Environmental,
Inc. and others entered into an agreement to purchase property
located on Turkey Swamp Road, Township of Freehold, County of
Monmouth, State of New Jersey. Compost America Holding Company, Inc.
issued 200,000 shares of its unregistered common stock on behalf of
Monmouth Recycling & Composting Co., Inc. to Brownfield Partners with
an agreement to repurchase or cause the repurchase. (see 3 below)
Brownfield Partners is the assignee of an exclusive and assignable
F-29
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
18) (continued):
right (option) from Brownfield Environmental, et al to purchase from
Priscilla Mittlemark a certain tract of vacant ground in Freehold
containing approximately 15 acres, which option was granted to the
Company pursuant to a certain order of and stipulation of settlement
dated September 29, 1997. The purchase price of the Company was
$60,000, consisting of 1) cash deposit of $50,000 in August 1997 and
$150,000 at closing 2) a promissory note dated January 26, 1998 for
$200,000 at 8% per annum payable on January 26, 2000, interest
compounded monthly and payable at maturity 3) a purchase money
mortgage and security agreement dated January 26, 1998 granting a
mortgage lien in the property to secure the repayment of all sums due
under the note and 4) 200,000 unregistered shares of common stock of
Compost America Holding Co., Inc.
Compost America covenants to cause a third party to purchase the stock or
a portion thereof from Brownfield Partners for a period of 1 year from
date of settlement under the following conditions:
1) 10 days advance written notice to the Company to tender stock
or any portion thereof.
2) Brownfield Partners may exercise its rights no more than 3
times during the purchase period (for a total of 6
opportunities to tender the stock for repurchase during the
purchase period). On each exercise of this purchase option,
Brownfield Partners or any other partner must tender for
purchase the lesser of 50,000 shares of the stock or the
balance of such partner's remaining stock.
3) The stock repurchased during the purchase period shall be
paid as follows:
a) $1.00 per share up to and including April 26, 1998.
b) $2.00 per share up to and including October 26, 1998.
c) $2.50 per share up to and including January 26, 1999.
As a condition of the sale, the seller, Brownfield Partners,
agreed to indemnify, defend and hold harmless, the Company
from any and all expenses, damages, costs & losses of
liabilities without limitation in complying with any
environmental laws or Industrial Site Recovery Act.
F-30
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
19) On January 23, 1998, the Company resolved to satisfy all of its
obligation under the amendment to Asset Purchase Replacement
Agreement dated October 2, 1996 with Bio-Services, Inc.
On October 2, 1996, the Company and Bio-Services, Inc. entered into an
amended agreement under an exclusive joint venture wherein the
Company and Bio-Services, Inc. were 50% owners in Monmouth Recycling
& Composting Company, Inc. and whereas the Monmouth Project located
in Howell Township,Monmouth County and subsequently the approvals
were cancelled. Compost America Company of New Jersey, Ltd., a wholly
owned subsidiary of the Company, entered into an asset purchase
agreement dated January 31, 1994 wherein Bio-Services, Inc. agreed to
sell its 50% interest in the Monmouth Composting Project for $500,000
plus other terms of compensation. Compost America Company of New
Jersey, Ltd. assigned its interest in the asset purchase agreement
dated January 31, 1994 to the Company.
The Company made payments through August 1996 totaling $127,500 toward
the $500,000 purchase price with a balance due of $372,500 due to
Bio-Services and D.J. Egarian & Associates as specified within an
asset purchase replacement agreement dated March 1, 1995. On October
2, 1996, the Company issued 12,500 shares of its unregistered common
stock to Bio-Services, Inc. which were to be delivered on or before
February 2, 1998 as compensation for the extension on closing on the
project.
The Company is to issue in settlement, $89,375 to D.J. Egarian &
Associates and two promissory notes to Bio-Services, Inc. of $135,000
and a cash payment of $25,000.
On January 26, 1998, the Company and Bio-Services, Inc. entered into a
letter of intent amending an asset purchase agreement dated January
31, 1994 and amended October 2, 1996 in satisfaction of its
obligation to Bio-Services, Inc.
The Company agreed, in its letter of intent on January 26, 1998, to
pay and deliver to Bio-Services, Inc. a) cash of $25,000 b) 12,500
unregistered shares of the Company's common stock and c) two
promissory notes in the principal amount of $135,000 each, maturing
on June 30, 1998 and December 31, 1998, respectively.
As of January 31, 1998 none of the above transactions were completed.
F-31
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
19) The Company covenants to cause a third party to purchase the stock or
a portion thereof from Bio-Services, Inc. for a period up to and
including the date that is one year from the date of agreement under
the following terms and conditions:
1) Bio-Services, Inc. will provide no less than 10 days advance
written notice to Compost America of its desire to tender
the stock of any portion thereof for purchases.
2) Bio-Services, Inc. may exercise its rights no more than two
times during the purchase period and on each exercise of
this repurchase option, Bio-Services, Inc. must tender for
purchase the lesser of 1) gross shares of the stock or 2)
the balance of remaining stock.
3) The Company shall cause the following amounts to be paid for
the stock purchased during the purchase period:
a) $1.00 per share up to and including May 1998.
b) $2.00 per share up to and including November 1998.
c) $2.50 per share up to and including February 1999.
The consulting agreement dated October 2, 1996 by and between the
Company and Michael Marchese shall remain in full force and effect.
The agreement provided for a monthly consulting fee of $7,500 from
October 2, 1996 to October 2, 1997. The agreement was informally
extended to continue the fee of $7,500 per month at the sole
discretion of the Company. The accrued fees due at January 31, 1998
amounted to $65,000.
Additionally, the Company shall pay to Bio-Services, Inc. a royalty of
$1.50 per cubic yard of finished compost product marketed by Monmouth
Recycling & Composting Co., Inc. and produced at any invessel
composting facility to be built on certain real property in Freehold
Township which shall be payable quarterly for 10 years after the
facility begins operations, provided that the right to receive
royalties shall be null and void if construction of the facility has
not commenced within 5 years of the date of this agreement.
This agreement as of March 5, 1998 has not been finalized nor executed
by the parties.
F-32
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. Agreements (continued):
20) On November 3, 1997, the Company entered into an acquisition
agreement with Robert Longo and EPIC F/K/A R.J. Longo Construction
Co., Inc. for 3,447,182 common shares of the Company for 100% of the
shares of EPIC. Also issued were 39,000 shares of Series A preferred
stock and 21,000 shares of Series C preferred stock with an aggregate
value of $6,000,000. The purchase price of the Company was
$33,000,000 which was paid by the assumption of equipment debt of
$7,056,292, the preferred stock as above and cash of $20,000,000 in
exchange for 100 shares of the 1,000 shares authorized of EPIC. The
acquisition included net book value of assets acquired of $4,065,756
with an original cost of $17,478,004 and the 15 year, $340 million
City of New York contract for biosolid waste removal.
The acquisition of EPIC included all the assets of EPIC less
excludable assets of $3,286,513 and cash as of the closing date in
excess of $1,000,000. Also, EPIC will include excess working capital
which exceeds a 1.5:1 ratio of current assets to current liabilities,
all retainages held by the Bank of New York, all officer loans of
$819,000 by Robert Longo and all receivables from affiliates totaling
$2,699,826.
21) Wasteco Stock Purchase Agreement:
On November 3, 1997, the Company and Wasteco Ventures Limited, a
corporation organized under the laws of the British Virgin Islands,
entered into a stock purchase agreement to issue 130,000 shares of
preferred stock Series A, 70,000 shares of preferred stock Series C
and 11,490,609 shares of common stock for an aggregate price of
$20,000,000. The above shares were issued simultaneously with the
closing of the purchase agreement of all the common stock of R.J.
Longo Construction Co., Inc. from its shareholder Robert J. Longo and
the Robert J. and Andrea Longo Charitable Trust. The stock issued to
Wasteco represents 77% of the authorized preferred stock Series A and
77% of the authorized preferred stock Series C.
22) On December 3, 1997, EPIC, the Company and Robert J. Longo entered
into a promissory note for $1,000,000 at a fixed rate of interest of
10% per annum. Interest commencing on December 3, 1997 and accruing
on the 1st day of each month thereafter until paid in full. The
balance of principal of this note and all accrued interest hereon
shall be due and payable on February 1, 1998 and extended to April 1,
1998. The note is secured by the Company and EPIC, a wholly owned
subsidiary of the Company.
23) On December 30, 1997, EPIC, the Company and Robert J. Longo entered
into a promissory note for $650,000 at a fixed rate of interest of
10% per annum, commencing on December 30, 1997 and on the first day
of each month, interest in arrears from the preceding month with all
accrued but unpaid interest and principle due April 1, 1998. The note
is secured by a security agreement dated December 3, 1997.
F-33
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts:
A) Ronald K. Bryce Consulting Agreement:
On July 1, 1996 the Company entered into a consulting agreement with
Ronald K. Bryce to provide consulting and advise in the development
of the Company's land application business facilities. The Consultant
shall receive $4,000 per month from July 1996 to December 1996 and
$6,500 per month from January 1997 to January 31, 1998. Additionally,
the Company shall issue 75,000 common shares to be registered before
September 1, 1996. Expenses are to be reimbursed not to exceed $1,850
per month without prior approval of the Company.
B) On July 24, 1996 the Company entered into a consulting agreement with
Edward Rodriguez to provide financial consulting services. The
consultant will assist the Company in developing, studying and
evaluating financial, merger and acquisition proposals and assist in
negotiations. As compensation, the consultant will receive $400,000
in the form of stock of the Company for a term of two years.
The consultant will receive 100,000 shares of the Company's common
stock to be registered under an S-8 filing and 500,000 stock options
exercisable immediately as follows:
150,000 @ $4.00 Expiration December 31, 2001
150,000 @ 5.00 Expiration December 31, 2001
200,000 @ 6.00 Expiration December 31, 2001
After exercising his options, the consultant must complete certain
mailing of investor packages before his shares would be registered
under a Form S-8 filing. Registration of the shares will be in
stages, starting immediately upon completion of mailings consisting
of 100,000 packages to perspective investors occurring 3 and 6 months
after completion.
C) On October 2, 1996 the Company and Robert F. Young, Jr. entered into a
consulting agreement. Robert F. Young, Jr. was the original owner
and developer of American Soil, Inc. which on October 2, 1996 was
acquired by the Company. The consultant is to assist the Company in
the transition of management control of American Soil, Inc. and to
provide the following objectives:
1) Obtain a minimum of a 20 year lease from Freehold Township
for a 350-500 ton per day invessel composting facility.
F-34
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
C) (continued):
2) Secure all acquired local approvals to develop the
"Brownfield" property, directly adjacent to the American
Soil, Inc. site, for compost storage and blending
operations.
3) Obtain approval from the Monmouth County Board of Chosen
Freeholders of an amendment to the Monmouth County district
solid waste management plan to authorize a 350-500 ton per
day in-vessel composting facility for source separated
organic material on the American Soil, Inc. property.
For services rendered, the consultant shall receive $5,000 per month
for a term of 3 months through January 2, 1997. If objective (1) is
achieved within 2 months after the end of the term the consultant
shall receive a bonus of $15,000 and 10,000 shares of registered
common stock of the Company. If objective (2) and/or (3) are achieved
within 2 months after the end of the term of the agreement, the
consultant shall receive $15,000 and 10,000 shares of restricted
common stock of the Company for each objective achieved.
The Company will also provide health coverage for a six month period
from October 2, 1996 to April 2, 1997.
After the term of this agreement, and by mutual consent, the
consultant can be engaged at the rate of $100 per hour either in cash
or common stock.
The consultant shall receive reimbursement for expenses not to exceed
$1,500 per month. In addition the consultant has requested the
Company to pay $15,000 per year for three years to Cornell College of
Art, Architecture and Planning for research.
If objective (1) is achieved within 4 months after the beginning of
the term, the consultant shall receive a bonus payment of $15,000 in
cash and 8,333 shares of common stock of the Company. Additionally if
objective (2) and/or (3) are achieved within 4 months after the
beginning of the term of this agreement $15,000 in cash and 8,333
shares of common stock of the Company will be paid for each completed
objective.
D) On February 21, 1997, the Company entered into a 10 year consulting
agreement with Tomas Andres Mestre to provide expert consulting
service in the management of solid waste and sewer sludge and in
business development in Florida. As compensation, the Company will
pay the consultant as follows:
F-35
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
D) (continued):
1) On or before February 28, 1997, the Company shall pay
$300,000 by delivering 200,000 shares of the Company's
common stock. The Company is to file a registration
statement on Form S-8 covering the shares within 30 days.
2) On or before February 28, 1997, the Company shall deliver to
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 shares of common stock at $2.00 per share for a
period of 10 years.
6) Upon the commencement of commercial operations of the North
Dade Composting Facility and the commencement of commercial
operations of each and every additional facility in Florida,
the Company shall grant the consultant options to purchase
an additional 75,000 shares of common stock at $2.00 per
share for 10 years.
7) Upon each additional closing (other than North Dade) the
consultant will be paid a development fee of $250,000 and
50% of any and all development fees in excess of $500,000.
8) The Company shall exclusively contract with the consultant
for trucking services in the State of Florida at competitive
rates. In addition, the Company shall enter into an
exclusive contract for agriculture land applications in
Florida.
In addition to the above, the Company shall convey to the consultant a
19.9% equity ownership interest in Miami Recycling and Composting
Company, Inc., a subsidiary of the Company. The consultant will also
receive a management fee equal to 30% of distributable net income of
Miami Recycling Composting Company and any other business enterprises
in the State of Florida.
F-36
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
E) On January 1, 1997, the Company entered into a financial consulting
agreement with Lancaster Consultants, Inc. to provide financial
consulting services and advice pertaining to the Company's business
affairs and in raising debt and equity funding, developing, studying
and evaluating financing, merger and acquisition proposals, prepare
reports and studies thereon. The agreement is for a term of 2 years.
As compensation the Company shall pay the consultant by issuing a
stock certificate for 300,000 shares of its common stock valued at
$2.50 per share simultaneously with the execution of this agreement.
The securities shall be registered on Form S-8 with the Securities
and Exchange Commission. On June 20, 1997, the Company amended the
consulting agreement and changed the compensation to $200,000, which
was paid by the Company by issuing a stock certificate for 100,000
shares of its common stock upon execution of this agreement. The
shares shall be registered on Form S-8 not later than 30 days after
the filing of the Company's annual report on Form 10-KSB, for the
fiscal year ended April 30, 1996. In addition, the Company has
granted the consultants immediately exercisable options to purchase
300,000 Rule 144 shares of the Company's common stock through
December 31, 2001 at the exercise price of $1.50 per share. All
options maybe exercised on a "cashless" basis.
On October 6, 1997, the Company modified the January 1, 1997 agreement
and issued 76,000 shares of common stock to Lancaster Consultants,
Inc. and 30,000 shares of common stock to William Stockman at $.50
per share.
F) On January 23, 1997, the Company entered into an agreement with Quirk
Carson Peppet to act on a non-exclusive basis to provide financial
advisory service and be the placement agent for certain financial
advisory and investment banking services. As compensation, the
consultant shall receive the following:
a) Upon acceptance, the Company will issue warrants for 100,000
shares at $2.50 per share for 5 years.
b) Upon closing of a private placement of any equity
securities, the Company will pay the consultant 6% of the
aggregate gross proceeds. In addition, the consultant shall
receive warrants equal to 4% of the common shares or
equivalent issued in the private placement at the price of
the shares for 5 years.
c) Upon closing of a private placement of any equity security
by investors introduced by the Company, the consultant will
receive 3% of the aggregate gross proceeds in cash and 2% of
the common shares or equivalent issued in the private
placement in warrants.
F-37
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. Consulting contracts (continued):
G) On June 23, 1997, the Company and Robert Tardy d/b/a Tardy and
Associates revised a consulting agreement originally dated December
1, 1995 with the following provisions: 1) The term of this agreement
is extended for 3 years commencing January 1, 1997 through December
31, 1999. 2) Consultant will submit monthly invoices to the Company
for services rendered on the last day of each month. For the first
40 hours of each month, the Compensation will be $5,000. Excess
service shall be paid by the issuance of unregistered shares at the
rate of $120 per hour, valued at the closing market price on the date
of the invoice. 3) The Company shall reimburse the consultant for
actual and necessary costs directly related to services provided. 4)
An interest charge of 1% per month on any unpaid balances. On
September 9, 1997, the Company issued 6,800 shares of its
unregistered common stock at a value of $14,860 at an average price
of $2.55 per share. On January 21, 1998, the Company issued 6,098
shares of its unregistered common stock at a value of $18,660 at an
average price of $3.06.
11. Development stage company:
The Company's operations have been centered around its organizing,
evaluating and developing the business of converting organic waste into
compost and other soil products and the start-up financing of its
operations, including the construction of the waste management and compost
facility in Newark, New Jersey and other compost facilities throughout the
country. From December 17, 1993 through the period ending January 31, 1998
the Company has secured required financing through a S-1 registration
statement, various private placement offerings and from the related
companies, Compost Management, Inc., Select Acquisitions, Inc. and VRH
Construction Corp. The Company has incurred losses in connection with its
operations during the development stage of $12,797,882. The Company is no
longer in the development stage.
F-38
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
12. Minority interest in consolidated subsidiary:
Newark Recycling and Composting Company, Inc. (NRCC) was incorporated in
the State of Delaware on May 10, 1994. Compost America Company of New
Jersey, Ltd. owns 75% and Potomac Technologies owns 25% of NRCC. 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. At January 31,
1998, the Company has consolidated the financial statements of Newark
Recycling and Composting Company, Inc. with Compost America Company of New
Jersey, Ltd. The Company reflects minority interest as an other 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 January 31, 1998 as a result of loss allocations. The Company has
increased its portion of losses from subsidiary in excess of capital
investment of the minority interest.
Compost America Florida Company, Inc. was substituted by Miami Recycling
and Composting Company, Inc. with Compost America Holding Company owning
80.1% and Tomas Andres Mestre, a consultant located in Miami, Florida
owning 19.9% for his services rendered. The purpose of the corporation is
to develop a composting facility and other projects and business
enterprises in Florida. Mestre shall be paid a management fee equal to 30%
of the distributable net income from all Florida facilities.
13. Contingencies and commitments:
A) The Company leased office facilities under an operating lease in
Doylestown, PA. On December 17, 1993, the lease for 6,122 square
feet of office space was assumed by Compost America Company of New
Jersey, Ltd. 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 was extended to December 31, 1997. As of July
28, 1997 the office space was abandoned and the Company is
contingently liable on the lease in the amount of $18,240.
B) On May 1, 1996 the Company entered into a five year lease agreement
for office facilities located at 320 Grand Avenue, Englewood, New
Jersey. The Company will pay a rental of $4,000 per month plus
electricity and real estate taxes over the base rent.
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
F-39
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
13. Contingencies and commitments (continued):
C) The Company leases automobiles under operating leases. The lease
payments are $1,764 per month for 36 months. The leases commenced on
various dates. The minimum annual lease payments during the next year
amount to $21,168.
D) As part of the "Asset Purchase Replacement Agreement" dated March 1,
1995, the Company is contingently obligated to pay an additional
$407,500 toward the acquisition of 50% interest in the Monmouth
Recycling and Composting Company from Bio Services, Inc. The
obligation to pay this amount is based on the "Option Purchase
Agreement" with Brownfield Environmental, Inc. to purchase the
Township of Freehold property and upon receipt by Compost America
Company of New Jersey, Ltd. The purchase is contingent upon local
approval from the Township of Freehold and county approval from
Monmouth County and the N.J. Department of Environmental Protection
for "Inclusion of the project in the Monmouth County Solid Waste
Management Plan". The approval would allow Compost America Holding
Company, Inc. to build an indoor 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.
Through January 31, 1998 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.
The first parcel is 10.462 acres and the second parcel is 8.296
acres. The lease is for 5 years with a 5 year option to renew the
lease. The cost of the lease is 5% of the audited profits, net of
income taxes of American Soil, Inc. or a minimum of $4,000 per year,
payable quarterly. The property shall be used for receiving,
processing and composting organic materials, and wholesale and retail
sale of finished horticultural products. Organic materials shall
include yard wastes, processing wastes, paper products and wood
chips. The Company must maintain $2,000,000 of insurance on the
premises.
14. Common stock purchase warrants and options:
The Company terminated the agreement as to the options remaining to M.H.
Meyerson & Co. for the 750,000 options unexercised at January 31, 1998.
The Company entered into an agreement with Berwyn Capital Investments, Inc.
on December 2, 1996 to raise funds for the Company. Berwyn Capital
Investments, Inc. was responsible for a $3,000,000 investment by Paul
Harron through Equity Investors of Delaware. The fee for this service was
$180,000 and options to purchase 95,000 shares of the Company's common
stock at $2.50 per share. The exercise price was subject to downward
adjustments as a penalty for failure to timely pay the unpaid cash balance
of the fee. Payments were due at closing. As of November 21, 1997, the
Company entered into a new agreement; at the date of closing with Equity
Investors of Delaware, the Company was to pay $180,000, $60,000 of which
was paid previously and 60% of the $120,000
F-40
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Common stock purchase warrants and options (continued):
balance by November 24, 1997 and the remaining 40% of the $120,000 within
60 days. The Company did not make payments on a timely basis and was
penalized to reduce the option exercise price from $2.5 to $.01. As a
result, the Company additionally has issued to the principals of Berwyn
Capital Investments, Inc. on a weekly basis since November 24, 1997,
10,000 shares of common stock as exercised by the individuals holding such
options.
Summary of warrants and options outstanding:
<TABLE>
<CAPTION>
Exercise
01/31/98 Price Expiration
-------- ---------- ----------
<S> <C> <C> <C>
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
75,000 1.17 02/15/00
B. Michael Pisani 45,200 .92 06/01/99
Robert D. Long 5,800 .92 06/01/99
Quirk Carson Peppet 100,000 2.50 01/24/02
---------
1,111,460
---------
---------
Options:
Robert E. Wortmann 300,000 2.00 04/23/01
Victor D. Wortmann 300,000 2.00 04/23/01
Roger Tuttle 1,000,000 2.50 11/14/00
Peter Coker 100,000 2.00
50,000 5.00
50,000 9.00 06/30/01
Mark Gasarch, Esq. 200,000 2.50 05/20/01
Edward Rodriguez 150,000 4.00
150,000 5.00
200,000 6.00 12/31/01
M.H. Meyerson & Co. 250,000 3.00 03/31/02
Mark G. Milask 25,000 2.00 03/31/02
Philip Wagner 50,000 2.00 03/31/02
Dr. Paul Smalheiser 25,000 2.00 03/31/02
Donald Kaplan 100,000 2.00 03/31/02
</TABLE>
F-41
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Common stock purchase warrants and options (continued):
Summary of warrants and options outstanding (continued):
<TABLE>
<CAPTION>
Exercise
01/31/98 Price Expiration
-------- -------- ----------
<S> <C> <C> <C>
Options (continued):
Robert W. Jones III 50,000 2.00 12/31/01
50,000 3.00 12/31/01
Allan S. Miller 100,000 2.00 07/31/02
Aryeh Trading Corporation 100,000 2.00 07/31/02
100,000 2.00 07/31/02
J. Mark Strong 150,000 2.00 06/20/01
Berwyn Capital Corporation 33,334 2.50 01/30/02
Adam S. Gottbetter, Esq. 40,000 1.50 06/30/00
Bruce Boltuch 7,500 2.00 05/19/97
Michael A. Benages 50,000 2.00 12/31/01
Jose Ferre 5,000 2.00 12/31/01
Erelio Pena 5,000 2.00 12/31/01
Pedro Roig 5,000 2.00 12/31/01
Julio Rebull 5,000 2.00 12/31/01
Orlando Garcia, Jr. 5,000 2.00 12/31/01
Armando Oliveros 5,000 2.00 12/31/01
Anthony Zamora 5,000 2.00 12/31/01
Arsenio Milian 5,000 2.00 12/31/01
Robert T. Schlaak 10,000 2.00 12/31/01
Robert J. Longo 500,000 1.00 09/16/02
Jay Waxenbaum 300,000 1.00 09/16/02
Kevin Walsh 300,000 1.00 09/16/02
---------
4,780,834
---------
---------
</TABLE>
F-42
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
14. Common stock purchase warrants and options (continued):
The Company has elected to continue use of the methods of accounting
described by APB-25 "Accounting for Stock Issued to Employees" which is
based on the intrinsic value of equity instruments and has not adopted the
principles of SFAS-123 "Accounting for Stock Based Compensation" effective
for fiscal year beginning after December 15, 1995, which is based on fair
value. There is no significant difference between compensation cost
recognized by APB-25 and the fair value method of SFAS- 123. The Company
has not recognized compensation on the granting of options or warrants to
employees and consultants since the fair value of warrants or options is
the same as or less than the exercise price.
15. Related party transactions:
The Company has various transactions with related stockholders and
affiliates of the Company.
The shareholders of VRH Construction Corp. are also shareholders in Compost
America Holding Company, Inc. VRH Construction Corp. as of January 31,
1998 has advanced $640,072 to the Company. The amount due is included in a
note payable with interest at 10% and was due January 31, 1997. The note
has been extended from the original due date to December 31, 1998. In
addition, VRH Construction Corp. has advanced additional funds amounting
to $3,484,283 at January 31, 1998, of which $1,543,866 is payable at 10%
due December 31, 1998 and $1,940,417 is interest bearing at 10% per annum
and payable on demand. The total loans and notes outstanding at January
31, 1998 amounted to $4,124,355. As of January 31, 1998 the notes and
loans were consolidated into two promissory notes, $2,998,688 for Newark
Recycling & Composting Company, Inc. (NRCC) plus accrued interest of
$775,617; and $1,125,667 for Compost America Holding Company, Inc. plus
accrued interest of $225,294. The due date of the two notes is December
31, 1998. All notes are anticipated to be paid back upon completion of the
New Jersey Economic Development bond refinancing of the NRCC tax exempt
revenue bonds.
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 to the Company at January 31,
1998. Bedminster Bioconversion, Inc., an unrelated corporation, received
stock purchase warrants as indicated in the notes to consolidated
financial statements. There are numerous agreements and intercompany
transactions between Compost America Holding Company, Inc. and its
subsidiary, Compost America Company of New Jersey, Ltd. and with its
related subsidiaries, Newark Recycling and Composting Co., Inc.,
Gloucester Recycling and Composting Company, Inc. and Monmouth Recycling
and Composting Co., Inc. Chicago Recycling and Composting Company, Inc.
and American BIO-AG Corporation. At January 31, 1998 all intercompany
transactions have been eliminated.
F-43
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
15. Related party transactions (continued):
The Company has received a loan from Roger Tuttle, the President of Compost
America Holding Company, Inc., in the amount of $70,000.
The Company is obligated on a note payable to John Fetter also known as
Foundation Systems, Inc. in the amount of $90,000 plus miscellaneous
expenses and advances of $231,159 on behalf of the Chicago Project.
The Company received advances from Select Acquisitions, Inc. in the amount
of $78,060.
16. Employment contracts:
As of May 1, 1997 Roger Tuttle and the Company executed an amended
employment agreement, the terms of which supersede all previous
agreements. The term is for seven years effective May 1, 1997. The
compensation shall be $350,000 per annum of which $125,000 shall not be
paid or accrued until the Company has sufficient cash resources to make
payments. There will be annual increases during the term of the agreement
based on growth of the Company but not less than the increase in the
consumer price index. In addition, Roger Tuttle shall receive an annual
bonus based on 5% of the Company's net income up to $25,000,000 and 2% of
the excess over $25,000,000. Roger Tuttle shall also receive the
following:
1) Reimbursement of all business related expenses
2) A Company provided automobile.
3) A one-time signing bonus of $500,000 at such time the Company's
common shares have been listed on the "NASDAQ Small Cap Market".
4) Medical, health and dental insurance
5) Option to purchase 1,000,000 shares of common stock at $2.50 per
share for five years
As of January 31, 1998 unpaid accrued wages amounted to $917,250 for all
contract employees. Roger Tuttle has the right to convert any amounts due
him into unregistered shares of the Company's common stock at $2.00 per
share.
F-44
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. Employment contracts (continued):
The Company modified and amended the employment agreement dated May 1, 1997
with Roger Tuttle. The effective date of this amendment is August 1, 1997.
The term of employment is 7 years from August 1, 1997. During the term the
executive shall receive a base annual salary of $350,000. Of this $125,000
shall not be paid or accrued until the Company has sufficient cash
resources to make this payment. In addition, the executive will receive a
bonus equal to 5% of the Company's consolidated net income on the first
$25,000,000 and 2% of the excess over $25,000,000. The executive is
immediately vested in a 1,000,000 stock option at $2.50 per share. At the
discretion of the executive, payment for the option can be in cash or by a
"cashless exercise".
On August 1, 1997, the Company entered into an employment agreement with
Allan S. Miller for an executive position in the Company to manage project
development and render services required by the Company's President. The
term is from the date of the agreement until July 31, 2002. Compensation
shall be $150,000 annual salary plus a bonus. The bonus shall be paid for
each financial closing, defined as the proceeds or funding sufficient to
allow the commencement and ultimate completion of the development,
construction and commencement of commercial operations of an in vessel
composting facility. The bonus on the first financial closing (either the
Miami or Newark Project) is $75,000 and on subsequent financial closings,
the bonus is one-tenth of one percent of the project financing amount
where he is the project manager as per the employment agreement. The
bonus, at Mr. Allan S. Miller's option, shall be paid in cash or in
unregistered common shares of the Company, which shall be valued at the
greater of $2.00 per share or the average closing sale price of the
Company's common shares for the 30 trading days immediately prior to the
date of payment of the bonus. In addition, the Company shall issue options
to purchase 100,000 unregistered common shares at an option price of $2.00
per share which will vest upon execution of this agreement and expire on
July 31, 2002. The employee shall also be entitled to participate in any
stock bonus, purchase of option plan, bonus of profit sharing plan,
reimbursement of reasonable expenses and an automobile allowance of $600
per month. The employee must also agree to a restrictive covenant for the
term of this agreement and for two years after termination, the employee
shall assign any future inventions and technical data to the Company as
convents to the employment agreement.
F-45
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
16. Employment contracts (continued):
On November 3, 1997, EPIC (Environmental Protection Improvement Company),
which will be a wholly owned subsidiary of Compost America Holding
Company, Inc., entered into an employment agreement with Robert J. Longo,
the former owner of EPIC. Mr. Longo will be EPIC's president and chief
executive officer for the term beginning November 3, 1997 and ending
September 15, 2002. Compensation shall be $325,000 annual salary, plus for
each year after April 30, 1998 an annual bonus at the option of the
executive, either in cash or unregistered common shares of the Company
valued at the greater of $2.00 per share or 80% of the last price of the
shares on the date payment is due. The bonus shall be computed to the
extent that when the Company's (EPIC) earnings before interest, taxes,
depreciation and amortization ("EBITDA") on average assets in any fiscal
year exceed 15.2% in such fiscal year, the executive shall be entitled to
10% of such excess.
As additional compensation, the executive shall be issued, by the Company,
options to purchase 1,500,000 unregistered shares of the Company's common
stock at an option price of $1.00 per share. The options will vest as
follows: 500,000 immediately upon execution of this agreement, 200,000 on
September 15, 1998, 200,000 on September 15, 1999, 200,000 on September
15, 2000, 200,000 on September 15, 2001 and September 15, 2002. All
options not exercised shall expire on September 16, 2002.
On November 31, 1997, EPIC entered into an employment agreement with Jay
Waxenbaum who shall be employed as Vice President of Operations for a term
ending September 15, 2002 with annual salary of $125,000 and an annual
bonus based on above formula after April 30, 1998 at 5%. In addition, the
executive is granted options to purchase 300,000 unregistered shares of
the Company at $1.00 per share according to the following schedule:
50,000 options exercisable immediately
50,000 options September 15, 1998
50,000 options September 15, 1999
50,000 options September 15, 2000
50,000 options September 15, 2001
50,000 options September 15, 2002
All unregistered options shall expire on September 16, 2002.
On November 3, 1997, EPIC entered into an employment agreement with Kevin
Walsh who shall be employed by EPIC as Vice President and Chief Financial
Officer for a term ending September 15, 2002 with annual salary of
$150,000 and an annual bonus based on above formula after April 30, 1998
of 5% In addition, the executive is granted options to purchase 300,000
unregistered shares of the Company at $1.00 per share vesting immediately
with an expiration date of September 15, 2002.
F-46
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. Income taxes:
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes"
as of its inception date, 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 $14,335,191 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2009 through 2013.
18. Intangible assets:
<TABLE>
<S> <C>
Restrictive covenant ...................................... $250,000
Trademark costs ........................................... 3,287
Organization costs ........................................ 7,081
Deposits .................................................. 73,067
--------
333,435
Less accumulated amortization ............................. 56,078
--------
$277,357
--------
--------
</TABLE>
19. Note payable, bank:
The note payable is due to Summit Bank in the amount of $100,000 at 9 1/2%
interest payable on demand. The note is currently in default.
20. Notes payable, other:
Carl Jones, American BIO-AG Corp., loan payable,
unsecured, due on demand ....................................... $75,000
Ron Bryce, American BIO-AG Corp., loan payable,
unsecured, due on demand ....................................... 35,250
F-47
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
20. Notes payable, other (continued):
<TABLE>
<S> <C>
Brokerage Services Management, Inc., Compost America
Holding Company, Inc., 10% unsecured note payable
due on demand ........................................................ 27,000
Helen S. Janklow Trust, Compost America Holding Company, Inc., 9%
convertible note due June 1, 1998 or the first closing of the
municipal bond financing for any of the corporations' composting
facilities ........................................................... 22,500
Richard J. Verge, Compost America Holding Company, Inc., 9% convertible
note due June 1, 1998 or the first closing of the municipal bond
financing for
any of the corporations' composting facilities ....................... 22,500
Walter W. Peine, Compost America Holding Company, Inc., 9% convertible
note due June 1, 1998 or the first closing of the municipal bond
financing for
any of the corporations' composting facilities ....................... 22,500
Mark Stella, Compost America Holding Company, Inc.,
loan payable, unsecured, due on demand ............................... 15,000
Peter May, Compost America Holding Company, Inc.,
loan payable, unsecured, due on demand ............................... 15,000
Robert J. Longo, Compost America Holding Company, Inc., 10% secured
note due April 1, 1998. The note payable is secured by intangibles,
cash, claims and accounts and fees payable to the borrower. On
February 3, 1998 the note was modified to $1,024,445
of principal and accrued interest .................................... 1,000,000
Robert J. Longo, Compost America Holding Company, Inc., 10% secured
note due April 1, 1998. The note payable is secured by intangibles,
cash, claims and accounts and fees payable to the borrower. On
February 3, 1998, the note was modified to $656,861 of principal and
accrued interest ..................................................... 650,000
Equity Investors of Delaware, Inc., Compost America
Holding Company, Inc., 15% promissory note due November
1, 1998. The note is secured by a first mortgage lien
On real estate and improvements in Newark, New Jersey.
Additionally, Newark Recycling and Composting Company,
Inc. executed a collateral assignment consisting of
permits and contracts ................................................ 1,000,000
Andersen, Weinroth and Company, LP, Compost America
Holding Company, Inc., 10% demand note ............................... 150,000
----------
$3,034,750
----------
----------
</TABLE>
F-48
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
21. Mortgage payable - Praxair Corp.
The $2,100,000 mortgage is payable at 8% interest payable monthly. The
mortgage was due September 1996 and extended to December 1996. Interest
has been accrued to July 31, 1997 but payments have not been made. Praxair
has commenced a foreclosure action on the property owned by Newark
Recycling and Composting Company, Inc. in furtherance of having their note
paid as well as unpaid interest, expenses and attorney fees. The mortgage,
interest and fees were paid on November 3, 1997.
22. Notes payable, shareholder:
The Company is obligated on a note payable to Roger Tuttle, president of
the Company, for $70,000 which is non-interest bearing, unsecured and
payable on demand.
23. Bonds payable:
The New Jersey Economic Development Authority (the "Authority"), on
December 30, 1997, issued $90,000,000 of solid waste disposal facility
revenue bonds (the "Bonds") . The Bonds will initially be issued with a
term ending on the earlier of December 15, 1998 or such earlier date as
permitted under the indenture and will bear interest at a rate of 3.95%
during the initial term. Thereafter, the Bonds will be converted to weekly
bonds, term rate bonds or fixed rate Bonds. During the initial term, First
Union Bank, a trustee (the "Trustee") will hold bond proceeds net of
underwriters discount plus a company contribution. The total proceeds of
$90,000,000, which are undistributed, are being invested to provide for
payment of interest to the bondholders during the term, and if necessary,
the $90,000,000 is available to pay the principal owed to the bondholders
at the end of the initial term.
PaineWebber Incorporated, as underwriter, sold the Bonds on December 30,
1997. Proceeds derived from the sale of the Bonds were loaned by the
Authority to the Company under the terms of a loan agreement, but held by
the trustee and invested as described below. The Bonds, with maturity at
December 1, 2022, were issued with an initial one-year term requiring
redemption at the time of conversion of the Bonds to a weekly mode or
December 15, 1998, whichever is sooner. Conversion cannot take place prior
to April 1, 1998. At the time of conversion certain conditions must be met
as described in the authority's official statement for the Bonds.
The net proceeds of the Bonds less underwriter's discount, plus an initial
contribution paid by the Company equal to the underwriter's discount have
been invested in the Project Fund, held by First Union National Bank as
Trustee. The amount in the Project Fund was invested with Societe Generale
at a term rate of interest of 5.25%. The term interest rate on the Bonds
is 3.95%. The Bonds are fully collateralized for both principal and
interest by a Master Repurchase Agreement issued by Societe Generale. Both
principal and interest for the Bonds are payable at the end of the initial
term.
24. Payroll taxes payable:
The Company is in arrears for prior and current years payroll taxes to
federal and state taxing authorities in the amount of $173,687. Of this
amount, $162,698 was attributable from the acquisition of American Soil,
Inc. Interest and penalties have been accrued on these amounts. The
Company and its officers are at risk for payment of taxes under the trust
fund recovery systems. The Internal Revenue Service can cause liens to be
recorded and judgements to be filed.
F-49
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Long-term debt:
<TABLE>
<CAPTION>
Rate Current Long-term Maturity
----- ------- --------- ---------
<S> <C> <C> <C> <C>
A) Teepak, Inc. Prime & 2% $ 264,871 Indefinite
B) Rinker Materials Corp. 7% $3,730,871 04/01/98
C) Jerry L. Montierth 7% 7,924 261,499 02/01/15
Equipment notes:
D) Center Capital Corp. 12.34% 14,244 45,082 02/05/02
E) Concord Commercial 8.95% 77,406 96,757 04/09/00
F) AT&T Capital Corp. 12.53% 29,868 42,324 06/10/00
G) General Electric Capital 10.75% 18,497 1,541 02/23/99
H) Orix Credit Alliance, Inc. 9.50% 29,502 14,751 07/20/99
I) U.S. Bank Corp. 9.09% 396,096 4,542,058 07/01/03
J) Textron Financial 9.09% 226,357 598,785 05/03/01
K) Textron Financial 9.09% 168,482 409,410 03/01/01
L) Textron Financial 9.09% 50,244 127,446 04/15/01
M) CIT Group 8.00% 66,221 156,152 03/10/01
Notes payable, others:
N) Mark G. Milask 8% 25,000 09/30/98
N) Philip Wanger 8% 25,000 09/30/98
N) Dr. Paul Smalheiser 8% 25,000 09/30/98
N) Donald M. Kaplan 10% 50,000 09/30/98
Lionhart Global Appreciation
O) Fund, convertible debenture 10% 800,000 11/26/99
P) Due to shareholders 0% 200,000 05/12/98
Q) Brownfield Partners of
Freehold 200,000 01/26/00
R) Equity Investments of
Delaware, Inc. 2,000,000 11/01/00
---------- ----------
5,140,712 9,560,676
Less, unamortized discount 19,539 25,826
---------- ----------
$5,121,173 $9,534,850
---------- ----------
---------- ----------
</TABLE>
A) The loan payable to Teepak, Inc. is for advances made to Compost
Management, Inc. prior to its merger on December 1, 1994 with Compost
America Company of New Jersey, Ltd. which was subsequently assumed by
Compost America Holding Company, Inc. for the purpose of obtaining
necessary permits for a composting facility in Riverdale, Illinois.
The loans commenced on January 11, 1993 with repayment terms as
follows:
1) After permits are issued, Compost America Holding Company,
Inc. shall repay the loan in quarterly installments
commencing three months after the start up of the facility
to the extent of 50% of available cash flow from the
facility.
2) If the facility does not receive the necessary permits by
September 15, 1996, the entire amount of the loans will be
repaid in 24 equal installments. Any overdue payments shall
bear interest at a rate equal to the prime rate plus 2%. As
of September 15, 1996 the loan has been extended,
indefinitely.
F-50
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Long-term debt (continued):
B) The mortgage payable to Rinker Materials Corporation is secured by
land which cost $4,095,838 and is payable on April 1, 1998 with all
principal and accrued interest at 7%.
C) The mortgage payable to Jerry L. Montierth is payable in annual
installments of $26,784 including interest at 7% over 19 years. The
mortgage is secured by land located in Meridian, Cochise County,
Arizona.
D) Equipment which cost $53,500 is pledged as collateral for the note
which is payable in monthly installments of $1,187.
E) Equipment which cost $202,995 is pledged as collateral for the note
which is payable in monthly installments of $6,450.
F) Equipment which cost $110,563 is pledged as collateral for the note
which is payable in monthly installments of $2,489.
G) Equipment which cost $59,920 is pledged as collateral for the note
which is payable in monthly installments of $1,541.
H) Equipment which cost $93,104 is pledged as collateral for the note
which is payable in monthly installments of $2,459.
I) Equipment which cost $5,320,499 is pledged as collateral for the
note which is payable in monthly installments of $69,000.
J) Equipment which cost $1,171,335 is pledged as collateral for the
note which is payable in monthly installments of $24,830.
K) Equipment which cost $864,829 is pledged as collateral for the note
which is payable in monthly installments of $18,197.
L) Equipment which cost $260,000 is pledged as collateral for the note
which is payable in monthly installments of $5,466.
M) Equipment which cost $335,439 is pledged as collateral for the note
which is payable in monthly installments of $6,802.
N) 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
F-51
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Long-term debt (continued):
O) 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 was a fee to the agent, Kaplan Gottbetter & Levenson,
LLP. The debentures are in 10 units of $100,000 each at 10% with a
maturity date of November 26, 1999. The interest is payable monthly,
commencing 30 days from the agreement and the notes are redeemable
after 90 days at the option of the Company. Pursuant to a
registration statement declared effective by the Commission, the
Company is required to escrow between 300,000 and 325,000 shares of
common stock to secure the payments and these shares are to be held
by the escrow agent. The stock pledged shall be without restrictive
legend. On May 20, 1997 the security of 300,000 shares was redeemed
and the note was reduced to $800,000.
The debenture holder, upon default, has the right to sell, assign or
deliver shares without notice to or demand upon the Company. The
holder is entitled to receive dividends and other distribution but no
right to vote or subscribe.
The debenture holder has the right of conversion 150 days following
date of closing of note. The debenture is convertible (principal and
interest) into common stock based on the principal and interest
outstanding divided by the conversion price, the conversion price
being 65% of the average closing bid price for the 5 days preceding
the closing or 65% of the average closing bid price for the 5 days
immediately preceding the date of conversion.
The debentures are automatically converted to each issued and
outstanding debenture on the date which is 3 years after closing.
Upon 90 days after closing, at the option of the Company, the
debentures may be redeemed based on the following schedule:
<TABLE>
<CAPTION>
Number of days Shares of
from closing date Principal common stock
----------------- --------- ------------
<S> <C> <C> <C>
90 - 120 $1,000,000 80,000
121 - 150 1,000,000 100,000
150 or more 1,000,000 120,000
</TABLE>
P) The amount due to shareholders is due in one year.
The maturities of the long-term debt are summarized as follows:
Year ended April 30,
1999 $ 5,121,173
2000 1,114,450
2001 4,135,618
2002 638,005
2003 568,413
Thereafter 3,078,364
-----------
$14,656,023
-----------
-----------
F-52
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
25. Long-term debt (continued):
Q) On January 26, 1998, the Company issued a $200,000, 8% promissory note
to Brownfield Partners of Freehold, payable on January 26, 2000. The
note is secured by a purchase money mortgage and security agreement
respecting certain real property located in Freehold Township,
Monmouth County, New Jersey.
R) On November 3, 1997, the Company issued a 10% convertible term loan
promissory note to Equity Investors of Delaware, Inc., payable on
November 1, 2000. At any time the lender shall have the right to
convert the principal amount due into shares of Series B preferred
stock of the borrower at a conversion rate of two dollars and fifty
cents ($2.50) per share up to a maximum of eight hundred thousand
shares (800,000 shares). The note is secured by the real estate and
improvements on certain property located in Newark, New Jersey.
26. Impairment of investment in subsidiary:
The Company has adopted the provision of SFAS-121 effective for fiscal
years beginning after December 15, 1995 as required by the Financial
Accounting Standards Board which requires recognition of impairment of
assets 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.
<TABLE>
<S> <C> <C>
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
==========
</TABLE>
F-53
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
27. Subsequent events:
A) On January 21, 1998, the Company issued 20,000 unregistered common
shares of stock to Dr. Bruce Boltuch as compensation for consulting
services and loan extension for previous financing. Dr. Boltuch has
agreed verbally to lock-up his shares until either the Company's
shares are listed on a major exchange or in accordance with Rule 144,
whichever is later. The fair value of the stock is $.50 per share or
$10,000. In addition, on February 5, 1998, Dr.Boltuch gave a general
release of all claims against the Company and other individuals.
B) On February 13, 1998, the Company entered into a settlement agreement
with Ehmann, Van Denbergh & Trainor, a law firm. The Company has
agreed to pay $90,097 including interest of $947 on March 2, 1998. As
of March 15, 1998 payment has not been made, and Ehmann, Van Denbergh
& Trainor has made a motion for judgement in the Philadelphia County
Court of Common Pleas Trial Division.
28. Supplemental schedule of non-cash investing and financing activities:
<TABLE>
<CAPTION>
Nine Nine
Months Months
ended ended
January 31, January 31,
1998 1997
----------- -----------
<S> <C> <C>
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
</TABLE>
F-54
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
28. Supplemental schedule of non-cash investing and financing activities
(continued):
<TABLE>
<CAPTION>
Nine Nine
Months Months
ended ended
January 31, January 31,
1998 1997
----------- -----------
<S> <C> <C>
October 11, 1996 issued 3,000 shares
for legal services ................................. (6,000)
Legal and professional fees .......................... 6,000
October 11, 1996 issued 465,000 shares
of common stock for services and
outstanding accounts payable ....................... (722,760)
Consulting, legal and professional
fees ................................................ 218,000
Payment of accounts payable .......................... 106,760
Construction in progress, compost
projects ........................................... 398,000
December 1, 1996, issued 256,500 shares
of common stock for services rendered
and consulting agreement ........................... (421,250)
Consulting services .................................. 10,000
Investment in acquisition of American
Soil, Inc. ......................................... 397,500
Newark Project cost .................................. 13,750
May and June 1997, the Company issued
984,436 shares of common stock ..................... ($512,630)
Consulting services .................................. 489,950
Payment of accounts payable .......................... 22,680
August 1997, the Company issued 621,000
shares of common stock ............................. (600,750)
Consulting and professional fees ..................... 600,750
September and October 1997, the Company
issued 238,000 shares of common stock .............. (244,710)
Consulting services .................................. 244,710
</TABLE>
F-55
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
28. Supplemental schedule of non-cash investing and financing activities
(continued):
<TABLE>
<CAPTION>
Nine Nine
Months Months
ended ended
January 31, January 31,
1998 1997
---------- ----------
<S> <C> <C>
Consulting services .............................. 37,500
January 1997, the Company issued 161,098
shares of common stock ......................... (173,660)
Consulting services .............................. 173,660
January 1997, the Company issued 200,000
shares of common stock ......................... (200,000)
Acquisition of land .............................. 200,000
</TABLE>
29. Earnings per share:
Primary earnings per share is computed based on the weighted average number
of shares actually outstanding plus the shares that would be outstanding
assuming conversion of the preferred stock, Series B and convertible notes
which are considered to be common stock equivalents. Primary earnings per
share does not include the preferred stock, Series B and convertible notes
because the effect of such inclusion would be to decrease the loss per
share. Net loss for the nine months ended January 31, 1998 has been
adjusted for the dividends on the convertible preferred stock. The number
of shares used in the computations were 35,913,443 in 1998 and 16,545,407
in 1997.
Following is a recalculation of the weighted average number of shares
actually outstanding with the number of shares used in the computations of
primary and fully diluted earnings per share:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Primary and fully diluted:
Computed above for primary
earnings per share ...................... 22,955,124 15,806,386
Stock options ............................ 4,780,834 2,700,000
Stock warrants ........................... 1,111,460 936,460
---------- ----------
28,847,418 19,442,846
---------- ----------
---------- ----------
</TABLE>
F-56
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC.
SEC FILE NO. 0-27832
REPORT ON FORM 10-QSB FOR THE FISCAL QUARTER ENDED JANUARY 31, 1998
APPENDIX A
FINANCIAL DATE SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE UNAUDITED
FINANCIAL STATEMENTS OF COMPOST AMERICA HOLDING COMPANY, INC. FOR THE FISCAL
QUARTER ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
AS AT
ITEM NUMBER ITEM DESCRIPTION JANUARY 31, 1998
- ------------ ---------------- ----------------
<C> <S> <C>
5-02 (1) cash and cash items $ 87,825
5-02 (2) marketable securities 0
5-02 (3) (a) (1) notes and accounts receivable-trade 3,661,785
5-02 (4) allowances for doubtful accounts 0
5-02 (6) inventory 0
5-02 (9) total current assets 95,440,947
5-02 (13) property, plant and equipment 30,210,915
5-02 (14) accumulated depreciation 796,802
5-02 (18) total assets 147,245,917
5-02 (21) total current liabilities 110,865,632
5-02 (22) bonds, mortgages and similar debt 9,534,850
5-02 (28) preferred stock-mandatory redemption 0
5-02 (29) preferred stock-no mandatory redemption 11,807,527
5-02 (30) common stock 29,403,241
5-02 (31) other stockholders' equity (14,335,191)
5-02 (32) total liabilities and stockholders' equity $147,245,917
AS AT
JANUARY 31, 1998
----------------
5-03 (b) 1 (a) net sales of tangible products $ 0
5-03 (b) 1 total revenues 4,843,157
5-03 (b) 2 (a) cost of tangible goods sold 0
5-03 (b) 2 total costs and expenses applicable to
sales and revenues 3,291,165
5-03 (b) 3 other costs and expenses 5,242,282
5-03 (b) 5 provision for doubtful accounts and notes 0
5-03 (b) (8) interest and amortization of debt discount 1,761,766
5-03 (b) (10) income before taxes and other items (5,021,694)
5-03 (b) (11) income tax expense 0
5-03 (b) (14) income/loss continuing operations (5,021,694)
5-03 (b) (15) discontinued operations 0
5-03 (b) (17) extraordinary items 0
5-03 (b) (18) cumulative effect-changes in accounting
principles 0
5-03 (b) (19) net income or loss ($5,361,721)
5-03 (b) (20) earnings per share-primary ($ 0.19)
</TABLE>
<PAGE>
ITEM 2. PLAN OF OPERATION
Introduction
For the quarter ending January 31, 1998, with the acquisition of EPIC, Inc.
(F/K/A R. J. Longo Construction Co., Inc.), the Company now is generating
significant operating revenues from that business, with revenues of
$4,523,698 and net income of $822,176 for the past fiscal quarter. However,
with regard to its proposed invessel composting facilities, the Company
remains 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 from invessel composting
facilities until the Company has successfully financed, constructed and begun
commercial operations of one or more of its compost project facilities
currently in development.
Since its inception, the Company has met its liquidity needs from the
proceeds of the sale of its common stock and from loans made by directors of
the Company, by VRH Construction Corporation, a principal shareholder of the
Company whose owners are directors of the Company, and by other individuals
and institutions not affiliated with the Company. The Company received
$737,154 from private sales of its common stock during the fiscal year ended
April 30, 1997, $1,365,860 from private sales of its common stock during the
fiscal year ended April 30, 1996, $906,409 from private sales of its common
stock during the fiscal year ended April 30, 1995 and $692,000 during the
period December 1993 through April 30, 1994. Since April 30, 1997 through
January 31, 1998, the Company has raised an additional $16,803,730 through
private sales of its common stock. In addition, since April 30, 1997 through
January 31, 1998, the Company received $11,727,500 from the issuance of its
Series A, Series B and Series C Preferred Stock.
In addition, VRH Construction Corporation made loans to the Company
totalling $555,167 during the fiscal year ended April 30, 1997, $2,869,116
during the fiscal year ended April 30, 1996 and $640,072
<PAGE>
during the fiscal year ended April 30, 1995. Since April 30, 1997 through
January 31, 1998, VRH Construction Corporation has loaned an additional
$60,000 to the Company, while other loans to the Company during that same
period have totalled $2,892,500.
Total funds raised from the sale of common shares and loans from shareholders
from December 1993 through April 30, 1997 are $9,651,578, plus an additional
$31,483,730 (including $11,727,500 from the sale of Preferred Shares) since
April 30, 1997 through January 31, 1998.
Revenues from operations of invessel composting facilities are not
anticipated until 1999 at the earliest, when the Company's initial projects
will be fully constructed and operational. Until that time, the Company
anticipates that it will need approximately an additional $17 million 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 (1) approximately $8
million from the sale of additional common and/or preferred shares and/or the
issuance of additional debt, (2) approximately $3.5 million from development
fees and management fees in connection with project financing, (3) approximately
$2.5 million in cash flow from EPIC, Inc. and (4) approximately $3 million
from the refinancing of existing equipment debt.
The Company does not expect to perform any significant product research and
development and does not expect any significant changes in the number of
employees in the current fiscal year, except that it acquired approximately
15 new employees as a result of the EPIC, Inc. acquisition set forth above.
The Company does expect to commence construction of its Miami, Florida and
Newark, New Jersey composting facilities during the next fiscal year.
Since a merger between a "public shell" and a "private operating company" is
considered to be a recapitalization of the operating company, with no
recognition of intangibles as a result of the merger, the acquisition of the
Company's subsidiary, Compost America Company of New Jersey, Ltd. (the
"private operating company"), on January 23, 1995, has been accounted for as
a reverse purchase of the assets and liabilities of the Company by Compost
America Company of New Jersey, Ltd. Accordingly, the consolidated financial
statements represent assets, liabilities and operations of only Compost
America Company of New Jersey, Ltd. prior to January 23, 1995 and the
combined assets, liabilities and operations of both companies for the ensuing
period. The financial statements reflect the purchase of the stock of Alcor
Energy and Recycling Systems, Inc. (the "public shell"), the former name of
Compost America Holding Company, Inc., by Compost America Company of New
Jersey, Ltd. for stock and the assumption of liabilities of $49,094, this
amount being the historical cost of the assets and liabilities acquired. All
significant inter-company profits and losses from transactions have been
eliminated.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included.
Operating results for the third quarter ended January 31, 1998 are not
necessarily indicative of the results that may be expected for the year ended
April 30, 1998. For further information, refer to the consolidated statements
and footnotes thereto included in the Company's report on Form 10-KSB for the
year ended April 30, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings None not Previously
Reported
Item 2. - Changes in Securities and Use of Proceeds
(a) None
(b) None
(c) During the fiscal quarter ended January 31, 1998, the Company
sold 15,425,880 shares of its common stock not registered under the
Securities Act of 1933, as amended, as follows:
<TABLE>
<CAPTION>
Date # of Shares Issued To For Price
- ---- ----------- -------- --- -----
<S> <C> <C> <C> <C>
11/03/97 11,490,609 (1) Wasteco Ventures Ltd. cash $20,000,000
11/03/97 3,447,182 (2) Robert J. Longo cash $ 6,000,000
January 1998 145,000 five investors cash (3) $ 1,450
01/20/98 200,000 three individuals acquire co. $ 200,000
01/21/98 89,993 Wasteco Ventures Ltd. stk div. $ 520,000
01/21/98 26,998 Robert J. Longo stk div. $ 126,000
01/21/98 20,000 one individual services $ 10,000
01/21/98 6,098 Robert J. Tardy services $ 18,660
</TABLE>
(1) plus 130,000 Series A Preferred Shares and 70,000 Series C Preferred
Shares
(2) plus 39,000 Series A Preferred Shares and 21,000 Series C Preferred
Shares
(3) Exercise of stock options at $0.01 per share
These shares were issued without registering the securities under the
Securities Act of 1933, as amended. There were no underwriters involved in
the transaction, and no underwriting discounts or commissions In light of the
small number of recipients and that all securities issued were restricted
against subsequent transfer, the Company believes that this issuance of
securities was effected under an exemption provided by Section 4(2) of the
Securities Act of 1933, as amended, being sales by an issuer not involving a
public offering.
Item 3. - Defaults Upon Senior Securities None
Item 4. - Submission of Matters to a Vote of Security Holders None
<PAGE>
Item 5. - Other Information None
Item 6. - (a) Exhibits None
(b) Reports on Form 8-K
1. A report on Form 8-K dated November 3, 1997 was filed on November
17, 1997 reporting Item 2 (Acquisition or Disposition of Assets),
Item 5 (Other Events) and Item 7 (Exhibits).
2. An amendment to a report on Form 8-K dated November 3, 1997 was
filed on Form 8-K/A on January 15, 1998 reporting Item 7 (Financial
Statements). The financial statements filed were:
a. Audited financial statements of R. J. Longo Construction Co.,
Inc. for the fiscal years ended December 31, 1996 and December
31, 1995
b. Unaudited interim financial statements of R. J. Longo
Construction Co., Inc. for the ten months ended October 31,
1997 and October 31, 1996
c. Form 10-KSB of Compost America Holding Company, Inc. and
subsidiaries for the fiscal years ended April 30, 1997 and
April 30, 1996 - incorporated by reference as filed with the
U.S. Securities and Exchange Commission on August 12, 1997
d. Form 10-QSB of Compost America Holding Company, Inc. and
subsidiaries for the fiscal quarters ended October 31, 1997 and
October 31, 1996 - incorporated by reference as filed with the
U.S. Securities and Exchange Commission on December 10, 1997
e. Unaudited pro forma condensed combined financial statements for
Compost America Holding Company, Inc. and subsidiaries and
R. J. Longo Construction Co., Inc. for the interim period
ending October 31, 1997, including unaudited pro forma
condensed combined statement of operations of Compost America
Holding Company, Inc. and subsidiaries and R. J. Longo
Construction Co., Inc. as at April 30, 1997
3. A report on Form 8-K dated December 12, 1997 was filed on December
24, 1997 reporting Item 5 (Other Events) and Item 7 (Exhibits).
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: COMPOST AMERICA HOLDING COMPANY, INC.
March 23, 1998 (Registrant)
By /s/ Roger E. Tuttle
------------------------------------------------
Roger E. Tuttle, President and Principal
Executive Officer and Principal
Financial Officer
By /s/ Anthony P. Cipollone
------------------------------------------------
Anthony P. Cipollone, Controller (Principal
Accounting Officer)
