<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended July 31, 2000
[ ] 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.)
One Gateway Center, 25th floor Newark, New Jersey 07102
------------------------------------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
Issuers's telephone number, including area code: (973) 297-5400
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 - 67,213,844 shares outstanding
as at July 31, 2000.
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>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheet F-1-F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Cash Flows F-4-F-5
Notes to Consolidated Financial Statements F-6-F-10
<PAGE>
PART I - FINANCIAL INFORMATION
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, 2000
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 7,487,319
Restricted cash 400,000
Accounts receivable 25,103
-----------
Total current assets 7,912,422
Property, plant and equipment, net 11,720,191
Investment in joint venture 2,030,364
Other assets 1,120,184
-----------
$22,783,161
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable $ 8,482,374
Due to related parties 6,061,252
Accounts payable 1,726,366
Accrued interest 1,909,013
Accrued dividends 507,656
Accrued expenses 1,745,294
-----------
Total current liabilities 20,431,955
-----------
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
LIABILITIES AND STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<S> <C>
Redeemable Preferred and Common stock, no par value
Series A, 169,000 shares authorized, issued,
and outstanding (liquidation value of $17,012,667) $ 8,315,722
Series B, 400,000 shares authorized, issued,
and outstanding (liquidation value of $1,240,000) 1,240,000
Series C, 91,000 shares authorized, issued,
and outstanding (liquidation value of $4,160,667) 5,652,031
Series D, 17,500 shares authorized, 8,771 issued,
and outstanding (liquidation value of $882,947) 430,195
Common stock, no par value; 553,386 shares issued
and outstanding (liquidation value of $1,770,836) 1,770,836
------------
Total redeemable preferred and common stock 17,408,784
------------
Stockholders' deficit
Preferred stock, no par value; 25,000,000 shares authorized, none issued
Preferred stock Series B, Convertible, 5,000,000 shares authorized; 1,000
shares issued and outstanding 2,500
Common stock, no par value; 100,000,000 shares authorized;
66,659,458 shares issued and outstanding 47,765,903
Additional paid-in capital 13,904,958
Accumulated deficit (75,305,939)
Treasury stock, 1,150,000 common shares, at cost (1,425,000)
------------
Total stockholders' deficit (15,057,578)
------------
$ 22,783,161
============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31,
2000 1999(*)
----------- -----------
<S> <C> <C>
Revenues $ 158,910 $ 90,656
----------- -----------
Costs and expenses
Operating 16,183 8,190
Selling, general and administrative 2,751,857 921,413
Depreciation and amortization 29,735 281,541
----------- -----------
2,797,775 1,211,144
----------- -----------
Operating loss from continuing operations (2,638,865) (1,120,488)
----------- -----------
Other income (expense)
Interest expense (650,074) (1,361,021)
Interest income 4,965 719,970
----------- -----------
(645,109) (641,051)
----------- -----------
Loss from continuing operations before
discontinued operations and extraordinary item (3,283,974) (1,761,539)
Income (loss) from discontinued operations (241,305) 54,329
Gain on disposition of discontinued operations 1,113,232
----------- -----------
Loss before extraordinary item (2,412,047) (1,707,210)
Extraordinary item, gain on extinguishment of debt 1,217,383
----------- -----------
Net loss (1,194,664) (1,707,210)
Preferred stock dividends (312,597)
Accretion on preferred stock (516,031) (682,491)
----------- -----------
Net loss applicable to common stockholders $(1,710,695) $(2,702,298)
=========== ===========
Net income (loss) per common share, basic and diluted
From continuing operations $ (0.06) $ (0.06)
From discontinued operations 0.01 --
From extraordinary item 0.02 --
----------- -----------
$ (0.03) $ (0.06)
=========== ===========
</TABLE>
(*) Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31,
2000 1999(*)
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,194,664) $ (1,707,210)
Gain (loss) from discontinued operations (241,305) 54,329
------------ ------------
Loss from continuing operations (953,359) (1,761,539)
Adjustments to reconcile loss from continuing operations
to net cash used in operations activities:
Depreciation and amortization 29,735 281,541
Gain on disposal of discontinued operations (1,113,232)
Gain on extinguishment of debt (1,217,383)
Non-cash interest 212,349 229,356
Common stock and options issued for services 729,375
Non-cash financing costs 600,000
Increase (decrease) in cash and cash equivalents attributable
to changes in operating assets and liabilities:
Restricted cash (400,000)
Accounts receivable (10,058) (6,000)
Other assets 22,249 (8,401)
Prepaid expenses and other current assets 4,382
Accounts payable (1,712,829) (823,744)
Accrued expenses (2,092,731) 258,097
Due to related parties 87,500
------------ ------------
Net cash used in operating activities (5,905,884) (1,738,808)
------------ ------------
Cash flows from investing activities
Investment in joint venture (1,829,317) --
Proceeds from the sale of EPIC 29,465,664
------------ ------------
Net cash provided by investing activities 27,636,347
Cash flows from financing activities
Proceeds from long-term debt 800,000 500,000
Repayment of long-term debt (10,984,413) (47,283)
Advances from (repayments to) related parties, net (3,888,211) 1,405,007
------------ ------------
Net cash provided by (used in) financing activities (14,072,624) 1,857,724
------------ ------------
Cash used in discontinued operations (241,305) (47,001)
------------ ------------
Net increase in cash and cash equivalents 7,416,534 71,915
Cash and cash equivalents, beginning of period 70,785
------------ ------------
Cash and cash equivalents, end of period $ 7,487,319 $ 71,915
============ ============
</TABLE>
(*) Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31,
2000 1999*
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information,
cash paid during the period for interest $ 2,311,553 $ 703,000
=========== ===========
Supplemental disclosures of noncash investing and
financing activities
Common stock issued for consulting services $ -- $ 31,800
Common stock issued for payment of Preferred stock dividends $ 1,758,969 $ 312,597
Conversion of note payable into Common stock $ -- $ 362,548
Accretion of Preferred stock $ 516,030 $ 682,491
Redemption of Series D Preferred stocks for investment in joint venture $ -- $ 872,886
Repayment of restricted project bonds payable $ -- $91,370,763
</TABLE>
(*) Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The condensed financial statements included herein have been prepared
by the Company without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations. These statements include all adjustments that, in the
opinion or management, are necessary to provide a fair statement of
the results for the periods covered. These financial statements
should be read in conjunction with the audited financial statements
and the notes thereto included in the Company's form 10-KSB for the
year ended April 30, 2000. The results of operations for the interim
periods presented are not necessarily indicative of the results for
the full year.
NOTE 2 - Nature of Operations
Compost America Holding Company, Inc. and subsidiaries (the
"Company"), formerly known as Alcor Energy and Recycling Systems,
Inc., was incorporated in New Jersey. The Company's initial business
plan was to construct or acquire, manage and own indoor compost
manufacturing plants. Composting is a method of converting the
organic portion of municipal solid waste and sewage into a peat moss
like product with agronomic benefits. The Company's first two
development projects were to be fully enclosed composting facilities
in Newark, New Jersey and Dade County, Florida. These development
facility projects had to be altered due to the Company's inability to
remarket New Jersey Economic Development Authority municipal bonds
and lack of necessary capital. The Company is currently pursuing
alternative uses which would involve using the land for a waste
transfer station or other suitable project. The Dade County, Florida
composting facility project has been delayed due to a pending lawsuit
between one of the Company's subsidiaries and the City of Miami.
Other solid waste contracts will be sought after by the Company.
NOTE 3 - Discontinued Operations
On June 15, 2000, pursuant to a stock purchase agreement, the Company
sold its wholly-owned subsidiary EPIC. Under the terms of this
agreement, the Company sold all of the stock of EPIC for proceeds of
approximately $31 million, subject to working capital adjustments as
defined and an earnout. The Company assumed liabilities of
approximately $2.1 million. The results of operations for all years
presented have been restated for the discontinued operations.
Proceeds from the sale of EPIC were used to pay off debt, pay
contract termination fees to EPIC executives and to purchase
additional membership interests in a joint venture.
F-6
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - Going Concern Consideration
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As of
July 31, 2000, the Company had a working capital deficit of
approximately $13 million, an accumulated deficit of approximately
$75 million and a stockholders' deficit of approximately $15 million.
In addition, as of July 31, 2000, the Company was not in compliance
with the majority of its long-term debt agreements. In connection
with the financing needed for the project costs incurred and the
funding of operating expenses, the Company has incurred indebtedness
with relatively short repayment schedules. In addition, the Company
has incurred losses since its inception, has nominal revenues and is
subject to those risks associated with companies in the early stages
of development. The Company's growth and development strategy will
also require the approval of certain permits from regulatory
authorities and substantial financing will be required to finance
construction and development of projects, for working capital and for
other capital expenditures. The Company has received cash proceeds
from the sale of EPIC in which it utilized to pay off a significant
portion of its long-term debt. In addition, the Newark, New Jersey
composting project has been altered due to the Company's inability to
timely secure the necessary permits and approvals, the inability to
re-market tax free municipal bonds which were issued by the New
Jersey Economic Development Authority and due to the Company's
inability to secure the necessary capital to proceed. The Company is
presently pursuing alternative uses for the Newark site, primarily as
a waste transfer station. In June 2000, the Company used proceeds
from the sale of EPIC to purchase additional membership interests in
a joint venture. The joint venture is developing a solid waste
station in Bronx, New York. The Company holds an option to purchase
additional membership interests subject to the terms of the
agreement. The Company also intends to form strategic alliances with
certain well- recognized companies in the waste industry to further
implement its business plan.
There can be no assurance that the Company will be able to obtain
sufficient debt or equity financing on favorable terms, if at all. If
the Company is unable to secure additional financing and attain
future profitable operations, its ability to implement its growth
strategy will be impaired and its financial condition, results of
operations and cash flows are likely to be materially adversely
affected. Also, there are significant uncertainties that could affect
the success of the joint venture. In addition, unfavorable outcomes
of any of the various pending litigation and disputes could have a
material adverse effect on the Company's consolidated financial
position, results of operations and cash flows.
NOTE 5 - Risk and Uncertainties
The planned uses of the Company's facilities are subject to all of
the risks inherent in the establishment of a new business enterprise,
including the absence of an operating history, lack of market
recognition for products and the need to develop new banking and
financial relationships. The Company has not yet demonstrated an
ability to profitably operate any in-vessel compost facilities, or a
transfer station, including those of the type proposed to be built by
the Company. Also, there are no guarantees that the Company's planned
strategic alliances will come to fruition or that the Company's
investment in the joint venture will result in profits to the
Company.
The waste management industry in which the Company operates is highly
competitive and has been traditionally dominated by several large and
well recognized national and multinational companies with
substantially greater financial resources than those available to the
Company. The Company will be competing with such other companies for
a share of the available market and no assurance can be given that in
the future it will be able to obtain an adequate commercial customer
base to implement its operating plan.
F-7
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Investment in Joint Venture
The Company has purchased a membership interest in a joint venture
for approximately $2 Million. American Marine Rail, LLC ("AMR") is
developing a solid waste transfer station in Bronx, New York. When
and if constructed, AMR's facility will be capable of receiving waste
by barge from New York City's existing marine transfer station
system, compacting the waste and transporting it out of the City by
rail. AMR has responded to a Request for Proposals, issued by the New
York City Department of Sanitation ("NYCDOS") for a 20-year contract
to transport and dispose of up to 11,700 tons per day of the
Department's residential solid waste. The Request for Proposals was a
result of New York City's intent to close the Fresh Kills Landfill in
Staten Island on December 31, 2000.
AMR submitted its permit application to the State of New York in the
fall of 1997, and expects final permits to be issued by year end
2000. Drafts of a Negative Declaration of Environmental Impact and a
permit were issued to AMR in December 1999.
Originally, the Company had purchased a 33% interest in AMR and had
held an option to acquire an approximate additional 30% interest (the
"Additional Membership Interest"). However, in July, 1999 the Company
transferred its interest in AMR to AW Compost Partners, LLC ("AW
Compost") in exchange for (1) the payment of $225,000 to AMR by an
affiliate of AW Compost to cure certain funding defaults by the
Company, (2) the return to the Company of $860,000 of its Series D
Redeemable Preferred Shares, and (3) the cancellation of the "AMR
Option" held by AW Compost Partners (as described in the Company's
Series D Certificate of Designation). By making monthly payments to
AMR on behalf of AW Compost from July 1999 through June 2000 pursuant
to a development budget commitment, the Company re-purchased from AW
Compost approximately an 8% interest in AMR. In June, 2000, the
Company repurchased a 16.73% interest in AMR from AW Compost Partners
for a principal re-purchase price of $1,700,000, giving the Company a
total interest in AMR of 24.73%. The Company retains its right to
purchase the Additional Membership Interest at fair market value at a
date in the future after the second anniversary of the commencement
of commercial operations of AMR's facility.
Notwithstanding the foregoing, as a result of plans announced by New
York City to revise substantially the City's waste disposal plan,
there is now some doubt concerning not only the schedule but also the
ultimate completion of AMR's project in the Bronx, New York, at least
as initially envisioned. In light of this uncertainty, the Company
cannot predict the ultimate outcome of this situation. However, the
Company does believe that, in light of New York City's demonstrable
need for trash removal and AMR's progress to date in its permitting
process, the AMR property does have significant value and ultimately
will play a role in the City's waste disposal plans. Thus, management
of the Company feels that its investment in AMR will be recovered
completely
F-8
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - Net Loss Per Common Share
Net loss per common share is based on the weighted average number of
common shares outstanding.
The Company complies with SFAS 128, "Earnings Per Share", which
requires dual presentation of basic and diluted earnings per share.
Basic earnings per share excludes dilution and is computed by
dividing net loss applicable to common stockholders by the
weighted-average number of common shares outstanding for the year.
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the loss of the entity.
The net loss and weighted average Common and Common equivalent shares
used in determining the net loss per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
2000 1999
------------ ------------
<S> <C> <C>
Net loss applicable to Common stockholders
per statements of operations $ (1,710,695) $ (2,702,298)
Preferred stock dividends not declared -- (182,000)
------------ ------------
Net loss applicable to Common stockholders
used for basic and diluted net loss per Common
share $ (1,710,695) $ (2,884,298)
============ ============
Weighted average common shares outstanding
during period 60,126,408 48,615,547
Common stock to be issued 1,356,203
------------ ------------
Weighted average Common and Common
equivalent shares used for basic and diluted
net loss per Common share 60,126,408 49,971,750
============ ============
</TABLE>
F-9
<PAGE>
COMPOST AMERICA HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8- Related Party Transactions
The Company has various transactions and activities with certain
significant shareholders, directors, officers and other related
parties. A summary of activity with related parties is as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
2000 1999
---------- ----------
<S> <C> <C>
Interest expense on advances:
VRH Construction Corporation $ 156,617 $ 143,163
Select Acquisitions, Inc. -- 6,031
Foundation Systems, Inc. 5,484 2,764
President of the Company -- 2,540
President of EPIC 5,350 8,600
Wasteco 47,048 29,624
Fees paid to Resource Reclamation, Inc. and
Ouster Corporation 224,772 300,000
Fees related to personal guarantee to
President of EPIC -- 50,000
Deferred officers' salaries -- 35,000
Advances from President of EPIC -- 360,000
Advances from Wasteco 2,150,937 1,250,000
Repayment of advances from President of EPIC 400,216 50,000
Repayment of advances from former President 325,033 20,223
Repayment of advances from Select Acquisitions, Inc. 83,091 4,979
Repayment of advances from VRH 1,000,000 75,000
Repayment of advances from Mark Gasarch, Esq 5,700 --
Payment of severence to former President of EPIC 900,000 --
</TABLE>
NOTE 9- Commitments and Other Contingencies
As a result of the Company's deteriorated financial condition, the
Company is the subject of several other threatened, and certain
actual, legal actions for nonpayment of obligations. The ultimate
liabilities in these matters are not known and the vendors, in some
cases, may seek damages in excess of amounts recorded in the
accompanying consolidated financial statements. The Company believes,
but no assurance can be made, that its liability will not exceed
amounts recorded in the accompanying consolidated financial
statements.
NOTE 10- Consulting Contract
During June 2000, the Company entered into consulting contracts with
the firms providing services of the two consultants who are the sole
members of the Company's Office of the President. The contracts
commit the Company to a monthly fee of $20,000 to each firm plus
options to purchase 1,200,000 shares of the Company's common stock at
$.01 per share for a period of ten years. Options to purchase an
additional 2,000,000 shares of Common stock will be granted only if
certain performance levels are achieved. The granting of these
options resulted in a charge to operations in the amount of $720,000.
F-10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
The following discussion should be read in conjunction with the consolidated
historical financial statements of the Company and related notes thereto
included elsewhere in this Form 10- QSB and the Annual Report on Form 10-KSB for
the year ended April 30, 2000. This discussion contains forward-looking
statements regarding the business and industry of the Company within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements are
based on the current plans and expectations of the Company and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements.
The information set forth and discussed below for the three months ended
July 31, 2000 and July 31, 1999 is derived from the consolidated financial
statements included elsewhere herein. The financial information set forth and
discussed below is unaudited but, in the opinion of management, reflects all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of such information. The results of operations of the Company for
the fiscal quarter ended July 31, 2000 may not be indicative of results expected
during the later quarters or for the entire fiscal year ended April 30, 2001.
As a result of the sale of the Company's wholly-owned subsidiary,
Environmental Protection & Improvement Company, Inc. ("EPIC") on June 15, 2000,
the results of operations for all periods presented have been restated to
incorporate the accounting treatment for discontinued operations.
RESULTS OF OPERATIONS
The Company continues to incur significant losses from its operations and
development activities. Net loss from continuing operations increased to
$3,283,974 for the quarter ended July 31, 2000, as compared to $1,761,539 for
the quarter ended July 31, 1999. Net loss applicable to common shareholders was
$1,710,695 for the fiscal quarter ended July 31, 2000, as compared to a loss of
$2,702,298 for the fiscal quarter ended July 31, 1999. The Company has incurred
losses since its inception, with an accumulated deficit of $75,305,939 as at
July 31, 2000 and is subject to those risks associated with companies in the
early stages of development. These matters raise substantial doubt about the
Company's ability to continue as a going concern.
For the quarter ended July 31, 2000 the Company's consolidated revenues were
$158,910, compared to $90,656 for the quarter ended July 31, 1999. The Company's
operating loss for the fiscal quarter ended July 31, 2000 was $2,638,865 as
compared to an operating loss of $1,120,488 for the fiscal quarter ended July
31, 1999. The
<PAGE>
Company's net loss from continuing operations before extraordinary item for the
quarter ended July 31, 2000 increased by $1,522,435 to $3,283,974 from
$1,761,529 for the prior year due primarily to the expensing of options and
warrants issued to a lender and two consultants to the Company in the amount of
$1,320,000, an increase of $510,444 in other selling, general and
administrative expenses and a decrease in depreciation and amortization expense
of $251,806.
Net interest expense for the quarter ended July 31, 2000 was $645,109, a
decrease of $4,058 from the quarter ended July 31, 1999. The Company's debt
obligations (including amounts due to related parties), all short term, as of
July 31, 2000 were $14,543,626 as compared to $35,629,149 as of July 31, 1999.
This decrease of $21,085,523 is due primarily to the repayment of debt from the
proceeds of the sale of EPIC.
The Company files consolidated Federal Tax Returns for which the
carry-forward losses and current losses exceed any non-deductible items. The
Company has not recorded any income tax benefit for the quarter ended July 31,
2000. Management, at this time, cannot determine the probability if this tax
benefit will be realized in future periods. At July 31, 2000, the Company has
net significant operating loss carry- forwards in excess of $55,000,000, which
begin to expire in 2008. The Tax Reform Act of 1986 contains provisions that may
limit the net operating loss carry-forwards available to be used in any given
year in the event of significant changes in ownership.
During the quarter ended July 31, 2000, the Company recorded no expense for
dividends payable in common stock relating to its issued redeemable Preferred
Stock, as compared to $312,597 for the quarter ended July 31, 1999. The decrease
of $312,597 is due to the Company's already having accrued for this expense in a
prior period. During the quarter ended July 31, 2000 the Company also recorded
accretion on its Preferred Stock of $516,031 related to a mandatory redemption
feature, as compared to $682,491 for the quarter ended July 31, 1999. This
decrease of $166,460 is due to the partial redemption of the Company's Series D
Redeemable Preferred Stock.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
As of July 31, 2000, the Company had cash and cash equivalents of
$7,487,319, a working capital deficit of $12,519,533 and an accumulated deficit
of $75,305,939. Included in the working capital deficit is $8,482,374 in notes
payable and $6,061,252 due to related parties. Since April 30, 2000, the Company
has been in default on substantially all of these obligations. In addition, the
Company has incurred losses since its inception and is subject to those risks
associated with companies in the early stage of development. These matters raise
substantial doubt about the company's ability to continue as a going concern.
During the quarter ended July 31, 2000 the net cash used in operating
activities was $5,905,889 as compared with cash used in operating activities in
the prior year period of $1,738,808. This increase in cash used in operating
activities for the quarter ended July 31, 2000 as compared with the quarter
ended July 31,1999 is primarily due to the increase in accounts payable and
accrued expenses of $889,085 and $2,350,828 respectively, which negatively
impacted cash flow in the period.
For the quarter ended July 31, 2000 as well as the quarter ended July 31,
1999 the Company made no cash purchases of property, plant and equipment.
During the quarter ended July 31, 2000 the Company received cash from
financing activities of $800,000 but repaid debt of $14,872,624, for a net cash
outflow from financing activities of $14,072,624, as compared to receipts from
financing activities of $1,857,724 for the quarter ended July 31, 1999. In
additional, the Company received net cash from the sale of EPIC of $29,465,664
during the quarter ended July 31, 2000.
The Company's growth and development strategy will require the approval of
certain permits from regulatory authorities as well as substantial financing for
the construction and development of waste services projects and for working
capital. As at July 31, 2000, the Company had $7,487,319 in hand as a result of
the sale of EPIC. The Company expects that these funds will be available to fund
the Company's working capital needs as well as some development requirements.
The Company believes that additional project financing would be available as
needed. However, there is no assurance that the Company will be able to obtain
sufficient debt or equity financing on favorable terms or at all. If the Company
is unable to secure addition financing, its ability to implement its growth
strategy will be impaired and its financial condition and results of operations
are likely to be materially adversely affected.
<PAGE>
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This quarterly report includes forward looking statements which involve
risks and uncertainties. Such statements can be identified by the use of
forward-looking language such as "will likely result", "may", "are expected to",
"is anticipated", "estimate", "believes", "projected", or similar words. All
statements other than statements of historical fact included in this section,
are forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct. The
Company's actual results could differ materially from those anticipated in any
such forward-looking statements as a result of various risks, including, without
limitation, the dependence on a single line of business; the failure to close
proposed financing; rapid technological change; change in permitting and
environmental regulations; inability to attract and retain key personnel; the
potential for significant fluctuations in operating results; and the potential
volatility of the Company's common stock.
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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 July 31, 2000, the Company
issued 8,498,616 shares of its common stock, of which 7,036,436 shares were
issued as dividends on its Series A, B, C and D preferred shares, 1,412,180
shares were issued to two individuals in settlement of various claims against
the Company and 50,000 shares were issued to one person for consultant fees,
valued at $0.30 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.
(d) Not Applicable
Item 3. - Defaults Upon Senior Securities None
Item 4. - Submission of Matters to a Vote of Security Holders None
Item 5. - Other Information None
Item 6. - (a) Exhibits None
(b) Reports on Form 8-K
(1) On May 11, 2000 the Company filed a report on Form 8-K
disclosing that the Company had resolved its issues with
Arthur Andersen LLP such that Arthur Andersen LLP was then
prepared to issue its report on the Company's financial
statements for its fiscal year ended April 30, 1998.
<PAGE>
(2) On June 21, 2000 the Company filed a report on Form 8-K/A
which contained the unaudited pro forma financial statements
of the Company taking into effect the sale of its
subsidiary, Environmental Protection & Improvement Company,
Inc.
(3) On July 19, 2000 the Company filed a report on Form 8-K
disclosing the consulting agreements with Bentley King
Associates, Inc. and with Chadwick Partners, LLC which
provide for the consulting services of Marvin Roseman and
Christopher J. Daggett respectively, both Roseman and
Daggett constituting the Company's Office of the President.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: COMPOST AMERICA HOLDING COMPANY, INC.
September 5, 2000 (Registrant)
By /s/ Marvin Roseman
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Marvin Roseman, Co-Principal
Executive Officer, Principal
Financial Officer
By /s/ Anthony P. Cipollone
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Anthony P. Cipollone, Treasurer,
Principal Accounting Officer
