<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended October 31, 2000
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act;
For the transition period from to
Commission File #0-27832
PHOENIX WASTE SERVICES COMPANY, INC.
................................................................
(Exact name of small business issuer as specified in its charter)
Delaware 22-2603175
---------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
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
Compost America Holding Company, Inc. - former name
-------------------------------------------------------------
(Former name, if changed since last report)
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 - 67,263,844 shares outstanding
as at October 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
(212) 956-9595
<PAGE>
PART I - FINANCIAL INFORMATION
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc. and Subsidiaries)
CONSOLIDATED BALANCE SHEET
October 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents $ 6,171,158
Accounts receivable 8,109
------------------
Total current assets 6,179,267
Property, plant and equipment, net 11,751,729
Investment in joint venture 2,063,014
Other assets 1,226,493
------------------
$ 21,220,503
------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Notes payable $ 8,652,805
Due to related parties 6,427,902
Accounts payable 1,810,383
Accrued interest 1,596,214
Accrued dividends 507,656
Accrued expenses 799,961
------------------
Total current liabilities 19,794,921
------------------
</TABLE>
See accompanying notes to consolidated financial statements
F-1
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc. and Subsidiaries)
CONSOLIDATED BALANCE SHEET
October 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT (CONTINUED)
<S> <C>
Redeemable Preferred and Common stock, no par value
Series A, 169,000 shares authorized, issued,
and outstanding (liquidation value of $17,350,667) $ 8,670,954
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 $9,342,667) 5,816,389
Series D, 17,500 shares authorized, 8,771 issued,
and outstanding (liquidation value of $929,926) 446,632
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 17,944,811
----------------
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; 200,000,000 shares authorized;
67,262,844 shares issued and outstanding 47,772,903
Additional paid-in capital 13,304,958
Accumulated deficit (76,174,590)
Treasury stock, 1,150,000 common shares, at cost (1,425,000)
----------------
Total stockholders' deficit (16,519,229)
----------------
$ 21,220,503
----------------
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31, Six Months Ended October 31,
2000 1999 (*) 2000 1999 (*)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 71,324 $ 67,712 $ 230,234 $ 158,368
------------ ------------ ------------- -------------
Costs and expenses
Operating 4,187 360,060 20,370 368,250
Selling, general and administrative 399,344 885,447 3,151,201 1,878,649
Depreciation and amortization 26,149 33,041 55,884 242,793
------------ ------------ ------------- -------------
429,680 1,278,548 3,227,455 2,489,692
------------ ------------ ------------- -------------
Operating loss from continuing operations (358,356) (1,210,836) (2,997,221) (2,331,324)
------------ ------------ ------------- -------------
Other income (expense)
Interest expense (494,275) (649,206) (1,144,349) (2,010,227)
Interest income 110,918 115,883 719,970
------------ ------------ ------------- -------------
(383,357) (649,206) (1,028,466) (1,290,257)
------------ ------------ ------------- -------------
Loss from continuing operations before
discontinued operations and extraordinary item (741,713) (1,860,042) (4,025,687) (3,621,581)
Income (loss) from discontinued operations 339,433 (241,305) 393,762
Gain on disposition of discontinued operations 1,113,232
------------ ------------ ------------- -------------
Loss before extraordinary item (741,713) (1,520,609) (3,153,760) (3,227,819)
Extraordinary item, gain on extinguishment
and settlement of debt 409,089 1,626,472
------------ ------------ ------------- -------------
Net loss (332,624) (1,520,609) (1,527,288) (3,227,819)
Preferred stock dividends (2,864,623) (3,177,220)
Accretion on preferred stock (536,027) (717,175) (1,052,058) (1,399,666)
------------ ------------ ------------- -------------
Net loss applicable to common stockholders $ (868,651) $(5,102,407) $ (2,579,346) (7,804,705)
Net income (loss) per common share, basic and diluted
From continuing operations $ (0.02) $ (0.11) $ (0.07) $ (0.17)
From discontinued operations 0.01 0.01
From extraordinary item 0.01 0.03
------------ ------------ ------------- -------------
$ (0.01) $ (0.10) $ (0.04) $ (0.16)
------------ ------------ ------------- -------------
</TABLE>
(*) Reclassified for comparative purposes
See accompanying notes to consolidated financial statements
F-3
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended October 31,
2000 1999 (*)
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (1,527,288) $ (3,227,819)
Gain (loss) from discontinued operations (241,305) 393,762
------------------ ------------------
Loss from continuing operations (1,285,983) (3,621,581)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization 55,884 242,793
Gain on disposal of discontinued operations (1,113,232)
Gain on extinguishment of debt (1,626,472)
Non-cash interest 328,444 283,384
Common stock and options issued for services 736,375 15,081
Increase (decrease) in cash and cash equivalents attributable
to changes in operating assets and liabilities:
Accounts receivable 6,936 (47,402)
Other assets 33,289 (45,803)
Prepaid expenses and other current assets (111,992) 3,892
Accounts payable (1,511,506) 33,525
Accrued expenses (762,821) 779,397
Due to related parties 87,500
------------------ ------------------
Net cash used in operating activities (5,251,078) (2,269,214)
------------------ ------------------
Cash flows from investing activities
Purchases of property, plant and equipment (63,044)
Investment in joint venture (1,861,967)
Proceeds from the sale of EPIC 29,465,664
------------------ ------------------
Net cash provided by investing activities 27,540,653
------------------ ------------------
Cash flows from financing activities
Proceeds from long-term debt 1,016,666 1,500,000
Repayment of long-term debt (13,326,907) (201,894)
Advances from (repayments to) related parties, net (3,637,656) 1,392,639
------------------ ------------------
Net cash provided by (used in) financing activities (15,947,897) 2,690,745
------------------ ------------------
Cash used in discontinued operations (241,305) (47,001)
------------------ ------------------
Net increase in cash and cash equivalents 6,100,373 374,530
Cash and cash equivalents, beginning of period 70,785
------------------ ------------------
Cash and cash equivalents, end of period $ 6,171,158 $ 374,530
------------------ ------------------
</TABLE>
(*) Reclassified for comparative purposes
See accompanying notes to consolidated financial statements
F-4
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc. and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended October 31,
2000 1999*
------------------ ------------------
<S> <C> <C>
Supplemental disclosures of cash flow information,
cash paid during the period for interest $ 2,451,553 $ 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 $ 3,177,219
Conversion of note payable into Common stock $ - $ 362,548
Accretion of Preferred stock $ 1,052,057 $ 1,399,666
Redemption of Series D Preferred stocks for investment in joint venture $ 2,063,014 $ 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>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc.)
NOTE 1 - Basis of Presentation
The condensed consolidated 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 of 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
Phoenix Waste Services Company, Inc. and Subsidiaries (the
"Company"), formerly known as Compost America Holding Company,
Inc., and Subsidiaries was incorporated in New Jersey and
reincorporated in Delaware. 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 for its Newark site
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 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 net
proceeds of approximately $31 million, subject to working capital
adjustments as defined and an earnout. The Company assumed certain
liabilities of EPIC of approximately $2.1 million. The results of
operations for all periods 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
(see Note 6).
F-6
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc.)
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 October 31, 2000, the Company had a working capital
deficit of approximately $14 million, an accumulated deficit of
approximately $76 million and a stockholders' deficit of
approximately $17 million. In addition, as of October 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 which it utilized to pay off a
significant portion of its long-term debt. In addition, the
Newark, New Jersey composting project has been abandoned 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 transfer station in Bronx, New York. The
Company holds an option to purchase additional membership
interests subject to the terms of the agreement (see Note 6). 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 can be 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>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc.)
NOTE 6 - Investment in Joint Venture
The Company has purchased a membership interest in a joint venture
for approximately $2 Million, which is accounted for under the
equity method of accounting. 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,
2001.
AMR submitted its permit application to the State of New York in
the fall of 1997. During the fiscal quarter ended October 31,
2000, an Administrative Law Judge (ALG) issued a ruling that the
New York State Department of Environmental Conservation ("DEC")
erred by failing to require AMR to prepare an Environmental Impact
Statement for the transfer station, and remanded the issue back to
the DEC for further review. Subsequent to the ruling, the New York
City Council voted to select an application for a transfer station
in New Jersey to handle New York City residential solid waste. The
decision of the New York City council to use the New Jersey site
is being challenged by the Company. Regardless of the outcome of
the challenge, AMR intends to continue to pursue permitting and
the development of a transfer station as the New Jersey transfer
station would not be large enough to accommodate the total tonnage
of solid waste produced in New York City on a daily basis. In
addition, the AMR site could handle the commercial waste produced
in New York City, which is currently being handled by truck.
Notwithstanding the foregoing, 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, 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.
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.
F-8
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc.)
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 Six Months Ended
October 31, October 31,
------------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss applicable to Common
stockholders per statements of
operations $ (868,651) $ (5,102,407) $ (2,579,346) $ (7,804,705)
Preferred stock dividends not
declared (182,000) (364,000)
------------ ------------ ------------ ------------
Net loss applicable to Common
stockholders used for basic
and diluted net loss per
Common share $ (868,651) $ (5,284,407) $ (2,579,346) $ (8,168,705)
============ ============ ============ ============
Weighted average Common
shares outstanding the
period 67,228,794 52,335,406 63,338,583 51,676,255
Common stock to be issued 1,564,422 1,066,782
------------ ------------ ------------ ------------
Weighted average Common and
Common equivalent shares used
for basic and diluted net loss per
Common share 67,228,794 53,899,828 63,338,583 52,743,037
========== ========== ========== ==========
</TABLE>
F-9
<PAGE>
PHOENIX WASTE SERVICES COMPANY, INC. AND SUBSIDIARIES
(Formerly Compost America Holding Company, Inc.)
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 October 31,
2000 1999
---------- ----------
<S> <C> <C>
Interest expense on advances:
VRH Construction Corporation $ 142,156 $ 143,163
Select Acquisitions, Inc. 2,359 6,032
Former President of the Company 11,660 2,735
Former President of EPIC 9,000
Wasteco 30,890
Former President of EPIC 76,784
Repayment of advances from former President 38,338
Repayment of advances from Select Acquisitions, Inc. 12,392
Repayment of advances from VRH 1,000,000
Repayment of advances from Mark Gasarch, Esq 5,700
</TABLE>
NOTE 9- Commitments and Other Contingencies
As a result of the Company's deteriorated financial condition, the
Company is the subject of several threatened and 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 and
the six months ended October 31, 2000 and October 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 and six months ended October
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
THREE MONTHS ENDED OCTOBER 31, 2000 AS COMPARED TO THREE MONTHS ENDED OCTOBER
31, 1999
The Company continues to incur significant losses from its operations
and development activities. Net loss from continuing operations increased to
$741,713 for the three months ended October 31, 2000, as compared to $1,860,042
for the three months ended October 31, 1999. Net loss applicable to common
shareholders was $868,651 for the three months ended October 31, 2000, as
compared to a loss of $5,102,407 for the three months ended October 31, 1999.
The Company has incurred losses since its inception, with an accumulated deficit
of $76,174,590 as at October 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.
1
<PAGE>
For the three months ended October 31, 2000 the Company's consolidated
revenues were $71,324, compared to $67,712 for the three months ended October
31, 1999. The Company's operating loss for the three months ended October 31,
2000 was $358,356 as compared to an operating loss of $1,210,839 for the three
months ended October 31, 1999. The Company's net loss from continuing operations
before extraordinary item for the three months ended October 31, 2000 decreased
by $1,118,329 to $741,713 from $1,860,042 for the prior period due primarily to
a decrease of $486,103 in other selling, general and administrative expenses, a
decrease in net interest expense of $265,849 and a decrease in operating costs
of $355,873.
Net interest expense for the three months ended October 31, 2000 was
$383,357, a decrease of $265,849 from the three months ended October 31, 1999.
The Company's debt obligations (including amounts due to related parties), all
short term, as of October 31, 2000 were $15,080,707 as compared to $30,247,388
as of October 31, 1999. This decrease of $15,166,681 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 October
31, 2000. Management, at this time, cannot determine the probability if this tax
benefit will be realized in future periods. At October 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 three months ended October 31, 2000, the Company recorded
no charge for dividends relating to its issued redeemable Preferred Stock, as
compared to $2,864,623 for the three months ended October 31, 1999. The decrease
of $2,864,623 is due to the Company's already having accrued for this expense in
a prior period. During the three months ended October 31, 2000 the Company also
recorded accretion on its Preferred Stock of $536,027 related to a mandatory
redemption feature, as compared to $717,175 for the three months ended October
31, 1999. This decrease of $181,148 is due to the partial redemption of the
Company's Series D Redeemable Preferred Stock.
SIX MONTHS ENDED OCTOBER 31, 2000 AS COMPARED TO SIX MONTHS ENDED OCTOBER 31,
1999
The Company continues to incur significant losses from its operations
and development activities. Net loss from continuing operations increased to
$4,025,687 for the six months ended October 31, 2000, as compared to $3,621,581
for the six months ended October 31, 1999. Net loss applicable to common
2
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shareholders was $2,579,346 for the fiscal six months ended October 31, 2000, as
compared to a loss of $7,804,708 for the fiscal six months ended October 31,
1999. The Company has incurred losses since its inception, with an accumulated
deficit of $76,174,590 at October 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 six months ended October 31, 2000 the Company's consolidated
revenues were $230,234, compared to $158,368 for the six months ended October
31, 1999. The Company's operating loss for the fiscal six months ended October
31, 2000 was $2,997,221 as compared to an operating loss of $2,331,327 for the
fiscal six months ended October 31, 1999. The Company's net loss from continuing
operations before extraordinary item for the six months ended October 31, 2000
increased by $404,103 to $4,025,687 from $3,621,584 for the prior year due
primarily to an increase of $1,272,549 in other selling, general and
administrative expenses, a decrease in depreciation and amortization expense of
$186,909 and a decrease in operating expenses of 347,880.
Net interest expense for the six months ended October 31, 2000 was
$1,028,466, a decrease of $261,791 from the six months ended October 31, 1999.
The Company's debt obligations (including amounts due to related parties), all
short term, as of October 31, 2000 were $15,080,707 as compared to $30,247,388
as of October 31, 1999. This decrease of $15,166,681 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 six months ended October
31, 2000. Management, at this time, cannot determine the probability if this tax
benefit will be realized in future periods. At October 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 six months ended October 31, 2000, the Company recorded no
charge for dividends relating to its issued redeemable Preferred Stock, as
compared to $3,177,220 for the six months ended October 31, 1999. The decrease
of $3,177,220 is due to the Company's already having accrued for this expense in
a prior period. During the six months ended October 31, 2000 the Company also
recorded accretion on its Preferred Stock of $1,052,058 related
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to a mandatory redemption feature, as compared to $1,399,666 for the six months
ended October 31, 1999. This decrease of $347,608 is due to the partial
redemption of the Company's Series D Redeemable Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 2000, the Company had cash and cash equivalents of
$6,171,158, a working capital deficit of $13,615,654 and an accumulated deficit
of $76,174,590. Included in the working capital deficit is $8,652,805 in notes
payable and $6,427,902 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 six months ended October 31, 2000 the net cash used in
operating activities was $5,251,078 as compared with cash used in operating
activities in the prior year period of $2,269,217. This increase in cash used in
operating activities for the six months ended October 31, 2000 as compared with
the six months ended October 31, 1999 is primarily due to the decrease in
accounts payable and accrued expenses of $1,511,506 and $762,821 respectively
as well as an increase in loss from operations of $665,897.
During the six months ended October 31, 2000 the Company received cash
from financing activities of $1,016,616 but repaid debt of $16,964,563, for a
net cash outflow from financing activities of $15,947,897, as compared to net
receipts from financing activities of $2,690,745 for the six months ended
October 31, 1999. In addition, the Company received net cash from the sale of
EPIC of $29,465,664 during the six months ended October 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 October 31, 2000, the Company had $6,171,158 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.
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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 in Report on
Form 10-KSB for the
fiscal year ended
April 30, 2000
Item 2. - Changes in Securities
(a) None
(b) None
(c) During the fiscal quarter ended October 31, 2000, the
Company issued 50,000 shares of its common stock to one person for consultant
fees, valued at $0.14 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
(a) The Company's annual meeting of shareholders was held on September 28,
2000.
(b) The following persons were elected as directors of the Company at the
meeting: Charles Carson, Christopher Daggett, Michael Goodman, Brian
Marshall, Peter Petrillo and Marvin Roseman. No other director had a term
of office which continued after the meeting.
(c) Description of Matter and Votes Cast:
Vote on Resolution # 1 - Election of Directors (all Directors received the
same number of votes)
For the resolution - 47,344,341
Abstain - 357,640
Other Directors Proposed - none
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Vote on Resolution # 2 - Reappointment of Auditors
For the resolution - 47,130,163
Against the resolution - 284,480
Abstain - 285,335
Vote on Resolution # 3A - Merger into Phoenix Waste Services Company, Inc.
For the resolution - 37,640,799
Against the resolution - 325,834
Abstain - 316,635
Vote on Resolution # 3B - Change of Name to Phoenix Waste Services Company,
Inc.
For the resolution - 37,637,803
Against the resolution - 328,930
Abstain - 316,635
Vote on Resolution # 3C - Increase of Authorized Capital from 100,000,000
Common Shares to 200,000,000 Common Shares
For the resolution - 37,564,393
Against the resolution - 392,540
Abstain - 316,335
Item 5. - Other Information
(a) American Marine Rail, LLC
During the fiscal quarter ended October 31, 2000, the public hearing and related
issues conference record for the application for environmental permits by
American Marine Rail, LLC ("AMR"), a joint venture of which the Company owns
24.73%, was closed, and the presiding Administrative Law Judge ("ALJ") issued
her findings and rulings. In summary, it was the opinion of the ALJ that the
staff of the New York State Department of Environmental Conservation ("DEC") had
erred by failing to require AMR to prepare an Environmental Impact Study ("EIS")
for its solid waste transfer station project in the Bronx, New York. The ALJ
remanded the negative declaration of environmental impacts (which had been
issued jointly on December 20, 1999 by the DEC and the New York City Department
of Sanitation) to the DEC for a redetermination. While the DEC could maintain
its original position that an EIS is not required, the ALJ further indicated
that if the DEC were to maintain its original position on the AMR application,
the application would have to be supplemented pursuant to the ALJ's ruling.
Finally, the ALJ found two issues for adjudication, and required a subsequent
issues ruling (after the supplementing of the AMR application or the completion
of the EIS) to determine all of the adjudicable issues and party status.
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Subsequent to the issuance of the ALJ's ruling, the New York City Council voted
to select an application for an Allied Waste/BFI transfer station in Linden, New
Jersey ("Linden Facility") to handle New York City residential solid waste
following the statutorily required closure of the Fresh Kills Landfill on
December 31, 2001. This decision was made pursuant to a procurement process
started in 1997, and yet to be finalized. In addition to this New York City
action, the Union County Board of Chosen Freeholders voted to include the
proposed Linden Facility in the Union County Solid Waste Master Plan, a
prerequisite to any facility being built in the county. The proposed Linden
Facility still must be approved by the New Jersey Department of Environmental
Protection ("DEP"), which approval will be given only after a thorough review
(likely to take at least one or two years). With NYC/Allied Waste contract
negotiations, final engineering, site remediation and facility construction, the
likelihood is that it will be at least six to eight years before the start-up of
operations, if at all. Strong and growing local opposition in Linden may thwart
the project.
The choice by the New York City Council of the Allied Waste/BFI plan was
predicated, in part, upon the decision of the New York City Council to adopt a
policy whereby each New York City borough would handle its own solid waste, a
policy not in existence at the time of the start of the procurement process,
thus obviating the need for AMR's barge-to-rail transfer station, since other
boroughs could no longer transfer its waste to AMR's Bronx location. This change
in policy is the basis for a procurement challenge initiated (and currently
pending) by AMR.
Regardless of the outcome of the procurement challenge, for AMR to proceed with
an EIS or simply to supplement its application if the DEC maintains its original
position, would require significant funding (estimated at approximately
$1,000,000) and would take an additional 12 to 18 months. However, if AMR were
to secure a permit at the end of this period, which the Company believes is
likely if the concerns expressed by the ALJ in her opinion are addressed, the
value of the Company's investment in AMR will be maintained, and quite possibly
increased. The Linden Facility, if built, is projected to handle 6,000 to 10,000
tons per day of residential waste. With 13,000 tons per day being generated now,
the remaining 3,000 to 7,000 tons per day probably would be handled through
additional barge-to-rail transfer stations. In addition, New York City generates
approximately 13,000 tons per day of commercial solid waste, which today is
handled by truck based transfer stations, largely located in the Bronx. With
growing pressure by local officials and environmentalists to reduce truck
traffic, noise and odors associated with the transfer stations, the likelihood
is high that commercial solid waste as well will be moved ultimately by barge
and rail. If this is the case, a fully permitted AMR stands a strong likelihood
of receiving a contract to haul either residential or commercial solid waste.
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The Company, along with AMR, presently is considering its options in this
matter.
(b) On October 25, 2000 John T. Shea was elected a Director of the Company by
the Company's Board of Directors to fill a vacancy on the Board.
Item 6. - (a) Exhibits None
(b) Reports on Form 8-K
(1) On August 10, 2000 the Company filed a report on Form
8-K/A which contained the unaudited pro forma
condensed balance sheet of the Company as at April 30,
2000 taking into effect the sale of its subsidiary,
Environmental Protection & Improvement Company, Inc.
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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.
December 12, 2000 (Registrant)
By /s/ Marvin Roseman
--------------------------------
Marvin Roseman, Co-Principal
Executive Officer, Principal
Financial Officer
By /s/ Anthony P. Cipollone
--------------------------------
Anthony P. Cipollone, Treasurer,
Principal Accounting Officer
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