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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended APRIL 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition Period from _____________ to _____________ .
Commission File Number: 0-15859
RICH COAST RESOURCES LTD.
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(Exact name of registrant as specified in its charter)
PROVINCE OF BRITISH COLUMBIA (CANADA) NOT APPLICABLE
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
206 - 475 HOWE STREET, VANCOUVER, BRITISH COLUMBIA, V6C 2B3
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(Address of principal executive offices)
Registrant's telephone number, including area code: (604) 685-7959
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK WITHOUT PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [ ]
At July 29, 1996, there were 14,420,843 shares of the Registrant's no par
value Common Stock ("Common Stock"), the only outstanding class of voting
securities, outstanding. Based on the closing price of the Common Stock as
reported by Nasdaq on July 29, 1996, the aggregate market value of Common
Stock held by non-affiliates of the Registrant was approximately
U.S.$7,938,247. (See Financial Statements - Note 13).
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CURRENCY TRANSLATIONS
Unless otherwise indicated, all references herein are to Canadian dollars.
The following table sets forth the exchange rates for one U.S. dollar
expressed in terms of one Canadian dollar for the past five calendar years.
Year Average Low - High Year End
- ---- ------- ---------- --------
1991 1.1459 1.1193 - 1.1665 1.1555
1992 1.2083 1.1401 - 1.2938 1.2709
1993 1.2890 1.2400 - 1.3484 1.3217
1994 1.3659 1.3085 - 1.4090 1.4018
1995 1.3771 1.3275 - 1.4267 1.3640
The noon rate of exchange on July 29, 1996, reported by the Bank of Canada,
Vancouver, British Columbia, Canada for the conversion of Canadian dollars
into United States dollars was Cdn. $1.3722 (U.S. $1.00 = Cdn. $1.3722).
PART I
ITEM 1 BUSINESS
1.1 CORPORATE BACKGROUND
RICH COAST RESOURCES LTD. (the "Company" and/or "Rich Coast") is a
diversified public corporation which historically has had equity interests in
mining and natural resource properties and recently has changed its focus of
operations to the environmental industry. The Company is incorporated under
the laws of the Province of British Columbia. Rich Coast's head office is
located at 206-475 Howe Street, Vancouver, British Columbia, V6C 2B3 with an
office at 10200 Ford Road, Dearborn, Michigan, 48126. The registered and
records office is located 206-475 Howe Street, Vancouver, British Columbia,
V6C 2B3. Rich Coast's shares are listed on NASDAQ. Rich Coast voluntarily
delisted its shares from the Vancouver Stock Exchange on July 31, 1995.
As used in this Annual Report, except as otherwise required by the context,
reference to "Rich Coast", the "Company" or the "Registrant" means Rich Coast
Resources Ltd., its subsidiaries and predecessor companies.
The Company has scheduled an Extraordinary General Meeting of Shareholders
for September 16, 1996 to pass a Special Resolution authorizing the Company
to continue under the General Corporation Law of the State of Delaware (the
"Delaware GCL") as a Delaware corporation under the name Rich Coast Inc. If
the Special Resolution is approved, the Company will continue its existence
as a Delaware corporation subject to the Delaware GCL rather than a British
Columbia corporation subject to the Company Act of British Columbia.
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At the beginning of the Company's fiscal year ended April 30, 1996, Rich
Coast had seven subsidiaries:
- Rich Coast Resources, Inc. (Michigan)
- Corporacion de Minerales de Costa Rica SA (Costa Rica)
- Corporacion de Azufre de Costa Rica SA (Costa Rica)
- Comercializadora de Azufre de Gongora, S.A. (Costa Rica)
- Consolidated Rich Coast (BVI) Ltd. (British Virgin Islands)
- Les Ressources Boulder Mountain Inc. (British Columbia)
- Consolidated Boulder Mountain Resources, Inc. (Texas)
During the 1996 fiscal year, certain of these subsidiaries were disposed of
as the Company's primary focus shifted from exploration and development of
natural resource properties to the environmental industry, conducting waste
treatment, oil recycling and re-refining operations through its subsidiary
Rich Coast Resources, Inc. ("RCRI"). As of May 1, 1996, RCRI is the Company's
only active subsidiary.
As at April 30, 1996, Corporacion de Minerales de Costa Rica SA, Corporacion
de Azufre de Costa Rica SA and Comercializadora de Azufre de Gongora, S.A.
were transferred to the Vendors. As at April 30, 1996, the charter of
Consolidated Rich Coast (BVI) Ltd. was lapsed and the Company did not intend
to revive it. In addition, as at April 30, 1996, Les Ressources Boulder
Mountain Inc. was sold to Thornton J. Donaldson, a director of the Company,
for a nominal sum.
Consolidated Boulder Mountain Resources, Inc. was primarily engaged in the
exploration and development of oil and gas properties, all of which were
located in Texas, U.S.A. with one mineral property located in the Orvillier
Township, Quebec, Canada. As of the date of this Annual Report, the Company
has sold its interests in the Texas oil and gas properties and the Orvillier
Property and this subsidiary is inactive.
Until 1992, the Company's major asset was the Gongora sulphur property in
Costa Rica. As of April 30, 1996, the property was returned to the original
vendors.
In 1992, the Company began activities in the environmental industry. Pursuant
to an agreement dated August 31, 1992, the Company, together with Integrated
Waste Systems, Inc. ("IWS") of Bloomfield Hills, Michigan and The Powers
Fagan Group, Inc. ("P & F") of East Lansing, Michigan, formed "Waste
Reduction Systems" ("WRS"), a general partnership under the Michigan Uniform
Partnership Act.
The purpose of the partnership was to design, develop, construct and operate
a sludge processing system and/or bulk distillation and fractionalization
system for waste processing. On July 9, 1993, Waste Reduction Systems
commenced commercial operation of its Dearborn, Michigan plant. The plant was
designed to treat non-hazardous industrial sludge produced by the many
industrial plants located in Michigan and nearby States.
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Pursuant to an Agreement of Merger, executed on November 16, 1995, between
the Company, RCRI, IWS, P & F and the owners of IWS and P & F, the Company
acquired WRS's operations by merger of two of its partners, IWS and P & F,
into its third partner, RCRI (the "Merger"), in a transaction intended to
qualify as a tax-free reorganization. The Merger was effective as of December
26, 1995, the date on which the Certificate of Merger was accepted by the
Michigan Department of Commerce. For accounting and certain other purposes,
the Merger was effective as of October 31, 1995.
In connection with the Merger, three of the six directors resigned from the
Company's Board of Directors effective January 15, 1996. Robert W. Truxell
and James P. Fagan, principals of IWS and P & F respectively, were elected as
directors and officers of the Company. See "Management."
Following the Merger, the Company's principal operations are conducted
through RCRI and its activities in the natural resource industry will be
eliminated.
On January 16, 1996, the Company acquired a new plant and processing facility
located in Dearborn, Michigan from Mobil Oil Corporation. This acquisition
has increased the Company's oil processing capacity by approximately ten
times. As part of this acquisition the Company acquired significant storage
facilities which, when combined with the increased processing capacity, will
allow the Company to pursue much larger contracts. The Company also acquired
a 17-mile product pipeline from the facility to the Detroit River, which
gives the Company access to the St. Lawrence Seaway and the Great Lakes
Waterway System. This allows the Company to ship and receive product from
waste generators and customers throughout the world. To fund the acquisition
the Company completed a U.S.$2.0 million senior secured debt financing with a
private investor. The five-year financing bears interest at 10% and may be
prepaid at any time without penalty.
1.2 BUSINESS OF WASTE REDUCTION SYSTEMS
The Company's waste treatment, oil recycling and oil re-refining operations
are conducted through its subsidiary RCRI. RCRI conducts business under the
name "Waste Reduction Systems" ("WRS"), the name used by the partnership
which has been acquired by RCRI.
OPERATIONS
WRS commenced commercial operation of the Dearborn, Michigan plant on July 9,
1993. The plant is designed to treat non-hazardous industrial sludge
produced by the many industrial plants located in Michigan and nearby States.
Industrial sludge consists of up to 30% solids, and it cannot be deposited in
conventional landfills as the leachate (liquid portion) may contaminate the
ground water. The WRS plant removes a large portion of the liquid, which is
treated so that it is acceptable for disposal in the sanitary sewer system.
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The WRS facility treats non-hazardous waste streams and thereafter may
dispose of solid residue in landfills permitted to accept non-hazardous
materials. These materials are designated subtitle 'D' wastes under the U.S.
Resource Conservation and Recovery Act, which requires states to develop and
implement permit programs to encourage that municipal solid waste landfills
comply with Federal regulations.
The typical waste materials treated at WRS's facility include paint sludges,
surfactants, oily sludges, food waste, grinding swarf, catch basin sludge,
municipal sludge, grease trap waste, waste oil, soluble oil, leachates,
non-hazardous solvents, and phenols. Treatment mechanisms incorporated into
the facility include chemical oxidation, clarification, sludge dewatering,
chemical precipitation, carbon absorption, centrifuge and oil/water
separation, filtration and heat treatment.
The Company's facility is capable of processing or recycling liquid and solid
waste and is effective in allowing processed waste to be selectively
delivered to a municipal wastewater collection system or to a landfill.
The Company's product strategy is to:
- Maximize high volume materials during the day shift when they are
available from roll-off trucks.
- Convert waste streams, that generators of them pay to have removed,
into recycled and saleable products.
- Treat niche materials during the night and weekend shifts.
The solid part of the industrial sludge is being deposited in a nearby
landfill owned by Browning-Ferris Industries of Southeastern Michigan, Inc.
("BFI"), one of the largest waste management companies in the U.S. Since
November 1992 WRS has had a five year exclusive contract with BFI, with
options to renew for three additional five year periods, pursuant to which
WRS landfills solid waste exclusively at BFI's facility. In return, BFI
provides competitive prices for landfilling solid wastes generated by WRS and
promotes, through its sales force, the use of WRS's facility for industrial
solids/liquids treatment prior to landfilling solid residue at BFI's facility.
A niche market targeted by WRS has evolved into approximately 50% of the
Company's current business. This market consists of recycling waste oils such
as: crankcase oil with ash and industrial waste oils with chlorinated
paraffins which, when purified of these contaminants, may be used for burning
in electric power plants and resale to lube oil blenders. WRS's equipment and
processes utilize unique chemistry and mechanical purification methods, thus
providing WRS with an exclusive recycling process.
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The oil recycling/re-refining industry receives used motor oil and industrial
manufacturing oil and reprocesses it, removing water, metals, halogens and
other impurities, thus generating fuel oil and lube oil that can be used
again.
There are two separate methods for reprocessing oil. Most of the Company's
competitors in the greater Detroit area utilize a blending process. This
process takes chemically treated oil containing by-products such as ash,
metals and halogens and blends it with virgin and/or neutralizing oils.
Rather than blend, Rich Coast utilizes a process that involves mechanical and
chemical treatment of the oil, along with a filtration process. This unique
treatment and filtration process results in a superior end product produced
at a lower cost than that which is produced by blenders.
There are numerous generators of waste oil in the greater Detroit area. The
total supply easily available in the area is approximately 240 million
gallons per year. The Company hopes to achieve a processing rate of
approximately 24 million gallons per year by 1998. This equates to a market
share of just under 10%. The basic economics of oil processing include a
purchase price for waste oil of U.S.$0.05 to U.S.$0.20 per gallon, processing
costs of U.S.$0.08 to U.S.$0.10 per gallon and a final sales price of
U.S.$0.40 to U.S.$0.60 per gallon depending upon the specifications of the
final product.
In the future, the Company may form and participate in partnerships set up
for the purpose of managing recycling of materials not destined for landfill
or disposal such as plastic and copper from cable stripping operations,
fluorescent lights, rubber and steel from automobile tires, or for the
derivation of fuel pellets from municipal garbage, sewage sludge, and other
waste streams.
THE WRS FACILITY
The waste streams are delivered by tanker truck to the Company's treatment
facility and unloaded either into a pit or pumped into the processing system.
Several waste process systems are necessary to handle the various waste
streams; however, a typical system would include vibratory and hydro cyclone
filtration, centrifugal drying and flocculation for separation of solids and
liquids. The solids are then conveyed into a truck for transportation to the
BFI landfill while the liquids would, if necessary, be processed further by
WRS to meet sewer discharge requirements. A typical additional process for
liquids would be the oil/water separator, after which the oil would be stored
to sell for fuel or recycling and the water would be stored for in-process
use and eventual discharge to the sewer. Additional capacity to process
heavier, but more profitable oil sludges was installed in late 1994 and
placed in operation in late 1995.
The uniqueness of the WRS facility is that it has been designed as a
continuous flow system which allows treatment as rapidly as incoming trucks
can be unloaded or up to 500 gallons per minute. Storage and treatment in
storage tanks is not necessary.
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WRS systems and equipment form a processing line that is quality controlled
to ensure that solids, suspended oils, particulates and dissolved chemicals
are removed to acceptable limits prior to discharge of fluids.
In January 1996 the Company acquired a new plant and processing facility. See
Item 1.1, above. The Company hopes to expand the number of plants as and if
funds become available.
THE WASTE INDUSTRY
The disposal of waste is a growing and serious problem throughout the world.
Communities and corporations are realizing that there are no quick-fix
solutions available in relation to the waste issue and that the only real
alternative is an integrated waste management approach that focuses on source
reduction and re-use.
Today, many areas of the U.S. are experiencing disposal capacity problems in
which existing landfill capacity is running out and future sites are
impossible to obtain. Years of regulatory and technical change have not
solved the recurring problem of providing adequate disposal capacity. In the
early 1970's, approximately 300-400 municipal landfills were built each year.
This number dropped to between 50 and 200 during the 1980's. During this time
almost 70% of all landfills, or 14,000 facilities, were closed.
North Americans continue to produce ever-increasing amounts of waste. The
U.S. EPA estimated that the amount of waste generated in the U.S. more than
doubled since 1960, and has projected growth to continue throughout the rest
of the century. Today, each person throws away nearly four pounds of trash
every day - almost 200 million tons per year.
According to reports published by the EPA and U.S. Office of Technology
Assessment (OTA), 75% to 80% of the nation's active municipal solid waste
landfills are expected to close over the next 15 to 20 years. These numbers
indicate that landfill capacity may be diminishing and that action must be
taken to ensure that adequate future disposal capacity exists. Complicating
and adding to this waste disposal predicament are regulatory and public
perception problems making it almost impossible to open new landfills in many
areas of the country. Public opposition to landfill siting is perhaps the
biggest obstacle to increasing capacity. As a result, many projects languish
for up to seven or eight years in the permitting process while few facilities
are actually built.
With respect to industrial waste, most if not all industrial plants generate
waste materials on a continuing basis. With national focus on maintaining a
clean environment, waste minimization is quickly becoming a major goal for
U.S. based corporations. Waste minimization is, in fact, a specific policy of
the U.S. which was enacted by Congress in the 1984 Hazardous and Solid Wastes
Amendments of the Resource Conservation and Recovery Act (RCRA).
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Facing increasingly stringent environmental laws, industrial waste generators
such as electronic components producers, auto repair shops, dry cleaners, and
automotive fleet operators as well as all types of heavy and light
manufacturing firms must maintain control of how they dispose of their waste
solvents. Even the do-it-yourself auto enthusiasts who flush their radiators
are being forced to dispose of their waste responsibly.
The amount of waste generated is still expected to increase. It is estimated
that by the year 2000, approximately 192.7 million tons of solid waste per
year will have to be disposed of in the U.S. Of this, it is projected that
12.8% will be recycled and 17.5% will be burned. Therefore, 134.3 million
tons of solid waste still will have to be disposed of, a majority of which
must go to landfills. This means the U.S. still will need 82% of today's
landfill capacity seven years from now.
Waste designated for disposal on land has further increased as a result of
recent implementation of federal laws outlawing ocean dumping on the East
Coast, previously a common practice. Contaminants can no longer be buried in
landfills without treatment and soon municipal solid waste landfills may be
regulated as strictly as hazardous waste facilities.
An environmentally protective and cost-effective system for waste management
depends largely upon assuring adequate landfill capacity and the effective
utilization of such landfill space. Unless new facilities can be built and
expansions to existing facilities undertaken so as to meet future demands,
waste disposal problems and escalating disposal costs are expected to
continue.
If liquids are not removed from solids, disposal at non-hazardous landfills
is not permitted. Treatment must first be undertaken or the product must be
disposed of at a hazardous landfill. WRS is capable of treating such waste
streams at less cost than the cost of disposal at a hazardous landfill.
HISTORICAL DEVELOPMENT COSTS
The design, development and construction of the WRS facility in Dearborn was
largely financed by Rich Coast during the term of the partnership as a
component of Rich Coast's equity interest. These expenditures totalled
approximately U.S.$3,269,965 as at April 30, 1996.
Based on experience gained at the Dearborn facility, similar facilities at a
new location are projected to cost in the order of U.S.$8,000,000 for site,
building improvements, and equipment.
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MARKETING STRATEGY
Rich Coast's facilities are being aggressively marketed by the Company's
sales staff on an ongoing basis. The newly acquired facility will become the
focus for all sales and marketing as capital funding for new processes and
equipment come on line. The new facility will dramatically enhance Rich
Coast's advantages in the market and sales and marketing efforts will benefit
accordingly.
PRICING STRATEGY
The Company's initial pricing strategy for high volume wastes is to offer
below market rates with significant savings in order to generate market
interest and trials for the facility's services. Initial prices are being
negotiated on the low end as introductory offers, with long-term contracts
being offered at competitive prices after the client has had the opportunity
to use the Company's services.
SALES AND DISTRIBUTION STRATEGY
The Company's sales and distribution strategy initially encompasses a
combination of approaches combined to introduce and gain trial of WRS's
facility and services by truckers, waste generators, and brokers.
Management and marketing personnel have targeted contacts at major
corporations for whom credentials and expertise are prime considerations in
selecting a waste treatment facility. Marketing personnel are also making
direct contact with waste generators and major trucking firms hauling
non-hazardous waste.
WRS at this time does not offer a mobile service. The Company does, however,
contract to have the solid residues from the waste streams delivered to BFI.
WRS enjoys exclusive favorable rates for deposit. Pickup of the waste
generator product is generally the concern of the generator or trucker.
COMPETITION
A number of hazardous waste treatment disposal facilities exist in the
Michigan area and many of these facilities mix hazardous and non-hazardous
wastes. For this reason, the automotive industry, for example, is beginning
to demand segregation of the waste stream between hazardous and non-hazardous
wastes.
Management is aware that several of its competitors have become entangled in
serious long-term legal problems. These legal problems appear to have arisen
due to the practice of combining hazardous and non-hazardous waste treatment
at a single facility. Such liabilities can revert back to the generator of
the waste and it is these occurrences which have led a number of generators
to make direct inquiries to WRS concerning services.
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MARKET ACCEPTANCE
WRS is the newest waste processing company to have emerged in the Michigan,
Ontario, Ohio, Indiana area offering a "full service facility" for the
processing of non-hazardous material. WRS has been successful, on a limited
initial flow basis, in proving to customers that its services are delivered
in a short time frame (15 to 30 minutes) compared with potentially hours for
similar operations at competitive facilities.
MARKET SEGMENTS
The geographical target market for the Company's services include areas
within a 350 mile radius.
Transportation licensing records reveal that in Michigan there are
approximately 479 licensed liquid waste haulers and approximately 700 in
Ohio, Indiana, and Illinois, and 250 in Ontario.
With over 35,000 registered industrial producers of non-hazardous liquid
waste in Michigan alone, management believes WRS is strategically located to
capitalize on this growing market.
PATENTS AND PROPRIETARY TECHNOLOGY
In October 1992, Dr. Bayne Carew filed a U.S. patent application for the
Company's proprietary technology titled "Method and Apparatus for Waste
Treatment", Serial No.#07/960,991. Rights to this application were assigned
to IWS. Pursuant to a License Agreement dated November 11, 1992, Rich Coast
and IWS formed a separate partnership, owned 50% each, known as New
Processing Technologies, to hold the application and patent, and also to
perform marketing/facilities studies for expansion planning and to develop
new technologies to treat waste streams from a wider range of sources,
including municipal solid wastes and contaminated soil and water. The patent
was issued and the rights held by IWS are now held by the Company as a result
of the merger of IWS into RCRI. New Processing Technologies has now been
dissolved.
1.3 CORPORATE OBJECTIVES
The Company's predecessors were primarily engaged in the exploration and
development of mineral and petroleum properties; however, the Company has
made a fundamental change in its operations and objectives to the
environmental industry through its acquisition of WRS. Accordingly,
management has established a number of short-term goals as well as long-term
corporate as follows:
- - Strengthen strategic relationship with BFI by proving the asset and value
which WRS brings to the association.
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- - Focus towards desired market position of cost competitiveness, competent
staffing, and quality operations and service.
- - Formation of strategic agreements with waste generators and waste
management firms.
- - Seek funding to allow for implementation of plans for more efficient and
capable facilities as funding permits.
- - Raise between U.S.$2-3 million to finance the expansion plan for WRS,
including the facilitation of the recently acquired Mobil terminal and WRS'
plant in Dearborn, Michigan. Development of the 17 acre terminal purchased
by the Company from Mobil Oil Corporation on January 16, 1996 will require
most of the additional U.S.$2 million; however, the existing WRS facility
is for sale and an early sale is anticipated. Surplus funds from that sale
will then be added to the U.S.$2-3 million to consolidate all operations at
the new 17 acre site. No source of funds has been identified. Rich Coast
will seek these funds either through debt or sale of equity.
- - Use best efforts to develop Rich Coast into an industry leader in the waste
treatment and recycling industry.
1.4 EMPLOYEES
The Company has 20 full-time employees, consisting of its three executive
officers and 17 employees of Waste Reduction System, consisting of ten plant
personnel and seven administrative and sales personnel. The workforce is
non-unionized. Management projects that the facility should operate at full
capacity with 14 plant personnel per shift. When in full operation, the
facility will operate two 10 hour shifts/day for 5 days, plus two 10 hour
weekend shifts for a total of 120 hours/week.
ITEM 2 PROPERTY
The WRS non-hazardous waste treatment facility and the Company's
administrative offices are located at 10200 Ford Road, in an industrial area
within the City of Dearborn, Michigan. The total site area comprises
approximately 3.5 acres and includes a 23,000 square foot steel and brick
building in which the treatment plant is located. The site has ample parking
and room for tanker trucks to maneuver. WRS entered into a 7 year land
contract in 1993 for the building at a rate of U.S.$4,754 per month and a
renewable 7 year lease which will cause the land to be titled to WRS for
U.S.$1.00, either after satisfactory clean-up by others or after 91 years.
Through fiscal 1996 the Company's administrative and executive offices were
located in Vancouver, British Columbia. The Company currently maintains
facilities in Vancouver but intends to move all executive and administrative
functions to its Dearborn office if the
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proposed continuation of the Company to Delaware from British Columbia is
approved by shareholders. (See Item 1.1)
ITEM 3 LEGAL PROCEEDINGS
On March 15, 1996 the Company filed a Complaint and Jury Demand in the U.S.
District Court - Eastern District of Michigan, Southern Division against DM
Capital, DM Capital LLC and Daniel A. Gillett. The Company, as Plaintiff in
this case, seeks declaratory relief in the form of novation and/or
declaration of breach of contract by those Defendants, which would excuse the
Company from paying $100,000 and shares of the Company's Common Stock alleged
by the Defendants to be due, and requests a judgment of $100,000,
representing cash paid to date to the Defendants by the Company. The action
arises from an agreement dated September 5, 1995, pursuant to which the
defendants agreed to act as the Company's advisor with respect to strategic
and financial planning and to write and publish research reports on the
Company and to work with members of the Company's management to obtain equity
research coverage from investment banking firms. The Company's complaint
alleges that the Defendants failed to fully perform under the September 5,
1995 agreement and further that the September 5, 1995 agreement was
superseded by an agreement dated December 21, 1995, pursuant to which the
Company has fully performed. A trial date of May 6, 1997 has been set for
jury trial of this matter.
No counterclaim was filed in the above described action. On April 19, 1996
Daniel A. Gillett subsequently filed suit against the Company and Robert
Truxell, its Chairman, in the District Court of Dallas County, Texas, based
upon the same facts and circumstances as the action described above, seeking
to be paid under both agreements.
The Dallas County District Court action was removed to the United States
District Court, Northern District of Texas, Dallas Division, Case No.
96-CV-1517-P. Rich Coast Resources Ltd. and Robert Truxell have filed a
motion to dismiss the Texas action or have same transferred to the Michigan
Court and joined with the Michigan action. The motion is currently pending.
As of the date of this report, management is unable to predict the outcome of
this litigation.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the shareholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal 1996.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
5.a MARKET INFORMATION
The Common Stock of the Company is listed on the NASDAQ Small Cap Market
under the trading symbol "KRHCF". The Company's Common Stock was voluntarily
delisted from the Vancouver Stock Exchange on July 31, 1995.
The following table sets forth the high and low market prices of the
Company's Common Stock as reported by NASDAQ during the periods indicated.
The following prices represent inter-dealer quotations without retail
markups, markdowns, or commissions and do not necessarily represent actual
transactions.
NASDAQ SMALL CAP MARKET
HIGH BID LOW BID
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($U.S.) ($U.S.)
CALENDAR
1996 Second Quarter 1.00 .6875
First Quarter .96875 .625
1995 Fourth Quarter 1.0312 .50
Third Quarter 1.25 .50
Second Quarter 1.25 .9375
First Quarter 1.625 .75
1994 Fourth Quarter 1.0937 .50
Third Quarter 1.625 .875
Second Quarter 2.625 1.50
First Quarter 2.9375 1.6875
The closing price of the common shares on NASDAQ on July 29, 1996 was U.S.$.625.
5.b HOLDERS
As of July 11, 1996, there were approximately 3,500 holders of the Company's
Common Stock, and approximately 10,570,964 shares (73%) of the Registrant's
outstanding Common Stock were registered in the names of residents of the
United States. The Registrant's Common Stock is issued in registered form and
the percentage of shares reported to be held by U.S. shareholders of record
is taken from the records of Montreal Trust Company of Canada, the registrar
and transfer agent for the Common Stock.
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5.c DIVIDENDS
During the two most recent fiscal years, the Company has not declared or paid
cash or other dividends on its Common Stock.
ITEM 6 SELECTED FINANCIAL DATA
The following table summarizes selected consolidated financial data for the
Company (stated in Canadian dollars) prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"). The table also
summarizes certain corresponding information prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
information in the table was extracted from the more detailed consolidated
financial statements and related notes included herein and should be read in
conjunction with such financial statements and with the information appearing
under the heading "Item 9 - Management's Discussion and Analysis of Financial
Condition and Results of Operations". Reference is made to Note 12 of the
consolidated financial statements of the Company included herein for a
discussion of the material differences between Canadian GAAP and U.S. GAAP
and their effect on the Company's financial statements.
Year Ended April 30
--------------------------------------
1996 1995 1994
---------- ---------- ----------
REVENUE
- sales $2,371,025 $1,426,977 $ 391,143
LOSS FOR PERIOD
- operations $1,227,906 $2,098,305 $3,433,278
LOSS PER SHARE
- operations $0.12 $0.33 $0.75
TOTAL ASSETS
- Canadian Basis $8,071,233 $5,271,035 $4,497,851
- U.S. Basis $8,071,233 $5,271,035 $4,497,851
MINERAL INTERESTS
EXPENDITURES
- Canadian Basis $ 3,377 $ 49,691 $ 316,700
- U.S. Basis $ 0 $ 49,691 $ 316,700
DEFERRED EXPLORATION
AND DEVELOPMENT
EXPENDITURES $ 0 $ 100,580 $ 100,580
14
<PAGE>
The Company's loss for 1994 includes significant write-downs of carrying values
of mineral properties. The write-downs were necessary due to the abandonment of
certain mineral claims. The Company also absorbed approximately $2,000,000 of
expenses incurred by Waste Reduction Systems. The 1994 loss includes the
following items:
Write-down of investment in and expenditures
on mineral properties
Gongora Property $ 132,218
Hope Butte 321,847
Meg Property 222,694
----------
Total write-down $ 842,789
Gain on sale of capital assets (15,970)
Net loss from oil and gas operations 53,462
Administrative expenses for the year 3,433,278
----------
Net loss for year $4,313,557
----------
----------
Results of operations are also discussed in Item 7, below.
Throughout the periods indicated, the Company had no long-term obligations or
redeemable preferred shares outstanding. In addition, no cash dividends were
declared or paid on common shares.
The Company is defined to be a development stage enterprise in accordance
with generally accepted accounting principles in the United States. Inception
of the development stage is considered to be May 1, 1983 as the Company was
previously dormant. The Company's audited financial statements contain a
footnote (2[c]) regarding the disposition of its remaining oil and gas
properties and mineral properties.
The amounts set out in the table above are expressed in Canadian dollars.
Reference is made to the front of this Annual Report which sets out
information on Canada-United States exchange rates.
Under Canadian GAAP, companies which follow the full cost method of
accounting for oil and gas interests, as set out in the guideline issued by
the Canadian Institute of Chartered Accountants, accumulate capitalized costs
in country-by-country cost centers. Capitalized costs include expenditures
associated with dry holes. Under U.S. GAAP, costs associated with certain dry
holes are required to be written off.
15
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition, changes in financial
condition and results of operations of the Company for the three years ended
April 30, 1996, 1995 and 1994 should be read in conjunction with the
consolidated financial statements of the Company and related notes therein.
Reference is made to Note 12 of the consolidated financial statements of the
Company included herein for a discussion of the material differences between
generally accepted accounting principles in Canada and the United States, and
their effect on the Company's financial statements.
As described above under Item 1.1, pursuant to an Agreement of Merger
effective October 31, 1995, the Company acquired the balance of Waste
Reduction Systems operations which it did not previously own by merger of two
of its partners into its third partner, the Company's wholly-owned subsidiary
RCRI. This reorganization of the companies has resulted in the Waste
Reduction Systems partnership being 100% owned by RCRI. The acquisition has
been accounted for using the purchase method and, accordingly, the financial
statements for all periods presented have been retroactively restated to
include the financial position and results of operations and cash flows of
Waste Reduction Systems.
Deficits previously reported at May 1, 1995, 1994 and 1993 have been
increased by $144,389, $96,502 and decreased by $10,124, respectively, to
reflect the retroactive change in the Company's method of accounting for its
investment in Waste Reduction Systems. Prior to the merger of the partners
effective October 31, 1995, the Company reported its share of the net loss of
the partnership as an adjustment of investment in the partnership. As a
result of the merger, the Company owns 100% of the former partnership,
consequently all the assets, liabilities and income and expense of that
entity are included in the consolidated financial statements with effect from
the commencement of business of Waste Reduction Systems in August 1992.
The consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting principles and all figures are in
Canadian dollars. Canadian generally accepted accounting principles differ in
certain respects from accounting principles generally accepted in the United
States. The significant differences and the approximate related effect on the
financial statements are set forth in Note 12 of the consolidated financial
statements.
RESULTS OF OPERATIONS
OVERVIEW
To the date of this Annual Report, the Company's business has been
speculative. Cash flow from the Company's operations has not, and does not at
present, satisfy all operational requirements and cash commitments. The
Company has been dependent and
16
<PAGE>
continues to rely upon the sale of equity and debt securities in order to
fund its development activities and operations and its ability to continue
operations is dependent on the ability of the Company to continue to obtain
financing. The Company received minimal revenues from its oil and gas
properties to April 30, 1996 due to continuing low prices in the oil and gas
industry worldwide. As at April 30, 1996, the Company sold all of its oil and
gas wells. As the Company received no revenue from mining activities to April
30, 1996, inflation and fluctuations in metal prices had no significant
effect on operations. As at April 30, 1996, the Company disposed of its
mineral properties. There is no assurance that the Company's acquisition of
Waste Reduction Systems will provide cash flows sufficient to make the
Company a successful operating enterprise. If Waste Reduction Systems does
not generate sufficient levels of cash flow from operations additional
financial support will be required. Without such funding there could be doubt
as to the Company's ability to continue to operate in the normal course of
business.
FISCAL YEARS ENDED APRIL 30, 1996, 1995 AND 1994
REVENUES
For the past several years, the Company has been in the development stage and
therefore has not generated any significant revenues. During the three years
ended April 30, 1996, the Company received limited revenues from operations
of its oil and gas wells. After deduction from the revenues of production
costs, depletion and write downs, the Company incurred a net gain of $6,711
for 1996 versus a loss of $36,989 for 1995. As at April 30, 1996, the Company
had sold all of its oil and gas wells.
SHAREHOLDER RELATIONS
In the year ended April 30, 1996, a charge of $133,477 was made whereas in
year 1995 it was $177,866 and in year 1994 it was $259,812.
TRAVEL COSTS
Travel costs were $109,395 in 1996, $102,620 in 1995 and $258,984 in 1994.
The major portion of this amount in 1994 was to negotiate the Waste Reduction
Systems general partnership, conduct due diligence as necessary on the
project, keep the Costa Rican property in good standing and search for
financing for WRS.
AUDIT, ACCOUNTING AND LEGAL
An increase was recorded in audit, accounting and legal fees to $175,793 in
1996 from $80,771 in 1995. Increased costs were incurred during fiscal 1996
because of the need to set up accounting and coordination between the Company
and Waste Reduction Systems and time was spent with tax accountants and
auditors to determine the best possible means of structuring the Waste
Reduction Systems partnership. The Company expects this category of
professional expenses may rise in the next fiscal year because
17
<PAGE>
of attempts to seek debt or equity funding. Audit, accounting and legal
expenses for 1995 were substantially less than the $184,901 incurred in 1994
as the Company realized the benefits of computerized accounting systems. The
1994 amount also reflects professional expenses incurred in connection with
the Company's investment in the WRS partnership.
MANAGEMENT FEES AND CONSULTING
Costs in this category decreased from $250,733 in 1994 to $90,847 in 1995 and
fell to $72,434 in 1996. The costs were higher in 1994 because of the need to
retain engineers to review the Waste Reduction Systems project, write
business plans, make financial projections etc., all with a view to ensuring
that the Company would be conducting its proper due diligence with respect to
the advisability of an investment in the Waste Reduction Systems project.
Subsequent to year end, the Board of Directors authorized the issuance of
540,599 shares in lieu of cash compensation for past services rendered on
behalf of Waste Reduction Systems by certain officers and directors. Such
services were valued at $479,195 (U.S.$351,935). The issuance is subject to
shareholder approval for an increase in the number of shares available and
registration of these shares with the Securities and Exchange Commission.
MERGER COSTS
There were increased costs in fiscal 1996 to acquire the remaining position
of WRS and in connection with the associated restructuring. These are also
reflected in the increased audit, accounting and legal fees for 1996 which
totalled $175,793, compared to $80,771 in 1995.
EXCHANGE TRANSLATION LOSS
For the year ended April 30, 1996, a gain of $106,191 was experienced versus
a loss of $35,538 for 1995 and a loss of $369,089 for the year ended April
30, 1994. The large amount in 1994 is attributed to the significant timing
difference on the purchase of the mineral distillation unit from GAP
Minerals, Inc. and the subsequent settlement of the price as eventually
approved by the Vancouver Stock Exchange.
TRANSFER, LISTING AND FILING FEES
These fees increased from approximately $30,440 in 1994 to $72,105 in 1995
and decreased to $55,152 in 1996.
PLANT AND EQUIPMENT
The Company's mineral distillation unit was originally purchased for use on a
proposed joint venture project in the development of the Gongora property in
Costa Rica. Unfortunately, the price of sulphur dropped making the development
of the project
18
<PAGE>
uneconomical and the Company has since disposed of its interest in the
Gongora property. The Company searched for an alternate use of the unit and
has found that it can probably be used for soil remediation for such things
as oil pits polluted with hydrocarbons. Preliminary tests indicate the system
is capable of removing soil contaminants to a level that is acceptable to the
Federal EPA and the State of California. However, more development is
required.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has not generated sufficient revenue to fund its
operations. Since its inception, the Company financed its exploration and
development costs and its investment in Waste Reduction Systems primarily
from the sale of equity securities. As at April 30, 1996, the Company had
cash on hand of $43,224 and accounts receivable of $705,716. Subsequent to
year end, the Company received a loan of U.S.$105,000 which is being used for
working capital. In exchange for the loan the Company issued a U.S.$105,000
9.25% convertible debenture due January 15, 1997 and warrants to purchase
105,000 common shares at U.S.$0.70 per share. The debenture is convertible to
common shares at the rate of U.S.$0.70 per share at the holder's option.
During the year ended April 30, 1996, a total of 575,150 shares of the
Company were issued on the exercise of employee and director stock options at
an average price of $1.13, netting the Company a total of $651,671.
During the year ended April 30, 1996, 1,198,945 shares of the Company were
issued pursuant to private placements, netting the Company $1,139,174.
To finance its acquisition of the plant and processing facility from Mobil
Oil Corporation, the Company completed a U.S.$2,000,000 secured senior debt
financing with one private investor. This loan is evidenced by a Senior
Secured Note due January 10, 2001, bearing interest at 10% per annum. The
note is secured by substantially all of the Company's assets. Pursuant to the
loan agreement the Company issued to the investor warrants exercisable to
purchase 3,600,000 common shares at a price of U.S.$0.62 per share and
granted certain rights to have the shares registered for public sale. The
loan agreement requires the Company to comply with certain covenants
customary in loans of this type concerning matters including, but not limited
to, net worth and revenues, and restricts certain transactions, and grants
the investor a right of first refusal to purchase securities issued by the
Company other than those issued pursuant to plans approved by the note holder.
Other than as set out above, the Company is free of long and short term debt.
The Company does not have any material commitments or anticipated material
capital expenditures to third parties for the coming year, however, the
Company will seek funds through the private sale of equity or debt
instruments in order to facilitate the expansion of its 17 acre terminal
site. The Company presently has no firm commitments for such
19
<PAGE>
financing and there can be no assurance that adequate financing will be
available in a timely manner or on favorable terms or at all.
OTHER CONSIDERATIONS
(1) Cash flow from the Company's operations has not and does not at present
satisfy all operational requirements and cash commitments. In the past,
the Company has relied on sales of equity to meet its capital requirements.
There can be no assurance that cash flow from operations will be sufficient
in the future to satisfy operational requirements and cash commitments.
While the Company has in the past earned minimal revenues from the
production of oil and gas, they ceased at year end as the interests in the
wells were sold.
(2) The Company is currently operating at a loss. If the Company should be
unable to continue as a going concern, realization of assets and settlement
of liabilities in other than the normal course of business may be at
amounts significantly different from those in the financial statements
included in this Annual Report.
(3) The Company has historically incurred losses as evidenced by the
consolidated statements of operation contained herein. As at April 30,
1996, the Company had a deficit of $26,344,446.
(4) The Company operates in a highly competitive industry and may compete with
organizations having greater financial and technical resources and larger
marketing organizations available to them. The environmental and
reclamation industry is growing very rapidly, and the Company expects that
competition will increase significantly as more firms enter the industry.
(5) WRS's revenue plans are based on the development of an effective sales,
marketing and operations organization. The success of WRS will be highly
dependent on the ability of management to attract competent personnel and
implement the required organization in a timely manner.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Supplementary Data following the signature page
of this Annual Report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The names, ages, municipalities of residence, positions with the Registrant,
and principal occupations of the directors and executive officers of the
Registrant as at the date of this Annual Report are as follows:
Name, Age and
Municipality Residence Office Principal Occupation
- ---------------------- ------ --------------------
ROBERT W. TRUXELL Chairman of the Chairman and Chief
Bloomfield Hills, Michigan Board, Chief Executive Executive Officer of
Age: 71 Officer and Director Integrated Waste
since January 1996 Systems, 1992-1995;
President of Microcel,
Inc., 1990-1992; Vice-
President of General
Dynamics, 1983-1990
JAMES P. FAGAN President, Chief President and Chief
Okemos, Michigan Operating Officer and Operating Officer of
Age: 45 Director since Waste Reduction Systems
January 1996 1992-1995; Vice-President
of The Powers Fagan
Group, Inc. 1990-1996
THORNTON J. DONALDSON Director since Self-employed financial
West Vancouver, B.C. June 1984; Past and mining consultant;
Age: 66 President of the President of United
Company (June 1984 - Corporate Advisors Ltd.
January 1996) and Director of BYG
Natural Resources Inc.
(TSE listed)
GEOFFREY HORNBY Director since Geological Engineer - 10
Vancouver, B.C. June 1984 years experience in the
Age: 69 mining field and 23 years
experience in the forest
industry.
21
<PAGE>
RANDALL POW Director since July Consulting in investor
Vancouver, B.C. 1993 and Secretary relations for public
Age: 45 since February 1994 companies
MICHAEL M. GRUJICICH Chief Financial Officer Director Sales Canada -
Dearborn, Michigan and Treasurer since WRS 1993-1996, Director
Age: 53 August 1996 MRPII, General Dynamics
Land Systems Division
1983-1993, Divisional
Controller - Rockwell
International 1981-1983
Each of the above-named directors/officers has held the principal occupation
or employment for at least five years unless otherwise stated. Some of the
directors of the Company are also directors and/or officers of other
reporting companies. It is possible, therefore, that a conflict may arise
between their duties as a director or officer of the Company and their duties
as a director or officer of such companies.
The following directors are members of the Company's Audit Committee:
Thornton J. Donaldson
Geoffrey Hornby
Ronald W. Waltz
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and certain of its officers to file initial reports of ownership
and reports of changes in ownership with the Securities and Exchange
Commission and Nasdaq. Executive officers and directors are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to
the Company and written representations from the Company's executive officers
and directors, the Company notes that Ronald W. Waltz, currently its
Controller, inadvertently did not timely file an Initial Statement of
Beneficial Ownership on Form 3 at the time he was elected as an officer, and
that one officer-director, James P. Fagan, inadvertently did not report on
his initial statement on Form 3 certain shares he beneficially owned. Mr.
Waltz did later file the required Form 3 and Mr. Fagan subsequently filed an
amendment to his Form 3.
22
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
COMPENSATION AND OTHER BENEFITS OF EXECUTIVE OFFICERS
The following table sets out the compensation received for those financial
years ended April 30, 1994, 1995 and 1996 in respect to each of the
individuals who were the Company's Chief Executive Officer at any time during
that period and the Company's other four most highly compensated executive
officers whose total salary and bonus exceeded $100,000 (the "Named Executive
Officers"). All references throughout this Annual Report to dollars are
Canadian dollars unless otherwise stated. On July 29, 1996, the Bank of
Canada's announced rate for conversion of U.S. dollars was U.S.$1.00 = Cdn.
$1.3722 or Cdn. $1.00 = U.S. $0.7288:
SUMMARY COMPENSATION TABLE
<TABLE>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- ----------------------------------------------------------------------------------------------------
Awards Payouts
- ----------------------------------------------------------------------------------------------------
Restricted
Securities Shares
Other Under or All
Name and Annual Options/ Restricted Other
Principal Compen- SARs Share LTIP Compen-
Position Year Salary Bonus sation Granted Units Payouts sation
($) ($) ($) (#) ($) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. 1996 $74,917 Nil Nil 400,000 Nil Nil Nil
Truxell
- ----------------------------------------------------------------------------------------------------
Thornton 1996 $30,000 Nil Nil 200,000 Nil Nil Nil
Donaldson 1995 $30,000 Nil Nil Nil Nil Nil Nil
1994 $24,000 Nil Nil Nil Nil Nil Nil
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
AGREEMENTS WITH MANAGEMENT
Pursuant to a Management Agreement dated February 1, 1993, United Corporate
Advisers Ltd. (a private company which is owned as to 100% by Thornton J.
Donaldson, a Director of the Company) receives a monthly fee of $2,500 from
the Company for administrative and related services.
As part of the Agreement of Merger dated October 31, 1995, the Company
entered into an Employment Contract with Robert W. Truxell pursuant to which
he is compensated for serving as the Company's Chief Executive Officer and
Chairman of the Board of Directors commencing in January 1996. Under the
contract, Mr. Truxell receives a salary of U.S.$150,000 per year until
January 1, 1997 at which time he will resign as Chief Executive Officer but
will continue as Chairman of the Board at a salary of U.S.$50,000 per year
for an additional five years.
23
<PAGE>
As part of the Agreement of Merger dated October 31, 1995, the Company
entered into an Employment Contract with James P. Fagan pursuant to which he
is compensated for serving as the Company's President and Chief Operating
commencing in January 1996. Under the contract, Mr. Fagan receives a salary
of U.S.$125,000 per year until January 1, 1997 at which time, subject to the
approval of the Company's Board of Directors, he will also become the
Company's Chief Executive Officer.
Pursuant to Mr. Truxell's Employment Contract, during fiscal 1996 the Board
of Directors of the Company authorized the issuance of 360,399 common shares
under the Company's 1995 Incentive Compensation Plan (the "1995 Plan"),
subject to certain conditions, to Robert W. Truxell and his wife, Linda C.
Truxell, for past services rendered by Mr. and Mrs. Truxell on behalf of
Waste Reduction Systems, Inc. prior to the Company's merger with WRS
effective October 31, 1995. Such services were valued at U.S.$234,625. The
issuance of such shares is subject to the Company first obtaining shareholder
approval for an increase in the number of shares available for issuance under
the 1995 Plan and the Company first filing a registration statement on Form
S-8 with the Securities and Exchange Commission registering such shares.
Subsequent to April 30, 1996, the Board of Directors authorized the issuance
of 180,200 common shares under the Plan to James P. Fagan as compensation for
his services in connection with the Company's acquisition of the terminal
facility from Mobil Oil Corporation. Such services were valued at $117,310.
OPTIONS/STOCK APPRECIATION RIGHTS ("SAR") GRANTS DURING THE
MOST RECENTLY COMPLETED FINANCIAL YEAR
The following table summarizes options granted during the most recently
completed financial year to the Named Executive Officers of the Company:
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Market Value of
Securities % of Total Options Exercise or Securities Underlying
Under Options Granted to All Employees Base Price Options on the Date Expiration
Name Granted (#) in the Financial Year ($/Securities) of Grant ($/Security) Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert W. 400,000 16.28% U.S.$0.50 $U.S.$.60 01/15/2006
Truxell
- --------------------------------------------------------------------------------------------------------------
Thornton J. 200,000 8.14% U.S.$1.00 U.S.$1.00 09/08/2005
Donaldson
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTIONS/SAR VALUES
The following table summarizes options exercised by the Named Executive Officers
during the most recently completed financial year of the Company:
<TABLE>
- -------------------------------------------------------------------------------------------------
Value of Unexercised
Unexercised in the Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Securities Acquired Aggregate Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Truxell 0 0 400,000 U.S.$200,000
(exercisable)
- -------------------------------------------------------------------------------------------------
Thornton J. Donaldson 0 0 200,000 $0
(exercisable)
- -------------------------------------------------------------------------------------------------
</TABLE>
Compensation of Directors
The following table summarizes options granted during the most recently
completed financial year to the Directors of the Company (excluding the Named
Executive Officers):
<TABLE>
- --------------------------------------------------------------------------------------------------------------
% of Total Options Market Value of
Securities Granted to All Exercise or Securities Underlying
Under Options Employees in the Base Price Options on the Date Expiration
Name Granted (#) Financial Year ($/Securities) of Grant ($/Security) Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Randall Pow 200,000 8.14% U.S.$1.00 U.S.$1.00 09/08/2005
- --------------------------------------------------------------------------------------------------------------
James P. Fagan 400,000 16.28% U.S.$0.50 U.S.$0.60 01/15/2006
- --------------------------------------------------------------------------------------------------------------
Geoffrey Hornby -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
</TABLE>
No pension or retirement benefit plan has been instituted by the Company and
none is proposed at this time and there is no arrangement for compensation with
respect to termination of the directors in the event of change of control of the
Company.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Directors and Senior Officers of the Company the
following tables sets forth the beneficial ownership of the Company's Common
Stock as of July 29, 1996 by each director by each Senior Officer named in the
Summary Compensation Table, and by all directors and Senior Officers as a group:
25
<PAGE>
NAME AND ADDRESS OF
BENEFICIAL OWNER/ SHARES PERCENT
NAME OF DIRECTOR/ BENEFICIALLY OF
IDENTITY OF GROUP OWNED CLASS
- ----------------- ------------ -------
ROBERT W. TRUXELL 1,883,200 (1) 12.62%
CHAIRMAN/CEO/DIRECTOR
JAMES P. FAGAN 808,400 (2) 5.41%
PRESIDENT/COO/DIRECTOR
THORNTON J. DONALDSON 223,856 (3) 1.53%
DIRECTOR
GEOFFREY HORNBY 32,410 (4) .22%
DIRECTOR
RANDALL POW 200,000 (5) 1.37%
DIRECTOR/SECRETARY
All directors and senior
officers as a group
(7 persons) 3,147,866 (6) 21.15%
- ----------------
(1) Includes: (i) 1,383,200 shares held jointly; (ii) currently exercisable
options to purchase 400,000 common shares at U.S.$0.50 per share; and (iii)
currently exercisable options to purchase 100,000 shares at U.S.$0.75 per
share. Does not include 360,399 common shares to be issued to Mr. and Mrs.
Truxell for services rendered. See "Executive Compensation".
(2) Includes currently exercisable options to purchase: (i) 400,000 common
shares at U.S.$0.50 per share; and (ii) 100,000 common shares at U.S.$0.75
per share. Does not include 180,200 common shares to be issued to Mr. Fagan
for services rendered.
(3) Includes currently exercisable options to purchase 200,000 common share at
U.S.$1.00 per share.
(4) Randall Pow holds currently exercisable options to purchase 200,000 common
share at U.S.$1.00 per share.
(5) Includes currently exercisable options to purchase 28,218 common shares at
U.S.$1.00 per share.
(6) Includes securities reflected in footnotes 1-5.
To the knowledge of the Directors and Senior Officers of the Company, as of
July 29, 1996, there are no persons and/or companies who or which beneficially
own, directly or indirectly, shares carrying more than 5% of the voting rights
attached to all outstanding shares of the Company, other than:
26
<PAGE>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- -------------------- ----------------
Robert W. and Linda C. Truxell 1,883,200 (1) 12.62%
10200 Ford Road
Dearborn, MI 48126
James P. Fagan 808,400 (2) 5.41%
10200 Ford Road
Dearborn, MI 48126
Alan Moore 3,600,000 (3) 19.98%
9441 LBJ Freeway
Suite 500
Dallas, TX 75243
- ----------------
(1) Includes: (i) 1,383,200 shares held jointly; (ii) currently exercisable
options to purchase 400,000 common shares at U.S.$0.50 per share; and (iii)
currently exercisable options to purchase 100,000 shares at U.S.$0.75 per
share. Does not include 360,399 common shares to be issued to Mr. and Mrs.
Truxell for services rendered. See "Executive Compensation".
(2) Includes currently exercisable options to purchase: (i) 400,000 common
shares at U.S.$0.50 per share; and (ii) 100,000 common shares at U.S.$0.75
per share. Does not include 180,200 common shares to be issued to Mr. Fagan
for services rendered.
(3) Consists of currently exercisable warrants to purchase 3,600,000 common
shares at U.S.$0.62 per share on or before January 10, 2006.
All percentages in this section were calculated on the basis of outstanding
securities plus securities deemed outstanding pursuant to Rule 13d-3(d)(1) under
the United States Securities Act of 1934.
There are no arrangements or agreements pledging securities which could in the
future result in a change of control of the Company.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as set forth in Item 1.1 - Corporate Background with regard to Mr.
Donaldson's purchase of a subsidiary with assets valued at -0- on the Company's
balance sheet, and in Item 11 - Executive Compensation, none of the directors or
senior officers of the Company, or any associate or affiliate of such person or
company, has any material interest, direct or indirect, in any transaction
during the past year or any proposed transaction which has materially affected
or will affect the Company.
27
<PAGE>
PART IV
ITEM 14 FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS:
(1) FINANCIAL STATEMENTS - APRIL 30, 1996
a) Index to Financial Statements;
b) Auditor's Report to the Shareholders;
c) Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Conflict;
d) Consolidated Balance Sheets;
e) Consolidated Statements of Operations;
f) Consolidated Statements of Deficit;
g) Consolidated Statements of Changes in Financial Position;
h) Notes to Consolidated Financial Statements.
(2) SCHEDULES
Schedules are omitted as the information is not required or not applicable,
or the required information is shown in the financial statements or notes
thereto.
(3) EXHIBITS
The Exhibits listed in the Exhibit Index at Item 14(c) are filed as part of
this Annual Report.
(b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last
quarter of the fiscal year covered by this report.
(c) EXHIBITS
1(a) Certificate of Amalgamation as issued by the Registrar of Companies
for the Province of British Columbia on January 25, 1993. (2)
1(b) Order and annex referred to therein (Amalgamation Agreement dated
August 21, 1992 as amended on September 16, 1992) issued by the
Supreme Court of British Columbia on November 26, 1992 approving the
Amalgamation Agreement as amended. (2)
28
<PAGE>
1(c) Order issued by the Supreme Court of British Columbia on December 9,
1992 amending the spelling of the names Consolidated Boulder Mountain
Resources Ltd., Consolidated Rich Coast Sulphur Ltd. and Robert
McKenzie. (2)
1(d) Order issued by the Supreme Court of British Columbia on January 21,
1993 amending Clause 14 of the Amalgamation Agreement dated August 21,
1992 (the "Amalgamation Agreement"), titling schedules to the
Amalgamation Agreement and amending Clause 6 of the Amalgamation
Agreement. (2)
1(e) Agreement of Merger dated October 31, 1995 between RCRL, RCRI,
IWS, Powers/Fagan, WRS and others. (3)
1(f) Certificate of Merger effective December 26, 1996 issued by the
Secretary of the State of Michigan. (4)
2(a) Certificate of Amalgamation. (Filed as Exhibit 1(a)) (2)
3(i) Memorandum of the Company. (Filed as Exhibit 1(b)) (2)
3(ii) Articles of the Company. (Filed as Exhibit 1(b)) (2)
4.1 Terminal Sales Agreement between Mobil Oil Corporation and the
Company. (P) Exhibits and Schedules, as listed following the Table
of Contents of this Agreement, are omitted from this filing but will
be furnished supplementally to the Commission upon request.
4.2 Agreement of Sale and Purchase - Dearborn Products Pipeline. (P)
4.3 Terminaling Agreement - Mobil Oil Corporation. (P)
4.4 Amendments dated September 27, 1995 to Terminal Sales Agreement
and Agreement of Sale and Purchase - Dearborn Products Pipeline. (P)
4.5 Amendments dated November 3, 1995 to Terminal Sales Agreement and
Agreement of Sale and Purchase - Dearborn Products Pipeline. (P)
10.1 License Agreement dated November 11, 1993 between New Processing
Technologies and Waste Reduction Systems. (2)
10.2 Agreement dated November 12, 1993 between Waste Reduction Systems
and Browning-Ferris Industries of Southeastern Michigan, Inc. (2)
29
<PAGE>
10.3 Management Agreement between the Company and United Corporate
Advisors Ltd. dated February 1, 1993. (2)
10.4 Management Agreement between the Company and Bullock Consulting Ltd.
dated February 1, 1993. (2)
10.5 Debt Settlement Agreements between the Company, Mud Control
Equipment Corp., Willow Run Rubber and Lining Co. Inc., Analytical
Technologies, Inc., Borbolla Construction, Inc., Reckinger Heating and
Cooling Co., J.J. Curran Crane Co., Kessey Contracting, Lightnin and
Detroit Door and Hardware dated July 29, 1994. (5)
10.6 Debt Settlement Agreement dated November 9, 1994 between the Company
and William McCullagh. (5)
10.7 Debt Settlement Agreement dated January 26, 1995 between the Company
and William McCullagh. (5)
10.8 Debt Settlement Agreement dated March 15, 1995 between the Company
and William McCullagh. (5)
10.9 Employment Contract between the Company and Robert W. Truxell
(Exhibit 1 to the Agreement of Merger dated October 31, 1995.) (3)
10.10 Employment Contract between the Company and James P. Fagan (Exhibit 2
to the Agreement of Merger dated October 31, 1995.) (3)
10.11 Securities Purchase Agreement - January 10, 1996. (P)
10.12 Debt Settlement/Securities Purchase Agreement dated February 7, 1996.
(6)
10.13 1995 Incentive Compensation Plan. (7)
10.14 1996 Employee Stock Option and Bonus Plan. (8)
21.1 List of Subsidiaries of the Registrant. (6)
23.1 Consent of Smythe Ratcliffe with regard to Form S-8 Registration
Statements filed November 6, 1995 (File No. 33-99040) and April 22,
1996 (File No. 333-3906). (6)
24.1 Authorization of Representative. (6)
27.1 Financial Data Schedule. (6)
- ----------------
30
<PAGE>
(1) INCORPORATED BY REFERENCE TO THE COMPANY'S ANNUAL REPORT ON FORM 20-F FILED
ON NOVEMBER 2, 1992.
(2) INCORPORATED BY REFERENCE TO THE COMPANY'S 1993 ANNUAL REPORT ON FORM 20-F.
(3) INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 8-K DATED NOVEMBER 16,
1995.
(4) INCORPORATED BY REFERENCE TO THE COMPANY'S FORM 8-K DATED DECEMBER 26,
1995.
(5) INCORPORATED BY REFERENCE TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED APRIL 30, 1995.
(6) FILED HEREWITH.
(7) INCORPORATED BY REFERENCE FROM THE COMPANY'S REGISTRATION STATEMENT ON FORM
S-8, FILE NO. 33-99040.
(8) INCORPORATED BY REFERENCE FROM THE COMPANY'S REGISTRATION STATEMENT ON FORM
S-8, FILE NO. 333-3906.
(P) Filed in paper format on August 13, 1996 under cover of Form SE.
(d) SCHEDULES. Schedules are omitted as the information is not required or not
applicable, or the required information is shown in the financial statements or
notes thereto.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RICH COAST RESOURCES LTD.
Date: August 12, 1996 By: /s/ Robert W. Truxell
- --------------------- ----------------------------------
Robert W. Truxell, Chairman of the
Board and Chief Executive Officer
Date: August 12, 1996 By: /s/ James P. Fagan
- --------------------- ----------------------------------
James P. Fagan, President and Chief
Operating Officer
Date: August 12, 1996 By: /s/ Michael M. Grujicich
- --------------------- ----------------------------------
Michael M. Grujicich, Chief Financial
and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert W. Truxell Chairman, CEO August 12, 1996
- --------------------------- and Director
Robert W. Truxell
/s/ James P. Fagan President, COO August 12, 1996
- --------------------------- and Director
James P. Fagan
/s/ Thornton J. Donaldson Director August 12, 1996
- ---------------------------
Thornton J. Donaldson
/s/ Geoffrey Hornby Director August 12, 1996
- ---------------------------
Geoffrey Hornby
/s/ Randall Pow Director August 12, 1996
- ---------------------------
Randall Pow
32
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
APRIL 30, 1996 AND 1995
INDEX PAGE
----- ----
Auditors' Report to the Shareholders 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Deficit 4
Consolidated Statements of Changes in Financial Position 5-6
Notes to Consolidated Financial Statements 7-17
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Rich Coast Resources Ltd. as
at April 30, 1996 and 1995 and the consolidated statements of operations,
deficit and changes in financial position for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada which do not differ in any material respects from auditing standards
generally accepted in the United States. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at April 30, 1996
and 1995 and the results of its operations and the changes in its financial
position for the years then ended in accordance with generally accepted
accounting principles in Canada.
/s/Smythe Ratcliffe
Chartered Accountants
Vancouver, Canada
July 12, 1996
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph following the opinion paragraph when the financial
statements are affected by significant uncertainties such as that referred to in
the attached balance sheet as at April 30, 1996 and 1995 and as described in
Note 3 of these financial statements. Our report to the shareholders dated July
12, 1996 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such uncertainties in the auditor's report when the
uncertainties are adequately disclosed in the financial statements.
/s/Smythe Ratcliffe
Chartered Accountants
Vancouver, Canada
July 12, 1996
1
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
APRIL 30
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (note 6)
CURRENT
Cash $ 43,224 $ 22,075
Accounts receivable 705,716 322,520
Prepaid expenses 57,110 5,177
- ------------------------------------------------------------------------------------------------------
806,050 349,772
DISTILLATION UNIT (notes 3 and 5) 2,413,653 2,391,655
CAPITAL ASSETS (notes 4 and 6) 4,793,872 2,372,306
PATENT AND TECHNOLOGY, net 50,178 51,835
INVESTMENT IN AND EXPENDITURES ON RESOURCE
PROPERTIES 0 100,585
DEPOSITS 7,480 4,882
- ------------------------------------------------------------------------------------------------------
$ 8,071,233 $ 5,271,035
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 1,228,546 $ 910,137
Past services compensation payable 479,195 0
Accrued payroll and property taxes 250,454 503,864
Due to shareholder 142,688 0
Current portion of long-term debt (note 6) 90,102 74,605
Current portion of obligation under capital lease (note 7) 5,521 5,521
- ------------------------------------------------------------------------------------------------------
2,196,506 1,494,127
LONG-TERM DEBT (note 6) 2,935,506 268,579
OBLIGATION UNDER CAPITAL LEASE (note 7) 12,883 18,404
- ------------------------------------------------------------------------------------------------------
5,144,895 1,781,110
- ------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 8) 29,270,784 23,619,469
DEFICIT (26,344,446) (20,129,544)
- ------------------------------------------------------------------------------------------------------
2,926,338 3,489,925
- ------------------------------------------------------------------------------------------------------
$ 8,071,233 $ 5,271,035
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
Approved on behalf of the Board:
/s/Thornton J. Donaldson Director /s/Randall Pow Director
- ----------------------------- ------------------------
Thornton J. Donaldson Randall Pow
See notes to consolidated financial statements.
2
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
TO APRIL 30,
1996 1995 1994 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 2,371,025 $ 1,426,977 $ 391,143 $ 4,189,145
COST OF SALES 748,928 499,858 220,129 1,468,915
- ----------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,622,097 927,119 171,014 2,720,230
- ----------------------------------------------------------------------------------------------------------------
EXPENSES
Salaries and wages 770,216 1,154,049 1,003,712 3,217,204
Repairs and maintenance 175,696 155,201 141,061 471,958
Audit, accounting and legal 175,793 80,771 184,901 1,040,230
Shareholder relations 133,477 177,866 259,812 1,073,064
Equipment and storage leases 123,444 84,747 20,225 228,416
Utilities 120,365 105,619 80,951 306,935
Travel 109,395 102,620 258,984 645,845
Office and general 109,383 111,412 298,852 769,060
Telephone and facsimile 98,698 85,719 96,563 347,876
Factoring costs 93,466 45,630 0 139,096
Insurance 88,611 88,163 78,937 255,711
Property taxes 83,081 37,197 17,386 137,664
Interest and bank charges, net 76,585 19,672 33,385 49,611
Bad debts 64,954 0 0 136,168
Rent and secretarial 63,421 75,724 63,604 254,766
Consulting 42,434 60,847 214,873 557,359
Listing and filing fees 40,803 60,018 21,325 182,261
Management fees 30,000 30,000 35,860 310,424
Courier and postage 20,755 23,767 47,392 102,514
Transfer agent 14,349 12,087 9,115 169,683
Advertising 13,805 3,039 11,193 28,037
Financing 0 0 76,286 76,286
Foreign exchange (gain) loss (106,191) 35,538 369,089 301,338
Depreciation 507,463 475,738 280,786 1,269,549
Amalgamation 0 0 0 30,798
- ----------------------------------------------------------------------------------------------------------------
2,850,003 3,025,424 3,604,292 12,101,853
- ----------------------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER ITEMS 1,227,906 2,098,305 3,433,278 9,381,623
OTHER ITEMS
Write-down investment in and expenditures on
mineral properties (note 2) 3,377 49,691 842,787 8,852,038
Compensation for past services 479,195 0 0 479,195
Resource properties disposal loss 100,578 0 0 100,578
(Gain) loss from oil and gas operations (note 2) (6,711) 36,989 53,462 118,976
(Gain) loss on sale of capital assets 3,374 0 (15,970) (12,596)
- ----------------------------------------------------------------------------------------------------------------
NET LOSS FOR YEAR $ 1,807,719 $ 2,184,985 $ 4,313,557 $ 18,919,814
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LOSS PER SHARE BEFORE OTHER ITEMS $ 0.12 $ 0.33 $ 0.75
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
LOSS PER SHARE $ 0.18 $ 0.35 $ 0.94
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 9,843,419 6,321,863 4,567,689
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF DEFICIT
YEARS ENDED APRIL 30
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
TO APRIL 30,
1996 1995 1994 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEFICIT, BEGINNING OF YEAR
As previously reported $ 19,985,155 $ 17,848,057 $ 13,588,430 $ 1,483,760
Adjustments of prior years' translation
adjustment (note 1) 144,389 96,502 (10,124) 144,389
- ----------------------------------------------------------------------------------------------------------------
As restated 20,129,544 17,944,559 13,578,306 1,628,149
NET LOSS 1,807,719 2,184,985 4,313,557 18,765,303
- ----------------------------------------------------------------------------------------------------------------
21,937,263 20,129,544 17,891,863 20,393,452
Adjustment to Assets on acquisition
of partnership (note 9) 3,383,200 0 0 3,383,200
Financing cost 615,383 0 0 615,383
Finders' fee 408,600 0 52,696 542,871
Adjustment on amalgamation 0 0 0 1,409,540
- ----------------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $ 26,344,446 $ 20,129,544 $ 17,944,559 $ 26,344,446
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
YEARS ENDED APRIL 30
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
TO APRIL 30,
1996 1995 1994 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Loss for year $(1,807,719) $(2,184,985) $(4,313,557) $(18,598,022)
Items not involving cash
Depreciation 507,463 475,738 280,786 1,276,674
Write-down investment
in and expenditures on
mineral properties 3,377 49,691 842,789 8,852,040
Resource properties
disposal loss 100,578 0 0 100,578
Unrealized (realized) exchange
translation loss on
Gap Energy, Inc. debt (311,360) 311,360 0
Write-down oil and gas
properties 5 37,129 96,448 133,582
(Gain) loss on sale of oil
and gas properties (6,711) 0 (6,729) 31,431
Write-off note receivable 3,374 0 0 27,374
- ----------------------------------------------------------------------------------------------------------------
(1,199,633) (1,933,787) (2,788,903) (8,176,343)
- ----------------------------------------------------------------------------------------------------------------
CHANGES IN NON-CASH
WORKING CAPITAL
Accounts receivable (383,196) (171,556) (126,145) (705,716)
Prepaid expenses and deposits (54,531) 11,431 65,309 (69,225)
Accounts payable and accrued
liabilities 544,190 125,339 1,000,759 1,619,958
- ----------------------------------------------------------------------------------------------------------------
106,463 (34,786) 939,923 845,017
- ----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Investment in and
expenditures on mineral
properties (3,377) (49,691) (316,700) (8,638,990)
Distillation unit costs incurred (21,998) 0 (11,776) (2,413,649)
Purchase of capital assets (2,940,623) (152,337) (3,186,234) (7,017,787)
Expenditures on oil and
gas properties 0 0 (7,869) (255,838)
Proceeds on sale of oil and
gas properties 6,717 0 6,946 62,132
Purchase of subsidiary 0 0 0 (313,630)
Note receivable 0 0 0 (24,000)
Proceeds on sale of capital assets 9,877 0 0 9,877
Adjustment to assets on merger (3,383,200) 0 0 (4,792,740)
- ----------------------------------------------------------------------------------------------------------------
(6,332,604) (202,028) (3,515,633) (23,384,625)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (CONTINUED)
YEARS ENDED APRIL 30
(CANADIAN DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
TO APRIL 30,
1996 1995 1994 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Issue of capital stock
For cash 1,790,845 2,431,844 1,884,335 13,943,097
For settlement of debt 0 2,556,573 80,000 2,734,368
For settlement of loan
payable to shareholder 142,270 713,743 0 856,013
For partnership interest 3,383,200 212,108 0 4,451,321
For mineral properties 0 0 132,218 4,281,499
For services 335,000 0 0 335,000
For distilled unit 0 0 0 118,818
On amalgamation with
Consolidated Boulder Mountain
Resources Ltd. 0 0 0 1,517,105
For finders' fees and
financing cost 0 0 16,287 214,465
Land contract (repayments) (41,576) 35,620 378,804 372,848
Shareholders' loans (repayment) 142,688 (308,270) 308,270 350,469
Obligation under capital lease (5,521) 23,925 0 18,404
Capital stock subscribed 0 (1,572,000) 1,572,000 0
Repayment of GAP Energy, Inc. 0 (1,900,960) 0 0
Note payable 2,724,000 0 0 2,724,000
Advance (repayment) from Kyra
Holdings, Inc. 0 (300,000) 300,000 0
Finders' fees and financing
costs (1,023,983) 0 (52,696) (1,158,254)
- ----------------------------------------------------------------------------------------------------------------
7,446,923 1,892,583 4,619,218 30,759,153
- ----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 21,149 (27,953) (745,395) 43,202
CASH, BEGINNING OF YEAR 22,075 50,028 795,423 22
- ----------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 43,224 $ 22,075 $ 50,028 $ 43,224
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Pursuant to an Agreement of Merger, effective October 31, 1995 and
executed on November 16, 1995, the Company acquired the remaining
45.454% interest in Waste Reduction Systems (a partnership) (note 9),
by merger of Integrated Waste Systems, Inc., a Michigan corporation
("IWS"), and The Powers Fagan Group, Inc., a Michigan corporation
("Powers/Fagan"), with the Company's wholly-owned subsidiary, Rich
Coast Resources Inc., a Michigan corporation ("RCRI").
This reorganization of the companies has resulted in Waste Reduction
Systems becoming 100% owned by RCRI. The acqusition has been
accounted for using the purchase method, and accordingly, the
financial statements have been retroactively restated to include the
financial position and results of operations and cash flows of Waste
Reduction Systems.
Deficits previously reported at May 1, 1995, 1994 and 1993 have been
increased by $144,389, $96,502 and decreased by $10,124 respectively,
to reflect the retroactive change in the Company's method of
accounting for its investment in Waste Reduction Systems. Prior to
the merger of the partners effective October 31, 1995 the Company
reported its share of the net loss of the partnership as an adjustment
of investment in the partnership. As a result of the merger the
Company owns 100% of the former partnership, consequently all the
assets, liabilities and income and expense of that entity are included
in the consolidated financial statements with effect from the
commencement of business of Waste Reduction Systems in August 1992.
These consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles and all figures
are in Canadian dollars. Canadian generally accepted accounting
principles differ in certain respects from accounting principles
generally accepted in the United States. The significant differences
and the approximate related effect on the financial statements are set
forth in note 12.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of Rich Coast
Resources Limited and its wholly-owned subsidiary, Rich Coast
Resources Inc. (a U.S. corporation).
(b) Distillation unit and capital assets
The distillation unit and the capital assets are recorded at
cost. Capital assets are depreciated on the double declining
balance basis over the estimated useful lives of the assets. No
depreciation has been taken on the distillation unit or the
capital asset that have not yet been put into use.
7
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Resource properties
During the 1996 fiscal year the Company disposed of its remaining
mineral and oil and gas properties concurrent with the merger referred
to in note 1 above.
(d) Foreign currency translation
The operations of Rich Coast Resources Inc. are all financially
interdependent with the Company, and therefore amounts recorded in
foreign currency are translated into Canadian dollars as follows:
(i) Accounts included in the statements of operations and deficit
(except depreciation and depletion which are translated at the
same rate as the related asset), are translated at average rates
of exchange prevailing during the years; and
(ii) Accounts included in the balance sheets are translated at rates
of exchange at the year-ends; except for the distillation unit,
capital assets, investment in and expenditures on resource
properties and accumulated depletion thereon are translated at
rates prevailing at acquisition dates or at the rate prevailing
at last write-down to fair market value.
All gains and losses arising from the translation of foreign currency
are included in the statements of operations.
(e) Loss Per Share
Loss per share computations are based on the weighted average number
of common shares outstanding during the year.
3. REALIZATION OF ASSETS
The investment in the distillation unit (note 5) comprises a significant
portion of the Company's assets. Realization of the Company's investment
in the distillation unit is dependent upon the successful development of
the unit for soil remediation purposes, the attainment of successful
production from the unit or from the proceeds of the unit's disposal.
8
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
4. CAPITAL ASSETS
The Company's offices, plant, processing equipment and bulk storage
terminal located in Dearborn, Michigan are comprised of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
(1996) 1995
----------------------------------------------------------------------------------------------------------
ACCUMULATED
COST DEPRECIATION NET NET
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Building (10200 Ford Road, Dearborn) $ 961,370 $ 60,031 $ 901,339 $ 925,352
Computer software 32,424 32,424 0 0
Lab equipment 32,606 21,625 10,981 29,508
Furniture and fixtures 47,508 10,160 37,348 50,206
Machinery and equipment 2,219,646 1,033,207 1,186,439 1,367,240
Bulk storage terminal (6011 and 6051 Wyoming,
Dearborn)
Land 340,455 0 340,455 0
Building 502,689 2,261 500,428 0
Loading racks 346,682 24,770 321,912 0
Tanks 866,704 26,001 840,703 0
Equipment 17,335 1,239 16,096 0
Furniture and fixtures 234,883 0 234,883 0
Pipeline 403,288 0 403,288 0
----------------------------------------------------------------------------------------------------------
$ 6,005,590 $ 1,211,718 $ 4,793,872 $ 2,372,306
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>
The building at 10200 Ford Road, Dearborn, Michigan is currently listed for
sale at U.S. $650,000.
5. DISTILLATION UNIT
The Company has a mineral distillation unit acquired at an original cost of
$2,000,000 U.S. from GAP Energy, Inc. The mineral distillation unit was
originally purchased for use on the proposed joint venture project with GAP
Minerals, Inc. in the development of the Gongora Property in Costa Rica.
The price of sulphur dropped making the development of the project
uneconomical, however, the Company had intended to proceed with the project
once world prices improve to the point the project becomes profitable. In
view of this, the Company searched for an alternate use of the unit and
found that it could possibly be used for soil remediation for such things
as oil pits polluted with hydrocarbons. Testing was conducted on the unit
to confirm this use. Preliminary results indicate the system is capable of
removing soil contaminants to a level acceptable to the Environmental
Protection Agency of the United States.
9
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
6. LONG-TERM DEBT
--------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------
Land contract payable in monthly
instalments of U.S. $4,753 each
including principal and interest
at 8% unless the Company falls
behind in its payments at which
time the interest rate increases
to 12% and monthly instalments
increase to $5,384 until the
payments are back to schedule
(the Company is currently behind
in seven payments) $ 301,608 $ 343,184
10% senior secured note, due
October 1, 2001 (U.S. $2,000,000);
interest payable monthly 2,724,000 0
--------------------------------------------------------------------------
3,025,608 343,184
Less: Current portion (90,102) (74,605)
--------------------------------------------------------------------------
$ 2,935,506 $ 268,579
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The land contract payable relates to premises occupied at 10200 Ford Road,
Dearborn, Michigan.
The senior secured note payable is secured by a U.S. $2,000,000 mortgage
granted by the Company over the real property at 6011 and 6051 Wyoming,
Dearborn, Michigan and a charge on all other assets of the Company. The
loan agreement contains covenants relating to financial requirements,
expenditures, etc. for the Company. The holder may convert the loan into
common shares at U.S. $0.50 per share in the event of default by the
Company.
At the time the loan arrangements were made, the note holder was issued
warrants to purchase 3,600,000 shares of the Company (note 8(e)).
7. OBLIGATION UNDER CAPITAL LEASE
The following is a schedule of future minimum lease payments under capital
lease.
--------------------------------------------------------------------------
APRIL 30,
1996 1995
--------------------------------------------------------------------------
1996 $ 0 $ 5,521
1997 5,521 5,521
1998 5,521 5,521
1999 5,521 5,521
2000 1,841 1,841
--------------------------------------------------------------------------
Total Minimum Lease Payments 18,404 23,925
Less: Current Portion 5,521 5,521
--------------------------------------------------------------------------
Obligation Under Capital Lease $ 12,883 $ 18,404
--------------------------------------------------------------------------
--------------------------------------------------------------------------
10
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
8. CAPITAL STOCK
(a) Authorized 100,000,000 common shares without par value
(b) Issued
---------------------------------------------------------------------------
NUMBER OF PRICE PER
SHARES SHARE ($) AMOUNT
---------------------------------------------------------------------------
Balance, inception, May 1, 1983 726,111 $ 1,453,005
Shares issued for cash 300,000 $ 0.15 45,000
---------------------------------------------------------------------------
Balance, April 30, 1984 1,026,111 1,498,005
Shares issued
For cash 1,061,640 0.63 666,276
For settlement of payable
to shareholders 95,556 0.15 14,333
For mineral property claims
and options 400,000 0.05 22,500
---------------------------------------------------------------------------
Balance, April 30, 1985 2,583,307 2,201,114
Shares issued in conjunction
with pooling agreement 22,162 0
---------------------------------------------------------------------------
Balance, April 30, 1986 2,605,469 2,201,114
Two-to-one consolidation,
revised balance, April 30, 1986 1,302,734 2,201,114
Shares issued
For cash 999,800 1.81 1,807,018
For mineral property claims
and options 200,000 1.00 200,000
---------------------------------------------------------------------------
Balance, April 30, 1987 2,502,534 4,208,132
Shares issued
For cash 256,413 1.97 504,807
For mineral property claims
and options 500,000 1.00 500,000
---------------------------------------------------------------------------
Balance, April 30, 1988 3,258,947 5,212,939
Shares issued
For cash 370,750 1.62 602,215
As interest on note payable 9,554 1.51 14,427
For mineral property claims
and options 600,000 1.00 600,000
---------------------------------------------------------------------------
Balance, April 30, 1989,
carried forward 4,239,251 6,429,581
---------------------------------------------------------------------------
---------------------------------------------------------------------------
11
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
8. CAPITAL STOCK (Continued)
---------------------------------------------------------------------------
Number of Price Per
SHARES SHARE ($) AMOUNT
---------------------------------------------------------------------------
Balance, April 30, 1989 carried
forward 4,239,251 6,429,581
Shares issued
For cash 463,700 1.34 620,487
On settlement of loan payable to
shareholders 171,315 1.19 203,865
For mineral property claims and
options 100,000 0.55 55,000
---------------------------------------------------------------------------
Balance, April 30, 1990 and 1991 4,974,266 7,308,933
Five-to-one consolidation (3,979,413) 0
---------------------------------------------------------------------------
Revised balance, April 30, 1990
and 1991 994,853 7,308,933
Shares issued
For cash on exercise of stock options 281,384 2.91 819,230
On acquisition of mineral properties,
claims and options 1,165,217 2.12 2,471,781
On acquisition of distillation unit 50,000 2.38 118,810
For settlement of debt 17,400 2.00 34,800
For settlement of interest on loan
payable to shareholder 1,911 2.00 3,822
---------------------------------------------------------------------------
Balance, April 30, 1992 2,510,765 10,757,376
Shares issued to amalgamation date of
January 24, 1993
For cash, private placements 558,028 3.78 2,108,707
For cash on exercise of stock
options 5,000 2.11 10,550
For mineral property claims and
options 61,224 4.90 300,000
For finders' fees for private
placements 22,722 3.59 81,575
---------------------------------------------------------------------------
Balance, January 24, 1993 3,157,739 13,258,208
Acquisition of Consolidated Boulder
Mountain Resources Ltd. 634,772 2.39 1,517,105
Finders' fee for acquisition 48,788 2.39 116,603
---------------------------------------------------------------------------
3,841,299 14,891,916
Shares issued
For cash on exercise of stock options 245,000 2.60 637,450
For settlement of debt 19,685 3.20 62,995
---------------------------------------------------------------------------
Balance April 30, 1993, carried forward 4,105,984 15,592,361
---------------------------------------------------------------------------
---------------------------------------------------------------------------
12
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
8. CAPITAL STOCK (Continued)
---------------------------------------------------------------------------
NUMBER OF PRICE PER
SHARES SHARE ($) AMOUNT
---------------------------------------------------------------------------
Balance, April 30, 1993, carried
forward 4,105,984 $15,592,361
Shares issued
For cash on exercise of stock options 605,156 2.77 1,673,435
For cash on exercise of stock warrants 45,000 3.32 149,400
For cash, private placement 25,000 2.46 61,500
For mineral property claims and options 46,720 2.83 132,218
For settlement of debt 28,268 2.83 80,000
For financing cost on debt 5,755 2.83 16,287
---------------------------------------------------------------------------
Balance, April 30, 1994 4,861,883 17,705,201
Shares issued
For cash, private placements 500,000 3.14 1,572,000
For cash on exercise of stock options 589,327 1.46 859,844
For settlement of Gap Energy Inc. debt 864,865 2.50 2,165,920
For settlement of loan payable to
shareholder 684,648 1.04 713,743
For settlement of Kyra Holdings,
Inc. debt 110,470 2.77 306,000
For settlement of debt 30,560 2.77 84,653
For investment in partnership 107,669 1.97 212,108
---------------------------------------------------------------------------
Balance, April 30, 1995 7,749,422 23,619,469
Shares issued
For cash, private placements 1,198,945 0.95 1,139,174
For cash on exercise of stock options 575,150 1.13 651,671
For services 250,000 1.34 335,000
For settlement of loan payable to
shareholder 167,376 0.85 142,270
Acquisition of Waste Reduction
Systems (note 9) 3,383,200 1.00 3,383,200
---------------------------------------------------------------------------
Balance, April, 30, 1996 13,324,093 $29,270,784
---------------------------------------------------------------------------
---------------------------------------------------------------------------
13
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
8. CAPITAL STOCK (CONTINUED)
(d) At April 30, the following share purchase options were outstanding:
---------------------------------------------------------------------------
EXERCISE NUMBER OF SHARES
EXPIRY DATE PRICE 1996 1995 1994
---------------------------------------------------------------------------
November 12, 1994 $ 3.42 0 37,876
April 29, 1995 $ 2.86 0 6,000
June 8, 1995 $ 2.57 990 124,390
September 1, 1995 $ 0.84 0 12,000
October 3, 1995 $ 2.90 10,000 72,691
October 3, 1998 $ 0.84 15,000 15,000 25,000
October 21, 1996 $ 1.10 72,300 299,200 0
February 1, 1997 $ 1.34 40,218 85,218 0
March 12, 1997 $ 1.27 30,031 119,731 0
May 10, 1997 $ 1.48 184,453 0 0
October 26, 2005 U.S. $ 0.60 14,450 0 0
September 8, 2005 U.S. $ 1.00 400,000 0 0
December 27, 2005 U.S. $ 0.50 800,000 0 0
January 15, 2006 U.S. $ 0.50 800,000 0 0
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(e) At April 30, 1996 share purchase warrants were outstanding for
3,600,000 shares exercisable at $0.62 U.S. per share to January 10,
2006.
9. INVESTMENT IN WASTE REDUCTION SYSTEMS
Pursuant to an Agreement of Merger effective October 31, 1995, the Company
increased its interest in Waste Reduction Systems ("WRS"), a Michigan
partnership, to 100%. Prior to the merger, the Company owned a 54.546%
interest in WRS. Consideration for the remaining 45.454% interest in WRS
was the issuance of 3,383,200 shares of the Company at a deemed value of $1
Cdn per share (note 8(b)). The Company's investment in WRS prior to the
acquisition of its remaining 45.454% interest and the merger of the
partners of WRS was as follows:
---------------------------------------------------------------------------
U.S. DOLLARS CDN. DOLLARS
---------------------------------------------------------------------------
Balance, April 30, 1995 $915,286 $1,149,185
Advances 177,925 243,833
Share of partnership loss for six months ended
October 31, 1995 (179,032) (244,000)
Interest on Company loan 35,241 48,000
Write-down Company loan to partnership to net
book value of partnership at October 31, 1995 (149,191) (203,000)
---------------------------------------------------------------------------
Investment in WRS, October 31, 1995 $800,229 $994,018
---------------------------------------------------------------------------
---------------------------------------------------------------------------
14
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
9. INVESTMENT IN WASTE REDUCTION SYSTEMS (Continued)
The net assets of WRS acquired by Rich Coast Resources Ltd. were equal to
the Company's previous investment in WRS and are as follows
---------------------------------------------------------------------------
U.S. DOLLARS CDN. DOLLARS
---------------------------------------------------------------------------
Current assets $323,317 $436,478
Property and equipment, net 1,647,255 2,139,407
Other assets 37,159 48,261
---------------------------------------------------------------------------
2,007,731 2,624,146
Current liabilities assumed (1,030,411) (1,391,055)
Long-term debt assumed (177,091) (239,073)
---------------------------------------------------------------------------
Net assets acquired 800,229 994,018
Deficiency of net assets acquired
to acquisition cost 2,469,736 3,383,200
---------------------------------------------------------------------------
Total acquisition cost $3,269,965 $4,377,218
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Represented by
Issue of 3,383,200 common shares at a
deemed value of $1 Cdn. per share to
the minority partners of WRS $2,469,736 $3,383,200
Rich Coast's net investment in WRS at
the date of acquisition 800,229 994,018
---------------------------------------------------------------------------
$3,269,965 $4,377,218
---------------------------------------------------------------------------
---------------------------------------------------------------------------
10. RELATED PARTY TRANSACTIONS
Management fees of $30,000 were paid to directors or companies controlled
by directors for the year ended April 30, 1996 (1995 - $30,000; 1994 -
$35,000).
15
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
11. INCOME TAXES
The Company has approximate losses which may be carried forward to apply
against future income for Canadian tax purposes as follows:
--------------------------------------------------------------------
APRIL 30,
AVAILABLE TO 1996 1995
--------------------------------------------------------------------
1996 $0 $233,000
1997 85,000 85,000
1998 245,000 245,000
1999 878,000 878,000
2000 140,000 140,000
2001 916,000 916,000
2002 621,000 621,000
2003 1,500,000 0
--------------------------------------------------------------------
$4,385,000 $3,118,000
--------------------------------------------------------------------
--------------------------------------------------------------------
The U.S. subsidiary has approximate losses to carry forward of $1,200,000
U.S. expiring in 2000, 2001 and 2002.
The tax benefits that may result from the utilization of these losses have
not been recorded in these financial statements.
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
Included in the Company's Consolidated Statements of Changes in
Financial Position are certain financing and investing activities
which do not involve cash but which are required disclosure items
under Canadian generally accepted accounting principles. For United
States purposes, they would not be included on the statement of cash
flows. For the year ended April 30, 1996, these items include the
issue of common shares for other than cash of $3,860,470 (1995 -
$3,482,424; 1994 - $228,505) and the purchase of mineral property
claims and options in 1994 for $132,218. Additionally, U.S. GAAP
requires the supplemental disclosure of cash payments made for
interest (1996 - $76,585; 1995 - $19,672; 1994 - $33,385) and income
taxes (nil in each of 1996, 1995 and 1994).
The Financial Accounting Standards Board of the United States has
issued Statement 109, Accounting for Income Taxes. Statement 109 will
change the method U.S. companies use to account for income taxes from
the deferred method to the asset and liability method. Statement 109
is effective for fiscal years beginning after December 15, 1992. The
Company has not made a determination as to the impact Statement 109
would have on its financial position or results of operations.
16
<PAGE>
RICH COAST RESOURCES LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1995
(CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS
Subsequent to April 30, 1996:
(a) 61,750 share purchase options were exercised at a price of $1.10 per
share for proceeds of $67,925;
(b) Options were granted to purchase 200,000 shares at a price of U.S.
$0.75, expiring May 9, 2006;
(c) 405,000 shares were issued for services rendered at U.S. $0.78 for
$551,610;
(d) 470,000 shares were issued in private placement at U.S. $0.78 for
$238,350;
(e) 160,000 shares were issued for settlement of debt at a price of $.8918
for $142,688; and,
(f) Warrants were granted for the purchase of 137,500 shares at a price of
U.S. $1.00, expiring May 1, 1998 and warrants for purchase of 97,500
at a price of U.S. $1.00 expiring May 8, 1998.
(g) The Board of Directors authorized the issuance of 540,599 shares in
respect to past services rendered on behalf of Waste Reduction Systems
(note 9) by certain officers and directors.
Such services were valued at $479,195 (U.S. $351,935). The issuance
is subject to shareholder approval for an increase in the number of
shares available for issuance and registration of these shares with
the Securities and Exchange Commission.
(h) The Company may issue up to a total of 1,000,000 additional bonus
shares to certain directors and officers subject to the Company
achieving positive pretax net income for a defined period and
obtaining certain funding.
(i) The Company is in the process of changing its jurisdiction of
incorporation from British Columbia to Delaware and its name to Rich
Coast Inc.
17
<PAGE>
EXHIBIT 10.12
The securities described herein are subject to restrictions on transfer and
cannot be sold, transferred, assigned or otherwise disposed of except in
compliance with the restrictions on transfer contained in this Investment Letter
and applicable securities laws.
February 6, 1996
Mr. William McCullagh
4514 248th Street
Aldergrove, B.C. V4W 1B6
Canada
Dear Mr. McCullagh,
In connection with your purchase of shares of the Common Stock (the
"Shares") of Rich Coast Resources Ltd., a British Columbia corporation (the
"Company"), in an offshore transaction intended to be exempt from registration
under the Securities Act of 1933, as amended (the "Act"), for consideration
consisting of cancellation of indebtedness totalling CDN$142,688 as provided for
in the Agreement of Merger effective October 31, 1995, we wish to advise you as
follows:
A. These Shares are not being registered under the Act on the ground that this
sale is exempt under Regulation S promulgated under the Act, in that it is an
"offshore transaction" with a party who is not a "U.S. person," as those terms
are defined in Regulation S. You understand that since the Shares are not so
registered, you will not have the benefits which such registration would
provide, including receipt of a disclosure document prepared in accordance with
strict SEC regulations governing registration statements.
You understand and acknowledge that an investment in the Shares is a
speculative investment and is suitable only for sophisticated investors who can
withstand the risk of loss of their entire investment. You have further
acknowledged that you will make an investment in the Shares only after having
completed your own due diligence investigation and after consulting with your
own legal, financial and investment advisors to the extent you deem appropriate.
Your present financial condition is such that it is unlikely that it would be
necessary for you to dispose of the Shares being acquired hereby in the
foreseeable future.
You have further acknowledged and represented to the Company that you are
an "accredited investor" as defined under the Act. In addition, you acknowledge
and represent that you are a knowledgeable, sophisticated investor who can fend
for yourself and have adequate means to make the investment contemplated herein;
and that, in connection with this investment, you have obtained any necessary
investment advice from outside sources, including your investment adviser and
private attorney and/or accountant; and that you have had access to or had
provided to you information
<PAGE>
Mr. William McCullagh
February 6, 1996
Page 2
concerning the financial and other affairs of the Company, including all
reports filed by the Company with the Securities and Exchange Commission
during the 12 month period preceding your investment and that you have had
the opportunity to meet with the executive officers of the Company to discuss
the business, financial condition and prospects of the Company.
You further acknowledge that you are able to bear the economic risk of the
investment and maintain your investment in the Shares for an indefinite period
and, further, could bear a total loss of the investment and not change your
standard of living which existed at the time of this investment.
B. You have acknowledged that you are aware that Regulation S includes certain
offering restrictions and other conditions applicable during the period of 40
days following "completion of the offering" as determined in accordance with
Regulation S ("Restricted Period"), which are intended to ensure that the
securities offered and sold in and "offshore transaction" will not "flow back"
into the U.S. or be offered to U.S. persons without the benefit of the
provisions of the federal securities laws.
You have also advised that you are aware and understand that the provisions
of Regulation S prohibit any sale or transfer of the Shares in the United States
or to anyone defined as a "U.S. person" under the Act for a period of 40 days
following your purchase of the shares except as otherwise permitted under the
Act pursuant to registration or exemptions therefrom. Any distributor, dealer,
or person receiving a selling commission in connection with the sale of the
Shares must deliver, during the Restricted Period, a confirmation or notice to
the buyer advising that the buyer is subject to the same restrictions as the
distributor was in the sale of the Shares.
You understand that in order for the Company to comply with its obligations
to demonstrate compliance with U.S. securities laws, the Company's Transfer
Agent and Registrar will be instructed that, prior to the expiration of the 40-
day Restricted Period following the issuance of the Shares, certificates may not
be transferred to any U.S. person, as defined in Regulation S under the Act,
unless the Shares are registered under the Act or an exemption from such
registration is available.
You have agreed that all certificates which may be issued representing the
Shares purchased hereunder shall contain the following legend, which you have
read and understand:
The shares represented by this Certificate have not been registered
under the Securities Act of 1933 ("the Act"), and are issued pursuant
to the exemption from registration provided by Regulation S under the
Act. Until ___________, 1996 [DATE 40 DAYS FOLLOWING THE ISSUANCE OF
THE CERTIFICATES], the shares may not be
<PAGE>
Mr. William McCullagh
February 6, 1996
Page 3
offered for sale, sold or otherwise transferred to any "U.S. person"
as defined in Regulation S under the Act.
C. You also acknowledge that the Shares you are purchasing hereunder have not
been registered in accordance with requirements of the Securities Act (British
Columbia) (the "B.C. Act") Act nor any other federal, provincial or local law.
It is contemplated that the shares of Common Stock will be issued in reliance
upon exemptions from the registration provisions of the B.C. Act.
In the event the Shares are issued pursuant to an exemption under the B.C.
Act, you are aware, and will execute the attached acknowledgement of and
representation to comply with, the B.C. Act requirement that you file a report
with the British Columbia Securities Commission within ten days of the initial
trade of any of the Shares within British Columbia by you.
D. In addition to the statutory restrictions on transfer discussed above, you
acknowledge that you have agreed to an additional "hold period" requested by the
Company in order for the Company to receive additional comfort that the shares
to be sold to you have indeed "come to rest" offshore and are no immediately
resold into the U.S. You have agreed that you will make no resale of the
shares acquired hereunder, whether or not to a "U.S. person," prior to May 1,
1996, which is the date six months plus one day following the effective date of
the Agreement of Merger. In order to evidence this restriction, you agree and
acknowledge that the Company will impress the following legend upon the
certificates:
Pursuant to an agreement by and between the issuer and the shareholder
named on the face of this certificate, the shares represented by this
certificate may not be sold, transferred, hypothecated or otherwise
disposed of prior to May 1, 1996 without the prior written consent, in its
sole discretion, of the issuer.
E. You understand that the above legends on the certificates will limit their
value, including their value as collateral.
F. As you know, the availability of the Regulation S exemption depends, in
part, on the fact that you are not a "U.S. person" as defined under Regulation
S. You have advised us, and we have reasonable basis to believe, that you are a
citizen of Canada and a resident of British Columbia, Canada and were such at
the times your offer to purchase and our sale of the Shares was made.
By your execution below, you acknowledge that the Company is relying upon
the accuracy and completeness hereof in complying with certain obligations under
applicable securities laws. You recognize that the sale of the Shares by the
Company will be based upon your representations and warranties set forth herein
and the statements made by the undersigned herein. By signing
<PAGE>
Mr. William McCullagh
February 6, 1996
Page 4
below, you represent and warrant that you are not a resident of the United
States or otherwise a "U.S. person" as defined in Regulation S under the Act,
and were not within the United States when you received the offer to purchase
the Shares or when you subscribed for the Shares.
You further affirm your intent to comply with the restrictions on resale
and transfer of the Shares set forth herein.
IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned
has completed this Agreement to evidence the undersigned's subscription to
purchase the Shares as set forth above.
RICH COAST RESOURCES, INC.
By /s/ Robert W. Truxell
---------------------------------
Robert W. Truxell, Chairman
CONFIRMED:
I confirm that I have read the foregoing and agree to the terms thereof and
acknowledge that it expresses my intent and understanding and that the facts
stated therein concerning the undersigned's country of residence and
citizenship, financial condition, knowledge and experience, investment intent
and access to information concerning the Company, and concerning the terms and
circumstances of the offer and sale of the Shares, are true and correct.
Date: February 7, 1996 /s/ William McCullagh
------------------------- -----------------------------------
William McCullagh
<PAGE>
SCHEDULE 1
ACKNOWLEDGEMENT OF RESALE RESTRICTIONS
Re: Acquisition of ____________ Shares (the "Shares") in the Capital of Rich
Coast Resources Ltd. (the "Company")
- --------------------------------------------------------------------------
The undersigned hereby represents and warrants to Rich Coast Resources Ltd.
that:
1. he or she must file with the British Columbia Securities
Commission a report within 10 days of the initial trade within
British Columbia in any of the Shares by the undersigned; and
2. where he or she has filed such report with respect to any Shares,
the undersigned is not required to file a further such report in
respect of additional trades of shares acquired on the same date
and under the same exemption as the Shares which are the subject
of the initial trade report referred to in paragraph (1) above.
Dated at Vancouver, B.C. , the 7th day of February, 1996.
------------------- ----- --------------
(city and state)
/s/ William McCullagh
-----------------------------------
Signature of Recipient
<PAGE>
Exhibit 21.1
LIST OF ALL SUBSIDIARIES OF THE REGISTRANT
AS AT APRIL 30, 1996
NAME (AND D/B/A NAME, IF ANY,) OF SUBSIDIARY JURISDICTION OF INCORPORATION
- -------------------------------------------- -----------------------------
Rich Coast Resources, Inc. (d/b/a Waste Michigan
Reduction Systems, Inc.)
<PAGE>
EXHIBIT 23.1
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Rich Coast Resources Ltd.
We consent to incorporation by reference in the Registration Statement on Form
S-8 filed November 6, 1995 (SEC File No. 33-99040) and the Registration
Statement on Form S-8 filed April 22, 1996 (SEC File No. 333-3906) of Rich Coast
Resources Ltd. of our report dated July 12, 1996, relating to the consolidated
balance sheets of Rich Coast Resources Ltd. as at April 30, 1996 and 1995 and
the related consolidated statements of operations, deficit and changes in
financial position for each of the years in the three year period ended April
30, 1996, which report appears in the April 30, 1996 annual report on Form 10-K
of Rich Coast Resources Ltd.
Our auditors' report relating to the financial statements referred to in the
preceding paragraph is supplemented by a report entitled "Comments By Auditors
For U.S. Readers on Canada-U.S. Reporting Conflict" that states that Canadian
reporting standards do not permit reference to uncertainties such as the
Company's ability to recover reported asset amounts, as discussed in note 3 to
the consolidated financial statements, when the uncertainties are adequately
disclosed in the financial statements and accompanying notes. Under United
States reporting standards such uncertainties would be described in the
auditors' report in an explanatory paragraph following the opinion paragraph.
/s/Smythe Ratcliffe
Chartered Accountants
Vancouver, British Columbia
July 26, 1996
<PAGE>
EXHIBIT 24.1
AUTHORIZATION OF REPRESENTATIVE
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes
and appoints Donna A. Key as authorized representative of Rich Coast
Resources Ltd. to execute the Form SE dated August 12, 1996 of Rich Coast
Resources Ltd., and any and all amendments thereto, related to the filing on
paper of certain exhibits to the Form 10-K for the fiscal year ended April 30,
1996. The undersigned hereby ratifies all that said representative may do
by virtue of this authority.
Date: August 12, 1996 RICH COAST RESOURCES LTD.
By: /s/ James P. Fagan
-------------------------------
James P. Fagan, President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> CANADIAN DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> .73
<CASH> 43,224
<SECURITIES> 0
<RECEIVABLES> 705,716
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 806,050
<PP&E> 8,419,243
<DEPRECIATION> 1,211,718
<TOTAL-ASSETS> 8,071,233
<CURRENT-LIABILITIES> 2,196,506
<BONDS> 2,948,389
29,270,784
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,071,233
<SALES> 0
<TOTAL-REVENUES> 2,371,025
<CGS> 0
<TOTAL-COSTS> 748,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,134
<INCOME-PRETAX> (1,807,719)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,807,719)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
