U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD OF _________ TO
_________.
Commission File Number: 0-15859
Rich Coast Inc.
(Name of small business issuer in its charter)
Nevada 91-1835978
State or other jurisdiction of (I.R. S. Employer
incorporation or organization Identification No.)
10200 Ford Road, Dearborn, Michigan 48126
(Address of principal executive offices)
Issuer's telephone number: 313-582-8866
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
(Title of Class)
Check whether the Issuer (1) 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 [ ]
Check here if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $2,547,083.
At July 14, 1998 there were 4,876,645 shares of the Registrant's $.001 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 14, 1998, the aggregate market value of Common Stock
held by non-affiliates of the Registrant was approximately $7,070,305.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [x]
<PAGE>
Rich Coast Inc.
FORM 10-KSB
PART I
Item 1. Description of Business
General Development of Business.
Rich Coast Inc. (the "Company" and/or "Rich Coast") is a non-hazardous waste
treatment facility specializing in recycling of waste oils. Effective
July 14, 1998 the Company reincorporated in the State of Nevada and now
operates under the General Corporation Law of the State of Nevada. Rich
Coast's executive office is located at 10200 Ford Road, Dearborn, MI 48126.
All of Rich Coast's operations are located in Dearborn, Michigan at 10200 Ford
Road and at 6011 Wyoming Avenue.
Until 1992, the Company's primary focus was exploration and development of
natural resource properties. The Company was initially incorporated in the
Province of British Columbia and through 1996 operated under the name of Rich
Coast Resources Ltd. Effective February 25, 1997 the Company was
reincorporated in Delaware under the name Rich Coast Inc.
In 1992, the Company began activities in the environmental industry. Pursuant
to an agreement dated August 31, 1992, the Company, through its wholly-owned
subsidiary Rich Coast Resources Inc. ("RCRI"), a Michigan corporation, formed
"Waste Reduction Systems" ("WRS"), a general partnership under the Michigan
Uniform Partnership Act, together with Integrated Waste Systems, Inc. ("IWS")
of Bloomfield Hills, Michigan and The Powers Fagan Group, Inc. ("P & F") of
East Lansing, Michigan.
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.
Pursuant to an Agreement of Merger, 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 have been conducted
through RCRI and its activities and property interests in the natural resource
industry have been eliminated.
<PAGE>
On January 16, 1996, the Company acquired a new plant and processing facility
located in Dearborn, Michigan from Mobil Oil Corporation (the "Wyoming
Terminal Facility"). This acquisition increased the Company's oil processing
capacity by approximately ten times. As part of this acquisition the Company
acquired more than nine million gallons of tank capacity 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 will allow the
Company to ship and receive product from waste generators and customers
throughout the world. To fund the acquisition the Company completed a
$2.0 million senior secured debt financing with a private investor. The
five-year financing bears interest at 10%, may be prepaid at any time without
penalty, and is secured by the Wyoming Terminal Facility.
Effective January 1, 1997 James P. Fagan was appointed as President and Chief
Executive Officer replacing Robert W. Truxell as Chief Executive Officer. Mr.
Truxell remains as Chairman of the Board of Directors.
During Rich Coast's fiscal year ended April 30, 1998, $696,894.42 was received
from a private placement of 10% eighteen month convertible promissory notes.
Resultant funds were used to start facilitation of the new Wyoming Terminal
Facility and were largely responsible for construction of the Company's new
biological treatment system.
In August 1997 Randall Pow resigned as a director of the Company. Recognizing
a need to strengthen its Board membership while filling the newly-created
vacancy, Rich Coast announced the appointment of Mr. George Nassos to its
Board of Directors on August 7, 1997. With his extensive background in the
environmental industry including over eleven years with the Chemical Waste
Management subsidiary of Waste Management, Inc., Mr. Nassos is capable of
expanding the Company's business base through his many industry contacts and
of developing strategies to grow the Company more rapidly.
Since November 3, 1997 when the new one million gallon biological treatment
system went into operation at the Company's Wyoming Terminal Facility, the
Company has achieved significant gains in revenue. In the case of one
customer, revenue of $166,000 was realized from that single customer in
January 1998, the first month of bio plant operation. Revenue from the
quarter ended April 30, 1998 and for the year ended April 30, 1998 totaled
$528,420 and $2,547,083, respectively. These amounts are lower than expected
due to a shut down of part of the Company's operations to repair damage from
a fire on December 15, 1997 at its Ford Road facility. Management believes
that the fire-damaged building has been repaired to better than its previous
condition and this improvement is reflected in an increased asking price for
the Ford Road property which is listed for sale. The Company intends to
consolidate at the Wyoming Terminal Facility. The Company has recovered
$435,290 via its insurance settlement.
Ford Road Facility The total site area at the Ford Road location 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
<PAGE>
contract in 1993 for the building at a rate of $4,754 per month and a
renewable 7 year lease which will cause the land to be titled to WRS for
$1.00, either after satisfactory clean-up by others or after 91 years.
Non-hazardous wastes in the form of sludges, oily wastes, drum and pallet
loads, waste waters and leachates are treated at Ford Road for disposal to the
Detroit sewerage system, the Browning-Ferris Industries landfill at Arbor
Hills, Michigan or as a recycled oil product. Capacity at the Ford Road site
presently is limited due to incoming truck traffic. In the future, oily wastes
will be diverted to the Wyoming Terminal Facility, as will be much of the
waste waters and leachate. Ford Road will expand its capability (which
involves only modest physical changes) to process wastes that require
shredding and for wastes that require a pit or mixing floor for processing
prior to disposal. When the Company consolidates its operations at the
Wyoming Terminal Facility, the Company will be able to continue its expanded
capability at that site.
Rich Coast Inc. Pipeline. The 17 mile long pipeline from Rich Coast's Wyoming
Avenue site to the Wyoming Terminal Facility was purchased knowing that some
repairs probably would be required. The price of the pipeline sale to Rich
Coast was reduced as consideration for repairs to be paid for by Rich Coast
Inc. Before the pipeline is repaired, Rich Coast must be assured that a viable
terminalling agreement can be negotiated with Mobil Oil Corp. An agreement
exists at present between Mobil and Rich Coast Resources, Inc. which was and
still is a corporation domiciled in Michigan and controlled by Rich Coast
Inc.; however, the existing terminalling agreement contains terms that are
unacceptable to Rich Coast and would make utilization of the pipeline
uneconomical, and the Company and Mobil are in litigation regarding the
agreement. See "Legal Proceedings." When and if an acceptable terminalling
agreement can be reached, the Company still will require a long term contract
with several large volume users to justify barge shipments throughout the Great
Lakes Region and the St. Lawrence Seaway. When the Wyoming Avenue facility is
fully on stream, it is anticipated that pipeline repairs and an acceptable
terminalling agreement will be pursued.
Wyoming Terminal Facility. When the Wyoming Terminal Facility came on the
market, Rich Coast was faced with an unprecedented opportunity but without
adequate funding to acquire and facilitate the property. Realizing that to
replicate the Wyoming Terminal Facility at a later date would be
prohibitively expensive and time consuming, Rich Coast borrowed $2,000,000 and
acquired Mobil's 17 acres in the heart of the automobile industry. This
acreage included 12 storage buildings, six tanker truck loading and unloading
racks which connect to all tanks, a one million gallon per day sewer permit,
a supportive community which allows industrial zoning and expansion permits
plus the pipeline to the Detroit River which gives Rich Coast the opportunity
to service the entire east coast of the United States.
Rich Coast's 17 acre Wyoming Avenue site has had 58 borings analyzed by the
State of Michigan and has received a "covenant not to be sued" by the State of
Michigan. This environmental status is extremely attractive to all major
automotive industry suppliers in the area, inasmuch as they avoid liability
for any pollution that existed at the time borings were made. Rich Coast has
successfully passed customer audits conducted recently that allow the Company
to compete for the oily wastes coming out of the auto industry. The volume
of potential business makes an increase in oily waste processing capability
necessary and attainment of oily waste processing capability is a top priority
and objective for Rich Coast. The biological treatment system is an excellent
<PAGE>
complementary system to the waste oil treatment in that the oily water
separated during the treatment process can go directly to the biological
treatment system and then to the sewer with assurances that even the more
stringent discharge regulations now being considered by the EPA can be met.
Rich Coast envisions a worldwide demand for its combined system for oily
wastes.
When Rich Coast completes its conversion of the Wyoming Terminal Facility to a
non-hazardous waste disposal and oil recycling facility, it will become a
uniquely competitive and high quality oil recycling facility. With its
proprietary processes and a facility that would be extremely expensive and
time consuming to replicate, Rich Coast fully expects to dominate its market
area when this conversion is complete.
In the past two fiscal years the Company estimates it has spent $100,000 per
year on Research and Development.
The Company currently has 25 full time employees and no part time employees.
Item 2. Description of Property
See discussion above under "Description of Business - General Development of
Business."
Item 3. Legal Proceedings
On or about December 29, 1997 the Company was served with a complaint filed
against it in U.S. District Court for the Eastern District of Michigan by
Mobil Oil Corporation. The Complaint alleges breach of contract by the
Company in connection with a Terminaling Agreement dated May 18, 1995
relating to through-put fees at Mobil's Woodhaven, Michigan facility. The
dispute under the Terminaling Agreement will not affect the Company's purchase
of the Mobil terminal which occurred January 15, 1996, and should not be
confused with the Mobil terminal. Mobil claims damages through
December 1, 1997 in the amount of at least $225,556.80, representing unpaid
monthly fees, and claims that it will continue to incur damages in the amount
of unpaid monthly fees under the Terminaling Agreement. Management expects
the Terminaling Agreement to be renegotiated and the claims to be settled
prior to trial.
On December 30, 1997 an unrelated complaint was filed against the Company and
two of its directors personally in U.S. District Court for the Eastern
District of Michigan by Comer Holdings Ltd., an Irish corporation ("Comer"),
in which Comer claims, among other things, breach of contract relating to an
alleged loan made to the Company in 1994. Comer claims damages in an amount
in excess of $75,000. The Company, in its response filed on January 20, 1998,
denied all liability and proffered several defenses. Management expects
that the suit will be dismissed or settled prior to trial.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended April 30, 1998, four
<PAGE>
proposals were submitted to a vote of Shareholders. The shareholder meeting,
which was an annual meeting, was held March 31, 1998, in Denver, Colorado.
The following is a description of each matter voted upon at the meeting
and a tabulation of the on each proposal.
PROPOSAL NUMBER ONE
The affirmative vote of a plurality of the voting shares
represented at the meeting was necessary to elect the nominees for
director. The votes were cast as follows:
% of % of
Shares Withhold Shares
For Represented Authority Represented
Robert W. Truxell 14,120,342 96.4% 217,980 1.5%
James P. Fagan 14,330,042 97.9% 8,280 .06%
Thornton J. Donaldson 14,263,972 97.4% 74,350 .5%
Geoffrey Hornby 14,263,972 97.4% 74,350 .5%
George P. Nassos 14,330,572 97.9% 7,750 .05%
PROPOSAL NUMBER TWO
The affirmative vote of a majority of the Company's outstanding
shares is necessary to amend the Company's Certificate of
Incorporation to effect a reverse split of the Company's Common
Stock. The votes were cast as follows:
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
13,058,391 73.1% 1,420,050 7.9% 164,577 .9%
<PAGE>
PROPOSAL NUMBER THREE
The affirmative vote of a majority of the voting shares
represented at the meeting is necessary to approve the 1997 Stock
Option and Stock Bonus Plan. The votes were cast as follows:
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
7,694,074 52.5% 1,526,538 10.4% 330,297 2.3%
PROPOSAL NUMBER FOUR
The affirmative vote of a majority of the Company's outstanding
shares was necessary to approve the proposal to change the state
of incorporation from Delaware to Nevada. The votes were cast as
follows:
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
9,161,568 51.3% 543,038 3.0% 235,103 1.3%
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Market Information. The Common Stock of the Company is listed on the NASDAQ
Small Cap Market under the trading symbol "KRHC". The following table sets
forth the high and low bid prices of the Company's Common Stock as reported by
NASDAQ during the periods indicated. All amounts reflect prices adjusted for
the one-for-four reverse split which was effective June 19, 1998.
NASDAQ Small Cap Market
Calendar High Bid $ Low Bid $
1998 April 1 - June 30 3.88 1.44
January 1 - March 31 3.88 1.38
1997 October 1 - December 31 2.00 .74
July 1 - September 30 2.75 .75
April 1 - June 30 1.36 1.00
January 1 - March 31 1.76 .80
<PAGE>
1996 October 1 - December 31 2.88 1.24
July 1 - September 30 3.00 2.36
The closing bid price of the Common Stock on NASDAQ on July 14, 1998, was
$1.59.
Holders. As of July 14, 1998, there were approximately 3,700 holders of the
Company's Common Stock, and the number of shares issued and outstanding was
4,876,645.
Dividends. During the two most recent fiscal years, the Company has not
declared or paid cash or other dividends on its Common Stock. The Company
does not expect to pay any dividends in the near future. The Company is
prohibited from paying dividends on its Common Stock while certain long term
indebtedness remains outstanding.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company entered into a new development stage when Rich Coast Resources,
Ltd., Integrated Waste Systems, and the Powers Fagan Group merged with an
effective financial start date of October 31, 1995. At that time the main
business focus became treatment of non-hazardous wastes. All remaining
mining, gas and oil related businesses were disposed of in fiscal year 1997
without any gain or loss to the Company.
As a result of acquiring the Mobil Oil Corporation terminal in Dearborn, MI
and redomiciling of the Company from British Columbia, Canada to Delaware,
U.S.A., the Company reorganized into the parent company, Rich Coast Inc.
and four subsidiary corporations identified as:
Rich Coast Resources, Inc.
RichCoast Oil, Inc.
Waste Reduction Systems, Inc.
Rich Coast Pipeline, Inc.
On June 19, 1998, the Company reverse split its Common Stock one-for-four.
Effective July 14, 1998 the Company incorporated in the State of Nevada.
Fiscal Years Ended April 30, 1998 and 1997
Revenues and Results of Operations
Rich Coast's revenue for its fourth quarter ending April 30, 1998 is $528,420
and brings 1998 fiscal year revenue to $2,547,083. This is a 34.3% increase
from fiscal year 1997. Fourth quarer results were up only 9% from the year
earlier period due to the adverse impact from a fire which shut down a major
portion of operations from December 15, 1997 through most of February 1998
and impacted both third and fourth quarters negatively. An income loss for
the fourth quarter of $374,066 significantly contributes to the loss for
fiscal year 1998 of $1,069,174. Additional insurance recoveries are expected
<PAGE>
to offset $200,000 of this loss. The fire damaged building has been repaired
to better than its previous condition. If the Company is able to sell the
property for its asking price of $650,000, the Company could realize
approximately $425,000 before taxes after payment of debt in the amount of
$125,000 and another $100,000 for repairs in connection with the sale.
Business volume is being restored rapidly. Revenues for 1999 fiscal year are
projected to be $3,100,000, which again reflect some continuing fire related
loss of business. The fiscal year of 1998 net income loss of $1,069,174 was
expected; however, improving business and better margins are forecast to
generate a break-even status for Rich Coast before the end of the calendar
year 1998. The Company anticipated needing additional funds from private
placements to complete "use of proceeds" plans on a timely basis, which will
allow implementation of additional and more efficient oil processing and
waste water treatment systems by the end of calendar year 1998. Management
believes that revenues from these new systems will grow by $300,000 per month
before the end of Rich Coast's 1999 fiscal year (April 30, 1999), thus
providing revenue at that time of $558,000 per month which is
expected to produce net income of $200,000 per month.
SUMMARY
4th QUARTER REVENUE (ending 4/30/98) $528,420
Net loss for Quarter $374,066
REVENUES FOR FISCAL YEAR ENDING 4/30/98 $2,547,083
Net Loss for Year $1,069,174
Forward-Looking Statements
The following cautionary statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 in order for Rich Coast to avail
itself of the "safe harbor" provisions of that Act. Discussions and
information in this document which are not historical facts should be
considered forward-looking statements. With regard to forward-looking
statements, including those regarding the potential revenues from the
commercialization of the biological treatment system, the continuing increase
in revenues, and the business prospects or any other aspect of Rich Coast, be
advised that actual results and business performance may differ materially
from that projected or estimated in such forward-looking statements. Rich
Coast has attempted to identify in this document certain of the factors that
it currently believes may cause actual future experience and results to differ
from its current expectations. In addition to the risks cited above specific
to the biological treatment system, differences may be caused by a variety of
factors, including but not limited to, adverse economic conditions, entry of
new and stronger competitors, inadequate capital and the inability to obtain
funding from third parties, unexpected costs, and failure to capitalize upon
access to new clientele.
Salaries and Wages/Consulting Services
Salaries and wage increases of $188,307 from fiscal 1997 were more than offset
by reductions in compensation for past services and consulting fees amounting
to $664,730.
<PAGE>
Audit, Accounting and Legal
Accounting and legal expenses decreased by $83,285.
Interest and Bank Charges
Interest expense in 1998 was $278,648 compared to $213,912 for the prior year,
due to the purchase of the Wyoming Terminal Facility.
Liquidity and Capital Resources
The Company has been in a negative cash flow condition and will continue to be
until additional facilities can be financed, installed and placed in operation
at its Wyoming Terminal Facility. The Company expects the additional
facilities to be in place by late 1998, resulting in positive cash flow by
the end of fiscal 1999. Deficits have been covered by private placements,
issuance of convertible debentures, factoring of receivables and by an
increase in accounts payable.
Subsequent to its fiscal year end, the Company received funds from the sale of
convertible debentures with a face value of $1,500,000 and which accrue
interest at 10%. Proceeds from that financing have funded expansion
comprehended in the Company's business plan which forecasts positive net
income on a monthly basis by April 30, 1999. Any additional funds from
private placements will be dedicated to expansion of the biological treatment
system and two new oil process systems. Resultant revenues are being
depended upon to turn the Company profitable in late 1998.
Item 7. Financial Statements and Supplementary Data
See Financial Statements and Supplementary Data following the signature page
of this Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The names, ages, municipalities of residence, positions with the Registrant,
and principal occupations of the directors and executive officers of the
Registrant as of July 14, 1998 are as follows:
<PAGE>
Name, Age and
Municipality Residence Office Principal Occupation
Robert W. Truxell Chairman of the Chairman and Chief Executive
Bloomfield Hills, MI Corporation and Officer of Integrated Waste
Age: 73 Director since Systems, 1992-1995; President
January 1996 and of Microcel, Inc., 1990-1992;
Secretary since Vice-President of General
August 1997 Dynamics, 1983-1990
James P. Fagan President and President and Cheif Operating
Okemos, Michigan Director since Okemos, Officer of Waste
Age: 47 January 1996; Chief Reduction Systems 1992-1995;
Executive Officer Vice President of the Powers
since January 1997 Fagan Group, Inc. 1990-1996
Thornton J. Donaldson Director since June Self-employed financial and
West Vancouver, B.C. 1984; Past President mining consultant; President
Age: 68 of the Company of United Corporate Advisors
(June 1984-January Ltd. and Director of BYG
1996) Natural Resources Inc.
(TSE listed)
Geoffrey Hornby Director since Geological Engineer-10 years
Vancouver, B.C. June 1984 experience in the mining field
Age: 71 and 23 years experience in the
forest industry
George P. Nassos Director since Director-Environmental Mgt.
Chicago, IL June 1984 Program, Illinois Institute of
Age: 58 Technology
Michael M. Grujicich Chief Financial Director Sales Canada-WRS
Dearborn, MI Officer and 1993-1996, Director MRPIT,
Age: 55 Treasurer since General Dynamics Land Systems
August 1996 Division 1983-1993, Divisional
Controller-Rockwell
International 1981-1983
The following are members of the Company's Audit Committee:
Thornton J. Donaldson
Geoffrey Hornby
Ronald Waltz, Comptroller, Rich Coast Inc.
<PAGE>
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 one report on Form 3 was filed late by George
Nassos, a director of the Company, and that all officers and directors of the
Company failed to file a report on Form 5 for the fiscal year ended
April 30, 1997.
Item 10. Executive Compensation
Compensation and Other Benefits of Executive Officers
The following table sets out the compensation received for the fiscal years
ended April 30, 1996, 1997, and 1998 in respect to each of the individuals
who were the Company's Chief Executive Officer at any time during the last
fiscal year and the Company's other four most highly compensated executive
officers whose total salary and bonus exceeded $100,000 (the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
Annual Compensation Long Term Compensation
Awards Payouts
Securities <F1>
Under Restricted
Option/ Shares or All
Name and Other Annual SAR's Restricted LTIP other
Principal Position (a) Salary Bonus Compensation granted Share Units Payouts
Year ($) (c) ($) (d) ($) (e) (#) (f) ($) (g) ($) (g) ($) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Truxell/
Chairman 1998 117,851 -0- -0- 755,662 -0- -0- -0-
1997 113,458 -0- -0- -0- -0- -0- -0-
1996 74,917 -0- -0- -0- -0- -0- -0-
James P. Fagan/ 1998 144,316 -0- -0- 556,227 -0- -0- -0-
CEO and President 1997 124,382 -0- -0- -0- -0- -0- -0-
1996 105,290 -0- -0- -0- -0- -0- -0-
<PAGE>
<FN>
<F1>
All share amounts have been adjusted to reflect the reverse split effective
June 19, 1998.
</FN>
</TABLE>
Agreements with Management
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 received a salary of $150,000 per year until January 1, 1997 at
which time he resigned as Chief Executive Officer but agreed to continue as
Chairman of the Board at a salary of $125,000 per year for an additional five
years.
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 was
compensated for serving as the Company's President and Chief Operating
Officer commencing in January 1996. Under the contract, Mr. Fagan received
a salary of $125,000 per year until January 1, 1997 at which time he became
the Company's President and 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. Subsequent to April 30, 1996, the Board of Directors
authorized the issuance of 180,200 common shares under the 1995 Plan to
James P. Fagan as compensation for his services in connection with the
Company's acquisition of the Mobil Facility from Mobil Oil Corporation. Since
the shares for both Mr. Fagan and the Truxells were never issued, on July 30,
1997 the Board rescinded the grant of shares. Instead, options to acquire
258,087 shares were granted to the Truxells, exercisable at $.80 per share
for ten years under the 1997 Stock Option and Stock Bonus Plan. In addition,
the Truxells received five year warrants exercisable at $.80 to purchase
140,775 shares. Mr. Fagan received options to acquire 129,041 shares
exercisable for ten years at $1.00 per share, plus a five year warrant
exercisable at $.80 per share to purchase 70,386 shares.
<PAGE>
Option/Stock Appreciation Rights ("SAR") Grants during the
most recently completed Fiscal Year
The following table sets out the stock options granted by the Company during
the most recently completed fiscal year to the Named Executive Officers of the
Company. The following amounts include options that were granted prior to the
most recent fiscal year but were repriced during the year.
<TABLE>
Option/SAR Grants in Last Fiscal Year
Individual Grants
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise of Base Market Price on Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Date
<S> <C> <C> <C> <C> <C>
Robert W. Truxell 258,087 16.45% $ .80 $1.00 07/30/07
Robert W. Truxell 140,775 8.97 .80 1.00 07/30/02
Robert W. Truxell 100,000 6.37 1.00 1.25 01/15/06
Robert W. Truxell 25,000 1.59 1.00 1.25 05/09/06
Robert W. Truxell 48,675 3.10 .80 1.00 05/09/06
Robert W. Truxell 50,000 3.19 .72 .90 07/30/07
Robert W. Truxell 58,125 3.70 .80 1.00 07/30/07
Robert W. Truxell 75,000 4.78 .72 .90 09/08/07
James P. Fagan 129,041 8.22 1.00 1.00 07/30/07
James P. Fagan 70,386 4.48 .80 1.00 07/30/02
James P. Fagan 100,000 6.37 1.00 1.00 07/30/02
James P. Fagan 25,000 1.59 1.00 1.00 05/09/06
James P. Fagan 58,125 3.70 1.00 1.00 05/09/06
James P. Fagan 125,000 7.96 .88 .88 09/08/07
James P. Fagan 48,675 3.10 1.00 1.00 07/20/07
<PAGE>
Aggregated Option/SAR Exercises in Last Financial Year
and Fiscal Year-End Option/SAR Values
The following table sets out all Option/SAR exercises by the Named Executive
Officers during the most recently completed fiscal year and the Option/SAR
values for such persons as of the end of the most recently completed fiscal
year.
</TABLE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
FY-End (#) at FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert W. Truxell -0- -0- 680,662 $1,561,539
all exercisable all exercisable
James P. Fagan -0- -0- 556,227 $1,205,429
all exercisable all exercisable
</TABLE>
Repricing of Options
The Company's Board of Directors approved a reduction in option and warrant
exercise prices to reflect market values in July 1997. This was done in lieu
of unaffordable competitive salaries and benefits to provide incentive and to
retain the services of management.
Compensation of Directors
The following table summarizes options granted during the most recently
completed fiscal year to the directors of the Company (excluding the Named
Executive Officers). All amounts have been adjusted to reflect the reverse
split.
<TABLE>
Market Value
of Securities
Name of Securities Exercise or Underlying
Director and Under Options Base Price Options on the Date of Grant Expiration
Officer at Granted (#) ($/Securities) Date of Grant Date
Fiscal Year ($/Security)
End
<S> <C> <C> <C> <C> <C>
Randall Pow 12,500 $.72 $.88 9/8/97 9/8/2002
Thornton Donaldson 12,500 $.72 $.88 9/8/97 9/8/2002
Geoffrey Hornby 12,500 $.72 $.88 9/8/97 9/8/2002
George P. Nassos 50,000 $.72 $.88 9/8/97 9/8/2002
</TABLE>
<PAGE>
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 11. Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the Management of the Company the following tables set
forth the beneficial ownership of the Company's Common Stock as of June 30,
1998 by each Director and each Executive Officer named in the Summary
Compensation Table, and by all Directors and Executive Officers as a group.
(All share amounts have been adjusted to reflect the reverse split effective
June 19, 1998.)
<TABLE>
Name of
Beneficial Owner/ Shares Percent
Name of Director/ Beneficially Of
Identity of Group Owned Class
<C> <C> <C>
Robert W. Truxell 1,026,462 <F1> 18.47%
Chairman/Director
James P. Fagan 633,327 <F2> 11.66%
President/CEO/Director
Thornton J. Donaldson 70,964 <F3> 1.44%
Director
Geoffrey Hornby 13,548 <F4> *
Director
George P. Nassos 50,000 <F5> 1.01%
Director/Secretary
All directors and executive
officers as a group 1,794,301 <F6> 28.75%
* Less than one percent.
<FN>
<F1>
Includes: (i) 345,800 shares held jointly; (ii) currently exercisable
options and warrants to purchase 50,000 shares at $0.72 per share; (iii)
currently exercisable options to purchase 505,662 shares at $0.80 per share;
and (iv) currently exercisable options to purchase 125,000 common shares at
$1.00 per share.
<F2>
Includes currently exercisable options and warrants to purchase: (i) 70,386
shares at $0.80 per share; (ii) 125,000 shares at $0.88 per share; and (iii)
360,841 shares at $1.00 per share.
<PAGE>
<F3>
Includes currently exercisable options to purchase 52,500 shares at $1.00 per
share and 12,500 shares at $0.72 per share.
<F4>
Includes currently exercisable options to purchase 12,500 shares at $0.72
per share.
<F5>
Includes currently exercisable options to purchase 50,000 shares at $0.72
per share.
<F6>
Includes securities reflected in footnotes 1-5.
</FN>
</TABLE>
To the knowledge of the Directors and Senior Officers of the Company, as of
June 30, 1998, 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 (all
share amounts have been adjusted to reflect the reverse split effective
June 19, 1998):
<TABLE>
Name and Address of Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
<C> <C> <C>
Robert W. and Linda C. Truxell 1,026,462 <F1> 18.47%
10200 Ford Road
Dearborn, MI 48126
James P. Fagan 633,327 <F2> 11.66%
4415 Comanche
Okemos, MI 48864
Alan Moore 900,000 <F3> 15.58%
9441 LBJ Freeway
Suite 500
Dallas, TX 75243
<FN>
<F1>
Includes: (i) 345,800 shares held jointly; (ii) currently exercisable
options and warrants to purchase 50,000 shares at $0.72 per share; (iii)
currently exercisable options to purchase 505,662 shares at $0.80 per share;
and (iv) currently exercisable options to purchase 125,000 common shares at
$1.00 per share.
<F2>
Includes currently exercisable options and warrants to purchase: (i) 70,386
shares at $0.80 per share; (ii) 125,000 shares at $0.88 per share; and (iii)
360,841 shares at $1.00 per share.
<F3>
Consists of currently exercisable warrants to purchase 900,000 shares at $1.20
per share on or before January 10, 2006.
</FN>
</TABLE>
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.
<PAGE>
Other than the possible conversion to the Company's Common Stock of the
$1,500,000 convertible debentures issued by the Company in June 1998, there
are no arrangements or agreements pledging securities which could in the
future result in a change of control of the Company.
Item 12. Certain Relationships and Related Transactions
None of the directors or executive 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.
PART IV
Item 13. Financial Statements, Schedules and Exhibits and Reports on
Form 8-K
(a) Financial Statements, Schedules and Exhibits:
(1) Financial Statements - April 30, 1997 and the fiscal years ended
April 30, 1996 and 1997
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
3.(i) Certificate of Incorporation of Rich Coast Inc. (1)
<PAGE>
3.(ii) Bylaws of Rich Coast Inc. (1)
10.1 Terminaling Agreement - Mobil Oil Corporation. (P)
10.2 Employment Contract between the Company and Robert W. Truxell
(Exhibit 1 to the Agreement of Merger dated October 31, 1995.) (2)
10.3 Employment Contract between the Company and James P. Fagan
(Exhibit 2 to the Agreement of Merger dated October 31, 1995.) (2)
10.4 1995 Incentive Compensation Plan. (3)
10.5 1996 Employee Stock Option and Bonus Plan, as amended. (4)
10.6 1997 Stock Option and Stock Bonus Plan. (5)
21.1 List of Subsidiaries of the Registrant. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
(1) Incorporated by reference from Registration Statement on Form S-4,
File No. 333-6099, effective August 7, 1996.
(2) Incorporated by reference to the Company's Form 8-K dated
November 16, 1995.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 333-41443.
(4) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 333-50763.
(5) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 333-56275.
(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.
<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 INC.
Date: July 28, 1998 By: /s/ James P. Fagan
James P. Fagan, President and Chief
Executive Officer
Date: July 28, 1998 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 July 28, 1998
Robert W. Truxell and Director
/s/ James P. Fagan President , CEO July 28, 1998
James P. Fagan and Director
/s/ Thornton J. Donaldson Director July 28, 1998
Thornton J. Donaldson
/s/ Geoffrey Hornby Director July 28, 1998
Geoffrey Hornby
/s/ George P. Nassos Director July 28, 1998
George P. Nassos
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Financial Statements
(U.S. Dollars)
April 30, 1998 and 1997
INDEX
Page
Report of Independent Chartered Accountants 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF RICH COAST, INC.
We have audited the accompanying consolidated balance sheets of Rich Coast,
Inc. (formerly Rich Coast Resources Ltd.) as of April 30, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended April 30, 1998.
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. Those standards require that we plan and perform the 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. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as at
April 30, 1998 and 1997 and the consolidated results of its operations and
cash flows for each of the three years in the period ended April 30, 1998 in
conformity with generally accepted accounting principles in the United States.
"Smythe Ratcliffe"
Chartered Accountants
Vancouver, Canada
July 27, 1998
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Balance Sheets
April 30
(U.S. Dollars)
1998 1997
Assets (note 7)
Current
Cash $ 53,043 $ 12,919
Accounts receivable 460,558 288,265
Insurance claim receivable (note 3) 435,290 0
Subscriptions receivable 25,000 0
Inventory 108,265 135,673
Prepaid expenses 0 4,436
1,082,156 441,293
Distillation Unit (note 5) 2,024,706 2,024,706
Property and Equipment,
at cost (net) (notes 4 and 7) 2,990,373 3,210,485
Patent and Technology, net 25,681 30,525
Deferred Finance Charges and Deposits 120,732 82,775
$6,243,648 $5,789,784
Liabilities
Current
Accounts payable and accrued
liabilities (note 6) $838,966 $739,128
Accrued oil and waste treatment costs 450,444 303,973
Due to shareholder (note 10) 0 100,000
Current portion of long-term
debt (note 7) 595,309 78,673
Current portion of obligation
under capital lease 0 5,521
1,884,719 1,227,295
Long-Term Debt (note 7) 2,281,275 2,108,996
Obligation Under Capital Lease 0 7,815
4,165,994 3,344,106
Stockholders' Equity (note 8):
Common stock, $0.001 par value;
100,000,000 shares authorized,
18,875,771 and 16,155,913
shares issued and outstanding at
April 30, 1998 and 1997,
respectively 18,876 16,156
Additional paid-in capital 24,491,849 23,793,298
Accumulated deficit (note 1) (22,433,071) (21,363,776)
2,077,654 2,445,678
$6,243,648 $5,789,784
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Statements of Operations
Years Ended April 30
(U.S. Dollars)
1998 1997 1996
Sales $2,547,083 $1,897,155 $1,741,352
Cost of Sales
(exclusive of depreciation
shown separately below) 1,080,557 967,062 550,035
Gross Profit 1,466,526 930,093 1,191,317
Expenses
Salaries and wages 901,918 713,605 565,670
Compensation for past services 0 581,299 351,935
Forgiveness of past service
compensation liability 0 (351,935) 0
Consulting and management fees 152,223 235,654 53,198
Shareholder relations 149,406 41,630 98,030
Audit, accounting and legal 130,626 213,911 129,108
Travel 125,030 79,939 80,343
Utilities 121,168 129,463 88,400
Insurance 103,805 83,364 65,079
Property taxes 85,760 72,612 61,017
Equipment and storage leases 83,820 111,437 90,661
Repairs and maintenance 62,603 40,983 129,036
Office and general 59,122 31,857 95,577
Telephone and facsimile 40,693 29,489 72,487
Listing, transfer agent and
filing fees 24,573 27,176 40,505
Factoring costs 24,304 19,634 68,644
Bad debts 8,375 11,984 47,704
Rent and secretarial 7,353 4,300 46,578
Advertising 5,853 12,356 10,139
Financing 0 26,772 0
Depreciation 256,398 359,168 387,982
2,343,030 2,474,698 2,482,093
Loss Before Other Items 876,504 1,544,605 1,290,776
Other Items
Insurance proceeds in excess or
current expenditures (note 3) (103,503) 0 0
Interest expense 278,648 213,912 56,246
Loss on equipment disposal 0 147,752 2,478
Amortization of deferred
financing costs 17,646 22,060 0
Gain from oil and gas operations
(note 2) 0 0 (2,449)
Resource properties disposal loss
(note 2) 0 0 73,868
Net Loss for Year $1,069,295 $1,928,329 $1,420,919
Net Loss per Share $ 0.06 $ 0.13 $ 0.14
Weighted Average Number of
Shares Outstanding 17,272,153 15,035,155 9,843,419
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Statements of Stockholders' Equity
Years Ended April 30
(U.S. Dollars)
<TABLE>
Common Common Additional Total
Shares Shares Paid-In Accumulated Stockholders'
Number Amount Capital Deficit Equity (Deficit)
(note 1)
Balance April 30, 1995 7,749,422 $7,749 $18,529,829 $(15,519,727) $3,017,851
Issuance of common
stock (note 8) 5,574,671 5,575 4,144,921 0 4,150,496
Share issue costs 0 0 (451,823) 0 (451,823)
Adjustment to assets on
acquisition of
partnership 0 0 0 (2,494,801) (2,494,801)
Net loss 0 0 0 (1,420,919) (1,420,919)
Balance, April 30, 1996 13,324,093 13,324 22,222,927 (19,435,447) 2,800,804
Issuance of common
stock (note 8) 2,831,820 2,832 1,585,239 0 1,588,071
Financing cost 0 0 (14,868) 0 (14,868)
Net loss 0 0 0 (1,928,329) (1,928,329)
Balance, April 30, 1997 16,155,913 16,156 23,793,298 (21,363,776) 2,445,678
Issuance of common
stock (note 8) 2,719,858 2,720 698,551 0 701,271
Net loss 0 0 0 (1,069,295) (1,069,295)
Balance, April 30,
1998 18,875,771 $18,876 $24,491,849 $(22,433,071) $2,077,654
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Statements of Cash Flows
Years Ended April 30
(U.S. Dollars)
1998 1997 1996
Operating Activities
Net loss for year $(1,069,295) $(1,928,329) $(1,420,919)
Adjustments to reconcile net
loss to net cash
used by operating activities
Depreciation and amortization 274,045 381,228 387,982
Resource properties disposal loss 0 0 73,902
Loss on equipment disposal 0 147,752 0
(795,250) (1,399,349) (959,035)
Changes in Operating
Assets and Liabilities
Accounts receivable (172,293) 138,700 (281,430)
Insurance claim receivable (435,290) 0 0
Subscriptions receivable (25,000) 0 0
Inventory 27,408 (135,673) 0
Prepaid expenses 4,436 37,250 (40,049)
Accounts payable and accrued
liabilities 99,839 (125,241) (54,372)
Accrued oil and waste
treatment costs 146,470 201,867 102,106
Past services compensation payable 0 (351,935) 351,935
(354,430) (235,032) 78,190
Net Cash Used in Operating
Activities (1,149,680) (1,634,381) (880,845)
Investing Activities
Purchase of property and
equipment (163,230) (123,054) (2,160,338)
Investment in and expenditures
on mineral properties 0 0 (2,480)
Distillation unit costs incurred 0 0 (16,156)
Fire insurance proceeds re fixed
assets 131,714 0 0
Proceeds on sale of oil and gas
properties 0 0 4,933
Proceeds on sale of equipment 0 2,000 7,253
Net Cash Used in Investing
Activities (31,516) (121,054) (2,166,788)
Financing Activities
Issue of common stock 701,271 1,573,221 1,315,251
Land contract repayments (8,085) (33,776) 0
Shareholders' loans (100,000) (4,763) 0
Obligation under capital lease (13,336) (1,181) (4,245)
Notes payable 697,000 0 2,000,000
Finders' fees and share issue
costs 0 0 (248,100)
Deferred finance charges and
other (55,530) 203,303 0
Net Cash Provided by Financing
Activities 1,221,320 1,736,804 3,062,906
Increase (Decrease) in Cash 40,124 (18,631) 15,273
Cash, Beginning of Year 12,919 31,550 16,277
Cash, End of Year $53,043 $12,919 $31,550
Supplemental information
Issue of common stock
For settlement of debt $100,230 $531,061 $104,487
For partnership interest $0 $0 $2,484,724
For services $280,410 $608,548 $246,034
For finder's fee $0 $14,850 $0
Interest paid $218,986 $213,912 $56,246
Income taxes paid $0 $0 $0
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. 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), 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 reorganization has been accounted for as a
combination of entities under common control which is a method similar to a
pooling of interests. The accounts of the entities acquired are combined
in the accompanying financial statements using historical data since their
inception. 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 accumulated losses of that business approximates $8,153,030
to April 30, 1997. Prior to acquiring the waste reduction business, the
Company was engaged in mineral exploration and had accumulated a deficit of
$13,210,746 related thereto which is included in the April 30, 1998 balance of
$22,433,071.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States and all amounts
are in U.S. dollars.
During the 1997 fiscal year the Company was discontinued in British Columbia
and continued in the State of Delaware under the General Corporate Law of that
jurisdiction under the name Rich Coast, Inc. Effective July 14, 1998 the
Company reincorporated in the State of Nevada. The Company operates a
non-hazardous waste treatment facility in Dearborn, Michigan specializing in
recycling of waste oils.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of Rich Coast, Inc.
(a Delaware Corporation, a Nevada Corporation effective July 14, 1998)
and its wholly-owned subsidiaries Rich Coast Oil, Inc., Waste Reduction
Systems, Inc., Rich Coast Pipeline, Inc., and Rich Coast Resources Inc.
all being Michigan corporations. All intercompany balances and
transactions have been eliminated.
(b) Inventory
Inventories are stated at the lower of cost or market. Cost is
determined on a first in, first out (FIFO) basis.
(c) Distillation unit, property and equipment
The distillation unit and the property and equipment are recorded at
cost. Property and equipment 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 property
and equipment that have not yet been put into use.
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) 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.
(e) Deferred finance charges
Costs related to long-term financing are being amortized over the terms of
the related debt on a straight-line basis.
(f) Currency translation
Financial statements for reporting periods up to and including the year
ended April 30, 1996 were originally presented in Canadian dollars, the
currency of the incorporation jurisdiction of the parent company.
Effective May 1, 1995 financial statements are presented in United States
dollars as the operations, effective control and management are located in
the United States. This change has been given retroactive effect for
comparative purposes. Common stock, additional paid-in capital and
accumulated deficit of the parent have been restated in United States
dollars using historical rates of exchange.
(g) Net loss per share
Net loss per share computations are based on the weighted average number of
common shares outstanding during the year.
(h) Income taxes
The Company uses the asset and liability approach in its method of
accounting for income taxes which requires the recognition of deferred tax
liabilities and assets for expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance against deferred tax assets is recorded
if, based upon weighted available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
(i) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates and would impact future results of operations and cash flows.
(j) Financial instruments
The Company's financial instruments include cash, accounts receivable,
accounts payable, insurance claim receivable and accrued liabilities and
long-term debt. In the opinion of management, the carrying amount of
these financial instruments approximate their fair value.
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
3. INSURANCE CLAIM
In December 1997 the Company incurred damage to its premises at 10200 Ford
Road, Dearborn as a result of a fire. The accounts at April 30, 1998 reflect
the amounts subsequently received from the insurers and the expenditures
incurred for repairs (note 6).
4. PROPERTY AND EQUIPMENT
The Company's offices, plant, processing equipment and bulk storage terminal
located in Dearborn, Michigan are comprised of the following:
1998 1997
Land $250,041 $250,041
Buildings 1,388,117 1,370,903
Machinery and equipment 1,586,789 1,558,465
Bulk storage tanks 636,534 636,534
Pipeline 296,187 296,187
Furniture, fixtures,
computers, etc 51,274 86,309
4,208,942 4,198,439
Accumulated depreciation 1,218,569 987,954
$2,990,373 $3,210,485
The Company's premises at 10200 Ford Road in Dearborn, Michigan are currently
listed for sale. The property is occupied under the terms of a land contract
(note 6).
5. DISTILLATION UNIT
The Company has a mineral distillation unit acquired at an original cost of
$2,000,000 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.
The investment in the distillation unit 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.
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
1998 1997
Trade payables $516,482 $587,925
Building repair (fire damage) (note 3) 200,187 0
Accrued salaries and wages 50,325 70,491
Accrued property taxes 55,296 45,367
Payroll taxes 11,676 18,679
Accrued interest 5,000 16,666
$838,966 $739,128
7. LONG-TERM DEBT
1998 1997
10% senior secured note, due October 1, 2001
interest payable monthly
(see below for security) $2,000,000 $2,000,000
10% 18 month convertible promissory notes -
series 1997, interest payable quarterly.
Holders elected at the time of purchase to
receive interest in shares of the Company's
common stock values at a price per share equal
to the average closing bid price as quoted on
NASDAQ over the 20 trading days preceding the
close of the calendar quarter. The notes may
be converted at the option of the holder at
maturity into shares of common stock at a price
per share equal to 50% of the quoted NASDAQ bid
price at the conversion date. One holder of
a $30,000 note has elected to receive cash
at maturity 697,000 0
Land contract payable in monthly instalments
of $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's arrears payments were
corrected by a payment of $84,371 on
June 1, 1998) 179,584 187,669
2,876,584 2,187,669
Less: Current portion 595,309 78,673
$2,281,275 $2,108,996
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
7. LONG TERM DEBT (Continued)
The senior secured note payable is secured by a $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 $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).
The land contract payable relates to premises occupied at 10200 Ford Road,
Dearborn, Michigan which is currently listed for sale.
The amount of long-term obligations outstanding at April 30, 1998 mature
as follows:
1999 $595,309
2000 267,858
2001 13,417
2002 2,000,000
$2,876,584
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
8. STOCKHOLDERS' EQUITY
(a) Activity of the common stock account for the years 1996, 1997 and 1998
is as follows:
<CAPTION> Additional
Number Par Paid-In
of Shares Value Capital
<S> <C> <C> <C>
Fiscal 1996
Shares issued
For cash - private placements 1,198,945 $1,199 $835,445
For cash - exercise of stock options 575,150 575 478,032
For services 250,000 250 245,784
For settlement of loan payable to
shareholder 167,376 168 104,319
Acquisition of Waste Reduction Systems 3,383,200 3,383 2,481,341
5,574,671 $5,575 $4,144,921
Fiscal 1997
Shares issued
For financing fees 50,000 $50 $14,800
For settlement of debt 1,104,470 1,104 529,957
For cash - private placements 475,000 475 354,000
For cash - exercise of stock options 81,750 82 79,055
For services 1,120,600 1,121 607,427
2,831,820 $2,832 $1,585,239
Fiscal 1998
Shares issued
For services 921,892 922 304,893
For cash - private placements 430,000 430 107,070
For cash - exercise of stock options 355,000 355 78,245
For cash - exercise of warrants 280,000 280 69,720
For settlement of loan payable to a
shareholder 521,198 521 99,709
For interest on notes payable 211,768 212 38,914
2,719,858 $2,720 $698,551
</TABLE>
(b) Subsequent to April 30, 1998 the Company issued 132,500 shares (pre
reverse split) (note 12(b)) and 1,875 shares post reverse split under the
terms of the 1996 Employee Stock Option and Stock Bonus Plan (note 9) for
total cash of $35,000. Additionally, options were exercised under the terms
of the 1995 Incentive Compensation Plan and the 1997 Stock Option and Stock
Bonus Plan for 498,500 shares (pre reverse split) for cash proceeds of
$104,430.
(c) 8,099 shares (post reverse split) were issued for interest of $16,927 on
notes payable for the quarter
ended June 30, 1998.
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
9. STOCK OPTIONS AND WARRANTS
Options
Pursuant to the Company's 1995 Incentive Compensation Plan as subsequently
amended in 1996 ("the 1995 Plan"), the 1996 Employee Stock Option and Stock
Bonus Plan ("the 1996 Plan"), and the 1997 Stock Option and Bonus Plan
("the 1997 Plan") the Company may issue stock options and stock bonuses for
shares in the capital stock of the Company to provide incentives to officers,
directors, key employees and other persons who contribute to the success of
the Company. The exercise price of the Incentive Options (employees of the
Company or its subsidiaries) is no less than the fair market value of the
stock at the date of the grant and for non-qualified options (non employees)
the exercise price is no less than 80% of the fair market value (defined as
the most recent closing sale price reported by NASDAQ) on the date of the
grant.
Options under these Plans are summarized as follows:
1997 1996 1995
Plan Plan Plan
Options
Fiscal 1996
Granted 595,000 1,200,000
Weighted average
exercise price $ 0.25 $ 0.25
Fiscal 1997
Granted 220,000
Weighted average
exercise price $ 0.25
Fiscal 1998
Granted 3,408,512 495,000 389,401
Weighted average
exercise price $ 0.20 $ 0.22 $ 0.225
Exercised (40,000)
Exercise price $ 0.18
Totals
Granted 3,408,512 1,090,000 1,809,401
Exercised (40,000)
Balance Outstanding
April 30, 1998 3,368,512 1,090,000 1,809,401
Bonus Shares
Fiscal 1996
Issued 250,000
Fiscal 1997
Issued 410,000
Fiscal 1998
Issued 50,000
Total Bonus Shares Issued 50,000 410,000 250,000
Options - Other
Fiscal 1998
Issued 300,000
Exercise price to
September 8, 2007 $ 0.18
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
9. STOCK OPTIONS AND WARRANTS (Continued)
Warrants
At April 30, 1998 there were 5,394,643 share purchase warrants outstanding.
Exercise Number
Expiry Date Price of Warrants
September 8, 1998 $ 2.50 200,000
June 15, 2001 $ 0.25 150,000
November 5, 2001 $ 0.25 180,000
January 13, 2002 $ 0.25 420,000
July 30, 2002 $ 0.20 844,643
June 10, 2006 $ 0.30 3,600,000
5,394,643
10. RELATED PARTY TRANSACTIONS
(a) Management fees of $30,000 were paid to directors or companies controlled
by directors for the year ended April 30, 1998 (1997 - $30,000; 1996 - $30,000)
(b) Shareholder advance of $100,000 to the Company for working capital
purposes in 1997 fiscal year was settled by the issuance of 521,198 shares in
1998 fiscal year.
(c) Accounts payable (accrued payroll) includes $27,910 payable to two
directors and officers of the Company.
11. INCOME TAXES
A deferred tax asset stemming from the Company's net operating loss
carryforward, has been reduced by a valuation account to zero due to
uncertainties regarding the utilization of the deferred assets.
At April 30, 1998 the Company has available net operating loss carryforward of
approximately $6,400,000 which it may use to offset future federal taxable
income. The net operating loss carryforwards, if not utilized, will begin to
expire in 2007.
12. SUBSEQUENT EVENTS
(a) Subsequent to April 30, 1998 the Company completed a private placement of
$1,500,000 of 8% convertible debenture due June 15, 2003 which netted the
Company $1,292,330. The debenture and accrued interest thereon may be
converted at the option of the holder at anytime into common stock at a price
per share equal to the lesser of the closing bid price of the shares at the
date of issuance of the debenture or 75% of the five day average closing bid
price for the five trading days immediately preceding the conversion date.
(b) The Company announced a one for four reverse split of the authorized
common stock effective June 19, 1998.
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
12. SUBSEQUENT EVENTS (Continued)
(c) Share issuances after April 30, 1998 are set out in notes 8(b) and (c).
(d) The Company reincorporated in the State of Nevada effective July 14, 1998.
13. LITIGATION
In December 1997 a complaint was filed against the Company relating to alleged
payments of $225,000 due by the Company under a Terminaling Agreement of
May 18, 1995. The outcome of the dispute is not determinable at this time,
however, management is of the opinion the matter will be settled prior to
trial.
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Name of Subsidiary Jurisdiction of Incorporation
Rich Coast Resources, Inc. Michigan
Rich Coast Oil, Inc. Michigan
Rich Coast Pipeline, Inc. Michigan
Waste Reduction Systems, Inc. Michigan
