<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended October 31, 1998 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 INC.
-------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 91-1835978
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10200 Ford Road,Dearborn, MI 48126
--------------------------------------
(Address of principal executive offices)
(313) 582-8866
-------------------------
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of the issuer's classes of common equity, as of
October 31, 1998 is 4,921,869 shares of Common Stock.
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
RICH COAST, INC.
Interim Consolidated Financial Statements
October 31, 1998
(Unaudited)
2
<PAGE>
RICH COAST, INC.
Consolidated Balance Sheets
(Unaudited)
(United States Dollars)
================================================================================
October 31, April 30,
1998 1998
- --------------------------------------------------------------------------------
Assets
Current
Cash $ 300,782 $ 53,043
Accounts receivable 606,739 460,558
Insurance claim receivable 0 435,290
Subscriptions receivable 0 25,000
Inventory 37,576 108,265
- --------------------------------------------------------------------------------
945,097 1,082,156
Distillation Unit 2,024,706 2,024,706
Capital Assets 3,597,232 2,990,373
Deferred Finance Charges and Other Assets 331,042 146,413
- --------------------------------------------------------------------------------
$6,898,077 $6,243,648
================================================================================
Liabilities
Current
Accounts payable and accrued liabilities $ 848,865 $ 838,966
Accrued oil and waste treatment costs 121,792 450,444
Current portion of long-term debt 645,486 595,309
- --------------------------------------------------------------------------------
1,616,143 1,884,719
Long-Term Debt 3,647,766 2,281,275
- --------------------------------------------------------------------------------
5,263,909 4,165,994
- --------------------------------------------------------------------------------
Shareholders' Equity
Common stock, $0.001 par value; 100,000,000 shares
authorized, 4,921,917 and 4,718,942 (post reverse 19,688 18,876
split) shares issued and outstanding at October 31,
1998 and April 30, 1998, respectively
Additional paid-in capital 25,513,851 24,491,849
Accumulated deficit (23,899,371) (22,433071)
- --------------------------------------------------------------------------------
1,634,168 2,077,654
- --------------------------------------------------------------------------------
$6,898,077 $6,243,648
================================================================================
See notes to consolidated financial statements.
<PAGE>
RICH COAST, INC.
Consolidated Statements of Operations
(Unaudited)
(United States Dollars)
<TABLE>
<CAPTION>
====================================================================================================================================
Three Months Six Months
Ended October 31, Ended October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales $ 534,537 $ 642,912 $ 1,140,028 $ 1,204,698
Cost of Sales (exclusive of depreciation) 315,341 240,014 627,921 500,147
Gross Profit 219,196 402,898 512,107 704,551
Expenses
Interest - beneficial conversion feature 77,654 0 655,307 0
Salaries and wages 234,236 251,749 471,251 492,472
Interest 88,612 60,603 193,304 114,490
Office and general 20,957 31,408 55,658 77,865
Consulting and financing fees 20,258 45,722 164,228 169,683
Audit, accounting and legal 63,829 20,722 114,523 43,775
Travel 39,319 21,282 91,537 37,373
Property taxes 19,137 35,230 61,100 52,538
Insurance 18,035 28,256 48,663 60,877
Utilities 19,026 22,770 37,669 52,553
Telephone and facsimile 18,979 7,248 28,727 15,138
Advertising and shareholder relations 92,378 1,770 97,147 3,776
Bad debts 0 1,013 0 2,223
Depreciation 68,487 65,627 137,465 131,791
- ------------------------------------------------------------------------------------------------------------------------------------
780,907 593,400 2,156,579 1,254,554
- ------------------------------------------------------------------------------------------------------------------------------------
Loss Before Other Items (561,711) (190,502) (1,644,472) (550,003)
- ------------------------------------------------------------------------------------------------------------------------------------
Other Items
Gain on fire 89,343 0 89,343 0
Accrued oil and waste treatment
cost reversal 285,588 0 285,588 0
- ------------------------------------------------------------------------------------------------------------------------------------
374,931 0 374,931 0
- ------------------------------------------------------------------------------------------------------------------------------------
Loss For Period $ (186,780) $ (190,502) $(1,269,541) $ (550,003)
====================================================================================================================================
Loss Per share Before
Other Items $ (0.11) $ (0.04) $ (0.34) $ (0.13)
Gain Per Share on Other Items (0.07) 0.00 0.07 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Loss Per Share $ (0.04) $ (0.04) $ (0.27) $ (0.13)
====================================================================================================================================
Weighted Average Number of Shares Outstanding
Outstanding (post-reverse split) 4,891,791 4,147,578 4,792,112 4,089,803
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
RICH COAST, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(United States Dollars)
================================================================================
Six Months
Ended October 31,
1998 1997
Net Cash Used in Operating Activities $ (396,705) $ (304,223)
Investing Activities
Capital asset additions (744,324) (124,461)
Deferred finance charge (184,629) (38,637)
(928,953) (163,098)
Financing Activities
Issue of capital stock for cash 156,729 0
Proceeds from convertible debenture 1,500,000 486,967
Repayment of long-term debt (83,332) (27,488)
1,573,397 459,479
Increase (Decrease) in Cash 247,739 (7,842)
Cash, Beginning of Period 53,043 12,919
Cash, End of Period $ 300,782 $ 5,077
Supplemental Information
Interest paid $ 127,695 $ 107,437
Income taxes 0 0
================================================================================
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
October 31, 1998 and April 30, 1998
(Unaudited)
(United States Dollars)
================================================================================
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States for interim financial information. These financial statements are
condensed and do not include all disclosures required for annual financial
statements. The organization and business of the Company, accounting
policies followed by the Company and other information are contained in the
notes to the Company's audited consolidated financial statements filed as
part of the Company's April 30, 1998 Form 10-KSB.
In the opinion of the Company's management, these financial statements
reflect all adjustments necessary to present fairly the Company's
consolidated financial position at October 31, 1998 and 1997 and the
consolidated results of operations and the consolidated statement of cash
flows for the six months then ended. The results of operations for the
three months ended October 31, 1998 are not necessarily indicative of the
results to be expected for the entire fiscal year.
2. CAPITAL STOCK
(a) Authorized 100,000,000 common shares of $0.001 par value
(b) Issued during the period:
================================================================================
Number Price Per
of Shares Share ($) Amount
- --------------------------------------------------------------------------------
(post reverse split)
Six Months Ended October 31, 1997
Shares issued
For services 103,550 $ 1.36 $142,910
Financing fees 12,500 $ 1.00 12,500
Forbearance of interest 25,000 $ 0.01 200
Settlement of debt 130,300 $ 0.77 $ 99,709
271,350 255,319
================================================================================
Six Months Ended October 31, 1998
Shares issued
For cash - options 167,750 $ 0.86 $144,755
Interest on notes 33,349 $ 1.27 42,176
201,099 $186,931
================================================================================
(c) Effective June 19, 1998 there was a one for four reverse split of the
authorized common stock.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following information should be read in conjunction with the unaudited
consolidated financial statements included herein which are prepared in
accordance with generally accepted accounting principles ("GAAP") in the United
States for interim financial information.
Results of Operations
- ---------------------
Rich Coast's second quarter produced revenues of $534,537, resulting in first
half revenues of $1,140,028, which were down 5.6% from a year ago. Reduced
revenues are attributed to the General Motors strike and a delay in bringing new
process capability on stream. The new process capability, which consists of a
combination production and demonstration system utilizing new liquid separation
technology, went into operation in October and offset the General Motors strike
related losses to the extent that October revenues were at $195,196. A new
sanitary sewer discharge permit, which comprehends significantly larger
discharge rates resulting from increased commercial use of the new separation
technology, has now been approved.
The expected offer to purchase the Company's Ford Road facility was received and
signed by both parties on October 20, 1998. The offer is contingent upon the
Buyer's receipt of a federal government guaranteed manufacturer's loan approval
and completion of an environmental risk assessment within ninety days from the
October 20, 1998 date of offer; however, the Buyer claims to have adequate
funding even without the federal guarantee. Upon closing of the sale, all
Dearborn operations will be consolidated at the Company's Wyoming Avenue
terminal site and will allow significant savings to be realized.
Production operations of Rich Coast's unique new air sparged hydrocyclone
("ASH") system for separation of liquid waste streams and pumpable waste streams
containing a mixture of liquids and solids has been underway since early July
1998 with very encouraging results. This production system has also been used to
demonstrate waste processing to prospective customers. Demonstrations have been
highly successful in separation and recovery of wastes discharged by
slaughterhouse operations and by the paper/pulp industry. On-customer-site
installations are now planned for both industries with the initial installation
now underway at a slaughterhouse in Michigan. Results are expected to be very
profitable for both the customer and Rich Coast, but most significant to the
future of Rich Coast is that the Company can go worldwide with installations, no
longer having to depend on trucking companies and brokers to bring business into
the Company's Dearborn facility. This tremendous new business potential plus the
Company's recent approval from a Tier I automotive supplier to service thirty
Michigan automotive plants should allow Rich Coast to achieve its revenue
projections of $375,000 per month, or $4.5 million per year, starting with its
fiscal year commencing May 1, 1999. The Company expects to attain the breakeven
revenue rate of $270,000 per month by the end of February 1999.
The contracts reported in the Company's first quarter report were "put on hold"
after architectural work was completed. Those contracts were to improve and
expand Rich Coast's oil processing and pit sludge operations; however,
profitability from the slaughterhouse waste treatment and recovery
7
<PAGE>
system are much more attractive and the "held" contract funds have been diverted
to complete the slaughterhouse system, the first portion of which should be
producing revenue by fiscal year end.
Changes in Financial Condition
- ------------------------------
Rich Coast was advised by NASDAQ on October 19, 1998 that the Company does not
meet the minimum net tangible assets requirement which is $2,000,000 and which
the Company has previously met in order to maintain its NASDAQ small cap
listing. Net tangible assets reported as of October 31, 1998 were $1,634,168.
Rich Coast requested and has been granted a hearing on December 18, 1998 to
present its plan to return to and stay at a net tangible asset position in
excess of $2,000,000. The Company's plan includes a shareholder's meeting
scheduled for January 1999 to vote on approval of issuance of preferred shares.
Management has been assured that the holders of $1,500,000 in convertible
debentures intend to convert to preferred stock, thus improving the Company's
net tangible assets by that amount. In addition the Company is currently asking
holders of its 10% 18 month convertible notes aggregating $697,000 to convert
into common shares which could thus reduce debt by $697,000. The improvements in
net tangible assets of $1,500,000 and $697,000 total $2,197,000. When added to
October 31 net tangible assets of $1,634,168 net tangible assets will be
$3,831,168. Prior to the NASDAQ hearing on December 18, 1998, Rich Coast expects
to have a very profitable contract signed with the previously mentioned
slaughterhouse company as a result of successful operation of Rich Coast
equipment installed at the offsite location during December 1998. Based on trial
waste recovery experience, that single installation should offset all of Rich
Coast's operational losses and set the stage for installation of eight
additional systems at associated slaughterhouse plants.
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 ASH treatment system,
the expected installations at slaughterhouses, the expected 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 ASH
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, the rejection of the Company's insurance claim relating to the fire,
unexpected costs, and failure to capitalize upon access to new clientele.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
(c) On October 1, 1998 the Company issued an aggregate of 25,251 shares
as accrued interest for the calendar quarter ended September 1998,
on the Company's outstanding 10% 18-Month Convertible Promissory
Notes. The shares were issued in reliance on Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder since the shares
were issued in connection with the private placement of the 10%
Notes relying on the same exemption and the investment decision to
take shares in lieu of cash payments was made at the time the 10%
Notes were purchased.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At a Special Meeting of Shareholders held in Dearborn, Michigan on August 28,
1998, the shareholders voted on two matters: The following is a description of
each matter voted upon at the meeting and a tabulation of the vote on each
proposal.
Proposal Number One:
- -------------------
The affirmative vote of a majority of the Company's outstanding
shares of Common Stock was necessary to amend Article II of the Company's
Articles of Incorporation to authorize preferred stock. The votes were cast as
follows:
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
--- ----------- ------- ----------- ------- -----------
1,329,887 27.3% 828,085 17.0% 95,534 1.9%
Proposal Number Two:
- -------------------
The affirmative vote of a majority of the shares of Common Stock
represented at the meeting was necessary to approve the potential issuance of an
aggregate number of shares of the Company's Common Stock exceeding 20% of the
shares of Common Stock outstanding on July 8, 1998. The votes were cast as
follows:
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
--- ----------- ------- ----------- ------- -----------
1,344,980 59.7% 803,866 35.7% 104,660 4.6%
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibit 3(i) - Articles of Incorporation. (1)
Exhibit 3(ii) - Bylaws. (1)
Exhibit 27.1 - Financial Data Schedule. Filed herewith.
- ------
(1) Incorporated by reference from Registration Statement on Form S-3, File
No. 333-63289, filed with the SEC on September 11, 1998.
(b) Reports on Form 8-K: During the quarter ended October 31, 1998, the
Company filed no reports on Form 8-K.
10
<PAGE>
SIGNATURES
Pursuant to the requirements 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: December 16, 1998 by: /s/ James P. Fagan
--------------------------------------
James P. Fagan, President
Date: December 16, 1998 by: /s/ Michael M. Grujicich
--------------------------------------
Michael M. Grujicich, Chief Financial
and Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 300,782
<SECURITIES> 0
<RECEIVABLES> 606,739
<ALLOWANCES> 0
<INVENTORY> 37,576
<CURRENT-ASSETS> 945,097
<PP&E> 6,886,744
<DEPRECIATION> (1,264,806)
<TOTAL-ASSETS> 6,898,077
<CURRENT-LIABILITIES> 1,616,143
<BONDS> 3,647,766
0
0
<COMMON> 25,533,539
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,898,077
<SALES> 0
<TOTAL-REVENUES> 1,140,028
<CGS> 0
<TOTAL-COSTS> 627,921
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,304
<INCOME-PRETAX> (1,269,541)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,269,541)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
