<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A No. 2
(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
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Rich Coast Inc.
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(Name of small business issuer in its charter)
Nevada 91-1835978
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State or other jurisdiction of (I.R. S. Employer
incorporation or organization Identification No.)
10200 Ford Road, Dearborn, Michigan 48126
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(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.
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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
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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 $4,754 per month and a renewable 7 year
lease which
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<PAGE>
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
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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
terminaling 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 terminaling 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 terminaling 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 terminaling agreement will
be pursued. The pipeline is currently not operational. The Company cannot
utilize the pipeline until it is repaired. Once repaired, the pipeline and
terminaling facility will not be used until sufficient oil processing and
customers are in place to justify the year round costs.
Wyoming Terminal Facility. When the Wyoming Terminal Facility came on the
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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. Additionally, the Wyoming Terminal Facility can
accommodate all of the various types of waste treatment and disposal being
conducted at the Ford Road facility, thereby allowing the Company to sell its
Ford Road building and consolidate all operations at the Wyoming Terminal
Facility.
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
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<PAGE>
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 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.
Liquid waste disposal operations are gradually being transferred from the
Company's Ford Road facility to its Wyoming Terminal Facility. Currently about
50% (or $100,000) of monthly revenues are generated by operations at the Wyoming
Terminal Facility. The air sparged hydrocyclone ("ASH") system for separation
of liquid wastes is just getting into operation at the Wyoming Terminal Facility
and by the end of this fiscal year monthly revenues are expected to increase by
another $100,000. Once the Ford Road facility is sold, all operations will be
consolidated at the Wyoming Terminal Facility. Adequate space exists at the
Wyoming site for additional processing equipment to meet capacity demands
expected over the next several years.
The waste treatment business in the Detroit, Michigan area is normally handled
by blanket contracts between the large automotive companies and their Tier I
suppliers (the largest of the waste disposal companies). These contracts
consist of pricing to handle a large variety of waste streams. Rich Coast
submits pricing for specific waste streams included in the blanket contracts,
but written contracts are seldom awarded to Tier II companies such as Rich
Coast. The Company has no written contracts for any of its sales. Management
does not believe that the loss of any one customer would have a material adverse
effect on the Company.
In the past two fiscal years the Company estimates it has spent $100,000 per
year on Research and Development. Development work related to separation of
various liquid phases and light solids has been done on the ASH system at the
Wyoming Terminal Facility. Separation of phenols, fats, oils, greases and other
impurities from water base waste streams has been demonstrated in development
work that is now incorporated in a commercial-sized installation at the Wyoming
Terminal Facility. The Company is continuing to develop improvements in the ASH
system.
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
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Business."
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<PAGE>
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. Rich Coast and Mobil
Oil representatives met as recently as October 1998 to resolve issues related to
the Company's obligations under the Terminaling Agreement. Proposals to provide
Wyoming Terminal Facility usage or waste services to Mobil in lieu of or in
conjunction with cash payments are being discussed by the two companies.
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
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 vote on each proposal.
PROPOSAL NUMBER ONE
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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:
<TABLE>
<CAPTION>
% of % of
Shares Withhold Shares
For Represented Authority Represented
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
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%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Geoffrey Hornby 14,263,972 97.4% 74,350 .5%
George P. Nassos 14,330,572 97.9% 7,750 .05%
</TABLE>
PROPOSAL NUMBER TWO
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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:
<TABLE>
<CAPTION>
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
---------------- -------------- ---------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
13,058,391 73.1% 1,420,050 7.9% 164,577 .9%
</TABLE>
PROPOSAL NUMBER THREE
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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:
<TABLE>
<CAPTION>
% of % of % of
shares shares shares
FOR represented AGAINST represented ABSTAIN represented
- ---------------- ---------------- ---------------- -------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
7,694,074 52.5% 1,526,538 10.4% 330,297 2.3%
</TABLE>
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:
<TABLE>
<CAPTION>
% of % of % of
shares shares shares
FOR outstanding AGAINST outstanding ABSTAIN outstanding
- --------------- ---------------- -------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
9,161,568 51.3% 543,038 3.0% 235,103 1.3%
</TABLE>
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<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Recent Sales of Unregistered Securities.
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24 During the fiscal year ended April 30, 1998, the Company had the
following issuances of its Common Stock which were not registered under
the Securities Act:
On June 11, 1997 the Company issued 100,000 shares for forbearance from
exercising certain rights and remedies by the holder of a 10% Senior
Secured Note in the principal amount of $2,000,000. The shares were
issued in reliance on Section 4(2) of the Securities Act and Rule 506
promulgated thereunder because it was an offer to only one purchaser
who was an accredited investor.
On January 26, 1998, February 20, 1998 and April 23, 1998, the Company
issued an aggregate of 111,768 shares as accrued interest for the
calendar quarters ended September 30, 1997, December 31, 1997 and March
31, 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 interest payments was made at the time the 10%
Notes were purchased.
On October 15, 1997, the Company sold 521,198 shares of its Common
Stock in cancellation of a $100,000 loan plus accrued interest of
$4,239.58. The shares were issued in an offshore transaction intended
to be exempt from registration under Regulation S promulgated under the
Securities Act.
On December 5, 1997, the Company issued 200,000 shares at $.25 per
share. No commissions were paid. These shares were issued in an
offshore transaction intended to be exempt from registration under
Regulation S promulgated under the Securities Act.
On April 9, 1998 (100,000 shares) April 15, 1998 (100,000 shares) and
April 16, 1998 (130,000 shares) warrants were exercised at $.25 per
share and an aggregate of 330,000 shares were issued, all in reliance
on Section 4(2) and Rule 506.
The following share issuances were for services rendered to the
Company, and the shares were issued in reliance on Section 4(2):
Share Amount Effective Date
------------
150,000 05/22/97
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<PAGE>
154,200 05/22/97
10,000 08/06/97
50,000 08/07/97
50,000 09/03/97
50,000 10/02/97
50,000 12/16/97
307,692 02/02/98
Market Information. The Common Stock of the Company is listed on the NASDAQ
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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 1.38 3.88
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
1996 October 1 December 31 2.88 1.24
July 1 September 30 2.36 3.00
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
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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
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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.
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<PAGE>
As a result of the January 16, 1996 acquisition of the Mobil Oil Corporation
terminal in Dearborn, Michigan, and redomiciling of the Company from British
Columbia, Canada, to Delaware, U.S.A. on February 25, 1997, the Company
reorganized into the parent company, Rich Coast Inc. and four subsidiary
corporations identified as:
Rich Coast Resources, Inc.
Rich Coast 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
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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 and a 46.3% increase from 1996. Production capacity for
liquid wastes was increased at the Wyoming Terminal Facility by completion of
the biological treatment system. Revenue gains from this capacity were
partially offset due to the loss of sludge pit operations during down time
caused by the fire at the Ford Road facility. Plans now are to sell the Ford
Road site and to replace its sludge pit with a much more efficient pit system at
the Wyoming Terminal Facility. The new pit will permit dumping from the two
sides and will have a conveyor system to continuously remove solids from the
pit, thus eliminating down time necessitated by digging out the pit. Fourth
quarter 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. Insurance covered all of the $364,830 in losses due to
building and equipment damage and also provided $70,460 of business loss. Ford
Road processes for drums and liquids were transferred to temporary facilities at
the Wyoming Terminal Facility. Sludge disposal operations that required use of
the Ford Road dumping pit were suspended for two months. All operations at the
Ford Road facility were resumed February 16, 1998. A loss for the fourth
quarter of $678,813 significantly contributes to the loss for fiscal year ended
1998 of $1,373,921. The fourth quarter was the first (and only) quarter in
which the $198,626 interest for beneficial conversion features was booked
because the Company was catching up for not booking amounts in prior quarters.
Also, the fourth quarter includes a compensation expense of $81,000 attributable
to options received by an officer and director with an exercise price at a 20%
discount to market. However, the loss of $.08 per share has been reduced from
$.14 per share in fiscal year ended 1996 and $.13 per share in fiscal year ended
1997. The fire damaged building has been repaired to better than its previous
condition. The Company has entered into a sales contract for the Ford Road
facility which would result in net proceeds to the Company of $250,000.
However, the closing is contingent on the purchaser obtaining a federal loan
guarantee.
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<PAGE>
Business volume is being restored rapidly. Revenues for 1999 fiscal year are
projected to be $2,340,000, which again reflect some continuing fire related
loss of business. These revenues are spread quite evenly throughout the year
because when production operations of waste generators are shut down,
maintenance work is performed which also generates wastes. The fiscal year of
1998 net loss of $1,373,921 was expected; however, improving business and better
margins are forecast to generate a break-even status for Rich Coast before the
end of the fiscal year 1999. The Company anticipates 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 effluent
treatment systems. The ASH liquid waste flotation system being installed at the
Wyoming Terminal Facility and used in conjunction with the Company's tanks,
filters and biological treatment system can be run at 200 gallons per minute. A
new customer in the automotive industry plus a new Canadian source of oily water
are now bringing wastes into the Wyoming Terminal Facility. Management expects
the Company's business volume to approach 1.0 million gallons per month by April
30, 1999. Waste disposal service charge and recycled oil sales are estimated to
average $0.14 per gallon or an increase in monthly revenues of $140,000, thus
bringing total monthly revenues to $340,000. A one shift operation of the waste
flotation system will require two people and can process the estimated 12.0
million gallons per year. The Company expects to produce net income of $70,000
per month by the end of fiscal 1999.
SUMMARY
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
<S> <C> <C>
4/30/98 4/30/97
---------- ----------
4th QUARTER REVENUE (ending April 30) $ 528,420 $ 483,366
Net loss for Quarter $ 678,813 $ 244,760
REVENUES FOR FULL FISCAL YEAR $2,547,083 $1,897,155
Net Loss for Year $1,373,921 $1,928,329
</TABLE>
As stated previously, Rich Coast recently passed customer audits that allow the
Company to compete for the oily wastes coming out of the auto industry. These
audits are performed by Tier I waste disposal companies that contract for the
majority of the automotive industry's wastes. Liquid wastes, such as the waste
handled by Rich Coast, is sublet by the Tier I companies and winning that
business for Rich Coast is dependent on audit approval by Tier I companies of
the Rich Coast facility. Audits of waste treatment facilities are focused on
safety and environmental protection, processing effectiveness and capacity, plus
efficient handling of truck traffic. The Company's facilities compare well to
the competition but audit discrepancies do occur and must be corrected before
audit approval can be obtained. Recent audit approvals by Tier I companies are
the bases for financial forecasts that more than double current monthly
revenues. Extensive test borings from the Wyoming Terminal Facility have been
analyzed to establish a baseline of soil conditions and, as a result, Michigan's
Department of Environmental Quality has granted Rich Coast a covenant not to be
sued for pre-existing soil conditions. This covenant has proven to be
invaluable when large corporations audit the Wyoming Terminal Facility. By
passing an audit for one Tier I supplier, the Company is qualified to supply
services to all of that Tier I supplier's customers. Each Tier I supplier
requires its own audit. If the Company would fail an audit, then the Tier I
company would
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<PAGE>
itemize the discrepancies and, once corrected, a follow up audit would be done.
The continued failure to pass audits would mean the Company would not be
qualified to service that Tier I company's customers.
Rich Coast currently has three long term debt obligations including the
installment land contract on the Ford Road building. A principal balance of
approximately $120,000 exists on the Ford Road facility. The Company has
received an offer for the facility that will result in net proceeds to the
Company of $250,000. However, the closing for the sale of that property is
contingent on the purchaser obtaining a federal loan guarantee. The closing on
the sale of this facility has been extended to March 21, 1999.
The second long term obligation is a $2,000,000 Senior Secured Note due January
10, 2001 which was used to purchase the Company's 17 acre Wyoming Terminal
Facility. Interest only payments are being made through 1999 with full loan
amortization to occur in the calendar year 2000. This obligation is secured by
the Wyoming Terminal Facility.
The third long term obligation is in the form of an aggregate of $1,500,000 8%
Convertible Debentures, convertible over five years at the option of the holder
into shares of Common Stock of Rich Coast. These Convertible Debentures are
secured by a second position on the Company's assets, including the Wyoming
Terminal Facility.
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 $269,313 from fiscal 1997 were more than offset
by reductions in consulting fees amounting to $664,730. In 1996 share issuances
were authorized to Robert Truxell and James Fagan in recognition of services
provided to the Company. In 1997 since these shares were never issued to
Messrs. Truxell and Fagan, the share issuances were cancelled. Messrs. Truxell
and Fagan received options and warrants. Mr. Truxell received options to
purchase 258,087 shares exercisable for ten years at $.80 per share and warrants
to purchase 140,775 shares exercisable for
-11-
<PAGE>
five years at $.80 per share. Mr. Fagan received options to purchase 129,041
shares for ten years at $1.00 per share and warrants to purchase 70,386 shares
for five years at $.80 per share. Also, consulting fees amounted to $816,953 in
1997. From 1996 to 1998 salaries and wages increased by $417,248, and consulting
and management fees increased by $99,025.
Audit, Accounting and Legal
- ---------------------------
Accounting and legal expenses decreased by $83,285 from 1997 to 1998 and were
similar to fiscal 1996 costs. Fiscal 1997 expenses were high due to the
redomestication of the Company from British Columbia to Delaware.
Interest and Bank Charges
- -------------------------
Interest expense in 1998 was $303,648 compared to $213,912 for the prior year,
due to the purchase of the Wyoming Terminal Facility. In addition, the Company
reported $198,626 of interest related to the beneficial conversion feature on
its 10% 18-month convertible promissory notes. This conversion feature is
accounted for as an interest charge and amortized over the period from the date
of issue through the date the debt is first convertible.
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. The Company has awarded a contract to a construction firm to
design and erect a building to accommodate additional oily waste processing
equipment. A separate contract was awarded to another construction firm to
design and build a heavy duty conveyor to remove solids from the pit dumping
operation, Both of these improvements will occur at the Wyoming Terminal
Facility, and the estimated cost for each project is $280,000 and $100,000,
respectively. The Company expects to pay these costs from its revenues.
However, these projects have been put on hold. 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.
The Company's breakeven revenues are $270,000 per month. An offer to purchase
the Company's Ford Road facility has been accepted, which would net $250,000 to
the Company. A monthly revenue increase of approximately $70,000 will be
required to reach breakeven and this increase is expected to be achieved by the
new customers who have informed Rich Coast that they intend to utilize the
Company's services. Rich Coast also has several slaughterhouse and paper pulp
-12-
<PAGE>
companies that are extremely interested in Rich Coast's proprietary fats, oils
and grease removal system. With even modest success, Rich Coast should attain a
monthly breakeven revenue rate by the end of its fiscal year 1999 and still have
cash on hand even if the Ford Road facility is not sold.
In the longer term the Company will pursue additional business by installing
waste stream treatment systems at the customer's sites with a focus on meat
processors and the paper/pulp industry, and should be able to capitalize on near
term success expected in slaughterhouse operations.
Impact of Environmental Regulations and Environmental Risks.
- -----------------------------------------------------------
As environmental regulations become more stringent they tend to generate more
business for Rich Coast. For example, as sewer discharge limits are reduced
more companies are compelled to either install additional waste treatment
systems or to transport their wastes to companies like Rich Coast for treatment
and disposal. Rich Coast has a discharge permit from the Detroit Sewerage and
Water Department ("DSWD"). Rich Coast's discharges to the sewer are randomly
monitored by both the DSWD and Rich Coast. Material that is not discharged to
the sewer is either trucked to a non-hazardous waste landfill or is sold as
recycled product such as oil. The risk of pollution occurring at Rich Coast's
treatment sites are extremely low and, if any spillage or leakage did occur, it
would be a non-hazardous waste and would probably occur in a contained area.
Rich Coast has carried $1.0 million of pollution insurance since operations
started in 1993 and has not filed a single claim. Insurance is one recurring
cost item of approximately $38,000 per year (which has not increased for the
last three years) in Rich Coast's pollution protection program and is required
by its customers. Approximately $40,000 per year is spent on salaries for
environmental compliance, and an estimated $10,000 per year is spent in
operating costs attributable to environmental compliance. Rich Coast must carry
the $1.0 million insurance coverage even though it believes its risks are low.
If a spill did occur, it would likely occur very near processes designed to
clean up such material. Management believes a spill cost clean up of $1.0
million would be highly unlikely.
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
-13-
<PAGE>
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:
<TABLE>
<CAPTION>
Name, Age and
Municipality Residence Office Principal Occupation
- ---------------------- ------ --------------------
<S> <C> <C>
Robert W. Truxell Chairman of the Chairman and Chief Executive
Bloomfield Hills, MI Corporation and Director Officer of Integrated Waste
Age: 73 since January 1996 and Systems, 1992-1995; President of
Secretary since August Microcel, Inc., 1990-1992;
1997 Vice-President of General
Dynamics, 1983-1990
James P. Fagan President and Director President and Chief Operating
Okemos, Michigan since January 1996; Chief Okemos, Officer of Waste
Age: 47 Executive Officer since Reduction Systems 1992-1995;
January 1997 Vice-President of The Powers
Fagan Group, Inc.1990-1996
Thornton J. Donaldson Director since June 1984; Self-employed financial and
West Vancouver, B.C. Past President of the mining consultant; President of
Age: 68 Company (June 1984 - United Corporate Advisors Ltd.
January 1996) and Director of BYG Natural
Resources Inc. (TSE listed)
Geoffrey Hornby Director since June 1984 Geological Engineer 10 years
Vancouver, B.C. experience in the mining field
Age: 71 and 23 years experience in the
forest industry
George P. Nassos Director since August 1997 Director-Environmental Mgt.
Chicago, IL Program, Illinois Institute of
Age: 58 Technology
Michael M. Grujicich Chief Financial Officer Director Sales Canada - WRS
Dearborn, MI and Treasurer since 1993-1996, Director MRPIT,
Age: 55 August 1996 General Dynamics Land Systems
Division 1983-1993, Divisional
Controller - Rockwell
International 1981-1983
</TABLE>
The following are members of the Company's Audit Committee:
Thornton J. Donaldson
Geoffrey Hornby
Ronald Waltz, Comptroller, Rich Coast Inc.
-14-
<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.
-15-
<PAGE>
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 $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
------ -------
Restricted
Name and Securities(1) Shares or All other
Principal Other Annual Under Option/ Restricted LTIP Compensation
Position (a) Salary Bonus Compensation SAR's granted Share Units Payouts ($) (i)
Year (b) ($) (c) ($) (d) ($) (e) (#) (f) ($) (g) ($) (h)
<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/
CEO and President
1998 144,316 -0- -0- 556,227 -0- -0- -0-
1997 124,382 -0- -0- -0- -0- -0- -0-
1996 105,290 -0- -0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All share amounts have been adjusted to reflect the reverse split effective
June 19, 1998.
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.
-16-
<PAGE>
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 $.80 per share to purchase 70,386 shares.
Option/Stock Appreciation Rights ("SAR") Grants during the
----------------------------------------------------------
most recently completed Fiscal Year
-----------------------------------
The following table sets out the stock options granted by the Company during the
most recently completed fiscal year to the Named Executive Officers of the
Company. The following amounts include options that were granted prior to the
most recent fiscal year but were re-priced during the year.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Date
- ----------------- ------------ ------------ ---------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Robert W. Truxell 258,087 16.45% $ .80 $1.00 07/30/07
Robert W. Truxell 140,775 8.97% .80 1.00 07/30/02
Robert W. Truxell 100,000 6.37% 1.00 1.25 01/15/06
Robert W. Truxell 25,000 1.59% 1.00 1.25 05/09/06
Robert W. Truxell 48,675 3.10% .80 1.00 05/09/06
Robert W. Truxell 50,000 3.19% .72 .90 07/30/07
Robert W. Truxell 58,125 3.70% .80 1.00 07/30/07
Robert W. Truxell 75,000 4.78% .72 .90 09/08/07
James P. Fagan 129,041 8.22% 1.00 1.00 07/30/07
James P. Fagan 70,386 4.48% .80 1.00 07/30/02
James P. Fagan 100,000 6.37% 1.00 1.00 01/15/06
James P. Fagan 25,000 1.59% 1.00 1.00 05/09/06
James P. Fagan 58,125 3.70% 1.00 1.00 05/09/06
James P. Fagan 125,000 7.96% .88 .88 09/08/07
James P. Fagan 48,675 3.10% 1.00 1.00 07/20/07
</TABLE>
-17-
<PAGE>
Aggregated Option/SAR Exercises in Last Financial Year
------------------------------------------------------
and Fiscal Year-End Option/SAR Values
-------------------------------------
The following table sets out all Option/SAR exercises by the Named Executive
Officers during the most recently completed fiscal year and the Option/SAR
values for such persons as of the end of the most recently completed fiscal
year.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
- -------------------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
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 $1,205,429
all exercisable all exercisable
- -------------------------------------------------------------------------------------------------------
</TABLE>
REPRICING OF OPTIONS
The Company's Board of Directors approved a reduction in option and warrant
exercise prices to reflect market values in June and July 1997. This was done
in lieu of unaffordable competitive salaries and benefits to provide incentive
and to retain the services of management.
COMPENSATION OF DIRECTORS
The following table summarizes options granted during the most recently
completed fiscal year to the directors of the Company (excluding the Named
Executive Officers). All amounts have been adjusted to reflect the reverse
split.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Market Value
of Securities
Name of Underlying
Director and Options on
Officer at Securities Exercise or the Date of
Fiscal Year Under Options Base Price Grant Date of Expiration
End Granted (#) ($/Securities) ($/Security) Grant Date
- -----------------------------------------------------------------------------------------------
<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>
-18-
<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>
<CAPTION>
Name of
Beneficial Owner/ Shares Percent
Name of Director/ Beneficially Of
Identity of Group Owned Class
- ----------------- -------------- --------
<S> <C> <C>
ROBERT W. TRUXELL 1,026,462(1) 18.47%
Chairman/Director/Secretary
JAMES P. FAGAN 633,327(2) 11.66%
President/CEO/Director
THORNTON J. DONALDSON 70,964(3) 1.44%
Director
GEOFFREY HORNBY 13,548(4) *
Director
GEORGE P. NASSOS 50,000(5) 1.01%
Director
ALL DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP 1,794,301(6) 28.75%
- ------------------------
</TABLE>
* Less than one percent.
(1) 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.
(2) 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.
-19-
<PAGE>
(3) Includes currently exercisable options to purchase 52,500 shares at $1.00
per share and 12,500 shares at $0.72 per share.
(4) Includes currently exercisable options to purchase 12,500 shares at $0.72
per share.
(5) Includes currently exercisable options to purchase 50,000 shares at $0.72
per share.
(6) Includes securities reflected in footnotes 1-5.
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):
Name and Address of Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------- -------------------- ----------------
<TABLE>
<CAPTION>
<S> <C> <C>
Robert W. and Linda C. Truxell 1,026,462(1) 18.47%
10200 Ford Road
Dearborn, MI 48126
James P. Fagan 633,327(2) 11.66%
4415 Comanche
Okemos, MI 48864
Alan Moore 900,000(3) 15.58%
9441 LBJ Freeway
Suite 500
Dallas, TX 75243
- ------------------------
</TABLE>
(1) 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.
(2) 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.
(3) Consists of currently exercisable warrants to purchase 900,000 shares at
$1.20 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.
-20-
<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.
In 1998 130,300 shares were issued to a shareholder of the Company, William
McCullagh, in satisfaction of $100,000 advanced (plus accrued interest of
$4,239.58) to the Company in 1997. The shares were issued at a discount to
market of 20%.
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.
-21-
<PAGE>
(c) Exhibits
--------
3.(i) Certificate of Incorporation of Rich Coast Inc. (1)
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.
-22-
<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 Form 10-KSB/A No. 2 to
be signed on its behalf by the undersigned, thereunto duly authorized.
RICH COAST INC.
Date: March 25, 1999 By: /s/ James P. Fagan
------------------------------------------------
James P. Fagan, President and Chief
Executive Officer
Date: March 25, 1999 By: /s/ Michael M. Grujicich
------------------------------------------------
Michael M. Grujicich, Chief
Financial and Accounting Officer
-23-
<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 25
Consolidated Financial Statements
Consolidated Balance Sheets 26
Consolidated Statements of Operations 27
Consolidated Statements of Stockholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30-40
<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
in the United States. 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, except for notes 2(k), (l) and 9, which are as of January 19,
1999, and notes 1 and 2(f), which are as of March 17, 1999.
See notes to consolidated financial statements.
25
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Balance Sheets
April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
================================================================================================================
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (note 7)
Current
Cash $53,043 $12,919
Accounts receivable 460,558 288,265
Insurance claim receivable (note 3) 435,290 0
Share subscription receivable (note 8(d)) 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) 2,016,510 2,108,996
Obligation Under Capital Lease 0 7,815
- ----------------------------------------------------------------------------------------------------------------
3,901,229 3,344,106
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity (note 8):
Common stock, $0.001 par value;
100,000,000 shares authorized, 18,875,771 (4,718,942 post
reverse split) and 16,155,913 (4,038,978 post reverse split) (note
12b) shares issued and outstanding at April 30, 1998 and 1997, respectively 18,901 16,156
Additional paid-in capital 22,566,414 21,298,497
Accumulated deficit (note 1) (20,242,896) (18,868,975)
- ----------------------------------------------------------------------------------------------------------------
2,342,419 2,445,678
- ----------------------------------------------------------------------------------------------------------------
$6,243,648 $5,789,784
================================================================================================================
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Statements of Operations
Years Ended April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
===============================================================================================================
1998 1997 1996
<S> <C> <C> <C>
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 982,918 713,605 565,670
Compensation for past services 0 0 351,935
Forgiveness of past service
compensation liability 0 (351,935) 0
Consulting and management fees 152,223 816,953 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
- ---------------------------------------------------------------------------------------------------------------
2,424,030 2,474,698 2,482,093
- ---------------------------------------------------------------------------------------------------------------
Loss Before Other Items 957,504 1,544,605 1,290,776
Other Items
Insurance proceeds in excess of current expenditures (note 3) (103,503) 0 0
Interest expense 213,912 303,648 56,246
Interest - beneficial conversion feature (note 2(l)) 0 0 198,626
Loss on equipment disposal 147,752 2,478 0
Amortization of deferred financing costs 22,060 0 17,646
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 $1,373,921 $1,928,329 $1,420,919
===============================================================================================================
Net Loss per Share $ 0.08 $ 0.13 $ 0.14
===============================================================================================================
Post Reverse Split Net Loss per Share (Note 12b) $ 0.52 $ 0.56 $ 0.32
===============================================================================================================
Weighted Average Number of Shares Outstanding 17,272,153 15,035,155 9,843,419
Post Reverse Split (Note 12b) 4,318,038 3,758,788 2,460,854
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Statements of Stockholders' Equity
Years Ended April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
==================================================================================================================
Common Post Reverse Common Additional Accumulated Total
Shares Split Shares Paid-In Deficit Stockholders'
Number (note 12b) Amount Capital (note 1) Equity (Deficit)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance April 30, 1995 7,749,422 1,937,355 $7,749 $18,529,829 $(15,519,727) $ 3,017,851
Issuance of common
stock (note 8) 5,574,671 1,393,668 5,575 4,144,921 0 4,150,496
Share issue costs 0 0 0 (451,823) 0 (451,823)
Adjustment to reflect fair
value of assets of
acquired subsidiaries 0 0 0 (2,494,801) 0 (2,494,801)
Net Loss 0 0 0 0 (1,420,919) (1,420,919)
- ------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1996 13,324,093 3,331,023 13,324 19,728,126 (16,940,646) 2,800,804
Issuance of common
Stock (note 8) 2,831,820 707,955 2,832 1,585,239 0 1,588,071
Financing cost 0 0 0 (14,868) 0 (14,868)
Net Loss 0 0 0 0 (1,928,329) (1,928,329)
- ------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1997 16,155,913 4,038,978 16,156 21,298,497 (18,868,975) 2,445,678
Issuance of common
Stock (note 8) 2,719,858 679,964 2,745 804,526 0 807,271
Interest beneficial
Conversion (note 2(l)) 0 0 0 463,391 0 463,391
Net Loss 0 0 0 0 (1,373,921) (1,373,921)
- ------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1998 18,875,771 4,718,942 $18,901 $22,566,414 $(20,242,896) $2,342,419
==================================================================================================================
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Consolidated Statements of Cash Flows
Years Ended April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net loss for year $(1,373,921) $(1,928,329) $(1,420,919)
Adjustments to reconcile net loss to net cash
Used by operating activities
Interest beneficial conversion feature 198,626 0 0
Interest expense 64,356 0 0
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
Consulting and management fees 155,410 608,548 0
Salaries and wages 231,405 0 0
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
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
- ----------------------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (779,509) (1,025,833) (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 231,100 964,673 1,315,251
Land contract repayments (8,085) (33,776) 0
Shareholders' loans (4,763) 0 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 851,149 1,128,256 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 short term shareholder advances received in year $ 0 $ 531,061 $ 0
For settlement of debt $ 100,230 $ 531,061 $ 104,487
For partnership interest $ 0 $ 0 $ 2,484,724
For services and compensation $ 386,815 $ 608,548 $ 246,034
For finder's fee $ 0 $ 14,850 $ 0
For interest $ 64,126 $ 0 $ 0
Interest paid $ 154,860 $ 211,808 $ 41,684
Income taxes paid $ 0 $ 0 $ 0
================================================================================================================
</TABLE>
See notes to consolidated financial statements.
29
<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, Rich Coast, Inc. (the "Company") acquired
Integrated Waste Systems, Inc., a Michigan corporation ("IWS"), and The
Powers Fagan Group, Inc., a Michigan corporation ("Powers/Fagan"),
through the issuance of 3,383,200 shares of its common stock. At April
30, 1995 and prior to the merger, the Company held a controlling
interest (approximately 55%) in Waste Reduction Systems ("the
Partnership"). IWS and Powers/Fagan together held the remaining
(approximately 45%) interest in the Partnership. Neither IWS nor
Powers/Fagan had any assets, liabilities or operations other than their
interest in the Partnership.
The acquisition was initially accounted for as a combination of entities
under common control, a method similar to a pooling of interests.
Management has now determined that this method did not reflect the
substance of the transaction. The acquisition of IWS and Powers/Fagan
has now been accounted for using the purchase method of accounting. The
financial statements have been restated to reflect the change in
accounting method. The purchase price of $915,288 was determined based
upon the net book value of the IWS and Powers/Fagan assets received.
The net book value of the assets received approximated their fair value.
The net book value of the assets received was determined to be the
purchase cost as such value was more clearly evident than the fair value
of the common stock issued. The Company, pursuant to the partnership
agreement with the Partnership, had been including its majority interest
in the partnership's losses and also absorbing the losses pertaining to
the Partnership interests held by IWS and Powers/Fagan.
Consolidated operating results as if the Company's acquisition of IWS
and Powers/Fagan had been consummated as of May 1, 1995 would not be
different from the results shown in the financial statements
Prior to the acquisition of its interest in the Partnership and the
acquisition of IWS and Powers/Fagan, the Company was engaged in mineral
exploration and had accumulated a deficit of $13,210,746. The Company
now operates a non-hazardous waste treatment facility in Dearborn,
Michigan, specializing in recycling of waste oils.
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.
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.
30
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
- --------------------------------------------------------------------------------
(b) Inventory
Inventories are stated at the lower of cost or market. Cost is
determined on a first in, first out (FIFO) basis.
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Distillation unit, property and equipment
The distillation unit and the property and equipment are recorded
at cost. These assets are depreciated over their estimated useful
lives as follows:
Buildings Straight line basis
Machinery and equipment Double declining balance basis
Bulk storage tanks 1.5 declining balance basis
Furniture and fixtures Double declining basis
Computer Double declining basis
No depreciation has been taken on the distillation unit or the
property and equipment and pipeline that have not yet been put into
use.
The Company reviews long term assets such as the distillation unit
to determine if the carrying amount is recoverable based on the
estimate of future cash flows expected to result from the use of
the asset and its eventual disposition. If in this determination
there is an apparent shortfall, the loss will be recognized as a
current charge to operations.
(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, which is not
materially different from the effective interest method.
(f) Reporting currency
Financial statements for reporting periods up to and including the
year ended April 30, 1996 were originally presented in Canadian
dollars because that was the reporting currency. As discussed in
note 1, the Company became a U.S. corporation during the 1997
fiscal year. Effective May 1, 1996 financial statements are
presented in United States dollars, the functional currency for
recording the operations and activities of the Company.
(g) Net loss per share
Net loss per share computations are based on the weighted average
number of common shares outstanding during the year. The effect of
exercising share warrants and options is not reflected as the
result would be anti-dilutive.
31
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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 carrying value of cash, accounts receivable, accounts payable,
insurance claim receivable and accrued liabilities approximate
their fair value because of the short maturity of these financial
instruments. Advances on factored accounts receivable are recorded
as deductions from the related receivable amounts. In the opinion
of management, the carrying amounts of these financial instruments
approximate their fair value because of the short maturity of these
financial instruments. Long term debt approximates its fair value
because interest payments over the term of the debt approximated
market rates at inception of the debt.
(k) Stock based compensation
The Company applies APB Opinion No. 25 and related interpretations
in accounting for its stock option plans and, accordingly, no
compensation cost has been recognized because stock options granted
under the plans were at exercise prices which were equal to market
value at date of grant. Compensation expense is recorded when
options are granted to management at discounts to market.
(l) Long-term debt
The beneficial conversion features relating to the 10% 18-month
promissory notes and the subsequent issue of 8% debentures are
accounted for as an interest charge and are amortized over the
period from the date of issue through the date the debt is first
convertible. This policy conforms to the accounting for these
transactions announced by the SEC staff in March 1997.
32
<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:
===============================================================================
Estimated
Useful Lives 1998 1997
(Years)
- -------------------------------------------------------------------------------
Land -- $250,041 $250,041
Buildings 39 1,388,117 1,370,903
Machinery and equipment 7 1,586,789 1,558,465
Bulk storage tanks 15 636,534 636,534
Pipeline 15 296,187 296,187
Furniture, fixtures, computers, etc 5 to 7 51,274 86,309
- -------------------------------------------------------------------------------
Total at cost 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 7). The premises were occupied and used throughout
1998 fiscal year. Depreciation charges based on historical cost have
been recorded.
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.
33
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
(U.S. Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
- ---------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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% 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 $ 697,000 0
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
Unamortized interest charge relating to beneficial conversion feature
(note 2(l)) (264,765) 0
- ---------------------------------------------------------------------------------------------------------------
432,235 0
10% senior secured note, due October 1, 2001 interest payable
monthly (see below for security) 2,000,000 2,000,000
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). After the
land contract is paid in full, the Company may lease the property
for a 7-year term, which will cause the land to be titled to the
Company for $1.00, either after satisfactory clean up by others or
91 years. 179,584 187,669
- ---------------------------------------------------------------------------------------------------------------
2,611,819 2,187,669
Less: Current portion 595,309 78,673
- ---------------------------------------------------------------------------------------------------------------
$2,016,510 $2,108,996
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
RICH COAST, INC.
(Formerly Rich Coast Resources Ltd.)
Notes to Consolidated Financial Statements
Years Ended April 30, 1998 and 1997
- --------------------------------------------------------------------------------
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 9).
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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
<S> <C>
1999 $ 595,309
2000 267,858
2001 13,417
2002 2,000,000
-------------------------------------------------------------------------------------------------------------
$2,876,584
-------------------------------------------------------------------------------------------------------------
</TABLE>
35
<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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Number of Number of
Shares (Pre Shares (Post Additional
Reverse Split) Reverse Split) Par Paid-In
(note 12b) (note 12b) Value Capital
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1996
Shares issued
For cash private placements 1,198,945 299,736 $ 1,199 $ 835,445
For cash exercise of stock options 575,150 143,787 575 478,032
For services 250,000 62,500 250 245,784
For settlement of loan payable to shareholder 167,376 41,844 168 104,319
Acquisition of Waste Reduction Systems 3,383,200 845,800 3,383 2,481,341
- ------------------------------------------------------------------------------------------------------------------
5,574,671 1,393,667 $ 5,575 $ 4,144,921
- ------------------------------------------------------------------------------------------------------------------
Fiscal 1997
Shares issued
For financing fees 50,000 12,500 $ 50 $ 14,800
For settlement of debt 1,104,470 276,117 1,104 529,957
For cash private placements 475,000 118,750 475 354,000
For cash exercise of stock options 81,750 20,437 82 79,055
For services 1,120,600 280,150 1,121 607,427
- ------------------------------------------------------------------------------------------------------------------
2,831,820 707,954 $ 2,832 $ 1,585,239
- ------------------------------------------------------------------------------------------------------------------
Fiscal 1998
Shares issued
For services and compensation* 921,892 230,473 922 385,893
For cash private placements** 430,000 107,500 430 107,070
For cash exercise of stock options 355,000 88,750 355 78,245
For cash exercise of warrants 280,000 70,000 280 69,720
For settlement of loan payable to a
Shareholder 521,198 130,299 521 99,709
For interest 211,768 52,942 237 63,889
- ------------------------------------------------------------------------------------------------------------------
2,719,858 679,964 $ 2,745 $ 804,526
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes 100,000 shares for cash consideration of $25,000 subscribed and
paid July 28, 1998.
** Includes $81,000 of compensation relating to options granted to
management at a discount to market.
(b) Subsequent to April 30, 1998 the Company issued 132,500 shares (pre
reverse split) (33,025 post 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) (124,625 post reverse split) (note 12b) 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.
(d) The share subscription receivable was collected by the Company July 28,
1998.
36
<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.
The following table summarizes the Company's stock option activity for
the years ended April 30, 1998 and 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, Beginning of Year
Granted 2,015,000 $1.00 2,005,000 $1.00
Exercised 4,292,913 $0.83 220,000 $1.00
Expired (40,000) $0.72 0 $0.00
0 $0.00 (210,000) $1.00
- ------------------------------------------------------------------------------------------------------------------------
Outstanding, End of Year 6,267,913 2,015,000
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about the Company's stock options
outstanding:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1998 $0.72 - $2.00 6,267,913 $3.50 $0.88 6,097,913 $0.85
April 30, 1997 $1.00 - $2.00 2,015,000 $3.70 $1.00 1,720,000 $1.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<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)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans and, accordingly, no compensation
cost has been recognized because stock options granted under the plans were
at exercise prices which were equal to market value at date of grant. Had
compensation expense been determined as provided in SFAS 123 using the
Black-Sholes option-pricing model, the pro-forma effect on the Company's
net income (loss) and per share amounts would have been:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss), as reported $(1,373,921) $(1,928,329)
Net income (loss), pro-forma (4,339,709) (2,129,279)
Net income (loss) per share, as reported $ (0.08) $ (0.13)
Net income (loss) per share, as reported
- post reverse split $ ( 0.32) $ (0.52)
Net income (loss) per share, pro-forma $ ( 0.25) $ (0.14)
Net income (loss) per share, pro-forma
- post reverse split $ (1.00) $ (0.57)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is calculated using the following weighted
average assumptions:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expected life (years)
3 3
Interest rate
Volatility 6.28% 5.99%
Dividend yield 101.14% 117.82%
0.00% 0.00%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: For fiscal 1998 add $3,164,414 in expenses for pro-forma net income and
per share amounts. For fiscal 1997 add $200,950.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1997 (Post 1996 (Post 1995 (Post
Plan Reverse Split) Plan Reverse Split) Plan Reverse Split)
- -----------------------------------------------------------------------------------------------------------------------
(note 12(b)) (note 12(b)) (note 12(b))
<S> <C> <C> <C> <C> <C> <C>
Bonus Shares
Fiscal 1996
Issued 250,000 62,500
Fiscal 1997
Issued 410,000 102,500
Fiscal 1998
Issued 50,000 12,500
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
50,000 12,500 410,000 102,500 250,000 62,500
- -----------------------------------------------------------------------------------------------------------------------
Options Other
Fiscal 1998
Issued (40,000) (10,000)
Exercise price to
September 8, 2007 $ 0.18 $ 0.72
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<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 (1,348,660 Post Reverse Split)
(Note 12b) share purchase warrants outstanding.
<TABLE>
<CAPTION>
Exercise Number of
Expiry Date Price Warrants
- ------------------------------------------------------------------------------------------------------------------
Pre Post Pre Post
Reverse Reverse Reverse Reverse
Split Split Split Split
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 8, 1998 $0.25 1.00 200,000 50,000
June 15, 2001 $0.25 1.00 150,000 37,500
November 5, 2001 $0.25 1.00 180,000 45,000
January 13, 2002 $0.25 1.00 420,000 105,000
July 30, 2002 $0.20 0.80 844,643 211,160
June 10, 2006 $0.30 1.20 3,600,000 900,000
- ------------------------------------------------------------------------------------------------------------------
5,394,643 1,348,660
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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, which included an interest component of
$4,240.00. The shares were issued at a discount to market of 20%.
(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.
39
<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. No provision for loss has been
recorded in the accounts.
40
<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
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 53,043
<SECURITIES> 0
<RECEIVABLES> 460,558
<ALLOWANCES> 0
<INVENTORY> 108,265
<CURRENT-ASSETS> 1,082,156
<PP&E> 6,233,648
<DEPRECIATION> (1,218,569)
<TOTAL-ASSETS> 6,243,648
<CURRENT-LIABILITIES> 1,884,719
<BONDS> 2,016,510
0
0
<COMMON> 22,585,315
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,243,648
<SALES> 0
<TOTAL-REVENUES> 2,547,083
<CGS> 0
<TOTAL-COSTS> 1,080,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,648
<INCOME-PRETAX> (1,477,424)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 103,503
<CHANGES> 0
<NET-INCOME> (1,373,921)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
