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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD OF _____ TO _____.
Commission File Number: 0-15859
Rich Coast Inc.
(Name of small business issuer in its charter)
Nevada 91-1835978
State or other jurisdiction of (I.R.S.Employer
Incorporation or organization Identification No.)
10200 Ford Road, Dearborn, Michigan 48126
(Address of principal executive offices)
Issuer's telephone number: 313-582-8866
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
-----------------------------
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes[x] No[ ]
Check here if there is no disclosure 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: $2,267,452
At July 26, 1999 there were 6,316,318 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 July26, 1999, the aggregate market value of Common Stock held by
non-affiliates of the Registrant was approximately $1,389,590.
Transitional Small Business Disclosure Format (check one): Yes [ ] No[x]
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Rich Coast Inc.
Form 10-KSB
Part I
Item 1. Description of Business
General Development of Business
Rich Coast Inc. (the "Company" and/or "Rich Coast") is a non-hazardous waste
treatment and disposal facility. 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 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 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"
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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.
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"). 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 was received
from a private placement of 10% eighteen-month convertible promissory notes.
Resultant funds were used to start facilitation of the Wyoming Terminal
Facility.
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 $528,624 and $2,547,083,
respectively. These amounts are lower than expected due to 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 has recovered $435,290 via its insurance
settlement.
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The expected offer to purchase the Company's Ford Road facility was received and
signed by both parties on October 20, 1998. The offer was contingent upon the
Buyer's receipt of a federal government guaranteed manufacturer's loan approval
and completion of an environmental risk assessment within ninety days from the
October 20, 1998 date of offer, however the Buyer did not qualify for the
federal guarantee and is seeking financing alternatives. Upon closing of the
sale, all Dearborn operations will be consolidated at the Company's Wyoming
Avenue terminal site and will allow significant savings to be realized.
Relocation and consolidation of operations also include expansion of capability
by installation of a 250 gallon per minute primary wastewater treatment system
which provides a unique new method for separation of liquid waste streams and
pumpable waste streams containing a mixture of liquids and solids.
Production operations of Rich Coast's new 250 gallon per minute chemically
enhanced air sparged hydrocyclone system, for separation of liquid waste streams
and pumpable waste streams containing a mixture of liquids and solids, has been
underway since early July 1998 with very encouraging results. This production
system has also been used to demonstrate waste processing to prospective
customers. Demonstrations have been highly successful in separation and recovery
of wastes discharged by slaughterhouse operations and by the paper/pulp
industry. On-customer-site installations are now planned for both industries
with the initial installation now underway at a slaughterhouse in Michigan.
Results are expected to be very profitable for both the customer and Rich Coast
but most significant to the future of Rich Coast is that the Company can go
worldwide with installations without having to depend on trucking companies and
brokers to bring business into the Company's facility.
Currently Rich Coast is resuming its demonstration run at the slaughterhouse in
Michigan after being shut down until an air discharge permit was resolved.
Tangible results should be defined by October 1, 1999 and, if as successful as
initial runs have indicated, the demonstration system will be expanded to
increase capacity. When sufficient capacity is assured, installations at four
additional sites are anticipated.
Additionally, Rich Coast has been paid to engineer and demonstrate a system at a
large Michigan pulp-paper company. This work has been completed and a contract
for a production installation is now being negotiated.
Ford Road Facility
The total site area at the Ford Road location comprises approximately 3.5 acres
and includes a 23,000 square foot steel and brick building in which the
treatment plant is located. The site has ample parking and room for tanker
trucks to maneuver. WRS entered into 7 year land contract in 1993 for the
building at a rate of $4,754 per month and a renewable 7 year lease which will
cause the land to be titled to WRS for $1.00, either after satisfactory clean-up
by others or after 91 years. Non-hazardous wastes in the form of sludges, oil
wastes, drum and pallet loads, waste waters and leachates are treated at Ford
Road for disposal to the Detroit sewage system, the Browning-Ferris Industries
landfill at Arbor Hills, Michigan or as a recycled oil product. Capacity at the
Ford Road
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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 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 continue its expanded capability at that site.
Rich Coast Inc. Pipeline
The 17-mile long pipeline from Rich Coast's Wyoming Avenue site to Mobil's
Woodhaven Terminal Facility was purchased knowing that some repairs probably
would be required. The price of the pipeline sale to Rich Coast was reduced as
consideration for repairs to be paid for by Rich Coast Inc. Before the pipeline
is repaired, Rich Coast must be assured that a viable terminalling agreement can
be negotiated with Mobil Oil Corp. An agreement exists at present between Mobil
and Rich Coast Resources, Inc. which was and still is a corporation domiciled in
Michigan and controlled by Rich Coast Inc.; however, the existing terminalling
agreement contains terms that are unacceptable to Rich Coast and would make
utilization of the pipeline uneconomical and the Company and Mobil are in
litigation regarding the agreement. See "Legal Proceedings." When and if an
acceptable terminalling agreement can be reached, the Company still will require
a long term contract with several large volume users to justify barge shipments
throughout the Great Lakes Region and the St. Lawrence Seaway. When the Wyoming
Avenue facility is fully on stream, it is anticipated that pipeline repairs and
an acceptable terminalling agreement will be pursued.
Wyoming Terminal Facility
When the Wyoming Terminal Facility came on the market, Rich Coast was faced with
an unprecedented opportunity but without adequate funding to acquire and
facilitate the property. Realizing that to replicate the Wyoming Terminal
facility at a later date would be prohibitively expensive and time consuming,
Rich Coast borrowed $2,000,000 and acquired Mobil's 17 acres in the heart of the
automobile industry. This acreage included 12 storage tanks, six tanker truck
loading and unloading racks which connect to all tanks, a one million gallon per
day sewer permit, a supportive community which allows industrial zoning and
expansion permits plus the pipeline to the Detroit River which gives Rich Coast
the opportunity to service the entire east coast of the United States.
Rich Coast's 17 acre Wyoming Avenue site has had 58 borings analyzed by the
State of Michigan and has received a "covenant not to be sued" by the State of
Michigan. This environmental status is extremely attractive to all major
automotive industry suppliers in the area, inasmuch as they avoid liability for
any pollution that existed at the time borings were made. 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
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even the more stringent discharge regulations now being considered by the EPA
can be met.
In the past three fiscal years the Company estimates it has spent $100,000 per
year on Research and Development.
The Company currently has 14 full time employees and no part time employees.
Item 2. Description of Property
See discussion above under "Description of Business- General Development of
Business."
Item 3. Legal Proceedings
On or about December 29, 1997 the Company was served with a complaint filed
against it in U.S. District of Michigan by Mobil Oil Corporation. The Complaint
alleges breach of contract by the Company in connection with a Terminalling
Agreement dated May 18, 1995 relating to through-put fees at Mobil's Woodhaven,
Michigan facility. The dispute under the Terminalling 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. Management expects the
Terminalling Agreement to be terminated and the claims to be settled out of
court prior to September 1, 1999.
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. The Company settled the suit by granting Comer
250,000 shares of common stock and promising to remit future payments totalling
$50,000 U.S. funds.
Item 4. Submission of Matters to a Vote of Security Holders
On May 26, 1999 a special shareholders meeting was held to vote on approval of
issuance of preferred shares so that holders of $1,500,000 in convertible
debenture could convert to preferred stock thus improving the Company's net
tangible assets. The approval was received via a favorable vote from 50.12% of
outstanding shares.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Market Information
The Common Stock of the Company is listed on the OTC Market
under the trading symbol "KRHC". The following table sets forth the high and low
bid prices of the Company's Common Stock during the periods indicated. All
amounts
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reflect prices adjusted for the one-for-four reverse split which was effective
June 19, 1998.
OTC Market
Calendar High Bid Price Low Bid Price
-------- -------------- -------------
1999 April 1-June 30 0.44 0.22
January 1-March 31 1.38 0.37
1998 April 1-June 30 3.88 1.44
January 1-March 31 3.88 1.38
1997 October1- December 31 2.00 0.74
July 1- September 30 2.75 0.75
April 1-June 30 1.36 1.00
January 1- March 31 1.76 0.80
The closing bid price of the OTC Common Stock on July 26, 1999, was $.22/share.
Holders
As of July 26, 1999, there were approximately 4750 holders of the Company's
Common Stock, and he number of shares issued and outstanding was 6,316,318.
Dividends
During the two most recent fiscal years, the Company has not declared or paid
cash or other dividends on its Common Stock. The Company does not expect to pay
any dividends in the near future. The Company is prohibited from paying
dividends on its Common Stock while certain long-term indebtedness remains
outstanding.
Items 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company entered into a new development stage when Rich Coast Resources,
Ltd., Integrated Waste Systems and the Powers Fagan Group merged with an
effective financial start date of October 31, 1995. At that time the main
business focus became treatment of non-hazardous wastes. All remaining mining,
gas and oil related businesses were disposed of in fiscal year 1997 without any
gain or loss to the Company.
As a result of acquiring the Mobil Oil Corporation terminal in Dearborn,
Michigan and redomiciling of the Company from British Columbia, Canada to
Delaware, U.S.A., the Company reorganized into the parent company, Rich Coast
Inc. and four subsidiaries corporations identified as:
Rich Coast Resources, Inc.
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RichCoast Oil, Inc.
Waste Reduction Systems, Inc.
Rich Coast Pipeline, Inc.
On June 19, 1998, the Company reverse split its Common Stock one-for-four.
Effective July 14, 1998 the Company incorporated in the state of Nevada.
On February 17, 1999, the Company's shares were de-listed from the NASDAQ Small
Cap Market due to share price falling below $1.00 and net tangible shareholder's
assets falling below $2,000,000. Those deficiencies are expected to be corrected
before calendar year end and the Company has so informed NASDAQ. NASDAQ has
agreed to review the de-listing decision later this calendar year.
Fiscal Years Ended April 30, 1999 and 1998
Revenues and Results of Operations
Rich Coast's revenue for its fourth quarter ending April 30, 1999 was $562,236
and brings 1999 fiscal year revenue to $2,267,452. This is a decrease of
$279,631 from fiscal year 1998. Fourth quarter results were up $33,612 from the
earlier period. A loss for the fourth quarter of $621,399 significantly
contributes to the loss for fiscal year 1999 of $2,572,496.
Revenues for Rich Coast's 1999 fiscal year ending April 30, 1999 are down 11%
from the 1998 fiscal year, and are disappointing and unacceptable to Rich Coast
management.
The Company experienced a loss of $2,572,496 for the 1999 fiscal year, compared
to a loss of $1,373,921 for the 1998 fiscal year. Interviews with customers and
analysis of conditions show that consolidations in the industry have resulted in
larger but lower profit margin contracts between generators and the largest
waste disposal companies in the Detroit, Michigan area. For the most part waste
generators are manufacturers involved in the automotive industry where the trend
has been and continues to be toward doing business with highly integrated Tier I
companies, i.e., well financed companies that handle both hazardous and
non-hazardous wastes and have both landfills and truck fleets. Rich Coast's
financing is far too expensive to allow the company to compete in such a low
profit margin business. This situation has not evolved overnight and Rich
Coast's management has been exploring various technologies that could provide a
higher profit margin as well as some business exclusivity. That technology has
been identified and demonstrated successfully at a slaughterhouse, a paper pulp
company and at a grease trap processing company. All three demonstrations went
exceedingly well and have resulted in several requests for quotations for
systems incorporating Rich Coast's propiertary process which is a chemical air
sparged system (CASS) that separates liquids and solids to reduce, dramatically,
total fats, oils and greases (FOG); biological oxygen demand (BOD); and chemical
oxygen demand (COD). Rich Coast will sell, lease or provide and operate systems.
Funding requirements for manufacturing the (CASS) systems are minimal as a
result of Rich Coast's utilization of manufacturing facilities at a local
company experienced in fabricating similar equipment.
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The closing for the sale of the Company's Ford Road facility has been
indefinitely delayed due to financing problems encountered by the potential
purchaser. Currently that potential purchaser still wants to conclude the
purchase and is attempting to collect some past due receivables to do so. In the
meantime Rich Coast is pursuing additional funding necessary to making the
transition from an in-house processor of non-hazardous wastes to a company
focused on installing waste treatment systems at off-site locations.
Changes in Financial Condition
The Company's net tangible assets reduced to $1,041,260 from $2,210,006 last
fiscal year. Additional equity financing presently being negotiated looks
promising and likely to occur during the quarter ending October 31, 1999. If
received, that funding will increase Rich Coast's net tangible assets to beyond
the NASDAQ small cap listing requirement of $2,000,000.
Rich Coast's latest business plan reflects the dramatic change in operations
described earlier wherein all waste treatment operations will be performed at
generator's plants involved in meat processing, pulp-paper and chemical
operations. Profit margins from contracts now being negotiated will be
significantly improved compared to current operations and projections based on
these improved margins are justification for the expected and required new
equity funding. Within four months of receiving this contemplated funding, Rich
Coast is forecasting profitable operations and a much more rapid growth rate.
SUMMARY
4th QUARTER REVENUE (ending 4/30/99) $ 562,236
Net Loss for Quarter $ 621,399
REVENUES FOR FISCAL YEAR ENDING 4/30/99 $2,267,452
Net Loss for Year $2,572,496
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 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
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cited, 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.
Item 7. Financial Statements and Supplementary Data
See Financial Statements and Supplementary Data following the signature page of
this Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The names, ages, municipalities of residence, positions with the Registrant, and
principal Occupations of the directors and executive officers of the Registrant
as July 14, 1999 are as follows:
<TABLE>
<CAPTION>
Name, Age and
Municipality Residence Office Principal Occupation
- ---------------------- ------ --------------------
<S> <C> <C>
Robert W. Truxell Chairman of the Board Chairman and Chief Executive Officer
Bloomfield Hills, MI and Director since January of Rich Coast, Inc., 1995-1996;
Age: 74 1997 and Secretary since President of Microcel, Inc., 1990-1992; Vice
August 1997 President of General Dynamics, 1983- 1990
James P. Fagan President and Director since President and Chief Operating Officer of
Okemos, MI January 1996; Chief Executive Waste Reduction Systems 1992-1995; Vice
Age: 48 Officer since January 1997 President of The Powers Fagan Group, Inc.
1990-1996
Thornton J. Donaldson Resigned as Director effective Self-employed financial and mining
West Vancouver, B.C. June 1, 1999; Director since consultant; President of United Corporate
Age: 69 June 1984; past President of the Advisors Ltd. and Director of BYG Natural
Company (June 1984- January Resources Inc. (TSE listed)
1996)
Geoffrey Hornby Resigned as Director effective Geological Engineer- 10 years experience
Vancouver, B.C. June 1, 1999; Director since in the mining field and 23 years experience
Age: 72 June 1984 in the forest industry
</TABLE>
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<TABLE>
<S> <C> <C>
George P. Nassos Director since August 1997 Director-Environmental Mgt.
Chicago, IL Program, Illinois Institute of Technology
Age: 59
Michael M. Grujicich Chief Financial Officer and Director Sales Canada-WRS 1993-1996,
Dearborn, MI Treasurer since August 1996 Director MRPIT, General Dynamics Land
Age: 56 Systems Division 1983-1993, Divisional
Controller-Rockwell International
1981-1983
</TABLE>
The following are members of the Company's Audit Committee:
Robert W. Truxell
George P. Nassos
Ronald W. Waltz, Comptroller, Rich Coast Inc.
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 initials 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 5 was filed late by James P. Fagan, President
and CEO for the fiscal year ended April 30, 1998.
Item 10. Executive Compensation
Compensation and other Benefits of Executive Officers
The following table sets out the compensation received for the fiscal years end
April 30, 1997, 1998, and 1999 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 four most highly compensated executive officers whose total
salary and bonus exceeded $100,000 (the "Named Executive Officers").
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<TABLE>
<CAPTION>
Summary Compensation Table
- -----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Compensation Long Term Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
------ -------
Securities(1) Restricted
Under Shares or All other
Option/ Restricted LTIP Compen-
Name and Salary Bonus Other Annual SAR's Share Units Payouts sation
Principal Position(a) Year (b) ($)(c) ($)(d) Compensation granted ($)(g) ($)(h) ($)(i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Truxell/ 1999 114,233 0 0 755,662 0 0 0
Chairman 1998 117,851 0 0 755,662 0 0 0
1997 113,458 0 0 0 0 0 0
James P. Fagan 1999 230,000 0 0 556,227 0 0 0
CEO and President 1998 144,316 0 0 556,227 0 0 0
1997 124,382 0 0 556,227 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 at a salary of $150,000 per year.
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
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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 $.80 per share
to purchase 70,386 shares.
Option/Stock Appreciation Rights ("SAR") Grants during the
most recently completed Fiscal Year
The following table sets out the stock options granted by the Company during the
previous fiscal year to the Named Executive Officers of the Company. The
following amounts include options that were granted prior to the previous fiscal
year but were repriced during that year.
<TABLE>
<CAPTION>
Option/SAR Grants in Previous Year
Individual Grants
- ---------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Date
- ---- ----------- ----------- ------------ ------------- ----
<S> <C> <C> <C> <C> <C>
Robert W. Truxell 258,087 16.45% $.80 $1.00 07/30/07
Robert W. Truxell 140,775 8.97% .80 1.00 07/30/02
Robert W. Truxell 100,000 6.37% 1.00 1.25 01/15/06
Robert W. Truxell 25,000 1.59% 1.00 1.25 05/09/06
Robert W. Truxell 48,675 3.10% .80 1.00 05/09/06
Robert W. Truxell 50,000 3.19% .72 .90 07/30/07
Robert W. Truxell 58,125 3.70% .80 1.00 07/30/07
Robert W. Truxell 75,000 4.78% .72 .90 09/08/07
James P. Fagan 129,041 8.22% 1.00 1.00 07/30/07
James P. Fagan 70,386 4.48% .80 1.00 07/30/02
James P. Fagan 100,000 6.37% 1.00 1.00 01/15/06
James P. Fagan 25,000 1.59% 1.00 1.00 05/09/06
James P. Fagan 58,125 3.70% 1.00 1.00 05/09/06
James P. Fagan 125,000 7.96% .88 .88 09/08/07
James P. Fagan 48,675 3.10% 1.00 1.00 07/20/07
</TABLE>
No stock shares or options were granted to the foregoing named executives during
this fiscal year ended 4/30/99.
13
<PAGE>
Aggregated Option/SAR Exercised in Last Financial Year
and Fiscal Year-End Option/SAR Values
The following table sets out all Option/SAR exercised by the Named Executive
Officers during the most recently completed fiscal year and the Option/SAR
values for such persons as of the end of the most recently completed fiscal
year.
Aggregated Option/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised Options/SARs at
Options/SARs at FY-End ($)
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 No Option/SAR
all exercisable in the money
James P. Fagan -0- -0- 556,227 No Option/SARs
all exercisable in the money
</TABLE>
Repricing of Options
The Company's Board of Directors approved a reduction in option and warrant
exercise prices to reflect market values in July 1997. This was done in lieu of
unaffordable competitive salaries and benefits to provide incentive and to
retain the services of management.
Compensation of Directors
No salaries paid to directors. No bonuses paid or awarded to directors or
officers for fiscal year ending 4/30/99.
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 July 26, 1999 by
each Director and each Executive Officer named in the Summary Compensation
Table, and by
14
<PAGE>
all Directors and Executive Officers as a group. (All share amounts have been
adjusted to reflect the reverse split effective June 19, 1998.)
Name of
Beneficial Owner/ Shares Percent
Name of Director/ Beneficially of
Identity of Group Owned Class
- ----------------- ----- -----
Robert W. Truxell 1,026,462 (1) 16.25%
Chairman/Director
James P. Fagan 633,327 (2) 10.03%
President/CEO/Director
Thorton J. Donaldson 70,964 (3) 1.12%
Director
Geoffrey Hornby 13,548 (4) 0.21%
Director
George P. Nassos 50,000 (5) 0.79%
Director/Secretary
All directors and executive
officers as a group 1,794,301 (6) 28.41%
(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 purchase125,000 common
shares at $1.00 per share.
(2) Includes: (i) 77,100 shares held by James P. Fagan; (ii) currently
exercisable options and warrants to purchase 70,386 shares at $0.80 per
share; (iii) 125,000 shares at $0.88 per share; and (iv) 360,841 shares at
$1.00 per share.
(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.
15
<PAGE>
To the knowledge of the Directors and Senior Officers of the Company, as of June
30, 1999, 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 Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
Robert W. and Linda C. Truxell 1,026,462 (1) 16.25%
10200 Ford Road
Dearborn, MI 48126
James P. Fagan 633,327 (2) 10.03%
4415 Comanche
Okemos, MI 48864
Alan Moore 900,000 (3) 14.25%
9441 LBJ Freeway
Suite 500
Dallas, TX 75243
(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: (i) 77,100 shares held by James P. Fagan; (ii) currently
exercisable options and warrants to purchase 70,386 shares at $0.80 per
share; (iii) 125,000 shares at $0.88 per share; and (iv) 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 13-d-3(d)(1)
under the United States Securities Act of 1934.
Other than the possible conversion of the Company's Common Stock of the
$1,500.00 convertible debentures issued by the Company in June 1998, there are
no arrangements of agreements pledging securities which could in the future
result in a change of control of the Company.
16
<PAGE>
Item 12. Certain Relationships and Related Transactions
None of the directors or executive officers of the Company, or any associate or
affiliate of such person or company, has any material interest, direct or
indirect, in any transaction during the past year or any proposed transaction
which has materially affected or will affect the Company.
PART IV
Item 13. Financial Statements, Schedules and Exhibits and Reports on
Form 8-K
(a) Financial Statements , Schedules and Exhibits:
(1) Financial Statements-April 30, 1999 and the Fiscal years ended
April 30, 1997 and 1998
a) Index to Financial Statements;
b) Auditor's Report to the Shareholders;
c) Consolidated Balance Sheet;
d) Consolidated Statements of Operations;
e) Consolidated Statements of Stockholder's Equity;
f) Consolidated Statements of cash flows;
g) 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 of
this Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year covered by this report.
(c) Exhibits
3.(i) Certificate of Incorporation of Rich Coast Inc. (1)
3.(ii) Bylaws of Rich Coast Inc. (1)
10.5 1996 Employee Stock Option and Bonus Plan, as amended. (2)
10.6 1997 Stock Option and Stock Bonus Plan. (3)
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 from the Company's Registration Statement on
Form S-8, File No. 333-50763.
(3) Incorporated by reference from the Company's Registration Statement on
Form S-8, File No. 333-56275.
(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.
17
<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: August 13, 1999 By:/s/ James P. Fagan
----------------------------------------
James P. Fagan, President and Chief
Executive Officer
Date: August 13, 1999 By:/s/ Michael M. Grujicich
----------------------------------------
Michael M. Grujicich, Chief
Financial and Accounting Officer
<PAGE>
RICH COAST, INC.
Consolidated Financial Statements
(U.S. Dollars)
April 30, 1999 and 1998
INDEX
Page
Report of Independent Chartered Accountants 1
Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-15
<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.
as of April 30, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended April 30, 1999. 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, 1999 and 1998 and the consolidated results of its operations and cash
flows for each of the three years in the period ended April 30, 1999 in
conformity with generally accepted accounting principles in the United States.
"Smythe Ratcliffe"
Chartered Accountants
Vancouver, Canada
August 12, 1999
1
<PAGE>
RICH COAST, INC.
Consolidated Balance Sheets
April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
===================================================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (note 7)
Current
Cash $ 0 $ 53,043
Accounts receivable 491,418 460,558
Insurance claim receivable (note 3) 0 435,290
Shares subscription receivable 0 25,000
Inventory 0 108,265
- -------------------------------------------------------------------------------------------------------------------
491,418 1,082,156
Distillation Unit (note 5) 2,024,706 2,024,706
Property and Equipment, at cost (net) (notes 4 and 7) 3,354,493 2,990,373
Patent and Technology, net 21,914 25,681
Deferred Finance Charges and Deposits 226,320 120,732
- -------------------------------------------------------------------------------------------------------------------
$ 6,118,851 $ 6,243,648
===================================================================================================================
Liabilities
Current
Bank overdraft $ 5,682 $ 0
Accounts payable and accrued liabilities (note 6) 849,960 838,966
Accrued oil and waste treatment costs 257,635 450,444
Current portion of long-term debt (note 7) 100,733 595,309
- -------------------------------------------------------------------------------------------------------------------
1,214,010 1,884,719
Long-Term Debt (note 7) 3,670,339 2,016,510
- -------------------------------------------------------------------------------------------------------------------
4,884,349 3,901,229
- -------------------------------------------------------------------------------------------------------------------
Stockholders' Equity (note 8)
Common stock, $0.001 par value;
100,000,000 shares authorized, 6,066,318 and 4,718,894 (18,875,579 pre reverse 16,865 15,518
split) shares issued and outstanding at April 30, 1999 and 1998,
respectively (note 1)
Additional paid-in capital (note 1) 24,043,106 22,579,874
Accumulated deficit (note 1) (22,825,469) (20,252,973)
- -------------------------------------------------------------------------------------------------------------------
1,234,502 2,342,419
- -------------------------------------------------------------------------------------------------------------------
$ 6,118,851 $ 6,243,648
===================================================================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
RICH COAST, INC.
Consolidated Statements of Operations
Years Ended April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
==============================================================================================================
1999 1998 1997
<S> <C> <C> <C>
Sales $ 2,267,452 $ 2,547,083 $ 1,897,155
Cost of Sales (exclusive of depreciation
shown separately below) 1,378,367 1,080,557 967,062
Gross Profit 889,085 1,466,526 930,093
Expenses
Salaries and wages 1,045,669 982,918 713,605
Audit, accounting and legal 264,366 130,626 213,911
Consulting and management fees 199,953 152,223 816,953
Travel 129,201 125,030 79,939
Advertising 120,905 5,853 12,356
Office and general 120,769 59,122 31,857
Property taxes 100,078 85,760 72,612
Utilities 93,300 121,168 129,463
Insurance 81,750 103,805 83,364
Telephone and facsimile 67,784 40,693 29,489
Equipment and storage leases 45,871 83,820 111,437
Bad debts 44,801 8,375 11,984
Shareholder relations 2,692 149,406 41,630
Repairs and maintenance 0 62,603 40,983
Listing, transfer agent and filing fees 0 24,573 27,176
Factoring costs 0 24,304 19,634
Rent and secretarial 0 7,353 4,300
Financing 0 0 26,772
Forgiveness of past service
compensation liability 0 0 (351,935)
Depreciation 318,661 256,398 359,168
- --------------------------------------------------------------------------------------------------------------
2,635,800 2,424,030 2,474,698
- --------------------------------------------------------------------------------------------------------------
Loss Before Other Items 1,746,715 957,504 1,544,605
Other Items
Interest - beneficial conversion feature (note 2(k)) 764,766 198,626 0
Interest expense 216,217 303,648 213,912
Amortization of deferred financing costs 77,239 17,646 22,060
Lawsuit settlement (note 12) 50,000 0 0
Loss on equipment disposal 3,147 0 147,752
Accrued oil and waste treatment cost reversal (285,588) 0 0
Insurance proceeds in excess of current expenditures (note 3) 0 (103,503) 0
- --------------------------------------------------------------------------------------------------------------
Net Loss for Year $ 2,572,496 $ 1,373,921 $ 1,928,329
==============================================================================================================
Net Loss per Share $ 0.49 $ 0.32 $ 0.52
==============================================================================================================
(Pre Reverse Split) $ 0.12 $ 0.08 $ 0.13
==============================================================================================================
Weighted Average Number of Shares Outstanding 5,208,693 4,318,038 3,758,788
(Pre Reverse Split) 20,834,772 17,272,153 15,035,155
==============================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
RICH COAST, INC.
Consolidated Statements of Stockholders' Equity
Years Ended April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
===================================================================================================================================
Common (Pre Common Additional Total
Shares Reverse Shares Paid-In Accumulated Stockholders'
Number Split) Amount Capital Deficit Equity (Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
(note 1)
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1996 3,330,974 13,323,901 $ 9,941 $ 19,741,586 $(16,950,723) $ 2,800,804
Issuance of common stock (note 8) 707,955 2,831,820 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 4,038,929 16,155,721 12,773 21,311,957 (18,879,052) 2,445,678
Issuance of common stock (note 8) 679,965 2,719,858 2,745 804,526 0 807,271
Interest - beneficial conversion (note 2(k)) 0 0 0 463,391 0 463,391
Net loss 0 0 0 0 (1,373,921) (1,373,921)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1998 4,718,894 18,875,579 15,518 22,579,874 (20,252,973) 2,342,419
Issuance of common stock (note 8) 1,347,424 5,389,692 1,347 963,232 0 964,579
Interest - Beneficial conversion (note 2(k)) 0 0 0 500,000 0 500,000
Reverse stock split 0 (24,265,271) 0 0 0 0
Net loss 0 0 0 0 (2,572,496) (2,572,496)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, April 30, 1999 6,066,318 0 $16,865 $ 24,043,106 $(22,825,469) $ 1,234,502
===================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
RICH COAST, INC.
Consolidated Statements of Cash Flows
Years Ended April 30
(U.S. Dollars)
<TABLE>
<CAPTION>
=============================================================================================
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net loss for year $(2,572,496) $(1,373,921) $(1,928,329)
Adjustments to reconcile net loss to net cash
used by operating activities
Interest - beneficial conversion feature 764,766 198,626 0
- expense 58,024 64,356 0
Salaries and wages 0 231,405 0
Depreciation and amortization 395,900 274,045 381,228
Consulting and management fees 0 155,410 608,548
Loss on equipment disposal 3,147 0 147,752
Changes in operating assets and liabilities
Accounts receivable (30,860) (172,293) 138,700
Insurance claim receivable 435,290 (435,290) 0
Subscriptions receivable 25,000 (25,000) 0
Inventory 108,265 27,408 (135,673)
Prepaid expenses 0 4,436 37,250
Accounts payable and accrued liabilities 10,994 99,839 (125,241)
Accrued oil and waste treatment costs (192,809) 146,470 201,867
Past services compensation payable 0 0 (351,935)
- ---------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (994,779) (804,509) (1,025,833)
- ---------------------------------------------------------------------------------------------
Investing Activities
Purchase of property and equipment (379,671) (163,230) (123,054)
Fire insurance proceeds for fixed assets 0 131,714 0
Proceeds on sale of equipment 0 0 2,000
- ---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (379,671) (31,516) (121,054)
- ---------------------------------------------------------------------------------------------
Financing Activities
Issue of common stock 209,555 256,100 964,673
Land contract repayments (104,059) (8,085) (33,776)
Shareholders' loans 0 0 (4,763)
Obligation under capital lease 0 (13,336) (1,181)
Notes payable 0 697,000 0
Payment on equipment loan (14,453) 0 0
Deferred finance charges and deposits (67,648) (55,530) 203,303
Bank overdraft 5,682 0 0
Proceeds from long-term debt 1,292,330 0 0
- ---------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 1,321,407 876,149 1,128,256
- ---------------------------------------------------------------------------------------------
Increase (Decrease) in Cash (53,043) 40,124 (18,631)
Cash, Beginning of Year 53,043 12,919 31,550
- ---------------------------------------------------------------------------------------------
Cash, End of Year $ 0 $ 53,043 $ 12,919
=============================================================================================
Supplemental information
Issue of common stock
For short-term shareholders advances received $ 0 $ 0 $ 531,061
For conversion of promissory notes 697,000 0 0
For services and compensation 0 386,815 608,548
For finder's fee 0 0 14,850
For interest 58,024 64,126 0
Interest paid 158,193 154,860 211,808
Purchase of equipment financed 210,000 0 0
=============================================================================================
</TABLE>
5
See notes to consolidated financial statements.
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(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
shares. 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 which amounted to Nil.
The acquisition was accounted for as a combination of entities under
common control, a method similar to a pooling of interests. Management
subsequently determined that this method did not reflect the substance
of the transaction. The error in the prior period financial statements
was reported as a prior period adjustment with the acquisition of IWS
and Powers/Fagan accounted for using the purchase method of accounting.
Because the Company had accounted for virtually all the partnership
losses on an equity basis to April 30, 1995 the prior period adjustment
would change individual balance sheet and operations items for
reporting periods prior to the acquisition and not losses reported. 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
approximately 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 which became a Nevada Corporation
effective July 14, 1998) and its wholly-owned subsidiaries
Rich Coast Oil, Inc., Waste Reduction Systems, Inc., Rich
Coast Pipeline, Inc., and Rich Coast Resources Inc. all being
Michigan corporations. All intercompany balances and
transactions have been eliminated.
(b) Inventory
Inventories are stated at the lower of cost or market. Cost is
determined on a first in, first out (FIFO) basis.
6
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
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 short fall, the loss will
be recognized as a current charge to operations.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
7
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Financial instruments
The carrying value of cash, accounts receivable, insurance
claim receivable and accounts payable and accrued liabilities
approximate their fair value because of the short maturity of
these financial instruments. 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.
(j) 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.
(k) Long-term debt
The beneficial conversion features relating to the 10% 18
month promissory notes and the 8% debenture 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 confirms to the accounting for these
transactions announced by the SEC staff in March, 1997.
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:
<TABLE>
<CAPTION>
===================================================================================
Estimated Useful
Lives (Years) 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $250,041 $250,041
Buildings 39 1,364,002 1,388,117
Machinery and equipment 7 2,163,585 1,586,789
Bulk storage tanks 15 649,664 636,534
Pipeline 15 296,187 296,187
Furniture, fixtures, computers, etc 5 to 7 50,169 51,274
-----------------------------------------------------------------------------------
Total at cost 4,773,648 4,208,942
Accumulated depreciation 1,419,155 1,218,569
-----------------------------------------------------------------------------------
$3,354,493 $2,990,373
===================================================================================
</TABLE>
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 1999 and 1998 fiscal year. Depreciation charges based on
historical cost have been recorded.
8
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
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.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
=================================================================
1999 1998
-----------------------------------------------------------------
Trade payables $670,712 $516,482
Lawsuite settlement (note 12) 50,000 0
Accrued salaries and wages 81,951 50,325
Accrued property taxes 40,089 55,296
Payroll taxes 7,208 11,676
Building repair (fire damage) (note 3) 0 200,187
Accrued interest 0 5,000
-----------------------------------------------------------------
$849,960 $838,966
=================================================================
9
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
<TABLE>
<CAPTION>
================================================================================================================================
7. LONG-TERM DEBT
=====================================================================================================================
1999 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10% 18 month convertible promissory notes - series 1997, interest $0 $697,000
payable quarterly. Holders elected at the time of purchase to receive
interest in shares of the Company's common stock values at a price per
share equal to the average closing bid price as quoted on NASDAQ over
the 20 trading days preceding the close of the calendar quarter. The
notes may be converted at the option of the holder at maturity into
shares of common stock at a price per share equal to 50% of the quoted
NASDAQ bid price at the conversion date.
Unamortized interest charge relating to beneficial conversion feature
(note 2(k)) 0 (264,765)
---------------------------------------------------------------------------------------------------------------------
0 432,235
10% senior secured note, due October 1, 2001 interest payable monthly 2,000,000 2,000,000
(see below for security)
8% convertible debenture due June 11, 2003 secured by a security 1,500,000 0
agreement over land and building. The debenture and accrued interest
thereon may be converted at the option of the holder at any time 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.
8% loan due August 1, 2003 repayable in monthly blended instalments of 195,547 0
$4,259 secured by a security agreement over machinery and equipment
Land contract payable in monthly instalments of $4,753 each including 75,525 179,584
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, either after satisfactory clean up by
others or after 91 years.
---------------------------------------------------------------------------------------------------------------------
3,771,072 2,611,819
Less: Current portion 100,733 595,309
---------------------------------------------------------------------------------------------------------------------
$3,670,339 $2,016,510
=====================================================================================================================
</TABLE>
10
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
7. LONG TERM DEBT (Continued)
The senior secured note payable is secured by a $2,000,000 mortgage
granted by the Company over the real property at 6011 and 6051 Wyoming,
Dearborn, Michigan and a charge on all other assets of the Company. The
loan agreement contains covenants relating to financial requirements,
expenditures, etc. for the Company. The holder may convert the loan
into common shares at $0.50 per share in the event of default by the
Company.
At the time the loan arrangements were made, the note holder was issued
warrants to purchase 3,600,000 shares of the Company (note 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, 1999
mature as follows:
=========================================================
2000 $ 100,733
2001 58,384
2002 2,043,729
2003 47,359
2004 1,520,867
---------------------------------------------------------
$3,771,072
=========================================================
11
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
8. STOCKHOLDERS' EQUITY
(a) Activity of the common stock account for the years 1997, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
============================================================================================
Number Number
of Shares of Shares Additional
(Pre Reverse (Post Reverse Par Paid-In
Split) Split) Value Capital
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1997
Shares issued
For financing fees 50,000 12,500 $ 50 $ 14,800
For settlement of debt 1,104,470 276,118 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
--------------------------------------------------------------------------------------------
2,831,820 707,955 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 52,943 237 63,889
--------------------------------------------------------------------------------------------
2,719,858 679,965 2,745 804,526
--------------------------------------------------------------------------------------------
Fiscal 1999
Shares issued
For cash - exercise of stock options 1,038,504 259,626 260 209,295
Conversion of promissory note (note 7) 4,161,194 1,040,299 1,040 695,960
For interest 189,994 47,499 47 57,977
--------------------------------------------------------------------------------------------
5,389,692 1,347,424 $ 1,347 $ 963,232
============================================================================================
</TABLE>
Effective June 19, 1998, there was a one for four reverse split of the
authorized common stock.
On May 26, 1999, the shareholders approved the creation of 10,000,000
shares of preferred stock of $0.001 par value.
12
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
8. STOCKHOLDERS' EQUITY (Continued)
(b) Subsequent to April 30, 1999, the Company issued 250,000 shares
related to settlement of litigation (note 12).
(c) The share subscription receivable was collected July 28, 1998.
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, 1999 and 1998:
<TABLE>
<CAPTION>
============================================================================================
1999 1998
--------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
--------------------------------------------------------------------------------------------
Outstanding, Beginning of Year 1,566,978 $ 0.87 503,750 $ 1.00
Granted 0 $ 0.00 1,073,228 $ 0.83
Exercised (259,626) $ 0.87 (10,000) $ 0.72
Expired 0 $ 0.00 0 $ 0.00
--------------------------------------------------------------------------------------------
Outstanding, End of Year 1,307,352 1,566,978
============================================================================================
The following table summarizes information about the Company's stock
options outstanding:
<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, 1999 $ 0.72 - $ 2.00 1,307,352 2.50 $ 0.88 1,239,852 $ 0.85
April 30, 1998 $ 0.72 - $ 2.00 1,566,978 3.50 $ 0.88 1,524,478 $ 0.85
----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(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>
==========================================================================================
1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss), as reported $(2,572,496) $(1,373,921)
Net income (loss), pro-forma $(5,736,910) $(4,339,709)
Net income (loss) per share, as reported $ 0.49 $ 0.32
Net income (loss) per share, as reported
- pre reverse split $ 0.12 $ 0.08
Net income (loss) per share, pro-forma $ 1.10 $ 1.00
Net income (loss) per share, pro-forma
- pre reverse split $ 0.28 $ 0.25
==========================================================================================
</TABLE>
The fair value of each option grant is calculated using the following
weighted average assumptions:
<TABLE>
<CAPTION>
==========================================================================================
1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Expected life (years) 3 3
Interest rate 6.28% 6.28%
Volatility 101.14% 101.14%
Dividend yield 0.00% 0.00%
==========================================================================================
</TABLE>
Warrants
At April 30, 1999 there were 1,298,660 share purchase warrants
outstanding.
<TABLE>
<CAPTION>
=================================================================================================
Number Pre
Exercise Price of Warrants Reverse
-------------------------------------------------------------------------------------------------
(Pre Reverse Split) (Post Reverse Split)
<S> <C> <C> <C> <C>
June 15, 2001 $ 0.25 $ 1.00 37,500 150,000
November 5, 2001 $ 0.25 $ 1.00 45,000 180,000
January 13, 2002 $ 0.25 $ 1.00 105,000 420,000
July 30, 2002 $ 0.20 $ 0.80 211,160 844,643
June 10, 2006 $ 0.30 $ 1.20 900,000 3,600,000
-------------------------------------------------------------------------------------------------
1,298,660 5,194,643
=================================================================================================
</TABLE>
14
<PAGE>
RICH COAST, INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 1999 and 1998
(U.S. Dollars)
================================================================================
10. RELATED PARTY TRANSACTIONS
(a) Management fees of $Nil were paid to directors or companies
controlled by directors for the year ended April 30, 1999
(1998 - $30,000; 1997 - $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. The shares were issued at a
discount to market of 20%.
11. INCOME TAXES
A deferred tax asset stemming from the Company's net operating loss
carry forward, has been reduced by a valuation account to zero due to
uncertainties regarding the utilization of the deferred assets.
At April 30, 1999 the Company has available net operating loss carry
forward of approximately $8,400,000 which it may use to offset future
federal taxable income. The net operating loss carry forwards, if not
utilized, will begin to expire in 2008.
12. LITIGATION
(a) 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.
(b) In December 1997 a complaint was filed against the Company, in
which the plaintiff claims, among other things, breach of
contract relating to an alleged loan made to the Company in
1994. The Company settled the suit by granting 250,000 shares
of common stock and $50,000 subsequent to April 30, 1999.
13. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 issue arises because many computer systems use two digits
rather than four to identify a year. Date sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using the year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the year
2000 issue may be experienced before, on, or after January 1, 2000 and,
if not addressed, the impact on operations and financial reporting may
range from minor errors to significant systems failure which could
affect an entities ability to conduct normal business operations. While
the company has a plan to address the year 2000 issue, it is not
possible to be certain that all aspects of the issue affecting the
company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
<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> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 491,418
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 491,418
<PP&E> 6,798,354
<DEPRECIATION> (1,419,155)
<TOTAL-ASSETS> 6,118,851
<CURRENT-LIABILITIES> 1,214,010
<BONDS> 3,670,339
0
0
<COMMON> 24,059,971
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,118,851
<SALES> 0
<TOTAL-REVENUES> 2,267,452
<CGS> 0
<TOTAL-COSTS> 1,378,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,217
<INCOME-PRETAX> (2,572,496)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,572,496)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
</TABLE>
