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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, 2000
[ ] 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.)
6011 Wyoming Avenue, 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 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: $2,907,748
At July 19, 2000 there were 11,039,889 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 the Over-the-Counter Bulletin Board on July 19, 2000, the aggregate
market value of Common Stock held by non-affiliates of the Registrant was
approximately $1,976,305.
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. 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.
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 6011 Wyoming Ave., Dearborn, Michigan. 48126.
All of Rich Coast's operations are located in Dearborn, Michigan at 6011 Wyoming
Avenue.
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 storage capacity
by more than nine million gallons of tank capacity which allows 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. At the time the
pipeline was acquired, management expected to be able to use the waterway access
to ship and receive products by water vessel and thereby increase the Company's
customer base. The Company's original plan was to consider using the Pipeline
for the transportation of waste or the transportation of treated waste. However,
the Company has determined that it is currently more efficient to use
conventional transportation methods for waste. Therefore, during late 1999, the
Company began considering selling or otherwise disposing of the Pipeline.
Management has had preliminary discussions with companies and individuals within
the telecommunication industries and based on these discussions and analysis,
management considers that the Pipeline has an alternative use as a right-of-way
for telecommunications cable or similar use. To fund acquisition of both the
terminal and pipeline, 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. Purchase prices for the terminal and pipeline were $1,579,000
and $296,000 respectively.
In June 1999, Thornton Donaldson and Geoffrey Hornby resigned as directors
of the Company. In December 1999, Michael Fugler was appointed to the Board of
Directors.
Rich Coast operates a 250 gallon per minute waste stream separation system
at the Wyoming Avenue terminal facility. This system separates liquid waste
streams and pumpable waste streams containing a mixture of liquids and solids.
This production system has also been used to demonstrate waste processing to
prospective customers. Demonstrations have been highly
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successful in separation and recovery of wastes discharged by slaughterhouse
operations and by the paper/pulp industry. On-customer-site installations have
occurred for both industries. Rich Coast revised its business strategy in mid
1999 to concentrate on installation of proprietary Rich Coast waste treatment
systems at slaughterhouse and pulp-paper company locations. A production
installation has been completed and successfully tested at a cattle
slaughterhouse. The production installation test proved that marketable grease
could be efficiently recovered using Rich Coast's process equipment. A 100%
treatment system is planned for installation in August with full-scale operation
commencing in September 2000. Resultant operating savings and recovered waste
product revenues from the slaughterhouse operation will be shared with Rich
Coast.
Subsequent and similar installations are planned at two other
slaughterhouse locations by calendar year end. 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.
A pulp-paper demonstration has also been completed successfully with the
result that an engineering contract for a production system at Rock-Tenn's Plant
in Otsego, Michigan has been received and fulfilled. A production contract is
now being negotiated for the pulp-paper plant.
Currently, the Company's waste treatment business is generated through
"blanket" contracts between the large automotive companies and Tier I suppliers
(the largest waste disposal companies). These contracts consisted of pricing to
handle a large variety of waste streams. Rich Coast submits pricing for
specific waste streams included in the "blanket" contracts. Written contracts
are seldom awarded by the Tier I companies to Tier II companies such as Rich
Coast. Rather, Rich Coast conducts most of its business under oral contracts.
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Research and Development
------------------------
In the past two fiscal years the Company estimates it has not made any
expenditures on Research and Development, but it has made investments in
development of waste treatment processes.
Employees
---------
The Company currently has 22 full time employees and no part-time
employees.
Item 2. Description of Property
Rich Coast Ford Road Facility
-----------------------------
The Company's Ford Road facility, purchased June 2, 1993 and placed in
operation on July 9, 1993 was approaching its capacity limits in 1999. After
acquisition of Rich Coast's Wyoming Avenue site on January 15, 1996 and
facilitation of that site, the Ford Road property was no longer necessary to
meet capacity requirements and was offered for sale.
Rich Coast received its first offer for purchase of its Ford Road facility
on October 20, 1998; however, the purchaser was unable to obtain financing. A
second offer from a different purchaser, de Monte Fabricators, Ltd., was signed
on September 9, 1999 for the same price, $450,000, as the October 1998 offer.
The sale closed on August 11, 2000. The carrying value for Rich Coast's Ford
Road facility was higher than the accepted sale price and resulted in an
impairment loss of $169,739, which was recorded during the quarter ended October
31, 1999. In anticipation of the closing of the sale, all Dearborn operations
have been consolidated at the Company's Wyoming Avenue terminal site, and this
consolidation will allow savings to be realized in the Company's overhead.
Relocation and consolidation of operations has generated increased capability
through the installation of two new and larger truck dumping pits.
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 in January 1996. 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
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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 assurance that even the more
stringent discharge regulations now being considered by the EPA can be met.
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. 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.
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 of Michigan by Mobil Oil Corporation. The
Complaint alleged 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 does not affect the Company's purchase of the Wyoming Avenue terminal
facility which occurred January 16, 1996, and should not be confused with the
Mobil terminal. The terminalling agreement was terminated and the claim was
settled on January 16, 2000 by a Rich Coast payment of $100,000 to the Mobil Oil
Corporation.
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 claimed 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 totaling $50,000. At April 30, 2000, the outstanding obligation is
$37,500.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Market For The Registrant's Common Stockholder Matters
Market information for the Common Stock of the Company is listed on the
Over-The-Counter ("OTC") Market under the trading symbol "KRHC.OB." The
following table sets forth the high and low bid
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prices of the Company's Common Stock during the periods indicated. All amounts
reflect prices adjusted for the one-for-four reverse split which was effective
June 19, 1998.
OTC Market
<TABLE>
<CAPTION>
Calendar High Bid Price* Low Bid Price*
-------- --------------- --------------
<C> <S> <C> <C>
2000 April 1 - June 30 $ 0.40 $ 0.16
January 1 - March 31 0.53 0.125
1999 October 1 - December 31 $ 0.32 $ 0.10
July 1- October 31 0.33 0.09
April 1-June 30 0.50 0.21
January 1-March 31 1.50 0.37
1998 October 1-December 31 2.00 0.62
July 1-September 30 1.85 0.50
April 1-June 30 4.12 1.25
January 1-March 31 4.12 1.37
</TABLE>
____________________
*The closing bid price of the OTC Common Stock on July 19, 2000, was
$.187/share.
Bid prices provided by "Yahoo.com Stock Quotes" via the Internet. Quotations
reflect inter-dealers prices, without mark-up, markdown or commission and may
not represent actual transactions.
Holders
-------
As of July 19, 2000, there were approximately 2,915 holders of the
Company's Common Stock, and the number of shares issued and outstanding was
11,039,889.
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.
Recent Sales of Unregistered Securities
---------------------------------------
On May 31, 1999, the Company issue 250,000 shares of its common stock (with
a market value of $50,000) to Comer Holdings as part of the settlement of a
lawsuit. These shares were issued in reliance on Rule 506 and Section 4(2) of
the Securities Act of 1933 (the "Act").
In September 1999, an aggregate of 298,571 shares of common stock were
issued to holders of 8% Convertible Debentures for conversion of principal
($54,000) and accrued interest ($5,065). These shares were issued in reliance on
Rule 506 and Section 4(2) of the Act.
In November 1999, the Company issued 300,000 shares to S.B. Fletcher, a
consulting entity, for services rendered over the past year, valued at $45,000,
in mediating discussions with holders
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of the Company's 8% Convertible Debentures. These shares were issued in reliance
on Section 4(2) of the Act.
In November and December 1999, the Company issued an aggregate of 2,550,000
shares to Frippoma S.A. for an aggregate investment of $510,000 (or $0.20 per
share) in a private placement under Section 4(2), and Rule 506 and Regulation S
of the Act.
In December 1999, the Company issued 450,000 shares to Strauss Holding
Ltd., for an investment of $90,000. These shares were issued in reliance on
Section 4(2), Rule 506 and Regulation S of the Act.
In June 2000, the Company issued an aggregate of 1,125,000 shares to Banco
di Desioedella Brianza, for an investment of $225,000. These shares were issued
in reliance on Section 4(2), Rule 506 and Regulation S of the Act.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company entered into a new growth 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 Wyoming Avenue terminal facility from Mobil
Oil Corporation and redomiciling of the Company from British Columbia, Canada to
Delaware, U.S.A., the Company reorganized into the parent company, Rich Coast
Inc. and four subsidiary corporations identified as:
Rich Coast Resources, Inc.
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.
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. Rich Coast, Inc. is now trading
on the Over-the-Counter (OTC) Bulletin Board.
Results of Operations
---------------------
Revenues increased $640,296 or 28.2% from $2,267,452 to $2,907,748 for the
twelve months ended April 30, 1999 and 2000, respectively. The revenue increase
resulted from price increases, new customers and retention of a majority of the
business that was diverted from City
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Environmental, a major competitor in Detroit, Michigan, when that company was
temporarily shut down during the months of October, November and December 1999.
City Environmental operations resumed in January 2000 without any significant
impact on Rich Coast's business. Rich Coast retained about 75% of diverted
business. Rich Coast's lower prices and the opportunity for Rich Coast to
demonstrate its service capabilities have helped retain this business. Net loss
for this latest fiscal year ended April 30, 2000 was $3,134,090 compared to the
previous fiscal year loss of $2,572,496. Included in the $3,134,090 loss are
depreciation and impairment losses of $1,954,674 which are non-cash events.
Cost of sales decreased by $139,365, or 10%, from $1,378,367 to $1,239,002.
The decrease resulted from a reduction in landfill and transportaion costs.
General and administrative expense increased by $223,417, or 10%, from
$2,188,888 to $2,412,305. The increase resulted primarily from increased
property taxes of approximately $75,000, increased depreciation of approximately
$82,000, a lost deposit relating to a renovation contract that was terminated of
approximately $88,000, increased repairs and maintenance, utilities and pipeline
staking fees of approximately $42,000, and increased bad debt of approximately
$22,000; offset by a decrease in legal and accounting fees of approximately
$109,000.
Sales and marketing decreased $256,962, or 57% from $450,059 during the
fiscal year ended April 30, 1999 to $193,097 during the fiscal year ended April
30, 2000. This decrease was due to termination of contracts with new business
developments.
Rich Coast's asset values were thoroughly reviewed for its fiscal year
ended April 30, 2000 in consideration of management's decision to focus on off-
site customer locations for installations of recently developed proprietary
processes. During the year ended April 30, 1999, the Company incurred $50,000 of
expense related to the Comer lawsuit and a total impairment loss of $1,564,595
was recorded during the year. The impairment loss relates to the Company's
distillation unit, Ford Road facility and ZPM equipment. As a result its
distillation unit, located at Rich Coast's terminal renovation in Dearborn,
Michigan was written down from $2,024,706 to $800,000 during the third quarter
of its fiscal year ending April 30, 2000. The unit is being stored pending a
study of potential future uses, one of which is production of activated
charcoal. Reapplication of this distillation unit, originally designed for
refinement of sulfur ore, to soil remediation did not prove to be economically
feasible. It is thought that certain portions of the distillation unit can be
used to produce activated charcoal and that portion of the system has been
valued at $800,000.
Additionally, asset value was reduced by $169,739 due to Rich Coast's sale
of its Ford Road facility for less than its book value. This impairment loss
was reported in the second quarter of this fiscal year ended April 30, 2000.
In the fourth quarter of this latest fiscal year, the Company also wrote off the
special aeration unit purchased from ZPM due to its limited ability to accept
even modest variations in waste streams and the system's unacceptably high noise
level. The Company realized an impairment loss of $170,150 on this equipment.
Lawsuit settlement expense increased by $100,000, or 200%, from $50,000 to
$150,000. The increase resulted from the settlements of law suits with Mobil Oil
Corp., for a cash payment of $100,000, and with Comer Holdings for a cash
payment of $50,000 and the issuance of 250,000 shares of Common Stock, with a
market value of $50,000. During ended April 30, 1999, the Company accrued
$50,000 of expense related to the Comer lawsuit.
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Interest expense, beneficial conversion feature, decreased by $764,000, or
150%, from $764,000 to $0. The beneficial conversion features related to the 10%
convertible promissory notes (converted to common stock during the year ended
April 30, 1999) and the 8% convertible debentures ($1,375,500 outstanding
principal at April 30, 2000) were fully amortized to interest expense during the
year ended April 30, 1999. Other interest expense increased $189,383 or 65% from
$293,456 in 1999 to $482,839 in 2000. This increase was primarily due to
interest accrued on the 8% convertible debenture, which was not outstanding for
the entire year ended April 30, 1999, and the increase from 8% to 12% on the
Company's approximately $76,000 land contract payable.
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During the fiscal year ended April 30, 1999, the Company made various
modifications to improve efficiencies in its waste treatment process. The
Company recorded a change in its estimated accrued oil and waste treatment cost,
resulting in a gain of $285,588.
Net loss for the fiscal year ended April 30, 2000 was $3,134,090 compared
to a net loss of $2,572,496 for the fiscal year ended April 30, 1999, an
increase of $561,594 or 22%. Loss per share decreased $0.09, or 18%, from $0.49
per share for the fiscal year ended April 30, 1999 to $0.40 per share for the
same period in 2000. Loss per share was also impacted by an increase in the
weighted average number of shares of 2,714,140.
Recently Issued Accounting Pronouncements
-----------------------------------------
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 also addresses the accounting for certain hedging
activities. The Company currently does not have any derivative instruments nor
is it engaged in hedging activities, thus the Company does not believe
implementation of SFAS No. 133 will have a material impact on its financial
statement presentation or disclosures.
Liquidity and Capital Resources
-------------------------------
The Company's financial statements for the year ended April 30, 2000 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. For the year ended April 30, 2000, the Company reported a net loss of
$3,134,090 and has a stockholders' deficit of $1,145,023. At April 30, 2000, a
significant portion of the Company's debt is currently due and the Company has a
working capital deficit of $4,665,220 The Company has also experienced
difficulty and uncertainty in meeting its liquidity needs. The Independent
Auditors' Report on the Company's financial statements as of and for the year
ended April 30, 2000 included a "going concern" explanatory paragraph which
means that the Auditors expressed substantial doubt about the Company's ability
to continue as a going concern. Management's plans to address these concerns
include:
(a) Waste processing at customers' sites
Management has developed plans to consider shifting from processing waste
treatment at the Company's facilities to processing waste directly at
customer sites, which management believes may result in increased profit
margins. The Company has entered into a contract with a slaughterhouse to
implement customer site waste treatment during the summer or fall of 2000.
Upon evaluation of this initial contract, management will determine the
extent to which the Company will pursue customer site waste treatment
versus using its current facilities.
(b) Sale of Ford Road facility and consolidation of operating sites
The Company sold its Ford Road facility for $450,000, which produced a
positive cash flow of $217,743 after payment of debt that was secured by
the facility and certain other obligations. The Company intends to use the
proceeds to repay the $75,525 land contract and for other working capital
purposes. Management consolidated its waste processing operations at its
Wyoming Terminal facility and expects to gain cost efficiencies and savings
through this process.
(c) Financing agreement
The Company has a signed agreement with an investment banker that will
provide up to $2,000,000 of either equity or debt financing upon the
Company meeting certain operating conditions, some of which pertain to the
results of the Company's initial customer site waste processing. Through
April 30, 2000, $600,000 of equity financing has been provided in exchange
for the issuance of 3,000,000 shares of common stock. An additional
$400,000 has been scheduled for delivery during 2000 ($225,000 of which was
received in June 2000 in exchange for the issuance of 1,125,000 shares of
common stock).
(d) Other plans
Management is pursuing negotiations with current debt holders to modify the
terms of the agreements, including possible extension of due dates.
Management is also evaluating the potential sale of other Company assets,
including the Company's pipeline.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unsuccessful in
implementing these plans, or otherwise unable to continue as a going concern.
Prospects for Rich Coast's fiscal year beginning May 1, 2000 are
significantly better than at any previous time in the Company's history because
of its emphasis on more profitable off-site installations of proprietary Rich
Coast systems, its first long-term contract with a cattle slaughterhouse
company, reduced overhead resulting from the sale of its Ford Road facility.
Improved profitability from off-site operations should result from
efficiencies realized by processing a consistent waste stream on a continuous
basis, and by eliminating the transportation and associated loading and
unloading costs when waste materials must be delivered to treatment and disposal
sites. Also of major significance is Rich Coast's proprietary system for
aeration and flocculation of waste streams, so that marketable products are
recovered while cleaning up the waste stream sufficiently to meet environmental
standards. This avoids costly waste stream disposal surcharges and, in some
cases, allows recycling of the waste water.
While Rich Coast concentrates on growing its off-site business, the Company
will continue to improve its waste treatment business at its Dearborn, Michigan
facility. The revenue growth rate of 28.2% for the fiscal year ended April 30,
2000 is a growth rate expected to be exceeded as a result of: (i) on-site
operations being consolidated at the Company's Wyoming Avenue terminal in
Dearborn, Michigan in July 2000; and (ii) operations at cattle slaughterhouse
facilities.
Improvements planned for the Wyoming Avenue terminal include new and more
efficient dumping pits, which will also increase capacity. These pits will be
housed in a pre-fabricated steel structure, which will be approximately 18,000
square feet in size and designed to accommodate supplemental pit waste
processing equipment designed to reduce costs and further increase capacity. If
business cash flow continues to improve from its slaughterhouse operations
contract and consolidated operations at Wyoming Avenue, the planned improvements
can be funded without additional equity financing. However, as customer demands
or cash flow dictate, then any additional available equity financing will be
used as required.
No major capital expenditures were made by Rich Coast during the fourth
quarter. There were no outstanding commitments for capital expenditures at
April 30, 2000.
Forward-Looking Statements
--------------------------
Discussions and information in this document that 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 Rich Coast proprietary systems, the expected installations
at slaughterhouses, the expected increase in revenue 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.
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.
Item 7. Financial Statements and Supplementary Data
See Financial Statements and Supplementary Data following the signature
page of this Form 10-KSB.
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Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Board of Directors of the Company dismissed Smythe Ratcliffe, Chartered
Accountants on November 19, 1999 as its independent auditors and retained
Gelfond Hochstadt Pangburn, P.C. as its independent auditors for the fiscal year
ending April 30, 2000. None of the reports of Smythe Ratcliffe on the Company's
financial statements contained an adverse opinion or a disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope or accounting
principles. Further, there were no disagreements with the former accountants on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
Prior to the Company engaging Gelfond Hochstadt Pangburn, P.C., the Company
had not consulted Gelfond Hochstadt Pangburn, P.C. regarding the application of
accounting principles to a specific transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, or on any matter that was the subject of a disagreement on a
reportable event.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The names, ages, municipalities of residence, positions with the
Registrant, and principal Occupations of the directors and executive officers of
the Registrant as of July 14, 2000 are as follows:
<TABLE>
<CAPTION>
Name, Age and
Municipality Residence Office Principal Occupation
---------------------- ------ --------------------
<S> <C> <C>
Robert W. Truxell Chairman of the Board and Chairman and Chief Executive Officer of
Bloomfield Hills, MI Director since January 1996; Integrated Waste Systems, 1992-1995;
Age: 75 Secretary since December President of Microcel, Inc., 1990-1992;
1997; CEO January 1996 to Vice-President of General Dynamics,
January 1997. 1983-1990
James P. Fagan President and Director since President and Chief Operating Officer
Dearborn, Michigan January 1996; Chief of Waste Reduction Systems 1992-1995;
Age: 49 Executive Officer since Vice-President of The Powers Fagan
January 1997 Group, Inc. 1990-1996
</TABLE>
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<TABLE>
<CAPTION>
Name, Age and
Municipality Residence Office Principal Occupation
---------------------- ------ --------------------
<S> <C> <C>
George P. Nassos Director since August 1997 Director of environmental management
Glenview, IL program and adjunct professor for
Age: 60 Stuart School of Business; 1996 -
present - President - Fiber Energy,
Inc., an environmental consulting
company; 1992-1995, Director of Fiber
Fuels division for Cemtech LP;
1981-1992 employed by Chemical Waste
Management, Inc.
Michael M. Grujicich Chief Financial Officer and Director Sales Canada - WRS 1993-1996,
Dearborn, MI Treasurer since August 1996 Director MRPII, General Dynamics Land
Age: 54 Systems Division 1983-1993, Divisional
Controller - Rockwell International
1981-1983
Michael R. Fugler Director since December 1999 Self-employed Attorney at Law since
New York, New York 1972, with a current practice emphasis
Age: 51 in Securities, Corporate Finance and
International Law; officer and
shareholder of Millennium Financial
Group, Inc. from 1996 to present.
</TABLE>
The following are members of the Company's Audit Committee:
George P. Nassos
Michael R. Fugler
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 believes that all reports on Forms 3, 4 or 5 required to be filed were
filed on a timely basis for the fiscal year ended April 30, 2000, except Forms 3
were filed late for Frippoma S.A. and Michael Fugler, and Forms 5 were filed
late for Robert Truxell and James Fagan.
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, 1999 and 2000 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 $100,000 (the "Named Executive Officers"):
12
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FISCAL YEAR COMPENSATION LONG TERM COMPENSATION
Awards Payouts
------ -------
Restricted
Shares
Securities(1) or All other
Name and Other Annual under Restricted LTIP Compen-
Principal Salary Bonus Compen- Option/SARs Share Payouts sation
Position Year ($) ($) sation Granted Units ($) ($)
-------- ---- --- --- ------ ------- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. 2000 120,284 0 0 0 0 0 0
Truxell/ 1999 114,233 0 0 755,662 0 0 0
Chairman
James P. 2000 144,627 0 0 0 0 0 0
Fagan 1999 230,000 0 0 556,227 0 0 0
CEO and
President
</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 Plan to James P. Fagan as
compensation for his services in
13
<PAGE>
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 $0.125 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 $0.125 per share to purchase 70,386 shares.
Option/Stock Appreciation Rights ("SAR") Grants during the most recently
------------------------------------------------------------------------
completed Fiscal Year
---------------------
The following table sets out the stock options granted by the Company
during the previous fiscal year to the Named Executive Officers of the Company.
The following amounts include options that were granted prior to the previous
fiscal year but were repriced during that year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN PREVIOUS YEAR
INDIVIDUAL GAINS
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Expiration Date
---- ----------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert W. Truxell 258,087 16.45% $0.125 $1.00 01/17/10
Robert W. Truxell 140,775 8.97% 0.125 1.00 07/30/02
Robert W. Truxell 100,000 6.37% 0.125 1.25 01/17/10
Robert W. Truxell 25,000 1.59% 0.125 1.25 01/17/10
Robert W. Truxell 48,675 3.10% 0.125 1.00 01/17/10
Robert W. Truxell 50,000 3.19% 0.125 .90 01/17/10
Robert W. Truxell 58,125 3.70% 0.125 1.00 01/17/10
James P. Fagan 129,041 8.22% 0.125 1.00 01/17/10
James P. Fagan 70,386 4.48% 0.125 1.00 07/30/02
James P. Fagan 100,000 6.37% 0.125 1.00 01/15/06
James P. Fagan 25,000 1.59% 0.125 1.00 05/09/06
James P. Fagan 58,125 3.70% 0.125 1.00 01/17/10
James P. Fagan 125,000 7.96% 0.125 .88 01/17/10
James P. Fagan 48,675 3.10% 0.125 1.00 07/20/07
_________________
</TABLE>
No stock shares or options were granted to the foregoing named executives
during this fiscal year ended 4/30/00. All options granted under the 1995,
1996, 1997 and 1999 stock option plans were repriced to reflect market values on
November 19, 1999.
14
<PAGE>
Aggregated Option/SAR Exercised in Last Financial Year and Fiscal Year-End
--------------------------------------------------------------------------
Option/SAR Values
-----------------
The following table sets out all Option/SAR exercised by the Named
Executive Officers during the most recently completed fiscal year and the
Option/SAR values for such persons as of the end of the most recently completed
fiscal year.
Aggregated Option/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of
Unexercised Unexercised
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
---- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Robert W. Truxell -0- -0- 680,662 $51,050
all exercisable
James P. Fagan -0- -0- 556,227 $41,717
all exercisable
_________________
</TABLE>
Repricing of Options
--------------------
On November 20, 1999, the Company's Board of Directors approved a reduction
to $0.125 in option exercise prices for all options under the 1995, 1996, 1997
and 1999 stock option plans to reflect market values on November 20, 1999. 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 were paid to directors. No bonuses were paid or awarded to
directors or officers for fiscal year ended April 30, 2000.
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 13, 2000
by each Director and each Executive Officer named in the Summary Compensation
Table, and by all Directors and
15
<PAGE>
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/Name
of Director/Identity of Group Shares Beneficially Owned Percent of Class
----------------------------- ------------------------- ----------------
<S> <C> <C>
Robert W. Truxell 1,026,462(1) 8.75%
Chairman/Director
James P. Fagan 633,327(2) 5.46%
President/CEO/Director
George P. Nassos 148,513(3) 1.30%
Director
Michael R. Fugler 100,000(4) 0.90%
Director
Michael Grujicich, 0 0
Treasurer
All directors and executive 1,908,302(5) 15.30%
officers as a group (five persons)
_________________
</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. Does not include an option to acquire 12.5% (inclusive of current
holdings) of the fully diluted ownership of the Company, exercisable at $0.30
per share, which vests upon the Company obtaining six consecutive months with
EBITDA in excess of $600,000.
(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. Does not include an option to acquire 12.5% (inclusive of current
holdings) of the fully diluted ownership of the Company, exercisable at $0.30
per share, which vests upon the Company obtaining six consecutive months with
EBITDA in excess of $600,000.
(3) Includes currently exercisable options to purchase 100,000 shares at $0.125
per share.
(4) Includes currently exercisable options to purchase 100,000 shares at $0.125
per share.
(5) Includes securities reflected in footnotes 1-4.
To the knowledge of the Directors and Senior Officers of the Company, as of
July 13, 2000, 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):
16
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
<S> <C> <C>
Frippoma S.A. 2,550,000(1) 23.10%
Via Cattori 3, 6902 Paradiso
Switzerland
Robert W. and Linda C. Truxell 1,026,462(2) 8.75%
10200 Ford Road
Dearborn, MI 48126
James P. Fagan 633,327(3) 5.46%
4415 Comanche
Okemos, MI 48864
Alan Moore 950,000(4) 7.90%
9441 LBJ Freeway
Suite 500
Dallas, TX 75243
________________
</TABLE>
(1) Consists of shares directly owned.
(2) 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. Does not include an option to acquire 12.5% (inclusive of current
holdings) of the fully diluted ownership of the Company, exercisable at $0.30
per share, which vests upon the Company obtaining six consecutive months with
EBITDA in excess of $600,000.
(3) 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. Does not include an option to acquire 12.5% (inclusive of current
holdings) of the fully diluted ownership of the Company, exercisable at $0.30
per share, which vests upon the Company obtaining six consecutive months with
EBITDA in excess of $600,000.
(4) Consists of 50,000 shares directly owned, and 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.
17
<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- Fiscal years ended April 30, 1999 and 2000
(a) Index to Financial Statements;
(b) Auditors' Reports to the Shareholders;
(c) Consolidated Balance Sheet;
(d) Consolidated Statements of Operations;
(e) Consolidated Statements of Stockholders' Equity (Deficit);
(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 11(c) are filed as 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.
18
<PAGE>
(c) Exhibits
Exhibit No. Description and Method of Filing
----------- --------------------------------
3.1.1 Articles of Incorporation. (1)
3.1.2 Articles of Amendment. (2)
3.2 Bylaws. (1)
10.1 Contract for Sale of Ford Road property. (1)
10.2 Employment Contract between the Company and Robert W.
Truxell (Exhibit 1 to the Agreement of Merger dated October
31, 1995). (3)
10.3 Employment Contract between the Company and James P. Fagan
(Exhibit 2 to the Agreement of Merger dated October 31,
1995). (3)
10.4 1995 Incentive Compensation Plan. (4)
10.5 1996 Employee Stock Option and Bonus Plan, as amended. (5)
10.6 1997 Stock Option and Stock Bonus Plan. (6)
10.7 1999 Stock Option Plan. (2)
21.1 Subsidiaries of the Registrant. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
_______________
(1) Incorporated by reference from the Company's Registration Statement on
Form S-3, File No. 333-63289.
(2) Incorporated by reference from the Company's Registration statement on
Amendment #3 to Form S-3 on Form SB-2, File No. 333-63289.
(3) Incorporated by reference to the Company's Form 8-K dated November 16,
1995.
(4) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-41443.
(5) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-50763.
(6) 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.
19
<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 to be
signed on its behalf by the undersigned, thereunto duly authorized.
RICH COAST INC.
Date: August 15, 2000 By:/s/ James P. Fagan
--------------------------------
James P. Fagan, President and
Chief Executive Officer
Date: August 15, 2000 By:/s/ Michael M. Grujicich
--------------------------------
Michael M. Grujicich, Chief
Financial and Accounting Officer
20
<PAGE>
EXHIBITS INDEX
Exhibit No. Description and Method of Filing
----------- --------------------------------
3.1.1 Articles of Incorporation. (1)
3.1.2 Articles of Amendment. (2)
3.2 Bylaws. (1)
10.1 Contract for Sale of Ford Road property. (1)
10.2 Employment Contract between the Company and Robert W.
Truxell (Exhibit 1 to the Agreement of Merger dated October
31, 1995). (3)
10.3 Employment Contract between the Company and James P. Fagan
(Exhibit 2 to the Agreement of Merger dated October 31,
1995). (3)
10.4 1995 Incentive Compensation Plan. (4)
10.5 1996 Employee Stock Option and Bonus Plan, as amended. (5)
10.6 1997 Stock Option and Stock Bonus Plan. (6)
10.7 1999 Stock Option Plan. (2)
21.1 Subsidiaries of the Registrant. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
________________
(1) Incorporated by reference from the Company's Registration Statement on Form
S-3, File No. 333-63289.
(2) Incorporated by reference from the Company's Registration Statement on
Amendment #3 to Form S-3 on Form SB-2, File No. 333-63289.
(3) Incorporated by reference to the Company's Form 8-K dated November 16,
1995.
(4) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-41443.
(5) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-50763.
(6) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-56275.
21
<PAGE>
RICH COAST INC.
Consolidated Financial Statements
April 30, 2000 and 1999
INDEX PAGE
----- ----
Report of Independent Auditors (Gelfond Hochstadt Pangburn, P.C.) 1
Report of Prior Independent Auditors (Smythe Ratcliffe) 2
Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6-7
Notes to Consolidated Financial Statements 8-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Rich Coast Inc.
Dearborn, Michigan
We have audited the accompanying consolidated balance sheet of Rich Coast Inc.
and subsidiaries as of April 30, 2000 and the consolidated related statements of
operations, stockholders' equity (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rich Coast Inc. and
subsidiaries as of April 30, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered a net loss of $3,134,090 during
the year ended April 30, 2000, and has a stockholders' deficit and a working
capital deficit of $1,145,023 and $4,665,220, respectively, at April 30, 2000.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
June 30, 2000
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RICH COAST, INC.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Rich Coast, Inc. for the year
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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated results of operations and cash flows of Rich
Coast Inc. for the year ended April 30,1999 in conformity with generally
accepted accounting principles in the United States.
"Smythe Ratcliffe"
Chartered Accountants
Vancouver, Canada
August 12, 1999
2
<PAGE>
RICH COAST INC.
Consolidated Balance Sheet
April 30, 2000
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Current assets:
Cash and cash equivalents $ 17,884
Accounts receivable, net of allowance for uncollectible
accounts of $12,700 (note 4) 589,483
Prepaid expenses 16,950
------------
Total current assets 624,317
Property and equipment, net (notes 5, 6 and 8) 3,378,037
Patent and technology, net 18,147
Deferred finance charges and deposits 124,013
------------
$ 4,144,514
============
Liabilities and stockholders' deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt (note 8) $ 3,646,572
Accounts payable and accrued liabilities (note 7) 1,020,975
Accrued oil and waste treatment costs 396,615
Accrued interest 225,375
------------
Total liabilities (all current) 5,289,537
------------
Commitments and contingencies (notes 3 and 11)
Stockholders' deficit (note 9):
Preferred stock, $0.001 par value; 10,000,000 shares authorized,
no shares issued
Common stock, $0.001 par value; 100,000,000 shares authorized,
9,914,889 shares issued and outstanding at April 30, 2000 9,915
Additional paid-in capital 27,543,394
Accumulated deficit (28,698,332)
------------
(1,145,023)
------------
$ 4,144,514
============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
RICH COAST INC.
Consolidated Statements of Operations
Years Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 2,907,748 $ 2,267,452
----------- -----------
Operating expenses:
Cost of sales 1,239,002 1,378,367
General and administrative expenses 2,412,305 2,188,888
Sales and marketing expenses 193,097 450,059
Impairment of property and
equipment (note 6) 1,564,595
Lawsuit settlement expense (note 11) 150,000 50,000
----------- -----------
5,558,999 4,067,314
----------- -----------
Loss from operations (2,651,251) (1,799,862)
----------- -----------
Other (income) expense:
Interest expense:
Beneficial conversion feature 764,766
Other 482,839 293,456
Accrued oil and waste
treatment cost reversal (285,588)
----------- -----------
482,839 772,634
----------- -----------
Net loss $(3,134,090) $(2,572,496)
=========== ===========
Basic and diluted net loss
per common share outstanding $ (0.40) $ (0.49)
=========== ===========
Weighted average number of common shares
outstanding 7,922,833 5,208,693
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
RICH COAST INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Common Common Additional Total
Shares Shares Paid-In Accumulated Stockholders'
Number Amount Capital Deficit Equity(Deficit)
--------- ------ ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, May 1, 1998 4,718,894 $4,719 $25,329,446 $ (22,991,746) $ 2,342,419
Issuance of common
stock for cash upon
exercise of stock options 259,626 260 209,295 209,555
Issuance of common stock
upon conversion of
promissory note 1,040,299 1,040 695,960 697,000
Issuance of common stock
for interest 47,499 47 57,977 58,024
Interest- beneficial conversion 500,000 500,000
Net loss for the year ended
April 30, 1999 (2,572,496) (2,572,496)
--------- ------ ----------- ------------- ---------------
Balances, April 30, 1999 6,066,318 6,066 26,792,678 (25,564,242) 1,234,502
Issuance of common stock
in settlement of lawsuit 250,000 250 49,750 50,000
Issuance of common stock
upon conversion of
convertible debentures 298,571 299 59,266 59,565
Issuance of common stock
for cash 3,000,000 3,000 597,000 600,000
Issuance of common stock
for consulting services 300,000 300 44,700 45,000
Net loss for the year ended
April 30, 2000 (3,134,090) (3,134,090)
--------- ------ ----------- ------------- ---------------
Balances, April 30, 2000 9,914,889 $9,915 $27,543,394 $ (28,698,332) $ (1,145,023)
========= ====== =========== ============= ===============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
RICH COAST INC.
Consolidated Statements of Cash Flows
Years Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
Net cash provided by (used in) operating activities:
<S> <C> <C>
Net loss $(3,134,090) $(2,572,496)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of deferred finance charges 52,397 58,024
Amortization of beneficial conversion feature 764,766
Impairment loss 1,564,595
Depreciation and amortization 390,079 395,900
Common stock issued for consulting and
other expenses 95,000
Loss on deposits 88,000
Loss on equipment disposal 3,147
Allowance for doubtful accounts (25,132)
Changes in operating assets and liabilities
Accounts receivable (72,933) (30,860)
Insurance claim receivable 435,290
Subscriptions receivable 25,000
Inventory 108,265
Prepaid expenses and other assets 17,967
Accounts payable and accrued liabilities 171,015 10,994
Accrued oil and waste treatment costs 138,980 (192,809)
Accrued interest 230,440
----------- -----------
Net cash used in operating activities (483,682) (994,779)
----------- -----------
Net cash provided by (used in) investing activities:
Refund of construction deposits 14,993
Capital expenditures (37,745) (379,671)
Deferred finance charges (275,318)
----------- -----------
Net cash used in investing activities (22,752) (654,989)
----------- -----------
Net cash provided by (used in) financing activities:
(Decrease) increase in bank overdraft (5,682) 5,682
Issuance of common stock for cash 600,000 209,555
Proceeds from convertible debentures 1,500,000
Repayment of long-term debt (70,000) (118,512)
----------- -----------
Net cash provided by financing activities 524,318 1,596,725
----------- -----------
Increase (decrease) in cash and cash equivalents 17,884 (53,043)
Cash and cash equivalents, beginning 53,043
----------- -----------
Cash and cash equivalents, ending $ 17,884 $ 0
=========== ===========
</TABLE>
6
<PAGE>
RICH COAST INC.
Consolidated Statements of Cash Flows
Year Ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Supplemental disclosure of non cash investing
and financing activities:
298,571 shares of common stock issued
for principal ($54,500) and accrued interest
($5,065) due on convertible debentures $ 59,565
========
47,499 shares of common stock
issued for accrued interest $ 58,024
========
1,040,299 shares of common stock issued
for principal due on convertible debt $697,000
========
Supplemental disclosure of cash flows information
Cash paid for interest $205,065 $221,217
======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 2000 and 1999
1. ORGANIZATION AND BUSINESS
The Company is incorporated in the State of Nevada and operates a non-
hazardous waste treatment facility in Dearborn, Michigan specializing in
recycling of waste oils.
The Company operates equipment and oversees processes at both its
facilities and customers' facilities. The equipment and processes separate
liquid waste streams and pumpable waste streams containing a mixture of
liquids and solids. Some of the resulting streams are recyclable into
greases and oils that can be sold. The Company's customers are located
primarily throughout the Great Lakes region and operate in various
industries.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of Rich Coast, Inc. and its
wholly-owned subsidiaries Rich Coast Oil, Inc., Waste Reduction Systems,
Inc., Rich Coast Pipeline, Inc., and Rich Coast Resources Inc. All
intercompany balances and transactions have been eliminated.
(b) Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(c) Property and equipment
Property and equipment are recorded at cost. These assets are depreciated
using straight-line and accelerated methods over their estimated useful
lives as follows:
Buildings 39 years
Machinery and equipment 7 years
Bulk storage tanks 15 years
Property and equipment also includes a distillation unit and a pipeline
with carrying values of approximately $800,000 and $296,000, repectively,
that have not yet been placed in service. No depreciation has been taken on
this equipment.
Management assesses the carrying value of its long-lived assets for
impairment when circumstances warrant such a review. Generally, assets to
be used in operations are considered impaired if the sum of expected
undiscounted future cash flows is less than the assets' carrying values. If
impairment is indicated, the loss is measured based on the amounts by which
the assets' carrying values exceed their fair values.
(d) Deferred finance charges and deposits
Deferred financing charges consist of long-term financing charges that are
being amortized over the 5 year term of the related debt on a straight-line
basis. Deposits consist of operating and other deposits. During the year
ended April 30, 2000, the Company recorded a loss of $88,000 related to a
lost deposit under a renovation contract that was terminated.
8
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Patent and technology
Patent and technology consist of costs incurred related to the Company's
patents and is amortized over 15 years using the straight-line method.
Accumulated amortization at April 30, 2000 was approximately $15,000.
(f) Net loss per common share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the year. Diluted net
loss per share reflects the potential dilution that could occur if dilutive
securities and other contracts to issue common stock were exercised or
converted into common stock, unless the effect is to reduce loss or
increase earnings per share. The Company has no potential common stock
instruments, including outstanding options and warrants, which would result
in dilutive loss per share during the years ended April 30, 2000 and 1999.
(g) Revenue recognition and accrued oil and waste treatment costs
The Company generally recognizes revenue at the time waste is accepted and
treated. The Company also accrues the cost of treating waste at the time
the waste is accepted for treatment. Accrued oil and waste treatment costs
at April 30, 2000 represents costs for waste that had been accepted but not
yet treated. During the year ended April 30, 1999, the Company made various
modifications to improve efficiencies in its waste treatment process. The
Company recorded a change in its estimated accrued oil and waste treatment
cost resulting in a gain of $285,588 for the year ended April 30, 1999.
(h) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in the consolidated statement of operations in the period that
includes the enactment date.
(i) Financial instruments
It is not practical to estimate the fair value of the Company's 10% senior
secured note and its 8% loan as the Company is currently in default on the
underlying agreements and management cannot estimate fair values given the
Company's current financial condition. The carrying value of the Company's
8% convertible debentures approximates fair value because the debentures
bear interest at current market rates. The carrying values of the Company's
other financial instruments approximate fair values because of their short
maturities.
(j) 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.
9
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Comprehensive income
Statement of Financial Accounting Standard (SFAS) No. 130, Reporting
Comprehensive Income, requires disclosure of comprehensive income which
includes certain items not reported in the statement of income, including
unrealized gains and losses on available-for-sale securities and foreign
currency translation adjustments. During the years ended April 30, 2000
and 1999, the Company did not have any components of comprehensive income
to report.
(l) Recently issued accounting pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, is effective for financial statements for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS No. 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. SFAS No. 133 also
addresses the accounting for certain hedging activities. The Company
currently does not have any derivative instruments nor is it engaged in
hedging activities, thus the Company does not believe implementation of
SFAS No. 133 will have a material impact on its financial statement
presentation or disclosures.
(m) Beneficial conversion feature:
During the years ended April 30, 1998 and 1999, the Company entered into a
10% senior secured note payable and 8% convertible debentures, respectively
(Note 7). Both instruments included conversion features that were in-the-
money at the issuance dates. These beneficial conversion features are
accounted for as an interest charge and are amortized over the period from
the dates of issuance through the dates the instruments are first
convertible. The interest charge was fully amortized as of April 30, 1999.
This policy conforms to the accounting for these transactions set forth in
Emerging Issues Task Force (EITF) Topic D-60 and EITF Issue No. 98-5.
(n) Stock-based compensation:
SFAS No. 123, Accounting for Stock-Based Compensation, defines a fair-
value-based method of accounting for stock-based employee compensation
plans and transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees, and encourages but does not
require companies to record compensation cost for stock-based employee
compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock.
(o) Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
(p) Reverse stock split
In June 1998, the Company effected an one-for-four reverse split of its
common stock. All share and per share amounts reflect the reverse split.
10
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
3. GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
The Company's financial statements for the year ended April 30, 2000 have
been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal
course of business. For the year ended April 30, 2000, the Company reported
a net loss of $3,134,090 and at April 30, 2000 has a stockholders' deficit
of $1,145,023. At April 30, 2000, a significant portion of the Company's
debt is currently due and the Company has a working capital deficit of
$4,665,220. The Company has also experienced difficulty and uncertainty in
meeting its liquidity needs. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans to
address these concerns include:
(a) Waste processing at customers' sites
Management has developed plans to consider shifting from processing waste
treatment at the Company's facilities to processing waste directly at
customer sites which management believes may result in increased profit
margins. The Company has entered into a contract with a slaughterhouse
to implement customer site waste treatment during the summer or fall of
2000. Upon evaluation of this initial contract, management will
determine the extent to which the Company will pursue customer site waste
treatment versus using its current facilities.
(b) Sale of Ford Road facility and consolidation of operating sites
The Company has entered into a sales contract to sell its Ford Road
facility for $450,000 (Note 6). The Company intends to use the proceeds
to repay the $75,525 land contract secured by the facility and for other
working capital purposes. Upon completion of the sale, management will
also consolidate its waste processing operations to its Wyoming Terminal
facility and expects to gain cost efficiencies and savings through this
process.
(c) Financing agreement
The Company has an agreement with an investment banker that will provide
up to $2,000,000 of either equity or debt financing upon the Company
meeting certain operating conditions, some of which pertain to the
results of the Company's initial customer site waste processing. Through
April 30, 2000, $600,000 of equity financing has been provided in
exchange for the issuance of 3,000,000 shares of common stock. An
additional $400,000 has been scheduled for delivery during 2000 ($225,000
of which was received in June 2000 in exchange for the issuance of
1,125,000 shares of common stock).
(d) Other plans
Management is pursuing negotiations with current debt holders to modify
the terms of the agreements, including possible extension of due dates.
Management is also evaluating the potential sale of other Company assets,
including the Company's pipeline.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unsuccessful in implementing these plans, or otherwise unable to continue
as a going concern.
11
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
4. ACCOUNTS RECEIVABLE AND SIGNIFICANT CONCENTRATIONS
The Company grants credit to its customers, generally without collateral.
Approximately 11% of the Company's total sales for the year ended April 30,
2000, were generated from one customer. At April 30, 2000, approximately
11% of net trade receivables was due from one customer. Bad debt expense
for the years ended April 30, 2000 and 1999 was approximately $91,000 and
$45,000, respectively. The Company's customers are concentrated in the
Great Lakes region, including Canada. During the years ended April 30,
2000 and 1999, approximately 14% and 15%, respectively, of total sales
arose in Canada.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at April 30, 2000:
Land $ 250,041
Buildings 1,113,537
Bulk storage tanks 636,534
Pipeline 296,187
Machinery and equipment 4,451,800
----------
Total at cost 6,748,099
Accumulated depreciation and impairment reserve 3,370,062
----------
$3,378,037
==========
6. IMPAIRMENT
During the year ended April 30, 2000, the company recorded impairment
losses of $1,564,595 related to its Ford Road facility and certain property
and equipment. In September 1999, the Company entered into a contract to
sell its Ford Road facility for $450,000. The Company has written down the
value of the facility to the contract amount less anticipated closing
costs, resulting in an impairment loss of $169,739. In January 2000, the
Company obtained an appraisal of machinery and equipment including the
Company's distillation unit that has not been placed in service. The
appraisal estimates the fair value of the distillation unit at
approximately $800,000, resulting in an impairment loss of $1,224,706. In
November 1999, the Company notified the manufacturer of certain machinery
and equipment known as ZPM equipment, that the equipment did not meet
certain specifications. The Company has not received any response from the
manufacturer and has therefore written down the carrying value of the
equipment to its fair value. The fair value was determined by management
based on estimates of the market value of the equipment in its current
condition. The write down resulted in an impairment loss of $170,150.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At April 30, 2000, accounts payable and accrued liabilities consist of the
following:
Trade payables $ 654,268
Lawsuit settlement (note 10) 37,500
Accrued payroll and payroll taxes 28,426
Accrued property taxes 300,781
----------
$1,020,975
==========
12
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
8. LONG-TERM DEBT
At April 30, 2000, long term debt consists of:
10% senior secured note, interest payable monthly, secured by real property
and other assets. The loan agreement contains covenants relating to
financial requirements, dividend restrictions, and other operating
requirements for the Company. The holder may convert the loan into common
shares at $0.50 per share in the event of default by with Company. The
note was originally due in October 2001, however, at April 30, 2000, the
Company was not in compliance with certain of the financial covenants and
the note has been classified as a current liability.
$2,000,000
8% convertible debentures, secured by property and equipment and other
assets. The debentures, 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. The
debentures were originally due in June 2003, however, at April 30, 2000,
the Company was not in compliance with certain covenants and the debentures
have been classified as a current liability. The Company and the debentures
holders have entered into a standstill agreement whereby, the debenture
holders have agreed not to take any action with respect to exercising their
conversion rights or declaring the debentures to be in default through
November 2000. The standstill agreement requires the Company, among other
actions, to make payments on the debentures of $50,000 in June 2000
(completed), $25,000 in August 2000 and $25,000 in September 2000, timely
registration of shares underlying the possible conversion of the
debentures; and the Company completing the next phase of equity funding
under its financing agreement (note 3(c)).
1,375,500
8% loan, originally due August 2003, payable in monthly installments of
approximately $4,300 secured by machinery and equipment. At April 30, 2000,
the Company was in default of certain payments and the loan has been
classified as a current liability.
195,547
8% land contract, secured by the Ford Road facility, originally payable in
monthly installments of approximately $4,800, including principal and
interest, through February 1999. At April 30, 2000, the Company was in
default of certain payments and the debt has been classified as a current
liability, the interest rate has increased to 12%, and monthly installments
have increased to approximately $5,400.
75,525
----------
3,646,572
==========
13
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
9. STOCK OPTIONS AND WARRANTS
Options:
The Company operates the 1995 Incentive Compensation Plan (the 1995 Plan),
the 1996 Employee Stock Option and Stock Bonus Plan (the 1996 Plan), the
1997 Stock Option and Bonus Plan (the 1997 Plan) and the 1999 Stock Option
Plan (the 1999 Plan). Under these plans, 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 terms of the plans
provide that the Company may grant incentive options to employees, with
exercise prices not less than the market value of the Company's common
stock at date of grant, and the Company may grant non-qualified options,
with exercise prices not less than 80% of the market value of the Company's
common stock at date of grant. The Company has reserved 4,650,000 shares
of common stock for issuances under the plans, of which 2,416,559 are
available for grant at April 30, 2000. In addition, the Company
periodically issues other options and warrants.
During the year ended April 30, 2000, the Company granted 175,000 options
to employees under the 1997 plan and 100,000 options under the 1999 Plan
with exercise prices of $0.125 per share. These options vest over four
years and expire in 2009. During the year ended April 30, 2000 the company
cancelled certain non-qualified stock options granted to two officers under
the 1995 and 1996 Plans, and regranted such options as incentive stock
options under the same plans and in the same amounts as the cancelled
options. The regranted options expire in 2010. During the year ended
April 30, 2000, the Company also repriced all other outstanding stock
options at $0.125 per share. The Company did not record compensation
expense related to options granted, issued or repriced as the exercise
price equaled or exceeded the quoted market price of the Company's common
stock at the dates of the grant. All repriced and reissued options are
reflected in beginning balances in the following table:
<TABLE>
<CAPTION>
2000 1999
---- ----
Weight
Average
Shares Exercise Price Shares Exercise Price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,836,878 $0.125 2,096,504 $0.87
Granted 275,000 $0.125
Exercised (259,626) $0.87
Expired
--------- ---------
Outstanding, end of year 2,111,878 $0.125 1,836,878 $0.87
========= ====== ========= =====
</TABLE>
14
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
9. STOCK OPTIONS AND WARRANTS (continued)
The following table summarizes information about the Company's stock
options outstanding at April 30, 2000 and 1999:
<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, 2000 $ 0.125 2,112,000 8.03 $ 0.125 1,300,000 $ 0.125
April 30, 1999 $0.72 - $ 2.00 1,837,000 2.50 $ 0.88 1,249,000 $ 0.85
</TABLE>
Had compensation expense been determined as provided in SFAS No. 123 using
the Black-Sholes option-pricing model, the pro-forma effect on the
Company's net loss and per share amounts would have been:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net loss, as reported $(3,134,000) $(2,572,496)
Net loss, pro-forma $(3,267,000) $(5,737,000)
Net loss per share, as reported $ (0.40) $ (0.49)
Net loss per share, proforma $ (0.41) $ (1.10)
</TABLE>
The fair value of each option grant is calculated using the following
weighted average assumptions:
2000 1999
---- ----
Expected life (years) 3 3
Interest rate 6.32% 6.28%
Volatility 146% 101%
Dividend yield 0% 0%
Warrants:
At April 30, 2000 the Company had warrants to purchase 1,216,160 shares of
common stock outstanding, as follows:
Number
Expiration Exercise Price of Warrants
---------- -------------- -----------
January 2002 $ 1.00 105,000
July 2002 $ 0.125 211,160
January 2006 $ 0.60 900,000
-----------
1,216,160
===========
15
<PAGE>
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
10. INCOME TAXES
At April 30, 2000, the Company's deferred tax assets are as follows:
Operating loss carry forward $3,600,000
Deferred tax asset valuation allowance (3,600,000)
----------
Net deferred tax assets -
==========
A deferred tax asset arising from the Company's net operating loss carry
forward, has been reduced by a valuation account to zero due to
uncertainties regarding the realization of the deferred assets.
At April 30, 2000 the Company has available a net operating loss
carryforward of approximately $9,800,000 which maybe used to offset future
federal taxable income. A portion of the carryforward may be subject to
certain limitations due to prior Company ownership changes. The net
operating loss carry forwards, if not utilized, will expire from 2008 to
2020.
11. LITIGATION
(a) In December 1997, a complaint was filed against the Company relating to
certain payments allegedly due by the Company. The Company settled the
lawsuit during the year ended April 30, 2000 for $100,000.
(b) In December 1997, a complaint was filed against the Company, in which the
plaintiff claimed, among other things, breach of contract relating to an
alleged loan made to the Company in 1994. During the year ended April 30,
1999, the Company accrued $50,000 as an estimate of the liability. The
suit was subsequently settled for $100,000 consisting of 250,000 shares of
common stock (with a market value of $50,000) and $50,000 of cash of which
$12,500 has been paid. At April 30, 2000, the Company owes the defendant
$37,500. This amount is to be paid in quarterly installments of $9,375
beginning September, 2000.
(c) The Company is involved in various other claims and legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
impact either individually or in the aggregate on either results of
operations, financial position, or cash flows of the Company.
16
