SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO
_________________
Commission File Number 0-17594
USA BIOMASS CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0329559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
52300 ENTERPRISE WAY, COACHELLA, CALIFORNIA 92236
(Address of principal executive offices) (Zip Code)
(760) 398-9520
(Registrant's telephone number, including area code)
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 past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
The number of shares outstanding of issuer's only class of Common
Stock, $.002 par value, was 7,761,385 on May 14, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introduction
The consolidated financial statements have been prepared by USA Biomass
Corporation ("Company"), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the disclo-
sures are adequate to make the information presented not misleading when read
in conjunction with the Company's consolidated financial statements for the
four months ended December 31, 1998 and the year ended August 31, 1998. The
financial information presented reflects all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for the periods presented.
<PAGE>
USA Biomass Corporation
Index to the Consolidated Financial Statements
As of March 31, 1999 and December 31, 1998
And For the Three Months Ended March 31, 1999 and 1998
Consolidated Financial Statements for USA Biomass Corporation:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations . . . . . . . . . . . . . . . . . F-5
Statements of Shareholders' Equity . . . . . . . . . . . F-6
Statements of Cash Flows . . . . . . . . . . . . . . . . F-10
Notes to the Financial Statements . . . . . . . . . . . . . . F-13
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
(Unaudited)
(Amounts in Thousands)
ASSETS
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $478 $801
Accounts receivable 1,126 554
Income taxes recoverable 316 293
Other current assets 345 384
Net current assets of discontinued
operations 8,057 7,942
----------- -----------
Total current assets 10,322 9,974
Property and equipment, net 7,669 8,874
Note receivable, noncurrent 7,959 7,650
Other assets 305 142
Intangible assets, net 442 449
Net noncurrent assets of discontinued
operations 686 769
----------- -----------
Total assets $27,383 $27,858
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
(Unaudited)
(Amounts in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $2,826 $1,796
Accrued remediation costs 499 507
Line of credit 850 875
Notes payable:
Related parties 1,694 2,323
Other 721 721
Capitalized lease obligations 462 765
Income taxes payable 6 6
Accrued interest 346 252
----------- -----------
Total current liabilities 7,404 7,245
Notes payable, net of current portion:
Related parties 966 966
Officers and directors 178 815
Other 7,702 6,417
Capitalized lease obligations, net of current
portion 2,588 3,538
Other noncurrent liabilities 1,061 973
----------- -----------
Total liabilities 19,899 19,954
Commitments and contingencies
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
(Unaudited)
(Amounts in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY, CONTINUED
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Shareholders' equity:
Preferred Stock (2,000,000 shares authorized):
Series A, 9% Convertible Preferred Stock,
$0.01 par value; cumulative nonvoting,
$7,475,000 aggregate liquidation preference;
812,500 shares authorized, 747,500 shares
issued and outstanding. $7 $7
Series B, 6% Convertible Preferred Stock,
$0.01par value; cumulative nonvoting,
$4,044,140 aggregate liquidation preference;
750,000 shares authorized, 404,414 shares
issued and outstanding. 4 4
Common stock, $0.002 par value; 25,000,000
shares authorized, 7,761,385 shares issued
and outstanding at March 31, 1999 and
December 31, 1998. 16 16
Additional paid-in capital 21,970 21,970
Accumulated earnings (deficit) (14,395) (13,975)
Treasury stock, at cost (24,250 common shares
at March 31, 1999 and December 31, 1998) (118) (118)
----------- -----------
Total shareholders' equity 7,484 7,904
----------- -----------
Total liabilities and shareholders' equity $27,383 $27,858
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Operations
For the Three Months Ended March 31, 1999 and the
Three Months Ended March 31, 1998
(Unaudited)
(Amounts in Thousands, except per share data)
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues $2,067 $543
Costs and expenses:
Cost of revenues 1,679 571
General and administrative expenses 584 712
Interest expense, net of interest income 212 55
Loss on sale of assets 12 278
----------- -----------
2,487 1,616
----------- -----------
Loss from continuing operations
before income taxes (420) (1,073)
(Expense)/benefit from income taxes - 362
----------- -----------
Loss from continuing operations (420) (711)
----------- -----------
Discontinued operations:
Income from discontinued operations - -
----------- -----------
Net loss $(420) $(711)
=========== ===========
Loss from continuing operations per common
share, basic and diluted $(0.08) $(0.12)
====== ======
Net loss per common share,
basic and diluted $(0.08) $(0.12)
====== ======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Shareholders' Equity
For the Three Months Ended March 31, 1999 and the Four
Months ended December 31, 1998 (Unaudited)
<CAPTION>
Series A Series B
Preferred Preferred Common
Shares Shares Shares
------- --------- ----------
<S> <C> <C> <C>
Balance, August 31, 1998 747,500 404,414 7,761,385
Net loss - - -
------- --------- ----------
Balance, December 31, 1998 747,500 404,414 7,761,385
Net loss - - -
------- --------- ----------
Balance, March 31, 1999 747,500 404,414 7,761,385
======= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Shareholders' Equity, Continued
For the Three Months Ended March 31, 1999 and the Four
Months ended December 31, 1998 (Unaudited)
<CAPTION>
Common Series A Series B
Treasury Preferred Preferred
Shares Shares Shares
------- --------- ----------
<S> <C> <C> <C>
(Amounts in Thousands)
Balance, August 31, 1998 (24,250) $7 $4
Net loss - - -
------- --------- ----------
Balance, December 31, 1998 (24,250) 7 4
Net loss - - -
------- --------- ----------
Balance, March 31, 1999 (24,250) $7 $4
======= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Shareholders' Equity, Continued
For the Three Months Ended March 31, 1999 and the Four
Months ended December 31, 1998 (Unaudited)
(Amounts in Thousands)
<CAPTION>
Treasury Additional
Common Common Paid-in
Stock Stock Capital
------- --------- ----------
<S> <C> <C> <C>
Balance, August 31, 1998 $16 $(118) $21,970
Net loss - - -
------- --------- ----------
Balance, December 31, 1998 16 (118) 21,970
Net loss - - -
------- --------- ----------
Balance, March 31, 1999 $16 $(118) $21,970
======= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Shareholders' Equity, Continued
For the Three Months Ended March 31, 1999 and the Four
Months ended December 31, 1998 (Unaudited)
(Amounts in Thousands)
<CAPTION>
Accumulated
Earnings(Deficit) Total
----------- -----------
<S> <C> <C>
Balance, August 31, 1998 $(13,024) $8,855
Net loss (951) (951)
----------- -----------
Balance, December 31, 1998 (13,975) 7,904
Net loss (420) (420)
----------- -----------
Balance, March 31, 1999 $(14,395) $7,484
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-9
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
(Amounts in Thousands)
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(420) $(711)
----------- -----------
Net loss from continuing operations (420) (711)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 277 10
Loss on sale of assets 12 -
Decrease (increase) in assets:
Accounts receivable (595) (221)
Other current assets 39 252
Other assets (156) 510
Notes receivable (309) -
Increase (decrease) in liabilities:
Accounts payable 1,022 109
Income taxes payable - (331)
Accrued interest payable 94 229
----------- -----------
Net cash provided by (used) in operating
activities of continuing operations (36) (153)
Net cash used in operating
activities of discontinued operations (32) (893)
----------- -----------
Cash provided by (used) in operating activities (68) (1,046)
----------- -----------
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-10
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and the Four
Months ended December 31, 1998
(Unaudited)
(Amounts in Thousands)
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) investing
activities:
Purchases of property and equipment $(32) $(985)
Sales of property and equipment 11 -
----------- -----------
Net cash provided by (used in) investing
activities of continuing operations (21) (985)
----------- -----------
Cash flows provided by (used in) financing
activities:
Payment of line of credit (25) -
Proceeds from notes and loans 1,025 250
Repayment of notes, loans, leases (1,234) (158)
----------- -----------
Net cash provided by (used in) financing
activities of continuing operations (234) 92
Net cash provided by (used in) financing
activities of discontinued operations - 1,689
----------- -----------
Cash provided by (used in) financing activities (234) 1,781
----------- -----------
Net increase (decrease) in cash (323) (250)
Cash and equivalents at beginning of year 801 640
----------- -----------
Cash and equivalents at end of year $478 $390
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-11
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and the Four
Months ended December 31, 1998
(Unaudited)
(Amounts in Thousands)
Supplemental Disclosures of Cash Flow Information
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash paid during the year for:
Interest:
Continuing operations $348 $305
Discontinued operations 285 450
----------- -----------
$633 $755
=========== ===========
Income taxes - -
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations
<S> <C> <C>
Assets offset against liabilities:
Related party receivables (1,131,000) -
Related party notes payables 1,131,000 -
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-12
</FN>
</TABLE>
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 1999
and the Four Months Ended December 31, 1998 (Unaudited)
1. Description of the Company's Business
The continuing operations of USA Biomass Corporation (the "Company"), a Delaware
corporation, consist of waste transport, clean green waste processing, and tree
trimming serices. In order to focus on expanding its biomass operation and its
waste transport operation, the Company's Board of Directors adopted a plan to
discontinue its agribusiness and real estate activities on December 23, 1998.
As a result, the agribusiness and real estate activities have been presented
as discontinued operations in the consolidated financial statements.
In January, 1999, the Company's Board of Directors elected to change the
Company's year end to December 31.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of USA Biomass
Corporation and subsidiaries. TransPacific Environmental, Inc. and AMCOR
Biomass Farms, LLC (99% owned) are the Company's continuing operating
subsidiaries. Sun Goddess Farms, Inc., AMCOR Properties, Inc., Las Palomas
Country Club Estates, LLC (99% owned) and AMCOR Builders, LLC (99% owned) are
discontinued operations. All significant intercompany transactions have been
eliminated. Certain reclassifications have been made to the Consolidated
Balance Sheet at December 31, 1998 and the Statement of Operations for the
three months ended March 31, 1998 to conform to the 1999 presentation.
On December 23, 1998, the Company adopted a plan to discontinue its
agribusiness and real estate operations and to sell the related assets.
Assets of discontinued operations are recorded at the lower of cost or market
(net realizable value).
Revenue Recognition
Biomass revenues are recognized on the accrual method at the time the related
services are performed.
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 disclosure 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.
Cash and Equivalents
Cash and equivalents include short-term, highly liquid instruments with original
maturities of three months or less.
F-13
<PAGE>
2. Summary of Significant Accounting Policies, Continued
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the expected useful lives noted below.
Estimated Useful
Life
----------------
Vehicles and equipment 3-10 years
Office furniture and equipment 3-10 years
Buildings 30 years
Leasehold improvements are amortized over the shorter of the life of the assets
or the life of the related lease.
Intangible Assets
Intangible assets include licenses and agreements, customer lists, and con-
tracts. Intangible assets are amortized using the straight line method over a
period of 10 years. Regularly, the Company assesses the intangible assets for
impairment based on recoverability of the balances from expected future opera-
ting cash flows on an undiscounted basis.
Long Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The estimated undiscounted cash flows
associated with the assets are compared to the carrying amounts to determine if
a writedown to fair value is required.
Stock Based Compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation cost for stock options,
if any, is measured as the excess of the quoted market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. Compensation cost is recorded over the requisite vesting periods based
on the market value on the date of grant.
Statements of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," established accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee and non-
employee compensation plans. The Company has elected to remain on its current
method of accounting as described above for employee compensation plans, and has
adopted the disclosure requirements of SFAS No. 123.
Earnings per Common Share
In 1997 the Financial Accounting Standards Board issued SFAS No. 128 - "Earnings
Per Share". This pronouncement replaced the previously reported primary and
fully diluted earnings per share with basic and diluted earnings per share,
respectively. Earnings per share for the three months ended March 31, 1999 and
1998 been calculated in accordance with this pronouncement.
F-14
<PAGE>
2. Summary of Significant Accounting Policies, Continued
Earnings per Common Share, Continued
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for
the year. Diluted earnings 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 or resulted in the issuance of common
stock that then shared in the Company's earnings.
Significant Accounting Policies Specific to Discontinued Operations
Revenue Recognition
Revenues from the Company's discontinued agribusiness and real estate operations
are generated through management service and development fees charged to various
partnerships engaged in agribusiness and real estate. Management service fee
income, primarily due from affiliates, is recognized when contractually due,
which approximates the time that services are performed. Crop sales, other farm
income and real estate sales are recognized by the accrual method at the time
of sale.
Inventories - Real Estate
All direct and indirect costs of real estate development are accumulated and
valued at the lower of cost or net realizable value.
Investment
The Company uses the equity method of accounting for its 50% investment interest
in PS III Farms, LLC, an Oregon limited liability company.
3. Discontinued Operations
On December 23, 1998, the Company adopted a formal plan to discontinue its agri-
business and real estate operations and to sell the related asset in order to
focus on its biomass and waste transportation segments. The Company plans to
dispose of its agribusiness and real estate operations by November 30, 1999.
As a result, the financial statements of the Company reflect the net assets and
operating results of the agribusiness and real estate segments as discontinued
operations.
The assets of discontinued agribusiness and real estate segments are summarized
as follows:
F-15
<PAGE>
3. Discontinued Operations, Continued
<TABLE>
<CAPTION>
As of March 31, 1999
----------------------------------
Agribusiness Real Estate Total
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Accounts receivable - $236,985 $236,985
Due from managed limited
partnerships $137,444 8,842,465 8,979,909
Inventory - 2,085,137 2,085,137
Other current assets 16,331 133,181 149,512
------------ ----------- -----------
Total current assets 153,775 11,297,768 11,451,543
------------ ----------- -----------
Current liabilities:
Accounts payable 229,001 130,350 359,351
Lines of credit - 1,222,000 1,222,000
Due to managed limited
partnerships 874,984 540,052 1,415,036
Notes and capitalized lease
obligations payable 268,855 127,755 396,610
Other current liabilities - 1,823 1,823
------------ ----------- -----------
Total current liabilities 1,372,840 2,021,980 3,394,820
------------ ----------- -----------
Net current assets (liabilities)
of discontinued operations $(1,219,065) $9,275,788 $8,056,723
============ =========== ===========
Noncurrent assets:
Property and equipment, net $4,147,351 - $4,147,351
Investment - $2,489,199 2,489,199
------------ ----------- -----------
Total noncurrent assets 4,147,351 2,489,199 6,636,550
------------ ----------- -----------
Noncurrent liabilities:
Notes payable, others,
net of current portion 1,817,948 4,110,154 5,928,102
Capital lease obligations,
net of current portion 22,036 - 22,036
------------ ----------- -----------
Total noncurrent liabilities 1,839,984 4,110,154 5,950,138
------------ ----------- -----------
Net noncurrent assets (liabilities)
of discontinued operations $2,307,367 $(1,620,955) $686,412
============ =========== ===========
</TABLE>
F-16
<PAGE>
3. Discontinued Operations, Continued
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------
Agribusiness Real Estate Total
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Accounts receivable - $336,985 $336,985
Due from managed limited
partnerships $137,444 8,839,455 8,976,899
Inventory - 2,085,137 2,085,137
Other current assets 16,331 143,246 159,577
------------ ----------- -----------
Total current assets 153,775 11,404,823 11,558,598
------------ ----------- -----------
Current liabilities:
Accounts payable 254,001 230,668 484,669
Lines of credit - 1,322,000 1,322,000
Due to managed limited
partnerships 874,984 540,052 1,415,036
Notes and capitalized lease
obligations payable 392,406 - 392,406
Other current liabilities - 1,823 1,823
------------ ----------- -----------
Total current liabilities 1,521,391 2,094,543 3,615,934
------------ ----------- -----------
Net current assets (liabilities)
of discontinued operations $(1,799,616) $9,310,280 $7,942,664
============ =========== ===========
Noncurrent assets:
Property and equipment, net $4,150,486 - $4,150,486
Investment - $2,489,199 2,489,199
Other noncurrent assets 162,999 - 162,999
------------ ----------- -----------
Total noncurrent assets 4,313,485 2,489,199 6,802,684
------------ ----------- -----------
Noncurrent liabilities:
Notes payable, others,
net of current portion 4,790,151 1,221,018 6,011,169
Capital lease obligations,
net of current portion 22,036 - 22,036
------------ ----------- -----------
Total noncurrent liabilities 4,812,187 1,221,018 6,033,205
------------ ----------- -----------
Net noncurrent assets (liabilities)
of discontinued operations $(498,702) $1,268,181 $769,479
============ =========== ===========
</TABLE>
F-17
<PAGE>
4. Note Receivable
Note receivable arising from the sale of undeveloped real estate in Riverside
County, California consists of the following:
<TABLE>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Noninterest-bearing note receivable collateralized
by a deed of trust on real property; face amount
of $10,000,000 due in August 2000, discounted to
yield a representative market effective interest
rate of 17.4%. The note provides that the
maturity date may be extended until August, 2001.
In December 1998, the Company obtained a
$4,000,000 loan, collateralized by this note
receivable. The loan terms provide, among other
things, that the Company may not sell, encumber,
or dispose of the note without the written consent
of the lender. In March, 1999, the Company
obtained an additional loan of $1,025,000 from
the same lender under substantially the same
terms. $7,958,895 $7,649,880
========== ==========
</TABLE>
F-18
<PAGE>
5. Notes Payable
Notes payable consist of the following:
Continuing Operations
Notes payable to related parties:
Uncollateralized
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Notes payable with interest ranging from 6.0% to
17.0% per annum, principal amounts of $1,180,014,
$15,713 and $810,153 plus accrued interest due
July 31, 1999, December 31, 1999, and 2001,
respectively. Notes with aggregate principal
amounts of $1,180,014 are payable to share-
holders of the Company who are investors in
limited partnerships managed by the Company.
The $15,713 and the $810,153 notes
payable are due to affiliated real estate
limited partnerships managed by the Company. $2,005,880 $2,495,285
Note payable to estate of former shareholder
who was an officer of the Company, with interest
at 10% per annum and is currently due and
payable. 283,389 283,389
Notes payable to officers, with interest at 8%
per annum. Principal of $140,159 and $37,994
plus interest due December 31, 1999 and 2001,
respectively. 178,153 955,343
----------- -----------
Total due to related parties 2,467,422 3,734,017
Less: current portion (1,324,111) (1,952,806)
----------- -----------
Total noncurrent due to related parties $1,143,311 $1,781,211
=========== ===========
Note payable to an employee:
Note payable to an employee, with interest at
8.0% per annum, principal and interest due in
September 1999. $370,189 $370,189
----------- -----------
Total due to an employee 370,189 370,189
Less: current portion (370,189) (370,189)
----------- -----------
Total noncurrent due to an employee - -
=========== ===========
</TABLE>
F-19
<PAGE>
5. Notes Payable, Continued
Notes payable to third parties:
Uncollateralized
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Note payable with interest at 8.0% per annum,
with monthly payments of $11,182, due in
March 1999. $11,182 $45,474
Collateralized
Notes payable to individuals, collateralized by
the Company's interest in PS III Farms LLC with
a carrying amount of approximately $2,490,000,
interest at 5% per annum, due in December, 1997.
The notes are in default. 206,164 206,164
Notes payable collateralized by equipment, with
interest ranging from 8.0% to 18.7% per annum,
monthly principal and interest payments ranging
from $381 to $8,272, which aggregate $51,355.
Maturity dates range from December 1998 to
March 2003. 1,142,619 1,142,619
Note payable collaterialized by note receivable
(Note 4) bearing interest at 12.25% per annum,
principal and accrued interest due August 21,
2000. 5,025,000 4,000,000
Note payable to bank, collateralized by real
property with a net carrying amount of
$1,001,053 with interest at 8.75% per annum,
monthly principal and interest payment of
$8,098, due in December, 2003 with a balloon
payment of $634,901. 800,000 800,000
Notes payable collateralized by transportation
equipment with a net carrying amount of
$860,081, with interest of 8.75% per annum,
monthly principal and interest payments of
$19,872, due in October and November, 2003. 1,237,644 943,293
----------- -----------
Total due to third parties 8,422,609 7,137,550
Less: current portion (720,550) (720,550)
----------- -----------
Total noncurrent due to third parties $7,702,059 $6,417,000
=========== ===========
</TABLE>
F-20
<PAGE>
5. Notes Payable, Continued
Discontinued Operations
Agribusiness:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Notes payable collateralized by equipment, with
interest ranging from 10.4% to 10.5% per annum,
principal of $22,735 plus accrued interest
payable annually with the final payment due in
August 1999. $47,479 $47,479
Note payable to an insurance company,
collateralized by real and personal property,
with interest at 7.75% per annum. Semi-annual
payments of principal and interest of $188,005,
due on October 1 and April 1 of each year, with
final payment due in April 2011. The interest
rate will be reviewed in April 2006 and adjusted
per the terms of the loan. 2,039,324 2,039,324
----------- -----------
Total agribusiness notes payable due to
third parties 2,086,803 2,086,803
Less: current portion (268,855) (268,855)
----------- -----------
Total noncurrent due to third parties $1,817,948 $1,817,948
=========== ===========
Real estate operations:
Note payable collateralized by real property, with
interest at 9.25% per annum, principal and interest
of $806 payable monthly. The final payment is
due in March 2000. $81,231 $84,731
Note payable to a bank, collateralized by real
property, guaranteed by two shareholders who
are officers of the Company, with interest at
prime (8.25% at August 31, 1998) plus 1.75%,
interest payable monthly. Installments of $12,000
due upon the sale of each residential lot from the
Texas development project. All unpaid principal
and interest due in January 2000. 1,118,583 1,138,110
Note payable to a bank, collateralized by real
property in Texas, with interest at 8.75% per
annum. Monthly payments of interest only until
May 31, 1998; thereafter, monthly payments of
principal and interest of $31,727, with final
payment due June 1, 2003. 3,038,095 3,087,333
----------- -----------
Total real estate notes payable due to
third parties 4,237,909 4,310,174
Less: current portion (127,755) (127,755)
----------- -----------
Total noncurrent due to third parties $4,110,154 $4,182,419
=========== ===========
</TABLE>
F-21
<PAGE>
5. Notes Payable, Continued
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Total discontinued operations notes payable $6,324,712 $6,396,977
Less: current portion (396,610) (396,610)
----------- -----------
Total noncurrent portion $5,928,102 $6,000,367
=========== ===========
</TABLE>
Maturities of Notes Payable for the quarter ending March 31, 1999:
Continuing operations
2000 $2,414,855
2001 1,731,089
2002 4,735,341
2003 807,075
2004 and thereafter 1,571,860
Discontinued operations
While the Company's plan to discontinue the agribusiness and
real estate operations contemplates the retirement of these
obligations during 1999, the contractually required payments at
March 31, 1999, are as follows:
2000 $396,610
2001 1,572,660
2002 380,989
2003 412,798
2004 and thereafter 3,561,655
6. Capital Leases
The Company leases vehicles and equipment under long-term noncancellable capital
leases. Obligations under capital leases consist of the following:
Continuing Operations
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Capital leases with effective interest rates of
9.50% and 9.75% per annum, with aggregate monthly
principal and interest payments of $3,545 through
December 1998. - $3,482
Capital lease with an effective interest rate of
8.50% per annum, with monthly principal and
interest payments of $1,525 through September
2002. $49,415 49,960
Capital leases with interest ranging from 9.10% to
12.62% per annum, with monthly principal and
interest payments ranging from $924 to $5,564,
which aggregate $21,515. Maturity dates range
from August 2000 to June 2001. 469,769 516,171
F-22
<PAGE>
6. Capital Leases, Continued
Continuing Operations
March 31, December 31,
1999 1998
----------- -----------
Capital leases with interest ranging from 7.8% to
17% per annum, with monthly principal and interest
payments ranging from $1,040 to $6,691, which
aggregate $16,426. Maturity dates range from
February 2001 to March 2003. 583,836 617,477
Capital leases with effective interest rates of
7.07% to 7.50% with monthly principal and interest
payments of $59,024 through November, 2003 1,947,393 3,116,122
----------- -----------
Total obligations under capital leases -
continuing operations $3,050,413 $4,303,212
=========== ===========
Future minimum lease payments under capital leases at March 31, 1999 are as
follows:
2000 $669,645
2001 669,645
2002 669,645
2003 669,645
2004 657,345
---------
Total minimum lease payments 3,335,925
Less: amount representing interest
at the incremental borrowing rate (285,512)
---------
Present value of minimum lease payments 3,050,413
Less: current maturities (462,400)
---------
Obligations under capital leases -
long-term $2,588,013
=========
</TABLE>
F-23
<PAGE>
7. Deferred Income Taxes
The components of the provision for income taxes are as follows:
(Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current tax expense (benefit):
Federal - -
State - $3
----------- -----------
- 3
----------- -----------
Deferred tax expense (benefit):
Federal - -
State - -
----------- -----------
- -
----------- -----------
Total provision (benefit) - $3
=========== ===========
Reconciliation of the effective tax rate to the U.S. federal statutory income
tax rate is as follows:
March 31, December 31,
1999 1998
----------- -----------
U.S. federal statutory income tax rate (34.0)% (34.0)%
State tax provision 0.3 0.3
Change in valuation allowance 33.7 34.0
----------- -----------
Effective income tax rate 0.0 0.3%
=========== ===========
</TABLE>
F-24
<PAGE>
7. Deferred Income Taxes, Continued
The Company has a state tax credit carryforward of $250,462 that expires in
2010. The Company also has federal and state net operating loss carryforwards
of $4,214,963 and $3,570,846, respectively. The federal and state net operating
losses begin to expire in 2018 and 2003, respectively.
8. Stock Based Compensation Plans
A summary of the activity relating to the Company's stock option plans as of
March 31, 1999 and December 31, 1998, and changes during the years then ended
is presented below:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1998
-------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- --------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,012,883 $2.43 1,012,883 $2.43
Exercised - - - -
Granted 15,000 2.09 - -
Returned/repriced - - - -
Forfeited - - - -
--------- --------- ------- --------
Outstanding at end of year 1,027,883 2.43 1,012,883 2.43
========= ========= ======= ========
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Range of Outstanding at Remaining contractual Exercisable at
Exercise Prices March 31, 1999 Life (in Years) March 31, 1999
--------------- --------------- --------------------- ---------------
<C> <C> <C> <C>
$1.30 87,500 6 87,500
1.60 454,133 2 454,133
2.00 71,250 9 24,602
3.00 255,000 10 25,000
4.00 10,000 9 7,500
5.00 150,000 10 37,500
----------- ---------
1.30 to 5.00 1,027,883 636,235
=========== =========
</TABLE>
F-25
<PAGE>
8. Stock Based Compensation Plans, Continued
The Company continues to account for stock-based compensation using the intrin-
sic value method prescribed by the Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Therefore, under the principles of
APB Opinion No. 25, the Company does not recognize compensation expense asso-
ciated with the granting of stock options. SFAS No. 123, "Accounting for
Stock-Based Compensation", requires the use of option valuation models to prov-
ide supplemental information regarding options granted after 1994. Pro forma
information regarding net income and earnings per share shown below was deter-
mined as if the Company had accounted for its employee stock options under the
fair value method of that statement.
The fair value of each option granted was estimated at the date of grant using
the Black-Scholes option pricing model (the "BSOPM") with the following weight-
ed average assumptions used for grants in 1999 and 1998, respectively: dividend
yield of 0% for both years, expected volatility of 0.946 to 1.17, risk-free
interest rate at 4.90% to 5.26%, and expected contractual life of 10 years for
both years. The weighted average fair value of options granted during 1999 and
1998 was $1.47 and $3.07, respectively.
The BSOPM was developed for use in estimating the fair value of traded options.
The Company's employee stock options have characteristics significantly differ-
ent from those of traded options such as vesting restrictions and extremely
limited transferability. In addition, the assumptions used in option valua-
tion models are highly subjective, particularly the expected stock price vol-
atility of the underlying stock. Because changes in these subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The pro forma effect on net
income for 1999 and 1998 is not representative of the pro forma effect on net
income in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to 1994. Pro forma informa-
tion in future years will reflect the amortization of a larger number of stock
options granted in several succeeding years. The Company's pro forma informa-
tion is as follows:
3 Months Ended March 31,
1999 1998
----------- -----------
Net income (loss), as reported $(420,000) $(711,000)
Net income (loss), pro forma $(709,938) $(978,969)
Basic earnings (loss) per share, as reported $(0.08) $(0.12)
Basic earnings (loss) per share, pro forma $(0.09) $(0.12)
F-26
<PAGE>
8. Stock Based Compensation Plans, Continued
A summary of the activity relating to common stock warrants as of March 31,
1999 and December 31, 1998 and changes during the periods then ended is
presented below:
<TABLE>
March 31, 1999 December 31, 1998
and 3 Months Ended and 4 Months Ended
March 31, 1999 December 31, 1998
--------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 427,500 $2.88 427,500 $2.88
Granted - - - -
-------- --------- -------- --------
Outstanding at end of year 427,500 2.88 427,500 2.88
======== ========= ======== ========
</TABLE>
The range of exercise prices of warrants outstanding at March 31, 1999 was
$2.00 to $6.67.
The following table summarizes information about warrants outstanding at
March 31, 1999:
Estimated
Volatility Dividend Risk Free Lives
Warrant Grants Factor Yield Interest Rates (In Years)
- ----------------------- ---------- -------- -------------- ----------
March 31, 1999 1.032 0% 5.20% 5
December 31, 1998 1.032 0% 5.20% 5
F-27
<PAGE>
9. Income (loss) Per Common Share
Basic earnings per share are computed by dividing earnings available to
common stockholders by the weighted average number of common shares out-
standing during the period. Diluted earnings per share reflect per share
amounts that would have resulted if dilutive potential common stock had
been converted to common stock. The following reconciles amounts reported
in the financial statements:
For the Three Months Ended March 31, 1999
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Loss from continuing
operations ($420,000)
Less preferred stock
dividends (228,850)
---------
(Loss) available to
common stockholders
- basic earnings per
share (648,850) 7,761,385 $(0.08)
=========
Effect of dilutive
securities:
Options 0 425,355
--------- ----------
(Loss) available to
common stockholders
- diluted earnings
per share $(648,850) 7,813,948 $(0.08)
========= ========== =========
For the Three Months Ended March 31, 1998
------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Loss from continuing
operations ($711,000)
Less preferred stock
dividends (228,850)
---------
(Loss) available to
common stockholders
- basic earnings per
share (939,850) 7,742,753 $(0.12)
=========
Effect of dilutive
securities:
Options - -
--------- ----------
(Loss) available to
common stockholders
- diluted earnings
per share $(939,850) 7,742,753 $(0.12)
========= ========== =========
F-28
<PAGE>
9. Income (loss) Per Common Share, Continued
During 1999, the Company had 747,500 shares of Series A convertible
preferred stock (entitled to a 9% per share cumulative dividend) and
404,414 shares of Series B convertible preferred stock outstanding. Each
share of preferred stock is convertible into one share of common stock.
The convertible preferred stock was not included in the computation of
diluted earnings per share because the effect of conversion would be
antidilutive. The Series A and Series B convertible preferred stock was
still outstanding at March 31, 1999.
F-29
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
- --------
Following the Company's acquisition of TransPacific Environmental, Inc. ("TPE")
in November, 1997, the Company's focus shifted from agribusiness and land
planning to biomass. Subsequently, in June 1998, the Company broadened its
new focus to include solid waste transportation and developed a strategic
alliance with Waste Management of California, Inc. ("Waste Management"). In
light of the Company's strategic alliance with Waste Management and relatd
actual and potential biomass and solid waste transportation opportunities, the
Company's Board of Directors determined that the Company's shift in focus from
agribusiness and land planning/development to solid waste transportation and
biomass should be complete and permanent. Consequently, the Board of
Directors approved the Company's name change effective August 31, 1998, and
subsequently, on December 22, 1998, adopted the Plan of Discontinued Operations
(the "Plan"), pursuant to which the Company intends to discontinue its
agribusiness and land planning/development activities by November 30, 1999,
and focus on its solid waste transportation and biomass activities.
Implementation of the Plan is in process and has had a material impact on the
presentation of the Company's financial statements. The operations, cash
flows and net assets of these operations for both fiscal 1999 and fiscal 1998
have been reclassified as discontinued operations, and the assets of these
operations were reduced to the lower of cost or net realizable value. The
Company's agribusiness and land planning/development operations have been
accounted for as discontinued operations and the results thereof have been
excluded from continuing operations in the Company's consolidated financial
statements. The Company had no biomass activities prior to fiscal 1997.
Results of Operations
- ---------------------
The Company's continuing operations consist of solid waste transportation and
biomass activities, which include green waste processing. The Company has sold
its unprofitable municipal tree maintenance operations in March 1999. The
Company's dscontinued operations consist of agribusiness and land planning/
development. A discussion of the material factors that affected the Company's
results of continuing operations and, where applicable, the results of its
discontinued operations, are presented separately below.
Results of Continuing Operations
- --------------------------------
Revenues:
The Company's revenues from continuing operations for the three months ended
March 31, 1999, reflect principally its biomass activities and waste transport
revenue, while revenues for the three months ended March 31, 1998, reflect
only biomass activities as the waste transport contract did not commence
until October 1998.
<PAGE>
Results of Continuing Operations, Continued
- -------------------------------------------
Revenues for the three months ended March 31, 1999, of $2,067,000 were up
substantially (281%) from $543,000 for the three months ended March 31, 1998.
This resulted in a net loss of $420,000 for the three months ended March 31,
1999, of which $220,000 is attributable to the municipal tree maintenance
operations which were sold on March 18, 1999. However, the Company expects
revenues to continue to increase in fiscal 1999 as the transportation division
revenues grow, both internally and as new contracts are phased in as the
Company expands its biomass operations. Overall, fiscal 1999 revenues are
expected to be considerably higher than fiscal 1998.
Cost of Revenues:
Cost of revenues of $1,679,000 for the three months ended March 31, 1999, were
up $1,108,000 (194%) from the comparable three month period ending March 31,
1998, mainly due to the implementation of the waste transport agreement, which
was not in effect the prior period, and from internal growth in biomass
activities.
General and Administrative Expenses:
For the three months ended March 31, 1999, total general and administrative
expenses of $584,000 were down $128,000 (18%) from the comparable three month
period ending March 31, 1998, mainly due to the phasing down of the Company's
discontinued agribusiness and land planning/development activities, and other
cost cutting by management pursuant to the Plan of Discontinued Operations.
Interest Expense, Net of Interest Income:
For the three months ended March 31, 1999, interest expense, net of interest
income of $212,000 increased $157,000 (285%) from the comparable three
month period ending March 31, 1998, mainly due to the interest expense related
to $5,025,000 in borrowings secured by the Company's $10 million note
receivable.
Loss from Continuing Operations:
For the three months ended March 31, 1999, the loss from continuing operations
of $420,000 was $291,000 less (41%) from the comparable three month period
ending March 31, 1998, mainly due to increased margins from transportation and
biomass, and reduced losses from TPE (although $220,000 of the loss was from
TPE's municipal three operations, which were sold in March, 1999).
Results of Discontinued Operations:
- ----------------------------------
For the three months ended March 31, 1999, results from discontinued operations
were zero, the same as the comparable three month period ending March 31, 1998,
mainly due to the accrual of all operating losses for discontinued operations
at August 31, 1998.
<PAGE>
Liquidity and Capital Resources:
- -------------------------------
The Company's overall financial condition as of March 31, 1999, as compared
to December 31, 1998, has not improved, but management believes that with the
continued growth of waste transportation and biomass, financed by the
liquidation of assets from discontinued operations, the Company's condition is
likely to improve considerably during 1999. Total assets have decreased 1.7%
to $27.4 million, due principally to the sale of TPE's tree maintenance
operations in March for $885,000, while total liabilities decreased 0.3% to
$19.9 million due mainly to the payment of equipment debt related to the TPE
sale. The net effect, overall, resulted in shareholders' equity decreasing
5.3% to $7.5 million.
The Company's current ratio increased to 1.39 at March 31, 1999, from 1.33 at
December 31, 1998, primarily due to the borrowing of an additional $1,025,000
secured by the Company's $10 million note receivable.
Despite the loss in the period ending March 31, 1999, liquidity is improved
from December 31, 1998, and is expected to continue to improve as a result of
the following: (i) management of cash flow; (ii) in October, 1998, the
Company obtained a $5.0 million equipment lease line from a national financial
institution. About $4.0 million of this line was used to acquire 40 trucks
and 16 trailers, which are being used in the solid waste transportation
activities. This equipment is expected to be sufficient to meet the require-
ments of these activities for fiscal 1999; and (iii) in March 1999, the Company
obtained an additional $1,025,000 loan collateralized by the $10 million note
receivable related to the sale of the Rancho California property which,
combined with an existing $4 million loan secured by the same $10 million note,
brings the total amount hypothecated to $5,025,000, the blended interest rate
being 13.8%. The Company is in the process of negotiating a new commitment for
a $7.2 million loan to be secured by the $10 million note, which would retire
the existing $5,025,000 of financing. The new loan, with a rate of 11.5%,
which would accrue to maturity in August, 2000, is expected to close by May 31,
1999.
The Company has an oral agreement with an equipment financing source to provide
equipment financing in addition to that obtained in October 1998 that may be
required for new solid waste transportation or biomass contracts.
The Company believes that the combination of the $7.2 million loan expected to
be funded by May 31, 1999, and the financing for equipment that may be needed
for additional growth, combined with expected asset sales, are sufficient to
meet its liquidity requirements for fiscal 1999.
Year 2000 Compliance:
Management of the Company believes that its computerized information systems
currently in use and expected to be in use prior to the year 2000 are
Year 2000 compliant. It has formed a task force to assess the effect, if
any, the Company may encounter in dealing with vendors and outside service
entities who may have year 2000 exposure. Management does not expect that the
financial impact of required modifications to its systems, if any, will be
material to the Company's financial position, cash flows or results of
operations in any given year.
<PAGE>
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings
On January 22, 1999, Gus Franklin and Susan Franklin filed a Superior Court
lawsuit in Orange County, Central Justice Center, Case No. 804714, seeking
damages for breach of employment contract, breach of covenant of good faith
and fair dealing, fraud and wrongful termination of employment in violation
of public policy in connection with the termination by the Company of the
Franklins' employment agreements with the Company. The plaintiffs are seeking
damages, according to proof, including lost salaries, cash and stock bonuses,
stock options and other wages and employment benefits, together with other
expenses and losses. In addition, the plaintiffs are seeking punitive and
exemplary damages in connection with certain of the causes of action. The
Company has filed an answer denying any wrongdoing. However, no assurances
can be given with respect to the outcome of this proceeding. The Company
believes that the allegations are without merit, and that the outcome of this
lawsuit will not have a material adverse effect on its earnings, cash flow,
or financial position.
The Company is not involved in any other pending legal proceedings other than
legal proceedings occurring in the ordinary course of business. Such other
legal proceedings in the aggregate are believed by management to be immaterial.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
As of the date of filing this report, the Company is in arrears as to quarterly
dividends on its Series A 9% Convertible Preferred Stock and on its Series B
Preferred Stock. The total amount of dividend arrearages on the Series A 9%
Preferred Stock and on the Series B Preferred Stock was $504,563 and $390,193,
respectively.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
2 Plan of Discontinued Operations (1)
3.1 Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on March 10, 1988 (2)
3.2 Certificate of Amendment of Certificate of Incorporation of
the Company filed with the Secretary of State of Delaware on
December 21, 1988 (2)
3.3 Certificate of Amendment of Certificate of Incorporation of
the Company filed with the Secretary of State of Delaware on
March 21, 1989 (2)
<PAGE>
3.4 Certificate of Designations, Preferences and Relative
Rights, Qualifications and Restrictions of the Series A
Convertible Preferred Stock of the Company filed with the
Secretary of State of Delaware on May 13, 1994 (3)
3.5 Certificate of Amendment of Certificate of Incorporation of
the Company filed with the Secretary of State of Delaware on
February 24, 1997 (4)
3.6 Amended Certificate of Designations, Preferences and
Relative Rights, Qualifications and Restrictions of the
Series A 9% Convertible Preferred Stock of the Company filed
with the Secretary of State of Delaware on November 13, 1997
(5)
3.7 Bylaws of the Company, as amended (4)
4.1 Trust Indenture between the Company and First City Bank of
Dallas (2)
10.6 Stock Option Agreement dated July 2, 1990 between the
Company and Fred H. Behrens (6)
10.7 Stock Option Agreement dated July 2, 1990 between the
Company and Robert A. Wright (6)
10.8 Stock Option Agreement dated July 2, 1990 between the
Company and Marlene A. Tapie (6)
10.28 Stock Acquisition Agreement dated as of November 25, 1997 by
and among Gus Franklin and Susan K. Franklin, the Company
and TPE (1)
10.29 Agreement Regarding Transportation Services dated as of June
8, 1998 by and between USA Waste of California, Inc., the
Company and AMCOR Biomass, Inc. (1)
10.30 Commercial Lease dated effective as of November 1, 1998 by
and between Desert Mist Cooling and the Company
21 Subsidiaries of the Company (7)
27 Financial Data Schedule
- -----------------
(1) Filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended
August 31, 1998 and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
November 30, 1988 and incorporated herein by reference.
(3) Filed as Exhibit 4.2 to the Company's Form 10-QSB for the quarterly period
ended May 31, 1994, and incorporated herein by reference.
(4) Amended Bylaws filed as an exhibit to the Company's Form 10-KSB for the
fiscal year ended August 31, 1997 as filed with the Commission on December
5, 1997 and incorporated herein by reference. Additional amendment to
Bylaws filed as an exhibit to the Company's Form 10-QSB for the quarterly
period ended February 28, 1998 as filed with the Commission on April 15,
1998 and incorporated herein by reference.
<PAGE>
(5) Form of which was filed as an exhibit to Amendment No. 3 to the Company's
Registration Statement on Form S-2 as filed with the Commission on
September 22, 1997 (Registration No. 333-28373) and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Form 10-K for the fiscal years ended
November 30, 1992, 1991, and 1990 as filed with the Commission on March
15, 1991 and incorporated herein by reference.
(7) Filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended
August 31, 1997 as filed with the Commission on December 5, 1997 and
incorporated herein by reference.
- ------------------
(b) Reports on Form 8-K
Form 8-K, dated January 12, 1999, as filed with the Commission on
January 27, 1999, reporting on Item 8, Change in Fiscal Year, in
connection with the Company's Board of Directors' decision to change
the Company's fiscal year from August 31 to December 31, commencing
with the calendar year/fiscal year ended December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1999 USA Biomass Corporation
------------ -----------------------
/s/Eugene W. Tidgewell
-----------------------
Eugene W. Tidgewell
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -------------------------------------------------------
10.30 Commercial Lease dated effective as of November 1,
1998 by and between Desert Mist Cooling and the Company
27 Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM
10-QSB FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 478
<SECURITIES> 0
<RECEIVABLES> 1126
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10322
<PP&E> 7948
<DEPRECIATION> 279
<TOTAL-ASSETS> 27383
<CURRENT-LIABILITIES> 7404
<BONDS> 0
<COMMON> 16
7
4
<OTHER-SE> 7457
<TOTAL-LIABILITY-AND-EQUITY> 27383
<SALES> 2067
<TOTAL-REVENUES> 2067
<CGS> 1679
<TOTAL-COSTS> 2487
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<INTEREST-EXPENSE> 212
<INCOME-PRETAX> (420)
<INCOME-TAX> 0
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</TABLE>
EXHIBIT 10.30
TABLE OF CONTENTS
Page
1. PREMISES 1
2. TERMS OF LEASE 1
3. RENTAL 1
4. CPI ADJUSTMENT 2
5. LATE CHARGE 2
6. TAXES AND ASSESSMENTS 2
7. PURPOSE 2
8. COMPLIANCE WITH LAW 2
9. ASSIGNMENT AND SUBLETTING 2
10. ACCEPTANCE AND MATINENANCE OF PREMISES 3
11. LIENS 3
12. ACCESSION 3
13. WASTE 3
14. HOLDOVER LESSEE 3
15. UTILITIES 3
16. PROHIBITED ACTS 3
17. INSPECTION 4
18. HAZARDOUS WASTES 4
19. BANKRUPTCY OR INSOLVENCY 4
20. DEFAULT 5
21. LESSOR-LESSEE LIABILITY 5
22. ISURANCE 5
23. WAIVER OF SUBROGATION 5
24. ATTORNEYS FEES 6
25. NON-WAIVER OF BREACH 6
26. CONDEMNATION 6
27. HEIRS AND ASSIGNS 6
28. NOTICES 6
29. CONSTRUCTION 6
30. MODIFICATION 7
31. TIME OF ESSENCE 7
<PAGE>
COMMERCIAL LEASE
THIS COMMERCIAL LEASE is made effective November 1, 1998, by and
between DESERT MIST COOLING, a California general partnership
("Lessor") and USA BIOMASS CORPORATION, A Delaware corporation
("Lessee").
RECITALS:
A. Lessor is the successor in interest of California Artichoke and
Vegetable Growers Corp., a California corporation ("Cal Art"),
to certain real property and improvements located at 52-300
Enterprise Way, Coachella, Riverside County, California.
B. Lessee is the successor in interest to Enterprise Packing
Company, a California general partnership.
C. Cal Art and Lessee entered into that certain Commercial Lease
With Option to Purchase and Right of First Refusal date
November 1, 1993, as amended on February 9, 1995 ("Prior
Lease").
D. The parties want to terminate the Prior Lease, and enter into
this Lease for the office space at the 52-300 Enterprise Way
property, as outlined on Exhibit A, attached hereto and
incorporated herein by this reference ("Leased Premises"). To
accomplish this, the parties have concurrently executed that
certain document entitled "Surrender of Leasehold," and hereby
enter into this Lease on the terms and conditions stated
herein.
NOW, THEREFORE, the parties agree as follows:
1. PREMISES. In consideration of the terms, covenants,
conditions and obligations herein contained, to be kept, performed, and
complied with by Lessee, and upon the condition that Lessee keeps,
performs and complies with said terms, covenants, conditions and
obligations, Lessor does hereby lease and demise unto Lessee, and
Lessee does hereby rent from Lessor, the Leased Premises.
2. TERM OF LEASE. The terms of this Lease shall be for two (2)
years and shall commence on November 1, 1998, and shall terminate on
October 31, 1000. Notwithstanding the previous sentence, either party
may earlier terminate this Leased upon ninety (90) days' written notice
to the other.
3. RENTAL. Lessee shall pay Lessor rent of Three
Thousand Dollars ($3,000.00) per month ("Rent"), payable as
follows:
Upon signing of this Lease $12,000.00
June 1, 1999 $12,000.00
July 1, 1999 $12,000.00
Commencing on November 1, 1999, Lessee shall pay Lessor the sum
of Three Thousand Dollars ($3,000.00) per month, plus the CIP
Adjustment as determined in Paragraph 4, on the first day of each and
every month until the end of the lease term.
<PAGE>
4. CPI ADJUSTMENT. On November 1, 1999, Rent shall increase by
an amount equal to the product obtained by multiplying the Rent in
effect as of November 1, 1998, by a fraction, the numerator of which is
the Index, as defined below, for September 1999, and the denominator of
which is the Index for September 1998. In no event shall there be a
downward adjustment of Rent
The term Index as used in this Lease means the Consumer Price
Index for All Urban Consumers, for the San Francisco-Oakland-San Jose
area (1982-1984=100, published by the Bureau of Labor Statistics of the
U.S. Department of Labor. If the Bureau of Labor Statistics revises
the Index, the parties agree that the Bureau of Labor Statistics will
be the sole judge of the comparability of successive indexes, but that
agency fails to supply indexes that it deems comparable, or of no
succeeding index is published, then the parties shall negotiate to
determine an appropriate alternative published price index.
5. LATE CHARGE. A late charge of six percent (6%) of any
installment due shall be paid as additional Rent if such installment is
not paid within ten (10) days of its due date. All unpaid Rent shall
also bear interest at the rate of ten percent (10%) per annum from its
due date until paid.
6. TAXES and ASSESSMENTS. Lessor agrees to pay all real property
taxes attributable to the Leases Premises and any improvements thereon
during the lease term. Lessee agrees to pay all personal property
taxes assessed against any tools, equipment or other personal property
maintained on the premises by Lessee, whether or not assessed by the
Assessor as realty or as personal property during the term hereof.
7. PURPOSE. During the term of this Lease, Lessee covenants to
use the Leased Premises and improvements situate thereon solely for the
purpose of using the office space for administrative purposes, and
purposes incidental thereto. At the end of Lessee's occupancy, Lessee
shall leave the Leased Premises clean and neat, and in the same
physical condition as when possession was taken, reasonable wear and
tear excepted.
8. COMPLIANCE WITH LAW. Lessee covenants that during the term of
this Lease, Lessee shall comply with the requirements of all
governmental authorities, applicable to the use or occupancy of, or in
any manner related to the Leased Premises or connected with the
enjoyment thereof.
9. ASSISGNMENT AND SUBLETTING. Lessee shall not sell, transfer,
assign, mortgage or hypothecate this Lease, or any interest in his
Lease, nor permit the use of said premises by any person or persons
other than said Lessee, nor sub-let the premises or any part thereof,
without the prior written consent of Lessor, which consent Lessor shall
not unreasonably withhold.
<PAGE>
10. ACCEPTANCE AND MAINTENANCE OF PREMISES. Lessee has examined
and inspected and knows the condition of the premises and every part
thereof, acknowledges that they are in satisfactory condition for
occupancy for the purposes contemplated by this Lease, and agrees to
receive and accept them in their present condition.
11. LIENS. Lessee covenants to keep the premises and any and all
alterations, improvements and changes thereof, free and clear of liens
of every kind and character whatsoever during the term hereof, not
matter what the source thereof, or the reason therefor, which may arise
during the term of the tenancy hereby created from the use of occupancy
of the premises by Lessee, or from any work, labor or material
furnished to or performed upon said premises. Lessee further covenants
to indemnify and to hold Lessor free and harmless of and from any and
all loss or damage arising by virtue of any such liens or claims of
lien, including attorneys' fees and any other expense reasonably
incurred by Lessor in defense against the same. Lessor shall have the
right to post and maintain on said premises such notices of
nonresponsibility or nonliability as Lessor may deem appropriate to
avoid liability for or subjection to liens.
12. ACCESSION. All alternations, improvements, additions or
fixtures, other than trade fixtures not permanently affixed to realty,
that may be made, constructed or installed upon the demised premises by
either of the parties hereto, and that in any manner are attached to
the floors, walls or ceilings, shall be and become the property of
Lessor without cost, and at the termination of this Lease shall remain
upon and be surrendered with the premises as part thereof without
disturbance, molestation, or damage thereto. Any floor covering that
may be cemented, nailed, tacked or otherwise affixed to the floor of
the premises shall be and become the property of Lessor.
13. WASTE. Lessee shall not commit, nor suffer to be committed,
any waste, legal, equitable or otherwise, to or upon the demised
premises or any part thereof.
14. HOLDOVER LESSEE. It is covenanted that there shall be no
renewal or extension of this Lease except upon execution of a written
agreement by the parties.
15. UTILITIES. Lessee shall pay for all light, service charges,
license charges, power and other services or utilities furnished to the
demised premises.
16. PROHIBITED ACTS. Lessee covenants not to do, nor permit to
be done, anything in, on, or about the premises, nor to bring, nor keep
anything therein which will in any way affect fire or other insurance
upon the entire property, building, or any of its contents other than
as shall be specifically allowed elsewhere in this Lease, nor which
will violate any law or regulation which now may be or which may
hereinafter be enacted or promulgated by any governmental authority, or
which may in any way obstruct or interfere with the rights of others,
or injure, or annoy. Them. It is further covenanted by Lessee that
should there by any increase of fire or other insurance rates on any
insurance held by Lessor on the demised premises, which increase is
caused by or is attributable to the equipment, installations,
alterations, or the business conducted by Lessee, the monthly rental to
be paid by Lessee shall be raised correspondingly to cover the increase
in such insurance rates.
<PAGE>
17. INSPECTION. Lessor and Lessor's agents shall have the right
to enter into and upon the demised premises at all reasonable times,
and in emergencies at all times, for the purposes of inspecting the
same, protecting Lessor's reversion, making repairs, additions, or
alternations to the premises or, for any lawful purposes, without any
rebate to Lessee or reduction of Rent for any loss of occupancy or
quiet enjoyment of the premises, or damage or inconvenience thereby
occasioned.
18. HAZARDOUS WASTES. Lessee shall at all times and in all
aspects comply with all federal, state and local laws, ordinances and
regulations relating to industrial hygiene, Environmental protection
and the use, analysis, generation, application, storage and disposal of
any hazardous, toxic, contaminated or polluting materials.
Lessee shall at its own expense procure, maintain and comply with all
permits, licenses and other governmental and regulatory approvals
required for Lessee's use, storage, handling, transportation or
disposal on the leased premises of any hazardous, toxic, contaminated
or polluting materials.
Upon termination of this lease, Lessee shall cause all hazardous,
toxic, contaminated or polluting materials which lessee has caused to
be deposited on the premises to be removed from the leased premises,
and to be transported and disposed of in accordance with all applicable
laws.
Lessee shall indemnify, defend, protect and hold Lessor free and
harmless from and against any and all claims, liabilities, penalties,
losses or expenses (including attorneys' fees) or death of or injury to
any person or damage to any property arising from or caused in whole or
in part, directly or indirectly, by (i) Lessee's use, analysis,
storage, transportation, disposal, release or discharge in, on, under
or about the leases premises, of any hazardous, toxic, contaminated or
polluting materials; or (ii) Lessee's failure to comply with any law,
regulation or permit pertaining to the use, analysis, storage,
transportation, disposal, release or discharge in, on, under or about
the leases premises, or any hazardous, toxic, contaminated or polluting
materials. Lessee's obligations hereunder shall include all costs of
any required or reasonably necessary investigation, response, repair,
cleanup, detoxification or decontamination of the leased premises. For
purposes of this indemnification clause, any acts or omissions or
employees, agents, assignees, contractors or subcontractors of Lessee
shall be strictly attributable to Lessee.
19. BANKRUPTCY OR INSOLVENCY. If Lessee should execute a
voluntary assignment of this Lease without the prior written consent of
Lessor or if there should occur any assignment hereof by operation of
law on account of any act of Lessee, or if Lessee should file any
petition in bankruptcy or any petition for extension or composition of
creditors or become insolvent or make any assignment of any of Lessee's
property for the benefit of Lessee's creditors, or if any involuntary
bankruptcy proceedings should be initiated against Lessee (and Lessee
fails to obtain the dismissal of such proceedings within thirty (30)
days after same are filed), or if any receiver be appointed of the
business or assets of Lessee, this Lease, at the election of Lessor,
<PAGE>
shall thereupon immediately terminate, and neither this Lease nor any
interest herein shall be assignable by any process of law or be treated
as an asset of Lessee thereafter, nor shall it pass under the control
of any trustee or assignee of Lessee by virtue of any such proceedings
or acts of Lessee. If any such act or proceeding shall occur, Lessor
may terminate this Lease by giving written notice to Lessee stating
Lessor's election to so terminate, and all rights of Lessee hereunder
shall thereupon terminate, and Lessor may promptly re-enter upon said
premises.
20. DEFAULT. Lessee's failure to perform any provision of
this Lease, including the failure to pay Rent when due, if the failure
to perform is not cured within three (3) days after notice has been
given to Lessee constitutes a default under this Lease. In the event
of default, Lessor may, in addition to any other rights and remedies
given by law, terminate this Lease and exercise remedies relating to
it, including all of the rights and remedies of a lessor provided in
California Civil Code section 1951.2. Further, the Lessor has the
remedy, in addition to any other rights and remedies given by law,
described in California Civil Code section 1951.4 (Lessor may continue
Lease in effect after Lessee's breach and abandonment and recover rent
as it becomes due, if lessee has the right to sublet or assign, subject
only to reasonable limitations).
21. LESSOR-LESSEE LIABILITY. Lessor shall not be liable for
any loss or damage that may result to any property belonging to Lessee,
located in, on, or about said demised premises or for any damage or
injury to any person or any property occurring or arising in, on, or
about said premises from any cause whatsoever. Lessee hereby covenants
to save and hold Lessor harmless from and to defend Lessor against any
suit or claim or demand for damage or injury to any person or
properties sustained in, on, or about the demises premises from any
cause whatever during the term hereof.
22. INSURANCE. Lessee shall procure, at Lessee's own expense,
on or before the date of the commencement of the term of this Lease,
and shall maintain continuously during the entire term hereof, public
liability insurance in the amount of $1,000,000.00 for the injury or
death of any one person, $3,000,000.00 for the injury or death of any
number of persons in any one accident, and $1,000,000.00 for property
damage. The policy or policies of insurance shall list Lessor as an
additional insured. Lessee agrees to assume exclusive responsibility
for all of Lessee's fixtures, equipment and personal property, and to
hold Lessor free and harmless for any damages that may occur to said
property from any cause. Lessee shall deliver to Lessor copies of all
such required policies of insurance, when obtained, and certificates
evidencing the insurance coverage herein provided for when due. In
addition, all policies required to be kept under this Lease shall
provide that Lessor is given thirty (30) days written notice prior to
the cancellation of such policies.
23. WAIVER OF SUBROGATION. Lessor and Lessee grant to each
other, on behalf of any insurer providing insurance to either of them
with respect to the demised premises or any property located thereon, a
waiver of any right of subrogation which any such insurer of one party
may acquire against the other by virtue of payment of any loss under
such insurance.
<PAGE>
24. ATTORNEYS' FEES. If either party brings an action to
enforce the terms hereunder, or any rights hereunder, the prevailing
party shall be entitled to reasonable attorneys' fees.
25. NON-WAIVER OF BREACH. Lessor's failure to take advantage
of or act upon any default or breach of covenant on the part of Lessee
shall not be a waiver thereof; nor shall any custom or practice which
may grow up between the parties hereto in the course of administering
this Lease be construed to waive, lessen or limit the right of Lessor
to insist upon the performance of any and all terms, covenants,
conditions, and obligations hereof, or to exercise any right given
Lessor on account of any default. A waiver of a particular breach or
default shall not be a waiver of the same or any other subsequent
breach or default. Lessor's consent to or the approval of any act by
Lessee requiring Lessor's consent or approval shall not be deemed to
waive or render unnecessary Lessor's consent to or approval of any
subsequent or similar act by Lessee.
26. CONDEMNATION. All compensation awarded or paid upon a
total or partial taking of the fee title of the premises shall belong
to lessor, whether such compensation for the taking or diminution in
value of the leasehold or of the fee; provided, however, the Lessor
shall not be entitled to any awarded made to Lessee for depreciation or
damage to, or cost of removal of, stock and fixtures, if any. Each
party agrees to execute and deliver to the other all instruments that
may be required to effectuate the provisions of this paragraph, and
Lessee shall assign to Lessor, and appoint Lessor to act for Lessee in
all matters of condemnation, except for Lessee's specific rights to
damages as set forth hereinabove.
27. HEIRS AND ASSIGNS. All terms, conditions, covenants, and
obligations contained in this Lease shall be binding upon and inure to
the benefit of the heirs, successors, legal representatives and assigns
of the parties hereto.
28. NOTICES. Unless otherwise provided in this Lease, any
notice, tender or delivery to be given under this Lease by either party
to the other may be effected by personal delivery in writing, or by
registered or certified mail, postage prepaid, return receipt
requested, and shall be deemed communicated as of the depositing in the
United States mail, certified mail, return receipt requested, postage
prepaid, and addressed as follows:
To Desert Mist: Desert Mist Cooling
10855 Cara Mia Parkway, Suite A
Castoville, CA 95012
To Enterprise: USA Biomass Corporation
52300 Enterprise Way
Coachella, CA 92236
Or at such other address as either party may from time to time
designate to the other in writing. Personal delivery or service upon
any of the parties named above shall be sufficient notice.
29. CONSTRUCTION. Each term, covenant, condition and
obligation of this Lease to be performed by Lessee shall be construed
<PAGE>
to be both a covenant and a condition. The marginal headings or titles
to the paragraphs of this Lease are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part of
this Lease. Whenever the singular number is used in this Lease an when
required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter genders, and the
word "person" shall include corporation, firm, partnership, or
association. The obligations imposed herein upon Lessee shall be joint
and several.
30. MODIFICATION. This instrument contains all the agreements
and conditions made between the parties to this Lease and may not be
modified orally or in any manner other than by agreement in writing
signed by all the parties to this Lease or their respective successors
in interest.
31. TIME OF ESSENCE. Time is of the essence of each term,
covenant, condition and obligation of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this
Commercial Lease as of the date first hereinabove written.
DESERT MIST COOLING USA BIOMASS CORPORATION
A California general partnership A Delaware corporation
By: California Artichoke and By: /S/ ROBERT A. WRIGHT
Vegetable Growers Corp., --------------------
A California Corporation Robert A. Wright
President
By: /S/ C. EDWARD BOUTONNET By: /S/ Fred H. Behrens
----------------------- ---------------------
C. Edward Boutonnet Fred H. Behrens
President Chairman of the Board
By: /S/ LES TOTTINO
-----------------------
Secretary
General Partner
<PAGE>
