SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(MARK ONE)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED _________________
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM SEPTEMBER 1, 1998 TO
DECEMBER 31, 1998
Commission File Number 0-17594
USA Biomass Corporation
(Exact name of registrant 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)
Indicate by check mark whether the registrant (1) has filed all reports
required 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 [ ]
The number of shares outstanding of issuer's only class of Common
Stock, $.002 par value, was 7,737,135 on March 10, 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 year
ended December 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
(Formerly AMCOR Capital Corporation)
Index to the Consolidated Financial Statements
As of December 31 and August 31, 1998
And For the Four Months Ended December 31, 1998 and 1997
And the Three Months Ended December 31, 1998 and 1997
Consolidated Financial Statements for USA Biomass Corporation:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations . . . . . . . . . . . . . . . . . F-5
Statements of Shareholders' Equity . . . . . . . . . . . F-7
Statements of Cash Flows . . . . . . . . . . . . . . . . F-11
Notes to the Financial Statements . . . . . . . . . . . . . . F-15
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Balance Sheets
December 31, 1998 and August 31, 1998
(Amounts in Thousands)
ASSETS
<CAPTION>
(Unaudited)
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $801 $828
Accounts receivable 554 336
Due from officers and directors 919 914
Income taxes recoverable 293 293
Other current assets 384 168
Net current assets of discontinued
operations 7,942 7,399
----------- -----------
Total current assets 10,893 9,938
Property and equipment, net 8,874 3,795
Note receivable, noncurrent 7,650 7,250
Other assets 142 30
Intangible assets, net 449 458
Net noncurrent assets of discontinued
operations 769 -
----------- -----------
Total assets $28,777 $21,471
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Balance Sheets
December 31, 1998 and August 31, 1998
(Amounts in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(Unaudited)
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable:
Officers and directors $160 $90
Others 1,210 1,266
Payroll taxes payable 1,345 1,065
Accrued remediation costs 507 507
Line of credit 875 250
Notes payable:
Related parties 1,783 1,467
Officers and directors 540 400
Other 721 837
Capitalized lease obligations 765 360
Income taxes payable 6 3
Accrued interest 252 163
----------- -----------
Total current liabilities 8,164 6,408
Notes payable, net of current portion:
Related parties 966 1,196
Officers and directors 815 955
Other 6,417 471
Capitalized lease obligations, net of current
portion 3,538 932
Other noncurrent liabilities 973 -
Net noncurrent liabilities of discontinued
operations (Note 3) - 2,654
----------- -----------
Total liabilities 20,873 12,616
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
(Formerly AMCOR Capital Corporation)
Consolidated Balance Sheets
December 31, 1998 and August 31, 1998
(Amounts in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY, CONTINUED
<CAPTION>
(Unaudited)
December 31, August 31,
1998 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,
7,737,135 shares outstanding at December 31,
and August 31, 1998. 16 16
Additional paid-in capital 21,970 21,970
Accumulated earnings (deficit) (13,975) (13,024)
Treasury stock, at cost (24,250 common shares
at December 31 and August 31, 1998) (118) (118)
----------- -----------
Total shareholders' equity 7,904 8,855
----------- -----------
Total liabilities and shareholders' equity $28,777 $21,471
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Operations
For the Four Months Ended December 31, 1998 and 1997
(Amounts in Thousands)
<CAPTION>
(Unaudited) (Unaudited)
1998 1997
----------- -----------
<S> <C> <C>
Revenues $2,021 $406
Costs and expenses:
Cost of revenues 2,221 634
General and administrative expenses 851 678
Interest expense, net of interest income (103) 86
----------- -----------
2,969 1,398
----------- -----------
Loss from continuing operations
before income taxes (948) (992)
(Expense)/benefit from income taxes (3) 334
----------- -----------
Loss from continuing operations (951) (658)
----------- -----------
Discontinued operations:
Income from discontinued operations - 12
----------- -----------
Net loss $(951) $(646)
=========== ===========
Loss from continuing operations per common
share, basic and diluted $(0.16) $(0.12)
====== ======
Net loss per common share,
basic and diluted $(0.16) $(0.12)
====== ======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Operations
For the Three Months Ended December 31, 1998 and 1997
(Amounts in Thousands)
<CAPTION>
(Unaudited) (Unaudited)
1998 1997
----------- -----------
<S> <C> <C>
Revenues $1,710 $361
Costs and expenses:
Cost of revenues 1,842 304
General and administrative expenses 458 437
Interest expense, net of interest income (62) 60
----------- -----------
2,238 801
----------- -----------
Loss from continuing operations
before income taxes (528) (440)
(Expense) Benefit from income taxes (3) 147
----------- -----------
Loss from continuing operations (531) (293)
----------- -----------
Discontinued operations:
Income from discontinued operations - 6
----------- -----------
Net loss $(531) $(287)
=========== ===========
Loss from continuing operations per common
share, basic and diluted $(0.10) $(0.06)
====== ======
Net loss per common share,
basic and diluted $(0.10) $(0.06)
====== ======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Shareholders' Equity
For the Year Ended August 31, 1998 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, 1997 - 404,414 7,172,974
Issuance of Series A
9% Convertible
Preferred Stock 747,500 - -
Shares issued upon
exercise of options - - 31,250
Shares issued in
payment of debt - - 14,927
Shares issued for the
acquisition of
TransPacific
Environmental, Inc. - - 406,109
Shares issued in
settlement of
litigation - - 144,000
Options on Common
Stock granted to
nonemployees for
consulting and other
services - - -
Treasury shares
acquired - - -
Shares reacquired
and retired - - (7,875)
Series A Preferred
Stock dividends - - -
Net loss - - -
------- --------- ----------
Balance, August 31, 1998 747,500 404,414 7,761,385
Net loss - - -
------- --------- ----------
Balance, December 31, 1998 747,500 404,414 7,761,385
======= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Shareholders' Equity, Continued
For the Year Ended August 31, 1998 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, 1997 - - $4
Issuance of Series A
9% Convertible
Preferred Stock - $7 -
Shares issued upon
exercise of options - - -
Shares issued in
payment of debt - - -
Shares issued for the
acquisition of
TransPacific
Environmental, Inc. - - -
Shares issued in
settlement of
litigation - - -
Options on Common
Stock granted to
nonemployees for
consulting and other
services - - -
Treasury shares
acquired (24,250) - -
Shares reacquired
and retired - - -
Series A Preferred
Stock dividends - - -
Net loss - - -
------- --------- ----------
Balance, August 31, 1998 (24,250) 7 4
Net loss - - -
------- --------- ----------
Balance, December 31, 1998 (24,250) $7 $4
======= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-8
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Shareholders' Equity, Continued
For the Year Ended August 31, 1998 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, 1997 $14 - $14,242
Issuance of Series A
9% Convertible
Preferred Stock - - 6,162
Shares issued upon
exercise of options - - 62
Shares issued in
payment of debt - - 71
Shares issued for the
acquisition of
TransPacific
Environmental, Inc. 1 - 1,195
Shares issued in
settlement of
litigation - - 83
Options on Common
Stock granted to
nonemployees for
consulting and other
services - - 188
Treasury shares
acquired - $(118) -
Shares reacquired
and retired - - (33)
Series A Preferred
Stock dividends - - -
Net loss - - -
------- --------- ----------
Balance, August 31, 1998 16 (118) 21,970
Net loss - - -
------- --------- ----------
Balance, December 31, 1998 $16 $(118) $21,970
======= ========= ==========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-9
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Shareholders' Equity, Continued
For the Year Ended August 31, 1998 and the Four
Months ended December 31, 1998 (Unaudited)
(Amounts in Thousands)
<CAPTION>
Accumulated
Earnings(Deficit) Total
----------- -----------
<S> <C> <C>
Balance, August 31, 1997 $3,259 $17,520
Issuance of Series A
9% Convertible
Preferred Stock - 6,169
Shares issued upon
exercise of options - 63
Shares issued in
payment of debt - 71
Shares issued for the
acquisition of
TransPacific
Environmental, Inc. - 1,196
Shares issued in
settlement of
litigation - 83
Options on Common
Stock granted to
nonemployees for
consulting and other
services - 188
Treasury shares
acquired - (118)
Shares reacquired
and retired - (33)
Series A Preferred
Stock dividends (497) (497)
Net loss (15,786) (15,786)
----------- -----------
Balance, August 31, 1998 (13,024) 8,855
Net loss (951) (951)
----------- -----------
Balance, December 31, 1998 $(13,975) $7,904
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-10
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Cash Flows
For the Year Ended August 31, 1998 and the Four
Months ended December 31, 1998 (Unaudited)
(Amounts in Thousands)
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(951) $(15,786)
Add loss (deduct income) from discontinued
operations - 9,947
----------- -----------
Net loss from continuing operations (951) (5,839)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 267 358
Loss on impairment of assets - 1,971
Loss on sale of assets - 366
Provision for settlement expense - 112
Stock options granted to nonemployees for
consulting and other services - 188
Decrease (increase) in assets, net of effect of
acquisition of TransPacific Environmental, Inc.:
Accounts receivable (218) (98)
Income taxes recoverable - (293)
Other current assets (216) 710
Due from related parties - 240
Other assets (83) 3
Increase (decrease) in liabilities, net of effect of
acquisition of TransPacific Environmental, Inc.:
Accounts payable 14 (401)
Payroll taxes payable 431 88
Income taxes payable 3 (1,033)
Accrued interest payable 89 (182)
Deferred taxes - (56)
----------- -----------
Net cash used in operating
activities of continuing operations (664) (3,866)
Net cash used in operating
activities of discontinued operations (543) (6,105)
----------- -----------
Cash used in operating activities (1,207) (9,971)
----------- -----------
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-11
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
For the Year Ended August 31, 1998 and the Four
Months ended December 31, 1998 (Unaudited)
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) investing
activities:
Purchases of property and equipment $(6,016) $(143)
Sales of property and equipment - 101
Acquisition of TransPacific Environmental, Inc.,
net of cash acquired - (398)
----------- -----------
Net cash used in investing
activities of continuing operations (6,016) (440)
Net cash provided by investing
activities of discontinued operations - 4,199
----------- -----------
Cash provided by (used in) investing operations (6,016) 3,759
----------- -----------
Cash flows provided by (used in) financing
activities:
Proceeds from line of credit 625 250
Proceeds from notes and loans 9,296 2,229
Repayment of notes and loans (88) (3,541)
Dividends paid on Series A Preferred Stock - (497)
Acquisition of treasury shares - (118)
Net proceeds from issuance of Series A
Preferred Stock - 6,169
Purchase and retirement of common stock - (32)
Exercise of stock options 63
----------- -----------
Net cash provided by financing activities
of continuing operations 9,833 4,521
Net cash provided by (used in) financing
activities of discontinued operations (2,638) 2,339
----------- -----------
Cash provided by financing activities 7,195 6,860
----------- -----------
Net increase (decrease) in cash (28) 648
Cash and equivalents at beginning of year 828 180
----------- -----------
Cash and equivalents at end of year $801 $828
=========== ===========
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-12
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Cash Flows
For the Year Ended August 31, 1998 and the Four
Months ended December 31, 1998 (Unaudited)
Supplemental Disclosures of Cash Flow Information
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Cash paid during the year for:
Interest:
Continuing operations $305 $838
Discontinued operations 450 521
----------- -----------
$755 $1,359
=========== ===========
Income taxes - 332,589
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations
<S> <C> <C>
Assets acquired (disposed of) in non-cash
transactions:
Assets acquired - $1,141,225
Receivables from related parties incurred - 815,184
Capital lease obligations incurred - (727,610)
Liabilities incurred - (413,615)
Liability to officer incurred - (815,184)
Satisfaction of debt through issuance of stock:
Liabilities satisfied - $70,899
Common stock issued - (70,899)
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-13
</FN>
</TABLE>
<PAGE>
<TABLE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Cash Flows
For the Year Ended August 31, 1998 and the Four
Months ended December 31, 1998 (Unaudited)
<CAPTION>
Supplemental Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations,
Continued
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Settlement liability and related party receivable:
Liability to estate of former officer incurred - $(283,388)
Receivable from related party incurred - 283,388
Purchase of all the capital stock of TransPacific
Environmental, Inc.:
Fair value of assets acquired - $2,260,933
Cash paid - (411,207)
Common stock issued - (1,195,842)
----------- -----------
Liabilities assumed - $(653,884)
=========== ===========
Included in the net liabilities assumed were the following operating assets
and liabilities:
Cash - $13,053
Accounts receivable - 116,235
Other current assets - 48,531
Other assets - 2,230
Accounts payable - (679,283)
Notes payable - (154,650)
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
F-14
</FN>
</TABLE>
<PAGE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Notes to the Consolidated Financial Statements
For the Year Ended August 31, 1998
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 tree trimming services and clean green waste processing
conducted by TransPacific Environmental, Inc. ("TPE"), which was acquired by the
Company in November 1997 ("biomass"). In order to focus on expanding its biomass
operation and its waste transport operation, which commenced in September 1998,
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.
During the year ended August 31, 1998, the Company changed its name from AMCOR
Capital Corporation to USA Biomass Corporation.
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. TPE 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.
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-15
<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 and four months ended December
31, 1997 and 1998 have been calculated in accordance with this pronouncement.
F-16
<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-17
<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-18
<PAGE>
3. Discontinued Operations, Continued
<TABLE>
<CAPTION>
As of August 31, 1998
----------------------------------
Agribusiness Real Estate Total
------------ ----------- -----------
<S> <C> <C> <C>
Current assets:
Accounts receivable $344,880 - $344,880
Due from managed limited
partnerships 137,444 $8,954,390 9,091,834
Inventory 152,332 1,999,783 2,152,115
Other current assets 16,330 165,730 182,060
------------ ----------- -----------
Total current assets 650,986 11,119,903 11,770,889
------------ ----------- -----------
Current liabilities:
Accounts payable 946,344 956,206 1,902,550
Due to managed limited
partnerships 874,984 739,574 1,614,558
Notes and capitalized lease
obligations payable 265,721 589,205 854,926
------------ ----------- -----------
Total current liabilities 2,087,049 2,284,985 4,372,034
------------ ----------- -----------
Net current assets (liabilities)
of discontinued operations $(1,436,063) $8,834,918 $7,398,855
============ =========== ===========
Noncurrent assets:
Property and equipment, net $4,150,486 - $4,150,486
Investment - $2,489,199 2,489,199
Other noncurrent assets 193,461 62,078 255,539
------------ ----------- -----------
Total noncurrent assets 4,343,947 2,551,277 6,895,224
------------ ----------- -----------
Noncurrent liabilities:
Notes and capitalized lease
obligations payable, net of
current portion 4,452,559 5,096,877 9,549,436
------------ ----------- -----------
Total noncurrent liabilities 4,452,559 5,096,877 9,549,436
------------ ----------- -----------
Net noncurrent assets (liabilities)
of discontinued operations $(108,613) $(2,545,600) $(2,654,213)
============ =========== ===========
</TABLE>
F-19
<PAGE>
4. Due from Officers and Directors
Amounts due from officers and directors relate to the activities of a partner-
ship, Enterprise Packing Company ("EPC"), the partners of which are two officers
who are also shareholders and directors of the Company. The amount due from the
Partnership represents the net of advances to and other transactions with the
partnership.
Facility Lease
EPC owns the rights to the use of a packing facility during the grape harvest
cycle and the annual use of related office space in Coachella Valley. The
Company sub-leases these facilities on a month to month basis for use in its
now discontinued agribusiness operations and its corporate offices for $156,000
per year.
5. Note Receivable
Note receivable arising from the sale of undeveloped real estate in Riverside
County, California consists of the following:
<TABLE>
December 31, August 31,
1998 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. $7,649,880 $7,250,000
========== ==========
</TABLE>
F-20
<PAGE>
6. Notes Payable
Notes payable consist of the following:
Continuing Operations
Notes payable to related parties:
Uncollateralized
<TABLE>
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Notes payable with interest ranging from 6.0% to
12.0% per annum, principal amounts of $1,669,418,
$15,713 and $810,153 plus accrued interest due
December 31, 1998, 1999, and 2001, respectively.
Notes with aggregate principal amounts of
$1,669,418 are payable to shareholders of the
Company who are investors in limited
partnerships managed by the Company and to a
shareholder who is an officer of the Company
and general partner in limited partnerships
managed by the Company and his spouse. The
amounts due the officer and his spouse are
$615,000. The $15,713 and the $810,153 notes
payable are due to affiliated real estate
limited partnerships managed by the Company. $2,495,285 $2,409,469
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 $815,184
plus interest due December 31, 1999 and 2001,
respectively. 955,343 955,343
----------- -----------
Total due to related parties 3,734,017 3,648,201
Less: current portion (1,952,806) (1,866,994)
----------- -----------
Total noncurrent due to related parties $1,781,211 $1,781,207
=========== ===========
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 -
----------- -----------
Total noncurrent due to an employee - $370,189
=========== ===========
</TABLE>
F-21
<PAGE>
6. Notes Payable, Continued
Notes payable to third parties:
Uncollateralized
<TABLE>
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Note payable with interest at 8.0% per annum,
with monthly payments of $11,182, due in
March 1999. $45,474 $78,794
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. 206,164 338,165
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. 1,142,619 890,498
Note payable collaterialized by note receivable
(Note 4) bearing interest at 12.25% per annum,
principal and accrued interest due August 21,
2000. 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 -
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. 943,293 -
----------- -----------
Total due to third parties 7,137,550 1,307,457
Less: current portion (720,550) (836,680)
----------- -----------
Total noncurrent due to third parties $6,417,000 $470,777
=========== ===========
</TABLE>
F-22
<PAGE>
6. Notes Payable, Continued
Discontinued Operations
Agribusiness:
<TABLE>
<CAPTION>
December 31, August 31,
1998 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 2,143,826
----------- -----------
Total agribusiness notes payable due to
third parties 2,086,803 2,191,305
Less: current portion (268,855) (260,511)
----------- -----------
Total noncurrent due to third parties $1,817,948 $1,930,794
=========== ===========
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. $84,731 $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. 1,138,110 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. 3,087,333 3,141,241
----------- -----------
Total real estate notes payable due to
third parties 4,310,174 4,364,082
Less: current portion (127,755) (127,755)
----------- -----------
Total noncurrent due to third parties $4,182,419 $4,236,327
=========== ===========
</TABLE>
F-23
<PAGE>
6. Notes Payable, Continued
<TABLE>
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Total discontinued operations notes payable $6,396,977 $6,555,387
Less: current portion (396,610) (388,266)
----------- -----------
Total noncurrent portion $6,000,367 $6,167,121
=========== ===========
</TABLE>
7. 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>
December 31, August 31,
1998 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 $23,967
Capital lease with an effective interest rate of
8.50% per annum, with monthly principal and
interest payments of $1,525 through September
2002. 49,960 54,299
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. 516,171 562,573
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. 617,477 651,118
Capital leases with effective interest rates of
7.07% to 7.50% with monthly principal and interest
payments of $59,024 through November, 2003 3,116,122 -
----------- -----------
Total obligations under capital leases -
continuing operations $4,303,212 $1,291,957
=========== ===========
</TABLE>
F-24
<PAGE>
8. Deferred Income Taxes
The components of the provision for income taxes are as follows:
(Amounts in Thousands)
<TABLE>
<CAPTION>
December 31, August 31,
1998 1998
----------- -----------
<S> <C> <C>
Current tax expense (benefit):
Federal - $(996)
State $3 3
----------- -----------
3 (993)
----------- -----------
Deferred tax expense (benefit):
Federal - (240)
State - 184
----------- -----------
- (56)
----------- -----------
Total provision (benefit) $3 $(1,049)
=========== ===========
Reconciliation of the effective tax rate to the U.S. federal statutory income
tax rate is as follows:
December 31, August 31,
1998 1998
----------- -----------
U.S. federal statutory income tax rate (34.0)% 34.0%
State tax provision 0.3 (0.7)
Nondeductible writedowns related to
discontinued operations (2.7)
Other - (1.0)
Change in valuation allowance 34.0 (23.4)
----------- -----------
Effective income tax rate 0.3 6.2%
=========== ===========
</TABLE>
F-25
<PAGE>
8. Deferred Income Taxes, Continued
The Company has a state tax credit carryforward of $250,462 that expires in
2010. The Company will carry back $2,929,129 of the federal net operating loss
to receive a refund of $292,639 for the year ended August 31, 1996 and offset
an unpaid tax liability of $703,266 for the year ended August 31, 1997. 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.
9. Stock Based Compensation Plans
A summary of the activity relating to the Company's stock option plans as of
December 31 and August 31, 1998, and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
December 31, 1998 August 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 $2.43 656,633 $1.65
Exercised - - (31,250) 2.00
Granted - - 555,000 3.97
Returned/repriced - - (150,000) 4.60
Forfeited - - (17,500) 3.14
--------- --------- ------- --------
Outstanding at end of year 1,012,883 2.43 1,012,883 2.43
========= ========= ======= ========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Range of Outstanding at Remaining contractual Exercisable at
Exercise Prices December 31, 1998 Life (in Years) December 31, 1998
--------------- --------------- --------------------- ---------------
<C> <C> <C> <C>
$1.30 87,500 6 87,500
1.60 454,133 2 454,133
2.00 56,250 9 17,102
3.00 255,000 10 -
4.00 10,000 9 7,500
5.00 150,000 10 37,500
----------- ---------
1.30 to 5.00 1,012,883 603,735
=========== =========
</TABLE>
F-26
<PAGE>
9. 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 1998 and 1997, respectively: dividend
yield of 0% for both years, expected volatility of 0.971 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 1998 and
1997 was $3.07 and $2.76, 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 1998 and 1997 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:
1998 1997
----------- -----------
Net income (loss), as reported $(951,000) $(658,000)
Net income (loss), pro forma $(1,105,883) $(663,125)
Basic earnings (loss) per share, as reported $(0.16) $(0.12)
Basic earnings (loss) per share, pro forma $(0.18) $(0.12)
Common stock warrants issued in 1998 and 1997 to non-employees for services
rendered primarily under consulting agreements are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.
F-27
<PAGE>
9. Stock Based Compensation Plans, Continued
A summary of the activity relating to warrants as of December 31, 1998 and
August 31, 1998 and changes during the periods then ended is presented below:
<TABLE>
December 31, 1998 August 31, 1998
and 4 Months Ended and 12 Months Ended
December 31, 1998 August 31, 1998
--------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 427,500 $2.88 362,500 $2.20
Granted - - 65,000 $6.67
-------- --------- -------- --------
Outstanding at end of year 427,500 2.88 427,500 2.88
======== ========= ======== ========
</TABLE>
The range of exercise prices of warrants outstanding at December 31, 1998 was
$2.00 to $6.67. The weighted average fair value of warrants granted during
1998 and 1997 was $3.25 and $2.08, respectively.
The following table summarizes information about warrants outstanding at
December 31, 1998:
Estimated
Volatility Dividend Risk Free Lives
1998 Factor Yield Interest Rates (In Years)
- ----------------------- ---------- -------- -------------- ----------
December 31 warrant grants 1.032 0% 5.20% 5
August 31 warrant grants 1.08 to 1.184 0% 5.34% 3
F-28
<PAGE>
10. Income (loss) Per Common Share
In 1998, the Company adopted SFAS 128, "Earnings Per Share." Earnings per
common share have been calculated in accordance with this statement.
Basic and diluted earnings (loss) per common share have been computed by
dividing the income (loss) available to common stockholders by the weighted
average number of common shares for the period. Income (loss) available to
common stockholders is income (loss) after deducting from income or adding
to the (loss) any preferred stock dividend requirements. The additional
common shares that would be issuable for options and warrants outstanding
are ignored, as to include them in the calculation of diluted earnings per
share would be antidilutive.
The computations of basic and diluted earnings per common share are as
follows:
4 Months Ended December 31,
1998 1997
------------- ------------
Loss from continuing operations $(951,000) $(658,000)
Add: dividends on preferred shares -
declared 0 (168,000)
Add: dividends on preferred shares -
cumulative, not declared (304,000) 0
---------- --------
Loss to common shareholders (1,255,000) (906,000)
Income from discontinued operations 0 12,000
---------- --------
Net (loss) available to common
shareholders $(1,255,000) $(894,000)
========== ========
Weighted average shares - basic and
diluted 7,761,385 7,319,507
========== =========
Loss per share from continuing operations $(0.16) $(0.12)
----- -----
Net (loss) per share available to common
shareholders $(0.16) $(0.12)
====== =====
The effect of the potentially dilutive securities were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive for the periods presented.
F-29
<PAGE>
10. Income (loss) Per Common Share, Continued
During 1998, 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 convertible preferred stock was still
outstanding at May 31, 1998.
F-30
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overview
Following the Company's acquisition of TransPacific Environmental, Inc. ("TPE")
in November 1997, the Company's focus shifted from agribusiness and land
planning/development 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 related actual and potential biomass and solid waste trans-
portation 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 a
Plan of Discontinued Operations (the "Plan"), pursuant to which the Company
intends to discontinue its agribusiness and land planning/development
activities by December 22, 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.
As outlined below, the Company's overall financial condition as of December 31,
1998, as compared to August 31, 1998, has not improved, but it feels that with
the continued growth of waste transportation and biomass, financed by the
liquidation of assets from discontinued operations, its conditions will improve
considerably in fiscal 1999. Total assets have increased 32% to $28 million,
due principally to the acquisition of the equipment and facility for the
transportation division, while total liabilities increased 62% to $20 million
due to debt related to the acquisition of the equipment and facility for the
transportation division, as well as the $4 million loan obtained in December
1998. The net effect of this event resulted in shareholders' equity decreasing
11% to $8 million.
The Company's current ratio decreased to 1.33 at December 31, 1998, from 1.55
at August 31, 1998, primarily due to long term debt converting to short term.
Revenues for the three months ending December 31, 1998, of $1,710,000 were up
from $361,000 for the three months ending December 31, 1997, and revenues of
$2,021,000 were also up from $406,000 for the comparable four month period in
1997 due to the start-up of the transportation division, which generated
$894,000 in revenue, and increased revenues in biomass. This resulted in
a net loss of $531,000 for the three months ending December 31, 1998,
compared to net loss of $472,000 for the three months ending December 31,
1997, and a net loss of $951,000 for the four months ended December 31, 1998,
compared to a $646,000 loss in the comparable four month period in 1997.
<PAGE>
However the Company expects revenues to continue to increase in fiscal 1999 as
the transportation division revenues grow and the Company expands its biomass
operations through internal growth. Overall, fiscal 1999 revenues are expected
to be considerably higher than revenues from continuing operations during fiscal
1998.
Results of Operations
The Company's continuing operations consist of solid waste transportation and
biomass activities, which include green waste processing and tree maintenance.
The Company has entered into an agreement to sell its unprofitable municipal
tree operations during March 1999. The Company's discontinued 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 three and four months
ended December 31, 1998, reflect principally its biomass activities and waste
transport revenue. While revenues for the three and four months ended December
31, 1997, reflect only biomass activities as the waste transport contract did
not commence until October 1998.
For the three months ended December 31, 1998, total revenues of $1,710,000 were
up $1,349,000 (374%) from the comparable three month period ending December 31,
1997, and for the four months ended December 31, 1998, total revenues of
$2,021,000 were up $1,615,000 (398%) from the comparable 1997 period, mainly
due to commencing the waste transport agreement ($894,000 in revenues for the
three months ended December 31, 1998) and the internal growth of the Company's
biomass business.
Cost of Revenues
Cost of revenues of $1,842,000 for the three months ended December 31, 1998,
increased $1,538,000 (505%) from the comparable three month period ending
December 31, 1997, and for the four months ended December 31, 1998, costs of
revenues of $2,221,000 increased $1,587,000 (268%) from the comparable 1997
period mainly due to the implementation of the waste transport agreement,
internal growth in biomass, and the inclusion of TPE for the complete period.
In October 1998, the Company experienced a fire at its green waste processing
site in Fontana. As a result of this fire, the Company experienced $75,000
in one-time only expenses related to the clean-up and the diversion of the
incoming green waste to other processors to continue servicing the Company's
customers, as well as a decrease in sales of $100,000 (at 20% gross margin)
from October 15 through December 31, 1998. The customer representing this
decrease in sales resumed diversion of their green waste to the Company in
January 1999.
<PAGE>
General and Administrative Expenses
For the three months ended December 31, 1998, total general administrative
expenses of $458,000 were up $21,000 (5%) from the comparable three month
period ending December 31, 1997, and for the four months ended December 31,
1998, general administrative expenses of $851,000 were up $173,000 (25%) from
the comparable 1997 period, mainly due to starting-up the transportation
division, the addition of management personnel for future growth, and the
overhead from TPE.
Interest Income, Net of Interest Expense
For the three months ended December 31, 1998, interest income, net of interest
expense of $62,000 increased $122,000 (200%) from the comparable three month
period ending December 31, 1997, and for the four months ended December 31,
1998, interest income, net of interest expense of $103,000 increased $189,000
(220%) from the comparable 1997 period, mainly due to the interest income
recognized on the note received from the sale of the Company's Rancho California
property in August 1998.
Loss from Continuing Operations
For the three months ended December 31, 1998, loss from continuing operations
of $531,000 increased $53,000 (11%) from the comparable three month period
ending December 31,1998, which offset the profitability of the waste transport
contract, and for the four months ended December 31, 1998, loss from continuing
operations of $951,000 increased $293,000 (44%) from the comparable 1997 period,
mainly due to the $683,000 of losses in municipal tree maintenance.
Results of Discontinued Operations
For the three months ended December 31, 1998, results from discontinued
operations of $0.00 decreased $6,000 (100%) from the comparable three month
period ending December 31, 1997, and for the four months ended December 31,
1998, results from discontinued operations of $0.00 decreased $12,000 (100%),
from the comparable 1997 period, mainly due to the accrual of all operating
losses for discontinued operations at August 31, 1998.
Liquidity and Capital Resources
Despite the significant loss in the period ending December 31, 1998, liquidity
at December 31, 1998, is improved from August 31, 1998. This improvement is
due primarily to the reclassification of the net assets of discontinued
operations as current assets, as they are expected to be liquidated within
one year, and the pending sale by the Company of its municipal tree maintenance
operations (which lost $638,000 in the four months ended December 31, 1998).
In addition, liquidity has improved 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
$4.1 million of this line was used to acquire 40 trucks and 16 trailers,
which are being used in the solid waste transportation activities, and which
are expected to be sufficient to meet the requirements of these activities for
fiscal 1999); (iii) in December 1998, the Company obtained a $4 million loan
<PAGE>
collateralized by the $10 million note receivable related to the sale of the
Rancho California property (the loan accrues interest at 12.25%, with interest
and principal due at the time the $10 million note receivable is due and
payable, and the net proceeds which were used to repay a $2.5 million note
payable and to reduce accounts payable by about $1 million); (iv) on March 6,
1999, the Company obtained a commitment to borrow an additional $1 million,
collateralized by the $10 million note receivable from the same lender; and
(v) on February 19, 1999, the Company entered into an agreement to sell the
Las Palomas subdivision for $11.5 million cash, subject to the completion of
the buyer's due diligence. (The Company expects to net approximately $5
million in cash from the transaction. However, no assurances can be given
that the Company will be successful in completing the sale of the Las Palomas
subdivision.) However, the Company had current liabilities of $7.7 million
at December 31, 1998, and $8.5 million at February 15, 1998, including
delinquent payroll taxes of $1.0 million and $1.2 million at December 31,
1998, and February 15, 1999, respectively.
The Company has an oral agreement with an equipment financing source to provide
equipment financing in addition to that obtained in October 1998 required for
new solid waste transportation or biomass contracts.
The Company believes that the combination of the $4.0 million loan entered into
in December 1998 (plus an additional $1 million to be funded in March 1999),
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 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 for 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. To
date, the Company has not filed an answer to the lawsuit. The Company plans
to file an answer denying any wrongdoing. However, no assurances can be given
with respect to the outcome of this proceeding and the effect such outcome may
have on the Company.
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
Due to recent operating losses, the Company has no earnings legally available
for the payment of dividends. On March 5, 1999, the total amount of dividend
arrearages on the Series A Preferred Stock and Series B Preferred Stock was
$336,735 and $248,648 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 of Form 8-K
(a) Exhibits
27- Financial Data Schedule
(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 end
from August 31 to December 31, commencing with the calendar year/fiscal year
ended December 31, 1998.
<PAGE>
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: March 10, 1999 USA BIOMASS CORPORATION
/S/EUGENE W. TIDGEWELL
-----------------------
Eugene W. Tidgewell,
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM
10-QSB FOR THE FOUR MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 801
<SECURITIES> 0
<RECEIVABLES> 554
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10893
<PP&E> 9013
<DEPRECIATION> 139
<TOTAL-ASSETS> 28777
<CURRENT-LIABILITIES> 8164
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<OTHER-SE> 7877
<TOTAL-LIABILITY-AND-EQUITY> 28777
<SALES> 2021
<TOTAL-REVENUES> 2021
<CGS> 2221
<TOTAL-COSTS> 2969
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 189
<INCOME-PRETAX> (948)
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