<PAGE>
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 ENDING June 30, 2000
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.)
7314 SCOUT AVENUE, BELL GARDENS, CALIFORNIA 90201
(Address of principal executive offices) (Zip Code)
(562) 928-9900
(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 11,288,666 on August 11, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introduction
USA Biomass Corporation ("Company") has prepared the consolidated financial
statements, 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 principals have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the disclosures 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,
1999. 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.
USA Biomass Corporation
Index to the Consolidated Financial Statements
As of June 30, 2000 and December 31, 1999
And For the Three Months and Six Months ended
June 30, 2000 and 1999
Consolidated Financial Statements for USA Biomass Corporation
Balance Sheets ........................................... F-2
Statements of Operations ................................. F-4
Statements of Shareholders' Equity ....................... F-6
Statement of Cash Flows .................................. F-8
Notes to the Financial Statements ................................. F-11
<PAGE>
USA Biomass Corporation
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(unaudited)
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 86,000 $ 1,362,000
Accounts receivable, net of allowance for doubtful
accounts 2,017,000 862,000
Receivable from affiliates 45,000 26,000
Other current assets 1,012,000 129,000
Net current assets of discontinued operations 1,853,000 1,249,000
----------- -----------
Total current assets 5,013,000 3,628,000
Property and equipment, net of accumulated depreciation 15,992,000 7,584,000
Other assets 29,000 32,000
Intangible assets, net of accumulated amortization 3,019,000 392,000
----------- -----------
Total assets $24,053,000 $11,636,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
USA Biomass Corporation
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(Unaudited)
--------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,408,000 $ 1,747,000
Accrued liabilities 1,110,000 1,355,000
Lines of credit 1,640,000 640,000
Notes payable:
Affiliates 40,000 191,000
Other 1,216,000 728,000
Capitalized lease obligations 1,648,000 810,000
------------ ------------
Total current liabilities 9,062,000 5,471,000
Notes payable, net of current portion:
Affiliates 246,000 1,021,000
Other 6,342,000 2,333,000
Capitalized lease obligations, net of current portion 2,319,000 2,552,000
------------ ------------
Total liabilities 17,969,000 11,377,000
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock:
Series A, 9% Convertible Preferred Stock 6,000 7,000
Series C, 6% Convertible Preferred Stock 1,000 --
Common stock 22,000 19,000
Additional paid-in capital 32,015,000 25,235,000
Accumulated deficit (25,727,000) (24,782,000)
Notes receivable on common stock (115,000) (102,000)
Treasury stock (118,000) (118,000)
------------ ------------
Total shareholders' equity 6,084,000 259,000
------------ ------------
Total liabilities and shareholders' equity $ 24,053,000 $ 11,636,000
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
USA Biomass Corporation
Consolidated Statements of Operations
For the Three Month Periods Ended June 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 5,366,000 $ 1,837,000
Cost of revenues, less depreciation 4,267,000 1,455,000
--------- ---------
Gross margin 1,099,000 382,000
General and administrative expenses 688,000 198,000
Depreciation 657,000 156,000
Settlement gain (98,000) --
------- -----------
Operating income (loss) from continuing operations (148,000) 28,000
Interest expense, net 232,000 567,000
Change in Estimated Remediation Costs -- (400,000)
--------- -------
Loss from continuing operations and net loss $ 380,000 $ 139,000
=========== ===========
Net loss per common share, basic and diluted $ 0.09 $ 0.05
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
USA Biomass Corporation
Consolidated Statements of Operations
For the Six Month Periods Ended June 30, 2000 and 1999
(Unaudited)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 8,321,000 $ 3,904,000
Cost of revenues, less depreciation 6,457,000 3,083,000
--------- ---------
Gross margin 1,864,000 821,000
--------- ---------
General and administrative 1,210,000 863,000
Depreciation 1,066,000 568,000
Settlement gain (257,000) --
--------- ---------
Operating loss from continuing operations 155,000 610,000
Interest expense, net 374,000 702,000
Change in Estimated Remediation Costs -- (400,000)
---------- --------
Loss from continuing operations and net loss $ 529,000 $ 912,000
=========== ===========
Net loss per common share, basic and diluted $ 0.16 $ 0.15
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
USA Biomass Corporation
Consolidated Statements of Shareholders' Equity
For the Six Month Periods Ended June 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Shares Series A
Preferred Preferred Common Held in Preferred
Shares Shares Shares Treasury Stock
---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 747,500 394,414 7,761,385 (24,000) 7,000
Net loss -- -- -- -- --
Balance, June 30, 1999 --------- -------- --------- --------- ---------
747,500 394,414 7,761,385 (24,000) 7,000
======== ======= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Common Retained
Series B Stock Additional Earnings
Preferred Common Held in Paid In (Accumulated
Stock Stock Treasury Capital Deficit) Total
--------- ------ -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 4,000 16,000 $(118,000) $21,970,000 $(15,057,000) $6,822,000
Net loss -- -- -- -- (912,000) (912,000)
--------- -------- --------- ------------ ------------- ----------
Balance, June 30, 1999 4,000 $16,000 $(118,339) $21,970,000 $(15,969,000) $5,910,000
======== ======= ========== ============ ============= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
USA Biomass Corporation
Consolidated Statements of Shareholders' Equity
For the Six Month Periods Ended June 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series C Shares Series A
Preferred Preferred Common Held in Preferred
Shares Shares Shares Treasury Stock
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 742,200 -- 9,509,856 (24,250) $ 7,000
Conversion of Series A Convertible Preferred
Stock to common stock (126,700) -- 228,060 -- (1,000)
Common stock issued on exercise of stock options -- -- 350,750 -- --
Issuance of Series C Preferred stock -- 3,000 -- -- --
Shares issued in acquisition -- -- 1,000,000 -- --
Payment of Series A Dividends -- -- -- -- --
Shares issued in payment of
Debt -- -- 200,000 -- --
Payment of Notes Receivable -- -- -- -- --
Net loss -- -- -- -- --
------------ ---------- ----------- ----------- -----------
Balance, June 30, 2000 615,500 3,000 11,288,666 (24,250) $ 6,000
============ ========== =========== =========== ===========
Common Retained
Series C Stock Additional Earnings
Preferred Common Held in Paid-in (Accumulated
Stock Stock Treasury Capital Deficit)
------------ ------------ ------------ ------------ --------------
Balance, December 31, 1999 -- $ 19,000 $ (118,000) $25,235,000 $(24,782,000)
Conversion of Series A Convertible Preferred
Stock to common stock -- -- -- 1,000 --
Common stock issued on exercise of stock options -- 1,000 -- 738,000 --
Issuance of Series C Preferred stock $1,000 -- -- 2,696,000 --
Shares issued in acquisition -- 2,000 -- 2,645,000 --
Payment of Series A Dividends -- -- -- -- (416,000)
Shares issued in payment of debt -- -- -- 700,000 --
Payments of notes receivable -- -- -- -- --
Net loss -- -- -- -- (529,000)
---------- ----------- ----------- ----------- -----------
Balance, June 30, 2000(Unaudited) $1,000 $ 22,000 $ (118,000) $ 32,015,000 $(25,727,000)
========== =========== =========== =========== ===========
Notes
Receivable on
Common
Stock Total
---------- ------------
Balance, December 31, 1999 $(102,000) $ 259,000
Conversion of Series A Convertible Preferred
Stock to common stock -- --
Common stock issued on exercise of stock options (50,000) 689,000
Issuance of Series C Preferred stock -- 2,697,000
Shares issued in acquisition -- 2,647,000
Payment of Series A Dividends -- (416,000)
Shares issued in payment of debt -- 700,000
Payment of Notes receivable 37,000 37,000
Net loss -- (529,000)
--------- ------------
Balance, June 30, 2000(Unaudited) $(115,000) $ 6,084,000
========= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
Statements.
F-7
<PAGE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(529,000) $ (912,000)
----------- -----------
Net loss from continuing operations (529,000) (912,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,066,000 508,000
Loss on sale of assets 12,000
Decrease (increase) in assets:
Accounts Receivable (555,000) (224,000)
Other current assets (632,000) 328,000
Other assets (5,000) ( 85,000)
Notes receivable (350,000)
Increase (decrease) in liabilities:
Accounts payable 319,000 1,130,000
Accrued liabilities (245,000) (40,000)
----------- -----------
Net cash provided by (used) in operating
activities of continuing operations (581,000) 367,000
Net cash used in operating
activities of discontinued activities (604,000) 152,000
----------- -----------
Cash provided by (used) in operating activities (1,185,000) 519,000
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows provided by (used in) investing
Activities:
Purchase of property and equipment $(1,264,000) $(420,000)
Sales of property and equipment 11,000
Acquisition of AWT (288,000) -
----------- -----------
Net cash provided by (used in) investing
Activities of continuing operations (1,552,000) (409,000)
----------- -----------
Cash flows provided by (used in) financing activities:
Proceeds from line of credit --
Proceeds from notes and loans 174,000 1,025,000
Repayment of notes, loans, leases (1,683,000) (1,631,000)
Proceeds from sale of Preferred Stock 2,697,000
Proceeds from exercise of options 689,000
Payment of dividends (416,000)
Decrease in long term accruals (67,000)
----------- -----------
Net cash provided by (used in) financing
activities of continuing operations 1,461,000 (673,000)
Net cash provided by (used in) financing
activities of discontinued operations -- --
----------- -----------
Cash provided by (used in) financing activities 1,461,000 (673,000)
----------- ----------
Net increase (decrease) in cash (1,276,000) (563,000)
Cash and equivalent at beginning of period 1,362,000 801,000
----------- ----------
Cash and equivalents at end of period $ 86,000 $ 238,000
=========== ==========
Cash paid during the period for:
Interest:
Continuing operations 287,000 465,000
Discontinued operations -- 315,000
----------- -----------
$ 287,000 $ 780,000
=========== ===========
</TABLE>
F-9
<PAGE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Six Month Periods Ended June 30, 2000 and 1999
(Unaudited)
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
------- -------
<S> <C> <C>
Supplemental Schedule of Non-Cash Investing and
Financing Activities of Continued Operations
Satisfaction of debt through issuance of stock:
Liabilities satisfied $ 700,000
Common stock issued (700,000)
Acquisition of business:
Fair value of assets acquired 8,229,000
Liabilities assumed (5,354,000)
Consideration paid:
Cash (228,000)
Stock (2,647,000)
Assets acquired in non-cash transactions:
Assets acquired 3,280,000
Liabilities incurred (3,280,000)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
As of June 30, 2000
For the Six Month Periods Ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
1. Discontinued Operations
On December 22, 1998, the Company adopted a plan to dispose of its
agribusiness and real estate operations. In October 1999, the Company
transferred substantially all of its remaining real estate assets and
related liabilities to AMCOR Financial Corp. ("AFC"), a then wholly owned
subsidiary. In January 2000, the Company distributed to its common and
preferred shareholders all of its AFC common shares. The Company has
disputes with AFC regarding the nature and amount of assets and liabilities
transferred to AFC. Further, all the regulatory requirements related to the
distribution of the AFC shares to the Company's shareholders may not have
been satisfied. As a result, the Company continues to record its investment
related to these real estate assets as net assets of discontinued
operations in the consolidated balance sheets.
At June 30, 2000, the remaining assets of the discontinued operations are
the Company's receivable from a partnership that owned a golf course sold
in foreclosure in February 2000, certain housing development land in Texas,
and a 50% interest in PS III Farms, LLC, which owns 6,490 acres that it
leases to a limited liability company owned by the other 50% venture
partner. The real estate assets have been pledged as collateral on notes
payable on which the Company is primarily liable totaling $3,181,000 at
June 30, 2000, which is included in the net assets of discontinued
operations. The lender that foreclosed upon the golf course property
notified the Company that a deficiency of $2,400,000 exists after the
foreclosure and in April 2000 filed a related lawsuit. The parties have
mutually agreed to settle the matter and negotiations are now in process.
2. Loss per Common Share
Basic and diluted loss per common share have been computed by dividing the
loss available to common stockholders by the weighted-average number of
common shares for the period. Loss available to common stockholders is the
loss after 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 loss per share would be antidilutive.
F-11
<PAGE>
The computations of basic and diluted loss per common share are as follows:
<TABLE>
<CAPTION>
Six month period ended
June 30
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Loss from continuing operations $ 529,000 $ 912,000
Add: dividends on preferred
shares-declared 416,000 --
Add: dividends on preferred shares
- cumulative, not declared 692,000 229,000
----------- -----------
Net loss available to common
shareholders $ 1,637,000 $ 1,141,000
=========== ===========
Weighted average shares - basic and
diluted 10,399,000 7,761,000
=========== ===========
Net loss per share available to
Common shareholders - basic and
diluted $ .16 $ 0.15
=========== ===========
Three month period ended
June 30
-------------------------
2000 1999
----------- -----------
Loss from continuing operations $ 380,000 $ 139,000
Add: dividends on preferred
shares-declared -- --
Add: dividends on preferred shares
- cumulative, not declared 692,000 229,000
----------- -----------
Net loss available to common
shareholders $ 1,072,000 $ 368,000
=========== ===========
Weighted average shares - basic and
diluted 11,289,000 7,761,000
=========== ===========
Net loss per share available to
Common shareholders - basic and
diluted $ .09 $ 0.05
=========== ===========
</TABLE>
F-12
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
As of June 30, 2000
For the Six Month Periods Ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
2. Loss per Common Share, Continued
The effect of the potentially dilutive securities listed below were not
included in the computation of diluted earnings per share because to do so
would have been antidilutive for the periods presented.
Three month period Ended June 30,
----------------------------------
2000 1999
--------- ---------
Shares of common stock issuable under:
Employee stock options 256,100 982,883
Warrants 239,500 479,500
Series A Convertible Preferred Stock 1,107,000 1,345,500
Series B Convertible Preferred Stock -- 591,621
Series C Convertible Preferred Stock 340,000 --
Six month period Ended June 30,
----------------------------------
2000 1999
--------- ---------
Shares of common stock issuable under:
Employee stock options 256,100 982,883
Warrants 239,500 479,500
Series A Convertible Preferred Stock 1,107,000 1,345,500
Series B Convertible Preferred Stock -- 591,621
Series C Convertible Preferred Stock 340,000 --
3. Business Segments
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
F-13
<PAGE>
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Each of these operating segments is considered a reportable segment. The
Company evaluates the performance of its segments and allocates resources
to them based on revenue and EBITDA. The Company defines EBITDA as earnings
before interest, income taxes, depreciation and amortization, and other
nonoperating income and expense.
Certain financial information is presented below:
<TABLE>
<CAPTION>
Green Waste Waste
Recycling Transport Other Total
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Six months ended June 30, 2000:
Revenue $ 1,513,000 $ 6,808,000 -- $ 8,321,000
EBITDA 251,000 856,000 $ (196,000) 911,000
Assets 2,449,000 18,070,000 3,534,000 24,053,000
Depreciation and amortization 176,000 888,000 2,000 1,066,000
Interest, net 22,000 299,000 53,000 374,000
Six months ended June 30, 1999:
Revenue 1,207,000 2,697,000 -- 3,904,000
EBITDA (91,000) 462,000 (13,000) 358,000
Assets 1,581,000 6,180,000 18,788,000 26,549,000
Depreciation and amortization 215,000 331,000 22,000 568,000
Interest, net 93,000 218,000 391,000 702,000
</TABLE>
4. Acquisition of American Waste Transport
In March 2000, the Company acquired substantially all of the outstanding
shares of American Waste Transport ("AWT") for cash in the amount of
$750,000 and up to one million shares of the Company's common stock,
subject to resolution of certain contingencies. This business combination
is to be accounted for using the purchase method.
The following unaudited pro forma consolidated results of operations are
presented as if the acquisition of AWT had taken place at January 1, 2000
and 1999.
Six month period Ended June 30,
----------------------------------
2000 1999
---------- ----------
Revenue $10,474,000 $10,383,000
=========== ===========
Net loss from continuing operations $ 500,000 $ 773,000
=========== ==========
Net loss $ 500,000 $ 773,000
========== ==========
F-14
<PAGE>
The assets and liabilities of AWT included in the consolidated balance
sheet at June 30, 2000 follows:
Current assets:
Cash $ 31,000
Accounts receivable 1,106,000
Other current assets 636,000
-----------
Total current assets 1,773,000
Property and equipment 7,292,000
Goodwill 2,656,000
-----------
Total assets $11,721,000
===========
Current liabilities:
Accounts payable $ 1,942,000
Line of credit 1,989,000
Capitalized leases and notes payable 1,431,000
Other current liabilities 610,000
-----------
Total current liabilities 5,972,000
Capitalized leases and notes payable 2,318,000
-----------
8,290,000
Equity 3,431,000
-----------
Total liabilities and shareholders' equity $11,721,000
===========
F-15
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
As of June 30, 2000
For the Six Month Periods Ended June 30, 2000 and 1999
--------------------------------------------------------------------------------
5. Sale of Series C Convertible Preferred Stock
In March 2000, the Company issued 3,000 shares of its Series C Convertible
Preferred stock at $1,000 per share. In conjunction with the offering, the
Company issued warrants to purchase 100,000 shares of the Company's common
stock at $4.65 per share. The warrants may be exercised at any time until
they expire on June 30, 2005.
The Series C Convertible Preferred shares may be converted at any time at
$4.65 per share and provide for a 6% annual dividend rate. In addition, the
Company is precluded from payment of dividends on or purchase of its common
stock.
A portion of the proceeds of this offering was used for the AWT acquisition
described above and for the payment of dividends on the Series A
Convertible Preferred stock. The remaining proceeds of this offering will
be used for working capital.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company's operations at June 30, 2000 included: (i) "clean green" waste
processing and recycling ("biomass") and (ii) contract waste transport services.
During 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, Inc., formerly USA Waste Services
("Waste Management"). During the second half of 1998, in light of the Company's
strategic alliance with Waste Management and related existing 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 a Plan of Discontinued Operations (the "Plan") pursuant to
which the Company will discontinue its agribusiness and land
F-16
<PAGE>
planning/development activities and will focus on its solid waste transportation
and biomass activities. In addition, on January 12, 1999, the Board of Directors
approved a change in the Company's fiscal year end to December 31.
Implementation of the Plan has had a material impact on the presentation of the
Company's financial statements. All business activity, cash flows and net assets
of these operations for the year ended December 31, 1999, and for the six months
ended June 30, 2000 have been classified as discontinued operations, and the
assets of these operations have been reduced to the lower of cost or net
realizable value.
Results of Operations
The Company's continuing operations consist of solid waste transportation and
biomass activities, which include green waste recycling. The Company sold its
unprofitable municipal tree maintenance operations in 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 the six months ended June
30, 2000, reflect exclusively its biomass activities and waste transport
revenue, whereas revenues for the six months ended June 30, 1999, also reflect
$363,000 of revenues from tree maintenance operations which were sold late in
the first quarter, 1999. Revenues for the three months ended June 30, 2000 were
$5,366,000, which included $3,070,000 of second quarter revenues from the
acquisition of American Waste Transport ("AWT") in March 2000, and were up
significantly (192%) from $1,837,000 for the three months ended June 30, 1999.
Overall, revenues for the six-months ended June 30, 2000 were $8,321,000, up
113% from revenues of $3,904,000 for the comparable prior six month period,
which increase included $4,052,000 of revenue from AWT. The Company expects
revenues to continue to increase in fiscal 2000 as the transportation division
revenues grow both internally as new contracts are phased in, and as the Company
expands its biomass operations, and from acquisitions, such as AWT.
Cost of Revenues:
Cost of revenues (excluding $657,000 of depreciation) of $4,267,000 for the
three months ended June 30, 2000, were up $2,812,000 (193%) from $1,455,000 for
the comparable three month period ending June 30, 1999, mainly from internal
growth in biomass activities, and from the acquisition of AWT which generated a
comparable 192% increase in revenues. This resulted in a gross profit from
operations (excluding
F-17
<PAGE>
depreciation) of $1,099,000 (20%) compared to $382,000 (21%) for the prior
year's three month period. For the six months ending June 30, 2000 cost of
revenues were $6,457,000, up $3,374,000 (69%) from the prior six month period,
due largely from the AWT acquisition which resulted in revenues increasing 113%
for the six month period. Overall, the six months ended June 30, 2000, generated
a gross profit (before depreciation) of $1,861,000 (22%) compared to a gross
profit of $821,000 (21%) the prior six month period. Management expects margins
to improve in future periods, as cost savings are realized through the
elimination of duplicate facilities and personnel related to the AWT
acquisition, which will be reflected in the third and fourth quarters.
General and Administrative Expenses:
For the three months ended June 30, 2000, total general and administrative
expenses of $688,000 compared to $198,000 for the comparable three month period
ending June 30, 1999, the 247% increase related to the acquisition of AWT which
increased revenues by 192% for the quarter. For the six-months ended June 30,
2000, total general and administrative expense of $1,210,000 as compared to
$863,000 the prior six month period, up 40% due to the acquisition of AWT, which
resulted in revenues increasing 113% for the six month period.
Settlement Gain:
During the three months ended June 30, 2000, the Company realized a settlement
gain of $98,000 based on proceeds received from the settlement of a lawsuit in
late 1999. The total settlement gain for the six months ending June 30, 2000 was
$257,000. There was no such gain in the comparable 1999 periods.
Interest Expense, Net of Interest Income:
For the three months ended June 30, 2000, interest expense, net of interest
income was $232,000, a decrease of $335,000 (59%) from the comparable three
month period ending June 30, 1999. For the six months ended June 30, 2000,
interest expense was $374,000, compared to $702,000 for the comparable six month
period ended June 30, 1999, the 47% decrease in interest due largely to the
Company's 42% reduction in debt during 1999.
Results from Continuing Operations:
For the three months ended June 30, the Company reported a loss from continuing
operations of $380,000 compared to a net loss of $139,000 for the comparable
three month period ending June 30, 1999, which prior period included a $400,000
credit for estimated remediation costs. For the six months ended June 30, 2000,
the loss from continuing operations was $529,000, compared to a loss of $912,000
the comparable prior six month period ended June 30, 1999. The prior year's loss
was largely due to lower revenues not sufficient to absorb fixed costs, as the
Company's new biomass business was operating below capacity. Future operating
results are expected to continue to improve as management eliminates duplicate
facilities and personnel functions related to the AWT acquisition, which will be
reflected in the third and fourth quarters.
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Results of Discontinued Operations:
For the three months ended June 30, 2000, results from discontinued operations
were zero, the same as the comparable three month period ending June 30, 1999,
mainly due to the previous accrual of all operating losses for discontinued
operations.
Liquidity and Capital Resources:
The Company's overall financial condition as of June 30, 2000, as compared to
December 31, 1999, has improved considerably with shareholders' equity
increasing over $5.8 million to $6.1 million, due primarily to the issuance of
$3 million of new preferred stock and from the acquisition of AWT -- both
transactions occurring in March 2000. During 1999, total debt was reduced by
$8.3 million (42%) to $11.4 million, which has yielded significant interest
savings. (The acquisition of AWT combined with the purchase of additional
equipment did cause total debt to increase to $18.0 million at June 30, 2000.)
In addition, revenues from expanding biomass operations increased 113% over the
comparable prior six month period exceeding all of 1999's revenues which were
$7.6 million. This increase is largely due to the acquisition of AWT which, when
consolidated with the Company, should generate revenues at the annual rate
exceeding $20 million, and with improving margins, should generate adequate
funds for operations. For example, for the six months ended June 30, 2000,
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was
$911,000 compared to $358,000 the comparable prior six month period, a 154%
increase. Margins are expected to continue to improve, as an estimated $l
million of cost reductions are realized through the elimination of duplicate
facilities and personnel functions related to the AWT acquisition. Moreover, USA
Biomass now has a contractual backlog in place approximating $350 million with
terms generally exceeding 10 years or longer, ensuring consistent revenue for
future periods.
The Company's current ratio, at .55, has not improved from .66 at December 31,
1999. This is primarily due to over $1.4 million of term notes becoming current
in the first and second quarter, which the Company intends to refinance during
2000 including the expenditure of $1,000,000 for capital equipment. However,
liquidity is expected to improve during 2000 as a result of the following: (i)
the intense management of cash flow; (ii) the Company is currently negotiating
to significantly expand both senior and/or subordinated debt to fund working
capital related to the Company's large contract backlog; (iii) during 2000 the
Company expects to liquidate all or a part of its $2.5 million agricultural
property investment, (iv) the Company has tax-loss carry-forwards exceeding $22
million which can be applied to shelter future earnings thereby enhancing cash
flow, and (v) the Company intends to, where appropriate, make acquisitions using
its common stock for the generation of earnings and cash flow. It is for the
foregoing reasons that the Company believes that its liquidity needs for the
year 2000 will be sufficiently satisfied. Moreover, with its discontinued
operations now partially liquidated, the Company has strategically positioned
itself to
F-19
<PAGE>
profitably capitalize on the numerous opportunities now available in the biomass
industry.
Year 2000 Compliance
To date management of the Company believes that its software packages currently
in use are Year 2000 compliant. Management does not expect that the financial
impact of required modification to such software, if any, will be material to
the Company's financial position, cash flows or results of operations in any
given year.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In December 1997, a judgment was entered against the Company and two of its
officers, who are also shareholders. The Company has filed an appeal of this
judgment.
On April 5, 2000, a bank filed a lawsuit against the Company related to a
deficiency pertaining to real property the bank foreclosed on in Texas which are
part of its discontinued operations.. The Company intends to vigorously defend
against this lawsuit and believes that it has recorded its liability related
thereto in its financial statement. Based on recent negotiations with the bank,
the Company believes the matter will be completely settled during the third
quarter and, in any event, the Company does not expect that this matter will
have a material adverse effect on the Company's financial condition or results
of operations.
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. The total amount of
dividend arrearages was $692,447.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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<PAGE>
Item 5. Other Information
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
1 Not applicable
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)
3.4 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 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)
3.7 Bylaws of the Company, as amended (4)
4.1 Certificate of Designations, Preferences and Relative Rights,
Qualifications and Restrictions of the Series C 6% Convertible
Preferred Stock of the Company filed with the Secretary of State
of Delaware on April 13, 2000 (9)
4.2 Trust Indenture between the Company and First City Bank of Dallas
(2)
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<PAGE>
10.1 Stock Option Agreement dated July 2, 1990 between the Company and
Fred H. Behrens (6)
10.2 Stock Option Agreement dated July 2, 1990 between the Company and
Robert A. Wright (6)
10.3 Stock Option Agreement dated July 2, 1990 between the Company and
Marlene A. Tapie (6)
10.4 Stock Acquisition Agreement dated as of November 25, 1997 by and
among Gus Franklin and Susan K. Franklin, the Company and TPE (1)
10.5 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)
10.6 Commercial Lease dated effective as of November 1, 1998 by and
between Desert Mist Cooling and the Company (1)
10.7 Securities Purchase Agreement dated March 14, 2000 by and between
Siete Investors LLC, a Delaware limited liability company, and
the Company, including Registration Rights Agreement as exhibit
thereto(8)
10.8 Agreement and Plan of Merger dated March 1, 2000 by and between
Fred Alexander, Linda Alexander, AWT Acquisition Corp., AGI
Acquisition Corp., American Waste Transport, Inc. and American
Green Waste, Inc. (9)
11. Statement re: Computation of Per Share Earnings (Loss)(5)
21 Subsidiaries of the Company (7)
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, for event dated March 1, 2000, incorporated herein by this
reference as filed with the Commission on March 15, 2000, reporting on Item 2,
Acquisition of Assets, in connection with the acquisition of 100% of the common
stock of American Waste Transport, Inc. from Fred and Linda Alexander,
non-affiliates of the Company.
Form 8-K, for event dated April 8, 2000, incorporated herein by this
reference as filed with the Commission on April 17, 2000, reporting on Item 5,
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<PAGE>
Other Events, in connection with the grant of a leave of absence to Robert A.
Wright from the service of the Company as president of the Company.
Form 8-K, for event dated April 19, 2000, incorporated herein by this
reference as filed with the Commission on April 20, 2000, reporting on Item 5,
Other Events, in connection with the filing of a pro forma balance sheet at
February 29, 2000, to exhibit the Company's compliance with the NASDAQ net
tangible equity requirement for continued listing on the Small Cap Quotation
Service.
----------
(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.
(5) Included in Financial Statements
(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.
(8) Filed as an exhibit to the Company's Form 10-KSB filed with the Commission
on April 14, 2000, and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Form 10-QSB filed with the Commission
on May 15, 2000, and incorporated herein by reference.
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements 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, in the City of Bell Gardens, State of
California.
Date: August 14, 2000
USABiomass, Inc.,
a Delaware corporation
By: /s/ Fred Behrens
----------------------------------
Fred Behrens
Its: Chief Executive Officer
By: /s/ Eugene W. Tidgewell
----------------------------------
Eugene W. Tidgewell
Its: Chief Financial Officer
