SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
(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.)
7314 SCOUT AVENUE, BELL GARDENS, CALIFORNIA 90201
(Address of principal executive offices) (Zip Code)
(562) 928-9900
(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 August 31, 1998. The financial information presented reflects all
adjustments, consisting only of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair statement of the results for the
periods presented.
<PAGE>
USA Biomass Corporation
(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>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Balance Sheets
December 31, 1998 and August 31, 1998
(Amounts in Thousands)
ASSETS
(Unaudited)
December 31, August 31,
1998 1998
----------- -----------
Current assets:
Cash and equivalents $767 $828
Accounts receivable 526 336
Due from officers and directors -- 914
Income taxes recoverable 293 293
Other current assets 423 168
Net current assets of discontinued
operations 8,338 7,399
----------- -----------
Total current assets 10,347 9,938
Property and equipment, net 9,104 3,795
Note receivable, noncurrent 6,462 7,250
Other assets 128 30
Intangible assets, net 442 458
----------- -----------
Total assets $26,483 $21,471
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
<PAGE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Balance Sheets
December 31, 1998 and August 31, 1998
(Amounts in Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
December 31, August 31,
1998 1998
----------- -----------
Current liabilities:
Accounts payable:
Officers and directors -- $90
Others $1,944 1,266
Payroll taxes payable 891 1,065
Accrued remediation costs 507 507
Line of credit 875 250
Payable to affiliates 521
Notes payable:
Related parties 2,268 1,867
Other 979 837
Capitalized lease obligations 682 360
Income taxes payable 335 3
Accrued interest 284 163
----------- -----------
Total current liabilities 9,286 6,408
Notes payable, net of current portion:
Related parties 597 1,196
Officers and directors -- 955
Other 6,262 471
Capitalized lease obligations, net of current
portion 3,516 932
Net noncurrent liabilities of discontinued
operations (Note 3) -- 2,654
----------- -----------
Total liabilities 19,661 12,616
Commitments and contingencies
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
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
(Unaudited)
December 31, August 31,
1998 1998
----------- -----------
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,
$0.01 par value; cumulative nonvoting,
$4,044,140 aggregate liquidation preference;
750,000 shares authorized, 394,414 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) (15,057) (13,024)
Treasury stock, at cost (24,250) common shares
at December 31 and August 31, 1998) (118) (118)
----------- -----------
Total shareholders' equity 6,822 8,855
----------- -----------
Total liabilities and shareholders' equity $26,483 $21,471
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Operations
For the Four Months Ended December 31, 1998 and 1997
(Amounts in Thousands)
(Unaudited) (Unaudited)
1998 1997
----------- -----------
Revenues $2,025 $406
Costs and expenses:
Cost of revenues 1,694 634
General and administrative expenses 1,153 678
Other expense 4 --
Interest expense, net of interest income 389 86
----------- -----------
3,240 1,398
----------- -----------
Loss from continuing operations
before income taxes (1,215) (992)
(Expense)/benefit from income taxes (3) 334
----------- -----------
Loss from continuing operations (1,218) (658)
----------- -----------
Discontinued operations:
Loss from disposal of discontinued asset 815 --
Income from discontinued operations -- 12
----------- -----------
Net loss $(2,033) $(646)
=========== ===========
Loss from continuing operations per common
share, basic and diluted $(0.20) $(0.12)
====== ======
Net loss per common share,
basic and diluted $(0.31) $(0.12)
====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Consolidated Statements of Operations
For the Three Months Ended December 31, 1998 and 1997
(Amounts in Thousands)
(Unaudited) (Unaudited)
1998 1997
------- -------
Revenues $ 1,714 $ 361
Costs and expenses:
Cost of revenues 1,315 304
General and administrative expenses 857 437
Other (income) expense (93) --
Interest expense, net of interest income 430 60
------- -------
2,509 801
------- -------
Loss from continuing operations
before income taxes (795) (440)
(Expense) Benefit from income taxes (3) 147
------- -------
Loss from continuing operations (798) (293)
------- -------
Discontinued operations:
Loss from disposal of discontinue asset 815 --
Income from discontinued operations -- 6
------- -------
Net loss $(1,613) $ (287)
======= =======
Loss from continuing operations per common
share, basic and diluted $ (0.24) $ (0.06)
======= =======
Net loss per common share,
basic and diluted $ (0.35) $ (0.06)
======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
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)
Series A Series B
Preferred Preferred Common
Shares Shares Shares
---------- ---------- ----------
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
Share cancellation -- (10,000) --
Net loss -- -- --
---------- ---------- ----------
Balance, December 31, 1998 747,500 394,414 7,761,385
========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE>
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)
Common Series A Series B
Treasury Preferred Preferred
Shares Shares Shares
------- ------- -------
(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
Share cancellation -- -- --
Net loss -- -- --
------- ------- -------
Balance, December 31, 1998 (24,250) $ 7 $ 4
======= ======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
F-8
<PAGE>
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)
Treasury Additional
Common Common Paid-in
Stock Stock Capital
-------- -------- --------
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
Share cancellation -- -- --
Net loss -- -- --
-------- -------- --------
Balance, December 31, 1998 $ 16 $ (118) $ 21,970
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-9
<PAGE>
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)
Accumulated
Earnings(Deficit) Total
---------------- --------
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
Share cancellation -- --
Net loss (2,033) (2,033)
-------- --------
Balance, December 31, 1998 $(15,057) $ 6,822
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-10
<PAGE>
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)
December 31, August 31,
1998 1998
-------- --------
Cash flows from operating activities:
Net income (loss) $ (2,033) $(15,786)
Add loss (deduct income) from discontinued
operations -- 9,947
-------- --------
Net loss from continuing operations (2,033) (5,839)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 285 358
Uncollectible receivables 15 --
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 (205) (98)
Income taxes recoverable -- (293)
Other current assets (178) 710
Due from related parties -- 240
Other assets (98) 3
Increase (decrease) in liabilities,
net of effect of acquisition of
TransPacific Environmental, Inc.:
Accounts payable 678 (401)
Payroll taxes payable (174) 88
Income taxes payable -- (1,033)
Accrued interest payable 121 (182)
Deferred taxes -- (56)
Payable to affiliates (11) --
-------- --------
Net cash used in operating
activities of continuing operations (664) (3,866)
Net cash used in operating
activities of discontinued operations (406) (6,105)
-------- --------
Cash used in operating activities (1,675) (9,971)
-------- --------
The accompanying notes are an integral part of the
consolidated financial statements.
F-11
<PAGE>
USA Biomass Corporation
(Formerly AMCOR Capital Corporation)
Forthe Year Ended August 31, 1998 and the Four Months ended
December 31, 1998 (Unaudited)
December 31, August 31,
1998 1998
------- -------
Cash flows provided by (used in)
investing activities:
Purchases of property and equipment $ (166) $ (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 (166) (440)
Net cash provided by investing
activities of discontinued operations -- 4,199
------- -------
Cash provided by (used in) investing operations (166) 3,759
------- -------
Cash flows provided by (used in) financing activities:
Proceeds from line of credit 625 250
Proceeds from notes and loans 1,570 2,229
Repayment of notes and loans (374) (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 -- (33)
Exercise of stock options -- 62
------- -------
Net cash provided by financing activities
of continuing operations 1,781 4,521
Net cash provided by (used in) financing
activities of discontinued operations -- 2,339
------- -------
Cash provided by financing activities 1,781 6,860
------- -------
Net increase (decrease) in cash (60) 648
Cash and equivalents at beginning of year 828 180
------- -------
Cash and equivalents at end of year $ 767 $ 828
======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
F-12
<PAGE>
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
December 31, August 31,
1998 1998
-------- --------
Cash paid during the year for:
Interest:
Continuing operations $ 189 $ 838
Discontinued operations 384 521
-------- --------
$ 573 $ 1,359
======== ========
Income taxes -- 332,589
======== ========
Supplemental Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations
Assets acquired (disposed of) in non-cash transactions:
Assets acquired 5,486,636 $ 1,141,225
Receivables from related parties incurred 2,905,733 815,184
Capital lease obligations incurred 2,580,903 (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)
The accompanying notes are an integral part of the
consolidated financial statements.
F-13
<PAGE>
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 Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations,
Continued
December 31, August 31,
1998 1998
----------- -----------
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)
The accompanying notes are an integral part of the
consolidated financial statements.
F-14
<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.
F-15
<PAGE>
2. Summary of Significant Accounting Policies, Continued
Cash and Equivalents
Cash and equivalents include short-term, highly liquid instruments with original
maturities of three months or less.
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
contracts. 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
operating 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.
F-16
<PAGE>
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.
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 22, 1998, the Company adopted a formal plan to discontinue its agri-
business and real estate operations and to sell the related assets and assign
related liabilities 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.
F-17
<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
The note receivable at December 31, 1998, resulted from sale of a portion of the
Company's discontinued operations. In August 1999, the Company sold this note.
The terms of this sale provide for the Company to receive up to an additional
$500,000 if the note is paid by August 2000. This amount decreases monthly until
July 2002. If the note is paid after July 2002, the Company will not realize any
additional amounts. Any additional amounts received will be recorded as income
when received.
F-18
<PAGE>
5. Deferred Income Taxes
The components of the provision for income taxes are as follows:
(Amounts in Thousands)
December 31, August 31,
1998 1998
----------- -----------
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%
======== ========
F-19
<PAGE>
5. 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.
6. 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:
December 31, 1998 August 31, 1998
-------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- --------- ------- --------
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 30,000 -- (150,000) 4.60
Forfeited -- -- (17,500) 3.14
---------- ----- --------- -----
Outstanding at end of year 982,883 2.43 1,012,883 2.43
========== ===== ========= =====
The following table summarizes information about stock options outstanding at
December 31, 1998:
Weighted Average
Range of Outstanding at Remaining contractual Exercisable at
Exercise Prices December 31, 1998 Life (in Years) December 31, 1998
--------------- --------------- --------------------- ---------------
$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
5.00 120,000 10 37,500
----------- ---------
1.30 to 5.00 982,883 603,735
=========== =========
F-20
<PAGE>
6. 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 valuation
models are highly subjective, particularly the expected stock price volatility
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
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 $(2,033,064) $(658,000)
Net income (loss), pro forma $(2,069,014) $(663,125)
Basic earnings (loss) per share, as reported $(0.31) $(0.12)
Basic earnings (loss) per share, pro forma $(0.31) $(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-21
<PAGE>
6. 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:
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
-------- -------- -------- --------
Outstanding at beginning of year 479,500 $3.29 362,500 $1.66
Granted -- -- 117,000 $1.63
-------- ------- -------- --------
Outstanding at end of year 479,500 3.29 479,500 3.29
======== ======= ======== ========
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
Factor Yield Interest Rates (In Years)
- - ----------------------- ---------- -------- -------------- ----------
1998 warrant grants .032 0% 5.20% 5
1997 warrant grants 1.08 to 1.184 0% 5.34% 3
F-22
<PAGE>
7. 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 $(1,218,514) $ (658,000)
Add: dividends on preferred shares -
declared 0 (168,000)
Add: dividends on preferred shares -
cumulative, not declared (297,133) 0
----------- -----------
Loss to common shareholders (1,515,647) (906,000)
Income (loss) from discontinued operations (814,550) 12,000
----------- -----------
Net (loss) available to common
shareholders $(2,330,197) $ (894,000)
=========== ===========
Weighted average shares - basic and
diluted 7,737,135 7,319,507
=========== ===========
Loss per share from continuing operations $ (0.20) $ (0.12)
----------- -----------
Net (loss) per share available to common
shareholders $ (0.31) $ (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-23
<PAGE>
7. 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.
8. Amendment to Financial Statements
The Company has amended its December 31, 1998 financial statements to
reflect an increase in the loss on the disposal of an asset in discontinued
operations.
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 the Company has
determined that with the continued growth of waste transportation and biomass,
financed by the liquidation of assets from discontinued operations, its
conditions should 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 1.25 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 $1,714,000 were up
from $365,000 for the three months ending December 31, 1997, and revenues of
$2,025,000 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 $1,613,000 for the three months ending December 31, 1998,
<PAGE>
compared to net loss of $646,000 for the three months ending December 31, 1997,
and a net loss of $2,033,000 for the four months ended December 31, 1998,
compared to a $646,000 loss in the comparable four month period in 1997.
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 $1,714,000 were
up $1,353,000 (374%) from the comparable three month period ending December 31,
1997, and for the four months ended December 31, 1998, total revenues of
$2,025,000 were up $1,619,000 (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 $1,315,000 for the three months ended December 31, 1998,
increased $1,101,000 (333%) from the comparable three month period ending
December 31, 1997, and for the four months ended December 31, 1998, costs of
revenues of $1,694,000 increased $1,060,000 (167%) 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 its 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 $857,000 were up $420,000 (97%) from the comparable three month
period ending December 31, 1997, and for the four months ended December 31,
1998, general administrative expenses of $1,153,000 were up $475,000 (70%) 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 Expense
For the three months ended December 31, 1998, interest expense of $430,000
increased $370,000 (617%) from the comparable three month period ending December
31, 1997, and for the four months ended December 31, 1998, interest expense of
$389,000 increased $303,000 (352%) from the comparable 1997 period, mainly due
new debt incurred to finance the transport segment and ongoing corporate
interest.
Loss from Continuing Operations
For the three months ended December 31, 1998, loss from continuing operations of
$798,000 increased $358,000 (81%) 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 $1,218,000 increased $560,000 (85%) from the comparable 1997
period, mainly due to the $683,000 of losses in municipal tree maintenance.
Results of Discontinued Operations
For the three and four months ended December 31, 1998, the loss from disposal of
discontinued operations increased $815,000 from the comparable three and four
month period ended December 31, 1997 due to the adjustment of the net value
realized on the sale of a certain asset 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); and (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. However,
the Company had current liabilities of $9.0 million at December 31, 1998, and
$8.5 million at February 15, 1999, 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.
The Company 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 the Company's systems, 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
On January 22, 1999, Gus Franklin and Susan Franklin ("Franklins") filed a
compliant in Orange County Superior Court, 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 Franklins 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 Franklins 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
<PAGE>
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.
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: April 14, 2000 USA BIOMASS CORPORATION
/S/EUGENE W. TIDGEWELL
-----------------------
Eugene W. Tidgewell,
Chief Financial Officer
<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> 767
<SECURITIES> 0
<RECEIVABLES> 526
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,347
<PP&E> 9,104
<DEPRECIATION> 139
<TOTAL-ASSETS> 26,483
<CURRENT-LIABILITIES> 9,286
<BONDS> 0
7
4
<COMMON> 16
<OTHER-SE> 6,795
<TOTAL-LIABILITY-AND-EQUITY> 26,483
<SALES> 2,025
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (1,215)
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</TABLE>
