UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
PRE-EFFECTIVE AMENDMENT NO. 1 to
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Commission File Number 0-17594
USA BIOMASS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0329559
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7314 Scout Avenue, Bell Gardens, California 90201; telephone number
562.928.9900 (Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Tel. 949.660.9700 Facsimile 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
Approx. date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Title of each class Amount Proposed maximum Proposed maximum
of securities to be offering price aggregate Amount of
to be registered registered per share offering price registration fee
================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.002 par value 77,420(1) $3.35(2) $259,357.00 $68.47
================================================================================================================
Common Stock, $.002 par value 3,023,530(3) $2.62(4) $7,921,648.60 $2,091.31
================================================================================================================
Total registration fee $2,159.78
</TABLE>
(1) Represents shares of our common stock we anticipate paying out as dividends
on our Series C 6% Convertible Preferred Stock.
(2) Calculated pursuant to Rule 457(c) of Regulation C using the average of the
bid and ask prices per share of the Registrant's common stock, as reported on
the Nasdaq SmallCap Market for May 4, 2000.
(3) Represents the number of shares of our common stock that we are obligated to
register pursuant to a Registration Rights Agreement.
(4) Represents the conversion price of our Series C 6% Convertible Preferred
Stock into our common stock, calculated pursuant to the pricing provisions
specified in the Certificate of Designations of the Series C 6% Convertible
Preferred Stock.
<PAGE>
Preliminary Prospectus
USA BIOMASS CORPORATION,
a Delaware corporation
3,100,950 Shares of $.002 Par Value Common Stock
This Prospectus relates to 3,100,950 shares of our $.002 par value common stock.
We are registering these shares by filing a registration statement with the
Securities and Exchange Commission. 3,023,530 of these shares represent the
number of our common shares we are required to register pursuant to a
registration rights agreement with the Selling Stockholder, Siete Investors LLC,
a Delaware limited liability company. The other 77,420 shares are being
registered in anticipation of paying dividends which accrue on our Series C 6%
Convertible Preferred Stock. We have the right to pay those dividends in cash or
in shares of our common stock.
The Selling Stockholder is the only shareholder of our Series C 6% Convertible
Preferred Stock, and holds 3,000 shares of that preferred stock. Upon conversion
of those shares of preferred stock into our common stock, Siete Investors LLC
may offer all or some portion of those shares of our common stock for sale from
time to time. We will receive no part of the proceeds from any sale by Siete
Investors LLC of our common stock. Prospective purchasers of our common stock
should carefully review the "Risk Factors" section of this Prospectus beginning
on Page 3.
Our common stock is currently trading on The Nasdaq SmallCap Market under the
trading symbol "USBC". The Selling Stockholder may from time to time sell the
shares on The Nasdaq SmallCap Market, on any other national securities exchange
or automated quotation system on which our common stock may be listed or traded,
in negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The shares may be sold
directly or through brokers or dealers. On May 4, 2000, the average of the
closing bid and asked prices of our common stock as reported on the Nasdaq
SmallCap Market was $3.35.
The Selling Stockholder and any broker-dealers participating in the distribution
of shares of our common stock may be deemed to be "underwriters" within the
meaning of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
1933 Act.
The shares have not been registered for sale by the Selling Stockholder under
the securities laws of any state as of the date of this Prospectus. Brokers or
dealers effecting transactions in the shares should confirm the registration
thereof under the securities laws of the states in which transactions occur or
the existence of any exemption from registration.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 8, 2000
<PAGE>
PART I - INFORMATION REQUIRED IN PROSPECTUS
ITEM 3. Summary Information and Risk Factors.
Background of the Company. We were incorporated in Delaware on March 10, 1988.
For most of our history we engaged primarily in agribusiness and real estate
development with three core operating divisions: (i) growing, processing and
marketing fresh table grapes in southern California's Coachella Valley (near
Palm Springs), (ii) processing clean green waste as part of a State of
California recycling mandate, and (iii) developing real estate principally
related to a 1,350 acre residential subdivision and golf course located
southeast of San Antonio, Texas. We also hold a 50% ownership interest in a
6,000 acre irrigated potato and grain farm located in the Columbia River Basin
of Eastern Oregon, which includes certain Columbia River water rights. Although
we were one of the largest producers and shippers of "early market" table grapes
that are harvested from early May through June and typically command premium
prices, increased competition from Mexico, which has a microclimate similar to
the Coachella Valley, has created uncertainty in the early table grape market.
Following our acquisition of TransPacific Environmental, Inc. ("TPE") in
November 1997, our focus shifted from agribusiness and land planning to biomass.
Subsequently, in June 1998, we broadened our new focus to include solid waste
transportation and developed a strategic alliance with Waste Management of
California, Inc. ("Waste Management"). In light of our new business plan, and
related biomass and solid waste transportation opportunities, we determined that
our shift in focus from agribusiness, land planning and land development to
solid waste transportation and biomass should be complete and permanent.
Consequently, on December 23, 1998, we adopted a formal plan to discontinue our
agri-business and real estate operations and to sell the related assets in order
to focus on our biomass and waste transportation operations. We are currently
negotiating to sell our 50% interest in the potato and grain farm to our joint
venture partner, who operates that property under a lease that would have
terminated December 31, 1999, but which has been extended for an additional
year.
While we have not totally disposed of these operations at present, we have taken
significant action to dispose of those operations. As a result, our financial
statements reflect the net assets and operating results of our agribusiness and
real estate segments as discontinued operations. Implementation of our new
business plan is in process and has had a material impact on the presentation of
our financial statements. The operations, cash flows and net assets of these
operations for all periods presented have been classified as discontinued
operations, and the assets of these operations were reduced to the lower of cost
or net realizable value. Our agribusiness and land planning and land development
operations have been accounted for as discontinued operations and the results
thereof have been excluded from continuing operations in our consolidated
financial statements.
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Summary of the Offering
Securities Offered............. We are registering 3,100,950 shares of our
common stock. 3,023,530 of these shares
represent the number of shares of our
common stock equal to twice the sum of the
number of shares of our common stock that
we will issue upon conversion of all of the
shares of Series C 6% Convertible Preferred
Stock which are currently issued and
outstanding plus the maximum number of
shares issuable upon exercise of certain
warrants held by Siete Investors LLC, a
Delaware limited liability company. The
other 77,420 shares of our common stock are
being registered in anticipation of paying
dividends which accrue on our Series C 6%
Convertible Preferred Stock. We have the
right to pay those dividends which accrue
on our Series C 6% Preferred Stock in cash
or in shares of our common stock.
Dividends...................... Our common stock is junior to our Series
A, B and C Preferred Stock in regard to
dividend preferences. We have not paid any
cash dividends on our common stock during
the last fiscal year and we are in arrears
on payments of accrued dividends on our
Series A 9% Convertible Preferred Stock.
Payment of dividends is at the sole
discretion of our Board of Directors and
it is unlikely that holders of our common
stock will receive dividends during the
next fiscal year.
Liquidation Preference......... Our preferred stock has liquidation
preferences over our common stock, which
means that, if the Company is liquidated,
common shareholders will probably receive
less of the liquidation proceeds than
preferred shareholders, and may not receive
any of the liquidation proceeds.
Voting Rights.................. Each holder of shares of our common stock
is entitled to one vote for each share on
all matters regarding which our
shareholders are entitled to vote. Each
holder of shares of Series C 6% Convertible
Preferred Stock is entitled to the number
of votes equal to the number of whole
shares of common stock into which the
shares of that Series C 6% Convertible
Preferred Stock held by such holder are
convertible immediately after the close of
business on the
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record date fixed for a shareholders'
meeting on all matters regarding which our
shareholders are entitled to vote.
Ownership Limit................ None.
RISK FACTORS
A PURCHASE OF OUR COMMON STOCK INVOLVES RISKS. YOU SHOULD CONSIDER THESE RISKS
BEFORE MAKING A DECISION TO PURCHASE OUR COMMON STOCK. PROSPECTIVE PURCHASERS OF
OUR COMMON STOCK MUST BE PREPARED FOR THE POSSIBLE LOSS OF THEIR ENTIRE
INVESTMENTS. THE ORDER IN WHICH THE FOLLOWING RISK FACTORS ARE PRESENTED IS
ARBITRARY, AND YOU SHOULD NOT CONCLUDE, BECAUSE OF THE ORDER OF PRESENTATION,
THAT ONE RISK FACTOR IS MORE SIGNIFICANT THAN ANOTHER RISK FACTOR.
We Are Operating at a Loss and Have Accumulated a Deficit. Because we are
discontinuing certain operations, our agribusiness and land planning and land
development operations have been accounted for as discontinued operations. The
financial results of those operations for the year ended December 31, 1999, the
four month period ended December 31, 1998, and the year ended August 31, 1998
have been excluded from continuing operations. The effect is to classify most of
our revenues for the year ended August 31, 1998, as discontinued operations, as
most of our fiscal 1998 and prior revenues were derived from these discontinued
activities. For the year ended December 31, 1999, we incurred an after-tax loss
of $9,186,746 from all operations as compared to an after-tax loss of $2,033,064
for the four month period ended December 31, 1998 and an after-tax loss of
$15,786,00 for the year ended August 31, 1998. As of December 31, 1999, we had
an accumulated deficit of $24,781,849. Although we expect to generate working
capital from our continuing biomass and transportation operations and
divestiture of our remaining agricultural investment, we have shifted our focus
to biomass activities with which we have relatively little experience, and there
can be no assurance that we will have profitable operations in the future.
We Use Debt Financing. Our organizational documents do not contain any
limitation on the amount or percentage of indebtedness, funded or otherwise, we
might incur. Accordingly, we, and our affiliates, could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
our ability to pay dividends to our stockholders and result in an increased risk
of default on our obligations. We are also subject to other risks normally
associated with debt financing. We have used indebtedness and leveraging to
finance development and acquisition, and, therefore, most of our equipment is
lease financed. If we are unable to make lease payments on time, or if certain
other events of default occur, this equipment could be repossessed or otherwise
transferred to the lessor with a consequent loss of income and asset value.
We Need Substantial Additional Capital. Our future capital requirements will
depend upon many factors, including our ability to obtain new biomass and
transportation contracts and customers and to execute our new business plan.
Capital will be necessary to fund the periodic cash requirements
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of the discontinued operations during the execution of our new business plan and
to fund our transportation and biomass activities. There can be no assurance
that sufficient financing will be available, on a timely basis, if at all, or on
acceptable terms. If adequate funds are not available, implementation of our new
business plan and our business strategy could be impeded and we may be required
to delay, scale back or eliminate our efforts to expand our biomass and
transportation activities. Accordingly, our business, financial condition and
results of operations could be materially and adversely affected. If additional
funds are raised by issuing equity or convertible debt securities, options or
warrants, dilution to the existing stockholders of the Company may result.
We Are in a Competitive Market Which is Affected by the Seasons. Our quarterly
results have varied significantly in the past and will likely continue to do so
in the future due to a variety of factors, many of which are beyond our control,
including: the timing and nature of revenues from transportation and biomass
contracts that are recognized during any particular quarter, which fluctuate
during the seasons; the impact of potential increased competition with respect
to our biomass activities by municipalities that maintain their own waste
collection and landfill operations and have significant financial advantages
over us due to, among other things, the availability of tax revenues and
tax-exempt financing; the implementation and enforcement of and compliance with
legislation such as AB 939; the price and availability of fuel and other
resources needed for our solid waste transportation and biomass activities; the
financial health of our customers; the overall state of the solid waste
transportation and biomass industries; and economic conditions generally. The
shift in our focus away from our historical business and toward new activities
with which we have little experience, our ability to obtain new biomass and
transportation contracts, and the volume of the stream of biomass available to
us for transport or recycling under existing contracts are difficult to
forecast. Such fluctuations may also contribute to volatility in the market
price for our securities.
We Derive a Significant Portion of Our Revenues From a Limited Number of
Customers. The foundation of our continuing solid waste transportation
activities is an exclusive transport contract with Waste Management, which
accounted for approximately 77% of our revenues from continuing operations in
fiscal 1999. With the acquisition of American Waste Transport in March 2000,
this customer concentration is expected to fall to less than 60%, and decline
further during the year as additional new accounts are obtained. Although we
intend to bid on future solid waste transportation contracts for Waste
Management and other waste companies as they become available and to use our
strategic alliance with Waste Management to capitalize on existing and emerging
markets in the growing green waste recycling industry, there can be no assurance
that we will be successful in obtaining additional transportation and biomass
contracts. Further, we anticipate that our contract with Waste Management will
continue to account for the majority of our transportation revenues for the
foreseeable future. The loss of this contract or the failure of Waste Management
to continue to provide a reliable stream of biomass for transport would likely
have a material adverse effect on our business, operating results and financial
condition.
We Are Changing Our Workforce. We have elected to embark on a major departure
from our historic business into the biomass and solid waste transportation
businesses in which we have little experience. Our future success depends to a
large extent upon the continued service of certain key
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managerial employees and our ability to restructure our existing work force and
attract and retain highly qualified personnel in connection with this shift in
our activities. We recently terminated our agribusiness employees and hired four
individuals with extensive management and operational experience in the biomass
and solid waste transportation industries. We will continue to restructure our
workforce by hiring and integrating new employees experienced in solid waste
transportation and biomass activities. We may not be able to attract, assimilate
or retain such personnel.
Our Industry is Heavily Regulated. The collection and disposal of solid wastes
are subject to federal, state and local laws and regulations which regulate
health, safety, the environment, zoning and land-use. Any violation of these
laws and regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. Operating permits are
generally required for recycling facilities and certain collection vehicles, and
these permits are subject to revocation, modification, and renewal. Federal,
state and local regulations vary, but generally govern all types of waste
disposal activities and the location and use of facilities and also impose
restrictions to prohibit or minimize soil, air and water pollution. In addition,
governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions or impose fines in the case of violations,
including criminal penalties. These regulations are administered by the United
States Environmental Protection Agency ("EPA") and various other federal, state
and local environmental and health and safety agencies and authorities,
including the Occupational Safety and Health Administration of the United States
Department of Labor. If environmental laws become more stringent, the Company's
environmental capital expenditures and costs for environmental compliance may
increase in the future. In addition, due to the possibility of unanticipated
factual or regulatory development, the amounts and timing of future
environmental expenditures could vary substantially from those currently
anticipated.
Subtitle D of the Resource Conservation and Recovery Act of 1976, as amended,
establishes a framework for regulating the storage, collection and disposal of
non-hazardous solid wastes. In the past, the Subtitle D framework has left the
regulation of non-hazardous waste storage, collection and disposal largely to
the states. However, in October 1991, the EPA promulgated a final rule which
imposes minimum federal comprehensive solid waste management criteria and
guidelines for disposal facilities and operations, including location
restrictions, facility design and operating criteria, closure and post-closure
requirements, financial assurance standards, groundwater monitoring requirements
and corrective action standards, many of which have not commonly been in effect
or enforced in connection with solid waste landfills. States are required to
revise their landfill regulations to meet these requirements. Because some parts
of the new regulations will be phased in over time, the full effect of these
regulations may not be known for several years. However, other than for
groundwater monitoring and financial assurance requirements, all provisions of
the final rule became effective in October 1993. There can be no assurance that
the EPA will not promulgate additional regulations in connection with the
collection of non-hazardous solid waste.
We May Face Liability for Disposal of Hazardous Substances. The Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("Superfund" or "CERCLA"), has been interpreted by some courts to impose strict,
joint and several liability on
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current and former owners or operators of facilities at which there has been a
release or a threatened release of a "hazardous substance" and on persons who
generate, transport or arrange for the disposal of such substances at the
facility. Thousands of substances are defined as "hazardous" under CERCLA and
their presence, even in minute amounts, can result in substantial liability. The
statute provides for the remediation of contaminated facilities and imposes the
costs therefor on the responsible parties. The costs of conducting such a
cleanup and the damages can be very significant and, given the limitations in
insurance coverage for these risks, could have a material adverse impact on the
Company and its financial condition.
We Do Not Have Environmental Liability Insurance. While the Company may able to
obtain comprehensive pollution insurance at reasonable costs, it may carry only
such coverage, if any, as is required by regulatory permits. In addition, the
extent of insurance coverage under certain forms of policies has been the
subject in recent years of litigation in which insurance companies have, in some
cases, successfully taken the position that certain risks are not covered by
such policies. If, in the absence of such insurance, the Company were to incur
liability for environmental damages of sufficient magnitude, it could have a
material adverse effect on the Company and its financial condition.
Some of Our Officers and Directors Have Conflicts of Interest. Several of our
directors are independently employed and those persons, by engaging in other
business activities, have conflicts of interest in allocating their time and
resources. Two of our officers and directors, Fred Behrens and Robert Wright,
have ownership interests in some of our affiliates, which has resulted in both
existing and potential conflicts of interest. Our business dealings with some of
our affiliates are not the result of arm's-length negotiations. For a more
detailed account of those existing and potential conflicts of interest, see the
information contained under the heading "Certain Relationships and Related
Transactions" in this Prospectus.
Voting Rights Upon Default Regarding Payment of Dividends. We are in arrears on
paying quarterly dividends on our Series A 9% Convertible Preferred Stock. The
total amount of dividend arrearages on the Series A 9% Preferred Stock as of
April 30, 2000 was $553,959. All of our Series B Preferred Stock has been
converted into 591,621 shares of our $.002 par value common stock. Dividends
accrued on that Series B Preferred Stock prior to conversion in the amount of
$538,459.00 which was paid through the issuance of 53,846 Series B Preferred
Stock to those holders of Series B Preferred Stock. The holders of our Series A
9% Convertible Preferred Stock have the right, voting as a class, to elect two
(2) members of our Board of Directors on that date which is two (2) years after
the date on which we have defaulted in the payment of dividends on the Series A
9% Convertible Preferred Stock, if such default occurs. Poor operating results
may leave us without the resources to make the dividend payments for the Series
A Preferred Stock, resulting in a change in the composition of the Board of
Directors and, therefore, a potential significant change in our management.
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ITEM 4. USE OF PROCEEDS.
We will not receive any of the proceeds from the sale of the shares of our
common stock offered by the Selling Stockholder, Siete Investors LLC, a Delaware
limited liability company.
ITEM 5. DETERMINATION OF OFFERING PRICE
The Company's common stock has traded in the over-the-counter market since1989
and is currently trading on The Nasdaq SmallCap Market. We have calculated the
registration fees for the common stock which we anticipate using to pay
dividends on the Series C 6% Convertible Preferred Stock pursuant to Rule 457(c)
of Regulation C using the average of the bid and ask prices per share of our
common stock, as reported on the Nasdaq SmallCap Market for May 4, 2000.
The conversion price of our Series C 6% Convertible Preferred Stock was set by
our Board of Directors and is specified at Section G of the Certificate of
Designations of Series C 6% Convertible Preferred Stock filed with the Delaware
Secretary of State on April 13, 2000. Each share of the Series C 6% Convertible
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time and from time to time, into such number of fully paid and nonassessable
shares of our common stock as is determined by dividing $1,000.00, plus the
amount of any accrued and unpaid dividends which we elect to pay in common
stock, by the conversion price in effect at the time of conversion. The
conversion price is defined as the lower of $4.65 or 85% of the average of the
three lowest closing bid prices of the shares of common stock for the 15 trading
days immediately preceding the conversion date. The average of the three lowest
closing bid prices for our common stock for the last 15 trading days is $2.50,
85% of which equals $2.125.
ITEM 6. DILUTION
At December 31, 1999, there were 9,485,606 outstanding shares of our only class
of $.002 par value common stock. We have authorized three classes of preferred
stock. Our $.01 par value Series A 9% Convertible Preferred Stock has $7,422,000
in aggregate liquidation preference. There are 812,500 shares of the Series A 9%
Convertible Preferred Stock authorized, and 742,200 shares issued and
outstanding. Although there are 750,000 shares of Series B 6% Convertible
Preferred Stock authorized, as of December 31, 1999, all of the Series B
Preferred Shares issued and outstanding had been converted into shares of our
$.002 par value common stock. We anticipate that all of the 3,000 authorized,
issued and outstanding shares of our $.001 par value Series C 6% Convertible
Preferred Stock will be converted into our common stock as soon as this
registration statement becomes effective.
We are registering 3,100,950 shares of our common stock. 3,023,530 of these
shares represent the number of shares of our common stock equal to twice the sum
of the number of shares of our common stock that we will issue upon conversion
of all of the shares of Series C 6% Convertible Preferred Stock which are
currently issued and outstanding plus the maximum number of shares
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issuable upon exercise of certain warrants held by Siete Investors LLC, a
Delaware limited liability company. Those warrants allow for the purchase, by
Siete Investors LLC, of up to 100,000 shares of our common stock at any time up
to the expiration date, March 13, 2005. The other 77,420 shares of our common
stock are being registered in anticipation of paying dividends which accrue on
our Series C 6% Convertible Preferred Stock. We have the right to pay those
dividends which accrue on our Series C 6% Preferred Stock in cash or in shares
of our common stock.
The following table sets forth the difference between the average offering price
of the shares of our common stock being registered by this registration
statement, the net tangible book value per share, and the net tangible book
value per share after giving effect to the offering by the Company, assuming
that all of the shares registered by the Company are distributed. Net tangible
book value per share represents the amount of total tangible assets less total
liabilities divided by the number of shares outstanding as of December 31, 1999.
Net tangible book value at 12/31/99 $(0.014) per share
Net tangible book value after giving
effect to distribution of 3,023,530 shares
at $2.125 per share and 77,420 shares
at $3.35 per share $0.69 per share
Per Share Dilution to New Investor
(conversion shares only) $1.44 per share
Percent Dilution to New Investor
(conversion shares only) 67.5%
ITEM 7. SELLING SECURITY HOLDER
Siete Investors LLC, a Delaware limited liability company, is the only
shareholder of our Series C 6% Convertible Preferred Stock, and holds 3,000
shares of that preferred stock. Upon conversion of those shares of preferred
stock into common stock, Siete Investors LLC may offer all or some portion of
those shares of our common stock for sale from time to time. The shares of our
common stock which may be offered for sale by Siete Investors LLC constitute all
of the shares of common stock known to the Company to be beneficially owned by
Siete Investors LLC. Siete Investors LLC is not an affiliate of the Company and
none of its officers or directors are also officers or directors of the Company.
On or about March 14, 2000, pursuant to the agreement by which Siete Investors
LLC acquired its shares of Series C 6% Convertible Preferred Stock, we agreed to
prepare and file a registration statement for the resale of the shares of common
stock into which the Series C 6% Convertible Preferred Stock shall be converted,
and for an additional 100,000 shares of our common stock which may be acquired
by Siete Investors LLC pursuant to certain warrants which it holds. We also
agreed to pay all expenses, other than underwriting discounts and commissions
and other fees and expenses of investment bankers and other than brokerage
commissions, in connection with the registration and
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sale of the shares of common stock which may be offered for sale by Siete
Investors LLC pursuant to the conversion of the Series C 6% Convertible
Preferred stock or the warrants.
ITEM 8. PLAN OF DISTRIBUTION
Siete Investors LLC, the Selling Stockholder, may, from time to time, sell all
or a portion of its common stock in the over-the-counter market, or on any other
national securities exchange on which our common stock is or becomes listed or
traded, in negotiated transactions or otherwise, at prices then prevailing or
related to the then current market price or at negotiated prices. The shares
will not be sold in an underwritten public offering. Siete Investors LLC's
common stock may be sold directly or through brokers or dealers. The methods by
which the common stock may be sold include (a) a block trade (which may involve
crosses) in which the broker or dealer will attempt to sell the common stock as
agent but may buy and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (d) privately negotiated transactions. Brokers and dealers engaged by the
Selling Stockholder may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from the Selling
Stockholder (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated. Broker-dealers
may agree with the Selling Stockholder to sell a specified number of shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for the Selling Stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
the Selling Stockholder. Broker-dealers who acquire shares as principal may
thereafter resell the shares from time to time in transactions (which may
involve crosses and block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive commissions from the purchasers.
In connection with the distribution of the common stock, the Selling Stockholder
may enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of our common stock. The
Selling Stockholder may also sell its common stock and redeliver its common
stock to close out its short positions. The Selling Stockholder may also enter
into option or other transactions with broker-dealers which require the delivery
to the broker-dealer of its common stock. The Selling Stockholder may also lend
or pledge its common stock to a broker-dealer and the broker-dealer may sell its
common stock so lent or, upon a default, the broker-dealer may sell the pledged
shares. In addition to the foregoing, the Selling Stockholder may enter into,
from time to time, other types of hedging transactions.
The Selling Stockholder and any broker-dealers participating in the
distributions of our common stock may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, and any profit on the
sale of our common stock by the Selling Stockholder, and any
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<PAGE>
commissions or discounts given to any such broker-dealer, may be deemed to be
underwriting commissions or discounts pursuant to the Securities Act of 1933.
Our common stock may also be sold pursuant to Rule 144 promulgated pursuant to
the Securities Act of 1933 beginning one year after the shares of our common
stock were issued, provided such date is at least 90 days after the date of this
Prospectus.
We have filed the Registration Statement, of which this Prospectus forms a part,
for the sale of the Selling Stockholder's shares of our common stock. We can
give no assurance that the Selling Stockholder will sell any or all of its
shares of our common stock.
Pursuant to the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock offered by this Prospectus may not
simultaneously engage in market making activities for our common stock during
the applicable "cooling off" periods prior to the commencement of such
distribution. In addition, the Selling Stockholder will be subject to applicable
provisions of the Securities Exchange Act of 1934 and the rules and regulations
thereunder.
We will pay all of the expenses incident to the registration of the Selling
Stockholder's common stock, other than commissions, discounts and fees of
underwriters, dealers or agents.
We have advised the Selling Stockholder that, during such time as it may be
engaged in a distribution of any of the shares or our common stock we are
registering by this Registration Statement, it is required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934. In general,
Regulation M precludes any Selling Stockholder, any affiliated purchasers and
any broker-dealer or other person who participates in such distribution from
bidding for or purchasing, or attempting to induce any person to bid for or
purchase, any security which is the subject of the distribution until the entire
distribution is complete. Regulation M defines a "distribution" as an offering
of securities that is distinguished from ordinary trading activities by the
magnitude of the offering and the presence of special selling efforts and
selling methods. Regulation M also defines a "distribution participant" as an
underwriter, prospective underwriter, broker, dealer, or other person who has
agreed to participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. We have advised the Selling
Stockholder that stabilizing transactions permitted by Regulation M allow bids
to purchase our common stock so long as the stabilizing bids do not exceed a
specified maximum, and that Regulation M specifically prohibits stabilizing that
is the result of fraudulent, manipulative, or deceptive practices. The Selling
Stockholders and distribution participants will be required to consult with
their own legal counsel to ensure compliance with Regulation M.
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ITEM 9. LEGAL PROCEEDINGS.
In December 1997, a judgment was entered against the Company and two of its
officers, who are also shareholders. The judgment required, among other things,
that the Company re-issue 144,000 shares of its common stock to the Plaintiffs'
estate. We have 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. We
intend to vigorously defend against this lawsuit and believe that we have
recorded our liability arising from this lawsuit on our financial statements. We
do not expect that this matter will have a material adverse effect on our
financial condition or results of operations.
We are 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 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Fred H. Behrens 58 Chairman of the Board, Chief Executive
Officer and Director
Robert A. Wright 63 Director
Eugene W. Tidgewell 50 Chief Financial Officer, Treasurer, Vice
President and Director
Michael J. Silva 37 Chief Development Officer and Director
Hilly G. Jones 50 Secretary
Marlene Tapie 44 Director
H. Glen Leason 75 Director
</TABLE>
FRED H. BEHRENS has served as the Chairman, Chief Executive Officer, and a
director of the Company since 1988 and previously served as Treasurer and Chief
Financial Officer of the Company from 1990 to January 1998. Mr. Behrens also
served as the Chairman and director of Sun Goddess Farms, Inc., a wholly owned
subsidiary of the Company. Mr. Behrens has been
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<PAGE>
actively involved with the Company and its affiliates since August 1979. From
1966 to 1971, Mr. Behrens was on the audit staff of Arthur Andersen & Company;
between 1971 and 1973, he was a principal in a real estate development company;
and from 1973 to August 1979, he was employed as a Vice President of an
agricultural management company. Mr. Behrens holds a Bachelor of Science degree
from the University of Minnesota School of Business Administration. Mr. Behrens
is a general partner of Rancho California Partners II, a California limited
partnership (the "Partnership"), which filed a voluntary Chapter 11
Reorganization Petition under the federal Bankruptcy Act to resolve certain
issues with the Riverside County Tax Assessor's Office on or about March 20,
1996. The decision to file for reorganization was made to protect certain real
property owned by the Partnership from foreclosure while the property was being
reappraised. The issues raised in the Petition have been favorably resolved and
the Partnership has dismissed the Petition.
ROBERT A. WRIGHT has served as the President, Chief Operating Officer, and a
director of the Company since 1988. Mr. Wright also serves as the President and
director of Sun Goddess Farms, Inc., a wholly owned subsidiary of the Company.
In April 2000, Mr. Wright agreed to vacate the office of President to assist
with the management and liquidation of certain discontinued operations. He
remains a director of the Company. During the past 25 years Mr. Wright has been,
and continues to be, a principal in and the President of a farm equipment
manufacturing company located in central Illinois. Mr. Wright also served as
general partner or co-general partner for several agricultural real estate
partnerships, which were not organized by the Company or its affiliates. Mr.
Wright holds a Bachelor of Science degree in Business (Management and Finance)
from the University of Colorado. Mr. Wright is a general partner of the
Partnership, which filed a voluntary Chapter 11 Reorganization Petition under
the federal Bankruptcy Act to resolve certain issues with the Riverside County
Tax Assessor's Office on or about March 20, 1996. The decision to file for
reorganization was made to protect certain real property owned by the
Partnership from foreclosure while the property was being reappraised. The
issues raised in the Petition have been favorably resolved and the Partnership
has dismissed the Petition.
EUGENE W. TIDGEWELL has served as the Chief Financial Officer and Treasurer and
as a Vice President of the Company since January 1998 and has served as a
Director of the Company since February 1999. Mr. Tidgewell was an audit manager
at Kelly & Company, the Company's independent auditors, from 1989 to 1998. Mr.
Tidgewell holds a Bachelor of Science Degree in Business Administration
Accounting) from the University of Notre Dame and is a Certified Public
Accountant in the State of California.
MICHAEL J. SILVA has served as Chief Development Officer since January 2000 and
a Director since February 2000. Mr. Silva is an engineering graduate from the
University of the Pacific and has MS in civil engineering from Stanford
University. Since graduation, he has been exclusively employed in the waste
service industry, serving as Division President/Chief Operating Officer for CR&R
from 1986 to 1997. From 1997 to 1999 he served as Chief Executive Officer of
Athens Services. Both companies are ranked in the top 10 nationally.
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<PAGE>
MARLENE A. TAPIE has served as a director of the Company since 1988. Between
1979 and 1994, she served in various capacities including Vice President,
Executive Secretary to the Chairman and Office Administrator. From 1992 through
1995, Ms. Tapie owned and operated a clothing company, Marlene & Company. In
October 1994 she and her husband, Alan Tapie, a PGA golf professional, purchased
a controlling interest in Buena Park Golf Center, a golf course and driving
range located in Buena Park, California. She currently manages her husband, who
is a touring professional in the European PGA Senior Tour.
H. GLEN LEASON has served as a director of the Company since February 1999. From
1984 to the present, Mr. Leason has served as a Senior Vice President with
Torrey Pines Securities. Prior to that, Mr. Leason served in the United States
Navy Submarine Service From 1943 to 1946. He was a securities broker with Leason
& Company in Chicago, Illinois from 1946 through 1960, eventually becoming Vice
President for its initial public offering department in Newport Beach,
California, was a Vice President in the initial public offering department at
R.J. Henderson & Co., in Newport Beach, California from 1960 to 1966, was an
Emerging Growth Stock Vice President with Jefferies & Co. in Newport Beach,
California from 1966 until Jefferies & Co., was purchased in 1969, and rejoined
Leason & Company as President until 1973. From 1973 to 1984, Mr. Leason worked
with Wedbush Securities and then with McDonald, Krieger & Bowyer in Beverly
Hills, California. Mr. Leason completed various courses at Northwestern
University and Loyola Marymount University, is a registered representative with
the NASD and holds a principal's license.
HILLY G. JONES has served as Corporate Secretary since January 2000 and has been
the Company's Office Administrator since May 1999. She has been employed part
time by the Company in various administrative capacities since 1989, except for
the period from June 1995 to December 1998, when she left the Company to own and
operate a small business. Prior to 1989, she was employed in various
administrative capacities in the securities, environmental, and other
industries.
All directors hold office until the next annual stockholders' meeting or until
their respective successors are elected or until their earlier death,
resignation or removal. Officers are appointed by, and serve at the discretion
of, the Board of Directors.
Compliance with Beneficial Ownership Reporting Rules. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our executive officers and
directors and persons who beneficially own more than 10% of a registered class
of our common stock to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission. Such reporting persons
are required to furnish us with copies of all such reports that they file.
Based solely upon our review of copies of such reports furnished to the Company
during the year ended December 31, 1999 and thereafter, or any written
representations received by the Company from reporting persons that no other
reports were required, we believe that, during the last fiscal
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<PAGE>
year, all section 16(a) filing requirements applicable to the Company's
reporting persons were complied with.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 1, 2000, certain information with
respect to (i) each director of the Company, (ii) the named executives and (iii)
all directors and executive officers of the Company as a group. Other than as
described below, no other person is known to the Company to be the beneficial
owner of more than 5% of our common stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF
OF BENEFICIAL OWNER OF COMMON STOCK(1) COMMON STOCK
- ------------------- ------------------ ------------
Fred H. Behrens(2) 1,003,153 9.98%
7314 Scout Avenue
Bell Gardens, CA 90201
Robert A. Wright(3) 815,018 8.11%
86025 Avenue 52
Coachella, CA 92236
H. Glen Leason(4) 16,370 *
77-955 Calle Arroba
La Quinta, CA 92253
Eugene W. Tidgewell (5) 39,500 *
7314 Scout Avenue
Bell Gardens, CA 90201
Marlene Tapie (6) 89,167 *
76 Los Cabos
Dana Point, CA 92629
All Directors and Executives
Officers as a group (5 persons)(7) 1,963,208 19.54%
- ----------
* Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws
15
<PAGE>
where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. Shares of common stock subject to options
currently exercisable, or exercisable within 60 days after March 1, 2000
are deemed to be outstanding in calculating the percentage ownership of a
person or group but are not deemed to be outstanding as to any other person
or group.
(2) Includes 782,498 shares of common stock held by Behrens Partners, Ltd., a
family limited partnership controlled by Mr. Behrens. Also includes 207,355
shares held in escrow on behalf of Mr. Behrens and 13,300 shares held in an
IRA account.
(3) Includes (i) 237,093 shares of common stock held by Wright Family Partners,
Ltd., a family limited partnership controlled by Mr. Wright, (ii) 447,533
shares of common stock held in escrow on behalf of Mr.Wright and
(iii)130,392 shares held in an IRA account.
(4) Includes 16,200 shares of common stock underlying 9,000 shares of Series A
9% Convertible Preferred Stock that are convertible and 170 shares of
common stock held in an IRA account.
(5) Represent 39,500 shares of common stock underlying options.
(6) Includes 31,250 shares of common stock underlying options.
(7) Includes 476,633 shares of common stock underlying options and 33,120
shares of common stock underlying 18,400 shares of Series A 9% Convertible
Preferred Stock that are convertible.
ITEM 12. DESCRIPTION OF SECURITIES.
The Company is authorized to issue 25,000,000 shares of common stock, $.002 par
value, each share of common stock having equal rights and preferences, including
voting privileges. There were 9,485,606 shares of common stock outstanding at
December 31, 1999.
The shares of our common stock constitute equity interests in the Company
entitling each shareholder to a pro rata share of cash distributions made to
common stock shareholders, including dividend payments. However, we have two
series of preferred stock outstanding which accrue dividends and have
liquidation preferences superior to our common stock, and we have been in
arrears in paying those dividends. We also had significant losses in our last
fiscal year. Therefore, it is unlikely that we will pay dividends on our common
stock in the next year. We currently intend to retain our future earnings, if
any, for use in our business. Any dividends declared in the future will be at
the discretion of our Board of Directors and subject to any restrictions that
may be imposed by our lenders.
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<PAGE>
The holders of our common stock are entitled to one vote for each share of
record and the holders of our Series C 6% Convertible Preferred Stock are
entitled to the number of votes equal to the number of whole shares of common
stock into which the shares of that Series C 6% Convertible Preferred Stock held
by such holder are convertible immediately after the close of business on the
record date fixed for a shareholders' meeting for each share of record on all
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of directors of the Company or any other matter, with
the result that the holders of more than 50% of the shares voted for the
election of those directors can elect all of the Directors. In the event of
liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share ratably in all assets remaining available for
distribution to them after payment of our liabilities and after provision has
been made for each class of stock, having preference in relation to our common
stock. Holders of our common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to our
common stock. All of the outstanding shares of our common stock are duly
authorized, validly issued, fully paid and non-assessable.
ITEM 13. INTEREST OF NAMED EXPERTS AND COUNSEL.
No "expert", as that term is defined pursuant to Regulation Section 228.509(a)
of Regulation S-B, or our "counsel", as that term is defined pursuant to
Regulation Section 228.509(b) of Regulation S-B, was hired on a contingent
basis, or will receive a direct or indirect interest in the Company, or was a
promoter, underwriter, voting trustee, director, officer, or employee of the
Company, at any time prior to the filing of this Registration Statement.
ITEM 14. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
VIOLATIONS.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC
POLICY AND, THEREFORE, UNENFORCEABLE.
ITEM 15. ORGANIZATION WITHIN LAST FIVE YEARS.
Not applicable.
ITEM 16. DESCRIPTION OF BUSINESS.
Description of Business - Historical Summary. We were originally incorporated
under the name AMCOR Capital Corporation in Delaware on March 10, 1988. Our
operations at December 31, 1999 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 and development
to the emerging biomass industry. In June, 1998, we broadened our focus to
include solid waste transportation and developed a strategic alliance with Waste
Management, Inc., formerly USA Waste Services. In light of opportunities in the
biomass industry and in the
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<PAGE>
solid waste transportation industry, we changed our name to USA Biomass
Corporation on August 31, 1998 and adopted a new business plan, which we call
our Plan of Discontinued Operations. We decided to discontinue our agribusiness
and land planning and land development activities and, instead, focus on solid
waste transportation and biomass activities. In addition, on January 12, 1999,
since we are no longer an agricultural enterprise, we changed our fiscal year to
end December 31.
All business activity, cash flows and net assets of these operations for the
year ended August 31, 1998, the four month period ended December 31, 1998, and
the year ended December 31, 1999 have been classified as discontinued
operations, and the assets of these operations have been reduced to the lower of
cost or net realizable value.
Solid Waste Transportation. We entered into two transportation service contracts
with Waste Management in June 1998. Under the contracts, we have the exclusive
right to provide transportation services from two of Waste Management's Los
Angeles-area transfer stations to certain landfills. We began providing
transportation services in October 1998. The contracts have initial terms of
five years, with two automatic five-year extensions unless either party gives
180 days' prior written notice of its desire to terminate the contracts at the
end of the then current term. We entered into a third contract with Waste
Management in December 1999, with terms similar to the other two contracts.
Biomass and Recycling. "Clean green" waste is organic material in the form of
plants, leaves, clippings, cuttings, trimmings of grass, weeds, shrubbery,
bushes, trees, garden wastes and wood products from both commercial and
residential sources, including sawdust, tree trunks, scrap lumber and untreated
wooden pallets. The material received as clean green waste cannot contain more
than 0.5% non-organic matter by total weight.
Our clean green waste operations have been and most likely will continue to be
influenced significantly by the implementation of the California Integrated
Waste Management Act of 1989 (Assembly Bill 939 ("AB 939"). The provisions of AB
939 mandate, among other things, the diversion of recyclable materials from
over-crowded landfills. A key element of AB 939 relates to green waste that
could be processed and incorporated back into the soil or recycled in other
ways. AB 939 currently mandates that California's municipalities must have a
plan in place to divert 50% of all waste from landfills by the end of the year
2000.
We are engaged in private green waste recycling and we hold leasehold interests
in a transfer station facility located in Santa Fe Springs, California and a
3-acre site in Fontana, California that is fully permitted for green waste
processing. We receive green waste at our transfer stations from various
sources, including Waste Management. We process and market the green waste to
various users, thereby assisting Waste Management and others in fulfilling their
recycling obligations under AB 939.
In November 1998, we started hauling green waste for the County of Los Angeles
Sanitation District in connection with the diversion of processed material from
the Puente Hills landfill. The
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<PAGE>
initial contract is for a term of three years plus an option for three
additional years and specifies that we will divert the first 100 tons per day
(500 tons per week) of excess ground or processed green waste from the landfill.
Pursuant to this contract, we have been informally presented with the
opportunity to divert more than the minimum of 100 tons per day, which
opportunity we intend to pursue as sufficient outlet markets are identified.
We also receive and process green waste from numerous Southern California
municipalities and commercial parties. We are party to an operating agreement
with Apollo Wood Recovery, Inc., to process wood for boiler fuel and fiberboard
at our site in Fontana, California. We are exploring the acquisition of a
company engaged in the composting of organic fertilizer.
In March 2000, we acquired American Waste Transport, ("AWT"), a private San
Diego County- based waste transport and green waste recycling firm. AWT has
operations that mirror the Company's operations in Los Angeles and Orange
counties, with some overlap. AWT's revenues for the year ended December 31,
1999, approximate $14 million.
In April 2000, we signed a letter of intent to acquire Brea Green Recycling,
Inc., which is located in Orange County, California. We are presently conducting
due diligence and there can be no assurance that this acquisition will be
consummated. Brea Green Recycling, Inc. is located near the entrance to the Brea
landfill in north Orange County and recycles approximately 60,000 tons of green
waste (including wood waste) annually, much of which is devoted to the
landfill's alternate daily cover environmental program, in which we also
participate. We believe the close proximity to the landfill has certain
logistical advantages for our operations because it could significantly reduce
our green waste transport costs.
Presently, there appears to be an abundant supply of green waste available due
primarily to the large volume produced in Southern California and the
implementation of AB 939. We believe there is a good economic incentive to take
all of the green waste that is offered, particularly as landfill "tipping fees"
ranging from $16 to over $27 per ton tend to establish the market. The challenge
is to identify and secure end-markets for the incoming green waste, which
historically have included fertilizer production facilities, boiler fuel (for
electricity generation) and fiberboard production facilities.
We own 710-acres of undeveloped land located in the Coachella Valley, which we
plan to use as a land-application/biomass depository for our continuing green
waste operations.
Discontinued Operations - Agribusiness. Historically, we engaged primarily in
agribusiness, principally growing, processing and marketing fresh table grapes
in Southern California's Coachella Valley. We also received management and/or
development fees and income from packing and cold storage services that we
provided for some of our affiliated partnerships and third parties. We leased an
80,000-square foot packing and cold storage plant, which we previously used as
our headquarters in the Coachella Valley.
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<PAGE>
Although we were one of the largest producers and shippers of "early market"
table grapes that are harvested from early May through June and typically
command premium prices, increased competition from Mexico, which has a
microclimate similar to the Coachella Valley, had created supply/price
uncertainty in the early table grape market. Consequently, our new business plan
provided for the complete divestiture of the Company's agribusiness operations,
which was completed by December 31, 1999 except for our investment in an Oregon
farmland joint venture.
Our investment in the Columbia River Basin of eastern Oregon includes a 50%
ownership interest in a joint venture that owns a 6,000-acre irrigated potato
and grain farming operation, together with certain Columbia River water rights.
We are currently negotiating to sell our 50% interest in the potato and grain
farm to our joint venture partner, who operates that property under a lease that
would have terminated December 31, 1999, but which has been extended for an
additional five years.
Discontinued Operations - Land Planning and Development. The Company
traditionally was engaged primarily in agribusiness, with additional revenues
derived from partnership management, including real estate development
partnerships. Some of these partnerships owned land that was once used for
farming and ultimately became suitable for development. Other partnerships were
formed solely to acquire, plan and develop land.
During fiscal 1996, we began a major subdivision and golf course project located
southeast of San Antonio, Texas. Under contract with a partnership which we
managed, we completed development of a golf course at the project. On behalf of
that partnership, we developed and managed the 1,300- lot subdivision and golf
course. In February 2000, the golf course was sold through foreclosure, and we
have been sued for a possible deficiency judgment.
Due to disappointing sales activity, our new business plan contemplated the sale
of the entire project in a "bulk sale" transaction and, in that regard, in early
1999 we wrote down the cost of the project to estimated net realizable value
plus any costs incurred to carry the project through liquidation. This resulted
in a charge of $5,306,244 to our financial statements for the year ended August
31, 1998, to reflect this write-down. In March 1999, we entered into an
agreement to sell the project for $11.5 million. However, the buyer did not
close the transaction. In the fourth quarter of 1999, we transferred our
interest in the project, including related liabilities, to AMCOR Financial
Corporation ("AFC"),a then wholly owned subsidiary of the Company.
In January 2000, we distributed to our common and Series A 9% Convertible
Preferred shareholders, all of our shares in AFC. We currently have disputes
with AFC regarding the nature and amount of assets and liabilities transferred
to AFC. Further, all of the regulatory requirements related to the distribution
of the AFC shares to our shareholders may not have been satisfied.
During the four months ended December 31, 1998, the year ended December 31,
1999, and the first quarter of 2000, we disposed of certain assets of the
discontinued operations at amounts less than initially anticipated. Further, the
current appraised value of certain of the remaining assets has declined from the
values used in estimating the disposal loss at August 31, 1998.
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In 1999, we managed approximately 15 limited partnerships, down from over 120 in
1991. One partnership owns two Southern California parcels; two other
partnerships jointly own a 173-acre property located outside Houston. These
partnerships are in the process of terminating.
Competition. The foundation of our continuing solid waste transportation
activities is exclusive transport contracts with Waste Management, the largest
waste hauler in the country. The contracts include two transfer stations. The
first is located in Carson, California, with a permitted capacity of over 5,000
tons per day, and is reported to be one of the largest in the country. The other
transfer station is in South Gate, California. In December 1999 an additional
contract was negotiated for the transport of biomass from Waste Management's
Sunset Environmental transfer station in Orange County. Due to the exclusive
nature of these contracts and the five-year term and two five-year options to
extend, the Company does not expect to be confronted with any significant
competition for these three transfer stations for as long as 15 years, provided
that we satisfactorily discharge our contractual responsibilities. We intend to
bid on future solid waste transportation contracts for Waste Management and
other waste companies as they become available, which could provide the Company
with significant growth opportunities in the future.
In the large Southern California market, there are three principal providers of
contract waste transport services -- STS Transportation, American Waste
Transport, and us. In March 2000, we acquired American Waste Transport ("AWT"),
which had annual revenues of $14 million. AWT has major contracts with Waste
Management, Republic Services and Allied Waste, as well as extensive green waste
operations. Combined, the two companies have a contractual backlog exceeding
$350 million. Revenues for 2000 are expected to be $25 million, and will provide
us with a significant share of this market.
Our clean green waste operations provide alternatives to landfill disposal and
are part of the non- hazardous waste recycling industry. We believe that
successful entry into the green waste industry, on a volume basis, requires that
we identify and contract with multiple end-users for the recycled product. The
industry is dominated by several large national waste management companies and
numerous regional and local companies, all of which contribute to the
significant, somewhat fragmented, competition that characterizes the industry,
many having much greater financial and operational resources, and more
established market positions, than the Company. We believe that our recent
strategic alliance with Waste Management, and our expanded market share gained
with the AWT acquisition, will help insulate us from external competition and
provide a reliable supply of biomass to support our green waste operations.
There has been an increasing trend at the state and local levels to mandate
solid waste reduction at the source and to prohibit the disposal of certain
types of wastes at landfills, as evidenced by legislation such as AB 939. We
believe that as this trend continues, we will encounter additional competition
from new and existing waste industry participants. In addition, we may compete
with municipalities that maintain their own waste collection and landfill
operations and that have significant financial advantages over the Company due
to, among other things, the availability of tax revenues and tax-exempt
financing.
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Business Strategy. We continue to manage and expand our solid waste
transportation and biomass businesses. Our present business strategy includes
expansion of our contractual relationships with Waste Management and other waste
haulers, and growth of our green waste processing and recycling business as
additional markets are generated, both internally and through acquisitions.
Employees. As of December 31, 1999, the Company, together with its subsidiaries,
had 108 full- time employees, including10 in administration and 98 in biomass
operations. None of our employees are represented by a labor union and we have
not experienced any work stoppages. However, we are presently in negotiations
with a local of the Teamsters Union pursuant to an election to organize held in
April 1999. AWT is signatory to a collective bargaining agreement with the
Teamsters covering its truck driving employees. We acquired AWT in March 2000
and are obligated by the terms and conditions of that agreement. We believe that
in spite of the historically low unemployment rate in Southern California, there
is an adequate supply of the type of labor needed to staff our expanding solid
waste transportation and biomass operations.
ITEM 17. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS PROSPECTUS SPECIFIES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING STATEMENTS.
"Forward looking statements" can be identified by the use of forward-looking
terminology such as "believes", "could", "possibly", "probably", "anticipates",
"estimates", "projects", "expects", "may", "will", or "should". Such statements
are subject to certain risks, uncertainties and assumptions. No assurances can
be given that the future results anticipated by the forward looking statements
will be achieved. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Prospectus.
In 1997, we entered the biomass business, and in 1998 entered into a strategic
alliance with Waste Management resulting in a long-term contractual relationship
for the transport of solid waste. Prior to 1999, as described above, we were
engaged in agribusiness and real estate and land planning and development. In
December 1998, our Board of Directors approved a new business plan authorizing
the liquidation of all agribusiness and real estate operations. Implementation
of that business plan, particularly for years 1998 and 1999, has had a material
impact on the presentation of our financial statements.
Fiscal Year Change. Prior to the year-ended December 31, 1999, our financial
statements were prepared on the basis of an August 31 fiscal year. In January
1998, we elected to convert to a December 31 calendar year for reporting
purposes and filed a 10-QSB "Transition Report" for the four months ended
December 31, 1998. Accordingly, the amounts reflected in our current
Consolidated Statements of Operations are for the years ended December 31, 1999
and August 31, 1998 and for the four months ended December 31, 1998. Therefore,
for purposes of
22
<PAGE>
comparing the respective 12-month periods for December 31, 1998 and 1999, the
1998 numbers have been presented on a pro-forma basis. As our biomass operations
were relatively insignificant prior to December 31, 1998, the following
pro-forma analysis, in the opinion of management, presents a realistic
comparison of the two twelve month periods.
Pro Forma Statement of Operations
For the Year Ended December 31, 1998
Amounts in Thousands
-----------------------------
Add Less For Year Ended December 31
Year Ended 4 Mos.End 4 Mos.End --------------------------
08/31/98 12/31/98 12/31/97 1998 1999
Audited (Unaudited)(Unaudited) (ProForma) Audited
------- ------- ------- --------- -------
Revenues $ 2,005 $ 2,025 $ 406 $ 3,624 $ 7,645
Cost of Revenues 2,665 1,694 634 3,725 6,705
------- ------- ------- ------- -------
Gross Profit (Loss) (660) 331 (228) (101) 940
------- ------- ------- ------- -------
Gen'l & Admin. Exp. 3,228 1,153 678 3,703 1,490
Loss from Asset
Impairment 1,971 -- -- 1,971 141
Loss on Sale of
Assets 366 4 -- 370 215
Interest Exp.
(Income), net 662 390 86 966 825
------- ------- ------- ------- -------
Loss, Continuing
Operations before
income taxes (6,887) (1,216) (992) (7,111) (1,731)
(Provision for)
benefit from
income taxes 1,048 (3) -- 1,045 (3)
------- ------- ------- ------- -------
Loss, Continuing
Operations $(5,839) $(1,219) $(992) $(6,066) $(1,735)
======= ======= ======= ======= =======
Continuing Operations. In October 1998, we officially commenced waste transport
services for Waste Management. Pro forma revenues for 1998, which included green
waste recycling and tree maintenance revenues for the entire year, were $3.6
million. Revenues for 1999, which included just one calendar quarter of tree
maintenance revenues as this business was sold in March, 1999, were $7.6
million--up 112%, but still below the Company's estimated $10 million break-even
level. We did have a positive 1999 gross margin of 12.3%, although a loss in the
amount of $1,735,000 was incurred (compared to a loss of $7,111,000 the prior
year) due primarily to a $637,000 loss from TransPacific Environmental's tree
maintenance operations (which were sold in the first quarter), and carry-over
administrative and interest costs (aggregating $2,319,000), partially to support
of the phase-out of discontinued operations. In addition, continuing operations
incurred significant start-up costs to develop the infrastructure for a fast
growth biomass business. This included a substantial investment in plant,
personnel and equipment to support the future anticipated revenue stream.
23
<PAGE>
With additional contracts in place, we anticipate year 2000 revenues to increase
substantially. This will be augmented by the March 2000, acquisition of San
Diego County-based American Waste Transport, with annual revenues approximating
$14 million. This acquisition, which also has contract waste transport services,
as well as extensive green waste recycling operations, should result in combined
revenues of $25 million for 2000. Management believes that a minimum 12% gross
margin level can be maintained, which would generate adequate proceeds to carry
administrative and interest costs. The present contractual backlog, which
includes contracts/renewals with terms in excess of 10 years, exceeds $350
million.
Results of Continuing Operations
Revenues. Our revenues from continuing operations for 1999 include both biomass
recycling and waste transport revenues whereas revenues for 1998 reflect mostly
biomass recycling activities, as the initial waste transport contract did not
commence until October 1998. We generated revenues of $7,645,000 for 1999
compared to $3,624,000 for 1998, an increase of $4,021,000 or 111%. The increase
is principally due to a full year of waste transport revenues in 1999, which
totaled $5,561,000, compared to only three months in 1998, which totaled
$894,000. Other revenues for 1999 totaled $2,084,000 of which $363,000 pertained
to municipal tree maintenance operations, which were sold during the first
quarter of 1999.
Cost of Revenues. Our costs of revenues for 1999 were $6,705,000 compared to
$3,725,000 for 1998, an increase of $2,980,000 or 80%. The increase is
principally related to the 111% increase in revenues in 1999. This is partially
offset by a 1998 cost of $797,000 related to green waste soil enhancement
activities that were terminated that year and by operating costs associated with
a full year's tree maintenance operations in 1998. Overall, this resulted in a
gross profit from operations in 1999 of $940,000, for an operating margin of
12.3%. This compares to an operating loss of $101,000 for the prior year. The
improved margin is the result of significantly higher waste transport volume,
reduced losses from tree maintenance operations (which were sold in early 1999)
and the elimination of soil enhancement activities.
Our gross margin on waste transport activities was $853,000 (15.4% of waste
transport revenues) in 1999, and $236,000 (14% of gross greenwaste revenues,
exclusive of municipal tree trimming activities) in 1999. Tree trimming
contracts resulted in a negative gross margin of $146,000 (40% of tree trimming
revenue) in 1999.
General and Administrative Expenses. General and administrative expenses were
$1,490,000 for 1999 compared to $3,706,000 for the prior year, a decrease of
$2,210,000 or 60%. The significant decrease is primarily due to the expected
cost and related overhead reduction pertaining to the phasing out of our
discontinued agricultural and real estate operations. In addition, the prior
year included $672,000 of administrative costs related to TPE, which was sold
early in 1999, $360,000 of corporate restructuring consulting fees, and $188,000
related to the cost associated with options granted to members of our Board of
Directors.
24
<PAGE>
Interest Expense Net of Interest Income. For 1999, interest expense, net of
interest income, was $825,000, compared to $966,000 for 1998, a decrease of
$143,000 or 15%, due largely to the pay down of debt from asset sales.
Loss from Asset Impairment. In 1998, we incurred a $1,971,000 loss from asset
impairment related to a green waste contract that did not materialize and soil
enhancement operations that were suspended. Such losses for 1999 were only
$141,000 as the substantial portion of the loss was incurred the prior year.
Gain or Loss on Sale of Assets. For 1999, we realized a net loss of $215,000 on
the sale of assets compared to a net loss of $370,000 in 1998. The higher prior
year's loss related primarily to the liquidation of assets, related to our
initial green waste pilot program.
Loss from Continuing Operations. For 1999, we incurred a net loss of $1,735,000
from continuing operations compared to a loss of $7,111,000 for the prior year.
The material disparity between the two years is principally that 1998 was a
start-up year for biomass operations and included a full year loss from tree
maintenance activities, which were disposed of in early 1999. Concerning the
1999 loss, $637,000 was attributable to TPE's tree maintenance operations, which
were sold early in 1999. Additional administrative costs were incurred in
relocating our headquarters. Interest costs will also decrease as we have
reduced our debt by 42%. As volume increases for 2000 and future years, based on
our expanding contractual backlog, we are expecting to operate profitably.
Results of Discontinued Operations. The new business plan adopted by the Board
of Directors specified a one-year time frame for management to dispose of all
non-biomass operations, which were reclassified for financial statement
purposes, as discontinued operations. As of December 31,1999, over $12 million
of assets were sold, with a $2.5 million agricultural property scheduled for
sale by mid-year 2000. Any remaining assets not sold by December 31, 1999
(principally a San Antonio subdivision that was under contract to sell in 1999
for $11.5 million, but the sale aborted) were revalued and written down to fair
market value, resulting in an additional 1999 loss from discontinued operations.
These assets (and related liabilities) were then transferred to AMCOR Financial
Corporation (previously identified by the initials "AFC") a then wholly-owned
subsidiary. AFC has separate management from the Company, and we have no
management or control over AFC. In January 2000, the Company distributed to its
common and preferred shareholders all of its AFC common shares. We have disputes
with AFC regarding the nature and amount of assets and liabilities transferred
to AFC. Further, all of the regulatory requirements related to the distribution
of the AFC shares to the Company's shareholders may not have been satisfied.
For years 1998 and 1999, implementation of our new business plan has had a
material impact on the presentation of our financial statements. This is because
operations, cash flows and net assets of these operations for both years have
been classified as discontinued operations and the assets for these operations
were reduced to the lower of cost or net realizable value, resulting in
significant charges to earnings. Accordingly, our agribusiness and real estate
operations have been accounted
25
<PAGE>
for as discontinued operations and the results thereof have been excluded from
continuing operations in our consolidated financial statements. For fiscal 1998,
which had limited biomass start-up revenues, this resulted in a loss of
$15,786,000 of which $9,947,000 pertained to discontinued operations,
principally due to the write-down of real estate and related assets. For 1999,
which was the first full year of biomass operations, the net loss was $9,186,746
of which $7,452,029 pertained to discontinued operations, principally related
the write-down of the San Antonio project.
Liquidity and Capital Resources. Our overall financial condition as of December
31, 1999, as compared to the prior year has not changed significantly,
principally due to our inability to liquidate all of our discontinued
operations. However, some assets were sold, which served to reduce total debt
from $19.7 million at December 31, 1998 to $11.4 million at the end of 1999.
This $8.3 million debt reduction (42%) is expected to yield significant annual
interest savings for the year 2000 and beyond. In addition, 1999 revenues from
expanding biomass operations increased 111% over the prior year but, at $7.6
million, are below the projected $10 million threshold required to break even.
Although we reported a loss of $1,735,000 for the year from continuing
operations, due largely to the development of the new biomass business, we had a
gross operating margin of 12.3%, which included losses from TPE, which diluted
the target 15% margin from biomass operations. Revenue growth for the year 2000
was significantly enhanced in March, when we completed the acquisition of
American Waste Transport which, when consolidated with the Company, should
generate $25 million of revenues for 2000--an increase of 227% over 1999, and
with a gross margin expected to exceed 12%, should generate adequate funds for
operations. Moreover, we now have a contractual backlog in place of more than
$350 million with terms generally exceeding 10 years or longer, ensuring
consistent revenue for future periods. Also, in March 2000, we successfully
completed a $3 million private placement of 6% convertible preferred stock. This
capital will be largely used for acquisitions and for capital equipment needs to
service our expanding contractual base.
The Company's current ratio was .66 at December 31, 1999 compared to 1.11 the
prior year, primarily due to the write off of assets of discontinued operations,
which were classified as current, pending their anticipated disposition. This
ratio significantly improved in the first quarter 2000 as a result of the
private placement of preferred stock, which provided $3 million of working
capital. Moreover, liquidity is expected to continue to improve during 2000 as a
result of (i) the intense management of cash flow; (ii) the Company has adequate
lines of credit in place and has plans to moderately expand both senior and
subordinated debt to fund working capital related to our large contract backlog;
(iii) during 2000, we expect to liquidate our $2.5 million agricultural property
investment, (iv) we have tax-loss carry-forwards exceeding $22 million which can
be applied to shelter future earnings thereby enhancing cash flow, and (v) we
intend to, where appropriate, make acquisitions using our common stock for the
generation of earnings and cash flow. It is for the foregoing reasons that we
believe that our liquidity needs for the year 2000 will be sufficiently
satisfied. Moreover, with our discontinued operations now partially liquidated,
we are strategically positioned to profitably capitalize on the numerous
opportunities now available in the biomass industry.
26
<PAGE>
ITEM 18. DESCRIPTION OF PROPERTY
On December 31, 1998, we acquired a 4-acre industrial parcel located in Bell
Gardens, California, which includes a 40,000 square-foot equipment maintenance
facility and a separate 2,400 square- foot office building used as the base for
our transportation operations. During 1999, we officially relocated our
headquarters to the Bell Gardens facility, located at 7314 Scout Avenue, Bell
Gardens, CA 90201.
Our biomass operations are based in two locations, the first being a 1.75-acre
site in Santa Fe Springs, California, which we lease for $54,000 annually. This
site also serves as a green waste transfer station pursuant to a Conditional Use
Permit from the City of Santa Fe Springs. The second location is a fully
permitted green waste transfer and processing facility on a 3-acre site in
Fontana, California, which we lease for $42,000 annually.
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Between 1981 and 1986, the Company, in its capacity as general partner and/or
placement agent, raised approximately $200 million in private placement
syndications. This syndication activity resulted in the formation of
approximately 137 limited partnerships, which acquired real estate for
agribusiness or development and resale purposes. Partnership liquidation have
reduced this total to 14 limited partnerships as of December 31, 1999. It is
planned that all partnerships will file final tax returns during the next 12
months and virtually all on-going business activities have ceased.
On November 30, 1995, the Company acquired a 50% interest in PS III Farms, LLC,
which leases 6,490 acres to one of the limited liability company members, which
is not affiliated with the Company. The lease expired September 30, 1999 and has
been renewed for an additional five years pending negotiations to sell the
Company's 50% interest to its partner during 2000. The primary crop grown on the
farm is potatoes.
The Company holds a 99% ownership interest in Las Palomas Country Club Estates
LLC, a California limited liability company, which previously acted as the
development entity for the golf course owned by an affiliated partnership, all
operations have been transferred to AFC in December 1999.
Fred H. Behrens, Chairman, Chief Executive Officer, director, and principal
shareholder of the Company holds a 1% ownership interest in Las Palomas Country
Club Estates LLC. The Company also holds a 99% ownership interest in AMCOR
Builders LLC, which previously managed the construction operations of the
Company in Texas prior to being transferred to AFC. Robert A. Wright, former
President who remains a director and principal shareholder of the Company holds
a 1% ownership interest in AMCOR Builders LLC. The Company holds a 99% ownership
interest in AMCOR Biomass Farms LLC. Enterprise packing Company ("EPC") owns 442
limited partnership interests issued by Lake Valley. Mr. Behrens and Mr. Wright
are the only general partners of Lake Valley and EPC. There are 2,600 limited
partnership interests of Lake
27
<PAGE>
Valley presently issued and outstanding. Therefore, by attribution of their
ownership interests in EPC, Messrs. Behrens and Wright jointly own 17% of the
issued and outstanding limited partnership interests of Lake Valley.
In December 1997, Messrs. Behrens and Wright agreed, at the lenders' request, to
personally guarantee $4,250,000 of debt financing obtained by the Company from
GMAC Credit Corporation and TexStar Bank in connection with the Las Palomas golf
course and subdivision project. In consideration for the guarantee, the Company
agreed to pay to Messrs. Behrens and Wright a loan guarantee fee in the
aggregate amount of $212,500. Messrs. Behrens and Wright assigned to the Company
their rights to this guarantee fee on or about August 31, 1998.
In January, 1998, the Company issued 14,927 shares of its common stock for
cancellation of debt in the amount of $70,899, of which 10,989 shares of common
stock were issued to affiliates for the cancellation of debt in the amount of
$55,082.
On December 20, 1999, the Company agreed to reduce the conversion price of its
Series B Convertible Preferred Stock to $6.67 per share from $10 per share (on
December 20, 1999, the market price for the Company's common stock were $4.188).
At that time, all of the Series B Convertible Preferred Stock that was issued to
three affiliated limited partnerships was converted into 591,621 shares of the
Company's common stock.
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market for Our Common Stock and Related Stockholders Matters. Our common stock
has traded in the over-the-counter market since1989 and is currently trading on
The Nasdaq SmallCap Market. Set forth below are the high and low bid prices of
the Common Stock during each quarter of fiscal1998 and 1999, as reported by a
member firm of the National Association of Securities Dealers, Inc. that effects
transactions in Nasdaq SmallCap Market stocks and acts as one of the market
makers for our common stock. The quotations listed below reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not represent
actual transactions.
Stock Prices
----------------------
High Low
------ -----
FISCAL 1998
First Quarter $5.375 $4.1875
Second Quarter 5.313 4.125
Third Quarter 5.187 4.125
Fourth Quarter 4.938 2.378
28
<PAGE>
FISCAL 1999
First Quarter $2.875 $1.438
Second Quarter 2.375 1.375
Third Quarter 2.00 1.189
Fourth Quarter 4.50 1.125
- -------------------------------------------------------------------------------
At March 31, 2000, there were approximately 3,280 stockholders of record of the
Company's common stock. The Company has paid no dividends on its common stock
and does not expect to pay dividends in the foreseeable future.
On November 25, 1997, the Company completed the acquisition of the stock of TPE,
which was acquired for a total cost of $1,607,049, consisting of $350,000 in
cash, allocable acquisition costs of $61,207, and 406,109 shares of the
Company's common stock with a value of $1,195,842.
In January 1998, the Company issued an aggregate of 31,250 shares of common
stock in exchange for $62,500 upon the exercise of options issued under the
Company's 1994 Non-Qualified Stock Option Plan.
In January 1998, the Company issued 14,927 shares of common stock in exchange
for cancellation of debt in the amount of $70,899.
In January 1999, the Company issued an aggregate of 22,151 shares of common
stock to two non- affiliated holders of 12% notes in lieu of an interest payment
of $55,377.
In November 1999, the Company issued 149,407 shares of common stock in exchange
for the cancellation of a $410,869, 8% note payable to a former employee.
In November 1999, the Company issued 290,799 shares of common stock in exchange
for the cancellation of 12% notes aggregating $954,816 to various private
parties.
In November 1999, the Company issued 89,170 shares of common stock in exchange
for the cancellation of two 5% notes aggregating $267,461 to two private
parties.
In November 1999, the Company issued 422,883 shares of common stock pursuant to
Options outstanding to two officers in exchange for the offset of $676,613 of
notes owed to the Officers by the Company.
In December 1999, the Company issued 12,000 shares of common stock to a creditor
in exchange for the cancellation of $41,297 owed by the Company.
In December 1999, the Company issued 100,000 shares pursuant to Options held by
an employee in the amount of $200,000.
29
<PAGE>
In December 1999, the Company issued 50,000 shares of common stock pursuant to
Options held by a former employee in consideration for $65,000, in the form of a
note receivable.
In December 1999, the Company issued 12,500 shares of common stock to two
consultants pursuant to Options for a total consideration of $37,500 in the form
of a note receivable.
The issuances of the Company's common stock in the above referenced transactions
were effected in reliance upon the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), as
transactions not involving public offering. Exemption from the registration
provisions of the Securities Act is claimed on the basis that such transactions
did not involve any public offering and the purchasers were sophisticated with
access to the kind of information registration would provide.
Submission of Matters to a Vote of Security Holders. No matters were submitted
to a vote of security holders during the last quarter of the fiscal year ended
December 31, 1999.
ITEM 21. EXECUTIVE COMPENSATION
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company of the Company's
Chief Executive Officer and the only other executive officer of the Company
whose aggregate cash compensation exceeded $100,000 (collectively, the "Named
Executives") during the fiscal years ended August 31, 1997 and 1998 and December
31, 1999.
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------
Other Annual
Name and Salary Compensation
Principal Position Year ($) ($)
------------------------- ----- ------- ------------
Fred H. Behrens 1999 136,200 15,650
Chairman and Chief 1998 152,000 15,864
Executive Officer 1997 120,000 5,724
Robert A. Wright 1999 109,375 15,180
President(1) 1998 133,081 15,080
1997 120,000 11,519
Eugene W. Tidgewell 1999 112,000 --
Vice President and 1998 102,666 --
Chief Financial Officer
30
<PAGE>
(1) In April 2000, Mr. Wright agreed to vacate the office of as President, to
assume responsibility for the management and liquidation of assets included in
discontinued operations. He will remain as a Company director.
Stock Option Grants in 1999. The following table sets forth information
concerning individual grants of stock options made pursuant to the Company's
1997 Stock Option Plan during 1999 to each of the named executives. The Company
has never granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
-------------------------------------
Number of Percent of
Securities Total
Underlying Options Exercise
Options Granted to or Base
Granted Employees in Price Expiration
Name (#) Fiscal Year ($/Sh) Date
---- ------ ----- ----- --------
Eugene W. Tidgewell 19,500 66.43% $1.50 10/15/10
------ ----- ----- --------
Option Exercises and Value for 1999. During fiscal 1999, Fred H. Behrens
acquired 246,955 shares of common stock with a realized value upon exercise of
$343,514 and Robert A. Wright acquired 175,928 shares of common stock with a
realized value upon exercise of $244,715. In accordance with the Securities and
Exchange Commission guidelines, values are calculated by subtracting the
exercised price from the fair market value of the underlying common stock. Fair
market value is deemed to be closing price on the date the options were executed
for the Company's common reported for Nasdaq SmallCap transactions on December
31, 1999.
Directors' Compensation. The Company's directors do not receive cash
compensation for attending Board of Director meetings. In 1998, each director
received options to purchase up to 15,000 shares of the Company's common stock
at $3.00 per share, the then closing price of the Company's common stock.
ITEM 22. FINANCIAL STATEMENTS.
USA Biomass Corporation
Consolidated Financial Statements
As of December 31, 1999 and 1998 and for the
Year Ended December 31, 1999, the Four Month Period Ended
December 31, 1998 and
The Year Ended August 31, 1998
<PAGE>
USA Biomass Corporation
Index to the Consolidated Financial Statements
As of December 31, 1999 and 1998 and for the
Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
Independent Auditors' Report ............................................... 1
Consolidated Financial Statements for USA Biomass Corporation:
Consolidated Balance Sheets as of December 31, 1999 and 1998 .......... 2
Consolidated Statements of Operations for the Year Ended
December 31, 1999, the Four Month Period Ended December
31, 1998 and the Year Ended August 31, 1998 ........................ 5
Consolidated Statements of Shareholders' Equity for the Year
Ended December 31, 1999, the Four Month Period Ended
December 31, 1998 and the Year Ended August 31, 1998 ............... 6
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1999, the Four Month Period Ended December 31,
1998 and the Year Ended August 31, 1998 ............................ 8
Notes to the Consolidated Financial Statements ............................. 13
<PAGE>
Report of Independent Auditors
To the Board of Directors and Shareholders of
USA Biomass Corporation
We have audited the accompanying consolidated balance sheets of USA Biomass
Corporation and its subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year ended December 31, 1999, the four month period ended December
31, 1998, and the year ended August 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of USA
Biomass Corporation and its subsidiaries as of December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1999, the four month period ended December 31, 1998, and the
year ended August 31, 1998, in conformity with generally accepted accounting
principles.
Kelly & Company
Newport Beach, California
April 12, 2000
<PAGE>
USA Biomass Corporation
Consolidated Balance Sheets
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and equivalents $ 540,651 $ 767,293
Cash held in escrow 617,176 --
Cash held in trust 203,891 --
Accounts receivable, net of allowance for doubtful accounts of
$90,580 and $54,985 as of December 31, 1999 and December 31, 1998,
respectively 862,619 526,170
Receivable from affiliates 25,869 --
Income taxes receivable -- 292,639
Other current assets 129,589 423,295
Net current assets of discontinued operations 1,248,670 8,337,976
----------- -----------
Total current assets 3,628,465 10,347,373
Property and equipment, net of accumulated depreciation 7,584,040 9,104,446
Note receivable, noncurrent -- 6,462,347
Other assets 31,963 127,645
Intangible assets, net of accumulated amortization 391,667 441,666
----------- -----------
Total assets $11,636,135 $26,483,477
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
USA Biomass Corporation
Consolidated Balance Sheets
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,747,537 $ 1,944,450
Payroll and payroll taxes payable 632,013 890,698
Accrued remediation costs 180,808 507,000
Lines of credit 640,000 874,610
Payable to affiliates -- 520,618
Notes payable:
Affiliates 190,714 2,268,053
Other 727,717 979,954
Capitalized lease obligations 809,690 681,922
Income taxes payable 347,942 334,832
Accrued interest 194,620 284,272
----------- -----------
Total current liabilities 5,471,041 9,286,409
Notes payable, net of current portion:
Affiliates 1,020,967 597,420
Other 2,333,288 6,261,799
Capitalized lease obligations, net of current portion 2,551,898 3,515,768
----------- -----------
Total liabilities 11,377,194 19,661,396
=========== ===========
</TABLE>
Commitments and contingencies
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
USA Biomass Corporation
Consolidated Balance Sheets
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Shareholders' equity:
Preferred Stock (2,000,000 shares authorized):
Series A, 9% Convertible Preferred Stock, $0.01 par value;
cumulative nonvoting; $7,422,000 and $7,475,000 aggregate
liquidation preference at December 31, 1999 and 1998,
respectively; 812,500 shares authorized, 742,200 and 747,500
shares issued and outstanding at December 31, 1999 and 1998,
respectively $ 7,422 $ 7,475
Series B, 6% Convertible Preferred Stock, $0.01 par value;
cumulative nonvoting; 750,000 shares authorized, 394,414 shares
issued and outstanding at December 31, 1998 -- 3,944
Common stock, $0.002 par value; 25,000,000 shares authorized, 9,509,856
and 7,761,385 shares issued, 9,485,606 and 7,737,135 shares
outstanding at December 31, 1999 and 1998, respectively 19,018 15,522
Additional paid-in capital 25,235,189 21,970,123
Accumulated deficit (24,781,849) (15,056,644)
Notes receivable on common stock (102,500) --
Treasury stock, at cost (24,250 common shares at
December 31, 1999 and 1998) (118,339) (118,339)
------------ ------------
Total shareholders' equity 258,941 6,822,081
------------ ------------
Total liabilities and shareholders' equity $ 11,636,135 $ 26,483,477
============ ============
</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 Year Ended December 31, 1999, the Four Month Period Ended
December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues $ 7,644,907 $ 2,024,830 $ 2,005,611
Cost of revenues 6,704,505 1,694,250 2,665,206
------------ ------------ ------------
Gross margin 940,402 330,580 (659,595)
General and administrative expenses 1,490,421 1,152,697 3,228,682
Loss from asset impairment 141,050 -- 1,971,123
Loss on sale of assets 215,258 3,768 365,990
------------ ------------ ------------
Operating loss from continuing operations 906,327 825,885 6,225,390
Interest expense, net 825,190 389,429 661,889
------------ ------------ ------------
Loss from continuing operations before income taxes 1,731,517 1,215,314 6,887,279
Provision for (benefit from) income taxes 3,200 3,200 (1,048,475)
------------ ------------ ------------
Loss from continuing operations 1,734,717 1,218,514 5,838,804
------------ ------------ ------------
Discontinued operations (Note 4):
Estimated loss from disposal of discontinued operations 5,346,328 814,550 2,878,813
Loss from discontinued operations (Note 12) 2,105,701 -- 7,068,069
------------ ------------ ------------
Total 7,452,029 814,550 9,946,882
------------ ------------ ------------
Net loss $ 9,186,746 $ 2,033,064 $ 15,785,686
============ ============ ============
Loss from continuing operations per common share,
basic and diluted $ 0.41 $ 0.20 $ 0.88
============ ============ ============
Net loss per common share, basic and diluted $ 1.35 $ 0.31 $ 2.19
============ ============ ============
</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 Year Ended December 31, 1999, the Four Month
Period Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
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, August 31, 1997 -- 404,414 7,172,974 -- --
Issuance of Series A 9% Convertible Preferred
stock 747,500 -- -- -- $ 7,475
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 -- --
Stock options granted to
nonemployees for consulting and other services -- -- -- -- --
Treasury shares acquired -- -- -- (24,250) --
Shares reacquired and retired -- -- (7,875) -- --
Series A Preferred stock dividends -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, August 31, 1998 747,500 404,414 7,761,385 (24,250) $ 7,475
========== ========== ========== ========== ==========
<CAPTION>
Common Retained
Series B Stock Additional Earnings
Preferred Common Held in Paid-in (Accumulated
Stock Stock Treasury Capital Deficit)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1997 $ 4,044 $ 14,345 -- $ 14,242,065 $ 3,259,382
Issuance of Series A 9% Convertible Preferred
stock -- -- -- 6,161,869 --
Shares issued upon exercise of options -- 63 -- 62,437 --
Shares issued in payment of debt -- 30 -- 70,869 --
Shares issued for the acquisition of TransPacific
Environmental, Inc. -- 812 -- 1,195,030 --
Shares issued in settlement of litigation -- 288 -- 83,093 --
Stock options granted to
nonemployees for consulting and other services -- -- -- 187,500 --
Treasury shares acquired -- -- $ (118,339) -- --
Shares reacquired and retired -- (16) -- (32,840) --
Series A Preferred stock dividends -- -- -- -- (497,276)
Net loss -- -- -- -- (15,785,686)
------------ ------------ ------------ ------------ ------------
Balance, August 31, 1998 $ 4,044 $ 15,522 $ (118,339) $ 21,970,023 $(13,023,580)
============ ============ ============ ============ ============
<CAPTION>
Notes
Receivable on
Common
Stock Total
------------- ------------
<S> <C> <C>
Balance, August 31, 1997 -- $ 17,519,836
Issuance of Series A 9% Convertible Preferred
stock -- 6,169,344
Shares issued upon exercise of options -- 62,500
Shares issued in payment of debt -- 70,899
Shares issued for the acquisition of TransPacific
Environmental, Inc. -- 1,195,842
Shares issued in settlement of litigation -- 83,381
Stock options granted to
nonemployees for consulting and other services -- 187,500
Treasury shares acquired -- (118,339)
Shares reacquired and retired -- (32,856)
Series A Preferred stock dividends -- (497,276)
Net loss -- (15,785,686)
-- ------------
Balance, August 31, 1998 -- $ 8,855,145
============ ============
</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 Year Ended December 31, 1999, the Four Month
Period Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
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, August 31, 1998 747,500 404,414 7,761,385 (24,250) $ 7,475
Share cancellation -- (10,000) -- -- --
Net loss -- -- -- -- --
--------- --------- --------- --------- ---------
Balance, December 31, 1998 747,500 394,414 7,761,385 (24,250) 7,475
Common stock issued in settlement of debt -- -- 563,527 -- --
Series B Convertible Preferred shares issued
for cumulative dividends in arrears -- 53,846 -- -- --
Conversion of Series B Convertible Preferred
Stock to common stock -- (448,260) 591,621 -- --
Common stock issued on exercise of stock options -- -- 585,383 -- --
Conversion of Series A Convertible Preferred
stock to common stock (5,300) -- 7,940 -- (53)
Common stock options issued for services -- -- -- -- --
Notes receivable arising from exercise of
stock options -- -- -- -- --
Net loss -- -- -- -- --
--------- --------- --------- --------- ---------
Balance, December 31, 1999 742,200 -- 9,509,856 (24,250) $ 7,422
========= ========= ========= ========= =========
<CAPTION>
Common Retained
Series B Stock Additional Earnings
Preferred Common Held in Paid-in (Accumulated
Stock Stock Treasury Capital Deficit)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1998 $ 4,044 $ 15,522 $ (118,339) $ 21,970,023 $(13,023,580)
Share cancellation (100) -- -- 100 --
Net loss -- -- -- -- (2,033,064)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 3,944 15,522 (118,339) 21,970,123 (15,056,644)
Common stock issued in settlement of debt -- 1,127 -- 1,728,693 --
Series B Convertible Preferred shares issued
for cumulative dividends in arrears 538 -- -- 537,921 (538,459)
Conversion of Series B Convertible Preferred
stock to common stock (4,482) 1,183 -- 3,299 --
Common stock issued on exercise of stock options -- 1,170 -- 977,941 --
Conversion of Series A Convertible Preferred
shares to common shares -- 16 -- 37 --
Stock options issued for services -- -- -- 17,175 --
Notes receivable arising from exercise of
stock options -- -- -- -- --
Net loss -- -- -- -- (9,186,746)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 -- $ 19,018 $ (118,339) $ 25,235,189 $(24,781,849)
============ ============ ============ ============ ============
<CAPTION>
Notes
Receivable on
Common
Stock Total
------------- -----------
<S> <C> <C>
Balance, August 31, 1998 $ -- $ 8,855,145
Share cancellation -- --
Net loss -- (2,033,064)
----------- -----------
Balance, December 31, 1998 -- 6,822,081
Common stock issued in settlement of debt -- 1,729,820
Series B Convertible Preferred stock issued
for cumulative dividends in arrears -- --
Conversion of Series B Convertible Preferred
stock to common stock -- --
Common stock issued on exercise of stock options -- 979,111
Conversion of Series A Convertible Preferred
stock to common stock -- --
Common stock options issued for services -- 17,175
Notes receivable arising from exercise of
stock options (102,500) (102,500)
Net loss -- (9,186,746)
----------- -----------
Balance, December 31, 1999 $ (102,500) $ 258,941
=========== ===========
</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 Year Ended December 31, 1999, the Four Month
Period Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,186,746) $ (2,033,064) $(15,785,686)
Deduct loss from discontinued
operations 7,452,029 814,550 9,946,882
------------ ------------ ------------
Net loss from continuing operations (1,734,717) (1,218,514) (5,838,804)
Adjustments to reconcile net loss to net
cash
used in operating
activities:
Depreciation 958,929 268,658 316,229
Amortization 49,999 16,666 41,668
Provision for uncollectible accounts 50,580 14,985 --
Loss on impairment of assets 141,050 -- 1,971,123
Loss on sale of assets, net 187,258 -- 365,990
Provision for settlement expense -- -- 112,129
Stock options granted to nonemployees
for consulting and other services -- -- 187,500
Stock Compensation 17,175 -- --
Issuance of common stock for accrued interest expense 55,376 -- --
Reduction of accrued remediation costs (254,496) -- --
Decrease (increase) in assets, net of effect of
acquisition of TransPacific Environmental, Inc.:
Cash held in escrow (617,176) -- --
Cash held in trust (203,891) -- --
Accounts receivable (387,029) (205,621) (97,855)
Income taxes recoverable 292,639 -- (292,639)
Other current assets 293,706 57,625 710,093
Due from related parties -- -- 239,887
Other assets 95,682 (97,464) 2,782
Increase (decrease) in liabilities, net of effect of
acquisition of TransPacific Environmental, Inc.:
Accounts payable (144,759) 678,193 106,421
Payroll and payroll taxes payable (258,685) (174,307) 87,557
Accrued remediation costs (71,696) -- (507,000)
Income taxes payable 13,110 331,632 (1,033,200)
Accrued interest payable 243,921 143,526 (181,583)
Deferred taxes -- -- (55,894)
Payable to affiliates (412,694) 105,518 --
------------ ------------ ------------
Net cash used in operating activities of
continuing operations (1,685,718) (79,103) (3,865,596)
Net cash used in operating activities of
discontinued operations (640,801) (1,193,334) (6,105,493)
------------ ------------ ------------
Cash used in operating activities $ (2,326,519) $ (1,272,437) $ (9,971,089)
------------ ------------ ------------
</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 Year Ended December 31, 1999, the Four Month
Period Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows provided by (used in) investing activities:
Purchases of property and equipment $ (123,008) $ (512,285) $ (142,777)
Proceeds from the sale of a note receivable 2,462,347 -- --
Proceeds from sales of property and equipment 132,084 -- 101,393
Acquisition of TransPacific Environmental, Inc., net of
cash acquired -- -- (398,154)
----------- ----------- -----------
Net cash provided by (used in)investing activities of
continuing operations 2,471,423 (512,285) (439,538)
Net cash provided by investing activities
of discontinued operations 963,676 -- 4,199,029
----------- ----------- -----------
Cash provided by (used in) investing activities 3,435,099 (512,285) 3,759,491
----------- ----------- -----------
Cash flows provided by (used in) financing activities:
Proceeds from lines of credit 15,000 625,000 249,610
Proceeds from notes and loans -- 1,464,289 2,229,065
Repayment of notes and loans (574,280) (387,349) (3,098,801)
Repayment of capital lease obligations (589,444) (63,511) (442,340)
Proceeds from exercise of options 200,000 -- --
Repayment of notes and loans - affiliates (52,900) 85,815 --
Dividends paid on Series A Preferred stock -- -- (497,276)
Acquisition of treasury shares -- -- (118,339)
Net proceeds from issuance of Series A
Preferred stock -- -- 6,169,344
Purchase and retirement of common stock -- -- (32,856)
Exercise of stock options -- -- 62,500
----------- ----------- -----------
Net cash provided by (used in) financing activities of
continuing operations (1,001,624) 1,724,244 4,520,907
Net cash provided by (used in) financing activities of
discontinued operations (333,598) -- 2,338,596
----------- ----------- -----------
Cash provided by (used in) financing activities (1,335,222) 1,724,244 6,859,503
----------- ----------- -----------
Net increase (decrease) in cash (226,642) (60,478) 647,905
Cash and equivalents at beginning of period 767,293 827,771 179,866
----------- ----------- -----------
Cash and equivalents at end of period $ 540,651 $ 767,293 $ 827,771
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Year Ended December 31, 1999, the Four Month
Period Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------- ------------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest:
Continuing operations $1,196,703 $ 189,382 $ 838,066
Discontinued operations 582,927 383,999 521,191
---------- ---------- ----------
$1,779,630 $ 573,381 $1,359,257
========== ========== ==========
Income taxes -- -- $ 332,589
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Supplemental Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations
<S> <C> <C> <C>
Satisfaction of debt through issuance of stock:
Liabilities satisfied $ 1,674,442 -- $ 70,899
Common stock issued $(1,674,442) -- (70,899)
Dividends on Preferred Stock:
Additional paid in capital $ 538,459 -- --
Reduction in retained earnings $ (538,459) -- --
Exercise of stock options:
Reduction of liabilities 676,613 -- --
Common shares issued (676,613) -- --
Retirement of line of credit:
Line of credit satisfied 249,610 -- --
Increase in loans payable (249,610) -- --
Conversion of preferred stock to common stock:
Preferred shares converted 4,535 -- --
Common shares issued (4,535) -- --
Issuance of note receivable on common stock:
Receivable on common stock 102,500 -- --
Common shares issued (102,500) -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
USA Biomass Corporation
Consolidated Statements of Cash Flows
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
Supplemental Schedule of
Non-Cash Investing and Financing Activities of Continuing Operations, Continued
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Assets disposed of in non-cash transaction:
Assets disposed $ (725,784) -- --
Liabilities satisfied 725,784 -- --
Assets acquired (disposed of) in non-cash transactions:
Assets acquired (853,691) $ 5,141,152 $ 1,141,225
Receivables from related parties 65,744 -- 815,184
Capital lease obligations incurred 787,947 (2,969,244) (727,610)
Liabilities incurred -- (2,171,908) (413,615)
Liability to officer incurred -- -- (815,184)
Settlement liability and affiliates receivable:
Liability to estate of former officer -- -- $ (283,388)
Receivable from affiliates -- -- 283,388
Purchase of all the capital stock of TransPacific Environmental, Inc.:
Fair value of assets acquired -- -- $ 2,260,933
Less:
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)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
1. Description of the Company's Business
The operations of USA Biomass Corporation (the "Company"), a Delaware
corporation, consist of clean green waste processing ("biomass"), and waste
transportation, which commenced in October 1998. These activities take
place exclusively in Southern California. In January 1999, the Company
changed its year end to December 31.
During the year ended August 31, 1998, the Company commenced its biomass
operations, and in December 1998, the Company's Board of Directors adopted
a plan to discontinue its agribusiness and real estate activities (Note 4).
After a one year period, the Company has completed a majority of the steps
necessary to transition from its historical activities to its current
segments. Although this has resulted in the recognition of significant
losses in the periods, the Company believes that the combination of its
long term waste transportation contracts, its growing biomass operations,
and the preferred stock offering and acquisition of American Waste
Transport in the first quarter of 2000 will enable it to successfully
compete in its current lines of business.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of USA Biomass
Corporation and its subsidiaries. USA Waste Transport, USA
Biomass-Greenwaste, Inc., TransPacific Environmental Inc., and AMCOR
Biomass Farms, LLC (99% owned), are the Company's continuing operating
subsidiaries. Sun Goddess Farms, Inc., AMCOR Properties, Inc., Las Palomas
Country Club Estates, LLC (99% owned) and AMCOR Builders, LLC (99% owned)
are discontinued operations. All significant intercompany transactions have
been eliminated.
Assets of discontinued operations are recorded at their estimated net
realizable value (Note 4).
Revenue Recognition
Revenues are recognized on the accrual method at the time the related
services are performed.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Equivalents
Cash and equivalents include short-term, highly liquid instruments with
original maturities of three months or less.
Accounts Receivable
The Company grants credit to customers substantially all of whom are in the
waste industry. The Company performs credit evaluations of its customers
and, generally, requires no collateral. The Company's ability to generate
revenues and collect amounts due from customers is affected by economic
fluctuations in the waste industry.
F-12
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Accounts Receivable, Continued
The Company uses the allowance method to account for uncollectible accounts
receivable. The Company's estimate is based on historical collection
experience and a review of the current status of trade accounts receivable.
It is reasonably possible that the Company's estimate of the allowance for
doubtful accounts will change.
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, lease agreements and customer lists.
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 (Note 8).
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.
As a result of the Company's review and assessment, and based upon the best
information available in the circumstances, including independent
appraisals, at December 31, 1999 and August 31, 1998 the Company determined
that the carrying amounts of certain assets exceeded the fair value of such
assets (Note 7).
F-13
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies, Continued
Stock Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation ("SFAS 123"), established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee and nonemployee compensation plans.
The Company continues to account for stock-based employee compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees as permitted by
SFAS 123. 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.
New Accounting Pronouncement
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for
derivative instruments. This Statement requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June
1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133, which postponed the adoption date of SFAS 133. As such, the Company is
not required to adopt the new Statement until the year 2001. The Company is
currently evaluating the effect that implementation of the new standard
will have on its results of operations and financial position.
3. Cash Held in Escrow and in Trust
At December 31, 1999, the Company had funds held in an escrow account
resulting from the sale of farmland from its discontinued agribusiness
operations. The funds were held in escrow pending the Company's ability to
secure a certain loan release. In February 2000, the loan release was
obtained and the cash was released from the escrow account.
At December 31, 1999, the Company had cash held in trust with an attorney
to be used in the resolution of certain liabilities.
F-14
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
4. 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 August 31, 1998 estimated losses of approximately $1,543,000 anticipated
on sales of discontinued operations and estimated operating losses of
approximately $1,336,000 for the period from August 31, 1998 through the
estimated dates of disposition of discontinued operations, currently
expected to be December 31, 2000, were included in the estimated loss on
disposal of discontinued operations. Additional losses on the dispositions
of discontinued operations of $5,346,328 and $814,550 were recorded in the
year ended December 31, 1999 and the four months ended December 31, 1998
due to asset sales at less than expected amounts and diminished appraised
values resulting from slower than expected sales.
Selected information for the discontinued agribusiness and real estate
operations is presented below.
For the Year Ended December 31, 1999
---------------------------------------------------
Agribusiness Real Estate Total
--------------- --------------- ---------------
Revenues $ 221,793 $ 869,000 $ 1,090,793
=============== =============== ===============
Operating income (loss) $ 489,763 $ 1,615,938 $ 2,105,701
=============== =============== ===============
Loss on disposal $ 158,636 $ 5,187,692 $ 5,346,328
=============== =============== ===============
F-15
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
4. Discontinued Operations, Continued
For the Four Month Period Ended December 31, 1998
-------------------------------------------------
Agribusiness Real Estate Total
------------ ------------ ------------
Revenues -- -- --
============ ============ ============
Operating income (loss) -- -- --
============ ============ ============
Loss on disposal -- $ 814,550 $ 814,550
============ ============ ============
For the Year Ended August 31, 1998
------------------------------------------------
Agribusiness Real Estate Total
------------ ------------ ------------
Revenues $ 6,057,166 $ 12,304,686 $ 18,361,852
============ ============ ============
Operating loss $ (1,989,554) $ (1,554,930) $ (2,878,882)
============ ============ ============
Loss on disposal $ (1,323,883) $ (1,554,930) $ (2,878,813)
============ ============ ============
At December 31, 1999, 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 lease has a remaining term of nine months and has been
extended for an additional five years. The primary crop grown on the Oregon
farm is potatoes. The real estate assets have been pledged as collateral on
notes payable on which the Company is primarily liable totaling $4,887,402
at December 31, 1999, which is included in the net assets of discontinued
operations. Of this amount, $3,048,070 was collateralized by a golf course
upon which the lender foreclosed in February 2000. The lender notified the
Company that a deficiency of $1,600,000 exists after the foreclosure and in
April 2000 filed a related lawsuit.
5. Amounts Due to/Due from Affiliates
Amounts due to/due from affiliates relate to the activities of a
partnership, 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 and bears interest at 8% per annum.
Offset of Guarantee Fees
The partners of EPC have from time to time provided their personal
guarantees to lenders who required the guarantees as necessary conditions
to lending the Company various amounts, which aggregate approximately
$11,750,000. During the year ended August 31, 1998, as partial satisfaction
of amounts that EPC owes the Company, the partners of EPC assigned and
offset their rights to receive loan guarantee fees totaling $548,500, which
is included in discontinued operations.
F-16
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
5. Amounts Due to/Due from Affiliates , Continued
Assignment of Priority Receivable
During the year ended August 31, 1998, EPC assigned its right to its
priority receivable from a partnership to the Company in the amount of
$428,841 as partial satisfaction of its amount owed to the Company. This
receivable is included in discontinued operations.
Exercise of Options
During the year ended December 31, 1999, the Company made advances to EPC
of approximately $100,000, and the two officers exercised options to
purchase 422,883 shares of the Company's common stock. The exercise price
of the purchased shares was paid through the cancellation of $676,613 of
amounts due the officers by the Company.
6. Note Receivable
The note receivable at December 31, 1998 resulted from sale of a portion of
the assets 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.
7. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Vehicles and equipment $ 6,548,131 $ 7,139,065
Office furniture and equipment 32,971 21,859
Leasehold improvements 13,686 68,244
Buildings 433,043 654,288
Land 1,804,082 1,814,082
----------- -----------
8,831,913 9,697,538
Less: accumulated amortization and depreciation (1,247,873) (593,092)
----------- -----------
Total property and equipment, net $ 7,584,040 $ 9,104,446
=========== ===========
</TABLE>
F-17
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
7. Property and Equipment, Continued
The following is an analysis of property held under capital leases
(included in the preceding summaries) with related accumulated
depreciation, depreciation expense, and the total depreciation expense of
continuing operations:
December 31,
-----------------------------
1999 1998
----------- -----------
Vehicles and equipment $ 3,096,035 $ 3,142,256
Accumulated depreciation (518,685) (133,836)
----------- -----------
Total $ 2,577,350 $ 3,008,420
=========== ===========
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
Capitalized lease
depreciation
expense $436,913 $ 78,240 $119,934
======== ======== ========
Total property,
equipment and
capital lease
depreciation
expense $958,929 $268,658 $319,229
======== ======== ========
During the year ended December 31, 1999, the Company sold biomass equipment
with a net book amount of $1,055,126 and recognized a loss of $215,258 on
the sale of these assets.
Asset Impairment
During the year ended December 31, 1999, the four month period ended
December 31, 1998 and the year ended August 31, 1998, certain assets
(tangible and intangible) of the Company were reviewed for impairment as
circumstances and situations changed such that there were indications that
their carrying amounts were not recoverable.
Tangible Assets
In 1999, there were certain pieces of equipment previously utilized by the
Company that were determined to no longer be necessary, or the Company
significantly changed the manner and extent to which they were used in its
biomass operations. When the Company determined that the assets would no
longer be utilized, it decided to hold these assets for disposition and
ceased recording depreciation expense. In this connection, the Company
obtained an appraisal of the fair value less estimated costs of disposal of
the equipment and, accordingly, recognized an impairment loss.
F-18
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
7. Property and Equipment, Continued
Intangible Assets
Subsequent to the acquisition of TransPacific Environmental, Inc. during
the year ended August 31, 1998, the Company concluded, based upon its
review of values assigned to the acquisition's intangible assets, and in
particular the amount assigned to a pending City of Los Angeles curb-side
green waste contract that facts and circumstances did not support the
initial value ascribed to the contract, and accordingly, the Company
recognized an impairment loss.
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Impairment loss
recognized on
greenwaste equipment $ 141,050 -- $ 634,563
Impairment loss
recognized on
the intangible
assets TPE
greenwaste contract -- -- 1,336,560
---------- -- ----------
Total $ 141,050 -- $1,971,123
========== ========== ==========
</TABLE>
8. Intangible Assets
Intangible assets associated with the Company are all involved with the
green waste segment of the business. The intangible assets are noted below:
December 31,
-----------------------
1999 1998
--------- ---------
Recycling license $ 250,000 $ 250,000
Customer lists 50,000 50,000
Facilities lease 200,000 200,000
--------- ---------
500,000 500,000
Less: accumulated amortization (108,333) (58,334)
--------- ---------
Intangible assets, net of amortization $ 391,667 $ 441,666
========= =========
Amortization expense for the year ended December 31, 1999, the four month
period ended December 31, 1998, and the year ended August 31, 1998 was
$49,999, $16,666, and $41,668, respectively.
F-19
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
9. Lines of Credit
Lines of credit consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
Borrowing under a $650,000 line of credit with a bank, interest at prime
plus 1.50%. The weighted average interest rates on borrowings outstanding
were 9.49% and 9.85% for the years ended December 31, 1999 and 1998,
respectively, collateralized by all assets of the Company, and due June 30,
2000 $ 640,000 $ 625,000
Borrowing under a $250,000 line of credit with a bank, interest at prime
plus 2%. The weighted average interest rate on borrowings outstanding was
10.35% for the four month period ended December 31, 1998, paid in full
during 1999 -- 249,610
---------- -----------
Total 640,000 874,610
Less: current portion (640,000) (874,610)
---------- -----------
Total noncurrent -- --
========== ===========
10. Notes Payable
Notes payable consist of the following:
Notes Payable to Affiliates:
Uncollateralized
Notes payable, with effective interest rates ranging from 6% to 12% per
annum. Notes with aggregate principal amounts of $175,000 are payable to
individuals who are investors in limited partnerships managed by the
Company and are in default and classified as current. A note of $210,815 is
due to the spouse of a director, a major shareholder, and is due January 2,
2001. Notes of $15,713 and $810,152 are payable to affiliated partnerships
managed by the Company. $1,211,681 $ 2,495,284
Note payable to an employee, with interest at 8% per annum,
converted into common stock in November 1999. -- 370,189
---------- -----------
Total due to affiliates 1,211,681 2,865,473
Less: current portion (190,714) (2,268,053)
---------- -----------
Total noncurrent due to affiliates $1,020,967 $ 597,420
========== ===========
</TABLE>
F-20
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
10. Notes Payable, Continued
Notes Payable to Third Parties:
Uncollateralized
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Note payable, with interest at 8% per annum with monthly payments of
$11,182, paid in 1999 -- $ 46,011
----------- -----------
Total due to third parties - uncollateralized -- 46,011
----------- -----------
Collateralized
Notes payable to individuals, paid in April 2000 $ 31,723 296,164
Notes payable, collateralized by a vehicle, with interest at 9.50% per
annum. The note is due in February 2004, with monthly payments of $714 29,396 --
Note payable, collateralized by a note receivable, with interest at 12.25%.
This note was paid in September 1999 -- 4,000,000
Note payable, collateralized by Company's Bell Gardens facility, with
interest at Wall Street Journal Prime plus 1% per annum, (8.5% at December
31,1999). The note is due in December 2003, with monthly principal payments
of $8,098 780,372 800,000
Notes payable, collateralized by equipment with interest ranging from 8% to
18.7% per annum. Maturity dates range from December 1999 to June 2004 2,219,514 2,099,578
----------- -----------
Total due to third parties - collateralized 3,061,005 7,195,742
----------- -----------
Total due to third parties 3,061,005 7,241,753
Less: current portion (727,717) (979,954)
----------- -----------
Total noncurrent due to third parties $ 2,333,288 $ 6,261,799
=========== ===========
</TABLE>
F-21
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
10. Notes Payable, Continued
Maturities of notes payable for the years ending December 31:
2000 $ 918,431
2001 1,597,388
2002 682,609
2003 349,915
2004 and thereafter 724,343
11. Obligations Under Capital Leases
The Company leases vehicles and equipment under long-term noncancellable
capital leases. Obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Capital leases with effective interest rates of 9.5% and 9.75% per annum,
with aggregate monthly principal and interest payments of $3,545 through
December 1998 -- $ 7,924
Capital lease with an effective interest rate of
8.5% per annum, with monthly principal and
interest payments of $1,525 through September 2002 $ 36,737 49,960
Capital leases with interest ranging from 9.1% to 12.62% per annum, with
monthly principal and interest payments ranging from $924 to $5,564, which
aggregate $21,515. Maturity dates range from
August 2000 to June 2001 302,021 518,464
Capital leases with an effective interest rate of 8.75% per annum, with
monthly principal and interest payments ranging from $4,125 to $15,044,
which aggregate $54,779. Maturity dates range from
October to December 2003 2,636,259 2,998,728
Capital leases with interest ranging from 7.60% to 8.50% per annum, with
monthly principal and interest payments ranging from $394 to $488, which
aggregate $1,329. Maturity dates range from
September to November 2004 64,638 --
</TABLE>
F-22
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
11. Obligations Under Capital Leases, Continued
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Capital leases with interest ranging from 7.8% to 17% per annum, with
monthly principal and interest payments ranging from $1,040 to $6,691,
which aggregate $16,426. Maturity dates range from
February 2001 to March 2003 $ 321,933 $ 622,614
----------- -----------
Total obligations under capital leases $ 3,361,588 $ 4,197,690
=========== ===========
Future minimum lease payments under capital leases at December 31, 1999 are
as follows:
2000 $ 1,063,752
2001 992,565
2002 683,799
2003 1,256,787
2004 14,920
-----------
Total minimum lease payments 4,011,823
Less: amount representing interest at the incremental borrowing
rate (650,235)
-----------
Present value of minimum lease payments 3,361,588
Less: current maturities (809,690)
-----------
Obligations under capital leases, long-term $ 2,551,898
===========
</TABLE>
F-23
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
12. Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal -- -- $ (995,904)
State $ 3,200 $ 3,200 3,323
----------- ----------- -----------
3,200 3,200 (992,581)
----------- ----------- -----------
Deferred tax expense (benefit):
Federal -- -- (240,381)
State -- -- 184,487
----------- ----------- -----------
-- -- (55,894)
----------- ----------- -----------
Total provision (benefit) $ 3,200 $ 3,200 $(1,048,475)
=========== =========== ===========
Provision (benefit) allocated to:
Discontinued operations -- -- --
Loss on disposal of discontinued
operations -- -- --
Continuing operations $ 3,200 $ 3,200 $(1,048,475)
----------- ----------- -----------
Total provision (benefit) $ 3,200 $ 3,200 $(1,048,475)
=========== =========== ===========
</TABLE>
The deferred tax benefit for federal income tax purposes is primarily due
to the utilization of the net operating loss to offset prior years' income
taxes and the expected future tax liability. The deferred tax expense for
state income tax purposes is primarily due to the establishment of a
valuation allowance in fiscal year 1998 for the state deferred tax asset
recognized in fiscal year 1997.
The income tax benefit for the year ended August 31, 1998 is allocated to
loss from continuing operations as the tax benefit arising from the loss
from continuing operations is the same as the benefit arising from the
aggregate of all losses from operations. Consequently, no incremental tax
benefit remains for allocation to the loss from discontinued operations or
loss on disposal of discontinued operations.
F-24
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
12. Income Taxes, Continued
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Depreciation $ 42,427 --
Net operating loss carryforward 8,767,232 $ 2,822,273
Nondeductible writedowns related to discontinued
operations 282,954 3,331,355
State tax credit carryforward -- 250,462
Other 7,086 7,086
----------- -----------
Total deferred income tax assets 9,099,699 6,411,176
Valuation allowance (8,689,700) (5,722,651)
----------- -----------
Net deferred income tax asset $ 409,999 $ 688,525
=========== ===========
Deferred income tax liability:
Depreciation -- $ 350,917
Partnership loss $ 409,999 337,608
----------- -----------
Total deferred income tax liability 409,999 688,525
----------- -----------
Net deferred income tax liability -- --
=========== ===========
</TABLE>
The Company, based upon its recent history of losses and management's
assessment of when operations are anticipated to generate taxable income,
has concluded that it is more likely than not that none of the net deferred
income tax assets will be realized through future taxable earnings and has
established a valuation allowance for them.
The valuation allowances increased $2,967,049, $507,281, and $5,215,370
during the year ended December 31, 1999, the four months ended December 31,
1998, and the year ended August 31, 1998, respectively.
F-25
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
12. Income Taxes, Continued
Reconciliation of the effective tax rate to the U.S. federal statutory
income tax rate is as follows:
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
U.S. federal statutory income tax rate (34.0)% (34.0)% (34.0)%
State tax provision 0.1 0.1 0.7
Nondeductible writedowns related to
discontinued operations -- -- 2.7
Nondeductible penalties -- 5.6 --
Other 0.3 0.5 1.0
Change in valuation allowance 33.7 28.0 23.4
------ ------ ------
Effective income tax rate 0.1% 0.2% (6.2)%
====== ====== ======
</TABLE>
The Company had a California Enterprise Zone tax credit carryforward of
$250,462. The Company generated the tax credits through its farming
operations located in the Coachella Enterprise Zone. The tax credits can
only be utilized by generating income in the Enterprise Zone. In the
current year, the Company has discontinued all of its operations in the
Coachella Enterprise Zone; therefore, the deferred tax asset related to the
state tax credit carryforwards has been written off.
The Company has federal and state net operating loss carryforwards of
$22,483,572 and $12,701,550, respectively. The federal and state net
operating loss carryforwards will begin to expire in 2018 and 2003,
respectively.
13. Commitments
The Company leases certain of its biomass facilities and equipment under
noncancellable operating leases. Future minimum lease payments under
noncancellable operating leases at December 31, 1999 are as follows:
Continuing Operations
2000 $109,392
2001 38,628
--------
Total future minimum lease payments $148,020
========
Rent expense from operating leases related to continuing operations was
$150,936 for the year ended December 31, 1999, $74,792 for the four month
period ended December 31, 1998, and $240,728 for the year ended August 31,
1998.
F-26
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
13. Commitments, Continued
Discontinued Operations
The costs associated with early termination of operating leases in the real
estate operations have been included in loss on disposal of discontinued
operations. Contractually required payments relating to these operating
leases are as follows:
2000 $119,616
2001 12,512
2002 9,026
2003 9,026
2004 3,008
--------
Total future minimum lease payments $153,188
========
Rent expense from operating leases related to discontinued operations was
$201,726 for the year ended December 31, 1999, $75,737 for the four month
period ended December 31, 1998, and $308,907 for the year ended August 31,
1998.
14. Contingencies
Concentrations
Cash Balances
The Company maintains cash balances in bank accounts which exceeded
federally insured limits by $983,031 and $661,838 at December 31, 1999 and
1998, respectively; however, the Company has not experienced any losses in
such accounts.
Customers
During the year ended December 31, 1999 and the four months ended December
31, 1998, a single customer accounted for 97% and 99%, respectively, of
revenue for the transportation subsidiary and 77% and 48%, respectively of
total revenue. This revenue is realized under contracts that have initial
terms of 5 years with renewal options up to 10 years. There were no
transportation revenues during the year ended August 31, 1998. This
customer accounted for 59% and 47% of the total accounts receivable
balances at December 31, 1999 and 1998, respectively. No other customers
had accounts receivable balances that exceeded 10%.
F-27
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
14. Contingencies, Continued
Concentrations, Continued
Fuel
During the year ended December 31, 1999 and the four months ended December
31, 1998, the Company purchased 97% and 94% respectively of its fuel from
one entity. In all of its transportation contracts, the Company has terms
that provide for direct increases or decreases in the hauling rate based
upon extraordinary increases or decreases in their cost of fuel.
Certain Significant Estimates
Write-down of Equipment
At August 31, 1998 and December 31, 1999, the Company recognized impairment
write-downs of certain specialized equipment previously utilized in its
biomass operations. In determining the amount of each impairment, the
Company obtained valuations from an independent equipment appraiser. The
valuations contemplate the orderly sale of this equipment in, and the
existence of, a market for used specialty equipment. Given the unique
economic and operational nature of the equipment and the limited market, it
is reasonably possible that the Company's estimate of the amount to be
realized from the disposition of the equipment to recover its carrying
amount will change in the near term. The carrying value of this equipment
was $158,850 at December 31, 1999.
Discontinued Operations
Discontinued operations include management's best estimates of amounts it
expects to realize on the disposition of its real estate operations. These
operations include significant estimates of amounts expected to be realized
related to completed houses and residential lots held for sale, and
receivables due from affiliated real estate limited partnerships. These
estimates are based on several factors including values of recent sales of
similar properties, and valuations by independent appraisers of real
estate. These valuations contemplate sale in an orderly liquidation and
assume the existence of a market for all the assets of the discontinued
operations, all or any of which may or may not materialize. Consequently,
the amounts the Company will ultimately realize could differ materially in
the near term from the amounts assumed in arriving at the loss on disposal
of the discontinued operations.
15. Stock Based Compensation Plans
Under terms of the Company's stock option plans, directors, officers,
employees, and certain vendors may be granted options to purchase shares of
the Company's common stock at no less than 100% of the market price of the
shares on the date the option is granted. Options generally vest over four
years and have a maximum term of ten years. At December 31, 1999 and 1998,
606,850 and 982,883 shares, respectively, were reserved for future issuance
under the plans.
F-28
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
15. Stock Based Compensation Plans, Continued
A summary of the activity relating to the Company's stock option plans as
of December 31, 1999, December 31, 1998 and August 31, 1998, and changes
during the periods then ended is presented below:
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 982,883 $2.43 1,012,883 $2.45 656,633 $1.65
Exercised (585,383) 1.62 -- -- (31,250) 2.00
Granted 364,350 1.18 -- -- 555,000 3.97
Cancelled/repriced -- -- (30,000) 2.81 (150,000) 4.60
Forfeited (155,000) 1.26 -- -- (17,500) 3.14
-------- --------- ----------
Outstanding at end of year 606,850 2.24 982,883 2.43 1,012,883 2.43
======== ========= ==========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Outstanding at Remaining Contractual Exercisable at
Exercise Prices December 31, 1999 Life (in Years) December 31, 1999
--------------- ----------------- --------------------- -----------------
<S> <C> <C> <C>
$1.30 - $1.60 98,100 5 88,250
2.00 286,250 5 258,439
3.00 212,500 8 43,750
4.00 10,000 7 5,000
----------------- -----------------
$1.30 to 4.00 606,850 395,439
================= =================
</TABLE>
SFAS No. 123 requires the use of option valuation models to provide
supplemental information regarding options granted after 1994. Pro forma
information regarding net income and earnings per share shown below was
determined 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 weighted average assumptions used for grants in the years ended
December 31, 1999 and August 31, 1998, respectively: dividend yield of 0%
for both years; expected volatility of 0.96 and 1.17, respectively;
risk-free interest rate of 5.57% and 4.90%, respectively; and expected
contractual life of 10 years for both years. The weighted average fair
value of options granted during the years ended December 31, 1999 and
August 31, 1998 was $1.96 and $3.07, respectively. There were no grants
during the four month period ended December 31, 1998.
F-29
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
15. Stock Based Compensation Plans, Continued
The BSOPM was developed for use in estimating the fair value of traded
options. The Company's employee stock options have characteristics
significantly different 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 its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma
effect on net loss for the periods presented is not representative of the
pro forma effect on net loss in future years because it does not take into
consideration pro forma compensation expense related to grants made prior
to 1994. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------- -------------------- ------------------
<S> <C> <C> <C>
Net loss, as reported $9,186,746 $2,033,064 $15,785,686
Net loss, pro forma $9,565,709 $2,069,014 $16,803,346
Basic and diluted loss per share, as reported $ 1.35 $ 0.31 $ 2.19
Basic and diluted loss per share, pro forma $ 1.40 $ 0.31 $ 2.21
</TABLE>
Common stock warrants issued in the periods presented 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-30
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
15. Stock Based Compensation Plans, Continued
A summary of the activity relating to warrants as of December 31, 1999 and
1998, and changes during the year ended December 31, 1999, the four month
period ended December 31, 1998 and the year ended August 31, 1998 is
presented below:
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------- ---------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Warrants Price Warrants Price Warrants Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 479,500 $3.29 479,500 $3.29 362,500 $1.66
Granted -- -- -- -- 117,000 1.63
Expired (340,000) 2.00 -- -- -- --
-------- -------- -------
Outstanding at end of period 139,500 6.43 479,500 3.29 479,500 3.29
======= ======== ========
</TABLE>
The range of exercise prices of warrants outstanding at December 31, 1999
was $4.50 to $6.67. The weighted average fair value of warrants granted
during the year ended August 31, 1998 was $3.25.
The following table summarizes information about warrants outstanding at
December 31, 1999:
Estimated
<TABLE>
<CAPTION>
Volatility Dividend Risk-Free Lives
Factor Yield Interest Rates (In Years)
-------------- -------- -------------- ----------
<S> <C> <C> <C> <C>
1998 warrant grants 1.032 0% 5.20% 4
1997 warrant grants 1.080 to 1.184 0% 5.34% 2
</TABLE>
16. Disclosures about Fair Values of Financial Instruments
The estimated fair value amounts of all financial instruments on the
Company's December 31, 1999 and 1998 balance sheets have been determined by
using available market information and appropriate valuation methodologies.
Fair value is described as the amount at which the instrument could be
exchanged in a current transaction between informed willing parties, other
than in a forced liquidation. However, considerable judgment is necessarily
required in interpreting market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts. The Company does not have any off balance sheet financial
instruments.
F-31
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
16. Disclosures about Fair Values of Financial Instruments, Continued
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial statements:
Cash and equivalents, accounts receivable, cash held in escrow and in
trust, other current assets, accounts payable, current portion of
notes payable, and certain other current liability amounts are
reported in the balance sheet at approximate fair value due to the
short term maturities of these instruments.
The fair value of noncurrent notes payable is estimated by determining
the net present value of future payments. The carrying amount on the
balance sheet approximates the fair value as the interest rates
approximate current market rates with the exception of one noncurrent
note with a carrying amount of $810,153 and a fair value of $686,354.
17. 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.
The computations of basic and diluted loss per common share are as follows:
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Loss from continuing operations $1,734,717 $1,218,514 $5,838,804
Add: dividends on preferred
shares-declared -- -- 497,276
Add: dividends on preferred shares
- paid upon conversion 216,928 -- --
Add: dividends on preferred shares
- cumulative, not declared 671,850 297,133 362,059
Add: excess fair market value given
in preferred stock conversion to
common stock 609,284 -- --
---------- ---------- ----------
Loss to common shareholders 3,232,779 1,515,647 6,698,139
</TABLE>
F-32
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
17. Loss per Common Share, Continued
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Loss from discontinued operations,
including loss on disposal $ 7,452,029 $ 814,550 $ 9,946,882
-------------- -------------- --------------
Net loss available to common shareholders
$ 10,684,808 $ 2,330,197 $ 16,645,021
============== ============== ==============
Weighted average shares - basic and
diluted 7,896,229 7,737,135 7,595,556
============== ============== ==============
Loss per Common Share - Basic and Diluted
Loss per share from continuing operations $ 0.41 $ 0.20 $ 0.88
Loss per share from discontinued
operations, including loss on disposal 0.94 0.11 1.31
-------------- -------------- --------------
Net loss per share available to common
shareholders $ 1.35 $ 0.31 $ 2.19
============== ============== ==============
</TABLE>
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.
<TABLE>
<CAPTION>
For the Four Month
For the Year Ended Period Ended For the Year Ended
December 31, 1999 December 31, 1998 August 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Shares of common stock issuable under:
Employee stock options 386,850 982,883 449,084
Warrants 379,500 479,500 182,227
Series A Convertible Preferred Stock 1,335,960 1,345,500 1,345,500
Series B Convertible Preferred Stock -- 591,621 404,414
</TABLE>
Warrants to purchase an additional 12,500 and 10,000 shares of common stock
with exercise prices of $4.50 and $6.00 per share, respectively, were
outstanding during the periods presented and were not included in the
computation of diluted earnings per share because their exercise prices
were greater than the average market prices of the common shares for each
of the periods presented.
F-33
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
18. Stock Transactions
Series A Convertible Preferred Stock and Related Transactions
During the first quarter of the year ended August 31, 1998, the Company
sold 747,500 shares of its Series A 9% Convertible Preferred stock ("Series
A Preferred stock") at $10 per share. In connection with the offering, the
Company granted the underwriters warrants to purchase 65,000 shares of
Series A Preferred stock at $12 per share, which were exercisable in
September 1998 and expire four years thereafter.
The Series A Preferred stock is convertible into the Company's common stock
at the option of the holder at any time at a price equal to 125% of the
common stock closing price on September 24, 1997 of $4.4375 per share,
which represents approximately 1.8 shares of common stock for each share of
Series A Preferred stock upon conversion. The Company may convert the
Series A Preferred stock to common stock at such time as the common stock
has traded for 20 consecutive days at 150% of the closing stock price on
September 24, 1997. In the event the number of shares of the Company's
common stock is increased or decreased as a result of a stock split, stock
dividend, reverse stock split, or otherwise, the number of shares of common
stock into which each share of Series A Preferred stock may be converted
shall concurrently be proportionately increased or decreased. Further,
after five years, the Company may redeem the Series A Preferred stock at
$10.00 per share. Upon notice by the Company to redeem, the holders of
Series A Preferred stock will have 30 days to elect to convert their Series
A shares to common stock at 125% of its closing price on September 24,
1997.
The Series A Preferred stock provides for a 9% annual dividend of $.90 per
share payable quarterly. Dividends accumulate whether or not declared and
must be paid prior to any dividend distribution to the holders of Series B
Preferred stock or common stock. In any liquidation or dissolution of the
Company, the holders of Series A Preferred stock will be entitled to a
liquidation preference of $10 per share plus all related accumulated,
accrued, and unpaid dividends. Further, if the Company does not pay
dividends on the Series A Preferred stock for eight cumulative quarters,
the holders of Series A Preferred stock have the right to elect the
majority of the Company's Board of Directors. As of December 31, 1999, the
Company had not declared dividends for six consecutive quarters. In March
2000, the Company declared and paid dividends for three quarters, totaling
$416,340 and the cumulative dividends not declared at April 10, 2000 was
$553,959 ($.90 per share). No dividend in April 2000 was declared.
Series B Convertible Preferred Stock and Related Transactions
In December 1999, the Company exchanged 591,621 shares of its common stock
for Series B Preferred stock in the ratio of one and one-half shares of
common stock for each share of Series B Preferred stock. Upon conversion,
the cumulative dividends in arrears of $538,459 were paid by the issuance
of 53,846 additional shares of Series B Preferred stock. The terms of the
Series B Preferred stock provided for conversion of each share of Series B
Preferred stock into one share of common stock. The value of the enhanced
conversion has been used to reduce earnings available to common
shareholders in determining earnings per share.
F-34
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
18. Stock Transactions, Continued
Shares Issued Under Stock Option Plans
During the years ended December 31, 1999 and August 31, 1998, stock options
were exercised resulting in the purchase of 585,383 common shares for
$979,111 and 31,250 common shares for $62,500, respectively.
Common Stock Issued in Exchange for Debt
During the year ended August 31, 1998, the Company issued 14,927 shares of
common stock at market value in payment of debt of $70,899.
Shares Issued for the Acquisition of TransPacific Environmental, Inc.
During the year ended August 31, 1998, the Company issued 406,109 shares of
common stock for the acquisition of TransPacific Environmental, Inc.
Shares Issued in Connection with Legal Settlement
In the year ended August 31, 1998, the Company issued 144,000 shares of
common stock in connection with a judgment rendered by a court in
litigation brought by an individual and the estate of a former officer and
shareholder. As a result of the judgment, the issuance of these shares is
recorded as settlement expense.
Treasury Stock Repurchase Program
The Company's Board of Directors on November 10, 1997 authorized management
to purchase up to $1,000,000 worth of its common stock over a 12 month
period. As of December 31, 1999 and 1998, the Company had repurchased at
market value 24,250 shares for $118,339.
Common Shares Reserved for Future Issuance
At December 31, 1999, the Company has reserved common shares for future
issuance as follows:
Stock option plans 606,850
Warrants 139,500
Convertible preferred stock 1,335,960
---------
2,082,310
=========
F-35
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
19. 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
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, and
the accounting policies of the operating segments are the same as those
described in Note 2. 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>
Year ended December 31, 1999:
Revenue $ 2,084,098 $ 5,560,809 -- $ 7,644,907
EBITDA (375,503) 953,598 $ (714,338) (136,243)
Assets 1,916,002 5,444,436 4,275,697 11,636,135
Depreciation and amortization 371,934 604,417 32,577 1,008,928
Interest, net 226,146 464,693 134,351 825,190
Four months ended December 31, 1998:
Revenue $ 1,122,595 $ 902,235 $ -- $ 2,024,830
EBITDA (356,634) 164,115 (349,021) (541,540)
Assets 3,430,480 5,382,814 17,670,183 26,483,477
Depreciation and amortization 171,732 97,173 16,419 285,324
Interest, net 146,688 84,645 158,096 389,429
Year ended August 31, 1998:
Revenue $ 2,005,611 -- $ -- $ 2,005,611
EBITDA (3,898,672) -- (1,934,396) (5,833,068)
Assets 3,258,418 -- 18,212,661 21,471,079
Depreciation and amortization 249,631 -- 108,266 357,897
Interest, net 198,864 -- 463,025 661,889
</TABLE>
F-36
<PAGE>
USA Biomass Corporation
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 1999, the Four Month Period
Ended December 31, 1998 and
For The Year Ended August 31, 1998
- --------------------------------------------------------------------------------
20. Subsequent Events
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
will 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, 1999.
Year Ended
December 31, 1999
-----------------
Revenue 22,588,000
------------
Net loss from continuing operations 1,570,024
------------
Net loss 9,022,053
------------
Net loss per share, basic and diluted $ (1.16)
------------
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 March 31, 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.
F-37
<PAGE>
21. Unaudited Quarterly Financial Data
The following is a reconciliation of 1999 interim results of operations
which were impacted by the effect of year-end adjustments:
<TABLE>
<CAPTION>
Quarter
Ended
Quarter Ended Quarter Ended Quarter Ended December 31,
March 31, 1999 June 30, 1999 September 30, 1999 1999
--------------------------- --------------------------- --------------------------- -----------
As reported As reported As reported
in Form 10QSB As adjusted in Form 10QSB As adjusted in Form 10QSB As adjusted Actual
------------- ----------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,067,000 $ 2,067,000 $ 1,837,000 $ 1,837,000 $ 1,965,000 $ 1,965,000 $ 1,776,000
=========== =========== =========== =========== =========== =========== ===========
Costs and expenses (1) 2,487,000 2,840,000 1,998,000 1,976,000 1,747,000 2,264,000 2,300,000
=========== =========== =========== =========== =========== =========== ===========
Net income (loss)(2) $ (420,000) $ (773,000) $ (161,000) $ (139,000) $ 20,000 $ (497,000) $(7,778,000)
=========== =========== =========== =========== =========== =========== ===========
Net loss per common
share, basic and
diluted $ (0.08) $ (0.13) $ (0.05) $ (0.05) $ (0.03) $ (0.09) $ (1.08)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
(1) Costs and expenses increased primarily due to adjustments relating to
depreciation, liability insurance, medical insurance, impairment losses, bad
debt expenses and losses on sale of assets.
(2) The reason for the significant loss of $7,778,000 in the fourth quarter,
when compared to prior quarters, is due to the recording of loss from
discontinued operations of approximately $7.4 million.
ITEM 23. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
F-38
31
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Limitation on Liability of Officers and Directors of the Company. Section 145 of
the Delaware General Corporation Law specifies that the Certificate of
Incorporation of a Delaware corporation may include a provision eliminating or
limiting the personal liability of a director or officer to that corporation or
its stockholders for damages for breach of fiduciary duty as a director or
officer, but such a provision must not eliminate or limit the liability of a
director or officer for (a) acts or omissions which involve intentional
misconduct, fraud, or a knowing violation of law; or (b) unlawful distributions
to stockholders. Our Certificate of Incorporation includes a provision
eliminating or limiting the personal liability of our officers and directors to
the Company and our shareholders for damages for breach of fiduciary duty as a
director or officer. Moreover, Sections 6.1 through 6.6 of our By-laws provide
certain indemnity to a controlling person, director or officer which affects
such a person's liability while acting in a corporate capacity. Accordingly, our
officers and directors may have no liability to our shareholders for any
mistakes or errors of judgment or for any act or omission, unless such act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We will pay all expenses in connection with the registration and sale of the
shares of our common stock specified in this Prospectus, except any selling
commissions or discounts allocable to sales of that common stock, fees and
disbursements of counsel and other representatives of the Selling Stockholders,
and any stock transfer taxes payable by reason of any such sale. The estimated
expenses of issuance and distribution are set forth below.
Registration Fees Approximately $2,159.78
Transfer Agent Fees Approximately $500.00
Costs of Printing and Engraving Approximately $300.00
Legal Fees Approximately $15,000.00
Accounting Fees Approximately $10,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1998, we issued an aggregate of 11,507 shares of common stock to two
non-affiliated holders of 12% notes in lieu of an interest payout of $55,376.71.
These shares were issued in reliance upon the exemption from registration under
Section 4(2) of the Securities Act of 1933 as transactions not involving a
public offering. Exemption from the registration provisions of the Securities
Act of 1933 is claimed on the basis that such transactions did not involve any
public offering and the purchasers were sophisticated with access to the kind of
information registration would provide.
32
<PAGE>
ITEM 27. EXHIBITS.
(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
4.2 Trust Indenture between the Company and First City Bank of
Dallas (2)
5 Opinion re: legality
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)
33
<PAGE>
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
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.
11. Statement re: Computation of Per Share Earnings (Loss)(5)
21 Subsidiaries of the Company (7)
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (8)
27 Financial Data Schedule(9)
99.1 Form 8-K, for event dated January 12, 1999, incorporated
herein by this reference as filed with the Commission on
January 27, 1999, reporting on Item 8, Change in Fiscal Year,
in connection with the Company's Board of Directors' decision
to change the Company's fiscal year from August 31 to December
31, commencing with the calendar year/fiscal year ended
December 31, 1998.
99.2 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.
99.3 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, Other Events, in
34
<PAGE>
connection with the grant of a leave of absence to Robert A.
Wright from the service of the Company as president of the
Company.
99.4 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) Included in Exhibit 5.
(9) Filed as an exhibit to the Company's Form 10-KSB filed with the Commission
on April 14, 2000, and incorporated herein by reference.
ITEM 28. UNDERTAKINGS
A. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
35
<PAGE>
B. We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the 1933
Act;
(ii) To specify in the prospectus any facts or events arising after
the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (Section 230.424(b) of Regulation S-B) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
SIGNATURES
In accordance with the requirements of the 1933 Act, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 and authorize this Pre-Effective Amendment
No. 1 to the Registration Statement on Form SB-2 to be signed on its behalf by
the undersigned, in the City of Newport Beach, California, on May 25, 2000.
USABiomass, Inc.,
a Delaware corporation
By: /s/
-------------------------
Fred Behrens
Its: Chief Executive Officer
36
<PAGE>
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
By: /s/
----------------------------
Its: Chief Financial Officer
Date: May 25, 2000
By:
----------------------------
Its: Secretary
Date: May 25, 2000
By:/s/ By: /s/
----------------------------- --------------------
Its: Director Its: Director
Date: May 25, 2000 Date: May 25, 2000
By: /s/ By: /s/
----------------------------- --------------------
Its: Director Its: Director
Date: May 25, 2000 Date: May 25, 2000
37
