As filed with the Securities and Exchange Commission on October 26, 2000
Registration Statement No. 333-63289
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 6 TO FORM S-3 ON FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
RICH COAST, INC.
---------------
(Name of small business issuer in its charter)
Nevada 4953 91-1835978
- ------------------------------ ---------------------------- ----------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
6011 Wyoming Avenue Robert W. Truxell
Dearborn, Michigan 48126 6011 Wyoming Avenue
(313) 582 -8866 Dearborn, Michigan 48126
(Address and telephone number of (313) 582-8866
principal executive offices and (Name, address and telephone number
address of principal place of of agent for service)
business)
With a Copy to:
Theresa M. Mehringer, Esq.
Perkins Coie LLP
1899 Wynkoop Street, Suite 700
Denver, Colorado 80202
(303) 291-2300
Approximate date of proposed sale to the public:
As soon as practicable following the date on which the Registration
Statement becomes effective.
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. [_]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of each class of Amount to Proposed maximum offering Proposed maximum Amount of
securities to be registered/(1)/ be registered price per share/(2)/ aggregate offering price/(2)/ registration fee/(2)/
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon 2,506,938 Shares/(3)/ $0.78125 $1,958,545 $ 517
conversion of debentures
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Common Stock 3,300,000 Shares $0.78125 $2,578,125 $ 680
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Total 5,806,938 Shares/(4)/ $0.78125 $4,536,670 $1,197
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_______________________
(1) For a description of the various securities referred to herein and the
transactions in which they were issued, See "Description of Securities
-Securities Registered Hereby."
(2) Proposed maximum offering price and registration fee is based on the
average of the bid and asked prices as reported by NASDAQ on September
9, 1998 (a date within five business days prior to the initial filing
hereof). $1,786 of the registration fee was paid as a part of the
registrant's initial filing and amendment No. 3.
(3) Includes the registration for resale of shares of Common Stock
issuable upon conversion of the remaining $1,375,500 principal amount
of 8% Convertible Debentures (the "Debentures"). Estimated solely for
purposes of calculating the registration fee in connection with this
Registration Statement and assumes that all of the Debentures are
converted into shares of Common Stock based on a price of $0.76875 per
share of Common Stock (the average closing bid price of the Common
Stock for the five trading days ending on August 27, 1998) and using a
discount rate of 25%.
(4) All shares offered pursuant to this Registration Statement relate only
to resales by Selling Shareholders.
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 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
Subject to Completion Preliminary Prospectus dated ___________________
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
RICH COAST INC.
5,806,938 Shares of Common Stock to be issued to and offered by Selling
Shareholders
An aggregate of 5,806,938 shares (the "Shares") of $.001 par value Common
Stock (the "Common Stock") of Rich Coast Inc. ("Rich Coast" or the "Company")
may be offered by certain shareholders (the "Selling Shareholders") from time to
time in the public market. The shares of Common Stock offered hereby include the
resale of 2,506,938 shares of Common Stock issuable upon conversion of the
remaining $1,375,500 in principal amount of 8% Convertible Debentures. The
issuance of these 2,506,938 shares would represent approximately 22.7% of total
outstanding shares if they were issued on October 23, 2000. These Debentures are
convertible into Shares of Common Stock at the conversion price for each Share
of Common Stock equal to the lesser of (i) $2.50, or (ii) 75% of the five day
average closing bid price of the Common Stock for the five trading days
immediately preceding the conversion date of the Debentures. If all $1,375,500
principal amount of Debentures was converted on October 23, 2000, then the
aggregate shares issued upon conversion would total 11,756,410 of which the
2,506,938 shares registered hereby would constitute only 21.3%. Except in the
case of mandatory conversion of the Debentures, no holder of Debentures is
entitled to convert an amount of Debentures that would result in beneficial
ownership of more than 4.9% of the Company's outstanding common stock.
All proceeds received from the sale of the Shares offered by the Selling
Shareholders will accrue to the benefit of the Selling Shareholders and not to
the Company. 3,300,000 of the Shares which may be offered by the Selling
Shareholders are outstanding on the date of this Prospectus, and the remaining
2,506,938 Shares may be issued by the Company after the date of this Prospectus
upon conversion of outstanding debentures (the "Debentures") held by Selling
Shareholders. All of the Shares may be resold in the public market by the
Selling Shareholders. Sales of any of these previously restricted Shares into
the public market could impact the market adversely so long as this Offering
continues. See "Risk Factors."
The Common Stock is traded on the Over The Counter Bulletin Board under the
symbol "KRHC.OB." On October 23, 2000, the closing bid price of the Common Stock
as reported on the Over The Counter Bulletin Board was $0.120.
i
The securities offered hereby are speculative and involve a high degree of
risk. See "Risk Factors" on pages three through seven for discussion of certain
material risks in connection with the Company which prospective investors should
consider prior to purchasing the securities offered hereby.
The Shares will be offered by the Selling Shareholders through dealers or
brokers on the OTC Bulletin Board. The Shares may also be sold in privately
negotiated transactions. Sales through dealers or brokers are expected to be
made with customary commissions being paid by the Selling Shareholders. Payments
to persons assisting the Selling Shareholders with respect to privately
negotiated transactions will be negotiated on a transaction by transaction
basis. The Selling Shareholders have advised the Company that prior to the date
of this Prospectus they have made no agreements or arrangements with any
underwriters, brokers or dealers regarding the sale of the Shares. See "Plan of
Distribution." Any commissions and/or discounts on the sale of Shares offered by
the Selling Shareholders will be paid by the Selling Shareholders, and all other
expenses related to the filing of the registration statement to which this
offering relates are being paid by the Company. Other expenses to be paid by the
Company may include the SEC filing fee, printing costs, Edgar costs, legal fees
and accounting fees.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- ----------------------------------------------------------------------------------------------------
Price Per Total Number Aggregate Offering Proceeds to Selling
Share of Shares Price Shareholder
----- --------- ----- -----------
- ----------------------------------------------------------------------------------------------------
Shares to be Outstanding
Offered by Selling
Shareholders/(1)/ $0.120/(2)/ 5,806,938/(3)/ $696,833 $696,833
- ----------------------------------------------------------------------------------------------------
____________
/(1)/ These Shares will be offered by the Selling Shareholders. Some shares
are currently held by Selling Shareholders, and some shares will be held
by Selling Shareholders after conversion of Debentures. See "Description
of Securities."
/(2)/ The Price per Share represents the closing bid price as reported on the
Over the Counter Bulletin Board on October 23, 2000. These Shares will
be offered from time to time by the Selling Shareholders at market
prices. Underwriting discounts or commissions may be paid by the Selling
Shareholders. See "Plan of Distribution."
/(3)/ The shares offered hereby include the resale of 3,300,000 shares
outstanding; and 2,506,938 shares issuable upon conversion of the
remaining $1,375,500 principal amount of 8% Convertible Debentures.
These securities are speculative and involve a high degree of risk and
immediate substantial dilution to investors. Potential purchasers should not
invest in these securities unless they can afford the risk of losing their
entire investment. See "Risk Factors" on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Prospectus dated ________________, 2000
ii
TABLE OF CONTENTS
Page
----
Forward Looking Statements............................................................... 1
Prospectus Summary....................................................................... 1
Risk Factors............................................................................. 3
Use Of Proceeds.......................................................................... 7
Selling Shareholders..................................................................... 8
Plan of Distribution..................................................................... 9
Legal Proceedings........................................................................ 11
Dividend Policy.......................................................................... 11
Management............................................................................... 11
Security Ownership of Certain Beneficial Owners and Management........................... 13
Description of Securities................................................................ 15
SEC Position on Indemnification.......................................................... 16
Certain Relationships and Related Transactions........................................... 17
Description of Business.................................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of Operations.... 20
Description of Property.................................................................. 29
Market for the Registrant's Common Stock and Related Stockholder Matters................. 29
Executive Compensation................................................................... 31
Legal Matters............................................................................ 35
Experts.................................................................................. 35
Changes in Accountants................................................................... 35
Additional Information................................................................... 36
Index to Consolidated Financial Statements for Rich Coast ............................... F-1
iii
FORWARD LOOKING STATEMENTS
Statements made in this Prospectus, including statements contained in
information incorporated by reference, that are not historical or current facts
are "forward looking statements." Forward looking statements, including those
regarding the potential revenues from the commercialization of the biological
treatment system, the continuing increase in revenues and the business prospects
of Rich Coast Inc., are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results of operations
and events and those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made. Actual events may differ
materially from those projected in any forward looking statement. There are a
number of important factors beyond the control of the Company that could cause
actual events to differ materially from those anticipated by any forward looking
information. In addition to the risks cited above specific to the biological
treatment system, these factors include adverse economic conditions, entry of
new and stronger competitors, inadequate capital and the inability to obtain
funding from third parties, unexpected costs and failure to capitalize upon the
access to new clientele. These factors are discussed in this Prospectus under
the heading "Risk Factors" and in the "Management's Discussion and Analysis"
section.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and the documents
incorporated by reference herein.
The Company
- -----------
Rich Coast, Inc. is a non-hazardous waste treatment facility
specializing in recycling of waste oils. The Company operates equipment and
oversees processes at both its facilities and customers' facilities. The
equipment and processes separate liquid waste streams and pumpable waste streams
containing a mixture of liquids and solids. Some of the resulting streams are
recyclable into greases and oils that can be sold. The Company's executive
offices are located at 6011 Wyoming Avenue Dearborn, Michigan 48126, telephone
(313) 582-8866.
The Offering
- ------------
Pursuant to this Prospectus, the Selling Shareholders may from time to
time offer all or any portion of an aggregate of 5,806,938 Shares of Common
Stock on the OTC Bulletin Board through underwriters, dealers or brokers or in
independently negotiated transactions. This amount includes 2,506,938 shares to
be issued upon conversion of the remaining $1,375,500 principal amount of 8%
Convertible Debentures. See "Selling Shareholders" and "Plan of Distribution."
The Company will not receive any proceeds from the sale of Shares offered by the
Selling Shareholders. As of the date of this Prospectus, only 3,300,000 of the
Shares registered for public sale are outstanding. The remaining Shares have not
yet been issued, but may be purchased from the Company by Selling
Shareholders and resold by them pursuant to this Prospectus. See "Description of
Securities." These 2,506,938 Shares of Common Stock underlie convertible
debentures which are convertible at varying prices.
After this Offering there will be approximately 14,446,827 shares of
Common Stock outstanding. The Company's Common Stock is traded on the
OTC Bulletin Board under the symbol "KRHC.OB."
Risk Factors
- ------------
The securities offered are speculative and involve a high degree of
risk. Factors which may affect the Company's business and the securities offered
hereby include uncertain financial condition, lack of profitability, possible
need for additional capital, dependence on management, substantial debt and the
likely adverse effect of this Offering on the market price of the Company's
Common Stock. See "Risk Factors."
Use of Proceeds
- ---------------
Net proceeds, if any, to the Company from the exercise of outstanding
warrants will be used for working capital. See "Use of Proceeds."
2
RISK FACTORS
The securities offered in this prospectus are highly speculative and
involve a high degree of risk, including among other items the risk factors
described below. You should carefully consider the following risk factors and
other information in this prospectus before deciding to invest in the shares.
Risk Factors Related to the Business of the Company
---------------------------------------------------
Due to Rich Coast's history of operating losses, its auditors are uncertain that
Rich Coast will be able to continue as a going concern.
The consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. During the fiscal years ended
April 30, 2000 and 1999, the Company suffered net losses of approximately
$3,134,000 and $2,572,000, respectively. During the quarters ended July 31, 2000
and 1999, the Company suffered net losses of approximately $296,614 and
$368,000, respectively. At April 30, 2000 there was a stockholders' deficit and
a working capital deficit of approximately $1,145,000 and $4,665,000,
respectively. At July 31, 2000 there is a stockholders' deficit and a working
capital deficit of approximately $1,216,637 and $4,727,942, respectively. The
independent auditors' reports issued in conjunction with the consolidated
financial statements for the year ended April 30, 2000 contains an explanatory
paragraph indicating that the foregoing matters raise substantial doubt about
the Company's ability to continue as a going concern.
There is no assurance that the Company can generate net income,
increase revenues or successfully expand its operation in the future. The
Company will not realize any proceeds from sales of shares by Selling
Shareholders under this prospectus.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a description of management's plans in regard to this
issue. The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unsuccessful in
implementing these plans, or otherwise unable to continue as a going
concern.
The loss of current management may make it difficult to operate Rich Coast.
The Company's prospects for success currently are greatly dependent
upon the efforts and active participation of its management team, including its
President and Chief Executive Officer, James P. Fagan, and Chairman, Robert
Truxell. The Company has an employment contract with Mr. Truxell expiring
December 31, 2002, and an employment contract with Mr. Fagan which terminates
December 31, 2000. The loss of the services of Messrs. Fagan and Truxell could
be expected to have an adverse effect on the Company. The Company does not
maintain key person insurance for Messrs. Truxell and Fagan.
3
The Company's non compliance with certain debt covenants could result in a
declaration of default under its debt instrument which in turn could severely
drain the Company's cash flow.
At April 30, 2000 and July 31, 2000 the Company had approximately
$3,647,000 and $3,596,571, respectively, of debt outstanding under various
loans, debentures and other note agreements, including $2,000,000 due under the
Company's 10% Senior Secured Note due July 10, 2004 (the "10% Senior Note"), and
$1,375,500 outstanding in 8% Convertible Debentures due June 2003. In September
2000 the Company entered into a modification agreement with the holder of the
10% Senior Note. The agreement provides for interest plus $5,000 principal
payments per month until May 2001, and thereafter equal monthly payments of
principal and interest over a four year period. The Company is not in compliance
with certain covenants of the 8% Convertible Debentures. However, the Company
and the holders of the 8% Convertible Debentures have entered into a standstill
agreement, whereby the debenture holders have agreed not to take any action with
respect to exercising their conversion rights or declaring the 8% Convertible
Debentures to be in default through November 2000. The standstill agreement
requires the Company to make payments on the 8% Convertible Debentures of
$25,000 in August 2000 (payment has been made) and $25,000 in September 2000,
and timely registration of shares underlying the possible conversion of the 8%
Convertible Debentures. If the Company does not meet the requirements of the
standstill agreement, the holders of the 8% Convertible Debentures could cause
the outstanding balance of the debentures to become due immediately, which would
severely impair the Company's cash flow.
The Company's debt could have important consequences to the holders of
Common Stock by restricting the Company's ability to obtain additional financing
for working capital, acquisitions or other purposes in the future. The Company's
ability to meet the requirements of the standstill agreement related to the 8%
Convertible Debentures, cure the violations under the covenants of the 10%
Senior Note and the 8% Convertible Debentures, and make scheduled payments of
principal or interest on, or to refinance, the Company's debt will depend on
future operating performance and cash flow, which are subject to prevailing
economic conditions and financial, competitive and other factors beyond its
control.
The obligations of the Company under the loan agreement for the 10%
Senior Note is secured by a pledge of substantially all of the assets of the
Company and its subsidiaries. If the Company becomes insolvent or is liquidated,
or if payment under the loan agreement is accelerated, the investor would be
entitled to exercise remedies available to secured creditors under applicable
law and pursuant to the loan agreement. Accordingly, the holder of the 10%
Senior Note will have a prior claim on the assets of the Company and its
subsidiaries. The holders of the Debentures also have a security interest
(junior to the holders of the 10% Senior Note) in substantially all of the
assets of the Company and its subsidiaries. Foreclosure on the assets pledged to
secure repayment of debt could reduce the Company's assets to a level at which
assets would not be sufficient to make any distribution to shareholders in the
event of liquidation.
4
Rich Coast has numerous outstanding options, warrants and convertible debentures
which may adversely affect the price of Rich Coast's common stock.
The Company has reserved 3,750,000 shares for issuance upon exercise of
outstanding options under plans and warrants, and 16,061,111 shares for issuance
upon conversion of the Debentures, and has registered 3,406,938 shares for
public sale by the holders. Shares are issuable upon exercise of warrants and
options at prices as low as $0.125 per Share. The 2,506,938 shares issuable upon
conversion of the Debentures would represent 22.7% of the shares outstanding on
October 23, 2000. There is no floor on the conversion price of the Debentures
since the conversion price will be 75% of the average bid price of the Company's
Common Stock for the five trading days immediately preceding the conversion. Any
sale into the public market of Shares purchased privately at prices below the
current market price could be expected to have a depressive effect on the market
price of the Company's Common Stock. See "Description of Securities."
Issuance of Additional Shares Upon Conversion of Debentures if Market Price
Declines/Dilution.
The Company had a negative net tangible book value of $1,233,887 or
($0.11) per share of the Company's Common Stock on July 31, 2000. Net tangible
book value per share is determined by dividing the tangible net worth of the
Company (tangible assets less total liabilities) by the total number of
outstanding shares of Common Stock. As the market price of the shares of Common
Stock declines, more shares will be issued upon conversion since the conversion
price is equal to the lesser of (i) $2.50, or (ii) 75% of the five day average
closing bid price of the Common Stock for the five trading days immediately
preceding the conversion date of the Debentures. If all $1,375,500 principal
amount of Debentures was converted on October 23, 2000, when 75% of the five day
average closing bid price was $0.117 per share, then the aggregate shares issued
upon conversion would total 11,756,410, of which the 2,506,938 shares registered
hereby would constitute only 21.3%. Since the conversion price of the Debentures
is currently in excess of the net tangible book value per share of the Company's
Common Stock, such conversion would not be dilutive to existing shareholders.
However, in the event that the Company's net tangible book value per share
exceeds the conversion price of the Debentures
5
on the date of conversion, such conversion would have a dilutive effect.
Rich Coast does not expect to pay dividends.
The Company has not paid dividends since inception on its common stock,
and it does not contemplate paying dividends in the foreseeable future on its
common stock in order to use all of its earnings, if any, to finance expansion
of its operations.
Lack of trading market may make it difficult to sell Rich Coast's common stock.
The only trading in Rich Coast's common stock is conducted on the OTC
Bulletin Board. As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, the common
stock. In addition, the Company's common stock is defined as a "penny stock" by
rules adopted by the Commission. In such event, brokers and dealers effecting
transactions in the common stock with or for the account of a customer must
obtain the written consent of a customer prior to purchasing the common stock,
must obtain certain information from the customer and must provide certain
disclosures to such customer. These requirements may have the effect of reducing
the level of trading in the secondary market, if any, of the common stock and
reducing the liquidity of the common stock.
The stock price can be extremely volatile.
The Company's common stock is traded on the OTC Bulletin Board. There
can be no assurance that an active public market will continue for the common
stock, or that the market price for the common stock will not decline below its
current price. Such price may be influenced by many factors, including, but not
limited to, investor perception of the Company and its industry and general
economic and market conditions. The trading price of the common stock could be
subject to wide fluctuations in response to announcements of business
developments by the Company or its competitors, quarterly variations in
operating results, and other events or factors. In addition, stock markets have
experienced extreme price volatility in recent years. This volatility has had a
substantial effect on the market prices of companies, at times for reasons
unrelated to their operating performance. Such broad market fluctuations may
adversely affect the price of the common stock.
Issuance of preferred stock may adversely affect the price of Rich Coast's
common stock.
Rich Coast is authorized to issue 10,000,000 shares of preferred stock.
The preferred stock may be issued in series from time to time with such
designations, rights, preferences and limitations as the board of directors of
Rich Coast may determine by resolution. The directors of Rich Coast have no
current intention to issue preferred stock. However, the potential exists that
preferred stock might be issued which would grant dividend preferences and
liquidation preferences over the common stock, diminishing the value of the
common stock.
6
Rich Coast's quotations for on site business do not result in signed contracts.
When brokers, trucking companies and small manufacturing concerns have
non hazardous wastes to dispose of, samples of the waste are delivered to Rich
Coast and quotations are provided by Rich Coast. If Rich Coast's bid is
accepted, the customer simply calls in to schedule deliveries. Rich Coast is at
some risk without a signed contract and, therefore, must insure that customers
with delinquent payables are put on cash on delivery basis before their
indebtedness builds to a problem level.
Most of the business conducted by Rich Coast is based on oral agreements.
Most of the waste treatment business conducted by the Company is based
on oral agreements for the price of each load, rather than written contracts.
These oral agreements are more difficult to enforce than written contracts.
USE OF PROCEEDS
The Company will not receive any proceeds from sales of Shares by the
Selling Shareholders. After deduction of expenses of this Offering payable by
the Company, estimated to total $40,000, net cash proceeds are estimated to
total $500,000.
7
SELLING SHAREHOLDERS
The following table sets forth information known to the Company
regarding the beneficial ownership of Shares of the Company's Common Stock as
adjusted to reflect the sale of the shares offered hereby by each Selling
Shareholder. The information set forth below is based upon information
concerning beneficial ownership provided to the Company by each Selling
Shareholder. Except as otherwise indicated below, each of the persons named in
the table has sole voting and investment power with respect to the shares set
forth opposite such person's name.
Number of Shares Number of
Owned Prior to Shares Number of Shares Owned
Name Offering/(1)(2)/ Offered Hereby/(1)/ After Offering/(1)(3)/
------------------------- ---------------- ------------------- ----------------------
Canadian Advantage Limited
Partnership/(6)/ 333,854 333,854 0
Sovereign Partners, LP/(7)/ 835,935 835,935 0
Dominion Capital Fund Ltd./(8)/ 1,337,149 1,337,149 0
Frippoma S.A./(9)/ 2,550,000 2,550,000 0
S.B. Fletcher Consulting, Inc./(10)/ 300,000 300,000/(5)/ 0
Strauss Holding Limited/(11)/ 450,000 450,000 0
__________________
/(1)/ The number of Shares underlying the Debentures are those Shares
registered for sale upon conversion of the Debentures held by Selling
Shareholders. The number of shares of Common Stock indicated to be
issuable in connection with conversion of the Debentures and offered
for resale hereby is an estimate determined in accordance with a
formula based on the market prices of the Common Stock, as described in
this Prospectus, and is subject to adjustment and could be materially
less or more than such estimated amount depending upon the market price
of the Common Stock at the time the Debentures are converted.
/(2)/ Assumes that the Debentures are converted and all Shares are sold by
the Selling Shareholders.
/(3)/ Beneficial ownership is calculated in accordance with Rule 13d 3 (d) of
the Securities Exchange Act of 1934, as amended. Under Rule 13d 3 (d),
shares not outstanding that are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding
for the purpose of calculating the number and percentage owned by such
person of the class, but not deemed outstanding for the purpose of
calculating the percentage owned of the class by any other person.
/(4)/ Includes Shares subject to a bleed out agreement with the Company
whereby S.B. Fletcher will limit its weekly sales based on the bid
price of the common stock.
/(5)/ Mark Valentine and Ian McKinnon, both residents of Canada, are the
control persons of this offshore limited partnership in their positions
as directors of this limited partnership.
/(6)/ Southridge Capital Management, LLC, a Delaware limited liability
company, is the general partner for this Delaware limited partnership.
Stephen Hicks and Daniel Pickett control the limited partnership in
their positions as the officers of the general partner.
/(7)/ David Simms, a resident of British Virgin Islands, controls the fund in
his position of sole director of the offshore fund.
/(8)/ This off shore entity is controlled by (and beneficially owned by)
Paolo Floriani and Floriana Cantarelli, both of Lugano, Switzerland.
/(9)/ This entity is beneficially owned and controlled by David Karson of New
York.
/(10)/ This off share entity is beneficially owned and controlled by Paolo Del
Bue of Lugano, Switzerland.
8
Relationships and Transactions with Certain Selling Shareholders
- ----------------------------------------------------------------
S.B. Fletcher Consulting, Inc. acted as a consultant for the Company
over the last year and received its 300,000 shares offered hereby as
compensation for consulting services. Except as described above, none of the
Selling Shareholders has had any position, office or other material relationship
with the Company during the past three years.
PLAN OF DISTRIBUTION
Sale of Securities by Selling Shareholders
- ------------------------------------------
The Selling Shareholders have advised the Company that prior to the
date of this Prospectus they have not made any agreements or arrangements with
any underwriters, brokers or dealers regarding the resale of the Shares. The
Company has been advised by the Selling Shareholders that the Shares may at any
time or from time to time be offered for sale either directly by the Selling
Shareholders or by their transferees or other successors in interest. Such sales
may be made in the over the counter market or in privately negotiated
transactions.
The Selling Shareholders have exercised their right to require the
Company to register the Shares which the Selling Shareholders purchased from the
Company in private transactions. The Selling Shareholders were granted certain
registration rights pursuant to which the Company has agreed to maintain a
current registration statement to permit public sale of the Shares for a period
of at least nine months from the date of this Prospectus or until the Shares
have been sold, whichever first occurs. The Company will pay all of the expenses
incident to the offering and sale of the Shares to the public by the Selling
Shareholders other than commissions and discounts of underwriters, dealers or
agents, if any. Expenses to be paid by the Company include legal and accounting
fees in connection with the preparation of the Registration Statement of which
this Prospectus is a part, legal fees in connection with the qualification of
the sale of the Shares under the laws of certain states, registration and filing
fees, printing expenses, and other expenses. The Company will not receive any
proceeds from the sale of the Shares by the Selling Shareholders.
The Company anticipates that the Selling Shareholders from time to time
will offer the Shares through: (i) dealers or agents or in ordinary brokerage
transactions; (ii) direct sales to purchasers or sales effected through an
agent; (iii) privately negotiated transactions; or (iv) combinations of any such
methods. The Shares would be sold at market prices prevailing at the time of
sale or at negotiated prices. Dealers and brokers involved in the offer and sale
of the Shares may receive compensation in the form of discounts and commissions.
Such compensation, which may be in excess of ordinary brokerage commissions, may
be paid by the Selling Shareholders and/or the purchasers of Shares for whom
such underwriters, dealers or agents may act. The Selling Shareholders and any
dealers or agents which participate in the distribution of the Shares may be
deemed to be "underwriters" as defined in the 1933 Act and any profit on the
sale of the Shares and
9
any discounts, commissions or concessions received by any dealers or agents
might be deemed by the NASD to constitute underwriting compensation.
If the Company is notified by the Selling Shareholders that any
material arrangement has been entered into with an underwriter for the sale of
Shares, a supplemental prospectus will be filed to disclose such of the
following information as the Company believes appropriate: (i) the name of the
participating underwriter; (ii) the number of Shares involved; (iii) the price
at which such Shares are sold; (iv) the commissions paid or discounts or
concessions allowed to such underwriter; and (v) other facts material to the
transaction.
Sales of Shares on the OTC Bulletin Board may be by means of one or
more of the following: (i) a block trade in which a broker or dealer will
attempt to sell the Shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (ii) purchases by a dealer as
principal and resale by such dealer for its account pursuant to this Prospectus;
and (iii) ordinary brokerage transactions and transactions in which the broker
solicits purchasers. In effecting sales, brokers or dealers engaged by the
Selling Shareholders may arrange for other brokers or dealers to participate.
The Company is unable to predict the effect which sales of the Shares
by the Selling Shareholders might have upon the market price of the Company's
Common Stock or the Company's ability to raise further capital. See "Risk
Factors."
Private Sale of Common Stock by the Company
- -------------------------------------------
The Company will issue Shares of "restricted" Common Stock to the
Selling Shareholders upon their conversion of Debentures which they received
from the Company in private transactions. The Company anticipates that Shares
issued upon conversion of the Debentures will be sold by the Selling
Shareholders as described above.
Indemnification
- ---------------
The Company's Articles of Incorporation provide that the Company shall
indemnify any officer, employee, agent or director against liabilities
(including the obligation to pay a judgment, settlement, penalty, fine or
expense), incurred in a proceeding (including any civil, criminal or
investigative proceeding) to which the person was a party by reason of such
status. Such indemnity may be provided if the person's actions resulting in the
liabilities: (i) were taken in good faith; (ii) were reasonably believed to have
been in the Company's best interest with respect to actions taken in the
person's official capacity; (iii) were reasonably believed not to be opposed to
the Company's best interest with respect to other actions; and (iv) with respect
to any criminal action, the director had no reasonable grounds to believe the
actions were unlawful. Unless the person is successful upon the merits in such
an action, indemnification may generally be awarded only after a determination
of independent members of the Board of Directors or a committee thereof, by
independent legal counsel or by vote of the shareholders that the applicable
standard of conduct was met by the director to be indemnified.
10
A director, employee, agent, or officer who is wholly successful, on
the merits or otherwise, in defense of any proceeding to which he or she was a
party, is entitled to receive indemnification against reasonable expenses,
including attorneys' fees, incurred in connection with the proceeding. In
addition, a corporation may indemnify or advance expenses to an officer,
employee or agent who is not a director to a greater extent than permitted for
indemnification of directors, if consistent with law and if provided for by its
articles of incorporation, bylaws, resolution of its shareholders or directors
or in a contract.
In connection with this Offering the Company and the Selling
Shareholders have agreed to indemnify each other against certain civil
liabilities, including liabilities under the 1933 Act. Insofar as
indemnification for liabilities arising under the 1933 Act may be permitted to
directors, officers and controlling persons of the issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer 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.
LEGAL PROCEEDINGS
Neither the Company nor any of its officers and directors is currently
a party to any material legal proceeding.
DIVIDEND POLICY
The Company has never declared or paid any dividends or distributions
on its Common Stock. The Company anticipates that for the foreseeable future all
earnings will be retained for use in the Company's business and no cash
dividends will be paid to stockholders. Any payment of cash dividends in the
future on the Common Stock will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion, as well as other factors that the Board of Directors deems
relevant.
MANAGEMENT
Executive officers of the Company are elected by the Board of
Directors, and serve for a term of one year and until their successors have been
elected and qualified or until their earlier resignation or removal by the Board
of Directors, except as otherwise provided in the employment agreements with
Messrs. Truxell and Fagan. There are no family relationships among any of the
directors and executive officers of the Company.
The following table sets forth names and ages of all executive officers
and directors of the Company:
11
Name, Age and
Municipality Residence Office Principal Occupation
- ---------------------- ------ --------------------
Robert W. Truxell Chairman of the Board and Director Chairman and Chief Executive Officer of
Bloomfield Hills, MI since January 1996; Secretary Integrated Waste Systems, 1992-1995; President
Age: 75 since December 1997; CEO January of Microcel, Inc., 1990-1992; Vice President
1996 to January 1997. of General Dynamics, 1983-1990
James P. Fagan President and Director since President and Chief Operating Officer of Waste
Dearborn, Michigan January 1996; Chief Executive Reduction Systems 1992-1995; Vice President
Age: 49 Officer since January 1997 of The Powers Fagan Group, Inc. 1990-1996
George P. Nassos Director since August 1997 Director of environmental management program
Glenview, IL and adjunct professor for Stuart School of
Age: 60 Business; 1996 present President Fiber
Energy, Inc., an environmental consulting
company; 1992-1995, Director of Fiber Fuels
division for Cemtech LP; 1981-1992 employed by
Chemical Waste Management, Inc.
Michael M. Grujicich Chief Financial Officer and Director Sales Canada WRS 1993-1996,
Dearborn, MI Treasurer since August 1996 Director MRPII, General Dynamics Land Systems
Age: 54 Division 1983-1993, Divisional Controller
Rockwell International 1981-1983
Michael R. Fugler Director since December 1999 Self employed Attorney at Law since 1972, with
New York, New York a current practice emphasis in Securities,
Age: 51 Corporate Finance and International Law;
officer and shareholder of Millennium
Financial Group, Inc. from 1996 to present.
12
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Management of the Company the following tables
set forth the beneficial ownership of the Company's Common Stock as of October
23, 2000 by each Director and each Executive Officer named in the Summary
Compensation Table, and by all Directors and Executive Officers as a group.
Name of Beneficial Owner/Name
of Director/Identity of Group Shares Beneficially Owned Percent of Class
----------------------------- ------------------------- ----------------
Robert W. Truxell 1,026,462/(1)/ 8.75%
Chairman/Director
James P. Fagan 633,327/(2)/ 5.46%
President/CEO/Director
George P. Nassos 148,513/(3)/ 1.3%
Director
Michael R. Fugler 100,000/(4)/ 0.9%
Director
Michael Grujicich, 0 0
Treasurer
All directors and executive 1,908,302/(5)/ 15.3%
officers as a group (five persons)
__________________
(1) Includes: (i) 345,800 shares held jointly; (ii) currently exercisable
options and warrants to purchase 50,000 shares at $0.125 per share;
(iii) currently exercisable options to purchase 505,662 shares at
$0.125 per share; (iv) currently exercisable options to purchase
125,000 common shares at $0.125 per share. Does not include an option
to acquire 12.5% (inclusive of current holdings) of the fully diluted
ownership of the Company, exercisable at $0.30 per share, which vests
upon the Company attaining six consecutive months with EBITDA in excess
of $600,000.
(2) Includes: (i) 77,100 shares held by James P. Fagan; (ii) currently
exercisable options and warrants to purchase 70,386 shares at $0.125
per share; (iii) 125,000 shares at $0.125 per share; and (iv) 360,841
shares at $0.125 per share. Does not include an option to acquire 12.5%
(inclusive of current holdings) of the fully diluted ownership of the
Company, exercisable at $0.30 per share, which vests upon the Company
attaining six consecutive months with EBITDA in excess of $600,000.
(3) Includes currently exercisable options to purchase 100,000 shares at
$0.125 per share.
(4) Includes currently exercisable options to acquire 100,000 shares at
$0.125 per share.
(5) Includes securities reflected in footnotes 1 4.
13
To the knowledge of the Directors and Senior Officers of the Company,
as of October 23, 2000, there are no persons and/or companies who or which
beneficially own, directly or indirectly, shares carrying more than 5% of the
voting rights attached to all outstanding shares of the Company, other than:
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
---------------- -------------------- ----------------
Frippoma S.A. 2,550,000/(1)/ 23.1%
Via Cattori 3, 6902 Paradiso
Switzerland
Robert W. and Linda C. Truxell 1,026,462/(2)/ 8.75%
10200 Ford Road
Dearborn, MI 48126
James P. Fagan 633,327/(3)/ 5.46%
4415 Comanche
Okemos, MI 48864
Alan Moore 1,606,037/(4)/ 12.72%/(5)/
9441 LBJ Freeway
Suite 500
Dallas, TX 75243
__________________
(1) Consists of shares directly owned. This off shore entity is controlled
by (and beneficially owned by) Paolo Floriani and Floriana Cantarelli,
both of Lugano, Switzerland.
(2) Includes: (i) 345,800 shares held jointly; (ii) currently exercisable
options and warrants to purchase 50,000 shares at $0.125 per share;
(iii) currently exercisable options to purchase 505,662 shares at
$0.125 per share; (iv) currently exercisable options to purchase
125,000 common shares at $0.125 per share. Does not include an option
to acquire 12.5% (inclusive of current holdings) of the fully diluted
ownership of the Company, exercisable at $0.30 per share, which vests
upon the Company attaining six consecutive months with EBITDA in excess
of $600,000.
(3) Includes: (i) 77,100 shares held by James P. Fagan; (ii) currently
exercisable options and warrants to purchase 70,386 shares at $0.125
per share; (iii) 125,000 shares at $0.125 per share; and (iv) 360,841
shares at $0.125 per share. Does not include an option to acquire 12.5%
(inclusive of current holdings) of the fully diluted ownership of the
Company, exercisable at $0.30 per share, which vests upon the Company
attaining six consecutive months with EBITDA in excess of $600,000.
(4) Consists of 25,000 shares directly owned, and 897,750 shares owned by
Red Oak Capital, a warrant to purchase 99,750 shares of common stock
held by Capital Red Oak Partners, Inc. exercisable for ten years at
$0.20 per share and a warrant to purchase 583,537 shares of common
stock held by Capital Red Oak Partners, Inc. exercisable at $0.50 per
share for ten years. Red Oak Capital is a d/b/a for Alan Moore. Capital
Red Oak Partners, Inc. is a Texas corporation controlled by Alan Moore.
(5) 900,000 shares of restricted common stock are to be issued to Red Oak
capital or its assigns, including the 897,750 shares referenced in
footnote (4). These shares have not yet been issued by the Company's
transfer agent, and are included only in the beneficial ownership
calculation for Mr. Moore and not in that of any other beneficial
owner.
14
All percentages in this section were calculated on the basis of
outstanding securities plus securities deemed outstanding pursuant to Rule
13 d 3(d)(1) under the United States Securities Act of 1934.
Other than: (i) the possible conversion into the Company's Common Stock
of the remaining $1,375,500 principal amount of convertible debentures issued by
the Company in June 1998; and (ii) the option held by Messrs. Truxell and Fagan
to acquire 12.5% each (inclusive of current holdings) of the fully diluted
ownership of the Company (which vests upon the Company attaining six consecutive
months with EBITDA in excess of $600,000), there are no arrangements or
agreements which could in the future result in a change of control of the
Company.
DESCRIPTION OF SECURITIES
The following summary description of the Company's securities is not
complete and is qualified in its entirety by reference to the Company's Articles
of Incorporation and Bylaws.
The authorized capital stock of the Company consists of 100,000,000
shares of $.001 par value common stock (previously defined as "Common Stock")
and 10,000,000 shares of $0.001 par value preferred stock ("Preferred Stock"),
which the Company may issue in one or more series as determined by the Board of
Directors. As of July 19, 2000 there were 11,039,889 shares of Common Stock
issued and outstanding that are held of record by approximately 2,915
shareholders.
Common Stock
Each holder of record of shares of the Company's Common Stock is
entitled to one vote for each share held on all matters properly submitted to
the shareholders for their vote. Cumulative voting in the election of directors
is not authorized by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to those
dividends declared by the Board of Directors out of legally available funds,
and, in the event of liquidation, dissolution or winding up of the affairs of
the Company, holders are entitled to receive ratably the net assets of the
Company available to the shareholders. Holders of outstanding Common Stock have
no preemptive, conversion or redemption rights. All of the issued and
outstanding shares of Common Stock are, and all unissued shares of Common Stock,
when offered and sold will be, duly authorized, validly issued, fully paid and
nonassessable. To the extent that additional shares of Common Stock of the
Company may be issued in the future, the relative interests of the then existing
shareholders may be diluted.
Preferred Stock
The Company's Board of Directors is authorized to issue from time to
time, without shareholder authorization, in one or more designated series, any
or all of the authorized but unissued shares of Preferred Stock with such
dividend, redemption, conversion and exchange provisions as may be provided by
the Board of Directors with regard to such particular series. Any series of
Preferred Stock may possess voting, dividend, liquidation and redemption rights
superior to those
15
of the Common Stock. The rights of the holders of Common Stock will be subject
to and may be adversely affected by the rights of the holders of any Preferred
Stock that may be issued in the future. Issuance of a new series of Preferred
Stock, or providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire, or discourage a third party from acquiring the
outstanding shares of Common Stock of the Company and make removal of the Board
of Directors more difficult. No shares of Preferred Stock are currently issued
and outstanding, and the Company has no present plans to issue any shares of
Preferred Stock.
Dividends
See the discussion under the heading "Dividend Policy" above in this
prospectus.
Anti Takeover Provisions
The Company's Articles of Incorporation and Bylaws (the "Incorporation
Documents") contain provisions that may make it more difficult for a third party
to acquire, or may discourage acquisition bids for, the Company. The Board of
Directors of the Company is authorized, without action of its shareholders, to
issue authorized but unissued Common Stock and Preferred Stock. The existence of
undesignated Preferred Stock and authorized but unissued Common Stock enables
the Company to discourage or to make it more difficult to obtain control of the
Company by means of a merger, tender offer, proxy contest or otherwise.
SEC POSITION ON INDEMNIFICATION
Pursuant to the provisions of the Nevada General Corporation Law, the
Company has adopted provisions in its Articles of Incorporation which provide
that directors of the Company shall not be personally liable to the Company or
its stockholders for damages for breach of fiduciary duty as a director or
officer, except for liability for: (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of the law; or (ii) the
payment of distributions in violation of Nevada Revised Statutes 78.300.
The Company's Articles of Incorporation state that the Company shall
indemnify, to the fullest extent permitted by applicable law, any person, and
the estate and personal representative of any such person, against all liability
and expense (including attorneys' fees) incurred by reason of the fact that he
is or was a director, officer, employee or agent of the Company or, while
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or enterprise. The
Company also shall indemnify any person who is serving or has served the Company
as director, officer, employee, fiduciary, or agent, and that person's estate
and personal representative, to the extent and in the manner provided in any
bylaw, resolution of the shareholders or directors, contract, or otherwise, so
long as such provision is legally permissible.
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or
16
otherwise, the Company 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1999 the Company, Robert Truxell and James Fagan entered
into an agreement regarding compensation with the holders of the Debentures and
Millennium Financial Group, Inc. whereby, among other things, Messrs. Truxell
and Fagan agreed to substantially reduced salaries for a period of time and each
was granted an option to acquire 12.5% (inclusive of his current holdings) of
the fully diluted ownership of the Company, exercisable at $0.30 per share,
which vests upon the Company attaining six consecutive months with EBITDA in
excess of $600,000. This option was approved by the Company's then Board of
Directors in April 1999, and again in November 1999.
DESCRIPTION OF BUSINESS
General Development of Business
- -------------------------------
Rich Coast Inc. (the "Company" and/or "Rich Coast") is a non hazardous
waste treatment and disposal facility. Its primary operations have been
receiving recyclable liquid waste transported to Rich Coast by trucking
companies, and separating the waste into liquid waste streams and pumpable waste
streams containing a mixture of liquids and solids. Rich Coast's executive
office is located at 6011 Wyoming Avenue, Dearborn, MI. 48126. All of Rich
Coast's operations are located in Dearborn, Michigan at 6011 Wyoming Avenue.
The Company was initially incorporated in the Province of British
Columbia and through 1996 operated under the name of Rich Coast Resources Ltd.
In February 1997 the Company was reincorporated in Delaware under the name Rich
Coast Inc. Effective July 14, 1998, the Company reincorporated in the State of
Nevada (from Delaware).
On January 16, 1996, the Company acquired a new plant and processing
facility located in Dearborn, Michigan from Mobil Oil Corporation (the "Wyoming
Terminal Facility"). This acquisition increased the Company's storage capacity
by more than nine million gallons of tank capacity which allows the Company to
pursue much larger contracts. The Company also acquired a 17 mile product
pipeline from the facility to the Detroit River, which gives the Company access
to the St. Lawrence Seaway and the Great Lakes Waterway System. At the time the
pipeline was acquired, management expected to be able to use the waterway access
to ship and receive products by water vessel and thereby increase the Company's
customer base. The Company's original plan was to consider using the Pipeline
for the transportation of waste or the transportation of treated waste. However,
the Company has determined that it is currently more efficient to use
conventional transportation methods for waste. Therefore, during late 1999, the
Company began considering selling or otherwise disposing of the Pipeline.
Management has had preliminary
17
discussions with companies and individuals within the telecommunication
industries and based on these discussions and analysis, management considers
that the Pipeline has an alternative use as a right of way for telecommunication
cable or similar use. To fund acquisition of both the terminal and pipeline, the
Company completed a $2.0 million senior secured debt financing with a private
investor. The five year financing bears interest at 10%, may be prepaid at any
time without penalty, and is secured by the Wyoming Terminal Facility. Purchase
prices for the terminal and pipeline were $1,579,000 and $296,000 respectively.
In June 1999, Thornton Donaldson and Geoffrey Hornby resigned as
directors of the Company. In December 1999, Michael Fugler was appointed to the
Board of Directors.
Rich Coast operates a 250 gallon per minute waste stream separation
system at the Wyoming Avenue terminal facility. This system separates liquid
waste streams and pumpable waste streams containing a mixture of liquids and
solids. This production system has also been used to demonstrate waste
processing to prospective customers. Demonstrations have been highly successful
in separation and recovery of wastes discharged by slaughterhouse operations and
by the paper/pulp industry. On customer site installations have occurred for
both industries. Rich Coast revised its business strategy in mid 1999 to
concentrate on installation of proprietary Rich Coast waste treatment systems at
slaughterhouse and pulp paper company locations. A production installation has
been completed and successfully tested at a cattle slaughterhouse. The
production installation test proved that marketable grease could be efficiently
recovered using Rich Coast's process equipment. A 100% treatment system operated
full scale in September 2000. The system performed successfully but the customer
elected to shut down the system until installation of an auger conveyor,
necessary for efficient handling of recovered greases, is completed. Completion
of the handling system and resumption of full scale operations are scheduled for
November 2000. Resultant operating savings and recovered waste product revenues
from the slaughterhouse operation will be shared with Rich Coast.
Subsequent and similar installations are planned at two other
slaughterhouse locations by calendar year end. Results are expected to be very
profitable for both the customer and Rich Coast, but most significant to the
future of Rich Coast is that the Company can go worldwide with installations
without having to depend on trucking companies and brokers to bring business
into the Company's facility.
A pulp paper demonstration has also been completed successfully with
the result that an engineering contract for a production system at Rock Tenn's
Plant in Otsego, Michigan has been received and fulfilled. A production contract
is now being negotiated for the pulp paper plant.
Currently, the Company's waste treatment business is generated through
"blanket" contracts between the large automotive companies and Tier I suppliers
(the largest waste disposal companies). These contracts consisted of pricing to
handle a large variety of waste streams. Rich Coast submits pricing for specific
waste streams included in the "blanket" contracts. Written contracts are seldom
awarded by the Tier I companies to Tier II companies such as Rich Coast. Rather,
Rich Coast conducts most of its business under oral contracts.
18
Ford Road Facility
- ------------------
The Company's Ford Road facility, purchased June 2, 1993 and placed in
operation on July 9, 1993 was approaching its capacity limits in 1999. After
acquisition of Rich Coast's Wyoming Avenue site on January 15, 1996 and
facilitation of that site, the Ford Road property was no longer necessary to
meet capacity requirements and was offered for sale.
The Company received its first offer for purchase of its Ford Road
facility on October 20, 1998; however, the purchaser was unable to obtain
financing. A second offer from a different purchaser, de Monte Fabricators,
Ltd., was signed on September 9, 1999 for the same price, $450,000, as the
October 1998 offer. The sale closed on August 11, 2000. The carrying value for
the Company's Ford Road facility was higher than the accepted sale price and
resulted in an impairment loss of $169,739, which was recorded during the
quarter ended October 31, 1999. In anticipation of the closing of the sale, all
Ford Road operations have been consolidated at the Company's Wyoming Avenue
site, and this consolidation will allow savings to be realized in the Company's
overhead. Relocation and consolidation of operations has generated increased
capability through the installation of two new and larger truck dumping pits.
Wyoming Avenue Site
- -------------------
When the Wyoming Avenue Terminal Facility came on the market, Rich
Coast was faced with an unprecedented opportunity but without adequate funding
to acquire and facilitate the property. Realizing that to replicate the Wyoming
Avenue Terminal facility at a later date would be prohibitively expensive and
time consuming, Rich Coast borrowed $2,000,000 and acquired Mobil's 17 acres in
the heart of the automobile industry. This acreage included 12 storage tanks,
six tanker truck loading and unloading racks which connect to all tanks, a one
million gallon per day sewer permit, a supportive community which allows
industrial zoning and expansion permits plus the pipeline to the Detroit River
which gives Rich Coast the opportunity to service the entire east coast of the
United States.
Liquid waste disposal operations have been transferred from the
Company's Ford Road facility to its Wyoming Avenue site. Non hazardous wastes in
the form of sludges, oil wastes, drum and pallet loads, waste waters and
leachates are now treated at the Wyoming Avenue site for disposal to the Detroit
sewage system, the Browning Ferris Industries landfill at Arbor Hills, Michigan
or as a recycled oil product. Adequate space exists at the Wyoming Avenue site
for additional processing equipment to meet capacity demands expected over the
next several years.
Rich Coast's 17 acre Wyoming Avenue site has had 58 borings analyzed by
the State of Michigan and has received a "covenant not to be sued" by the State
of Michigan. This environmental status is extremely attractive to all major
automotive industry suppliers in the area, inasmuch as they avoid liability for
any pollution that existed at the time borings were made. Rich Coast has
successfully passed customer audits that allow the Company to compete for the
oily wastes coming out of the auto industry. The biological treatment system is
an excellent complementary system to
19
the waste oil treatment in that the oily water separated during the treatment
process can go directly to the biological treatment system and then to the sewer
with assurances that even the more stringent discharge regulations now being
considered by the EPA can be met.
Rich Coast Inc. Pipeline
- ------------------------
The 17 mile long pipeline from Rich Coast's Wyoming Avenue site to
Mobil's Woodhaven Terminal Facility was purchased knowing that some repairs
probably would be required. The pipeline has defects in its exterior coatings
that need to be repaired, at a cost estimated at $150,000. Before the pipeline
will be repaired and utilized, the Company will require long term contracts with
several large volume users to justify the expense and to justify barge shipments
throughout the Great Lakes Region and the St. Lawrence Seaway. Currently, the
pipeline is not operational.
Research and Development
- ------------------------
In the past two fiscal years the Company estimates it has not made any
expenditures on Research and Development, but it has made investments in
development of waste treatment processes. During the fiscal years ended April
30, 1999 and 2000 the Company expended approximately $92,000 and $87,000,
respectively, for development of waste treatment processes. Development work
related to separation of various liquid phases and light solids has been done on
an air sparged hydrocyclone system. Separation of phenols, fats, oils, greases
and other impurities from water based waste streams has been developed and
incorporated in a commercial size installation at the Wyoming Avenue site.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements included herein, which were prepared in
accordance with generally accepted accounting principles ("GAAP") in the United
States.
The Company entered into a new growth stage when Rich Coast Resources,
Ltd., Integrated Waste Systems and the Powers Fagan Group merged with an
effective financial start date of October 31, 1995. At that time the main
business focus became treatment of non hazardous wastes. All remaining mining,
gas and oil related businesses were disposed of in fiscal year 1997 without any
gain or loss to the Company.
As a result of acquiring the Wyoming Avenue terminal facility from
Mobil Oil Corporation, and redomiciling of the Company from British Columbia,
Canada to Delaware, U.S.A., the Company reorganized into the parent company,
Rich Coast Inc. and four subsidiary corporations identified as:
20
Rich Coast Resources, Inc.
Rich Coast Oil, Inc.
Waste Reduction Systems, Inc.
Rich Coast Pipeline, Inc.
On June 19, 1998, the Company reverse split its Common Stock
one for four. Effective July 14, 1998 the Company incorporated in the State of
Nevada.
On February 17, 1999, the Company's shares were de listed from the
NASDAQ Small Cap Market. The Company's common stock is now trading on the
Over the Counter (OTC) Bulletin Board.
21
Results of Operations
- ---------------------
For the Fiscal Year Ended April 30, 2000:
Revenues increased $640,296 or 28.2% from $2,267,452 to $2,907,748 for the
twelve months ended April 30, 1999 and 2000, respectively. The revenue increase
resulted from price increases, new customers and retention of a majority of the
business that was diverted from City Environmental, a major competitor in
Detroit, Michigan, when that company was temporarily shut down during the months
of October, November and December 1999. City Environmental operations resumed in
January 2000 without any significant impact on Rich Coast's business. Rich Coast
retained about 75% of diverted business. Rich Coast's lower prices and the
opportunity for Rich Coast to demonstrate its service capabilities have helped
retain this business. Net loss for this latest fiscal year ended April 30, 2000
was $3,134,090 compared to the previous fiscal year loss of $2,572,496. Included
in the $3,134,090 loss are depreciation and impairment losses of $1,954,674
which are non cash events.
Cost of sales decreased by $139,365, or 10%, from $1,378,367 to $1,239,002.
The decrease resulted from a reduction in landfill and transportation costs.
General and administrative expense increased by $223,417, or 10%, from
$2,188,888 to $2,412,305. The increase resulted primarily from increased
property taxes of approximately $75,000, increased depreciation of approximately
$82,000, a lost deposit relating to a renovation contract that was terminated of
approximately $88,0000, increased repairs and maintenance, utilities and
pipeline staking fees of approximately $42,000, and increased bad debt of
approximately $22,000; offset by a decrease in legal and accounting fees of
approximately $109,000.
Sales and marketing decreased $256,962, or 57% from $450,059 during the
fiscal year ended April 30, 1999 to $193,097 during the fiscal year ended April
30, 2000. This decrease was due to termination of contracts with new business
developments.
Rich Coast's asset values were reviewed throughout the fiscal year ended
April 30, 2000 in consideration of management's decision to expand its off site
customer locations for installations of recently developed proprietary
processes. The Company will also continue to improve its waste treatment
business at its Wyoming Avenue facility. During the year ended April 30, 1999,
the Company incurred $50,000 of expense related to the Comer lawsuit and a total
impairment loss of $1,564,595 was recorded during the year. The impairment loss
relates to the Company's distillation unit, Ford Road facility and ZPM
equipment. As a result its distillation unit, located at Rich Coast's terminal
in Dearborn, Michigan was written down from $2,024,706
22
to $800,000 during the third quarter of its fiscal year ending April 30, 2000.
The unit is being stored pending a study of potential future uses, one of which
is production of activated charcoal. Reapplication of this distillation unit,
originally designed for refinement of sulfur ore, to soil remediation did not
prove to be economically feasible. It is thought that certain portions of the
distillation unit can be used to produce activated charcoal and that portion of
the system has been valued at $800,000.
Additionally, asset value was reduced by $169,739 due to Rich Coast's sale
of its Ford Road facility for less than its book value. This impairment loss was
reported in the second quarter of this fiscal year ended April 30, 2000. In the
fourth quarter of this latest fiscal year, the Company also wrote off the
special aeration unit purchased from ZPM due to its limited ability to accept
even modest variations in waste streams and the system's unacceptably high noise
level. The Company realized an impairment loss of $170,150 on this equipment.
Lawsuit settlement expense increased by $100,000, or 200%, from $50,000 to
$150,000. The increase resulted from the settlements of law suits with Mobil Oil
Corp., for a cash payment of $100,000, and with Comer Holdings for a cash
payment of $50,000 and the issuance of 250,000 shares of common stock, with a
market value of $50,000. During the fiscal year ended April 30, 1999, the
Company accrued $50,000 of expense related to the Comer lawsuit.
Interest expense, beneficial conversion feature, decreased by $764,666, or
100%, from $764,666 to $0. The beneficial conversion features related to the 10%
convertible promissory notes (converted to common stock during the year ended
April 30, 1999) and the 8% convertible debentures ($1,375,500 outstanding
principal at April 30, 2000) were fully amortized to interest expense during the
year ended April 30, 1999. Other interest expense increased $189,383 or 65% from
$293,456 in 1999 to $482,839 in 2000. This increase was primarily due to the
interest accrued on the 8% convertible debenture, which was not outstanding for
the entire year ended April 30, 1999, and the increase from 8% to 12% on the
Company's approximately $76,000 land contract payable.
During the fiscal year ended April 30, 1999, the Company made various
modifications to improve efficiencies in its waste treatment process. The
Company recorded a change in its estimated accrued oil and waste treatment cost,
resulting in a gain of $285,588.
Net loss for the fiscal year ended April 30, 2000 was $3,134,090 compared
to a net loss of $2,572,496 for the fiscal year ended April 30, 1999, an
increase of $561,594 or 22%. Loss per share decreased $0.09, or 18%, from $0.49
per share for the fiscal year ended April 30, 1999 to $0.40 per share for the
same period in 2000. Loss per share was also impacted by an increase in the
weighted average number of shares of 2,714,140.
For the Three Months Ended July 31, 2000
Sales increased $193,497, or 32.1%, from $603,649 during the three months
ended July 31, 1999 to $797,146 during the three months ended July 31, 2000.
This increase is a result of
23
retaining the Company's existing customer base in conjunction with adding new
business through the efforts of two recently hired sales people.
Cost of sales increased $57,039, or 21.3%, from $267,960 during the three
months ended July 31, 1999 to $324,999 during the three months ended July 31,
2000. This increase directly relates to the increase in sales. Furthermore, cost
of sales as a percentage of sales decreased 8.1%, from 44.4% during the three
months ended July 31, 1999 to 40.8% during the three months ended July 31, 2000.
This decrease is partly due to lower landfill costs.
General and administrative expenses increased $69,053, or 12.3%, from
$563,104 during the three months ended July 31, 1999 to $632,157 during the
three months ended July 31, 2000. This increase is partly due to higher payroll
and payroll related expenses.
Sales and marketing expenses increased $7,238, or 20.2%, from $35,895
during the three months ended July 31, 1999 to $43,133 during the three months
ended July 31, 2000. This increase is mostly due to higher travel, meal and
entertainment expenses.
During the three months ended July 31, 1999, the Company incurred $50,000
of lawsuit settlement expense involving Comer Holdings, Ltd.
Interest expense increased $38,781, or 70.9%, from $54,690 during the three
months ended July 31, 1999 to $93,471 during the three months ended July 31,
2000. The increase was primarily due to higher interest rates and debt finance
costs.
Net loss decreased $71,386, or 19.4%, from $368,000 during the three months
ended July 31, 1999 to $296,614 during the three months ended July 31, 2000. Net
loss per common share decreased $0.03, or 50%, from $0.06 per share during the
three months ended July 31, 1999 to $0.03 per share during the three months
ended July 31, 2000. Net loss per common share was impacted by an increase in
the weighted average number of common shares of 4,115,514.
Rich Coast's focus on implementing successful cattle slaughterhouse waste
stream clean up and waste recovery systems continues. The Company's first
production installation is expected to be completed by November 1, 2000 and
trial runs have produced savings in excess of estimates incorporated in the
Company's first contract which is for five years with a large cattle
slaughterhouse company. Future installations at this company's other locations
are now being planned for operation by year end.
As previously reported Rich Coast is also pursuing a contract with a pulp
paper facility at which successful demonstrations have been made. Environmental
issues that have delayed contract development are now resolved and contract
negotiations are proceeding. Rich Coast management believes that the Company's
unique aeration technology, its successful demonstrations and competitive
pricing will result in a signed contract by December 31, 2000.
The sale of Rich Coast's Ford Road facility closed on August 11, 2000.
After payment of property taxes, legal fees, commissions, environmental costs
and pay off of its land contract, Rich Coast realized positive cash of $217,735.
On the date of closing, Rich Coast's headquarters and all of its operations were
transferred to its nineteen acre terminal location at 6011 Wyoming Avenue,
Dearborn, Michigan 48126.
Consolidation of all operations at 6011 Wyoming Avenue required renovation
of an existing headquarters building at the Wyoming Avenue site. The cost of
the renovation approximated $22,000. More significantly, replication and
expansion of sludge handling facilities abandoned at the Ford Road site were
required. This requirement was met by installation of two larger and more
efficient sludge disposal pits costing $96,400 (of which approximately $20,900
was completed prior to April 30, 2000 and approximately $75,000 was completed
during the quarter ended July 31, 2000). These commitments represent the only
major capital expenditures made by Rich Coast during its first quarter.
The Company and its debenture holders entered into a standstill agreement
whereby the debenture holders have agreed not to take any action with respect to
exercising their conversion rights or declaring the debentures to be in default
through November 2000. The standstill agreement required the Company, among
other actions, to make payments on the debentures of $50,000 in June 2000
(completed), $25,000 in August 2000 (completed) and $25,000 in September 2000;
timely registration of shares underlying the possible conversion of the
debentures; and the Company completing the next phase of equity funding.
Recently Issued Accounting Pronouncements
- -----------------------------------------
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, by requiring that an entity recognize those items
as assets or liabilities in the statement of financial position and measure them
at fair value. SFAS No. 133 also addresses the accounting for certain hedging
activities. The Company currently does not have any derivative instruments nor
is it engaged in hedging activities, thus the Company does not believe
implementation of SFAS No. 133 will have a material impact on its financial
statement presentation or disclosures.
24
Liquidity and Capital Resources
- -------------------------------
The Company's financial statements for the year ended April 30, 2000 and
for the three months ended July 31, 2000, respectively, have been prepared on a
going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. For
the year ended April 30, 2000, the Company reported a net loss of $3,134,090 and
has a stockholders' deficit of $1,145,023. At April 30, 2000, a significant
portion of the Company's debt was currently due and the Company had a working
capital deficit of $4,665,200. For the three months ended July 31, 2000, the
Company reported a net loss of $296,614 and has a stockholders' deficit of
$1,216,637. At July 31, 2000, a significant portion of the Company's debt is
currently due and the Company has a working capital deficit of $4,727,942. In
September 2000 the Company entered into a modification agreement with the holder
of the 10% Senior Note. The agreement provides for interest plus $5,000
principal payments per month until May 2001, and thereafter equal monthly
payments of principal and interest over a four year period. The agreement also
provides for the issuance of 900,000 restricted shares to the Holder and its
assigns under the loan modification agreement with Red Oak Capital Partners. The
Company has also experienced difficulty and uncertainty in meeting its liquidity
needs. The Independent Auditors' Report on the Company's financial statements as
of and for the year ended April 30, 2000 included a "going concern" explanatory
paragraph which means that the Auditors expressed substantial doubt about the
Company's ability to continue as a going concern. Management's plans to address
these concerns include:
(a) Waste processing at customers' sites
Management has developed plans to consider shifting from processing waste
treatment at the Company's facilities to processing waste directly at
customer sites, which management believes may result in increased profit
margins. The Company has entered into a contract with a slaughterhouse to
implement customer site waste treatment during the fall of 2000. Upon
evaluation of this initial contract, management will determine the extent
to which the Company will pursue customer site waste treatment versus using
its current facilities.
(b) Sale of Ford Road facility and consolidation of operating sites
The Company sold its Ford Road facility for $450,000, which produced a
positive cash flow of $217,743 after payment of a $75,525 land contract and
certain other obligations. The Company intends to use the proceeds for
other working capital purposes. Management
25
consolidated its waste processing operations at its Wyoming Terminal
facility and expects to gain cost efficiencies and savings through this
process.
(c) Financing agreement
The Company has a signed agreement with an investment banker that will
provide up to $2,000,000 of either equity or debt financing. The investment
banker has indicated that continued increases in revenues, continued
progress in off site installation and initial customer site waste
processing will make it easier to attract investors to the Company. Through
July 31, 2000, $825,000 ($600,000 through the fiscal year ended April 30,
2000 and $225,000 during the quarter ended July 31, 2000) of equity
financing has been provided in exchange for the issuance of 4,125,000
shares of common stock (1,125,000 shares during the quarter ended July 31,
2000). An additional $175,000 has been scheduled for delivery during 2000.
(d) Other plans
In September 2000 the Company entered into a modification agreement with
the holder of the 10% Senior Note. The agreement provides for interest plus
$5,000 principal payments per month until May 2001, and thereafter equal
monthly payments of principal and interest over a four year period. The
Company is not in compliance with certain covenants of the 8% Convertible
Debentures. However, the Company and the holders of the 8% Convertible
Debentures have entered into a standstill agreement, whereby the debenture
holders have agreed not to take any action with respect to exercising their
conversion rights or declaring the 8% Convertible Debentures to be in
default through November 2000. The standstill agreement requires the
Company to make payments on the 8% Convertible Debentures of $25,000 in
August 2000 (payment has been made) and $25,000 in September 2000, and
timely registration of shares underlying the possible conversion of the 8%
Convertible Debentures. If the Company does not meet the requirements of
the standstill agreement, the holders of the 8% Convertible Debentures
could cause the outstanding balance of the debentures to become due
immediately, which would severely impair the Company's cash flow.
Management is also evaluating the potential sale of Company assets,
including the Company's pipeline.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should
26
the Company be unsuccessful in implementing these plans, or otherwise unable to
continue as a going concern.
Prospects for Rich Coast's fiscal year beginning May 1, 2000 are
significantly better than at any previous time in the Company's history because
of its emphasis on more profitable off site installations of proprietary Rich
Coast systems, its first long term contract with a cattle slaughterhouse
company, and reduced overhead resulting from the sale of its Ford Road facility.
Improved profitability from off site operations should result from
efficiencies realized by processing a consistent waste stream on a continuous
basis, and by eliminating the transportation and associated loading and
unloading costs when waste materials must be delivered to treatment and disposal
sites. Also of major significance is Rich Coast's proprietary system for
aeration and flocculation of waste streams, so that marketable products are
recovered while cleaning up the waste stream sufficiently to meet environmental
standards. This avoids costly waste stream disposal surcharges and, in some
cases, allows recycling of the waste water.
While Rich Coast concentrates on growing its off site business the Company
will continue to improve its waste treatment business at its Dearborn, Michigan
facility. The revenue growth rates of 28.2% and 32.1% for the fiscal year ended
April 30, 2000 and quarter ended July 31, 2000, respectively, are growth rates
expected to be exceeded as a result of: (i) on site operations being
consolidated at the Company's Wyoming Avenue terminal in Dearborn, Michigan in
July 2000; and (ii) operations at cattle slaughterhouse facilities.
Improvements planned for the Wyoming Avenue terminal include new and more
efficient dumping pits, which will also increase capacity. These pits will be
housed in a pre fabricated steel structure, which will be approximately 18,000
square feet in size and designed to accommodate supplemental pit waste
processing equipment designed to reduce costs and further increase capacity. If
business cash flow continues to improve from its slaughterhouse operations
contract and consolidated operations at Wyoming Avenue, the planned improvements
can be funded without additional equity financing. However, as customer demands
or cash flow dictate, then any additional available equity financing will be
used as required.
During the year ended April 30, 2000, net cash used in operating activities
was approximately $484,000. Net cash used in operating activities during the
year ended April 30, 1999 was approximately $995,000. The primary reason for the
decrease was due to the increase in sales and decrease in cost of sales as
described in "Results of Operations" above. Net cash used in operating
activities during the year ended April 30, 2000 includes the net loss for the
year of approximately $3,134,000 reduced by non cash expenses of approximately
$2,165,000 and by a net increase in accounts payable and accrued expenses of
approximately $540,000.
Cash flows used in investing activities was approximately $23,000 during
the year ended April 30, 2000 compared to $655,000 during the year ended April
30, 1999. During 1999, Rich Coast used cash of approximately $275,000 for
finance charges related to the obtaining funding
27
under the 8% convertible debentures and used cash of approximately $380,000 for
capital expenditures. During 2000, no cash was expended for financing charges as
Rich Coast did not obtain any additional debt financing during the year and
approximately $38,000 of cash was used for capital expenditures.
No major capital expenditures were made by Rich Coast during the fourth
quarter. There were no outstanding commitments for capital expenditures at April
30, 2000.
Cash flows provided by financing activities was approximately $524,000
during the year ended April 30, 2000 compared to $1,597,000 during the year
ended April 30, 1999. During 1999, the Company obtained funding of $1,500,000
under the 8% convertible debentures, received $210,000 upon the exercise of
stock options and repaid approximately $119,000 of long term debt. During 2000,
the Company sold 3,000,000 shares of common stock exchange for cash of $600,000
and repaid approximately $70,000 of long term debt.
During the three months ended July 31, 2000, net cash used in operating
activities was approximately $84,000. Net cash provided by operating activities
during the three months ended July 31, 1999 was approximately $17,000. Net cash
used in operating activities during the three months ended July 31, 2000
includes the net loss for the three months of approximately $297,000 reduced by
non cash expenses and a net change in operating assets and liabilities of
approximately $213,000. Net cash provided by operating activities during the
three months ended July 31, 1999 includes the net loss for the three months of
$368,000 reduced by non cash expenses and net changes in operating assets and
liabilities of approximately $385,000.
Cash flows used in investing activities was approximately $97,000 during
the three months ended July 31, 2000 compared to $15,000 during the three months
ended July 31, 1999. During the three months ended July 31, 2000, the Company
spent $97,484 on capital expenditures. There were no outstanding commitments for
capital expenditures at July 31, 2000.
Cash flows provided by financing activities was approximately $175,000
during the three months ended July 31, 2000 compared to cash flows used in
financing activities of $2,000 during the three months ended July 31, 1999.
During 1999, the Company had a bank overdraft. During 2000, the Company sold
1,125,000 shares of common stock exchange for cash of $225,000 and repaid
approximately $50,000 of long term debt.
Changes in Financial Condition
Rich Coast obtained $225,000 of equity financing during the first quarter
ended July 31, 2000 through the sale of 1,125,000 shares of common stock at
$0.20 per share. Net losses for the three months ended July 31, 2000 totaled
$296,614. The Company expects to continue increasing its revenues in future
quarters as traditional business continues to improve and revenues are realized
from anticipated contracts from the installation of waste treatment systems at
waste
28
generator's sites. With cash of $10,933 as of July 31, 2000 plus $217,735 of
positive cash flow from the close of sale of the Ford Road property in August
2000, future fund raising will only be necessary if the favorable outlook
changed or if additional funds allow an economically attractive improvement in
the Company's growth.
DESCRIPTION OF PROPERTY
Ford Road Facility
- ------------------
The total site area at the Ford Road location comprised approximately 3.5
acres and included a 23,000 square foot steel and brick building in which the
treatment plant was located. On August 11, 2000, the Company closed the sale of
the property to de Monte Fabricators, Ltd. All operations at the Ford Road
location were moved to the Company's Wyoming Avenue terminal site.
Wyoming Avenue Site
Rich Coast borrowed $2,000,000 and acquired Mobil's 17 acres in Dearborn,
Michigan in the heart of the automobile industry. This acreage includes 12
storage buildings, six tanker truck loading and unloading racks which connect to
all tanks, a one million gallon per day sewer permit, a supportive community
which allows industrial zoning and expansion permits plus the 17 mile long
pipeline to the Detroit River. The facility is encumbered as security for the
$2,000,000 used to purchase the property, and a second security interest granted
to the holders of the 8% Convertible Debentures issued in June 1998.
Rich Coast, Inc. Pipeline
- -------------------------
The Rich Coast, Inc. pipeline runs 17 miles from the Company's Wyoming
Avenue site to Mobil's Woodhaven Terminal Facility. The pipeline is currently
not operational. The Company cannot utilize the pipeline until it is repaired.
This property is subject to a security interest granted to the holders of the 8%
Convertible Debentures.
MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Market Information
- ------------------
The Common Stock of the Company is listed on the OTC Bulletin Board under
the trading symbol "KRHC.OB." The following table sets forth the high and low
bid prices of the Company's Common Stock during the periods indicated. All
amounts reflect prices adjusted for the one for four reverse split which was
effective June 19, 1998.
29
OTC Market
Calendar Quarter High Bid Price/(1)/ Low Bid Price/(1)/
---------------- ------------------- ------------------
2000 July 1 - September 30 $ 0.50 $ 0.125
April 1 - June 30 0.40 0.16
January 1 - March 31 0.53 0.125
1999 October 1 - December 31 0.32 0.10
July 1 - October 31 0.33 0.09
April 1 - June 30 0.50 0.21
January 1 - March 31 1.50 0.37
1998 October 1 - December 31 2.00 0.62
July 1 - September 30 1.85 0.50
April 1 - June 30 4.12 1.25
January 1 - March 31 4.12 1.37
___________
The closing bid price of the OTC Common Stock on October 23, 2000 was
$0.120 per share.(1)
Holders
- -------
As of October 23, 2000 there were approximately 2,915 holders of the
Company's Common Stock, and the number of shares issued and outstanding was
11,039,889.
Dividends
- ---------
During the two most recent fiscal years, the Company has not declared or
paid any cash or other dividends on its Common Stock. The Company does not
expect to pay any dividends in the near future. The Company is prohibited from
paying dividends on its Common Stock while certain long term indebtedness
remains outstanding.
__________________
(1) Bid prices were provided by "cnbc.com" via the internet. Quotations reflect
inter dealer prices, without mark up, mark down or commission, and may not
represent actual transactions.
30
EXECUTIVE COMPENSATION
Compensation and other Benefits of Executive Officers
- -----------------------------------------------------
The following table sets out the compensation received for the fiscal years
end April 30, 1998, 1999, and 2000 in respect to each of the individuals who
were the Company's chief executive officer at any time during the last fiscal
year and the Company's four most highly compensated executive officers whose
total salary and bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
FISCAL YEAR COMPENSATION LONG TERM COMPENSATION
Awards Payouts
------ -------
Restricted
Shares
Securities/(1)/ or All other
Name and Other Annual under Restricted LTIP Compen-
Principal Salary Bonus Compen- Option/SARs Share Payouts sation
Position Year ($) ($) sation Granted Units ($) ($)
-------- ---- --- --- ------ ------- ----- --- ---
Robert W. 2000 120,284 0 0 0 0 0 0
Truxell/ 1999 114,233 0 0 755,662 0 0 0
Chairman 1998 117,851 0 0 0 0 0 0
James P. 2000 144,627 0 0 0 0 0 0
Fagan 1999 230,000 0 0 556,227 0 0 0
CEO and 1998 144,316 0 0 0 0 0 0
President
_____________
(1) All share amounts have been adjusted to reflect the reverse split effective
June 19, 1998.
Agreements with Management
- --------------------------
As part of the Agreement of Merger dated October 31, 1995, the Company
entered into an Employment Contract with Robert W. Truxell pursuant to which he
is compensated for serving as the Company's Chief Executive Officer and Chairman
of the Board of Directors commencing in January 1996. Under the contract, Mr.
Truxell received a salary of $150,000 per year until January 1, 1997 at which
time he resigned as Chief Executive Officer but agreed to continue as Chairman
of the Board at a salary of $125,000 per year for an additional five years.
As part of the Agreement of Merger dated October 31, 1995, the Company
entered into an Employment Contract with James P. Fagan pursuant to which he was
compensated for serving as the Company's President and Chief Operating Officer
commencing in January 1996. Under the contract, Mr. Fagan received a salary of
$125,000 per year until January 1, 1997 at which time he became the Company's
President and Chief Executive Officer at a salary of $150,000 per year.
31
Pursuant to Mr. Truxell's Employment Contract, during fiscal 1996 the Board
of Directors of the Company authorized the issuance of 360,399 common shares
under the Company's 1995 Incentive Compensation Plan (the "1995 Plan"), subject
to certain conditions, to Robert W. Truxell and his wife, Linda C. Truxell, for
past services rendered by Mr. and Mrs. Truxell on behalf of Waste Reduction
Systems, Inc. prior to the Company's merger with WRS effective October 31, 1995.
Subsequent to April 30, 1996, the Board of Directors authorized the
issuance of 180,200 common shares under the 1995 Plan to James P. Fagan as
compensation for his services in connection with the Company's acquisition of
the Mobil Facility from Mobil Oil Corporation. Since the shares for both Mr.
Fagan and the Truxells were never issued, on July 30, 1997 the Board rescinded
the grant of shares. Instead, options to acquire 258,087 shares were granted to
the Truxells, exercisable at $.80 per share for ten years under the 1997 Stock
Option and Stock Bonus Plan. In addition, the Truxells received five year
warrants exercisable at $0.125 to purchase 140,775 shares. Mr. Fagan received
options to acquire 129,041 shares exercisable for ten years at $1.00 per share,
plus a five year warrant exercisable at $0.125 per share to purchase 70,386
shares.
Option/Stock Appreciation Rights ("SAR") Grants during the most recently
- ------------------------------------------------------------------------
completed Fiscal Year
- ---------------------
The following table sets out the stock options granted by the Company
during the previous fiscal year to the Named Executive Officers of the Company.
The following amounts include options that were granted prior to the previous
fiscal year but were repriced during that year.
32
OPTION/SAR GRANTS IN PREVIOUS YEAR
INDIVIDUAL GAINS
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Market Price on
Name Granted (#) Fiscal Year Price ($/Sh) Date of Grant Expiration Date
- ---- ------------ ------------ ---------------- --------------- ---------------
Robert W. Truxell 258,087 16.45% $0.125 $1.00 01/17/10
Robert W. Truxell 140,775 8.97% 0.125 1.00 07/30/02
Robert W. Truxell 100,000 6.37% 0.125 1.25 01/17/10
Robert W. Truxell 25,000 1.59% 0.125 1.25 01/17/10
Robert W. Truxell 48,675 3.10% 0.125 1.00 01/17/10
Robert W. Truxell 50,000 3.19% 0.125 .90 01/17/10
Robert W. Truxell 58,125 3.70% 0.125 1.00 01/17/10
James P. Fagan 129,041 8.22% 0.125 1.00 01/17/10
James P. Fagan 70,386 4.48% 0.125 1.00 07/30/02
James P. Fagan 100,000 6.37% 0.125 1.00 01/15/06
James P. Fagan 25,000 1.59% 0.125 1.00 05/09/06
James P. Fagan 58,125 3.70% 0.125 1.00 01/17/10
James P. Fagan 125,000 7.96% 0.125 .88 01/17/10
James P. Fagan 48,675 3.10% 0.125 1.00 07/20/07
_____________
No stock shares or options were granted to the foregoing named executives
during this fiscal year ended April 30, 2000. All options granted under the
1995, 1996, 1997 and 1999 stock option plans were repriced to reflect market
values on November 19, 1999.
Aggregated Option/SAR Exercised in Last Financial Year and Fiscal Year End
- --------------------------------------------------------------------------
Option/SAR Values
- -----------------
The following table sets out all Option/SAR exercised by the Named
Executive Officers during the most recently completed fiscal year and the
Option/SAR values for such persons as of the end of the most recently completed
fiscal year.
33
Aggregated Option/SAR Exercised in Last Fiscal Year and FY End Option/SAR Values
Number of Securities
Underlying Value of
Unexercised Unexercised
Options/SARs at Options/SARs at
FY End (#) FY End ($)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ---- ------------------ ------------------ ------------- -------------
Robert W. Truxell -0- -0- 680,662 $51,050
all exercisable
James P. Fagan -0- -0- 556,227 $41,717
all exercisable
_________________
Repricing of Options
- --------------------
On November 20, 1999, the Company's Board of Directors approved a reduction
to $0.125 in option exercise prices for all options under the 1995, 1996, 1997
and 1999 stock option plans to reflect market values on November 19, 1999. This
repricing was done in lieu of unaffordable competitive salaries and benefits to
provide incentive and to retain the services of management.
Compensation of Directors
- -------------------------
No salaries were paid to directors, and no bonuses were paid or awarded to
directors or officers for the fiscal year ended April 30, 2000.
No pension or retirement benefit plan has been instituted by the Company
and none is proposed at this time and there is no arrangement for compensation
with respect to termination of the directors in the event of change of control
of the Company.
34
LEGAL MATTERS
Legal matters in connection with the shares of common stock being offered
hereby have been passed on for the Company by the law firm of Perkins Coie LLP,
Denver, Colorado.
EXPERTS
The audited consolidated financial statements as of and for the year ended
April 30, 2000 of Rich Coast Inc. and subsidiaries included herein and elsewhere
in this Prospectus and Registration Statement have been audited by Gelfond
Hochstadt Pangburn, P.C., independent certified public accountants, to the
extent set forth in their report (which describes an uncertainty as to the
Company's ability to continue as a going concern) appearing herein and elsewhere
in the Registration Statement. Such financial statements have been so included
in reliance upon the report of such firm given upon their authority as experts
in auditing and accounting.
The consolidated financial statements of Rich Coast Inc. for the year ended
April 30, 1999 included in this Prospectus and Registration Statement have been
audited by Smythe Ratcliffe, Chartered Accountants, independent auditors, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accountant
and auditing.
CHANGES IN ACCOUNTANTS
The Board of Directors of the Company dismissed Smythe Ratcliffe, Chartered
Accountants on November 19, 1999 as its independent auditors and retained
Gelfond Hochstadt Pangburn, P.C. as its independent auditors for the fiscal year
ending April 30, 2000. None of the reports of Smythe Ratcliffe on the Company's
financial statements contained an adverse opinion or a disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope or accounting
principles. Further, there were no disagreements with the former accountants on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
Prior to the Company engaging Gelfond Hochstadt Pangburn, P.C., the Company
had not consulted Gelfond Hochstadt Pangburn, P.C. regarding the application of
accounting principles to a specific transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements, or on any matter that was the subject of a disagreement on a
reportable event.
35
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement
(together with all amendments thereto, the "Registration Statement") under the
1933 Act with respect to the securities offered hereby. This prospectus, filed
as part of the Registration Statement, omits certain information contained in
the Registration Statement in accordance with the rules and regulations of the
Commission. For further information, reference is made to the Registration
Statement and to the exhibits filed therewith, which may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of the material contained therein may be
obtained from the Commission upon payment of applicable copying charges.
Statements contained in this prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of the contract or other document filed
as an exhibit to the Registration Statement.
Upon completion of this offering, the Company will be subject to the
reporting and other informational requirements of the 1934 Act and, in
accordance therewith, will file reports and other information with the
Commission. Such reports, proxy statements and other information, once filed by
the Company, can be inspected and copied at the public reference facilities
maintained by the Commission at the offices of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 2511 and 7 World Trade Center, New
York, New York 10048. Information on the operations of the Public Reference Room
may be obtained by calling the Commission at 1 800 SEC 0330. The Commission also
maintains a Web site on the Internet that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of such site is
http:/www.sec.gov.
The Company intends to furnish annual reports to stockholders containing
audited financial statements and will also make available quarterly reports and
such other periodic reports as it may determine to be appropriate or as may be
required by law.
36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR RICH COAST INC.
April 30, 2000 and 1999
and the Quarter Ended July 31, 2000
_______________________________
Page No.
--------
Report of Independent Auditors (Gelfond Hochstadt Pangburn, P.C.) F-1
Report of Prior Independent Auditors (Smythe Ratcliffe) F-2
Consolidated Financial Statements:
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6 -- F-7
Notes to Consolidated Financial Statements F-8 -- F-17
Unaudited Consolidated Financial Statements for the Period Ended July 31, 2000
- ------------------------------------------------------------------------------
Consolidated Financial Statements
Consolidated Balance Sheet i-2
Consolidated Statements of Operations i-3
Consolidated Statements of Cash Flows i-4
Notes to Consolidated Financial Statements i-5
REPORT OF INDEPENDENT AUDITORS
------------------------------
Board of Directors and Stockholders
Rich Coast Inc.
Dearborn, Michigan
We have audited the accompanying consolidated balance sheet of
Rich Coast Inc. and subsidiaries as of April 30, 2000 and the consolidated
related statements of operations, stockholders' equity (deficit), and cash flows
for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rich Coast Inc. and
subsidiaries as of April 30, 2000, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered a net loss of $3,134,090 during
the year ended April 30, 2000, and has a stockholders' deficit and a working
capital deficit of $1,145,023 and $4,665,220, respectively, at April 30, 2000.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans with regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
June 30, 2000
F-1
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RICH COAST, INC.
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Rich Coast, Inc. for the year
ended April 30,1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance 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 audit provides a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated results of operations and cash flows of Rich
Coast, Inc. for the year ended April 30,1999 in conformity with generally
accepted accounting principles in the United States.
"Smythe Ratcliffe"
Chartered Accountants
Vancouver, Canada
August 12, 1999
F-2
RICH COAST INC.
Consolidated Balance Sheet
April 30, 2000
Assets
Current assets:
Cash and cash equivalents $ 17,884
Accounts receivable, net of allowance for uncollectible
accounts of $12,700 (note 4) 589,483
Prepaid expenses 16,950
-------------
Total current assets 624,317
Property and equipment, net (notes 5, 6 and 8) 3,378,037
Patent and technology, net 18,147
Deferred finance charges and deposits 124,013
-------------
$ 4,144,514
-------------
Liabilities and stockholders' deficit
- -------------------------------------
Current liabilities:
Current portion of long term debt (note 8) $ 3,646,572
Accounts payable and accrued liabilities (note 7) 1,020,975
Accrued oil and waste treatment costs 396,615
Accrued interest 225,375
-------------
Total liabilities (all current) 5,289,537
-------------
Commitments and contingencies (notes 3 and 11)
Stockholders' deficit (note 9):
Preferred stock, $0.001 par value; 10,000,000 shares authorized,
no shares issued
Common stock, $0.001 par value; 100,000,000 shares authorized,
9,914,889 shares issued and outstanding at April 30, 2000 9,915
Additional paid in capital 27,543,394
Accumulated deficit (28,698,332)
--------------
(1,145,023)
-------------
$ 4,144,514
-------------
See notes to consolidated financial statements.
F-3
RICH COAST INC.
Consolidated Statements of Operations
Years Ended April 30, 2000 and 1999
2000 1999
------------- -------------
Sales $ 2,907,748 $ 2,267,452
------------- -------------
Operating expenses:
Cost of sales 1,239,002 1,378,367
General and administrative expenses 2,412,305 2,188,888
Sales and marketing expenses 193,097 450,059
Impairment of property and
equipment (note 6) 1,564,595
Lawsuit settlement expense (note 11) 150,000 50,000
------------- -------------
5,558,999 4,067,314
------------- -------------
Loss from operations (2,651,251) (1,799,862)
------------- -------------
Other (income) expense:
Interest expense:
Beneficial conversion feature 764,766
Other 482,839 293,456
Accrued oil and waste
treatment cost reversal (285,588)
------------- -------------
482,839 772,634
Net loss $ (3,134,090) $ (2,572,496)
============= =============
Basic and diluted net loss
per common share outstanding $ (0.40) $ (0.49)
============= =============
Weighted average number of common shares
outstanding 7,922,833 5,208,693
============= =============
See notes to consolidated financial statements.
F-4
RICH COAST INC.
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended April 30, 2000 and 1999
Common Common Additional Total
Shares Shares Paid In Accumulated Stockholders'
Number Amount Capital Deficit Equity(Deficit)
------------- ------------- ------------- ------------- ---------------
Balances, May 1, 1998 4,718,894 $ 4,719 $ 25,329,446 $ (22,991,746) $ 2,342,419
Issuance of common
stock for cash upon
exercise of stock options 259,626 260 209,295 209,555
Issuance of common stock
upon conversion of
promissory note 1,040,299 1,040 695,960 697,000
Issuance of common stock
for interest 47,499 47 57,977 58,024
Interest beneficial conversion 500,000 500,000
Net loss for the year ended
April 30, 1999 (2,572,496) (2,572,496)
------------- ------------- ------------ ------------- --------------
Balances, April 30, 1999 6,066,318 6,066 26,792,678 (25,564,242) 1,234,502
Issuance of common stock
in settlement of lawsuit 250,000 250 49,750 50,000
Issuance of common stock
upon conversion of
convertible debentures 298,571 299 59,266 59,565
Issuance of common stock
for cash 3,000,000 3,000 597,000 600,000
Issuance of common stock
for consulting services 300,000 300 44,700 45,000
Net loss for the year ended
April 30, 2000 (3,134,090) (3,134,090)
------------- --------------- ------------- -------------- ---------------
Balances, April 30, 2000 9,914,889 $ 9,915 $ 27,543,394 $ (28,698,332) $ (1,145,023)
============= =============== ============= ============== ===============
See notes to consolidated financial statements.
F-5
RICH COAST INC.
Consolidated Statements of Cash Flows
Years Ended April 30, 2000 and 1999
2000 1999
------------- -------------
Net cash provided by (used in) operating activities:
Net loss $ (3,134,090) $ (2,572,496)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of deferred finance charges 52,397 58,024
Amortization of beneficial conversion feature 764,766
Impairment loss 1,564,595
Depreciation and amortization 390,079 395,900
Common stock issued for consulting and other expenses 95,000
Loss on deposits 88,000
Loss on equipment disposal 3,147
Allowance for doubtful accounts (25,132)
Changes in operating assets and liabilities
Accounts receivable (72,933) (30,860)
Insurance claim receivable 435,290
Subscriptions receivable 25,000
Inventory 108,265
Prepaid expenses and other assets 17,967
Accounts payable and accrued liabilities 171,015 10,994
Accrued oil and waste treatment costs 138,980 (192,809)
Accrued interest 230,440
------------- -------------
Net cash used in operating activities (483,682) (994,779)
------------- -------------
Net cash provided by (used in) investing activities:
Refund of construction deposits 14,993
Capital expenditures (37,745) (379,671)
Deferred finance charges (275,318)
------------- -------------
Net cash used in investing activities (22,752) (654,989)
------------- -------------
Net cash provided by (used in) financing activities:
(Decrease) increase in bank overdraft (5,682) 5,682
Issuance of common stock for cash 600,000 209,555
Proceeds from convertible debentures 1,500,000
Repayment of long term debt (70,000) (118,512)
------------- -------------
Net cash provided by financing activities 524,318 1,596,725
------------- -------------
Increase (decrease) in cash and cash equivalents 17,884 (53,043)
Cash and cash equivalents, beginning 53,043
------------- -------------
Cash and cash equivalents, ending $ 17,884 $ 0
============= =============
F-6
RICH COAST INC.
Consolidated Statements of Cash Flows
Year Ended April 30, 2000 and 1999
2000 1999
------------- -------------
Supplemental disclosure of non cash investing
and financing activities:
298,571 shares of common stock issued
for principal ($54,500) and accrued interest
($5,065) due on convertible debentures $ 59,565
=============
47,499 shares of common stock
issued for accrued interest $ 58,024
=============
1,040,299 shares of common stock issued
for principal due on convertible debt $ 697,000
=============
Supplemental disclosure of cash flows information
Cash paid for interest $ 205,065 $ 221,217
============= =============
See notes to consolidated financial statements.
F-7
RICH COAST INC.
Notes to Consolidated Financial Statements
Years Ended April 30, 2000 and 1999
1. ORGANIZATION AND BUSINESS
The Company is incorporated in the State of Nevada and operates a non
hazardous waste treatment facility in Dearborn, Michigan specializing in
recycling of waste oils.
The Company operates equipment and oversees processes at both its
facilities and customers' facilities. The equipment and processes separate
liquid waste streams and pumpable waste streams containing a mixture of
liquids and solids. Some of the resulting streams are recyclable into
greases and oils that can be sold. The Company's customers are located
primarily throughout the Great Lakes region and operate in various
industries.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of Rich Coast, Inc. and its
wholly owned subsidiaries Rich Coast Oil, Inc., Waste Reduction Systems,
Inc., Rich Coast Pipeline, Inc., and Rich Coast Resources Inc. All
intercompany balances and transactions have been eliminated.
(b) Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(c) Property and equipment
Property and equipment are recorded at cost. These assets are depreciated
using straight line and accelerated methods over their estimated useful
lives as follows:
Buildings 39 years
Machinery and equipment 7 years
Bulk storage tanks 15 years
Property and equipment also includes a distillation unit and a pipeline
with carrying values of approximately $800,000 and $296,000, respectively,
that have not yet been placed in service. No depreciation has been taken on
this equipment.
Management assesses the carrying value of its long lived assets for
impairment when circumstances warrant such a review. Generally, assets to
be used in operations are considered impaired if the sum of expected
undiscounted future cash flows is less than the assets' carrying values. If
impairment is indicated, the loss is measured based on the amounts by which
the assets' carrying values exceed their fair values.
(d) Deferred finance charges and deposits
Deferred financing charges consist of long term financing charges that are
being amortized over the 5 year term of the related debt on a straight line
basis. Deposits consist of operating and other deposits. During the year
ended April 30, 2000, the Company recorded a loss of $88,000 related to a
lost deposit under a renovation contract that was terminated.
F-8
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Patent and technology
Patent and technology consist of costs incurred related to the Company's
patents and is amortized over 15 years using the straight line method.
Accumulated amortization at April 30, 2000 was approximately $15,000.
(f) Net loss per common share
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the year. Diluted net
loss per share reflects the potential dilution that could occur if dilutive
securities and other contracts to issue common stock were exercised or
converted into common stock, unless the effect is to reduce loss or
increase earnings per share. The Company has no potential common stock
instruments, including outstanding options and warrants, which would result
in dilutive loss per share during the years ended April 30, 2000 and 1999.
(g) Revenue recognition and accrued oil and waste treatment costs
The Company generally recognizes revenue at the time waste is accepted and
treated. The Company also accrues the cost of treating waste at the time
the waste is accepted for treatment. Accrued oil and waste treatment costs
at April 30, 2000 represents costs for waste that had been accepted but not
yet treated. During the year ended April 30, 1999, the Company made various
modifications to improve efficiencies in its waste treatment process. The
Company recorded a change in its estimated accrued oil and waste treatment
cost resulting in a gain of $285,588 for the year ended April 30, 1999.
(h) Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in the consolidated statement of operations in the period that
includes the enactment date.
(i) Financial instruments
It is not practical to estimate the fair value of the Company's 10% senior
secured note and its 8% loan as the Company is currently in default on the
underlying agreements and management cannot estimate fair values given the
Company's current financial condition. The carrying value of the Company's
8% convertible debentures approximates fair value because the debentures
bear interest at current market rates. The carrying values of the Company's
other financial instruments approximate fair values because of their short
maturities.
(j) 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
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-9
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Comprehensive income
Statement of Financial Accounting Standard (SFAS) No. 130, Reporting
Comprehensive Income, requires disclosure of comprehensive income which
includes certain items not reported in the statement of income, including
unrealized gains and losses on available for sale securities and foreign
currency translation adjustments. During the years ended April 30, 2000 and
1999, the Company did not have any components of comprehensive income to
report.
(l) Recently issued accounting pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, is effective for financial statements for all fiscal quarters
of all fiscal years beginning after June 15, 2000. SFAS No. 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. SFAS No. 133 also
addresses the accounting for certain hedging activities. The Company
currently does not have any derivative instruments nor is it engaged in
hedging activities, thus the Company does not believe implementation of
SFAS No. 133 will have a material impact on its financial statement
presentation or disclosures.
(m) Beneficial conversion feature:
During the years ended April 30, 1998 and 1999, the Company entered into a
10% senior secured note payable and 8% convertible debentures, respectively
(Note 7). Both instruments included conversion features that were in the
money at the issuance dates. These beneficial conversion features are
accounted for as an interest charge and are amortized over the period from
the dates of issuance through the dates the instruments are first
convertible. The interest charge was fully amortized as of April 30, 1999.
This policy conforms to the accounting for these transactions set forth in
Emerging Issues Task Force (EITF) Topic D 60 and EITF Issue No. 98 5.
(n) Stock based compensation:
SFAS No. 123, Accounting for Stock Based Compensation, defines a fair value
based method of accounting for stock based employee compensation plans and
transactions in which an entity issues its equity instruments to acquire
goods or services from non employees, and encourages but does not require
companies to record compensation cost for stock based employee compensation
plans at fair value.
The Company has chosen to continue to account for stock based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock.
(o) Reclassifications:
Certain amounts in the 1999 financial statements have been reclassified to
conform to the 2000 presentation.
(p) Reverse stock split:
In June 1998, the Company effected an one for four reverse split of its
common stock. All share and per share amounts reflect the reverse split.
F-10
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
3. GOING CONCERN, RESULTS OF OPERATIONS, AND MANAGEMENT'S PLANS
The Company's financial statements for the year ended April 30, 2000 have
been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal
course of business. For the year ended April 30, 2000, the Company reported
a net loss of $3,134,090 and at April 30, 2000 has a stockholders' deficit
of $1,145,023. At April 30, 2000, a significant portion of the Company's
debt is currently due and the Company has a working capital deficit of
$4,665,220. The Company has also experienced difficulty and uncertainty in
meeting its liquidity needs. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans to
address these concerns include:
(a) Waste processing at customers' sites
Management has developed plans to consider shifting from processing
waste treatment at the Company's facilities to processing waste directly
at customer sites which management believes may result in increased
profit margins. The Company has entered into a contract with a
slaughterhouse to implement customer site waste treatment during the
summer or fall of 2000. Upon evaluation of this initial contract,
management will determine the extent to which the Company will pursue
customer site waste treatment versus using its current facilities.
(b) Sale of Ford Road facility and consolidation of operating sites
The Company has entered into a sales contract to sell its Ford Road
facility for $450,000 (Note 6). The Company intends to use the proceeds
to repay the $75,525 land contract secured by the facility and for other
working capital purposes. Upon completion of the sale, management will
also consolidate its waste processing operations to its Wyoming Terminal
facility and expects to gain cost efficiencies and savings through this
process.
(c) Financing agreement
The Company has an agreement with an investment banker that will provide
up to $2,000,000 of either equity or debt financing upon the Company
meeting certain operating conditions, some of which pertain to the
results of the Company's initial customer site waste processing. Through
April 30, 2000, $600,000 of equity financing has been provided in
exchange for the issuance of 3,000,000 shares of common stock. An
additional $400,000 has been scheduled for delivery during 2000
($225,000 of which was received in June 2000 in exchange for the
issuance of 1,125,000 shares of common stock).
(d) Other plans
Management is pursuing negotiations with current debt holders to modify
the terms of the agreements, including possible extension of due dates.
Management is also evaluating the potential sale of other Company
assets, including the Company's pipeline.
The financial statements do not include any adjustments relating to the
recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unsuccessful in implementing these plans, or otherwise unable to continue
as a going concern.
F-11
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
4. ACCOUNTS RECEIVABLE AND SIGNIFICANT CONCENTRATIONS
The Company grants credit to its customers, generally without collateral.
Approximately 11% of the Company's total sales for the year ended April 30,
2000, were generated from one customer. At April 30, 2000, approximately
11% of net trade receivables was due from one customer. Bad debt expense
for the years ended April 30, 2000 and 1999 was approximately $91,000 and
$45,000, respectively. The Company's customers are concentrated in the
Great Lakes region, including Canada. During the years ended April 30, 2000
and 1999, approximately 14% and 15%, respectively, of total sales arose in
Canada.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at April 30, 2000:
Land $ 250,041
Buildings 1,113,537
Bulk storage tanks 636,534
Pipeline 296,187
Machinery and equipment 4,451,800
-------------
Total at cost 6,748,099
Accumulated depreciation and impairment reserve 3,370,062
-------------
$ 3,378,037
=============
6. IMPAIRMENT
During the year ended April 30, 2000, the company recorded impairment
losses of $1,564,595 related to its Ford Road facility and certain property
and equipment. In September 1999, the Company entered into a contract to
sell its Ford Road facility for $450,000. The Company has written down the
value of the facility to the contract amount less anticipated closing
costs, resulting in an impairment loss of $169,739. In January 2000, the
Company obtained an appraisal of machinery and equipment including the
Company's distillation unit that has not been placed in service. The
appraisal estimates the fair value of the distillation unit at
approximately $800,000, resulting in an impairment loss of $1,224,706. In
November 1999, the Company notified the manufacturer of certain machinery
and equipment known as ZPM equipment, that the equipment did not meet
certain specifications. The Company has not received any response from the
manufacturer and has therefore written down the carrying value of the
equipment to its fair value. The fair value was determined by management
based on estimates of the market value of the equipment in its current
condition. The write down resulted in an impairment loss of $170,150.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At April 30, 2000, accounts payable and accrued liabilities consist of the
following:
Trade payables $ 654,268
Lawsuit settlement (note 10) 37,500
Accrued payroll and payroll taxes 28,426
Accrued property taxes 300,781
-------------
$ 1,020,975
=============
F-12
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
8. LONG TERM DEBT
At April 30, 2000, long term debt consists of:
10% senior secured note, interest payable monthly, secured by real
property and other assets. The loan agreement contains covenants
relating to financial requirements, dividend restrictions, and other
operating requirements for the Company. The holder may convert the loan
into common shares at $0.50 per share in the event of default by with
Company. The note was originally due in October 2001, however, at April
30, 2000, the Company was not in compliance with certain of the
financial covenants and the note has been classified as a current
liability. $ 2,000,000
8% convertible debentures, secured by property and equipment and other
assets. The debentures, and accrued interest thereon, may be converted
at the option of the holder at any time into common stock at a price per
share equal to the lesser of the closing bid price of the shares at the
date of issuance of the debenture or 75% of the five day average closing
bid price for the five trading days immediately preceding the conversion
date. The debentures were originally due in June 2003, however, at April
30, 2000, the Company was not in compliance with certain covenants and
the debentures have been classified as a current liability. The Company
and the debentures holders have entered into a standstill agreement
whereby, the debenture holders have agreed not to take any action with
respect to exercising their conversion rights or declaring the debentures
to be in default through November 2000. The standstill agreement
requires the Company, among other actions, to make payments on the
debentures of $50,000 in June 2000 (completed), $25,000 in August 2000
and $25,000 in September 2000; timely registration of shares underlying
the possible conversion of the debentures; and the Company completing the
next phase of equity funding under its financing agreement (note 3(c)). 1,375,500
8% loan, originally due August 2003, payable in monthly installments of
approximately $4,300 secured by machinery and equipment. At April 30,
2000, the Company was in default of certain payments and the loan has
been classified as a current liability. 195,547
8% land contract, secured by the Ford Road facility, originally payable
in monthly installments of approximately $4,800, including principal
and interest, through February 1999. At April 30, 2000, the Company was
in default of certain payments and the debt has been classified as a
current liability, the interest rate has increased to 12%, and monthly
installments have increased to approximately $5,400. 75,525
-----------
$ 3,646,572
===========
F-13
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
9. STOCK OPTIONS AND WARRANTS
Options:
The Company operates the 1995 Incentive Compensation Plan (the 1995
Plan), the 1996 Employee Stock Option and Stock Bonus Plan (the 1996
Plan), the 1997 Stock Option and Bonus Plan (the 1997 Plan) and the
1999 Stock Option Plan (the 1999 Plan). Under these plans, the Company
may issue stock options and stock bonuses for shares in the capital
stock of the Company to provide incentives to officers, directors, key
employees and other persons who contribute to the success of the
Company. The terms of the plans provide that the Company may grant
incentive options to employees, with exercise prices not less than the
market value of the Company's common stock at date of grant, and the
Company may grant non qualified options, with exercise prices not less
than 80% of the market value of the Company's common stock at date of
grant. The Company has reserved 4,650,000 shares of common stock for
issuances under the plans, of which 2,416,559 are available for grant
at April 30, 2000. In addition, the Company periodically issues other
options and warrants.
During the year ended April 30, 2000, the Company granted 175,000
options to employees under the 1997 plan and 100,000 options under the
1999 Plan with exercise prices of $0.125 per share. These options vest
over four years and expire in 2009. During the year ended April 30,
2000 the company cancelled certain non qualified stock options granted
to two officers under the 1995 and 1996 Plans, and regranted such
options as incentive stock options under the same plans and in the same
amounts as the cancelled options. The regranted options expire in 2010.
During the year ended April 30, 2000, the Company also repriced all
other outstanding stock options at $0.125 per share. The Company did
not record compensation expense related to options granted, issued or
repriced as the exercise price equaled or exceeded the quoted market
price of the Company's common stock at the dates of the grant. All
repriced and reissued options are reflected in beginning balances in
the following table:
2000 1999
------ ------
Weighted
Average
Shares Exercise Price Shares Exercise Price
--------- --------------- -------- --------------
Outstanding, beginning of year 1,836,878 $0.125 2,096,504 $ 0.87
Granted 275,000 $0.125
Exercised (259,626) $ 0.87
Expired
----------- ----------
Outstanding, end of year 2,111,878 $0.125 1,836,878 $ 0.87
=========== ======== ========== ========
F-14
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
9. STOCK OPTIONS AND WARRANTS (continued)
The following table summarizes information about the Company's stock
options outstanding at April 30, 2000 and 1999:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ---- ----- ----------- -----
April 30, 2000 $ 0.125 2,112,000 8.03 $ 0.125 1,300,000 $ 0.125
April 30, 1999 $ 0.72 $ 2.00 1,837,000 2.50 $ 0.88 1,249,000 $ 0.85
Had compensation expense been determined as provided in SFAS No. 123 using
the Black-Sholes option-pricing model, the pro-forma effect on the
Company's net loss and per share amounts would have been:
2000 1999
----- -----
Net loss, as reported $ (3,134,000) $ (2,572,496)
Net loss, pro-forma $ (3,267,000) $ (5,737,000)
Net loss per share, as reported $ (0.40) $ (0.49)
Net loss per share, proforma $ (0.41) $ (1.10)
The fair value of each option grant is calculated using the following
weighted average assumptions:
2000 1999
------ ------
Expected life (years) 3 3
Interest rate 6.32% 6.28%
Volatility 146% 101%
Dividend yield 0% 0%
Warrants:
At April 30, 2000 the Company had warrants to purchase 1,216,160 shares
of common stock outstanding, as follows:
Number
Expiration Exercise Price of Warrants
------------ --------------- -------------
January 2002 $ 1.00 105,000
July 2002 $ 0.125 211,160
January 2006 $ 0.60 900,000
----------
1,216,160
==========
F-15
RICH COAST INC.
Notes to Consolidated Financial Statements (Continued)
Years Ended April 30, 2000 and 1999
10. INCOME TAXES
At April 30, 2000, the Company's deferred tax assets are as follows:
Operating loss carry forward $ 3,600,000
Deferred tax asset valuation allowance (3,600,000)
-------------
Net deferred tax assets --
=============
A deferred tax asset arising from the Company's net operating loss carry
forward, has been reduced by a valuation account to zero due to
uncertainties regarding the realization of the deferred assets.
At April 30, 2000 the Company has available a net operating loss
carryforward of approximately $9,800,000 which maybe used to offset future
federal taxable income. A portion of the carryforward may be subject to
certain limitations due to prior Company ownership changes. The net
operating loss carry forwards, if not utilized, will expire from 2008 to
2020.
11. LITIGATION
(a) In December 1997, a complaint was filed against the Company relating
to certain payments allegedly due by the Company. The Company settled
the lawsuit during the year ended April 30, 2000 for $100,000.
(b) In December 1997, a complaint was filed against the Company, in which
the plaintiff claimed, among other things, breach of contract relating
to an alleged loan made to the Company in 1994. During the year ended
April 30, 1999, the Company accrued $50,000 as an estimate of the
liability. The suit was subsequently settled for $100,000 consisting of
250,000 shares of common stock (with a market value of $50,000) and
$50,000 of cash of which $12,500 has been paid. At April 30, 2000, the
Company owes the defendant $37,500. This amount is to be paid in
quarterly installments of $9,375 beginning September, 2000.
The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse impact either individually or in the aggregate on
either results of operations, financial position, or cash flows of the
Company.
F-16
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
RICH COAST INC.
Consolidated Financial Statements
July 31, 2000 and 1999
(Unaudited)
INDEX PAGE
- ----- ----
Consolidated Financial Statements
Consolidated Balance Sheet i-2
Consolidated Statements of Operations i-3
Consolidated Statements of Cash Flows i-4
Notes to Consolidated Financial Statements i-5
RICH COAST INC.
Consolidated Balance Sheet
July 31, 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 10,933
Accounts receivable, net of allowance for uncollectible
accounts of $14,000 682,115
Prepaid expenses 16,950
-------------
Total current assets 709,998
Property and equipment, net 3,383,589
Patent and technology, net 17,205
Deferred finance charges and deposits 110,511
-------------
$ 4,221,303
=============
Liabilities and stockholders' deficit
- -------------------------------------
Current liabilities:
Current portion of long term-debt $ 3,596,571
Accounts payable and accrued liabilities 1,163,915
Accrued oil and waste treatment costs 422,109
Accrued interest 255,345
-------------
Total liabilities (all current) 5,437,940
-------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.001 par value; 10,000,000 shares authorized,
no shares issued
Common stock, $0.001 par value; 100,000,000 shares authorized,
11,039,889 issued and outstanding at July 31, 2000 11,040
Additional paid-in capital 27,767,269
Accumulated deficit (28,994,946)
-------------
(1,216,637)
-------------
$ 4,221,303
=============
See notes to consolidated financial statements.
i-2
RICH COAST INC.
Consolidated Statements of Operations
Three Months Ended July 31, 2000 and 1999
(Unaudited)
2000 1999
----------- ----------
Sales $ 797,146 $ 603,649
------------- -------------
Operating expenses:
Cost of sales 324,999 267,960
General and administrative expenses 632,157 563,104
Sales and marketing expenses 43,133 35,895
Lawsuit settlement expense 0 50,000
------------- -------------
1,000,289 916,959
------------- -------------
Loss from operations (203,143) (313,310)
------------- -------------
Other expense:
Interest expense 93,471 54,690
------------- -------------
Net loss $ (296,614) $ (368,000)
============= =============
Basic and diluted net loss
per common share outstanding $ (0.03) $ (0.06)
============= =============
Weighted average number of common shares
outstanding 10,416,248 6,300,734
============= =============
See notes to consolidated financial statements.
i-3
RICH COAST INC.
Consolidated Statements of Cash Flows
Three Months Ended July 31, 2000 and 1999
(Unaudited)
2000 1999
--------- ---------
Net cash provided by (used in) operating activities $ (84,467) $ 16,969
--------- ---------
Net cash provided by (used in) investing activities:
Capital expenditures (97,484) (14,649)
--------- ---------
Net cash used in investing activities (97,484) (14,649)
--------- ---------
Net cash provided by (used in) financing activities:
(Decrease) increase in bank overdraft 0 (2,320)
Issuance of common stock for cash 225,000 0
Repayment of long term debt (50,000) 0
--------- ---------
Net cash provided by (used in) financing activities 175,000 (2,320)
--------- ---------
Increase (decrease) in cash and cash equivalents (6,951) 0
Cash and cash equivalents, beginning 17,884 0
--------- ---------
Cash and cash equivalents, ending $ 10,933 $ 0
========= =========
Supplemental disclosure of cash flows information
Cash paid for interest $ 50,000 $ 50,000
========= =========
See notes to consolidated financial statements.
i-4
RICH COAST INC.
Notes to Consolidated Financial Statements
Three Months Ended July 31, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. These financial statements are condensed and do not include all
disclosures required for annual financial statements. The organization and
business of the Company, accounting policies followed by the Company and other
information are contained in the notes to the Company's audited consolidated
financial statements filed as part of the Company's April 30, 2000 Form 10-KSB.
In the opinion of the Company's management, these financial statements reflect
all adjustments, including normal recurring adjustments, considered necessary to
present fairly the Company's consolidated financial position at July 31, 2000
and the consolidated results of operations and the consolidated statement of
cash flows for the three months ended July 31, 2000 and 1999.
2. CAPITAL STOCK
(a) Authorized 100,000,000 common shares of $0.001 par value and
10,000,000 preferred shares of $0.001 par value.
(b) Issued during the period:
Number of Shares Price Per Share Amount
Three months ended July 31, 1999
Shares issued:
Lawsuit settlement 250,000 $ 0.20 $ 50,000
------- ------ --------
250,000 $ 50,000
======= ========
Three months ended July 31, 2000
Shares issued:
For cash 1,125,000 $ 0.20 $225,000
--------- ------ --------
1,125,000 $225,000
========= ========
i-5
3. SIGNIFICANT SALES CONCENTRATIONS
The Company's customers are concentrated in the Great Lakes region, including
Canada. During the three months ended July 31, 2000 and 1999, approximately
14.3% and 13.6%, respectively, of total sales arose in Canada.
4. SUBSEQUENT EVENT
In August 2000, the Company sold its Ford Road facility for $450,000, which
produced a positive cash flow of $217,735 after payments of debt (includes land
contract principal balance of $75,525) and other obligations. During the quarter
ended October 31, 1999, the Company realized an impairment loss on the Ford Road
facility of $169,739.
i-6
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information. This prospectus does not offer to sell or
buy any shares in any jurisdiction where it is unlawful. The information in this
prospectus is current as of its date.
Dealer Prospectus Delivery Obligation:
Until___________,all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
RICH COAST, INC.
__________ SHARES OF COMMON STOCK
----------
PROSPECTUS
----------
_____________, 2000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
-----------------------------------------
The Company's Articles of Incorporation provide that the Company shall
indemnify any officer, employee, agent or director against liabilities
(including the obligation to pay a judgment, settlement, penalty, fine or
expense), incurred in a proceeding (including any civil, criminal or
investigative proceeding) to which the person was a party by reason of such
status. Such indemnity may be provided if the person's actions resulting in the
liabilities: (i) were taken in good faith; (ii) were reasonably believed to have
been in the Company's best interest with respect to actions taken in the
person's official capacity; (iii) were reasonably believed not to be opposed to
the Company's best interest with respect to other actions; and (iv) with respect
to any criminal action, the director had no reasonable grounds to believe the
actions were unlawful. Unless the person is successful upon the merits in such
an action, indemnification may generally be awarded only after a determination
of independent members of the Board of Directors or a committee thereof, by
independent legal counsel or by vote of the shareholders that the applicable
standard of conduct was met by the director to be indemnified.
A director, employee, agent, or officer who is wholly successful, on the
merits or otherwise, in defense of any proceeding to which he or she was a
party, is entitled to receive indemnification against reasonable expenses,
including attorneys' fees, incurred in connection with the proceeding. In
addition, a corporation may indemnify or advance expenses to an officer,
employee or agent who is not a director to a greater extent than permitted for
indemnification of directors, if consistent with law and if provided for by its
articles of incorporation, bylaws, resolution of its shareholders or directors
or in a contract.
Item 25. Other Expenses of Issuance and Distribution
-------------------------------------------
Expenses payable by the Company in connection with the issuance and
distribution of the securities being registered hereby are as follows. Selling
shareholders will be required to pay transfer tax and fees, if any, upon sale of
their shares.
SEC Registration Fee.............................. $ 1,786.00
NASD Filing Fee................................... $ 0
Accounting Fees and Expenses...................... $ 5,000.00*
Legal Fees and Expenses........................... $ 33,000.00*
Blue Sky Fees and Expenses........................ $ 0
Broker Commission................................. $ 0
Printing, Freight and Engraving................... $ 0
Miscellaneous..................................... $ 2,000.00*
Total........................................ $ 41,786.00
===========
________________
*Estimates only.
II-1
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
The following is information as to all securities of the Company sold by
the Company within the past three years that were not registered under the
Securities Act of 1933 (the "Act").
On June 11, 1997, the Company issued 100,000 shares for forbearance from
exercising certain rights and remedies by the holder of a 10% Senior Secured
Note in the principal amount of $2,000,000. The shares were issued in reliance
on Section 4(2) of the Act and Rule 506 promulgated thereunder because it was an
offer to only one purchaser who was an accredited investor.
On October 15, 1997, the Company sold 521,198 of its Common Stock to
William McCullagh in cancellation of a loan from him to the Company in the
principal amount of $100,000 plus cancellation of accrued interest in the amount
of $4,239.58. The shares were issued in an off shore transaction intended to be
exempt from registration under Regulation S promulgated under the Act.
From late 1997 to early 1998, the Company issued an aggregate principal
amount of $697,000 of 10% 18 month convertible promissory notes in a private
placement to accredited investors only in reliance on Section 4(2) of the Act
and Rule 506 promulgated thereunder.
On December 5, 1997, the Company sold an additional 200,000 shares of its
Common Stock to Mr. McCullagh for $50,000 in an off shore transaction intended
to be exempt from registration under Regulation S promulgated under the Act.
On January 26, 1998, February 20, 1998 and April 23, 1998 the Company
issued an aggregate of 111,768 shares as accrued interest for the calendar
quarters ended September 30, 1997, December 31, 1997 and March 31, 1998 on the
Company's outstanding 10% 18 Month Convertible Promissory Notes. The shares were
issued in reliance on Section 4(2) of the Securities Act and Rule 506
promulgated thereunder since the shares were issued in connection with the
private placement of the 10% Notes relying on the same exemption and the
investment decision to take shares in lieu of cash interest payments was made at
the time the 10% Notes were purchased.
On February 28, 1998 (100,000 shares), March 2, 1998 (110,000 shares),
April 1, 1998 (50,000 shares) and April 17, 1998 (50,000 shares) options were
exercised at $0.25 per share (February and March exercises) and $0.18 per share
(April exercises), and an aggregate of 310,000 shares were issued, all in
reliance on Section 4(2) of the Act.
On April 9, 1998 (100,000 shares), April 15, 1998 (100,000 shares) and
April 16, 1998 (130,000 shares) warrants were exercised at $0.25 per share and
an aggregate of 330,000 share were issued, all in reliance on Section 4(2) of
the Act.
In June 1998, the Company issued 8% Convertible Debentures (aggregate
principal amount $1,500,000) to accredited investors only in a private placement
in reliance on Section 4(2) of the Act and Rule 506 promulgated thereunder. The
Company also issued a finder's fee in connection with this
II-2
transaction in the form of warrants to purchase 60,000 shares of the Company's
common stock, exercisable at $2.50 per share.
From July 1998 through December 1998, the Company issued an aggregate of
1,087,798 shares for accrued interest and conversion of principal on the
Company's outstanding 10% 18 Month Convertible Promissory Notes. The shares were
issued in reliance on Section 4(2) of the Act and Rule 506 promulgated
thereunder since the shares were issued in connection with the private placement
of the 10% Notes relying on the same exemption and the investment decision to
take shares in lieu of cash payments was made at the time the 10% Notes were
purchased.
On May 31, 1999, the Company issued 250,000 shares of its common stock
(with a market value of $50,000) to Comer Holdings as part of the settlement of
a lawsuit. These shares were issued in reliance on Rule 506 and Section 4(2) of
the Securities Act of 1933 (the "Act").
In September 1999, an aggregate of 298,571 shares of common stock were
issued to holders of 8% Convertible Debentures for conversion of principal
($54,000) and accrued interest ($5,065). These shares were issued in reliance on
Rule 506 and Section 4(2) of the Act.
In November 1999, the Company issued 300,000 shares to S.B. Fletcher
Consulting, Inc., a consulting entity, for services rendered over the past year,
valued at $45,000, in mediating discussions with holders of the Company's 8%
Convertible Debentures. These shares were issued in reliance on Section 4(2) of
the Act.
In November and December 1999, the Company issued an aggregate of 2,550,000
shares to Frippoma S.A. for an aggregate investment of $510,000 (or $0.20 per
share) in a private placement under Section 4(2), Rule 506 and Regulation S of
the Act.
In December 1999, the Company issued 450,000 shares to Strauss Holding
Ltd., for an investment of $90,000. These shares were issued in reliance on
Section 4(2), Rule 506 and Regulation S of the Act.
In June 2000, the Company issued an aggregate of 1,125,000 shares to Banco
di Desioedella Brianza, for an investment of $225,000. These shares were issued
in reliance on Section 4(2), Rule 506 and Regulation S of the Act.
In September 2000, the Company issued 897,750 restricted shares to Alan
Moore and 2,250 restricted shares to Jerry Trojan under the loan modification
agreement with Red Oak Capital Partners. These shares were issued in reliance on
Section 4(2) of the Act.
Item 27. Exhibits
--------
The following is a list of all exhibits filed as part of this Registration
Statement:
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
3.1.1 Articles of Incorporation. (1)
3.1.2 Articles of Amendment. Previously filed.
II-3
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
3.2 Bylaws. (1)
5.1 Opinion of Perkins Coie LLP on legality. To be filed by
amendment.
10.1 Contract for Sale of Ford Road property. Previously filed.
10.2 Employment Contract between the Company and Robert W.
Truxell (Exhibit 1 to the Agreement of Merger dated October
31, 1995). (2)
10.3 Employment Contract between the Company and James P. Fagan
(Exhibit 2 to the Agreement of Merger dated October 31,
1995). (2)
10.4 1995 Incentive Compensation Plan. (3)
10.5 1996 Employee Stock Option and Bonus Plan, as amended. (4)
10.7 1999 Stock Option Plan. Previously filed.
10.6 1997 Stock Option and Stock Bonus Plan. (5)
10.8.1 Standstill Agreement with Debenture Holders. Filed herewith.
10.8.2 Addendum to Standstill Agreement with Debenture Holders.
Filed herewith.
10.9 Loan Modification Agreement with 10% Note Holder. Filed
herewith.
10.7 1999 Stock Option Plan. Previously filed.
21.1 Subsidiaries of the Registrant. Filed herewith.
23.1 Consent of Smythe Ratcliffe, Chartered Accountants.
Previously filed.
23.2 Consent of Perkins Coie LLP (included in Exhibit 5.1). To be
filed by amendment.
23.3 Consent of Gelfond Hochstadt Pangburn, P.C. Filed herewith.
23.4 Consent of Smythe Ratcliffe. Filed herewith.
24.1 Power of Attorney. Included as part of signature page.
27.1 Financial Data Schedule for the Year Ended April 30, 2000.
Filed herewith.
27.2 Financial Data Schedule for the Quarter Ended July 31, 2000.
Filed herewith.
____________
(1) Incorporated by reference from Registration Statement on Form S-4, File No.
333-6099, effective August 7, 1996.
(2) Incorporated by reference to the Company's Form 8 K dated November 16,
1995.
(3) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-41443.
(4) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-50763.
(5) Incorporated by reference from the Company's Registration Statement on Form
S-8, File No. 333-56275.
II-4
Schedules
- ---------
Schedules are omitted as the information is not required or not applicable,
or the required information is shown in the financial statements or notes
thereto.
Item 28. Undertakings
------------
The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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 Securities Act and will be governed by the final adjudication
of such issue.
II-5
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing this Amendment No. 6 to Form S 3 on Form SB 2 and
authorized this registration statement to be signed on its behalf by the
undersigned, in Dearborn, Michigan on October 24, 2000.
RICH COAST, INC.
/s/ Robert W. Truxell
----------------------------------------
Robert W. Truxell, Chairman of the Board
of Directors and Secretary
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and/or
directors of Rich Coast Inc., by virtue of their signatures appearing below,
hereby constitute and appoint James P. Fagan and/or Robert W. Truxell, or either
of them, with full power of substitution, as attorney in fact in their names,
places and steads to execute any and all amendments to this Amendment No. 6 to
Form S 3 on Form SB 2 in capacities set forth opposite their names on the
signature page thereof and hereby ratify all that said attorneys in fact or
either of them may do by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert W. Truxell Chairman of the Board of October 24, 2000
- --------------------------
Robert W. Truxell Directors and Secretary
/s/ James P. Fagan President, Chief Executive October 24, 2000
- --------------------------
James P. Fagan Officer and Director
/s/ George P. Nassos Director October 24, 2000
- --------------------------
George P. Nassos
/s/ Michael R. Fugler Director October 24, 2000
- --------------------------
Michael R. Fugler
/s/ Michael Grujicich Chief Financial and Accounting October 24, 2000
- --------------------------
Michael Grujicich Officer and Treasurer
II-7
EXHIBIT INDEX
Exhibit No. Description and Method of Filing
- ----------- --------------------------------
3.1.1 Articles of Incorporation. (1)
3.1.2 Articles of Amendment. Previously filed.
3.2 Bylaws. (1)
5.1 Opinion of Perkins Coie LLP on legality. To be filed by
amendment.
10.1 Contract for Sale of Ford Road property. Previously filed.
10.2 Employment Contract between the Company and Robert W.
Truxell (Exhibit 1 to the Agreement of Merger dated October
31, 1995). (2)
10.3 Employment Contract between the Company and James P. Fagan
(Exhibit 2 to the Agreement of Merger dated October 31,
1995). (2)
10.4 1995 Incentive Compensation Plan. (3)
10.5 1996 Employee Stock Option and Bonus Plan, as amended. (4)
10.6 1997 Stock Option and Stock Bonus Plan. (5)
10.7 1999 Stock Option Plan. Previously filed.
10.8.1 Standstill Agreement with Debenture Holders. Filed herewith.
10.8.2 Addendum to Standstill Agreement with Debenture Holders.
Filed herewith.
10.9 Loan Modification Agreement with 10% Note Holder. Filed
herewith.
21.1 Subsidiaries of the Registrant. Filed herewith.
23.1 Consent of Smythe Ratcliffe, Chartered Accountants.
Previously filed.
23.2 Consent of Perkins Coie LLP (included in Exhibit 5.1). To be
filed by amendment.
23.3 Consent of Gelfond Hochstadt Pangburn, P.C. Filed herewith.
23.4 Consent of Smythe Ratcliffe. Filed herewith.
24.1 Power of Attorney. Included as part of signature page.
27.1 Financial Data Schedule for the Year Ended April 30, 2000.
Filed herewith.
27.2 Financial Data Schedule for the Quarter Ended July 31, 2000.
Filed herewith.
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(1) Incorporated by reference from Registration Statement on Form S 4, File No.
333 6099, effective August 7, 1996.
(2) Incorporated by reference to the Company's Form 8 K dated November 16,
1995.
(3) Incorporated by reference from the Company's Registration Statement on Form
S 8, File No. 333 41443.
(4) Incorporated by reference from the Company's Registration Statement on Form
S 8, File No. 333 50763.
(5) Incorporated by reference from the Company's Registration Statement on Form
S 8, File No. 333 56275.