As filed with the Securities and Exchange Commission on January 25, 2001
Registration Statement No.333-63289
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 7 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 address of (Name, address and telephone number of
principal place of business) agent for service)
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. [_]
- ---------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
===============================================================================================================
Title of each Amount to Proposed maximum Proposed maximum Amount of
class of be registered offering price per aggregate offering registration
securities to be share/(2)/ price/(2)/ fee/(2)/
registered/(1)/
- ---------------------------------------------------------------------------------------------------------------
Common Stock 2,531,438 $0.78125 $1,977,686 $522
issuable upon Shares /(3)/
conversion of
debentures
- ---------------------------------------------------------------------------------------------------------------
Common Stock 3,275,500 $0.78125 $2,558,984 $675
Shares
- ---------------------------------------------------------------------------------------------------------------
Total 5,806,938 Shares/(4)/ $0.78125 $4,536,670 $1,197
- ---------------------------------------------------------------------------------------------------------------
_____________________
(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 some of the $1,275,500 principal amount
outstanding on January 18, 2001 of 8% Convertible Debentures (the
"Debentures"). On January 19, 2001 the Debenture holder (Trans
National Holding Ltd.) filed a notice of conversion with the Company
for $1,000,000 principal amount of Debentures, but the 21,331,058
shares of Common Stock into which the principal was converted have not
yet been issued by the Company. 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 2,531,438 shares of Common Stock issuable upon conversion of the
$1,275,500 in principal amount outstanding on January 18, 2001 of 8% Convertible
Debentures (the "Debentures"). 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 $1,275,500 principal amount of Debentures, plus
an additional $1,483,686 in accrued interest and penalties, was converted on
January 18, 2001, then the aggregate shares issued upon conversion would total
58,856,357 of which the 2,531,438 shares registered hereby would constitute only
4.3%. On January 19, 2001 the Debenture holder (Trans National Holding Ltd.)
filed a notice of conversion with the Company for $1,000,000 principal amount of
Debentures, but the 21,331,058 shares of common stock into which the principal
was converted have not yet been issued by the Company.
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. 3,275,500 of the Shares which may be offered by the Selling
Shareholders are outstanding on the date of this Prospectus, and the remaining
2,531,438 Shares will be issued by the Company after the date of this Prospectus
in connection with the January 19, 2001 Notice of Conversion filed by the
Debenture holder, who is also a Selling Shareholder under this Prospectus. 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 January 18, 2001, the closing bid price of the Common
Stock as reported on the Over-The-Counter Bulletin Board was $0.0625.
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 fees and costs, printing 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.
- -----------------------------------------------------------------------------------------------------
Proceeds to
Price Per Total Number Aggregate Offering Selling
Share of Shares Price Shareholder
----- ---------- ----- -----------
- -----------------------------------------------------------------------------------------------------
Shares to be
Outstanding
Offered by Selling $0.0625/(2)/ 5,806,938/(3)/ $362,934 $362,934
Shareholders/(1)/
- -----------------------------------------------------------------------------------------------------
/(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 January 18, 2001. 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 3,275,500 shares
outstanding and 2,531,438 shares issuable upon conversion of the
$1,275,500 principal amount outstanding on January 18, 2001 of 8%
Convertible Debentures. On January 19, 2001 the Debenture holder (Trans
National Holding Ltd.) filed a notice of conversion with the Company for
$1,000,000 principal amount of Debentures, but the 21,331,058 shares of
Common Stock into which the principal was converted have not yet been
issued by the Company.
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 ________________, 2001
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........................................... 12
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................................. 30
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 2,531,438 shares to
be issued upon conversion of the $1,275,500 principal amount outstanding on
January 18, 2001 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 3,275,500 of the Shares registered for public sale are
outstanding. On
January 19, 2001 the Debenture holder (Trans National Holding Ltd.) filed a
notice of conversion with the Company for $1,000,000 principal amount of
Debentures, but the 21,331,058 shares of Common Stock into which the principal
was converted] have not yet been issued by the Company. See "Description of
Securities."
After the issuance of 21,331,058 shares due to the Conversion Notice
received by the Company on January 19, 2001, there will be approximately
33,270,947 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
- -----------------------
The Company will not receive any proceeds from sales of Shares by the
Selling Shareholders.
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 $1,909,000
and $2,572,000, respectively. During the six months ended October 31, 2000 and
1999, the Company suffered net losses of $1,882,385 and $864,435, respectively.
At April 30, 2000 there was a stockholders' deficit and a working capital
deficit of approximately $1,945,000 and $4,665,000, respectively. At October
31, 2000 there was a stockholders' deficit and a working capital deficit of
$3,461,828 and $5,803,261, 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 employment contracts with Messrs. Truxell and Fagan,
both of which expire December 31, 2002. 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 October 31, 2000 the Company had approximately
$3,647,000 and $3,456,000 respectively, of debt outstanding under various loans,
debentures and other note agreements, plus an additional $1,483,686 in accrued
interest and penalties booked in October 2000 on the Debentures. Included in
the outstanding debt is $2,000,000 due under the Company's 10% Senior Secured
Note due July 10, 2004 (the "10% Senior Note"), and $1,275,500 outstanding on
the Debentures. 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. In
December 2000 the Debentures were sold to Trans National Holding, Ltd. ("TNH").
The Company and TNH entered into an Amendment to the Debentures whereby TNH has
agreed not to take any action with respect to declaring the Debentures to be in
default through December 2001. In exchange, the Company lifted the limitation in
the Debentures which prohibited TNH from owning more than 4.9% of the Company.
The Company believes the only argument that can currently be made for default on
the Debentures is its failure to have this registration statement effective.
However, because the threat of default on these Debentures may have a severe
financial impact on the Company, including potentially causing a default under
the 10% Senior Note and therefore potentially forcing the Company into
bankruptcy, management felt the amendment to the Debentures was in the best
interests of the Company.
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. In the past
the Company has failed to make scheduled payments under the 10% Senior Note,
although the Company now is current in its payments under the modification
agreement with the holder of the 10% Senior Note. The Company currently is not
in compliance with two covenants from the loan agreement covering the 10% Note.
One covenant requires that the Company maintain a consolidated net worth of
$1,000,000. As of October 31, 2000 the Company had a negative net worth of
$(3,461,828). The second covenant under which the Company is not in compliance
requires that the Company pay all taxes as they become due. The Company
currently has a past due tax obligation for real and personal property taxes
totaling approximately $150,000 and owed to Wayne County and/or the City of
Dearborn, Michigan. The failure to make payments under the modification
agreement, the non-compliance with these two covenants in the loan agreement and
the failure to have this registration statement effective could constitute
defaults under its debt obligations. The Company's ability to meet the
requirements of the covenants of the 10% Senior Note and the Debentures (both as
amended), 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.
4
The obligations of the Company under the loan agreement for the 10% Senior
Note are 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. TNH
(as holder of the Debentures) also has a security interest (junior to the holder
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.
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 58,856,357 shares for issuance
upon conversion of the principal, interest and penalties under the Debentures,
and has registered 2,531,438 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. On January 19, 2001 the Debenture holder (Trans National Holding Ltd.)
filed a notice of conversion with the Company for $1,000,000 principal amount of
Debentures, but the 21,331,058 shares of Common Stock into which the principal
was converted have not yet been issued by the Company. 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."
Change in Control - Issuance of Additional Shares Upon Conversion of Debentures
if Market Price Declines/Dilution.
The Company had a negative net tangible book value of $3,478,091 or ($0.29)
per share of the Company's Common Stock on October 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 $1,275,500 principal amount of
Debentures, plus an additional $1,483,686 in accrued interest and penalties, was
converted on January 18, 2001, when 75% of the five day average closing bid
price was $0.04688 per share, then the aggregate shares issued upon conversion
would total 58,856,357, of which the 2,531,438 shares registered hereby would
constitute only 4.3%. On January 19, 2001 TNH filed a notice of conversion with
the Company for $1,000,000 principal amount of Debentures, but the 21,331,058
shares of Common Stock into which the principal was converted have not yet
5
been issued by the Company. 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 on the date of any future
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.
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/ Offered Hereby/1/ After Offering/1/
- -------------------- ------------- ------------------ ----------------------
Trans National Holding,
Ltd./2/ 58,856,357/2/ 2,531,438/2/ 56,324,919/3/
Frippoma S.A./4/ 2,525,500 2,525,500 0
S.B. Fletcher Consulting, 300,000 300,000 0
Inc./5/
Strauss Holding Limited/6/ 450,000 450,000 0
_________________
(1) 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. Assumes that all Shares
registered hereunder are sold by the Selling Shareholders.
(2) Controlled by Desteco S.A., a financial and fiduciary company organized
under the laws of Switzerland. Ms. Loretta Bianchi is the controlling
person of Desteco S.A.
(3) 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. On January 19, 2001 TNH filed a notice of
conversion with the Company for $1,000,000 principal amount of Debentures,
but the 21,331,058 shares of Common Stock into which the principal was
converted have not yet been issued by the Company.
(4) This off-shore entity is controlled by (and beneficially owned by) Paolo
Floriani and Floriana Cantarelli, both of Lugano, Switzerland.
(5) This entity is beneficially owned and controlled by David Karson of New
York.
(6) This off shore entity is beneficially owned and controlled by Paolo Del Bue
of Lugano, Switzerland.
Relationships and Transactions with Certain Selling Shareholders
- ----------------------------------------------------------------
S.B. Fletcher Consulting, Inc. acted as a consultant for the Company during
1999 and 2000 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.
8
In December 2000 the Company and TNH amended the Debentures to: (1) remove
the 4.9% limitation on ownership for the Debenture holders; and (2) provide that
TNH will not declare the Company in default under the Debentures during 2001.
On January 19, 2001 TNH filed a notice of conversion with the Company for
$1,000,000 principal amount of Debentures, but the 21,331,058 shares of Common
Stock into which the principal was converted have not yet been issued by the
Company.
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 any discounts, commissions or concessions
received by any dealers or agents might be deemed by the NASD to constitute
underwriting compensation.
9
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.
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,
10
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:
Name, Age and
Municipality Residence Office Principal Occupation
- ---------------------- ------ --------------------
Robert W. Truxell Chairman of the Board and Chairman and Chief Executive Officer of
Bloomfield Hills, MI Director since January 1996; Integrated Waste Systems, 1992-1995;
Age: 75 Secretary since December President of Microcel, Inc., 1990-1992;
1997; CEO January 1996 to Vice-President of General Dynamics,
January 1997. 1983-1990
11
Name, Age and
Municipality Residence Office Principal Occupation
- ---------------------- ------ --------------------
James P. Fagan President and Director since President and Chief Operating Officer
Dearborn, Michigan January 1996; Chief of Waste Reduction Systems 1992-1995;
Age: 49 Executive Officer since Vice-President of The Powers Fagan
January 1997 Group, Inc. 1990-1996
George P. Nassos Director since August 1997 Director of environmental management
Glenview, IL program and adjunct professor for
Age: 60 Stuart School of 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
Age: 54 Systems Division 1983-1993, Divisional
Controller - Rockwell International
1981-1983
Michael R. Fugler Director since December 1999 Self-employed Attorney at Law since
New York, New York 1972, with a current practice emphasis
Age: 51 in Securities, Corporate Finance and
International Law; officer and
shareholder of i-Bankers Securities,
Inc. from 1996 to present.
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 January
19, 2001 (when the total number of outstanding shares was 11,939,889, plus an
additional 21,331,058 issuable to TNH due to partial Conversion of the
Debentures on January 19, 2001) by each Director and each Executive Officer
named in the Summary Compensation Table, and by all Directors and Executive
Officers as a group.
12
Name of Beneficial Owner/Name of
Director/Identity of Group Shares Beneficially Owned Percent of Class
------------------------------- ------------------------- ----------------
Robert W. Truxell 1,026,462/1/ 3.0%
Chairman/Director
James P. Fagan 608,327/2/ 1.8%
President/CEO/Director
George P. Nassos 148,513/3/ 0.4%
Director
Michael R. Fugler 100,000/4/ 0.3%
Director
Michael Grujicich, 0 0
Treasurer
All directors and executive 1,883,302/5/ 5.4%
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) 335,841 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.
To the knowledge of the Directors and Senior Officers of the Company, as of
January 19, 2001, 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:
13
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
------------------- ------------------- ----------------
Frippoma S.A. 2,525,500/1/ 7.6%
Via Cattori 3, 6902 Paradiso
Switzerland
Trans National Holding Ltd. 58,856,357/2/ 83.1%
Quantum Suite
Exchange House, 54-58
Athol Street
Douglas
Isle of Man IM1 1JD
- ---------
(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) Assumes all outstanding principal, accrued interest and penalties
(totaling $2,759,186) is converted on 1/18/01 at $0.04688, which is 75% of
the five day average closing bid price for the five preceding business
days. On 1/19/01, TNH filed a notice of conversion with the Company for
$1,000,000 principal amount of Debentures, but the 21,331,058 shares of
Common Stock into which the principal was converted have yet been issued
by the Company.
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 principal plus accrued interest and penalties on the Debentures
for total conversion amount of $2,759,186; 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 January 19, 2001 there were 11,939,889 shares of Common
Stock issued and outstanding that are held of record by approximately 2,915
shareholders, plus an additional 21,331,058 shares of Common Stock to
14
be issued as part of the conversion of $1,000,000 principal amount of Debentures
on January 19, 2001.
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 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.
15
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 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
16
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 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
17
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.
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
18
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 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.
19
Rich Coast Inc. Pipeline
- ------------------------
The Company's right of way for its 17-mile pipeline was originally acquired
in January 1996 with the intention of utilizing it as a means of transporting
waste or treated waste. At the time of acquisition the pipeline was cleaned and
inspected and found to be in compliance with all relevant regulations. The
Company has expended funds in order to maintain this status. During the later
part of the year ended April 30, 1999, the Company determined that conventional
methods of transporting waste were more cost-effective and that it would be
unlikely that the Company would utilize the pipeline to transport waste or
treated waste in the near future. In making this decision, the Company
considered that the pipeline might need approximately $150,000 of repair costs
to ensure it can fully function as a waste pipeline. Therefore, the Company
began considering alternative uses and the possible disposition of the pipeline.
As one alternative, brokers dealing in "rights-of-way" for cable installations
were contacted to explore the pipeline's right- of-way as a source of revenue.
Through discussions with the brokers at the time of acquisition, management
learned of the pipelines potential for use in the telecommunications industry.
Since acquisition, the Company has maintained contact with the brokers and,
while no immediate offers to lease the right-of-way have been received, the
Company is encouraged that the 17 mile right-of-way has an increasing value.
Increased value was encouraged due to (1) increase in demand for cable right-of-
way as this area of Detroit is developed, and (2) the availability of the
pipeline as a means of transport for waste would not be jeopardized by separate
leasing of the right-of-way to cable companies. Furthermore, the Company is
experiencing continuing and increasing interest by prospective purchasers of the
Wyoming Terminal Facility. The pipeline is of great interest to some of these
prospective purchasers. The opinion of management is that the pipeline,
combined with the right-of-way for cable installations, has a fair value
substantially in excess of its carrying amount.
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.
20
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:
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.
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 $1,909,384 compared to the previous fiscal year loss of $2,572,496.
Included in the $1,909,384 loss are depreciation and impairment losses of
$729,968 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.
21
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 $88,000, 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 $339,889 was recorded during the year. The impairment loss
relates to the Company's Ford Road facility and ZPM equipment.
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.
22
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 $1,909,384 compared
to a net loss of $2,572,496 for the fiscal year ended April 30, 1999, a decrease
of $663,112 or 26%. Loss per share decreased $0.25, or 51%, from $0.49 per
share for the fiscal year ended April 30, 1999 to $0.24 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 Six Months Ended October 31, 2000
Sales increased $326,025, or 24.7%, from $1,319,020 during the six months
ended October 31, 1999 to $1,645,045 during the six months ended October 31,
2000. This increase is a result of retaining the Company's existing customer
base in conjunction with adding new business through the efforts of two sales
people hired in late 1999.
Cost of sales increased $61,839, or 10.2%, from $603,891 during the six
months ended October 31, 1999 to $665,730 during the six months ended October
31, 2000. This increase directly relates to the increase in sales.
Furthermore, cost of sales as a percentage of sales decreased 11.6%, from 45.8%
during the six months ended October 31, 1999 to 40.5% during the six months
ended October 31, 2000. This decrease is partly due to lower landfill
costs.
General and administrative expenses increased $107,353, or 10.2%, from
$1,054,884 during the six months ended October 31, 1999 to $1,162,237 during the
six months ended October 31, 2000. This increase is partly due to higher
payroll and payroll related expenses.
Sales and marketing expenses increased $19,433, or 28.4%, from $68,352
during the six months ended October 31, 1999 to $87,785 during the six months
ended October 31, 2000. This increase is mostly due to higher travel, meal and
entertainment expenses.
During the six months ended October 31, 1999, the Company recorded $169,739
of impairment of property related to the expected sale of the Ford Road
Facility.
In order to complete the sale of the Ford Road Facility in August 2000, the
buyer required the Company to incur additional costs including environmental
report costs in excess of amounts originally estimated and certain building
repairs required to meet city code requirements. These additional unexpected
costs resulted in the Company recording approximately $74,600 of loss on the
sale of the Facility during the six months ended October 31, 2000.
During the six months ended October 31, 1999, the Company incurred $150,000
of lawsuit settlement expense involving Comer Holdings, Ltd. and Mobil Oil
Corporation.
23
Interest expense increased $1,400,531, or 1025.4%, from $136,589 during the
six months ended October 31, 1999 to $1,537,120 during the six months ended
October 31, 2000. The increase was primarily due to default interest and
penalties in the amount of $1,214,350 accruing on the 8% Debentures.
Net loss increased $1,017,950, or 117.8%, from $864,435 during the six
months ended October 31, 1999 to $1,882,385 during the six months ended October
31, 2000. Net loss per common share increased $0.03, or 21.4%, from $0.14 per
share during the six months ended October 31, 1999 to $0.17 per share during the
six months ended October 31, 2000. Net loss per common share was impacted by an
increase in the weighted average number of common shares of 4,454,173.
Rich Coast's focus on implementing successful cattle slaughterhouse waste
stream clean up and waste recovery systems continues. The Company's first
production installation was completed in December 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.
Full scale production operation will commence February 5, 2001. Contracts for
two additional customer sites are being negotiated.
Rich Coast has also received a contract from a pulp-paper facility at which
successful demonstrations have been made. Environmental issues that have
delayed contract development are now resolved. Installation completion is
scheduled for May 2001.
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 $219,236.
On the date of closing, Rich Coast's headquarters and all of its operations were
transferred to its 17 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 during the six months ended October 31, 2000 was approximately
$36,000. 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. A pre-fabricated building to house the pits was purchased for
$78,974 in September 2000 and is scheduled for erection in the spring of 2001.
These events represent the only major capital expenditures made by Rich Coast
during the six months ended October 31, 2000.
On December 15, 2000 the 8% Debentures were sold to Trans National Holding,
Ltd. ("TNH"). In order to facilitate the sale, the Company agreed to issue
warrants to purchase 150,000 shares of its common stock, exercisable at $0.50
per share for five years. The debt evidenced by the 8% Debentures has rapidly
increased in conversion value due to accrued interest and penalties. Outstanding
principal is now $1,275,500, plus penalties and interest through October 31,
2000 of $1,483,686, for total conversion value of $2,759,186. The Company and
TNH negotiated and signed an Amendment to the Debentures in December 2000.
Under the Amendment TNH waives the right to declare the Company in default under
the 8% Debentures until December 31, 2001. The Amendment also removes the 4.9%
limit on the number of shares TNH can own, thereby allowing TNH to convert into
and hold a controlling interest in the Company. On January 19, 2001 TNH filed a
notice of conversion with the Company for $1,000,000 principal amount of
Debentures, but the 21,331,058 shares of common stock into which the principal
was converted have not yet been issued by the Company.
24
December 2000. Under the Amendment TNH waives the right to declare the Company
in default under the 8% Debentures until December 31, 2001. The Amendment also
removes the 4.9% limit on the number of shares TNH can own, thereby allowing TNH
to convert into and hold a controlling interest in the Company. On January 19,
2001 TNH filed a notice of conversion with the Company for $1,000,000 principal
amount of Debentures, but the 21,331,058 shares of common stock into which the
principal was converted have not yet been issued by the Company.
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.
Liquidity and Capital Resources
- -------------------------------
The Company's financial statements for the year ended April 30, 2000 and
for the six months ended October 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 $1,909,384 and
had a stockholders' deficit of $1,945,023. For the six months ended October 31,
2000, the Company reported a net loss of $1,882,385 and had a stockholders'
deficit of $3,461,828. At April 30, 2000, current liabilities included
$3,646,572 of the Company's debt and the Company had a working capital deficit
of $4,665,220. At October 31, 2000, current liabilities included $3,456,046 of
the Company's debt and the Company had a working capital deficit of $5,803,261.
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.
In December 2000 the Company amended the Debentures to remove the 4.9%
limit on ownership in the Company. In exchange, the Debenture holder agreed not
to declare the Company in default under the Debentures during 2001. The
Debenture holder could argue that the Company is in default (although it has not
been declared in default) under the Debentures because this registration
statement is not yet effective. On January 19, 2001 TNH filed a notice of
conversion with the Company for $1,000,000 principal amount of Debentures, but
the 21,331,058 shares of Common Stock into which the principal was converted
have not yet been issued by the Company. The Company currently is not in
25
compliance with two covenants from the loan agreement covering the 10% Note.
One covenant requires that the Company maintain a consolidated net worth of
$1,000,000. As of October 31, 2000 the Company had a negative net worth of
$(3,461,828). The second covenant under which the Company is not in compliance
requires that the Company pay all taxes as they become due. The Company
currently has a past due tax obligation for real and personal property taxes
totaling approximately $150,000 and owed to Wayne County and/or the City of
Dearborn, Michigan.
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 supplement processing waste treatment at
the Company's Dearborn facilities by processing waste directly at customer
sites, which management believes may result in increased profit margins. The
Company will commence production operation at one customer site in February 2001
and has entered into a contract for another customer site. Two additional
contracts are being negotiated.
(b) Sale of Ford Road facility and consolidation of operating sites
The Company sold its Ford Road facility for $450,000 in August 2000, which
produced a positive cash flow of $219,236 after payment of a $75,525 land
contract and certain other obligations. Management consolidated its waste
processing operations at its Wyoming Terminal facility and is already
experiencing cost efficiencies and savings due to this consolidation.
(c) Financing negotiations
Through October 31, 2000, $825,000 ($225,000 during the six months ended
October 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 six
months ended October 31, 2000). An additional $175,000 is expected in early
2001.
26
(d) Other plans
In September 2000, the Company renegotiated payment terms on the senior
secured note for monthly interest plus $5,000 principal payments to be made
until May 10, 2001, then equal monthly installments of principal and interest
from May 10, 2001 until repayment of all principal. In December 2000 the 8%
Debentures were sold to TNH and the Company signed an amendment to the 8%
Debentures with TNH which provides that the Company cannot be declared in
default until 2002. 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.
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 existing and potential contracts for customer site
installation 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, promises to allow 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 rate of 28.2% for the fiscal year ended April 30,
2000 is a growth rate 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) installations at customer site.
Improvements already implemented at the Wyoming Avenue terminal include new
and more efficient dumping pits, which increase capacity. By the spring of 2001,
these pits will be housed in a pre-fabricated steel structure, approximately
18,000 square feet in size, designed to accommodate supplemental pit waste
processing equipment which will reduce costs and further increase capacity.
However, additional equity financing will be required to take advantage of the
Company's proprietary systems. The Company has negotiated an additional equity
investment of $175,000 which it expects to receive in late December 2000.
During the year ended April 30, 2000, net cash used in operating activities
was
27
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 $1,909,384 reduced by non-cash expenses of approximately
$940,000 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 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 six months ended October 31, 2000, net cash provided by
operating activities was approximately $6,000. Net cash provided by operating
activities during the six months ended October 31, 1999 was approximately
$57,000. Net cash provided by operating activities during the six months ended
October 31, 2000 includes the net loss for the six months of approximately
$1,882,400 reduced by non-cash expenses and a net change in operating assets and
liabilities of approximately $1,888,400. Net cash provided by operating
activities during the six months ended October 31, 1999 includes the net loss
for the six months of $864,000 reduced by non-cash expenses and net changes in
operating assets and liabilities of approximately $921,000.
Cash flows used in investing activities was approximately $54,000 during
the six months ended October 31, 2000 compared to $23,000 during the six months
ended October 31, 1999. During the six months ended October 31, 2000, the
Company spent $273,014 on capital expenditures. There were no outstanding
commitments for capital expenditures at October 31, 2000.
Cash flows provided by financing activities was approximately $34,000
during the six months ended October 31, 2000 compared to cash flows used in
financing activities
28
of $6,000 during the six months ended October 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 $191,000 of long-
term debt.
Changes in Financial Condition
- ------------------------------
Rich Coast obtained $225,000 of equity financing during the six months
ended October 31, 2000 through the sale of 1,125,000 shares of common stock at
$0.20 per share. Net losses for the six months ended October 31, 2000 totaled
$1,882,385. 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
customer sites.
DESCRIPTION OF PROPERTY
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 holder of the 8% Convertible Debentures.
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 holder of the 8%
Convertible Debentures.
29
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.
OTC Market
Calendar Quarter High Bid Price/(1)/ Low Bid Price/(1)/
------------------------------------ ------------------------ -----------------------
2000 October 1 - December 31 $ 0.250 $ 0.062
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 - September 30 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 January 18, 2001 was
$0.0625 per share./(1)/
________________________
(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
Holders
- -------
As of January 19, 2001 there were approximately 2,915 holders of the
Company's Common Stock, and the number of shares issued and outstanding was
11,939,889, plus an additional 21,331,058 shares due to the conversion notice
for $1,000,000 principal amount received from the holder of the 8% Convertible
Debenture on January 19, 2001.
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.
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.
31
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. In
December 2000 his employment agreement was extended for an additional two years.
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 $1.00 01/17/10
Robert W. Truxell 140,775 8.97% 0.125 1.00 07/30/02
Robert W. Truxell 100,000 6.37% 0.125 1.25 01/17/10
Robert W. Truxell 25,000 1.59% 0.125 1.25 01/17/10
Robert W. Truxell 48,675 3.10% 0.125 1.00 01/17/10
Robert W. Truxell 50,000 3.19% 0.125 .90 01/17/10
Robert W. Truxell 58,125 3.70% 0.125 1.00 01/17/10
James P. Fagan 129,041 8.22% 0.125 1.00 01/17/10
James P. Fagan 70,386 4.48% 0.125 1.00 07/30/02
James P. Fagan 100,000 6.37% 0.125 1.00 01/15/06
James P. Fagan 25,000 1.59% 0.125 1.00 05/09/06
James P. Fagan 58,125 3.70% 0.125 1.00 01/17/10
James P. Fagan 125,000 7.96% 0.125 .88 01/17/10
James P. Fagan 48,675 3.10% 0.125 1.00 07/20/07
_____________________
No stock shares or options were granted to the foregoing named executives
during this fiscal year ended April 30, 2000 or during the quarter ended October
31, 2000. All options granted under the 1995, 1996, 1997 and 1999 stock option
plans were repriced to reflect market values on November 19, 1999.
Aggregated Option/SAR Exercised in Last Financial Year and Fiscal Year-End
- --------------------------------------------------------------------------
Option/SAR Values
- -----------------
The following table sets out all Option/SAR exercised by the Named
Executive Officers during the most recently completed fiscal year and the
Option/SAR values for such persons as of the end of the most recently completed
fiscal year.
33
Aggregated Option/SAR Exercised in Last Fiscal Year and FY-End Option/SAR Values
Number of
Securities
Underlying Value of
Unexercised
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
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 Six Months Ended October 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 to F-7
Notes to Consolidated Financial Statements F-8 to F-16
Unaudited Consolidated Financial Statements for the Period Ended October 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 to i-7
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 $1,909,384 during
the year ended April 30, 2000, and has a stockholders' deficit and a working
capital deficit of $1,945,023 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.
As discussed in Note 12 to the financial statements, the Company purchased
certain equipment in 1993 which has not been placed in service. The Company has
determined that the cost of the equipment should have previously been charged to
research and development expense. Accordingly, the financial statements have
been restated to correct this error, resulting in a decrease in the net loss and
the basic and diluted net loss per common share outstanding for the year ended
April 30, 2000 of $1,224,706 and $0.16, respectively; and an increase in the
accumulated deficit of $800,000 as of April 30, 2000 and $2,024,706 as of April
30, 1999 and May 1, 1998. The restatement did not affect net loss or basic and
diluted net loss per common share outstanding for the year ended April 30,
1999.
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.
As discussed in note 12 to the financial statements, the Company purchased
certain equipment in 1993, which has not been placed in service. The company has
determined that the cost of the equipment should have previously been charged to
research and development expense. Accordingly, the financial statements have
been restated to correct this error, resulting in an increase in the accumulated
deficit of $2,024,706 as of April 30, 1999 and May 1, 1998. The restatement did
not effect net loss or basic and diluted net loss per common share outstanding
for the year ended April 30, 1999.
"Smythe Ratcliffe"
Chartered Accountants
Vancouver, Canada
August 12, 1999, except for note 1
which is as of August 9, 2000 and
notes 2(c) and 12 which are as of
January 10, 2001
F-2
RICH COAST INC.
Consolidated Balance Sheet
April 30, 2000
(Restated - Note 12)
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) 2,578,037
Patent and technology, net 18,147
Deferred finance charges and deposits 124,013
------------
$ 3,344,514
============
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 (29,498,332)
------------
(1,945,023)
------------
$ 3,344,514
============
See notes to consolidated financial statements.
F-3
RICH COAST Inc.
Consolidated Statements of Operations
Years Ended April 30, 2000 and 1999
(Restated - Note 12)
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) 339,889
Lawsuit settlement expense (note 11) 150,000 50,000
----------- -----------
4,334,293 4,067,314
----------- -----------
Loss from operations (1,426,545) (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 $(1,909,384) $(2,572,496)
=========== ===========
Basic and diluted net loss
per common share outstanding $ (0.24) $ (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
(Restated - Note 12)
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 $(25,016,452) $ 317,713
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 (27,588,948) (790,204)
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 (1,909,384) (1,909,384)
--------- ------ ----------- ------------ --------------
Balances, April 30, 2000 9,914,889 $9,915 $27,543,394 $(29,498,332) $(1,945,023)
========= ====== =========== ============ ==============
See notes to consolidated financial statements.
F-5
RICH COAST INC.
Consolidated Statements of Cash Flows
Years Ended April 30, 2000 and 1999
(Restated - Note 12)
2000 1999
----------- -----------
Net cash provided by (used in) operating activities:
Net loss $(1,909,384) $(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 339,889
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
(Restated - Note 12)
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 includes a pipeline with a carrying value of
approximately $296,000 that has 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 $1,909,384 and at April 30, 2000 has a stockholders' deficit
of $1,945,023. 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 2,427,094
----------
Total at cost 4,723,393
Accumulated depreciation and impairment reserve 2,145,356
----------
$2,578,037
==========
6. IMPAIRMENT
During the year ended April 30, 2000, the company recorded impairment
losses of $339,889 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 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 1,300,00 $0.125
April 30, 1999 $0.72 - $ 2.00 1,837,000 2.50 $ 0.88 1,249,00 $ 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.
(c) 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.
12. Restatement of financial statements:
In 1993 the Company purchased a distillation unit, with a cost of
$2,024,706, for use in the clarification of sulfur. When the price of
sulfur dropped in late 1993, the Company believed that the distillation
unit provided an opportunity to enter in the business of removing
contaminants from polluted soil, such as oily sludge. From 1993 through
1999, the Company investigated several uses for the unit, none of which
proved economically feasible. No depreciation had been taken on the unit,
as it had never been placed in service. During the three months ended
January 31, 2000, the Company obtained an appraisal of the distillation
unit, which indicated a fair value of $800,000. As a result, the Company
recorded an impairment loss of $1,224,706 during the quarter ended January
31, 2000.
Based on the history of the asset and how it was used, the Company has
determined that the cost of the asset should have been recorded as research
and development costs in accordance with SFAS No. 2 as early as 1993.
Accordingly, the financial statements have been restated to correct this
error, resulting in a decrease in the net loss and basic and diluted net
loss per common share outstanding of $1,224,706 and $0.16, respectively;
and an increase in the accumulated deficit of $800,000 as of April 30, 2000
and $2,024,706 as of April 30, 1999 and May 1, 1998. The restatement did
not affect net loss or basic and diluted net loss per common share
outstanding for the year ended April 30, 1999.
F-16
FINANCIAL INFORMATION
FINANCIAL STATEMENTS
RICH COAST INC.
Consolidated Financial Statements
October 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 to i-7
i-1
RICH COAST INC.
Consolidated Balance Sheet
October 31, 2000
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,653
Accounts receivable, net of allowance for uncollectible
accounts of $19,655 738,858
Prepaid expenses 16,950
------------
Total current assets 760,461
Property and equipment, net 2,227,469
Patent and technology, net 16,263
Deferred finance charges and deposits 97,701
------------
$ 3,101,894
============
Liabilities and stockholders' deficit
- -------------------------------------
Current liabilities:
Current portion of long-term debt $ 3,456,046
Accounts payable and accrued liabilities 1,214,786
Accrued oil and waste treatment costs 409,204
Accrued interest 1,483,686
------------
Total liabilities (all current) 6,563,722
------------
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,
11,939,889 issued and outstanding at October 31, 2000 11,940
Additional paid-in capital 27,906,949
Accumulated deficit (31,380,717)
------------
(3,461,828)
------------
$ 3,101,894
============
See notes to consolidated financial statements
i-2
RICH COAST INC.
Consolidated Statements of Operations
Three and Six Months Ended October 31, 2000 and 1999
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended October 31 Six Months Ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Sales $ 847,899 $ 715,371 $ 1,645,045 $1,319,020
----------- ---------- ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of sales 340,731 335,931 665,730 603,891
- ------------------------------------------------------------------------------------------------------------------------------------
General and administrative
expenses 530,080 491,780 1,162,237 1,054,884
- ------------------------------------------------------------------------------------------------------------------------------------
Sales and marketing expenses 44,652 32,457 87,785 68,352
- ------------------------------------------------------------------------------------------------------------------------------------
Impairment of property 0 169,739 0 169,739
- ------------------------------------------------------------------------------------------------------------------------------------
Loss on sale of property 74,558 0 74,558 0
- ------------------------------------------------------------------------------------------------------------------------------------
Lawsuit settlement expense 0 100,000 0 150,000
----------- ---------- ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
990,021 1,129,907 1,990,310 2,046,866
----------- ---------- ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Loss from operations 142,122 414,536 345,265 727,846
----------- ---------- ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Other expense:
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense 1,443,649 81,899 1,537,120 136,589
----------- ---------- ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss 1,585,771 $ 496,435 $ 1,882,385 $ 864,435
=========== ========== =========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net loss
Per common share outstanding
$0.14 $ 0.08 $ 0.17 $ 0.14
=========== ========== =========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 11,167,063 6,442,886 10,791,655 6,337,482
=========== ========== =========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
i-3
RICH COAST INC.
Consolidated Statements of Cash Flows
Six Months Ended October 31, 2000 and 1999
(Unaudited)
2000 1999
-------- --------
Net cash provided by operating activities $ 6,072 $ 56,876
--------- --------
Net cash provided by (used in) investing activities:
Proceeds from sale of property 219,236 0
Capital expenditures (273,014) (22,656)
--------- --------
Net cash used in investing activities (53,778) (22,656)
--------- --------
Net cash provided by (used in) financing activities:
(Decrease) increase in bank overdraft 0 (5,682)
Issuance of common stock for cash 225,000 0
Repayment of long-term debt (190,525) 0
--------- --------
Net cash provided by (used in) financing activities 34,475 (5,682)
--------- --------
Increase (decrease) in cash and cash equivalents (13,231) 28,538
Cash and cash equivalents, beginning 17,884 0
--------- --------
Cash and cash equivalents, ending $ 4,653 $ 28,538
========= ========
See notes to consolidated financial statements.
i-4
RICH COAST INC.
Consolidated Statements of Cash Flows
Six Months Ended October 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 October 31, 2000 and the consolidated results of operations for the
three and six months ended October 31, 2000 and 1999 and the consolidated
statements of cash flows for the six months ended October 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:
Price
Number of Shares Per Share Amount
Six months ended October 31, 1999
Shares issued:
Lawsuit settlement 250,000 $ 0.20 $ 50,000
Convertible debenture (principal and
Accrued interest) 298,571 $0.1995 $ 59,565
--------- --------
548,571 $109,565
========= ========
Six months ended October 31, 2000
Shares issued:
For cash 1,125,000 $ 0.20 $225,000
In exchange for renegotiated
payment terms on senior secured note 900,000 $0.1562 $140,580
--------- --------
2,025,000 $365,580
========= ========
i-5
RICH COAST INC.
Notes to Consolidated Statements of Cash Flows
Six Months Ended October 31, 2000 and 1999
(Unaudited)
3. SIGNIFICANT SALES CONCENTRATIONS
The Company's customers are concentrated in the Great Lakes region,
including Canada. During the six months ended October 31, 2000 and 1999,
approximately 18.2% and 14.4%, respectively, of total sales arose in
Canada.
4. RESTATEMENT OF FINANCIAL STATEMENTS
In 1993, the Company purchased a distillation unit for use in the
clarification of sulfur. When the price of sulfur dropped in late 1993, the
Company believed that the distillation unit provided an opportunity to
enter the business of removing contaminants from polluted soil, such as
oily sludge. From 1993 through 1999, the Company investigated several uses
for the unit, none of which proved economically feasible. No depreciation
had been taken on the unit, as it had never been placed in service, and at
May 1, 1999 its carrying value was $2,024,706. In its previously issued
financial statements for the year ended April 30, 2000, the Company
recorded $1,224,706 of impairment losses related to the unit.
Based on the history of the asset and how it was used, the Company has
determined that the cost of the asset should have been recorded as research
and development costs in accordance with SFAS No. 2 as early as 1993.
Accordingly, the financial statements have been restated to correct this
error, resulting in an increase in the accumulated deficit of $800,000 as
of July 31, 2000. The restatement did not effect net loss or basic and
diluted net loss per common share outstanding for the six months ended
October 31, 2000 and 1999.
5. 8% CONVERTIBLE DEBENTURES
At October 31, 2000, the Company had outstanding $1,275,500 of 8%
convertible debentures, secured by property and equipment and other assets.
The debentures, penalties and accrued interest 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 debentures 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, during the fiscal
year ended April 30, 1999, the Company was not in compliance with certain
covenants of the debentures. The Company and the holders of the debentures
entered into a standstill agreement whereby the debenture holders agreed
not to take any action with respect to exercising their conversion rights
or declaring the debentures to be in default through November 2000. In
return, the standstill agreement required the Company, among other actions,
to make payments on the debentures of $50,000 in June 2000 and $25,000 each
in August and September 2000; effect a timely registration of the shares
underlying the possible conversion of the debentures, and to complete
$2,000,000 of funding. If the Company were to meet all of the required
conditions of the standstill agreement, neither penalties nor penalty
interest would be due on the debentures. During 1999 and 2000, the Company
made the debenture payments required by the standstill agreement, began the
process of registration of the shares underlying the possible conversion of
the debentures and entered into an agreement with an investment banker to
provide up to $2,000,000 of either equity or debt financing. During the
year ended April 30, 2000, $600,000 of equity financing was provided in
exchange for the issuance of 3,000,000 shares of common stock. An
additional $225,000 was received in June 2000 in exchange for the issuance
of 1,125,000 shares of common stock. However, during the quarter ended
October 31, 2000, management determined that it was no longer probable that
the Company would be able to complete the remaining funding under its
agreement with the investment banker by November 2000. Therefore, the
standstill agreement expired in November 2000.
i-6
RICH COAST INC.
Notes to Consolidated Statements of Cash Flows
Six Months Ended October 31, 2000 and 1999
(Unaudited)
As a result of the foregoing, penalties and interest of $1,214,350 became
due on November 1, 2000 and are charged to interest expense during the
three months ended October 31, 2000. Penalties of 2% per month on the
outstanding principal balance will continue to accrue and penalty interest
on the debentures will remain at 20% until such time as the shares
underlying the possible conversion are registered. Management is currently
negotiating with the debenture holders concerning possible modifications of
the penalties and increased interest. Management has also continued
negotiations with the investment bankers and they have agreed to provide an
additional $175,000 of funds to the Company in December 2000, in exchange
for the issuance of 1,944,444 shares of common stock.
6. SHARE ISSUANCE
During the quarter ended October 31, 2000, the Company issued 900,000
shares of common stock to the holder of the Company's $2,000,000 10% senior
secured note. The shares were issued in exchange for the holders of the
note agreeing to the modification of the note's repayment terms and in
exchange for the warrants to purchase 900,000 shares of common stock issued
to the note holder at the time of the note's issuance.
The shares were valued at $0.1562, which was the market price per share on
the date of the agreement. The resulting $140,580 of expense has been
charged to interest during the quarter ended October 31, 2000.
i-7
________________________________________________________________________________
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
_____________
_____________, 2001
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..... $10,000.00*
Legal Fees and Expenses.......... $43,000.00*
Blue Sky Fees and Expenses....... $ 0
Broker Commission................ $ 0
Printing, Freight and Engraving.. $ 0
Miscellaneous.................... $ 2,000.00*
Total....................... $56,786.00
==========
______________
*Estimates only.
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
II-2
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
II-3
connection with this 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.
The Company issued 900,000 shares of common stock to the holders of the
10% senior secured note on October 18, 2000 in connection with the renegotiation
of payment terms. No commissions were paid on the transaction. The shares were
issued in reliance on Section 4(2) of the Securities Act of 1933.
II-4
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.
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. Previously filed.
10.8.2 Addendum to Standstill Agreement with Debenture Holders. Previously filed.
10.9 Loan Modification Agreement with 10% Note Holder. Previously filed.
10.10 Amendment to Debentures. Filed herewith.
21.1 Subsidiaries of the Registrant. Previously filed.
23.1 Consent of Smythe Ratcliffe, Chartered Accountants. Filed herewith.
23.2 Consent of Perkins Coie LLP. To be filed by amendment.
23.3 Consent of Gelfond Hochstadt Pangburn, P.C. 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 Six Months Ended October 31, 2000. Filed herewith.
___________________
(1) Incorporated by reference from Registration Statement on Form S-4, File No.
333-6099, effective August 7, 1996.
II-5
(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.
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
II-6
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.
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-7
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. 7 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 January 24, 2001.
RICH COAST, INC.
/s/ Robert W. Truxell
--------------------------------------------
Robert W. Truxell, Chairman of the Board 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. 7 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 Directors January 24, 2001
- --------------------- and Secretary
Robert W. Truxell
/s/ James P. Fagan President, Chief Executive Officer January 24, 2001
- ------------------ and Director
James P. Fagan
/s/ George P. Nassos Director January 24, 2001
- --------------------
George P. Nassos
/s/ Michael R. Fugler Director January 24, 2001
- ---------------------
Michael R. Fugler
/s/ Michael Grujicich Chief Financial and Accounting January 24, 2001
- --------------------- Officer and Treasurer
Michael Grujicich
II-8
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. Previously filed.
10.8.2 Addendum to Standstill Agreement with Debenture Holders.
Previously filed.
10.9 Loan Modification Agreement with 10% Note Holder. Previously
filed.
10.10 Amendment to Debentures. Filed herewith.
21.1 Subsidiaries of the Registrant. Previously filed.
23.1 Consent of Smythe Ratcliffe, Chartered Accountants. Filed
herewith.
23.2 Consent of Perkins Coie LLP. To be filed by amendment.
23.3 Consent of Gelfond Hochstadt Pangburn, P.C. 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.
27.2 Financial Data Schedule for the Six Months Ended October 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.