<PAGE> 1
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 1999
EARTHCARE COMPANY
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 000-24685 58-2335973
- ------------------------------- ------------------------ ---------------------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
</TABLE>
14901 Quorum Drive, Suite 200, Dallas, Texas 75240
-----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 858-6025
--------------------------
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
<PAGE> 2
EARTHCARE CO - 8-K/A - Current Report
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
The following financial statements for Magnum Environmental
Services, Inc. are filed herewith:
<TABLE>
<S> <C>
Independent Auditor's Report F-1
Combined Balance Sheets at December 31, 1998 and 1997 F-2
Combined Statements of Changes in Stockholders' Equity
and Partners' Capital for the Years Ended
December 31, 1998 and 1997 F-3
Combined Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-4
Combined Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-5 - F-6
Notes to Combined Financial Statements F-7 - F-15
Interim Unaudited Financial Statements as of June 30, 1999 and 1998
Table of Contents F-16
(b) Pro Forma Financial Information
The following pro forma financial information is
filed herewith:
- Pro Forma Financial Condensed Financial Data F-29
- Unaudited Pro Forma Condensed Consolidated Statement
of Operations For The Year Ended December 31, 1998 F-30
- Unaudited Pro Forma Condensed Consolidated Statement
of Operations For The Six Months Ended June 30, 1999 F-31
- Unaudited Pro Forma Condensed Consolidated Balance
Sheet As of June 30, 1999 F-32
- Liabilities and Stockholders' Equity F-33
- Notes to Pro Forma Financial Statements F-34 - F-36
(c) Exhibits
15.1 Letter Regarding Unaudited Interim Financial
Information (included in exhibit 23.1)
23.1 Consent of Rotenberg and Company, LLP
</TABLE>
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EARTHCARE CO - 8-K/A - Current Report
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
Magnum Environmental Services, Inc. and Related Entities
Pompano Beach, Florida
We have audited the accompanying combined balance sheets of Magnum
Environmental Services, Inc. and Related Entities as of December 31, 1998 and
1997 and the related statements of operations, changes in stockholders' equity
and partners' capital, and cash flows for the years then ended. These financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on the combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined balance sheets referred to above present
fairly, in all material respects, the combined financial position of Magnum
Environmental Services, Inc. and Related Entities as of December 31, 1998 and
1997, and the results of their combined operations and their combined cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Rotenberg and Company, LLP
Rochester, New York
March 12, 1999
(Except Note L, Dated September 1, 1999)
F-1
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 403,376 $ 243,277
Accounts Receivable - Net of Allowance for Doubtful Accounts 1,247,492 1,312,533
Inventory 151,985 176,779
Deposits and Prepaid Expenses 123,134 148,130
----------- -----------
TOTAL CURRENT ASSETS 1,925,987 1,880,719
PROPERTY, PLANT AND EQUIPMENT - Net of Accumulated Depreciation 11,033,295 9,825,863
OTHER ASSETS
Intangibles - Net of Accumulated Amortization 425,003 434,762
Other
59,191 56,233
----------- -----------
Total Assets $13,443,476 $12,197,577
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Notes, Loans and Mortgages Payable - Due Within One Year $ 456,915 $ 1,488,614
Accounts Payable 802,899 777,531
Accrued Expenses 168,926 186,332
----------- -----------
TOTAL CURRENT LIABILITIES 1,428,740 2,452,477
OTHER LIABILITIES
Notes, Loans and Mortgages Payable - Due After One Year 8,751,728 6,505,122
----------- -----------
TOTAL LIABILITIES 10,180,468 8,957,599
----------- -----------
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Common Stock - $1 par value, 2,000,000 Authorized,
736 Shares Issued and Outstanding
736 736
Additional Paid In Capital 1,520,790 1,520,790
Retained Earnings 1,241,394 1,193,687
Partners' Capital 500,088 524,765
----------- -----------
TOTAL STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL 3,263,008 3,239,978
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL $13,443,476 $12,197,577
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
================================================================================
<TABLE>
<CAPTION>
Common Additional Retained Partners'
Stock Paid in Capital Earnings Capital Total
----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1997 $ 975 $ 1,520,551 $ 891,061 $ 545,124 $ 2,957,711
Prior Period Adjustment -- -- (18,607) -- (18,607)
----------- ----------- ----------- ----------- -----------
Adjusted Balance - January 1, 1997 975 1,520,551 872,454 545,124 2,939,104
Less: Stock Exchange on
8/1/97 Corporate Merger
(Note G) (239) 239 -- -- --
Net Income (Loss) -- -- 321,233 (20,359) 300,874
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1997 736 1,520,790 1,193,687 524,765 3,239,978
Shareholders' Distributions -- -- (15,000) -- (15,000)
Net Income (Loss) -- -- 62,707 (24,677) 38,030
----------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1998 $ 736 $ 1,520,790 $ 1,241,394 $ 500,088 $ 3,263,008
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ----------- -----------
<S> <C> <C>
Revenues $ 8,913,736 $ 7,865,625
----------- -----------
OPERATING EXPENSES
Cost of Operations 4,641,639 3,838,704
General and Administrative 2,476,950 2,549,303
Depreciation and Amortization 766,640 635,291
----------- -----------
TOTAL OPERATING EXPENSES 7,885,229 7,023,298
----------- -----------
Income from Operations 1,028,507 842,327
Interest Expense (799,322) (579,837)
Other Income (Loss) (191,155) 38,384
----------- -----------
NET INCOME $ 38,030 $ 300,874
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 8,962,445 $ 7,290,368
Cash Paid to Suppliers and Employees (7,056,380) (6,230,770)
Interest Paid (787,297) (573,905)
Interest Received 106 11,463
Miscellaneous Receipts 27,193 28,078
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,146,067 525,234
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases - Property, Plant and Equipment (2,349,640) (1,644,577)
Payment of Intangibles -- (20,000)
Proceeds from Sale of Equipment and Land 256,487 21,826
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (2,093,153) (1,642,751)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Debt (4,060,575) (1,595,474)
Proceeds from Notes and Loans Payable 5,275,482 2,966,103
Payment of Intangibles
(92,722) (86,345)
Proceeds from Stockholder Loans -- 63,141
Stockholders' Distributions (15,000) --
Repayment from Employee Receivable -- 7,584
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,107,185 1,355,009
----------- -----------
Net Increase in Cash and Cash Equivalents 160,099 237,492
Cash and Cash Equivalents - Beginning of Year 243,277 5,785
----------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 403,376 $ 243,277
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
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EARTHCARE CO - 8-K/A - Current Report
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RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES
================================================================================
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ----------- -----------
<S> <C> <C>
NET INCOME $ 38,030 $ 300,874
ADJUSTMENTS:
Bad Debts 16,332 24,067
Depreciation and Amortization 766,640 635,291
Increase in Life Insurance Cash Surrender Value (3,108) (8,593)
Loss on Sale of Equipment 221,562 9,750
CHANGES:
Accounts Receivable 48,709 (575,257)
Inventory 24,794 (93,573)
Deposits and Prepaid Expenses 24,996 (99,440)
Other Assets 150 (186)
Accounts Payable 25,368 315,074
Accrued Expenses (17,406) 17,227
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 1,146,067 $ 525,234
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NON-CASH ACTIVITIES
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
During 1997, Magnum Environmental Services, Inc. acquired property and $ -- $1,800,000
equipment through the issuance of a mortgage
========= ==========
During 1997, Magnum Environmental Services, Inc. entered into a service $ -- $ 50,000
contract agreement through the issuance of a note payable
========= ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The companies prepare their financial statements on the accrual basis
of accounting.
PRINCIPLES OF COMBINATION
The accompanying financial statements reflect the combined financial
statements of Magnum Environmental Services, Inc., (MES) Magnum World
Enterprises, Inc., (MWE) Magnum East Coast Properties, Ltd., (MECP)
J.A.G. Associates, Ptr., (JAG) Magnum Northeast Properties, Ltd.
(MNEP) and Magnum West Coast Properties, Ltd. (MWCP) The individual
entities have the same ownership and management and share common
facilities and personnel. All significant intercompany transactions
have been eliminated.
The financial statements for the year ended December 31, 1998 reflect
twelve (12) months of operations and transactions for all companies
listed above. The financial statements for the year ended December
31, 1997 reflect twelve (12) months of operations and transactions
for all of the companies listed above including a company merged as
of August 1, 1997 (Note G and H).
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of
deposit, and all highly liquid debt instruments with original
maturities of three months or less. The companies maintain cash and
cash equivalents at financial institutions which periodically may
exceed federally insured amounts.
INVENTORY
Inventory consists of waste oil and drums held for sale and is valued
at the lower of cost or market.
DEPOSITS AND PREPAID EXPENSES
Prepaid expenses consist of payments for truck fuel on hand, and
licenses and permits for future vehicle registrations on
transportation equipment. Also included are insurance policies for
which coverage extends into the following year. Deposits consist of
escrow payments for property taxes and down payments on leased
vehicles.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, plant and equipment is recorded at cost, less accumulated
depreciation computed on the straight line and accelerated methods
based on estimated useful lives as follows:
<TABLE>
==========================================================
----------------------------------------------------------
<S> <C>
Automobiles 5 Years
Building and Leasehold Improvements 31 - 40 Years
Computer Equipment 5 Years
Equipment - Other 5 - 15 Years
Equipment - Transportation 5 - 10 Years
Furniture and Fixtures 5 - 12 Years
Tanks 20 Years
==========================================================
</TABLE>
- continued -
F-7
<PAGE> 10
EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Maintenance and repairs are charged to expense. The cost of equipment
retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts.
AMORTIZATION
Closing costs and organization costs are amortized over 5 years.
Remaining deferred legal fees are amortized over 2 years. Loan
acquisition costs are amortized over 5 and 10 year periods according
to the duration of the various loan agreements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results can
differ from those estimates.
INCOME TAXES
Magnum Environmental Services, Inc. and Magnum World Enterprises,
Inc. have elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Magnum East Coast Properties, Ltd.,
J.A.G. Associates, Ptr., Magnum Northeast Properties, Ltd. and
Magnum West Coast Properties, Ltd. are limited partnerships. Under
those provisions, the companies do not pay corporate income taxes on
their taxable income. Instead, the stockholders/partners are liable
for individual income taxes on their respective shares of the
companies' taxable income.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year presentation.
F-8
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE B - BUSINESS ACTIVITY
Magnum Environmental Services, Inc. was incorporated in 1987 as
Magnum Tank Services, Inc. in the State of Florida and is engaged in
the environmental services industry. The company changed its name in
1997 to Magnum Environmental Services, Inc. Services include
emergency spill response and clean up of non-hazardous and hazardous
materials. The company operates a storage tank cleaning service and
an industrial transfer and collection facility for receiving, storing
and shipping industrial waters, waste petroleum products, tank
sludges and absorbent material. In addition, the company refines used
oil for resale to commercial accounts and thermally treats
non-hazardous petroleum contaminated soils. The company's operations
are subject to various federal, state and local laws and regulations
covering the discharge of material into, and protection of, the
environment. The company expends considerable resources, both
financial and managerial, to comply with environmental regulations
and permitting requirements. While risks of substantial costs and
liabilities are inherent in environmental waste product operations,
the company believes that its operations and facilities are in
general compliance with applicable environmental laws and
regulations.
Magnum World Enterprises, Inc. owns land and a building in Pompano
Beach, Florida. The corporation rents the land and building to Magnum
Environmental Services, Inc., a commonly owned corporation. The
corporation was incorporated under the laws of the State of Florida
in 1991.
Magnum East Coast Properties, Ltd. owns land and a building in
Pompano Beach, Florida. The partnership rents the land and building
to Magnum Environmental Services, Inc., which is commonly owned. The
partnership was organized in 1993.
J.A.G. Associates, Ptr. leases equipment to Magnum Environmental
Services, Inc., which is commonly owned. JAG Associates also
maintains life insurance policies on owners and stockholders which is
an integral component of a buy-sell agreement (Note J). The
partnership was organized in 1995.
Magnum Northeast Properties, Ltd. (A Limited Partnership) owns land
and a building in Fort Pierce, Florida. The partnership rents the
land and building to Magnum Environmental Services, Inc., which is
commonly owned. The partnership was organized in 1994.
Magnum West Coast Properties, Ltd. (A Limited Partnership) owns land
and a tank farm in Tampa Bay, Florida, which is leased to MES, Inc.
The partnership was organized on October 31, 1997.
F-9
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ ----------- -----------
<S> <C> <C>
Total Accounts Receivable $ 1,283,492 $ 1,347,533
Less: Allowance for Doubtful Accounts 36,000 35,000
----------- -----------
Net Accounts Receivable $ 1,247,492 $ 1,312,533
=========== ===========
</TABLE>
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ ----------- -----------
<S> <C> <C>
Automobiles $ 46,580 $ 57,226
Building 3,047,910 2,745,963
Building and Leasehold Improvements 1,125,182 1,072,931
Computer Equipment 306,773 205,924
Equipment - Other 1,816,872 1,346,404
Equipment - Transportation 3,700,257 3,379,887
Furniture and Fixtures 141,703 137,309
Tanks 2,321,144 2,299,717
----------- -----------
12,506,421 11,245,361
Less: Accumulated Depreciation 2,377,332 2,132,753
----------- -----------
10,129,089 9,112,608
Land 904,206 713,255
----------- -----------
Net Property, Plant and Equipment $11,033,295 $ 9,825,863
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1998 and 1997
was $664,160 and $524,791, respectively.
F-10
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EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE E - INTANGIBLES Intangibles consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
------------ -------- --------
<S> <C> <C>
Non-Compete Agreement $320,000 $320,000
Closing Costs 16,787 16,787
Deferred Legal Fees 26,868 26,868
Loan Acquisition Costs 259,208 166,487
Service Contract 50,000 50,000
Organization Costs 6,487 6,487
-------- --------
679,350 586,629
Less: Accumulated Amortization 254,347 151,867
-------- --------
Net Intangibles $425,003 $434,762
======== ========
</TABLE>
Amortization expense for the years ended December 31, 1998 and 1997
was $102,480 and $110,500, respectively.
During 1996, the company entered into a five (5) year non-compete
agreement with Gary Hajek, a former shareholder of the company in the
amount of $300,000. This amount is being amortized over five (5)
years.
During 1997, the company entered into a five (5) year non-compete
agreement with National Recycling Group in the amount of $20,000.
Also in 1997, the company entered into a five (5) year service
agreement with National Recycling Group in the amount of $50,000.
Each of these items are being amortized over five (5) years.
NOTE F - NOTES, LOANS AND MORTGAGES PAYABLE
Notes, loans and mortgages payable consisted of the following:
<TABLE>
<CAPTION>
Amount Due
Within One
December 31, Year 1998 1997
------------ ------- ------- -------
<S> <C> <C> <C>
Caterpillar Financial Services Corp
Capital lease payable in monthly installments of $429
including interest at 10.25%. Collateralized by
caterpillar fork-lift truck $ 4,142 $11,633 $15,372
======= ======= =======
</TABLE>
F-11
<PAGE> 14
EARTHCARE CO - 8-K/A - Current Report
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<TABLE>
<CAPTION>
Amount Due
Within One
December 31, Year 1998 1997
------------ ----------------- --------- -------
<S> <C> <C> <C>
ORIX CREDIT ALLIANCE
Various notes, collateralized by equipment, payable monthly including
interest as follows:
Interest
Payment Rate %
-----------------------------------------------------------
$ 1,702 10.22% $ 13,660 $ 74,060 $ --
$ 1,960 9.59% 18,081 86,373 --
$ 1,951 8.53% 16,145 92,464 --
$ 3,197 8.53% 26,454 151,511 --
$ 1,062 10.00% 9,728 34,455 43,259
FORD MOTOR CREDIT COMPANY
Various notes payable in monthly installments of $4,654
including interest ranging from 6.75% to 9.96%. 29,040 74,211 112,422
Collateralized by vehicles.
GMAC
Note payable in monthly installments of $590 including
interest at 9.25%. Collateralized by vehicle. 5,270 21,935 --
TPS TECHNOLOGIES, INC.
Mortgage due June, 2002, with interest only payable
monthly at 8.5%. Collateralized by property and -- 1,800,000 1,800,000
equipment.
COMMERCE BANK
Mortgage payable in monthly installments of $17,256
including interest at prime plus 0.5%. Collateralized by
inventory, property and equipment. Guaranteed by the 40,263 1,848,904 1,885,410
stockholders of MES.
Mortgage payable in monthly installments of $1,752
including interest at 8.5%. Collateralized by inventory,
property and equipment. Guaranteed by the stockholders
of MES. 4,393 197,698 --
Note payable in monthly installments of $12,420 including
interest at prime plus 1.0% Collateralized by inventory,
property and equipment. Guaranteed by the stockholders of MES. 103,650 566,874 586,885
</TABLE>
- continued -
F-12
<PAGE> 15
EARTHCARE CO - 8-K/A - Current Report
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MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE F - NOTES, LOANS AND MORTGAGES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
Amount Due
Within One
December 31, Year 1998 1997
- ------------ ---------- ---------- ----------
<S> <C> <C> <C>
COMMERCE BANK
Loan payable for construction of plant and equipment with a maximum
borrowing limit of $1,200,000, subject to bank approval. Interest
payable monthly at 9% per annum until June, 1999; monthly
installments of principal and interest of $7,615 commence in July,
1999. Collateralized by inventory, property and equipment
Guaranteed by the stockholder of MES $ 7,748 $ 846,387 --
Loan payable in monthly installments of $29,972 including interest at
9.0%. Collateralized by inventory, property and equipment. Guaranteed
by stockholders of MES
68,341 3,268,745 --
NATIONAL RECYCLING GROUP
Note payable in quarterly installments of $2,500 10,000 33,393 42,500
OTHER
Various notes refinanced during 1998 -- -- 3,307,888
GARY HAJEK
Note payable due on behalf of non-compete agreement
Principal due in three annual installments beginning
April 15, 1997 plus interest at 8% 100,000 100,000 200,000
---------- ---------- ----------
Total Notes, Loans and Mortgages Payable $ 456,915 $9,208,643 $7,993,736
---------- ---------- ----------
Amount Due Within One Year 456,915 1,488,614
---------- ----------
Amount Due After One Year $8,751,728 $6,505,122
========== ==========
</TABLE>
- continued -
F-13
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EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE F - NOTES, LOANS AND MORTGAGES PAYABLE - CONTINUED
Interest expense for the years ended December 31, 1998 and 1997 was
$799,322 and $568,573, respectively.
Maturities of debt for the five years succeeding December 31, 1998
are as follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
--------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
$ 456,915 $ 389,831 $ 410,261 $ 2,211,993 $ 343,035
=============== ============= ============== ============= ==============
</TABLE>
The Commerce Bank debt agreement contains financial covenants that
require a maximum debt to equity ratio and a ceiling on distributions
allowed. At December 31, 1998, the company was in compliance with all
covenants. The agreement also provides the company an additional line
of credit to finance purchases of equipment.
NOTE G - STOCK FOR STOCK MERGER
On August 1, 1997 Magnum Petroleum Recovery, Inc. (MPR) merged with
Magnum Environmental Services, Inc. (MES) in a non-taxable stock for
stock merger. Stockholders of MPR received .2033 shares of MES for
each share of MPR stock held. A total of 300 shares were exchanged
for 61 shares of MES. The company prior to merger had common
ownership. The financial statements contain twelve (12) months of
operations of MPR (Note A) for 1997.
NOTE H - MAGNUM PETROLEUM RECOVERY, INC. - FINANCIAL INFORMATION
Magnum Petroleum, Inc. (MPR) owned the transportation equipment and
rolling stock of the combined company through July 31, 1997. MPR
merged with MES on August 1, 1997 at which time all assets and
liabilities of MPR became the property of MES and are reflected on
the Balance Sheet of MES at December 31, 1997. Accordingly,
operations were combined from August 1, 1997 to December 31, 1997.
NOTE I - PROFIT SHARING PLAN
The company maintains a profit sharing plan which covers employees
who meet certain age and length of service requirements.
Contributions to the profit sharing plan are at the discretion of the
Board of Directors.
The profit sharing contribution for each of the years ended December
31, 1998 and 1997 was $40,000.
NOTE J - BUY-SELL AGREEMENTS
The company has buy-sell agreements in force for Magnum Environmental
Services, Inc. and the related companies. The agreements are funded
with a first to die life insurance policy in excess of $1,000,000 on
the stockholders/officers of the company.
F-14
<PAGE> 17
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE K - YEAR 2000
The company recently replaced its computer system to be year 2000
compliant. The company has not been informed of any material risks
associated with its customers regarding year 2000 compliance, however
there is no guarantee that such risks do not exist and will not have
an adverse effect on operations. Management is continuing to assess
any impact from its vendors and third party payers. Due to the nature
of the companies' operations, it is not anticipated that any impact
would be material, however the cost of a potential impact is not
determinable.
NOTE L - SUBSEQUENT EVENT
On September 1, 1999, the owners of Magnum Environmental Services,
Inc. sold all of the company's outstanding capital stock to EarthCare
Company, in exchange for cash and common stock of EarthCare.
All debt of the company was paid in full as part of the transaction.
F-15
<PAGE> 18
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
<TABLE>
<CAPTION>
TABLE OF CONTENTS
================================================================================
<S> <C>
Independent Accountant's Review Report F-17
Combined Balance Sheet at June 30, 1999 and 1998 F-18
Combined Statement of Changes in Stockholders' Equity
and Partners' Capital for the Six Months Ended
June 30, 1999 and 1998 F-19
Combined Statement of Operations for the Six Months Ended
June 30, 1999 and 1998 F-20
Combined Statement of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 F-21 - F-22
Notes to Combined Financial Statements F-23 - F-28
</TABLE>
F-16
<PAGE> 19
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
Board of Directors
Magnum Environmental Services, Inc. and Related Entities
Pompano Beach, Florida
We have reviewed the accompanying combined balance sheets of Magnum
Environmental Services, Inc. and Related Entities as of June 30, 1999 and 1998
and the related statements of operations, changes in stockholders' equity and
partners' capital, and cash flows for the six months then ended, in accordance
with standards established by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of Magnum Environmental Services, Inc. and
Related Entities.
A review consists principally of inquiries of company personnel and
analytical procedures applied to the financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order for them
to be in conformity with generally accepted accounting principals.
We have previously audited, in accordance with generally accepted
auditing standards, the combined balance sheets as of December 31, 1998 and
1997, and the related combined statements of operations, changes in
stockholder's equity and partners' capital and cash flows for the years then
ended (presented elsewhere in this filing); and in our report dated March 12,
1999, we expressed an unqualified opinion on those combined financial
statements.
Rotenberg & Company, LLP
Rochester, New York
October 5, 1999
F-17
<PAGE> 20
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED BALANCE SHEET - UNAUDITED
================================================================================
<TABLE>
<CAPTION>
June 30, 1999 1998
--------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 83,856 $ 190,467
Accounts Receivable - Net of Allowance for Doubtful Accounts of $40,000 1,338,421 1,406,555
and $24,377, respectively
Inventory 136,390 176,779
Deposits and Prepaid Expenses 96,709 207,372
--------------- ---------------
TOTAL CURRENT ASSETS 1,655,376 1,981,173
PROPERTY, PLANT AND EQUIPMENT - Net of Accumulated Depreciation 11,531,923 9,878,684
OTHER ASSETS
Intangibles - Net of Accumulated Amortization 368,926 401,395
Other 43,859 48,307
--------------- ---------------
Total Assets $ 13,600,084 $ 12,309,559
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Notes, Loans and Mortgages Payable - Due Within One Year $ 396,461 $ 494,174
Accounts Payable 682,561 802,923
Accrued Expenses 389,296 271,387
--------------- ---------------
TOTAL CURRENT LIABILITIES 1,468,318 1,568,484
OTHER LIABILITIES
Notes, Loans and Mortgages Payable - Due After One Year 8,967,703 7,467,024
--------------- ---------------
TOTAL LIABILITIES 10,436,021 9,035,508
--------------- ---------------
STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Common Stock - $1 par value, 2,000,000 Authorized,
736 Shares Issued and Outstanding 736 736
Additional Paid In Capital 1,520,790 1,520,790
Retained Earnings 1,153,817 1,240,235
Partners' Capital 488,720 512,290
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL 3,164,063 3,274,051
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL $ 13,600,084 $ 12,309,559
=============== ===============
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report
F-18
<PAGE> 21
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND PARTNERS'
CAPITAL - UNAUDITED
================================================================================
<TABLE>
<CAPTION>
Common Additional Retained Partners'
Stock Paid in Capital Earnings Capital Total
----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1997 $ 736 $ 1,520,790 $ 1,193,687 $ 524,765 $ 3,239,978
Net Income (Loss) -- -- 61,548 (12,475) 49,073
Stockholders' Distributions -- -- (15,000) -- (15,000)
----------- --------------- ----------- ----------- -----------
BALANCE - JUNE 30, 1998 $ 736 $ 1,520,790 $ 1,240,235 $ 512,290 $ 3,274,051
----------- --------------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1998 $ 736 $ 1,520,790 $ 1,241,394 $ 500,088 $ 3,263,008
Net Loss -- -- (87,577) (11,368) (98,945)
----------- --------------- ----------- ----------- -----------
BALANCE - JUNE 30, 1999 $ 736 $ 1,520,790 $ 1,153,817 $ 488,720 $ 3,164,063
=========== =============== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report.
F-19
<PAGE> 22
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED STATEMENT OF OPERATIONS - UNAUDITED
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 4,625,814 $ 4,707,038
----------- -----------
OPERATING EXPENSES
Cost of Operations $ 2,690,883 $ 2,447,660
General and Administrative 1,267,563 1,317,971
Depreciation and Amortization 398,679 375,000
----------- -----------
TOTAL OPERATING EXPENSES $ 4,357,125 $ 4,140,631
----------- -----------
Income from Operations $ 268,689 $ 566,407
Interest Expense (379,042) (389,206)
Loss on Sale of Land -- (139,855)
Other Income 11,408 11,727
----------- -----------
NET INCOME (LOSS) $ (98,945) $ 49,073
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report.
F-20
<PAGE> 23
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
COMBINED STATEMENT OF CASH FLOWS - UNAUDITED
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 4,512,469 $ 4,612,858
Cash Paid to Suppliers and Employees (3,778,646) (3,706,342)
Interest Paid 379,042 389,206
Miscellaneous Receipts 11,408 11,727
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 366,189 529,037
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases - Property, Plant and Equipment (841,230) (701,480)
Proceeds from Sale of Land -- 185,000
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (841,230) (516,480)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Debt (288,242) (1,457,667)
Proceeds from Notes and Loans Payable 443,763 1,425,129
Stockholders' Distributions -- (15,000)
Payment of Intangibles -- (17,829)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 155,521 (65,367)
----------- -----------
Net Decrease in Cash and Cash Equivalents (319,520) (52,810)
Cash and Cash Equivalents - Beginning of Period 403,376 243,277
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 83,856 $ 190,467
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report.
F-21
<PAGE> 24
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
RECONCILIATION OF NET LOSS TO NET CASH FLOWS FROM OPERATING
ACTIVITIES - UNAUDITED
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 1998
--------- ---------
<S> <C> <C>
NET INCOME (LOSS) $ (98,945) $ 49,073
ADJUSTMENTS:
Bad Debts 22,416 158
Amortization 56,077 51,196
Depreciation 342,602 323,804
Loss on Sale of Land -- 139,855
CHANGES:
Accounts Receivable (113,345) (94,180)
Inventory 15,595 --
Deposits and Prepaid Expenses 26,425 (59,242)
Other Assets 15,332 7,926
Accounts Payable (120,338) 25,392
Accrued Expenses 220,370 85,055
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ 366,189 $ 529,037
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
See Accountants Review Report.
F-22
<PAGE> 25
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The companies prepare their financial statements on the accrual
basis of accounting.
The accompanying unaudited interim financial statements reflect all
adjustments of a normal and recurring nature which are, in the
opinion of management, necessary to present fairly the financial
position, results of operations and cash flows of the Company for
the interim periods presented. The results of operations for these
periods are not necessarily comparable to, or indicative of, results
of any other interim period or for the fiscal year as a whole.
PRINCIPLES OF COMBINATION
The accompanying financial statements reflect the combined financial
statements of Magnum Environmental Services, Inc., (MES) Magnum
World Enterprises, Inc., Magnum East Coast Properties, Ltd., J.A.G.
Associates, Ptr., Magnum Northeast Properties, Ltd. and Magnum West
Coast Properties, Ltd. The individual entities have the same
ownership and management and share common facilities and personnel.
All significant intercompany transactions have been eliminated.
SEGMENT DATA, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS
The companies do business primarily in the United States. One
customer accounted for 10% of the companies' sales for the six
months ended June 30, 1999. Two customers accounted for 20% of
accounts receivable as of June 30, 1999.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially expose the companies to
significant concentrations of credit risk consist principally of
bank deposits, temporary investments and accounts receivable. Cash
is placed primarily in high quality short-term interest bearing
financial instruments and may periodically exceed federally insured
amounts.
The companies perform ongoing credit evaluations of their customers'
financial condition. An allowance for uncollectible accounts
receivable is maintained based upon the expected collectibility of
all accounts receivable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of
deposit, and all highly liquid debt instruments with original
maturities of three months or less.
INVENTORY
Inventory consists of waste oil and drums held for sale and is
valued at the lower of cost or market.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, plant and equipment is recorded at cost, less accumulated
depreciation computed on the straight line and accelerated methods
based on estimated useful lives as follows:
<TABLE>
<S> <C>
Automobiles 5 Years
Building and Leasehold Improvements 31 - 40 Years
Computer Equipment 5 Years
Equipment - Other 5 - 15 Years
Equipment - Transportation 5 - 10 Years
Furniture and Fixtures 5 - 12 Years
Tanks 20 Years
</TABLE>
Maintenance and repairs are charged to expense. The cost of
equipment retired or otherwise disposed of and the related
accumulated depreciation are removed from the accounts.- continued -
See Accountants Review Report
F-23
<PAGE> 26
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INTANGIBLES
Intangibles are recorded at cost, less accumulated amortization
based on estimated useful lives as follows:
<TABLE>
<S> <C>
Closing Costs 5 Years
Deferred Legal Fees 2 Years
Loan Acquisition Costs 5 - 10 Years
Non-Compete Agreements 5 Years
Service Contract 5 Years
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
can differ from those estimates.
INCOME TAXES
Magnum Environmental Services, Inc. and Magnum World Enterprises,
Inc. have elected to be taxed under the provisions of Subchapter S
of the Internal Revenue Code. Magnum East Coast Properties, Ltd.,
J.A.G. Associates, Ptr., Magnum Northeast Properties, Ltd. and
Magnum West Coast Properties, Ltd. are limited partnerships. Under
those provisions, the companies do not pay corporate income taxes on
their taxable income. Instead, the stockholders/partners are liable
for individual income taxes on their respective shares of the
companies' taxable income.
NOTE B - BUSINESS ACTIVITY
Magnum Environmental Services, Inc. is engaged in the environmental
services industry. Services include emergency spill response and
clean-up of non-hazardous and hazardous materials. The company
operates a storage tank cleaning service and an industrial transfer
and collection facility for receiving, storing and shipping
industrial waters, waste petroleum products, tank sludges and
absorbent material. In addition, the company refines used oil for
resale to commercial accounts and thermally treats non-hazardous
petroleum contaminated soils. The company's operations are subject
to various federal, state and local laws and regulations covering
the discharge of material into, and protection of, the environment.
The company expends considerable resources, both financial and
managerial, to comply with environmental regulations and permitting
requirements. While risks of substantial costs and liabilities are
inherent in environmental waste product operations, the company
believes that its operations and facilities are in general
compliance with applicable environmental laws and regulations.
Magnum World Enterprises, Inc. owns land and a building in Pompano
Beach, Florida. The corporation rents the land and building to
Magnum Environmental Services, Inc.
Magnum East Coast Properties, Ltd. owns land and a building in
Pompano Beach, Florida. The partnership rents the land and building
to Magnum Environmental Services, Inc.
J.A.G. Associates, Ptr. leases equipment to Magnum Environmental
Services, Inc. JAG Associates also maintains life insurance policies
on owners and stockholders.
See Accountants Review Report
F-24
<PAGE> 27
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
================================================================================
NOTE B - BUSINESS ACTIVITY - CONTINUED
Magnum Northeast Properties, Ltd. owns land and a building in Fort
Pierce, Florida. The partnership rents the land and building to
Magnum Environmental Services, Inc.
Magnum West Coast Properties, Ltd. owns land and a tank farm in
Tampa Bay, Florida, which is leased to Magnum Environmental
Services, Inc.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999 1998
-------- ------------ ------------
<S> <C> <C>
Automobiles $ 46,580 $ 54,680
Building 3,992,444 2,496,765
Building and Leasehold Improvements 1,083,767 1,163,720
Computer Equipment 380,207 283,188
Equipment - Other 1,587,762 1,534,777
Equipment - Transportation 3,748,497 3,545,546
Furniture and Fixtures 142,442 141,628
Tanks 2,330,832 2,281,074
------------ ------------
$ 13,312,531 $ 11,501,378
Less: Accumulated Depreciation 2,719,934 2,462,249
------------ ------------
$ 10,592,597 $ 9,039,129
Land 939,326 839,555
------------ ------------
Net Property, Plant and Equipment $ 11,531,923 $ 9,878,684
============ ============
</TABLE>
NOTE D - INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
June 30, 1999 1998
-------- ------------ ------------
<S> <C> <C>
Closing Costs $ 16,787 $ 16,787
Deferred Legal Fees 26,868 26,868
Loan Acquisition Costs 259,208 166,487
Non-Compete Agreement 320,000 320,000
Service Contract 50,000 50,000
------------ ------------
$ 672,863 $ 580,142
Less: Accumulated Amortization 303,937 178,747
------------ ------------
Net Intangibles $ 368,926 $ 401,395
============ ============
</TABLE>
See Accountants Review Report
F-25
<PAGE> 28
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
================================================================================
NOTE E - NOTES, LOANS AND MORTGAGES PAYABLE
Notes, loans and mortgages payable consisted of the following:
<TABLE>
<CAPTION>
Amount Due
June 30, Within One Year 1999 1998
-------- --------------- ----------- ----------
<S> <C> <C> <C>
CATERPILLAR FINANCIAL SERVICES CORP.
Capital lease payable in monthly installments of $429 including
interest at 10.3%. Collateralized by caterpillar forklift truck. $ 4,360 $ 9,616 13,550
ORIX CREDIT ALLIANCE
Various notes payable in monthly installments of $9,870 including
interest ranging from 8.53% to 10.22%. Collateralized by equipment. 85,958 395,086 38,967
FORD MOTOR CREDIT COMPANY
Various notes payable in monthly installments of $1,500 including
interest ranging from 8.75% to 9.75%. Collateralized by vehicles. 13,878 41,543 87,760
GMAC
Note payable, in monthly installments of $590 including interest at
9.25%. Collateralized by vehicle.
4,927 18,769 ---
TPS TECHNOLOGIES, INC.
Mortgage due June 2002, with interest only payable monthly at 8.5%.
Collateralized by property and equipment. --- 1,800,000 1,800,000
COMMERCE BANK
Mortgage payable in monthly installments of $17,256 including
interest at 9%. Collateralized by inventory, property and equipment.
Guaranteed by the stockholders of MES. 48,878 1,829,128 1,867,338
</TABLE>
- continued -
See Accountants Review Report
F-26
<PAGE> 29
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
================================================================================
NOTE E - NOTES, LOANS AND MORTGAGES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
Amount Due
June 30, Within One Year 1999 1998
-------- --------------- ----------- -----------
<S> <C> <C> <C>
COMMERCE BANK
Mortgage payable in monthly installments of $1,752 including
interest at 7.75%. Collateralized by inventory, property and
equipment. Guaranteed by the stockholders of MES. $ 4,742 $ 195,612 $ 199,618
Note payable in monthly installments of $12,420 including interest
at 8.75%. Collateralized by inventory, property and equipment.
Guaranteed by the stockholders of MES. 109,991 516,520 600,000
Mortgage refinanced July 1999, payable in monthly installments
including interest at 9.0%. Due September 2008. 104,064 4,441,897 3,213,965
Note payable in monthly installments of $1,376 including interest at
7.25%. Collateralized by equipment. 9,663 85,993 ---
NATIONAL RECYCLING GROUP
Note payable in quarterly installments of $2,500. 10,000 30,000 40,000
GARY HAJEK
Note payable on behalf of non-compete agreement. Principal due in
three annual installments beginning April 15, 1997 plus interest at
8%. --- --- 100,000
-------- ----------- -----------
Total Notes, Loans and Mortgages Payable $396,461 $ 9,364,164 $ 7,961,198
-------- ----------- -----------
Amount Due Within One Year 396,461 494,174
----------- -----------
Amount Due After One Year $ 8,967,703 $ 7,467,024
=========== ===========
</TABLE>
In conjunction with the sale of the stock of Magnum Environmental
Services, Inc. as disclosed in Note G, all notes, loans and
mortgages were paid in full in September 1999.
See Accountants Review Report
F-27
<PAGE> 30
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
MAGNUM ENVIRONMENTAL SERVICES, INC.
AND RELATED ENTITIES
POMPANO BEACH, FLORIDA
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
================================================================================
NOTE F - YEAR 2000
The company recently replaced its computer system to be year 2000
compliant. The company has not been informed of any material risks
associated with its customers regarding year 2000 compliance,
however there is no guarantee that such risks do not exist and will
not have an adverse effect on operations. Management is continuing
to assess any impact from its vendors and third payers. Due to the
nature of the company's operation, it is not anticipated that any
impact would be material, however the cost of a potential impact is
not determinable.
NOTE G - SUBSEQUENT EVENT
On September 1, 1999, the owners of Magnum Environmental Services,
Inc. sold all of the company's outstanding capital stock to
EarthCare Company, in exchange for cash and common stock of
EarthCare. All debt of the company was paid in full as part of the
transaction.
See Accountants Review Report
F-28
<PAGE> 31
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
(b) Pro Forma Financial Information.
The Pro Forma Financial Information required by Article 11 of
Regulation S-X is presented herewith:
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL DATA
On September 1, 1999, the Company acquired all of the outstanding
capital stock of Magnum Environmental Services, Inc., in exchange for $12.0
million in cash, 310,000 shares of the Company's registered common stock and
275,000 unregistered shares that are subject to an earn-out agreement. In
addition, the Company is required to pay the seller for working capital as of
August 31, 1999.
The actual allocation of the purchase price and the resulting effect on
income or loss from operations may differ significantly from the pro forma
amounts included herein. These pro forma adjustments represent the Company's
preliminary determination of purchase accounting adjustments and are based upon
available information and certain assumptions that the Company believes to be
reasonable. Consequently, the amounts reflected in the Pro Forma Financial
Statements are subject to change, and the final amounts may differ
substantially.
The accompanying Unaudited Pro Forma Consolidated Condensed Financial
Statements of Operations for the year ended December 31, 1998 and for the six
months ended June 30, 1999 assume that the acquisition of Magnum took place on
January 1, 1998, the beginning of the Company's fiscal year. The Pro Forma
Consolidated Condensed Statements of Operations do not include the effect of any
nonrecurring write-offs directly attributable to the acquisition. The Pro Forma
Balance Sheet gives pro forma effect to the acquisition of Magnum as if the
transaction occurred on June 30, 1999.
The accompanying pro forma information is presented for illustrative
purposes only and is not indicative of the financial position or results of
operations that may be reported in the future. The accompanying Pro Forma
Condensed Financial Statements should be read in conjunction with the historical
financial statements and related notes thereto of the Company as reported in the
annual Form 10K and the quarterly Form 10Q's and the audited and interim
reviewed financial reports included herein.
F-29
<PAGE> 32
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Magnum Transaction
Effects of Other ---------------------------
Historical 1998 and 1999 Historical Pro Forma Pro Forma
Earthcare Acquisitions (3)(a) Magnum Adjustments Consolidated
------------ ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 25,690,672 $ 14,224,100 $ 8,913,736 $ -- $ 48,828,508
------------ ------------------- ------------ ------------ ------------
Operating Expenses
Cost of Operations $ 17,907,036 $ 9,443,254 $ 4,641,639 $ -- $ 31,991,929
General and Administrative 7,509,375 3,016,817 2,476,950 -- 13,003,142
50,000(c)
Depreciation and Amortization 1,348,357 1,153,119 766,640 (110,500)(c) 3,207,616
------------ ------------------- ------------ ------------ ------------
Total Operating Expenses $ 26,764,768 $ 13,613,190 $ 7,885,229 $ (60,500) $ 48,202,687
------------ ------------------- ------------ ------------ ------------
Income (Loss) from Operations $ (1,074,096) $ 610,910 $ 1,028,507 $ 60,500 $ 625,821
Interest Expense 657,455 673,342 799,322 130,000(e) 2,260,119
Other Expense (Income) 2,101 (114,422) 191,155 -- 78,834
------------ ------------------- ------------ ------------ ------------
Income (Loss) Before
Income Taxes $ (1,733,652) $ 51,990 $ 38,030 $ (69,500) $ (1,713,132)
Provision (Benefit) for Taxes (304,562) 114,086 -- (12,273)(f) (202,749)
------------ ------------------- ------------ ------------ ------------
Net Income (Loss) $ (1,429,090) $ (62,096) $ 38,030 $ (57,227) $ (1,510,383)
============ =================== ============ ============ ============
Net Loss Per Share:
Basic and Diluted $ (.17) $ (.16)
============ ============
Average Weighted Shares
Outstanding:
Basic and Diluted 8,427,407 475,824 310,000(g) 9,213,231
============ =================== ============ ============
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
F-30
<PAGE> 33
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For The Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Magnum Transaction
Effects of ----------------------------
Historical Other 1999 Historical Pro Forma Pro Forma
Earthcare Acquisitions (3)(a) Magnum Adjustments Consolidated
------------ ------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 17,867,110 $ 1,226,695 $ 4,625,814 $ -- $ 23,719,619
------------ ------------------- ------------ ------------ ------------
Operating Expenses
Cost of Operations $ 11,219,117 $ 904,402 $ 2,690,883 $ -- $ 14,814,402
General and Administrative 4,307,077 120,661 1,267,563 -- 5,695,301
25,000(c)
Depreciation and Amortization 949,755 103,634 398,679 (56,000)(c) 1,421,068
------------ ------------------- ------------ ------------ ------------
Total Operating Expenses $ 16,475,949 $ 1,128,697 $ 4,357,125 $ (31,000) $ 21,930,771
------------ ------------------- ------------ ------------ ------------
Income from Operations $ 1,391,161 $ 97,998 $ 268,689 $ 31,000 $ 1,788,848
Interest Expense - Net 628,312 65,667 367,634 126,000(e) 1,187,613
------------ ------------------- ------------ ------------ ------------
Income (Loss) Before
Income Taxes $ 762,849 $ 32,331 $ (98,945) $ (95,000) $ 601,235
Provision (Benefit) for Taxes 159,009 12,609 -- (75,639)(f) 95,979
------------ ------------------- ------------ ------------ ------------
Income (Loss) Before
Extraordinary Item $ 603,840 $ 19,722 $ (98,945) $ (19,361) $ 505,256
============ =================== ============ ============ ============
Net Income Per Share
Before Extraordinary Item:
Basic $ .06 $ .05
============ ============
Diluted $ .06 $ .05
============ ============
Average Weighted Shares
Outstanding:
Basic 9,930,561 116,667 310,000(g) 10,357,228
============ =================== ============ ============
Diluted 10,405,636 116,667 310,000(g) 10,832,303
============ =================== ============ ============
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
F-31
<PAGE> 34
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
Unaudited Pro Forma Condensed Consolidated Balance Sheet
As of June 30, 1999
ASSETS
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
EarthCare Magnum Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Assets
Cash and Cash Equivalents $ 578,224 $ 83,856 $ -- $ 662,080
Accounts Receivable, Net of
Allowance for Doubtful Accounts 6,469,708 1,338,421 -- 7,808,129
Other Current Assets 1,843,910 233,099 -- 2,077,009
------------ ------------ ------------ ------------
Total Current Assets $ 8,891,842 $ 1,655,376 $ -- $ 10,547,218
Property and Equipment - Net of
Accumulated Depreciation 12,082,160 11,531,923 4,498,077(b) 28,112,160
Other Assets 2,475,717 43,859 -- 2,519,576
Intangibles - Net of Accumulated
Amortization 35,875,591 368,926 (368,926)(b) 35,875,591
------------ ------------ ------------ ------------
Total Assets $ 59,325,310 $ 13,600,084 $ 4,129,151 $ 77,054,545
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
F-32
<PAGE> 35
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Historical Historical Pro Forma Pro Forma
EarthCare Magnum Adjustments Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current Liabilities
Accounts Payable and
Accrued Expenses $ 6,545,345 $ 1,071,857 $ -- $ 7,617,202
Current Portion of
Long-Term Debt 259,117 396,461 (396,461)(d) 259,117
------------ ------------ ------------ ------------
Total Current Liabilities $ 6,804,462 $ 1,468,318 $ (396,461) $ 7,876,319
Long-Term Debt, Net of
Current Portion 24,702,423 8,967,703 3,659,675 (d) 37,329,801
------------ ------------ ------------ ------------
Total Liabilities $ 31,506,885 $ 10,436,021 $ 3,263,214 $ 45,206,120
------------ ------------ ------------ ------------
Stockholders' Equity
Preferred Stock, $.0001 Par;
30,000,000 Shares Authorized,
-0- Shares Issued and Outstanding -- -- -- --
Common Stock - $.0001 Par Value;
70,000,000 Shares Authorized,
10,524,365 Pro Forma Shares
Issued and Outstanding;
275,000 Shares Issued and Held
in Escrow 1,021 736 (705)(h) 1,052
Additional Paid-In Capital 28,789,152 1,520,790 2,509,179 (h) 32,819,121
Accumulated Earnings (Deficit) (971,748) 1,642,537 (1,642,537)(h) (971,748)
------------ ------------ ------------ ------------
Total Stockholders' Equity $ 27,818,425 $ 3,164,063 $ 865,937 $ 31,848,425
------------ ------------ ------------ ------------
Total Liabilities and Stockholders'
Equity $ 59,325,310 $ 13,600,084 $ 4,129,151 $ 77,054,545
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
pro forma financial statements.
F-33
<PAGE> 36
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
Notes to Pro Forma Financial Statements
1. Background
EarthCare Company ("EarthCare") was formed to act as a consolidator of
nonhazardous liquid waste businesses. From its inception on March 19,
1997 through September 1, 1999, EarthCare has acquired eleven
businesses involved in the nonhazardous liquid waste business.
2. Historical Financial Statements
The historical financial statements of the businesses acquired were
derived from the respective acquired businesses' financial statements.
All acquired businesses have a December 31 year-end, or their financial
results have been recast to a December 31 year-end, with the exception
of RGM which has an October 31 year-end. The audited historical
financial statements of Magnum are included elsewhere herein and the
other 1998 and 1999 acquired businesses financial statements have been
audited, as required, and included in previous filings with the
Securities and Exchange Commission.
3. Pro Forma Effects on the Statements of Operations - Other 1998 and 1999
Acquisitions and Magnum Pro Forma Adjustments
(a) The other 1998 and 1999 purchase business acquisitions included in
the pro forma financial presentation are as follows:
<TABLE>
<CAPTION>
Business Date Acquired
------------------------------------------------------- -------------------
<S> <C>
Ferrero Wastewater Management, Inc. ("Ferrero") January 22, 1998
A Rapid Rooter Sewer & Drain Service, Inc. ("A Rapid") February 13, 1998
Quality Plumbing and Septic ("Quality") February 17, 1998
Seagraves, Inc. (d.b.a. Browine Environmental Services,
Inc.) and Grease-Tec, Inc. ("Seagraves") March 6, 1998
RGM Liquid Waste Removal Corporation and
Affiliates ("RGM") May 1, 1998
Eldredge Wastewater Management, Inc. ("Eldredge") May 8, 1998
Reifsneider Transportation, Inc. ("Reifsneider") March 1, 1999
</TABLE>
The pro forma effects of these other 1998 and 1999 acquisitions were
derived from pro forma financial statements that were included in
previous filings with the Securities and Exchange Commission.
F-34
<PAGE> 37
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
(b) The acquisition of Magnum was accounted for by the purchase
method of accounting. Under purchase accounting, the total
purchase price is allocated to the tangible and intangible
assets and liabilities of Magnum based upon their respective
fair values as of the closing date based upon valuations and
other studies.
The estimated purchase price and preliminary allocation of the
purchase price in excess of the net assets acquired as a
result of the acquisition is as follows:
<TABLE>
<S> <C>
Purchase Price:
Fair Value of Registered Common Stock Issued $ 4,030,000
Cash Paid - Borrowings on Credit Facility 12,000,000
Estimated Additional Borrowings on
Credit Facility - Sellers Working
Capital Adjustment 627,378
-----------
Total Purchase Price $16,657,378
===========
Preliminary Allocation of Purchase Price to Fair Value
of Net Assets Acquired:
Working Capital $ 627,378
Land 3,800,000
Building and Improvements 5,650,000
Tanks and Equipment 3,140,000
Rolling Stock and Other 3,240,000
Computer Equipment and Software 100,000
Furniture and Fixtures 100,000
Intangibles --
-----------
Total $16,657,378
Less: Book Value of Assets Acquired
and Liabilities Assumed 12,528,227
-----------
Increase to Fair Value $ 4,129,151
===========
</TABLE>
The fair value of assets acquired exceeded the purchase price,
therefore intangible assets were written down to zero.
For purposes of the Pro Forma Statement of Operations the
increase in property, plant and equipment to fair value is
being depreciated over estimated useful lives of 5-35 years.
(c) Reflects additional depreciation on property and equipment
related to increases in estimated fair values and a reduction
to amortization of intangibles related to the Company's
determination to assign no value to intangible assets
previously reported by Magnum.
(d) Reflects additional borrowings from the Company's credit
facility to finance the Magnum acquisition, net of repayment
of Magnum's term debt and mortgage balances.
(e) For purposes of the Pro Forma Statement of Operations,
interest rates of 7.25% and 8.00% are being used for the
increase in debt required to purchase Magnum for the year
ended December 31, 1998 and the six months ended June 30,
1999, respectively. Reflects the increase in interest on
refinancing of debt.
F-35
<PAGE> 38
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
(f) To adjust income tax expense (benefit) for the estimated
impact of Magnum which was previously taxed as a Subchapter S
Corporation and the pro forma adjustments, both at a combined
statutory tax rate of 39%.
(g) To reflect the issuance of 310,000 shares of common stock
pursuant to the company's registration statement on Form S-1.
An additional 275,000 shares of unregistered common stock
which will be held in escrow and released to the former owners
if certain earnings targets are achieved, as described in the
agreement, are not included in issued shares.
(h) To reflect the issuance of Earthcare common stock and the
consolidation eliminations of Magnum's equity accounts.
F-36
<PAGE> 39
EARTHCARE CO - 8-K/A - Current Report
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EARTHCARE COMPANY
(Registrant)
Date: November 2, 1999 By: /s/ James E. Farrell
-------------------------------------
James E. Farrell
Vice President and Chief Financial
Officer
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
15.1 Letter regarding unaudited interim financial information
(included in exhibit 23.1)
23.1 Consent of Rotenberg and Company, LLP
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
EarthCare Company
Dallas, Texas
We consent to the incorporation by reference in this Registration Statement of
EarthCare Company on Form S-8 of our reports dated March 11, 1999, of Magnum
Environmental Services, Inc. for the years ended December 31, 1998 and 1997 and
to the reference to us under the heading "Experts" in the Prospectus, which is a
part of this Registration Statement.
With respect to the Independent Accountants Report on the unaudited interim
financial information of Magnum Environmental Services, Inc. for the six month
periods ended June 30, 1999 and 1998 dated October 5, 1999, which is
incorporated herein by reference, Rotenberg & Company, LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports and incorporated by reference
herein, they did not audit and they did not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
such information should be restricted in light of the limited nature of the
review procedures applied. Rotenberg & Company, LLP are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited interim financial information because those reports are
not "reports" on a "part" of the registration statement prepared or certified by
an accountant within the meaning of Sections 7 and 11 of the Act.
We are aware that our review reports on the unaudited interim financial
information of Magnum Environmental Services, Inc. for the six month periods
ended June 30, 1999 and 1998 dated October 5, 1999, is incorporated by reference
in this Registration Statement of EarthCare Company on Form S-8.
We are also aware that the aforementioned reports on the unaudited interim
financial information, pursuant to Rule 436(c) under the Securities Act of 1933,
is not considered a part of the Registration Statement prepared or certified by
an accountant or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of that Act.
Rotenberg & Company, LLP
Rochester, New York
November 4, 1999
