SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 2 to Current Report
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Date of Report: February 28, 1997
WASTE RECOVERY, INC.
(Exact name of Registrant as specified in its Charter)
TEXAS 75-1833498
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
309 S. PEARL EXPRESSWAY, DALLAS, TX 75201
(Address of principal executive offices) (Zip Code)
(214) 741-3865
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
- ---------------------------------------------
Item 2 as filed in Form 8-K is amended in its enterety to read as follows:
On December 9, 1996, Waste Recovery, Inc. (the "Registrant"), and its
wholly-owned subsidiary, New U.S. Tire Recycling Corp., consummated the
acquisition of U.S. Tire Recycling Partners, L.P. ("UST"). New U.S. Tire
Recycling Corp. acquired by mrger Bodner/Greenstein Capital Holdings, Inc. and
Tirus, Inc., and the Registrant, pursuant to an asset purchase agreement,
acquired the interests in Tirus Associates, L.L.C. from Environmental Venture
Fund, L.P. and Argentum Capital, L.P., thereby resulting in the transfcer of all
the partnership interests of UST. The consideration paid by the Registrant and
New U.S. Tire Recycling Corp. in the transaction consisted of approximately 3.2
million newly issued unregistered shares of Common Stock of the Registrant, and
$1,850,000 of convertible subordinated debt of the Registrant. The interest were
acquired pursuant to the terms of an Agreement and Plan of Reorganization dated
as of September 30, 1996. The Registrant will continue use of the assets
acquired in substantially the same manner as UST has in the past..
On December 16, 1996, the Registrant, through its subsidiary Waste
Recovery-Illinois, L.L.C., consummated the acquisition from Riverside Caloric
Co. ("RCC") of its 55% interest in the Waste Recovery-Illinois gneral
partnership, in which the Registrant held the remaining 45% interest. The
partnership interest waws acquired pursuant to the termws of an acquisition
agreement dated December 16, 1996 between RCC, the Registrant, and Waste
Recovery-Illinois, L.L.C. The partnership interest was acquired in exchange for
1.1 million newly issued unregistered shares of Common Stock of the Registrant
Waste Recovery-Illinois operates two facilities in Illinois that process scrap
tires into tire-derived fuel.
Item 7. Financial Statements. Pro Forma Financial Information and Exhibits.
- ----------------------------------------------------------------------------
a. Financial Statements.
--------------------
The financial statements, together with the report of
independent auditors, are included on pages F-1 through F-33
of this document.
b. Pro Forma Financial Information.
-------------------------------
The pro forma financial information is included on pages P-1
through P-7 of this document.
<PAGE>
c. Exhibits.
--------
1.1 Agreement and Plan Reorganization dated as of the 30th
day of September, 1996 by and among Waste Recovery,
Inc., New U.S. Tire Recycling Corp., U.S. Tire
Recycling Partners, L.P., Bodner/Greenstein Capital
Holdings, Inc., Tirus, Inc., Tirus Associates, L.L.C.,
Environmental Venture Fund, L.P., Argentum Capital,
L.P., and Certain Shareholders. Incorporated by
reference to Exhibit 1.1 of the Registrant's Current
Report On Form 8-K.
1.2 Partnership Purchase Agreement dated as of December 16,
1996, between Riverside Caloric Company, Waste
Recovery, Inc., and Waste Recovery-Illinois, L.L.C.
Incorporated by reference to Exhibit 1.1 of the
Registrant's Current Report On Form 8-K
1.3 Press Release issued December 2, 1996. Incorporated by
reference to Exhibit 1.1 of the Registrant's Current
Report On Form 8-K.
1.4 Press Release issued December 20, 1996. Incorporated by
reference to Exhibit 1.1 of the Registrant's Current
Report On Form 8-K.
[End of Page]
<PAGE>
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 hereunto duly authorized.
WASTE RECOVERY, INC.
DATE: February 22, 1997 /s/THOMAS L. EARNSHAW
----------------------------------------------
By: THOMAS L. EARNSHAW
President and Chief Executive Officer
(Principal Executive Officer)
<PAGE>
INDEX TO ACQUIRED BUSINESS FINANCIAL STATEMENTS
-----------------------------------------------
U.S. Tire Recycling Partners, L. P.
- -----------------------------------
Independent Auditors' Report F-1
Financial Statements:
Balance Sheets at December 31, 1995 and 1994 F-2
Statements of Income for the Two Years Ended
December 31, 1995 F-4
Statements of Partners' Capital for the Two Years Ended
December 31, 1995 F-5
Statements of Cash Flows for the Two Years Ended
December 31, 1995 F-6
Notes to Financial Statements F-7
Interim Financial Statements:
Balance Sheets as of September 30, 1996 (unaudited) F-13
And December 31, 1995
Statements of Income for the Nine Months Ended
September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) F-15
Statements of Cash Flows for the Nine Months Ended
September 30, 1996 (unaudited) and
September 30, 1995 (unaudited) F-16
Waste Recovery - Illinois
- -------------------------
Report of Independent Accountants F-17
Financial Statements:
Balance Sheets at December 31, 1995 and 1994 F-18
Statements of Operations for the Two Years Ended
December 31, 1995 F-20
Statements of Changes in Partners' Capital for the Two Years Ended
December 31, 1995 F-21
Statements of Cash Flows for the Two Years Ended
December 31, 1995 F-22
Notes to Financial Statements F-23
Interim Financial Statements:
Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 F-30
Statements of Income for the Nine Months Ended
September 30, 1996 (unaudited)
and September 30, 1995 (unaudited) F-32
Statements of Cash Flows for the Nine Months Ended
September 30, 1996 (unaudited) F-33
and September 30, 1995 (unaudited)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of U.S. Tire Recycling Partners, L.P.
Concord, North Carolina
We have audited the accompanying balance sheets of U.S. Tire Recycling Partners,
L.P. (a limited Partnership) as at December 31, 1995 and 1994, and the related
statements of income, partners' capital and cash flows for the years 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Tire Recycling Partners,
L.P. as at December 31, 1995 and 1994, and the results of its operations and its
cash flows for the years then ended.
COHEN & ROSEN, P.C.
New York, New York
February 28, 1996
F-1
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
---- ----
Current Assets:
Cash and cash equivalents (note 12) $ 202,507 $ 167,915
Accounts receivable 328,809 412,032
Prepaid expenses 13,733 30,115
Inventory (notes 1 and 2) 65,256 2,996
Due from partner (note 3) 5,052 1,417
- --------- ---------
Total current assets 615,357 614,475
--------- ---------
Property, plant and equipment (notes 1, 4, 8 and 9) 1,681,766 1,606,601
--------- ---------
Mineral reserves (notes 1 and 6) 332,222 447,778
--------- ---------
Other Assets:
Security deposits 65,385 22,272
Intangible assets (notes 1 and 7) 220,031 217,043
Due from affiliated entity (notes 5 and 11) 110,781 -
--------- ---------
Total other assets 396,197 239,315
--------- ---------
Total Assets $3,025,542 $2,908,169
========= =========
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
BALANCE SHEETS
December 31, 1995 and 1994
LIABILITIES AND PARTNERS' CAPITAL
1995 1994
---- ----
Current Liabilities:
Accounts payable and accrued expenses $ 188,692 $ 177,050
Current portion of long-term debt (note 8) 88,193 56,031
Current portion of mortgages payable (note 9) 297,619 250,000
Taxes accrued and withheld 8,346 15,463
Income taxes payable (note 1) 31,812 20,935
- --------- ---------
Total current liabilities 614,662 519,479
--------- ---------
Non-Current Liabilities:
Long-term debt (note 8) 207,325 58,177
Mortgages payable (note 9) 952,381 1,187,500
- --------- ---------
Total non-current liabilities 1,159,706 1,245,677
--------- ---------
Total Liabilities 1,774,368 1,765,156
--------- ---------
Commitments and contingencies (notes 10 and 12)
Partners' Capital 1,251,174 1,143,013
--------- ---------
Total Liabilities and Partners' Capital $3,025,542 $2,908,169
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
STATEMENTS OF INCOME
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
---------------------------- ---------------------------
% To % To
Revenues Revenues
Revenues:
Sales $ 4,453,261 97.3 $ 3,514,175 96.4
Royalties 110,437 2.4 126,332 3.5
Interest income 11,767 .3 3,809 .1
----------- ----- ----------- -----
Total revenues 4,575,465 100.0 3,644,316 100.0
----------- ----- ----------- -----
Operating Expenses:
Site expenses 2,171,759 47.5 1,534,282 42.1
Tires and freight expenses (note 11) 1,073,282 23.4 883,319 24.2
----------- ----- ----------- -----
Total operating expenses 3,245,041 70.9 2,417,601 66.3
----------- ----- ----------- -----
Operating Income 1,330,424 29.1 1,226,715 33.7
----------- ----- ----------- -----
Other Expenses:
General and administrative expenses (note 11) 141,211 3.1 188,771 5.2
Depreciation, amortization and depletion
(notes 1, 4, 6 and 7) 330,160 7.2 316,528 8.7
Interest expense (notes 8 and 9) 153,580 3.4 161,591 4.4
Supervisory management fees (note 11) 265,400 5.8 235,400 6.5
------- ----- ----------- -----
Total other expenses 890,351 19.5 902,290 24.8
----------- ----- ----------- -----
Income before provision for income taxes 440,073 9.6 324,425 8.9
Provision for income taxes (note 1) 31,912 .7 20,984 .6
- ----------- ----- ----------- -----
Net Income $ 408,161 8.9 $ 303,441 8.3
=========== ===== =========== =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C>
General Limited
Total Partner Partners
---------- --------- ----------
Partners' capital, January 1, 1994 $ 839,572 $ 8,396 $ 831,176
Net income for the year ended December 31, 1994 303,441 3,034 300,407
--------- ------- ---------
Partners' capital, December 31, 1994 1,143,013 11,430 1,131,583
Net income for the year ended December 31, 1995 408,161 4,082 404,079
Partners' capital distributions for the year ended
December 31, 1995 (300,000) - (300,000)
--------- ------- ---------
Partners' capital, December 31, 1995 $1,251,174 $ 15,512 $1,235,662
========= ======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 408,161 $ 303,441
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 182,927 159,782
Amortization 31,677 55,633
Depletion 115,556 101,111
Loss on disposal of equipment 81,648 14,062
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 83,223 (188,675)
Decrease in prepaid expenses 16,382 30,711
Increase in inventory (62,260) (2,996)
Increase in accounts payable and accrued expenses 11,642 5,870
(Decrease) increase in taxes accrued and withheld (7,117) 5,664
Increase in income taxes payable 10,877 19,351
---------- ----------
Net cash provided by operating activities 872,716 503,954
---------- ----------
Cash flows from investing activities:
(Loan to) repayment from partner (3,635) 68,313
Acquisition of property, plant and equipment (436,505) (200,421)
Proceeds from sale of equipment 96,765 7,948
Increase in security deposits (43,113) (15,706)
Payment of site license expenses (34,665) (93,246)
Loan to affiliated entity (110,781) -
---------- ----------
Net cash used in investing activities (531,934) (233,112)
---------- ----------
Cash flows from financing activities:
Partnership distributions (300,000) -
Proceeds from long-term debt 260,600 43,995
Payment of mortgage payable (187,500) (312,500)
Payments of long-term debt (79,290) (67,428)
Repayment of loan from partner - (15,220)
---------- ----------
Net cash used in financing activities (306,190) (351,153)
---------- ----------
Net increase (decrease) in cash and cash equivalents 34,592 (80,311)
Cash and cash equivalents - January 1 167,915 248,226
---------- ----------
Cash and cash equivalents - December 31 $ 202,507 $ 167,915
========== ==========
Supplemental disclosures of cash flow information:
- ----------------------------------------------------
Cash paid during the year for:
Interest $153,580 $161,591
Income Taxes $21,084 $1,633
Supplemental schedule of non-cash investing activities:
- -------------------------------------------------------
During 1994, the Company acquired a site license from an affiliated entity in
exchange for the redemption of stock ownership in that entity in the amount of
$109,364.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
Notes to Financial Statements
December 31, 1995 and 1994
Note 1: Summary of Significant Accounting Policies:
(a) Organization: U.S. Tire Recycling Partners, L.P., a limited
------------ partnership, was formed on April l, 1992 for the
purpose of acquiring land and equipment to be used in the tire
recycling business. The Company collects and receives scrap tires
from counties and other privately owned waste facilities located
throughout the southeastern portion of the United States. The
tires are sorted, examined and either sold as casings or used
tires, processed and sold as tire derived products, or shredded
and used to reclaim previously mined Company land. Additionally,
the site is being mined for sand and gravel by an outside party.
The net profit and losses and cash flows of the limited
partnership are allocated to the partners in accordance with the
Limited Partnership Agreement.
(b) Property, Plant and Equipment: Property, plant and equipment is
------------------------------ recorded at cost, and
depreciated on straight-line and accelerated methods over the
estimated useful lives of the assets.
(c) Inventory: Inventory is stated at the lower of cost determined by
---------
the first-in, first-out (FIFO) method or market.
(d) Mineral Reserves: Mineral reserve costs are capitalized and are
-----------------
being depleted based on the percentage of reserves that are
actually mined.
(e) Intangible Assets: Intangible assets are capitalized and are
------------------
being amortized on the straight-line method over their estimated
useful lives ranging from 5 to 15 years.
(f) Income Taxes: Pursuant to the Internal Revenue Code, the taxable
------------
income of the Partnership is taxed directly to the Company's
partners and not to the Company. The State of North Carolina,
however, requires the Company to pay income tax on the income
allocable to the non-resident partners.
(g) Statements of Cash Flows: For the purpose of the Statements of
-------------------------
Cash Flows, the Company considers all money market accounts to be
cash equivalents.
(h) 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
amounts reported in the financial statements and accompanying
notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
(i) Advertising Costs: Advertising costs are expensed as incurred.
------------------
Expense for the years ended December 31, 1995 and 1994 were
$3,789 and $23,983, respectively.
Note 2: Inventory:
At December 31, 1995 and 1994, inventory consists of finished goods costing
$65,256 and $2,996, respectively.
Note 3: Due from Partner:
Due from partner are non-interest bearing advances that are payable on
demand.
F-7
<PAGE>
Note 4: Property, Plant and Equipment:
At December 31, property, plant and equipment consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
1995 1994
---- ----
Land $ 602,596 $ 602,596
Land improvements 347,230 328,877
Building 40,635 40,635
Machinery and equipment 548,525 555,558
Trailers 340,813 266,773
Vehicles 165,149 128,516
Furniture and fixtures 17,475 11,135
------------ ------------
2,062,423 1,934,090
Less: accumulated depreciation and amortization 436,657 327,489
------------ ------------
1,625,766 1,606,601
Deposit on equipment 56,000 -
------------ ------------
$ 1,681,766 $ 1,606,601
============ ============
</TABLE>
Depreciation and amortization expenses charged to operations during
1995 and 1994 was $182,927 and $159,782, respectively.
Note 5: Due from Affiliated Entity:
Due from affiliated entity are non-interest bearing advances net of
repayments and offset of receivables that are payable on demand. The
balance is classified as non-current due to management not anticipating
repayment during 1996. Management has not determined the fair value of
the notes due to the additional cost involved in obtaining an
appraisal.
Note 6: Mineral Reserves:
The Company has engaged another company to mine certain parcels of land
for sand and gravel. Management estimates that 45 acres of the land can
be mined. As such, based on the allocated mineral reserve cost of
$650,000, depletion expense charged to operations during 1995 and 1994
was $115,556 and $101,111, respectively.
Note 7: Intangible Assets:
At December 31, intangible assets consists of the following:
1995 1994
---- ----
Organization costs $ 6,500 $ 256,500
Site license 237,275 202,610
Non-compete agreement 16,673 16,673
Customer list 16,673 16,673
Goodwill 12,500 12,500
289,621 504,956
Less: accumulated amortization 69,590 287,913
-------- --------
$ 220,031 $ 217,043
======== ========
Amortization expenses charged to operations during 1995 and 1994, was
$31,677 and $55,633, respectively.
F-8
<PAGE>
Note 8: Long-term Debt:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
---- ----
(a) Notes payable to finance companies in monthly installments
aggregating $5,717, including interest ranging from 7.5% to
16%, per annum, expiring through May, 1997, collateralized by
various property, plant and equipment. $ 27,883 $ 70,471
(b) Notes payable to banks in monthly installments aggregating
$8,253, including interest ranging from 8% to 10.5%, per
annum, expiring through November, 2000, collateralized by
various property, plant and equipment. 267,635 43,737
------- -------
Total long-term debt 295,518 114,208
Less: current portion 88,193 56,031
------- -------
$ 207,325 $ 58,177
</TABLE>
The annual future maturities of long-term debt are as follows:
Year ending
December 31, Amount
------------ ------
1996 $ 88,193
1997 72,689
1998 53,348
1999 51,864
2000 29,424
---- ----------
Total $ 295,518
==========
Management has not determined the fair value of the notes due to the
additional cost involved in obtaining an appraisal.
Note 9: Mortgage Payable:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
---- ----
(a) Mortgage payable to a third party in monthly installments of
interest only (approximately $7,000 per month at the prime
rate) through August, 1996. Commencing on September l, 1996,
the mortgage will be payable in monthly installments of
$16,601 including interest at the prime rate, through
August, 2003. The mortgage is collateralized by $ 1,000,000 $ 1,000,000
the land.
(b) Second mortgage payable to an affiliated entity
controlled by certain partners in quarterly
installments of $62,500 plus interest at 12%, per
annum, through December 1996. The note is
collateralized by all property, plant and equipment
and is subordinated to the first mortgage. 250,000 437,500
---------- ----------
Total mortgages payable 1,250,000 1,437,500
Less: current portion 297,619 250,000
---------- ----------
$ 952,381 $ 1,187,500
========== ==========
</TABLE>
Interest paid to the affiliated entity during 1995 and 1994 was
$43,438 and $70,625, respectively.
F-9
<PAGE>
The annual future maturities of the mortgages payable are as follows:
Year ending
December 31, Amount
------------ ------
1996 $ 297,619
1997 142,857
1998 142,857
1999 142,857
2000 142,857
Thereafter 380,953
---------
Total $1,250,000
==========
Management has not determined the fair value of the notes due to the
additional cost involved in obtaining an appraisal.
Note 10: Commitments and Contingencies:
(a) Upon filling each portion of the landfill with tires, the Company
is required to close the landfill according to regulations set by
Federal and North Carolina and County waste management
regulations. Closure costs charged to operations during 1995 and
1994 were $0 and $20,436, respectively.
(b) In order to comply with Federal, North Carolina and County waste
management regulations, the Company must obtain various licenses
and permits that expire from time to time during the course of
the year. It is management's opinion that all required licenses
and permits have been and will continue to be obtained in a
timely manner.
(c) Under the terms of an agreement to provide services to various
customers, the Company has put up $117,300 of performance bonds
that are secured by a $100,000 letter of credit from a limited
partner.
Note 11: Related Party Transactions:
(a) The Company pays the general partner, U.S. Tire Recycling Corp. a
supervisory management fee based on an agreement as follows: (1)
Base fee of $200,000, per annum, payable in semi-monthly
installments of $8,333. (2) Travel reimbursement to the general
partner. (3) A budget performance bonus as defined in the
agreement.
During 1995 and 1994, a supervisory management fee of $265,400 and
$235,400, respectively was charged to operations.
(b) During 1994, a limited partner was paid a consulting fee of
$10,000.
(c) During 1995 and 1994, the Company paid approximately $184,966 and
$20,000 to an affiliated entity for sales and services.
Note 12: Cash and Cash Equivalents:
At December 31, 1995, the Corporation had $252,765 on deposit with
South Trust Bank of Central Carolina which exceeds FDIC insurance of
$100,000.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of U.S. Tire Recycling Partners, L.P.
Concord, North Carolina
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
---------------------------------------------------------
Our audit of the basic financial statements were made primarily to form an
opinion on such financial statements taken as a whole. The supplementary
information contained on the following page is presented for the purposes of
additional analysis and, although not required for a fair presentation of
financial position, results of operations, and cash flows, was subjected to the
audit procedures applied in the audit of the basic financial statements. In our
opinion, the supplementary information is fairly presented in all material
respects in relation to the basic financial statements taken as a whole.
COHEN & ROSEN
New York, New York
February 28, 1996
F-11
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
SCHEDULES TO THE STATEMENTS OF INCOME
For the Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
---------------------------- ---------------------------
% to % to
Revenues Revenues
SITE EXPENSES:
Salaries $ 1,050,688 23.0 $ 870,822 23.9
Payroll taxes 88,902 2.0 74,895 2.0
Supplies 38,221 .8 30,512 .8
Outside labor 32,293 .7 64,538 1.8
Closure costs - .0 20,436 .6
Small tools 4,788 .1 7,954 .2
Repairs and maintenance 149,898 3.3 134,024 3.7
Loss on equipment disposal 81,648 1.8 14,062 .4
Insurance 231,456 5.1 208,866 5.7
Commissions - .0 13,257 .4
Licenses and permits 5,879 .1 197 .0
Uniforms 1,984 .0 869 .0
Real estate taxes 15,021 .3 9,443 .3
Payroll service 4,472 .1 3,634 .1
Bad debts 11,030 .3 4,708 .1
Royalties 95,423 2.1 17,701 .5
Tire disposal fees 358,593 7.8 55,923 1.5
Miscellaneous 1,463 .0 2,441 .1
---------- ---- ---------- ----
Total site expenses $ 2,171,759 47.5 $ 1,534,282 42.1
========== ==== ========== ====
TIRES AND FREIGHT EXPENSES:
Inventory - January 1 $ 2,996 .1 - $ .0
Purchases 184,966 4.0 - .0
Tire replacements 35,045 .8 30,733 .9
Independent contractors 22,950 .5 61,857 1.7
Third party trucking 698,406 15.2 625,317 17.2
Vehicle repairs 160,793 3.5 114,430 3.1
Equipment rental 22,684 .5 45,289 1.2
Shipping 10,698 .2 8,689 .2
Inventory - December 31 (65,256) (1.4) (2,996) (.1)
-- ---------- ---- ------------ ----
Total freight expenses $ 1,073,282 23.4 $ 883,319 24.2
========== ==== =========== ====
GENERAL AND ADMINISTRATIVE EXPENSES:
Advertising and promotion $ 3,789 .1 $ 23,983 .7
Postage 5,410 .1 5,571 .2
Professional fees 34,349 .8 54,853 1.5
Office expenses 9,616 .2 11,379 .3
Travel and entertainment 46,268 1.0 45,501 1.3
Utilities 16,547 .4 11,481 .3
Telephone 17,482 .4 21,288 .6
Dues and subscriptions 1,477 .0 1,724 .0
Consulting 5,473 .1 11,976 .3
Charitable contributions 800 .0 1,015 .0
---------- ---- ------------ ----
Total general and administrative expenses $ 141,211 3.1 $ 188,771 5.2
========== ==== =========== ====
</TABLE>
See independent auditors' report on supplementary information.
F-12
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
BALANCE SHEETS
ASSETS
September 30, 1996 December 31, 1995
------------------ -----------------
Current assets: (unaudited) (unaudited)
Cash and cash equivalents $ 179,352 $ 202,507
Accounts receivable 542,091 328,809
Other receivables 66,833 5,052
Inventory - 65,256
Other current assets 29,752 13,733
--------- ----------
Total current assets 818,028 615,357
--------- ----------
Property, plant and equipment 1,695,407 1,681,766
--------- ----------
Mineral reserves 288,887 332,222
--------- ----------
Other assets:
Intangible assets 51,759 220,031
Other assets 54,862 65,385
--------- ----------
Due form affiliated entity 110,781 396,197
Total other assets - 106,621
--------- ----------
Total assets $2,908,943 $ 3,025,542
========= ==========
F-13
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
BALANCE SHEETS
LIABILITIES AND PARTNERS' CAPITAL
September 30, 1996 Decembe 31,1995
------------------ ---------------
Current liabilities: (unaudited)
Accounts payable and accrued expenses $ 81,777 $ 188,692
Current portion of long-term debt 103,276 88,193
Current portion of mortgages payable 142,857 297,619
Taxes accrued and withheld 29,953 8,346
Other accrued liabilities 76,525 31,812
----------- ---------
Total current liabilities 434,388 614,642
----------- ---------
Non-Current liabilities:
Long-term debt 204,159 207,325
Mortgages payable 833,333 952,381
----------- ---------
Total non-current liabilities 1,037,492 1,159,706
----------- ---------
Total liabilities 1,471,880 1,174,368
----------- ---------
Partners' capital 1,437,063 1,251,174
----------- ---------
Total liabilities and partners' capital $ 2,908,943 $3,025,542
=========== =========
F-14
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended September 30,
1996 1995
---- ----
Revenues:
Tire-derived fuel sales $ 182,113 $ -
Royalties 78,340 79,145
Disposal fees, hauling and other 3,109,555 325,144
--------- ---------
Total revenues 3,370,008 3,402,289
Operating expenses: 1,940,168 1,862,152
--------- ---------
1,429,840 1,540,137
General and administrative expenses 495,720 453,471
Depreciation, amortization and depletion 239,387 193,068
--------- ---------
694,733 893,598
--------- ---------
Other income (expense):
Other income 686 1,720
Interest income 5,013 7,538
Interest expense (100,835) (116,184)
Supervisory management fees (161,550) (161,550)
--------- ---------
(256,686) 368,476
--------- ---------
Net income $ 438,047 $ 625,122
========= =========
F-15
<PAGE>
U.S. TIRE RECYCLING PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 438,047 $ 625,122
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 329,245 149,733
Amortization 168,272 -
Depletion 43,335 43,335
Changes in assets and liabilities:
Accounts receivable (213,282) (7,533)
Other receivables (61,781) 7,656
Inventory 65,256 (55,567)
Other current assets (16,019) (92,378)
Other assets 10,523 6,789
Accounts payable and accrued expenses (30,390) 28,775
Other accrued liabilities 21,607 71
Income taxes payable (31,812) (20,395)
---------- ---------
Net cash provided by operating activities 723,001 685,068
---------- ---------
Cash flows from investing activities:
Acquisition of property, plant and equipment (342,886) 138,657
Repayment of loan from affiliated entity 110,781 -
---------- ---------
Loan to affiliates - (202,351)
Net cash used in investing activities (232,105) 341,008
---------- ---------
Cash flows from financing activities:
Partnership distributions (252,158) (150,000)
Proceeds from long-term debt 15,083 83,160
Payment of mortgage payable (273,810) -
Payments of long-term debt (3,166) (130,618)
---------- ---------
Net cash used in financing activities (514,051) (197,458)
---------- ---------
Net increase (decrease) in cash and cash equivalents (23,155) 146,602
Cash and cash equivalents at beginning of period 202,507 167,915
---------- ---------
Cash and cash equivalents at end of period $ 179,352 $ 314,517
========== =========
</TABLE>
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Partners of Waste Recovery - Illinois
(An Illinois General Partnership)
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Waste
Recovery - Illinois (An Illinois General Partnership) at December 31, 1995 and
1994, and the results of its operations and cash flows for the years then ended,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 27, 1996
F-17
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
<TABLE>
<CAPTION>
<S> <C>
1995 1994
---- ----
Current Assets:
Cash and cash equivalents $ 464,184 $ 2,669,079
Investments - 4,253,322
Accounts receivable, trade 125,956 -
Interest receivable 10,565 164,095
Receivable from Waste Recovery, Inc. (note 12) 55,237 81,083
Inventories (notes 2 and 4) 294,788 58,797
Other current assets (note 4) 265,166 60,327
- ---------- ----------
Total current assets 1,215,896 7,286,703
---------- ----------
Property, plant and equipment (notes 3, 6 and 8) 9,219,615 107,786
Less accumulated depreciation (311,153) -
---------- ----------
Net property, plant and equipment 8,908,462 107,786
---------- ----------
Construction in progress - 3,012,628
Preoperating costs 256,888 179,493
Restricted cash (note 5) 1,429,476 1,366,400
Industrial revenue bond issuance costs, less accumulated
amortization of $119,068 and $23,813 at December 31, 1995
and 1994, respectively 435,800 524,055
Other assets, less accumulated amortization of $5,780 and $2,156
at December 31, 1995 and 1994, respectively 66,783 70,357
--- ---- ----- ---------- ----------
$12,313,305 $12,547,422
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
BALANCE SHEETS
December 31, 1995 and 1994
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
<S> <C>
1995 1994
---- ----
Current Liabilities:
Current installments of bonds payable (note 8) $ 760,000 $ -
Current installments of long-term debt (note 6) 14,846 10,436
Accounts payable 321,376 647,271
Bond interest payable 240,365 192,292
Other accrued liabilities 60,474 -
Deferred grant revenue (note 7) 356,328 800,000
- ---------- ----------
Total current liabilities 1,753,389 1,649,999
---------- ----------
Bonds payable, excluding current installments (note 8) 8,115,000 8,875,000
Long-term debt, excluding current installments (note 6) - 5,564
Deferred grant revenue, noncurrent (note 7) 914,219 -
- ---------- ----------
Total liabilities 10,782,608 10,530,563
---------- ----------
Partners' capital (notes 4 and 9) 1,530,697 2,016,859
- - ---------- ----------
Commitments and contingencies (notes 8, 10, 11 and 15)
$12,313,305 $12,547,422
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C>
1995 1994
---- ----
Revenues:
Tire-derived fuel sales (notes 11 and 12) $ 539,616 $ -
Wire sales 12,009 -
Disposal fees, hauling, and other revenue (note 12) 545,132 -
---------- --------
Total revenues 1,096,757 -
Operating expenses 1,115,976 -
---------
(19,219) -
General and administrative expenses 271,462 24,472
Depreciation and amortization 412,531 25,969
--------- --------
(703,212) (50,441)
--------- --------
Other income (expense):
Interest income 18,371 5,418
Interest expense (155,358) -
Grant income (note 7) 95,357 -
--------- --------
(41,630) 5,418
--------- --------
Net loss $ (744,842) $ (45,023)
========== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C>
Riverside Caloric Waste
Company Recovery, Inc. Total
------- -------------- -----
Balances at December 31, 1993 $1,000,000 $ - $1,000,000
Contributions from partners (note 9) 1,000,000 61,882 1,061,882
Net loss (24,763) (20,260) (45,023)
--------- ------- ---------
Balances at December 31, 1994 1,975,237 41,622 2,016,859
Contributions from partner (note 4) - 258,680 258,680
Net loss (409,663) (335,179) (744,842)
--------- ------- ---------
Balances at December 31, 1995 $1,565,574 $(34,877) $1,530,697
========= ======= =========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
---- ----
Cash flows from operating activities:
Net loss $ (744,842) $ (45,023)
Adjustments to reconcile net loss to net cash used by operating
activities: 311,153 -
Depreciation
Amortization 101,378 25,969
Preoperating expenses 26,213 -
Deferred grant income (95,357) -
Changes in assets and liabilities:
Accounts receivable, trade (125,956) -
Inventories 22,689 3,085
Other current assets (4,839) (41,370)
Payment of bond issuance costs (7,000) (547,868)
Other assets (2,549) (72,513)
Accounts payable (325,895) 13,148
Bond interest payable 48,073 -
Other accrued liabilities 60,474 -
--------- ----------
Net cash used by operating activities (736,458) (664,572)
--------- ---------
Cash flows from investing activities:
Cash placed in investment accounts - (7,396,918)
Cash payments out of investment accounts 4,406,852 3,119,441
Cash placed in restricted cash (63,077) (1,366,400)
Receivable from Waste Recovery, Inc. 25,846 (100,040)
Purchases of property, plant and equipment (453,112) (107,786)
Additions to construction in progress (5,646,087) (1,922,817)
Preoperating costs (103,608) (179,493)
Deferred grant revenue 365,903 800,000
---------- ----------
Net cash used by investing activities (1,467,283) (7,154,013)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of bonds payable - 8,916,664
Proceeds from issuance of long-term debt 18,000 16,000
Proceeds from partner's contribution - 1,000,000
Payments on long-term debt (19,154) -
--------- ----------
Net cash provided (used) by financing activities (1,154) 9,932,664
------ ---------
Net increase (decrease) in cash and cash equivalents (2,204,895) 2,114,079
Cash and cash equivalents at beginning of year 2,669,079 555,000
--------- -------
Cash and cash equivalents at end of year $ 464,184 $ 2,669,079
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
Notes to Financial Statements
December 31, 1995 and 1994
Note 1: Summary of Significant Accounting Policies:
(a) Organization and Operations. Waste Recovery - Illinois, an
-----------------------------
Illinois general partnership (the Partnership), was formed
November 29, 1993, to jointly build and operate two tire-derived
fuel processing facilities in Dupo and Marseilles, Illinois
(Illinois plants). The facilities, which cost approximately $5
million each and began operations in the fall of 1995, supply
Illinois Power Company (Illinois Power) at its Baldwin facility
(Baldwin) with 60,000 tons of TDF annually over a five year
period. The Illinois Power contract accounts for 50% of the
facilities' estimated production capacity.
The Partnership specializes in processing scrap tires into a
refined fuel supplement more commonly referred to as tire-derived
fuel (TDF). The Partnership generates income from the sale of TDF
and from tipping fees charged for the disposal of tires. The
Partnership's operations are presently in Illinois and nearby
states.
The managing partner of the Partnership is Waste Recovery, Inc.
(WRI), a Texas corporation, which has a 45% interest in the
Partnership; Riverside Caloric Company (RCC), an Indiana
corporation, has a 55% interest in the Partnership.
(b) Management Estimates. The preparation of financial statements in
--------------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(c) Cash and Cash Equivalents. The Partnership considers all
----------------------------
unrestricted cash and highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
(d) Investments. In 1994, the bond proceeds were invested into
-----------
various interest-bearing accounts for periods ranging from
approximately 30 days to 16 months, with interest rates varying
from 4.25% to 8.875% per annum. Investments with maturity dates
greater than one year (approximately $148,760) are included in
restricted cash in the accompanying 1994 balance sheet. The
investments matured during 1995, and the proceeds were used for
the construction of the plants.
(e) Inventories. Parts inventory represents primarily the cost of the
-----------
grinder knives and machinery parts used in the TDF manufacturing
process. These inventories are stated at cost (first-in,
first-out) and are depreciated over the useful lives of these
parts, generally six to eighteen months.
TDF inventory is stated at the lower of cost or market. Cost is
determined using a weighted average cost method.
(f) Property, Plant and Equipment. Property, plant and equipment are
-----------------------------
stated at cost. Depreciation of property, plant and equipment is
calculated using the straight-line method over the estimated
useful lives of the assets (generally three to ten years),
beginning at the point in time the assets are placed in service.
No depreciation was recorded in 1994 as the assets had not been
placed in service or were acquired at the end of the year.
F-23
<PAGE>
(g) Construction in Progress. Construction of the Illinois plants
-------------------------
began in 1994; Dupo was completed in September 1995, and
Marseilles was completed in October 1995. The costs incurred to
build the plants and equipment were capitalized as construction
in progress until the projects were completed and individual
assets could be identified, at which time, the assets were
transferred into property, plant and equipment.
(h) Preoperating Costs. Preoperating costs represent those costs
-------------------
incurred in the planning, engineering and development of the
Illinois plants. These costs are being amortized over three years
on a straight-line basis, beginning with the operation of the
plants.
(i) Bond Issuance Costs. Bond issuance costs are recorded at cost and
-------------------
amortized over the life of the associated debt using the amount
of bonds outstanding method.
(j) Other Assets. Other assets are recorded at cost and consist
-------------
mainly of prepaid, additional rent for the land at the Dupo
plant, which is being amortized over the term of the lease, and
bank finance fees, which are being amortized over the term of the
bonds.
(k) Deferred Grant Revenue. The Partnership has an agreement whereby
-----------------------
it has earned $1,000,000 in grants from the State of Illinois
with the successful completion of certain pieces of equipment at
the Illinois plants. As of December 31, 1994, the Partnership had
received $800,000 from these grants; the remaining $200,000 is
included in other current assets as of December 31, 1995, and was
received in January 1996. The grant money is being amortized,
beginning when the plants were placed in operation, through the
term of the grants, which is July 31, 1999.
In 1995, the Partnership also received $365,903 through a grant
awarded to the Illinois Power Company for the construction and
installation of a metering unit at Illinois Power. Twenty percent
of the total amount of the grant is being retained pending
satisfaction of certain operational requirements. Ownership of
the metering unit reverts to Illinois Power at the end of the
contract.
(l) Income Taxes. No provision or credit for federal income taxes has
------------
been made because income taxes are the responsibility of the
individual partners. The net difference between the tax bases and
the reported amounts of the Partnership's assets and liabilities
is approximately $700,000 at December 31, 1995.
(m) Statements of Cash Flows. During 1995, the Partnership paid
-------------------------
$530,447 for interest and did not pay any income taxes. Interest
expense totaled $578,899 and interest income totaled $207,079 for
the year ended December 31, 1995. Of these amounts, $188,708 of
interest expense was offset against eligible interest income, and
$234,833 was capitalized into the cost of construction.
The Partnership did not pay any interest or income taxes during
1994. Interest expense totaled $150,629 and interest income
totaled $145,359 for the year ended December 31, 1994. Of these
amounts, $139,941 of interest expense was offset against eligible
interest income, and $10,688 was capitalized into the cost of
construction.
(n) Reclassification. Certain 1994 amounts have been reclassified to
-----------------
conform to the 1995 presentation.
F-24
<PAGE>
Note 2: Inventories:
Inventory components at December 31, 1995 and 1994 are as follows:
1995 1994
---- ----
Manufactured fuel inventory $ 28,891 $58,797
Wire inventory 5,595 -
Work in progress 104,816 -
Parts inventory 155,486 -
------- ------
294,788 $58,797
======= ======
Inventory at December 31, 1994 consisted of TDF contributed by WRI's
Portland and Houston plants.
Note 3: Property, Plant and Equipment:
Property, plant and equipment at December 31, 1995 and 1994 are
summarized as follows:
1995 1994
---- ----
Land $ 72,208 $ 47,836
Buildings 1,114,140 -
Tire processing equipment 5,511,681 -
Hauling equipment 264,928 34,023
Metering unit 589,210 -
Shop tools and yard equipment 66,789 -
Furniture and fixtures 92,100 6,530
Leasehold improvements 1,443,686 -
Vehicles 64,873 19,397
--------- -------
$9,219,615 $107,786
========= =======
Note 4: Noncash Activities:
The Partnership received $258,680 and $61,882 in TDF inventory from
Waste Recovery, Inc. in 1995 and 1994, respectively. In 1994, the
related shipping charges of $18,957 were recorded in other current
assets. The $258,680 and $61,882 were recorded as contributions by WRI
and the $18,957 was recorded as an intercompany transaction with WRI.
Note 5: Restricted Cash:
Under terms of the bond agreements (see note 8), the Partnership is
required to maintain cash balances for the debt service reserve funds
which have certain withdrawal restrictions. The amounts reserved at
December 31, 1995 and 1994, were $1,429,476 and $1,366,400,
respectively. Interest earned on this restricted cash may only be used
for payment of current debt service on the bonds.
Note 6: Long-term Debt:
Long-term debt at December 31, 1995 and 1994, consists of two notes
payable to a financial institution. The notes are payable in eighteen
equal installments of principal and interest at $951 and $1,074 per
month with interest at 8.5% per annum. The notes are collateralized by
vehicles and will be fully paid in June and December 1996,
respectively.
Note 7: Deferred Grant Revenue:
The Partnership (Grantee) entered into two grant agreements with the
Illinois Department of Commerce and Community Affairs (Department)
(formerly, the Illinois Department of Energy and Natural Resource) as
of June 1, 1994. The Department administers the Used Tire Recovery
Program which offers financial incentives for projects which reuse,
recycle or recover energy from Illinois used or scrap tires.
F-25
<PAGE>
The Partnership requested funding assistance to build its TDF
processing plants in Dupo and Marseilles, Illinois. The Department
agreed to provide grants towards the Partnership's "projects," as
defined. The Grantee agrees that at least 30% of the scrap tires it
processes will come from Illinois sources, and that a minimum of one
million Illinois PTE's (passenger tire equivalents), as defined, will
be collected and processed annually at each plant. The Department
awarded the Grantee $1,000,000 towards specified equipment ($500,000 at
each plant), payable at 80% ($800,000) as based upon the specified
equipment budget. The Department held back 20% of the funds as a
retainer until verification that all equipment purchased with Grant
Funds, as defined, had been installed and was operational. As of
December 31, 1995, the 20% retainage ($200,000) had been applied for
and was received in January 1996.
The term of the grants is through July 31, 1999, and requires the
Partnership to maintain the equipment for the purpose as originally set
forth in the agreement, to provide the Department with semi-annual
reports, and to meet certain other listed criteria.
The Partnership received additional funding through a grant awarded to
the Illinois Power Company for the construction of a metering unit at
the Baldwin Power Plant of the Illinois Power Company. The Partnership
has received 80% of this award ($365,903) as of December 31, 1995, and
approximately 20% is being retained pending satisfaction of certain
operational requirements. This award is being amortized through the
remainder of the contract with Illinois Power, which is through July
1999.
As of December 31, 1995, $1,270,547 of the total grant money recognized
is recorded as deferred grant revenue in the accompanying balance sheet
and is being amortized into income through July 31, 1999, at
approximately $30,000 per month.
Note 8: Bonds Payable:
To provide funding for the construction of the Dupo and Marseilles
plants, the Partnership entered into two loan agreements: 1) $4,845,000
with the Southwestern Illinois Development Authority (SWIDA) and 2)
$4,030,000 with the Upper Illinois River Valley Development Authority
(UIRVDA) (together, the Bonds), respectively. The Bonds were issued
through the Solid Waste Disposal Revenue Bonds, Series 1994 (Waste
Recovery - Illinois Project) dated September 1, 1994, under an
Indenture of Trust. The proceeds to the Partnership were to fund a debt
service reserve fund, to pay the costs of issuing the Bonds, to pay
interest during construction, and to finance the cost of the
construction of buildings and related improvements and the acquisition
and installation of machinery, equipment and related property, all
constituting industrial, commercial and solid waste disposal facilities
located at Dupo and Marseilles, Illinois.
The notes bear interest at 6.5% per annum with interest payable
February 1 and August 1 each year, beginning February 1, 1995.
Principal payments are due annually on February 1 beginning in 1996
through 2004.
The notes are collateralized by the property, plant and equipment of
the Partnership and are guaranteed by Waste Recovery, Inc. Future
minimum payments as of February 1 each year are as follows:
YEAR SWIDA UIRVDA TOTAL
1996 $ 415,000 $ 345,000 $ 760,000
1997 440,000 365,000 805,000
1998 470,000 390,000 860,000
1999 500,000 415,000 915,000
2000 530,000 440,000 970,000
Thereafter 2,490,000 2,075,000 4,565,000
--------- --------- ---------
Total $4,845,000 $4,030,000 $8,875,000
========= ========= =========
Note 9: Partners' Capital:
(a) Capital Contributions. At the execution of the Partnership
----------------------
Agreement (Agreement), RCC contributed $1,000,000 to the
Partnership. RCC contributed an additional $1,000,000 with the
closing of the SWIDA and UIRVDA bond issues. WRI contributed a
license of its technology and assigned the Partnership all of its
right, title and interest in the contract with Illinois Power
Company (see note 11). After the completion and start-up of the
facilities in 1995, WRI received $750,000 from the Partnership
for the construction of equipment used by the Partnership.
F-26
<PAGE>
The records of the Partnership maintain separate capital accounts
for each partner which are credited with the cash and the gross
asset value, as defined, of property contributed by the partner
to the Partnership and the partner's share of partnership profit
and are charged with the partner's share of partnership loss,
cash and property distributions and the gross asset value of
property distributed to the partner by the Partnership and the
partner's share of the nondeductible expenses to the Partnership.
No other capital contributions are required.
(b) Ownership Interests. The interests in the assets, liabilities,
--------------------
profits and losses of the Partnership shall be as follows:
RCC 55%
WRI 45%
(c) Loans. Neither partner shall be obligated to lend any money to
-----
the Partnership. No such monies shall be borrowed from the
partners without the approval of the Executive Committee. Each
loan by a partner shall be an obligation of the Partnership. On
January 30, 1996, Waste Recovery, Inc., a General Partner, loaned
$500,000 to the Partnership. The loan was approved by the
Executive Committee of the Partnership. Terms of the note are in
the process of being finalized and will be defined on an arm's
length basis.
(d) Distributions of Net Cash Flow. Within 30 days after the end of
-------------------------------
each fiscal quarter ending after the Operating Date, as defined,
100% of the Net Cash Flow, as defined, of the Partnership for
such quarter, or a lesser amount as determined by the Executive
Committee, shall be distributed to the partners pro rata in
proportion to their respective percentage interests in the
Partnership. As of December 31, 1995, no such distributions have
been made.
(e) Distributions of Proceeds from a Capital Event. Net Capital Event
----------------------------------------------
Proceeds, as defined, shall be distributed to the partners first,
100% to RCC until it has received $2,000,000 of distributions,
and second, 100% to WRI until it has received $2,000,000 of
distributions. Thereafter, any remaining balance is distributed
in accordance with the percentage interests. As of December 31,
1995, no such distributions have been made.
(f) Allocations of Profit, Loss and Credits. Profits, losses and
------------------------------------------
credits of the Partnership shall be allocated in accordance with
the Partnership agreement, which provides for the partners'
capital account balances and certain other defined circumstances.
(g) Buydown and Buyout Options. WRI has the option to purchase a
----------------------------
portion of RCC's partnership interest in the Partnership to
reduce RCC's interest to 50% based upon certain specified dates
throughout the first five years of operations. WRI also has the
option to purchase all of RCC's interest based upon certain
defined criteria. As of December 31, 1995, no such options have
been exercised.
(h) Sale Option. RCC has the option to require Waste Recovery, Inc.
-----------
to purchase RCC's entire partnership interest in the Partnership
for a purchase price, as defined. This option may be exercised at
any time on or after the third anniversary of the operating date
and prior to the fifth anniversary of the operating date. WRI may
purchase RCC's interest under the sale option in either cash or
WRI common stock at WRI's election.
F-27
<PAGE>
(i) Management of the Partnership. Each partner has the right to
----------
appoint two members to an Executive Committee, which provides for
overall management of the Partnership and gives approval to
actions requiring such. WRI is the designated Manager of the
Partnership and manages the day-to-day operations subject to the
direction and control of the Executive Committee. WRI receives a
monthly administrative fee of $4,000 from the Partnership and a
management fee in an amount equal to 5% of the Partnership's net
income for a fiscal year, as determined.
As of December 31, 1995, WRI has been paid $12,000 in
administrative fees; no management fees have been earned.
(j) Dissolution. Dissolution of the Partnership will occur on the
-----------
earlier of December 31, 2023, or upon certain other defined
events.
Note 10: Leases:
The Partnership leases the land for the Dupo facility from the Village
of Dupo under a non-cancelable operating lease. The lease began on
September 27, 1994, with the issuance of the Southwestern Illinois
Development Authority Bond. The lease term is twenty years at $1,000
per month. The Partnership also prepaid $50,000 in "additional rent,"
as defined, which is being amortized over the term of the lease.
A summary of the minimum rental commitment under this noncancelable
operating lease as of December 31, 1995 is as follows:
Year ending December 31
1996 $ 12,000
1997 12,000
1998 12,000
1999 12,000
2000 12,000
Later years through 2014 165,000
---- --------
Total minimum payments $ 225,000
========
Total rental expense for the land in Dupo and various equipment rentals
for the year ended December 31, 1995, was $36,718.
Note 11: Significant Contracts:
The Partnership entered into a contract with the Illinois Power Company
on October 12, 1993, to supply it with at least 60,000 tons of TDF per
year for a period of five years. If the Partnership is unable to
fulfill this requirement, WRI will sell TDF produced at its other
facilities to the Partnership. Sales to Illinois Power of TDF produced
in Dupo began in September 1995.
Note 12: Business and Credit Concentrations:
During 1995, the Partnership derived revenues of $336,382 in disposal
fees from WRI for approximately 7,514 tons of tires received in Dupo
from a WRI project. As of December 31, 1995, WRI owed the Partnership
$55,237 from these disposal fees.
The Partnership's tire-derived fuel sales were exclusively to Illinois
Power Company (see note 11) and amounted to 49% of the total 1995
revenues.
The Partnership's customers are located in the Midwestern and Eastern
United States. The Partnership does business with a variety of
companies with diverse credit risk. The Partnership does not generally
require collateral or other security from its customers and has
encountered very little loss on its receivables.
Note 13: Fair Value of Financial Instruments:
The fair value of the Partnership's current assets, restricted cash and
accounts payable approximates the recorded amounts because of the
liquidity and short maturity of these instruments.
It is not practicable to estimate the fair value of the Partnership's
long-term debt as it is a unique debt instrument for which there is no
public market.
F-28
<PAGE>
Note 14: Profit Sharing Plan:
The employees of the Partnership may participate in the Waste Recovery,
Inc., 401(k) Plan (the Plan), a defined contribution plan. Employees
who have completed six months of service and have attained the age of
twenty-one are eligible to become participants in the Plan.
Participants may contribute up to 15% of their compensation, as
defined, annually. Any employer contributions are totally
discretionary; none were made during 1995.
Note 15: Contingencies:
Like other waste management companies, the Partnership's operations are
subject to extensive and changing federal and state environmental
regulations governing emissions into the atmosphere, wastewater
discharges, solid and hazardous waste management activities and site
restoration and abandonment activities. As of December 31, 1995, no
such costs had been accrued and management does not believe the affects
of the aforementioned activities will have a material effect on the
Partnership's financial statements.
[End of Page]
F-29
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
<S> <C>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 13,177 $ 464,184
Accounts receivable, trade 560,485 125,956
Interest receivable 5,896 10,565
Receivable from Waste Recovery, Inc. - 55,237
Inventory 333,547 294,788
Other current assets 76,092 265,166
------------ -----------
Total current assets 989,197 1,215,896
------------ -----------
Property, plant and equipment 9,264,796 9,219,615
Less accumulated depreciation (1,137,379) (311,153)
------------ -----------
Net property, plant and equipment 8,127,417 8,908,462
------------ -----------
Preoperating costs 186,113 256,888
Restricted cash 1,364,743 1,429,476
Industrial revenue bond issuance costs,
less accumulated amortization of $182,090 372,778 435,800
Other assets, less accumulated amortization of $12,247 64,765 66,783
------------ -----------
$ 11,105,013 $ 12,313,305
============ ===========
</TABLE>
F-30
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
BALANCE SHEETS
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
<S> <C>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
Current liabilities:
Current installments of bonds payable $ 805,000 $ 760,000
Current installments of long-term debt - 14,846
Accounts payable 360,836 321,376
Bond interest payable 87,913 240,365
Payable to Waste Recovery, Inc. 1,152,427 -
Other accrued liabilities 82,505 60,474
Deferred grant revenue 296,940 356,328
----------- -----------
Total current liabilities 2,785,621 1,753,399
----------- -----------
Bonds payable, excluding current installments 7,310,000 8,115,000
Deferred grant revenue, noncurrent 792,755 914,219
----------- -----------
Total liabilities 10,888,377 10,782,608
----------- -----------
Partners' capital 216,637 1,530,697
----------- -----------
$ 11,105,013 $ 12,313,305
=========== ===========
</TABLE>
F-31
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Revenues:
Tire-derived fuel sales $ 782,612 $ 408,350
Wire sales 124,553 -
Disposal fees, hauling and other revenue 1,980,409 143,039
------------ -----------
Total revenues 2,887,574 551,389
Operating expenses 2,683,055 476,257
------------ -----------
204,519 75,132
General and administrative expenses 522,024 84,223
Depreciation and amortization 893,852 106,579
------------ -----------
(1,211,357) (115,670)
------------ -----------
Other income (expense):
Interest income 53,080 34,060
Interest expense (428,111) (44,783)
Other expense - (3,207)
Grant income 272,328 6,275
------------ -----------
Total other income (expense) (102,703) (7,655)
------------ -----------
Net loss $ (1,314,060) $ (123,325)
=========== ===========
</TABLE>
F-32
<PAGE>
WASTE RECOVERY - ILLINOIS
(AN ILLINOIS GENERAL PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net loss $ (1,314,060) $ (123,325)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 895,916 106,580
Deferred grant income (180,852) 6,275
Preoperating expenses 70,775 -
Changes in assets and liabilities:
Accounts receivable, trade (434,529) (59,837)
Inventories (38,759) 147,585
Other current assets 189,074 (137,173)
Other assets (4,651) (24,717)
Payable to Waste Recovery, Inc. 1,207,664 725,111
Accounts payable 39,461 (464,754)
Other accrued liabilities 22,031 16,802
Bond interest payable (152,452) (96,145)
------------- -----------
Net cash provided by operating activities 299,618 78,852
------------- -----------
Cash flows from investing activities:
Cash payments out of restricted cash 69,402 4,363,441
Preoperating Costs - (100,987)
Purchases of property, plant and equipment (45,181) (5,206,851)
Additions to construction-in-progress - (783,374)
Deferred grant revenue - 365,904
------------- -----------
Net cash provided by investing activities 24,221 1,361,867
------------- -----------
Cash flows from financing activities:
Proceeds from long-term debt - 18,000
Payments of long-term debt (14,846) (13,494)
Payment of bonds payable (760,000) -
------------- -----------
Net cash provided (used) by financing activities (774,846) 4,506
------------- -----------
Net increase (decrease) in cash and cash equivalents (451,007) 1,278,509
Cash and cash equivalents at beginning of period 464,184 2,669,079
------------- -----------
Cash and cash equivalents at end of period $ 13,177 $ 1,390,570
============= ===========
</TABLE>
F-33
<PAGE>
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
WASTE RECOVERY, INC.
<TABLE>
<CAPTION>
<S> <C>
Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1995 (Unaudited) P-1
Notes to Pro Forma Consolidated Statement of Operations (Unaudited) P-2
Pro Forma Consolidated Statement of Operations for the Nine Months Ended
September 30, 1996 (Unaudited) P-3
Notes to Pro Forma Consolidated Statement of Operations (Unaudited) P-4
Pro Forma Consolidated Balance Sheet as of September 30, 1996 (Unaudited) P-5
Notes to Pro Forma Consolidated Balance Sheet (Unaudited) P-7
</TABLE>
<PAGE>
WASTE RECOVERY, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited Pro Forma Consolidated Statements of Operations of Waste
Recovery, Inc. (the Company) for the year ended December 31, 1995 and the nine
months ended September 30, 1996 (Pro Forma Statements) have been prepared as if
the acquisitions and related financings had occurred at the beginning of 1995
for the statement of operations data, and as of September 30,1996 in the case of
balance sheet data.
The Pro Forma Consolidated Statement of Operations for the year ended December
31, 1995 is based upon the historical financial statements of U.S. Tire
Recycling Partners L.P. (U.S. Tire) for the year ended December 31, 1995, the
historical financial statements of Waste Recovery-Illinois, a general
partnership, (WR-Illinois) for the year ended December 31, 1995, and the
historical consolidated financial statements of the Company for the year ended
December 31, 1995. The Pro Forma Consolidated Statement of Operations for the
nine months ended September 30, 1996 is based upon the historical financial
statements of U.S. Tire for the nine months ended September 30, 1996, the
historical financial statements of WR-Illinois for the nine months ended
December 31, 1995, and the historical consolidated financial statements of the
Company for the year ended December 31, 1995.
The Pro Forma Statements presented herein are not necessarily indicative of the
Company's financial condition or results of operations that might have occurred
had such transactions been completed at the beginning of 1995 or as of the date
specified, and do not purport to indicate the Company's consolidated financial
position or results of operations for any future date or period.
The acquisitions have been accounted for using the purchase method of
accounting. The unaudited pro forma adjustments described in the notes to the
Pro Forma Statements reflect the preliminary estimated allocation of the
purchase price to assets and liabilities and are subject to final determination.
The amounts reflected in the Pro Forma Statements may differ from the amounts
ultimately determined.
<PAGE>
WASTE RECOVERY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Historical Pro Forma
----------------------------------------------- -----------------------
Waste Recovery, Inc.
Waste U.S. Tire Waste Recovery-Illinois
Waste Recovery - Recycling Pro Forma U.S. Tire Recycling
Recovery, Inc. Illinois Partners, L.P. Adjustments Partners, L.P.
--------------- --------------- --------------- ------------- ----- -----------------------
Revenues:
Tire-derived fuel sales $ 1,080,172 $ 539,616 $ - $ 1,619,788
Royalties - 110,437 110,437
Wire sales - 12,009 - 12,009
Disposal fees, hauling & other
revenues 13,059,751 545,132 4,453,261 (336,382) (6) 17,721,762
------------ ----------- --------- ------- -------------
Total revenues 14,139,923 1,096,757 4,563,698 (336,382) 19,463,996
(336,382) (6)
Operating expenses 11,143,176 1,115,976 3,245,041 (50,981) (1) 15,116,830
------------ ----------- --------- ------- -------------
2,996,747 (19,219) 1,318,657 50,981 4,347,166
(12,000) (6)
General and administrative expenses 2,568,094 271,462 141,211 20,000 (3) 2,988,767
Depreciation and amortization (109,540) (2)
955,708 412,531 330,160 (26,785) (6) 1,781,154
------------ ----------- --------- ------- -- -------------
(527,055) (703,212) 847,286 39,774 (422,755)
Other income (expense):
Other income (expense) 355,360 - - (438,992) (6) (83,632)
Interest income 60,784 18,371 11,767 90,922
Interest expense (517,986) (155,358) (153,580) (92,500) (4) (919,424)
Grant income - 95,357 - 95,357
Gains on sales of property &
equipment 24,706 - - 24,706
Equity in loss from partnership
operations (322,630) - - 322,630 (5) -
Supervisory management fees - - (265,400) 146,940 (1) (118,460)
------------ ----------- --------- ------- -------------
(399,766) (41,630) (407,213) (61,922) (910,531)
------------ ----------- --------- ------- -------------
Income (loss) before income taxes (926,821) (744,842) 440,073 (101,696) (1,333,286)
Income tax expense - - (31,912) (31,912)
------------ ----------- ------- ------- -------------
Net income (loss) (926,821) (744,842) 408,161 (101,696) (1,365,198)
------------ ----------- ------- ------- -------------
Undeclared preferred stock dividends 142,506 - - - 142,506
------------ ----------- --------- ------- -------------
Net income (loss) available to common
shareholders $ (1,069,327) $ (744,842) $ 408,161 $ 101,696 $ (1,507,704)
============ ========== ========= ====== =============
Net loss per share $ (0.12) $ (0.11)
============ =============
Weighted average number of common and
dilutive common equivalent shares
outstanding 9,132,359 13,718,359
============ =============
</TABLE>
See accompanying notes.
P-1
<PAGE>
WASTE RECOVERY, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
(Unaudited)
Year Ended December 31, 1995
(1) Cost savings resulting from: U.S. Tire
---------
Workforce reductions and realignments (a) $ 146,940
Change in worker's compensation insurance (b) 50,981
-----------
$ 197,921
===========
(a) Represents workforce reductions and realignments that have
occurred.
(b) Represents the difference between the cost for U.S. Tire's
worker's compensation insurance and the actual cost to the
Company.
(2) To record depreciation on the change in property, plant, and equipment, and
amortization of intangible assets resulting from the purchase accounting
adjustments, net of the amortization of intangible assets included in the
historical financial statements. Estimated useful lives used for the major
tangible and intangible assets were as follows:
Machinery and equipment 5-10 years
Buildings and leasehold improvements 20 years
Intangible assets 20 years
(3) To reflect the increase in corporate overhead costs associated with the new
corporate organization.
(4) To reflect interest expense on the pro forma debt at a rate of 5%.
(5) To eliminate the Company's equity in loss from its original 45% partnership
interest in WR-Illinois.
(6) To eliminate intercompany transactions between the Company and WR-Illinois.
The following intercompany transactions were eliminated:
Intercompany sales (a) $ 336,382
Administrative fees (b) 12,000
Construction fees (c) 412,500
Deferred construction fees (d) 14,492
Depreciation on construction fees (e) 26,785
-----------
Total $ 802,159
===========
(a) Represents disposal fees incurred by the Company to WR-Illinois for
the disposal of scrap tires in connection with a tire pile clean-up
project.
(b) Represents administrative fees earned by the Company from WR-Illinois.
(c) Represents a portion of the construction fee earned by the Company
from WR-Illinois in connection with the completion of the WR-Illinois
plant facilities.
(d) Represents the portion of deferred construction fee revenue from
WR-Illinois which was recognized as revenue for the period.
(e) Represents depreciation expense recorded by WR-Illinois relating to
the capitalized construction fee paid to the Company.
P-2
<PAGE>
WASTE RECOVERY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Historical Pro Forma
----------------------------------------------- ----------------------
Waste Recovery, Inc.
Waste Recovery U.S. Tire Waste Recovery-Illinois
Waste - Illinois Recycling Pro Forma U.S. Tire Recycling
Recovery, Inc. Partners, Adjustments Partners, L.P.
L.P.
--------------- ---------------- -------------- -------------- ----- ----------------------
Revenues:
Tire-derived fuel sales $ 991,968 $ 782,612 $ 182,113 $ (136,477) (7) $ 1,820,216
Royalties - - 78,340 78,340
Wire sales 263,855 124,553 - 388,408
Disposal fees, hauling & other
revenues 10,582,023 1,980,409 3,109,555 15,671,987
---------- --------- --------- --------- ----------
Total revenues 11,837,846 2,887,574 3,370,008 (136,477) 17,958,951
Operating expenses 8,064,243 2,683,055 1,940,168 (136,477) (7) 12,550,989
---------- --------- --------- --------- ----------
3,773,603 204,519 1,429,840 - 5,407,962
(36,000) (7)
15,000 (3)
(31,444) (5)
General and administrative expenses 2,196,284 522,024 495,720 (66,080) (1) 3,095,504
82,155 (2)
Depreciation and amortization 811,202 893,852 239,387 (80,357) (7) 1,946,239
---------- --------- --------- --------- ----------
766,117 (1,211,357) 694,733 116,726 366,219
Other income (expense):
Other income (expense) 61,768 - 686 (68,604) (7) (6,150)
Interest income 56,620 53,080 5,013 (27,000) (7) 87,713
27,000 (7)
Interest expense (369,923) (428,111) (100,835) (83,250) (4) (955,119)
Grant income - 272,328 - 272,328
Gains on sales of property &
equipment 7,457 - - 7,457
Equity in loss from partnership
operations (596,629) - - 596,629 (6) -
Supervisory management fees - - (161,550) 97,102 (1) (64,448)
----------- ---------- --------- --------- ----------
(840,707) (102,703) (256,686) 541,877 (658,219)
----------- ---------- --------- --------- ----------
Net income (loss) (74,590) (1,314,060) 438,047 658,603 (292,000)
Undeclared preferred stock dividends 106,977 - - 106,977
----------- ---------- --------- --------- ----------
Net income (loss) available to common
shareholders $ (181,567) $(1,314,060) $ 438,047 $ 658,603 $ (398,977)
=========== ========== ========= ========= ==========
Net loss per share $ (0.02) $ (0.03)
========= ==========
Weighted average number of common and
dilutive common equivalent shares
outstanding 11,046,395 15,632,395
========== ==========
</TABLE>
See accompanying notes.
P-3
<PAGE>
WASTE RECOVERY, INC.
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended September 30, 1996
(1) Cost savings resulting from:
U.S. Tire
---------
Workforce reductions and realignments (a) $ 97,102
Change in worker's compensation insurance (b) 66,080
-----------
$ 163,183
===========
(a) Represents workforce reductions and realignments that have occurred.
(b) Represents the difference between the cost for U.S. Tire's worker's
compensation insurance and the actual cost to the Company.
(2) To record the change in depreciation on property, plant, and equipment, and
amortization of intangible assets resulting from the purchase accounting
adjustments, net of the amortization of intangible assets included in the
historical financial statements. Estimated useful lives used for the major
tangible and intangible assets were as follows:
Machinery and equipment 5-10 years
Buildings and leasehold improvements 20 years
Intangible assets 20 years
(3) To reflect the increase in corporate overhead costs associated with the new
corporate organization.
(4) To reflect interest expense on the pro forma debt at a rate of 6%.
(5) To reflect non-recurring acquisition-related expenses.
(6) To eliminate the Company's equity in loss from its original 45% partnership
interest in WR-Illinois.
(7) To eliminate intercompany transactions between the Company and WR-Illinois.
The following intercompany transactions were eliminated:
Intercompany sales (a) $ 136,477
Administrative fees (b) 36,000
Interest charges (c) 27,000
Deferred construction fees (d) 32,604
Depreciation in construction fees (e) 80,357
-----------
Total $ 312,438
===========
(a) Represents sales of TDF by the Company to WR-Illinois.
(b) Represents administrative fees earned by the Company from WR-Illinois.
(c) Represents interest charges from the Company to WR-Illinois for
interest on intercompany debt.
(d) Represents the portion of deferred construction fee revenue from Waste
Recovery-Illinois which was recognized as revenue for the period.
(e) Represents depreciation expense recorded by WR-Illinois relating to
the capitalized construction fee paid to the Company.
P-4
<PAGE>
WASTE RECOVERY, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Historical
-----------------------------------------------
Waste U.S. Tire
Waste Recovery - Recycling Pro Forma
Recovery, Inc. Illinois Partners, L.P. Adjustments Pro Forma
---------------- -------------- --------------- -------------- ---- ---------------
Assets
Current assets:
Cash and cash equivalents $ 318,501 $ 13,177 $ 179,352 $ 511,030
Accounts receivable 1,714,979 560,485 542,091 2,817,555
(652,427) (d)
Other receivables 657,010 - 66,833 (51,751) (a) 19,665
Inventories 972,834 333,547 - 1,306,381
Other current assets 495,199 81,988 29,752 606,939
---------- ---------- --------- --------- -----------
Total current assets 4,158,523 989,197 818,028 (704,178) 5,261,570
---------- ---------- --------- --------- -----------
944,009 (b)
Property, plant & equipment, net 5,289,690 8,127,417 1,984,294 (288,887) (a) 16,056,523
Preoperating costs 186,113 186,113
Restricted cash 523,528 1,364,743 - 1,888,271
Investment in WR-Illinois (338,150) - - 338,150 (e) -
Bond and debt issuance costs, net 151,136 372,778 - 523,914
Deferred income taxes 447,543 - - 447,543
2,937,574 (b)
Intangible assets, net 466,530 - 51,759 (51,759) (a) 3,404,104
(500,000) (d)
Other assets 574,820 64,765 54,862 (14,502) (a) 179,945
---------- ---------- --------- --------- -----------
Total assets $11,273,620 $11,105,013 $2,908,943 $ 2,660,407 $ 27,947,983
========== ========== ========= ========== ===========
</TABLE>
P-5
<PAGE>
WASTE RECOVERY, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Historical
------------------------------------------------
Waste U.S. Tire
Waste Recovery, Recovery - Recycling Pro Forma
Inc. Illinois Partners, L.P. Adjustments Pro Forma
----------------- --------------- -------------- ---------------- ----- ----------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 235,957 $ - $ - $ 235,957
Current installments of capital
lease obligations 103,312 103,312
Current installments of bonds
payable 805,000 805,000
Current installments of mortgage
payable 142,857 142,857
Current installments of long term
debt 2,250,446 - 103,276 2,353,722
Accounts payable 2,528,676 360,836 81,777 2,971,289
Payable to partner - 1,152,427 - (1,152,427) (d)
Accrued wages and taxes 203,694 50,572 29,953 284,219
Bond interest payable - 87,913 - 87,913
Other accrued liabilities 454,978 31,933 76,525 563,436
Deferred revenue 43,476 296,940 - 340,416
----------- ---------- --------- ---------- -----------
Total current liabilities 5,820,539 2,785,621 434,388 (1,152,427) 7,888,121
----------- ---------- --------- ---------- -----------
Bonds payable - 7,310,000 - 7,310,000
Long term debt 1,548,387 - 204,159 1,752,546
Capital lease obligations 131,454 - 131,454
Mortgage Payable - - 833,333 833,333
Note payable 157,583 - - 486,534 644,117
Subordinated notes payable 1,850,000 (c) 1,850,000
Noncurrent deferred revenue
213,734 792,755 - 1,006,489
----------- ---------- --------- --------- -----------
Total liabilities 7,871,697 10,888,376 1,471,880 1,184,107 21,416,060
----------- ---------- --------- --------- -----------
Stockholders' Equity:
Cumulative preferred stock 203,580 - - 203,580
Common stock 407,800 - - 407,800
Additional paid-in capital 13,897,917 - - 3,130,000 (c) 17,027,917
Accumulated deficit (11,033,494) - - (11,033,494)
----------- ---------- --------- --------- -----------
3,475,803 - - 3,130,000 6,605,803
Treasury stock (73,880) - - (73,880)
(1,246,801) (e)
Partners' capital - 216,637 1,437,063 (406,899) (a) -
----------- ---------- --------- --------- -----------
Total stockholders' equity 3,401,923 216,637 1,437,063 1,476,300 6,531,923
----------- ---------- --------- --------- -----------
Total liabilities and stockholders' equity $ 11,273,620 $11,105,013 $2,908,943 $2,660,407 $ 27,947,983
=========== ========== ========= ========= ===========
</TABLE>
See Accompanying notes
P-6
<PAGE>
WASTE RECOVERY, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1996
(a) Certain assets of U.S. Tire were not acquired. This adjustment reflects the
elimination of such assets, as follows:
Due from partner $ 51,751
Due from affiliate 14,502
Goodwill and other intangible assets 51,759
Mineral reserves 288,887
-----------
Total assets not acquired $ 406,899
===========
(b) The acquisition of WR-Illinois and U.S. Tire will be accounted for using
the purchase method of accounting.
The preliminary pro forma allocation of the purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
WR-Illinois U.S. Tire Total
----------- --------- -----
Purchase price and acquisition costs $ 869,000 $ 4,597,534 $ 5,466,534
Waste Recovery, Inc.'s equity investment in
WR-Illinois at acquisition (338,150) (338,150)
Less historical net assets (216,637) - (216,637)
Less historical net assets after adjustment(a)above - 1,030,164 1,030,164
--------- ---------- ----------
Excess to be allocated $ 314,213 $ 3,567,370 $ 3,881,583
========= ========== ==========
Allocation of purchase price on preliminary
estimated values:
Property, plant and equipment $ (64,289) $ 1,008,298 $ 944,009
Goodwill 378,502 2,559,072 2,937,574
--------- ---------- ----------
$ 314,213 $ 3,567,370 $ 3,881,583
========= ========== ==========
</TABLE>
Financing for the acquisitions was provided by the issuance of common stock of
the Company, subordinated notes, and notes payable.
(c) To reflect the financing as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
WR-Illinois U.S. Tire Total
----------- ----------- -----------
Common stock $ 869,000 $ 2,261,000 $ 3,130,000
Subordinated notes - 1,850,000 1,850,000
Note payable - 486,534 486,534
</TABLE>
(d) To eliminate inter company balances between WR-Illinois and the Company.
(e) To eliminate the capital structure of WR-Illinois and U.S. Tires
P-7
