SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-18466
ENVIRONMENTAL SERVICES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0377081
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(State of Incorporation) (I.R.S. Employer Identification No.)
937 E. Hazelwood Ave., Bldg. 2, Rahway, NJ 07065
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 908-381-9229
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value as of March 29, 1996 of the common stock held by
non-affiliates of the registrant was approximately $3,182,600.*
As of March 29, 1996 there were 4,306,722 shares of the registrant's common
stock, $.02 par value, outstanding.
Documents Incorporated by Reference: None
* Based upon the actual closing price of $1 1/2 on March 29, 1996.
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ENVIRONMENTAL SERVICES OF AMERICA, INC.
Form 10-K
Fiscal Year Ended December 31, 1995
TABLE OF CONTENTS
Page
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PART I
Item 1 Business....................................................... 1
Item 2 Properties..................................................... 15
Item 3 Legal Proceedings.............................................. 17
Item 4 Submission of Matters to a Vote of
Security Holders........................................... 18
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters............................ 19
Item 6 Selected Financial Data........................................ 20
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 20
Item 8 Financial Statements and Supplementary Data.................... 26
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure..................... 26
PART III
Item 10 Directors and Executive Officers of the Registrant............. 27
Item 11 Executive Compensation......................................... 28
Item 12 Security Ownership of Certain Beneficial
Owners and Management...................................... 31
Item 13 Certain Relationships and Related Transactions................. 35
PART IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................... 36
(i)
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PART I
ITEM 1 - BUSINESS.
(a) General development of business:
Environmental Services of America, Inc. (the "Company" or the "Registrant")
is a diversified environmental services company specializing in the
identification, management, treatment, transportation and disposal of hazardous
and non-hazardous wastes; remediation of hazardous waste sites; air quality
testing and monitoring services and equipment; and consulting and technical
support services related to all of the foregoing.
Impending change of control: On April 4, 1996, ERD Waste Corp. ("ERD") and
its wholly-owned subsidiary, ENSA Acquisition Corp. ("EAC"), launched a tender
offer to purchase all of the Company's outstanding Common Stock at a price of
$1.66 per share. On that date, ERD also entered into an agreement with the
holders of 100% of the Company's Series C Preferred Stock and in excess of 90%
of the Company's Series B Preferred Stock to acquire their shares of Preferred
Stock at a price of $98.22 per share.
The tender offer for the Common Stock was made pursuant to an Amended and
Restated Agreement and Plan of Merger among ERD, EAC, and the Company which
contemplates a merger of the Company into EAC following completion of the tender
offer. Outstanding securities of the Company would be converted into the right
to receive a cash payment ($1.66 in the case of Common Stock, and $98.22 in the
case of Preferred Stock) as a result of the merger. The Company's Board of
Directors has recommended acceptance of the ERD/EAC offer, and approval of the
merger with EAC.
General: The Company was incorporated in 1981, and presently conducts
substantially all operations through the following subsidiary corporations
organized or acquired since 1987:
ENSI, Inc. ("ENSI"), acquired in July 1987, provides environmental
management, transportation and cleanup services to generators and handlers of
hazardous waste materials, primarily in New Jersey and adjacent states.
TRI-S, Incorporated ("TRI-S"), acquired in March 1992, is a hazardous waste
management, transportation and disposal company with offices in Ellington,
Connecticut.
Northeast Environmental Services, Inc. ("NES"), acquired in November 1988,
owns and operates a RCRA Part-B permitted hazardous waste storage, treatment and
transfer facility located in Canastota, New York. NES's treatment capabilities
include fuel blending, bulking, acid base neutralization and consolidation,
aqueous liquid pretreatment and lab pack processing. The NES facility is one of
a limited number in the northeast which specializes in serving generators of
small to medium sized quantities (less than a truckload) of drummed and bulk
waste. NES also maintains an office in Pennsylvania which acts as a satellite to
the New York facility for field sales, lab pack operations and remediation
services.
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Environmental Services of America-IN, Inc. ("ENSA-IN") acquired in
April 1994, owns and operates a RCRA Part-B permitted hazardous waste storage,
treatment and transfer facility located in South Bend, Indiana. ENSA-IN's
treatment capabilities include fuel blending especially in conjunction with
liquification of drummed solids and sludges, consolidation, transfer, and
shredding of consumer goods. The site has an above ground tank farm with a
capacity of 178,000 gallons giving the site excellent capabilities in blending
and bulk receiving. The site has a mechanized drum processing system which, in
conjunction with the tank farm, allows drummed solids and sludges to be
liquified and maintained in the tank farm.
Environmental Services of America-MO, Inc. ("ENSA-MO"), acquired in April
1994, owns and operates a RCRA Part-B permitted hazardous waste storage,
treatment and transfer facility located in Scott City, Missouri. ENSA-MO's
treatment capabilities include fuel blending, bulking and consolidation, and
extensive solid fuel processing capabilities. The site was originally a
reclamation facility turning hazardous wastes into beneficial fuels used to
power cement kilns. Although these resource recovery operations are now governed
by the Resource Conservation and Recovery Act of 1976 ("RCRA"), the site's
primary focus remains the same. ENSA-MO's permit allows for the liquification of
sludges and solids into a liquid fuel, the conventional form accepted by cement
kilns. Those sludges and solids not amenable to liquification can be processed
through a series of drying operations, followed by grinding and shredding to
create a solid fuel used at a limited number of cement kilns as an alternate
fuel. One of the site's buildings was destroyed by a fire in 1991, prior to
ENSA's acquisition, and will require rebuilding.
ENSA Environmental, Inc. ("ENSA-ENV") functions as the Company's
consulting, environmental engineering, air monitoring and testing and technical
contracting division. ENSA-ENV was incorporated in August 1994 coincident with
the Company's acquisition of certain assets and liabilities of Earth Science
Technologies, Inc. ("EST"), an environmental consulting and remediation firm
with offices in Kentucky, West Virginia, Ohio and Illinois. The assets acquired
from EST were transferred to ENSA-ENV and, effective January 1, 1995, the
following subsidiaries and operations of the Company were merged into ENSA-ENV
completing a consolidation of the Company's environmental engineering,
consulting, air monitoring and testing and technical contracting operations:
International Exploration, Inc., since its inception in 1973, is an
environmental consulting firm specializing in environmental engineering,
remedial design and construction, geophysics and hydrogeology, primarily in the
states of New York, New Jersey and Pennsylvania.
ENSI of Delaware, Inc., since its inception in 1992, specializes in air
quality testing, sampling measurement and monitoring, primarily in New York, New
Jersey, Pennsylvania, Delaware, and Maryland from its offices in Plumsteadville,
PA.
The Almega Corporation, an Illinois-based consulting firm specializing in
air quality testing, sampling, measurement and monitoring, primarily in the
Midwest and California. This company's California office and operations were
sold to a former employee in December 1994, prior to the consolidation with
ENSA-ENV.
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TRI-S VT, since its inception in 1980, has been providing environmental
consulting and remediation in the New England region.
In January, 1995, the Company acquired secured indebtedness of
Envirovision, Inc. and subsequently foreclosed upon the collateral securing such
indebtedness primarily accounts receivable and contracts in process. To complete
certain contracts in process, ENSA-ENV employed a number of former employees of
Envirovision and began storage tank management (removal and installation)
consulting, remediation, and ancillary operations in Congers, New York and
Baltimore, Maryland.
Unless the context indicates otherwise, the terms "Company" and
"Registrant" when used herein include ENSI, NES, ENSA-ENV, ENSA-IN, ENSA-MO, and
TRI-S. The principal executive offices of the Company are located at 937 E.
Hazelwood Avenue, Rahway, New Jersey 07065 and its telephone number is (908)
381-9229 and its telecopier number is (908) 381-7887.
(b) Financial information about industry segments:
Not applicable.
(c) Narrative description of business:
(c)(1)(i) Principal products and services: The services provided by the
Company fit generally within three categories: (A) hazardous waste management
services; (B) environmental remediation services; and (C) environmental
engineering, air testing, air monitoring, and consulting services.
(A) Hazardous Waste Management Services.
The Company's hazardous waste management services include waste treatment
and resource recovery, transportation, and transfer, storage and disposal
coordination. Such services are provided primarily by NES, ENSA-IN and ENSA-MO
and, to a lesser extent, by ENSI and TRI-S (transportation and disposal
coordination). The wastes handled by the Company include substances which are
classified as "hazardous" by RCRA and/or exhibit the characteristics of a
hazardous substance, i.e., corrosive, ignitable, reactive or toxic properties,
as well as other substances subject to federal and state environmental
regulations, other than radioactive wastes, explosive materials and infectious
wastes.
The following is a more detailed description of the Company's hazardous
waste management services:
(A)(I) Treatment and Resource Recovery.
The Company uses physical methods such as decanting, blending and acid-base
neutralization in its treatment and resource recovery operations. The
nonrecoverable residual materials produced by the Company's treatment operations
are disposed off-site by either incineration or stabilization for subsequent
burial in secure disposal cells in licensed chemical
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secure landfills owned and operated by unrelated businesses. The recoverable
organic liquids from these treatment operations which have sufficient heat value
are blended by the Company to meet strict specifications for use as supplemental
fuels for cement kilns, blast furnaces and other high-efficiency boilers. The
Company has established relationships with a number of supplemental fuel users
that are licensed to accept the blended fuel material. Although the Company pays
a fee to the users who accept this product from the Company, this disposal
method is substantially less costly than incineration at a commercial hazardous
waste treatment facility.
(A)(II) Transportation.
Transportation and disposal is offered as an adjunct to the remediation
activities and on-going removal and disposal of industrial process waste. The
Company utilizes several specially designed and constructed tank trucks and
semi-trailers, including roll-off containers. Liquid waste is usually
transported in bulk but may also be transported in drums. Heavier sludge or bulk
solids are transported in sealed, roll-off containers, bulk trailers and drums.
The Company is presently licensed to transport hazardous waste in approximately
45 states, including the New England states, New Jersey and New York, as well as
the Canadian provinces of Quebec and Ontario.
(A)(III) Disposal Coordination.
The Company does not own or operate any landfills or incinerators for the
disposal of hazardous waste. The Company arranges for disposal of its customers'
hazardous waste primarily at incinerators, chemical secure landfills or other
disposal facilities for treatment or reclamation operated by other businesses.
(A)(IV) Drummed Waste Handling and Repackaging.
Drummed waste handling and repackaging projects involve the handling of
bulk drums and the handling and repackaging of laboratory packaged chemicals.
Bulk drums usually consist of compatible liquids and solids packaged in
traditional 55-gallon drums. Such drums result from activities related to
draining, flushing, repackaging, loading, unloading, transferring, pumping,
materials handling, and preparing waste for storage or shipment. Laboratory
packaged chemicals result from activities related to identification, handling,
packaging, removal and disposal of laboratory chemicals and other reactive and
hazardous reagents, including discarded commercial chemicals. Laboratory
packaged chemicals are typically used by laboratories, hospitals, schools, and
research facilities using small quantities of chemicals. These materials, in
their original containers, are repackaged into drums or fiber containers
according to compatibility.
Drummed waste handling and repackaging services typically are performed
under service agreements or purchase orders that obligate the Company to accept
waste material from the customer conforming to the specifications in the
agreement. Before signing a service agreement with a customer, the Company
arranges to have a representative sample of the waste analyzed by the one of the
Company's treatment, storage and disposal ("TSD") facilities or another
certified laboratory which has been pre-qualified by the Company. Analytical
testing is
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performed by the laboratory in accordance with the Company's sample analysis
program, which has been designed in conformity with the requirements of
applicable law. The analytical profile of the waste material enables the Company
to recommend an appropriate method of transportation, treatment and disposal and
to designate a treatment and disposal facility licensed to accept the waste.
At the present time, the Company owns three TSD facilities. NES is located
in Canastota, New York. ENSA-IN is located in South Bend, Indiana. ENSA-MO is
located in Scott City, Missouri. If one of ENSA's TSD's is designated as the
treatment and disposal facility, prior to acceptance of the waste, a
representative sample of the waste is analyzed in order to insure that it
conforms to the customer's waste profile sheet. Once the waste materials have
been characterized, compatible groups are consolidated to achieve economies in
storage, handling, transportation and ultimate treatment and disposal.
At these facilities, the Company conducts treatment operations and
temporarily stores waste material for later off-site resource recovery,
incineration and disposal. As facilities engaged in the treatment, storage and
disposal of hazardous waste are subject to the licensing procedures established
under RCRA and the regulations promulgated thereunder. On November 1, 1991 the
state and federal permits required by RCRA for the operation of the NES facility
became effective. On January 22, 1993 ENSA-IN was issued its Part B RCRA permit,
and on January 10, 1994 ENSA-MO was issued its Part B RCRA Permit. See
"Environmental Regulation" below, for additional information regarding the TSDs
and their state and federal permits. Currently, NES is processing a permit
renewal application.
(B) Environmental Remediation Services.
Environmental remediation involves activities such as site assessment and
development of a management plan including clean-up, materials handling,
draining, flushing, decommissioning, packaging, loading, unloading, pumping and
preparing waste for storage, shipment and disposal. The Company's remediation
services are provided primarily to companies in the chemical, petroleum,
transportation and utility industries and to governmental agencies. The Company
provides environmental remediation services to industrial customers with
operations throughout New England and the Midwestern and Mid-Atlantic states.
The environmental remediation services provided by the Company include the
following:
(B)(I) Surface Remediation.
The Company's surface remediation projects generally involve the planned
clean-up of hazardous waste sites or the clean-up of accidental spills and
discharges of hazardous materials, such as those resulting from transportation
and industrial accidents. In addition, some surface remediation projects involve
recurring maintenance and clean-up activities at industrial wastewater treatment
facilities.
Surface remediation projects generally require a multidisciplinary
approach, involving engineers, project management, and analytical services.
Following the selection of the preferred remedial alternative, the Company's
project team identifies the procedures, processes and
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equipment required to conduct the clean-up operation. Simultaneously, the
Company's technical staff develops a site-specific health and safety plan for
the project. The remedial approach recommended by the Company's project team
typically requires the physical removal of the contaminants through the
excavation, consolidation, and transportation of contaminated materials for
off-site treatment and disposal. Projects that require the application of a
higher level of remedial technology, such as de-watering, stabilization and soil
washing, are generally engineered by the Company's consulting division and are
implemented in-house or by subcontractors recommended by the Company. In
addition, twenty-four (24) hour emergency response is performed for industry,
federal and local agencies for both land-related and waterway incidents.
(B)(II) Facilities Decontamination.
Facilities decontamination involves the clean-up and restoration of
buildings and other property and related equipment that have been contaminated
by exposure to hazardous materials during a manufacturing process, or by fire,
process malfunction, spills or other accidents. The Company's projects have
included decontamination of chemical, metallurgical, industrial, manufacturing,
commercial, educational, and utility facilities.
(B)(III) Underground Storage Tank Management.
In regulations promulgated under RCRA which took effect during 1988, leaks
from underground commercial storage tanks were identified as a serious
environmental hazard and specific timetables for the testing and monitoring of
such tanks were established. The Company provides a wide range of services to
facilitate compliance with such regulations, including services designed to
locate and evaluate the condition of underground tanks, detect and correct
underground leaks, evaluate groundwater and soil contamination and prevent,
minimize, and/or remediate impacted groundwater and soil and replace and upgrade
tanks. In addition, the Company provides assistance with governmental
recordkeeping requirements.
(C) Environmental Engineering, Air Testing, Air Monitoring and Consulting
Services.
ENSA-ENV employs approximately 170 professional and technical personnel
whose expertise includes hydrogeology, engineering geology, geophysics,
chemistry, biology, remedial design and computer modeling. The environmental
consulting services include: problem definition, strategy development and
investigation; remedial investigation and feasibility studies; remedial design,
project management and construction, implementation, operations and maintenance
of in-situ systems; monitoring and recovery well design and installation; site
closure planning and implementation; waste minimization and alternative disposal
assessments; hazardous waste and discharge permit preparation; air discharge
permit applications; site assessments, geophysical investigations, regulatory
planning and coordination; groundwater restoration and resource development,
underground and above- ground storage tank design, upgrade and management,
asbestos and lead sampling and analysis.
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In addition, the consulting group also provides indoor and outdoor air
management. The services available can be divided into three principal groups:
field services, consulting, and continuous emissions monitoring system ("CEMS")
design and monitoring. These services are provided from offices in Illinois and
Pennsylvania. The field services provided include source emissions testing and
ambient air quality monitoring. Source emissions testing involves the collection
and analysis of samples of exhaust gases obtained from a wide variety of
industrial processes, including hazardous waste incinerators, municipal waste
incinerators, boilers, surface coating operations, microelectronic manufacturing
operations and various chemical plant and refinery operations. Most often these
services are performed to demonstrate compliance of the process with applicable
regulatory requirements. Ambient air quality monitoring involves the evaluation
of concentrations of various pollutants and may be done for a number of reasons,
including, without limitation, permitting purposes and odor assessments, health
and safety purposes, and asbestos and lead monitoring. Additionally, each air
office operates its own analytical laboratory to support its field service
activities. The laboratories have the capability to perform analyses of organic
and inorganic compounds in all forms, including asbestos and lead. These
laboratories are used exclusively to support the services performed by ENSA-ENV.
The air quality staff also has extensive experience in the design, assembly
and installation of CEMS. Although most of the component parts of these systems
are manufactured by subcontractors, ENSA-ENV personnel design and engineer all
aspects of these systems and, in addition, provide essential support to clients
in the preparation and negotiation of monitoring system protocols and
performance of system certification testing after installation, as well as
on-going service and maintenance of the systems.
(D) Marketing.
The Company's primary marketing area consists of New England and the
Mid-Atlantic and Mid-West States. In addition to "Fortune 500" companies with
facilities in the Company's marketing area, the Company has targeted small and
medium size businesses which typically do not possess internal environmental
departments and recognize the value of hiring a full service turn-key
environmental and hazardous waste management company.
The Company recognizes the market's need for "one-stop shopping" for
integrated services ranging from consulting and planning to actual "hands-on"
clean-up, treatment and disposal. The Company increasingly markets and provides
its services on an integrated basis and, in many instances, the performance of
services in one discipline has lead to the performance of additional work in
other disciplines. For example, the results of an environmental consulting and
sampling program could dictate the need for excavation, transportation and
disposal of contaminated material identified in the site assessment.
The Company has centralized its marketing program and uses its 25 person
sales force to promote all of the Company's services.
The Company advertises on local radio, in trade journals and participates
in regional trade and industry shows. The Company exhibits annually with a
presentation booth at the "HazMat International" conference as well as at
regional trade shows in Boston, Massachusetts, Hartford, Connecticut, Syracuse,
New York and Chicago, Illinois. The Company also relies
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upon the recommendations of clients, subcontractors, affiliates, and the
Company's position in the "recommended contractors list" or "approved vendors
list" of various governmental agencies and "Fortune 500" companies. The
Company's officers also devote a portion of their time to sales activities on
behalf of the Company.
(c)(1)(ii) Product Development: Not applicable.
(c)(1)(iii) Raw Materials: Not applicable.
(c)(1)(iv) Patents, Trademarks, Licenses, etc.: See "Environmental
Regulation," below. The Company's logo has been registered through January 3,
2009 with the U.S. Patent and Trademark office.
(c)(1)(v) Seasonality: The Company's revenues are impacted by severe winter
weather conditions which affect the ability to 1) perform site remediation and
field service activities, and 2) transport waste to its TSD facilities for
treatment. This has resulted in the postponement of projects and a decline in
revenues primarily during the months of January and February. Other than severe
winter weather, management does not believe the Company has experienced any
significant seasonality in its business in the past, and does not anticipate
seasonality to have a significant impact on its operations in the future.
(c)(1)(vi) Working Capital Practices: See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", below.
(c)(1)(vii) Customers: On a consolidated basis, the majority of the
Company's revenues have arisen out of competitive bid contracts awarded by
customers in the chemical processing and a wide range of manufacturing
industries. During 1995, a significant portion of the Company's revenues were
derived from customers who repeatedly utilize the Company's services. No
customer accounted for more than 10% of the Company's revenues during 1995.
The customers of the Company's TSDs who require waste handling and
transportation services are a diverse mix of several hundred industrial and
manufacturing entities whose operations typically generate less-than-truckload
quantities of drummed waste materials. A substantial portion of this revenue is
derived from customers involved in remediation projects performed by other
subsidiaries of the Company. A substantial portion of ENSA-IN and ENSA-MO's
customers are waste brokers.
TRI-S and ENSI together service customers throughout New England,
Metropolitan New York City and New Jersey. The customer base includes chemical
processing companies; industrial manufacturers; petroleum services; real estate
and lending institutions; and governmental agencies. The services provided range
from non-recurring projects to repeat service work requiring environmental
expertise such as technical in-plant services.
ENSA-ENV performs services for a diverse range of industrial and
governmental customers. In addition, ENSA-ENV has worked for numerous civil
engineering firms involved in a wide variety of industries, as well as
corporations in the pharmaceutical, petrochemical, microelectronic and printing
industries.
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ENSA-ENV expects to continue providing services to a broad spectrum of
industrial companies located primarily in the Mid-Atlantic, New England and
Mid-West States.
(c)(1)(viii) Backlog Orders: The Company presently has projects in process
representing potential gross revenue of approximately $ 11,925,000 compared to
$11,005,000 as of March, 1995. Backlog amounts have historically resulted in
revenues; however, no assurance can be given that all amounts included in
backlog will ultimately be realized even if covered by written contracts and
purchase orders. Backlog by subsidiary is summarized below:
as of March,
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1996 1995
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ENSI $ 850,000 $ 880,000
TRI-S 2,500,000 2,155,000
NES 1,950,000 1,250,000
ENSA-MO -- 250,000
ENSA-IN -- 950,000
ENSA-ENV 6,625,000 5,520,000
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$11,925,000 $11,005,000
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(c)(1)(ix) Government Contracts Subject to Renegotiation: In 1995, the
Defense Reutilization and Marketing Services ("DRMS") reached agreement with
TRI-S and the former owners of TRI-S with regard to three contracts terminated
in 1991 by DRMS. The dispute involved a difference in interpretation of the
contracts and the performance specifications between the parties which was
settled at no cost to the Company.
(c)(1)(x) Competition: The hazardous and non-hazardous waste management
industry involves a few large companies which provide integrated services and
numerous smaller companies which provide some or all of the same services. Such
large companies with extensive resources are able to directly provide field
services, waste transportation and disposal through their own secure landfills
and incineration facilities. Examples of some of the Company's largest
competitors are Chemical Waste Management; Clean Harbors, Inc.; International
Technology Corp.; Laidlaw Environmental Services, Inc.; and Rollins
Environmental Services. Other competitors either provide one aspect of waste
management, or, like the Company, provide integrated services by subcontracting
portions of their services to other companies. Examples of some of the Company's
comparably sized competitors in its marketing area are Cycle Chem, Inc.; Philip
Environmental; S&W Waste, Inc.; Advanced Environmental Technology Corp.;
Franklin Environmental; Northland Environmental; Essex Waste Management, Inc.;
PCIA, Inc.; EWR; Petrochem; and Safety Kleen. Competition in the waste
management industry, primarily on the basis of price, technical performance,
services, and reliability, is intense and the Company expects it to remain so.
Based upon sales and number of personnel, ENSA-ENV is ranked among
mid-sized engineering firms in the United States. Its integrated "technical
contractor" approach to remedial design and consulting with access to those
services offered by the hazardous waste divisions of the Company, make ENSA-ENV
unique in the industry. This does not, however,
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preclude the Company from competition to service its clients. Additionally,
ENSA-ENV is able to design, assemble and install CEMS as well as perform field
certification testing, a service provided by few air testing companies.
In the consulting and remediation sectors, competition is quite intense,
primarily on the basis of price, experience, and custom service and to a lesser
extent based upon technical expertise an attribute which is expected of all
providers of this service. Management believes this is the result of a build up
of capacity in the 1980's in anticipation of increases in demand which thus far
have not occurred.
(c)(1)(xi) Research and Development: Not applicable.
(c)(1)(xii) Environmental Regulation: There is an extensive and evolving
body of federal, state and local laws and regulations applicable to the
treatment, disposal, transportation and handling of hazardous waste and other
hazardous substances and chemicals. Compliance with this wide array of
regulation is mandatory and the entire hazardous and toxic waste management
industry is subject to the effects of extensive regulation. The Company and its
subsidiaries are not only subject to these laws, but indirectly are dependent
upon them for future business since many of the services offered by the Company
are directed at facilitating compliance with such laws and regulations.
The principal federal environmental laws and regulations which affect the
Company's business are as follows:
* The Resource Conservation and Recovery Act of 1976 ("RCRA"). RCRA and its
associated regulations establish a strict and comprehensive "cradle-to-grave"
regulatory program applicable to solid and liquid hazardous waste. The U.S.
Environmental Protection Agency ("EPA") has promulgated regulations under RCRA
for new and existing treatment, storage and disposal facilities including
incinerators, storage and treatment tanks, storage containers, storage and
treatment surface impoundments, waste piles and landfills. Every facility that
treats, stores or disposes of specified minimum amounts of hazardous waste, must
obtain a RCRA license from the EPA or a state agency which has been authorized
by the EPA to administer its state program, and must comply with certain
operating, financial responsibility and closure requirements.
* Hazardous and Solid Waste Amendments of 1984 ("HSWA"). HSWA, which
amended RCRA, requires the development of minimum technology standards for
certain types of land disposal operations. Compliance with these new minimum
technology standards has added to the cost of land disposal and has largely
precluded the new permitting of some disposal facilities. HSWA, on a scheduled
basis, has also established a ban on the land disposal of hazardous wastes
without prior treatment.
* The Toxic Substances Control Act of 1976 ("TSCA"). TSCA gives broad
authority to the EPA to regulate the manufacture, processing, distribution in
commerce, use and disposal of various chemical substances and mixtures. The EPA
can require testing of chemical substances that may present an unreasonable risk
to health or the environment. If testing reveals an unreasonable risk, the EPA
must take steps to reduce the risk. Options available to the EPA
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include requiring appropriate labeling, prohibition of manufacture of the
harmful chemical, and mandating the manner in which the chemical must be
disposed.
* The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA," also referred to as the "Superfund Act"). CERCLA established
a comprehensive scheme of environmental liability without regard to fault for
abandoned waste sites, leaking active sites, and spills which have released or
may release hazardous substances into the environment. The class of "hazardous
substances" includes numerous materials which are commonly used by industrial,
manufacturing and commercial operations and includes, but is much broader than,
the class of "hazardous waste" regulated by RCRA.
* 1986 Superfund Amendment and Reauthorization Act ("SARA"). SARA amended
CERCLA by, among other things, authorizing another tax on the chemical industry
to refinance the Superfund to enable the EPA to undertake clean-ups of sites
where hazardous substances have been or may be released into the environment
when private parties are either unknown or unable or unwilling to do so. In
addition, SARA includes the Emergency Planning and Community Right to Know Act
which mandates extensive reporting requirements for use or storage of hazardous
substances and releases of hazardous substances, either accidental or permitted,
into the environment.
Hundred of sites across the country have been targeted for clean-up in a
list known as the National Priorities List propounded under CERCLA and SARA. The
EPA may order a private party to conduct clean-up activities or it may conduct a
clean-up itself using the Superfund monies and then seek to recover those funds
from parties liable under the statute. Further regulations establish a National
Contingency Plan, which was substantially revised in March, 1990, for dealing
with the release of hazardous substances into the environment. This Plan governs
the conduct of remediation undertaken by the government. Private parties must
also substantially comply with the provisions of the Plan as a prerequisite to a
contribution claim against another potentially liable person. Present and past
owners and/or operators of sites on which hazardous substances have been
released, generators of hazardous substances and transporters who select the
site for disposal may all be liable jointly and severally for clean-up costs and
for remedying any harmful effects to the environment or public health, such as
pollution of groundwater, without regard to fault.
CERCLA is up for Reauthorization before Congress this year and it can not
be anticipated at this time what changes may be made to the current statute or
what effect such reauthorization may have on the Company.
* The Clean Air Act Amendments of 1990 ("CAA"). These amendments
substantially revise and expand the Clean Air Act originally enacted in 1967.
The CAA will have significant and far reaching effects on small and large
businesses and industrial operations, public utilities and transportation
systems, both public and private. EPA and the states are presently developing
the extensive regulations necessary to implement the CAA. The effects and costs
to the regulated community will be felt and incurred over a lengthy phase-in
period.
-11-
<PAGE>
* The Hazardous Materials Transportation Act ("HMTA"). The HMTA and the
extensive regulations promulgated thereunder regulate the transportation of
"hazardous materials." This very broad category of substances includes but is
not limited to CERCLA "hazardous substances" and RCRA "hazardous wastes." The
HMTA and the regulations thereunder are enforced by the Department of
Transportation and specify labeling, placarding, shipping papers, packaging,
spill reporting and employee training requirements which vary with the nature of
the material being shipped.
* The Clean Water Act (Federal Water Pollution Control Act). Through the
1950's and 1960's emphasis was on the states setting ambient water quality
standards and developing plans to achieve these standards. In 1972, the Federal
Water Pollution Control Act was significantly amended. These changes emphasized
a new approach, combining water quality standards and effluent limitations
(i.e., technology-based standards). The amendments called for compliance by all
point-source dischargers with technology-based standards. A strong Federal
enforcement program was created and substantial monies were made available for
construction of sewage treatment plants. The Federal Water Pollution Control Act
was amended in 1977 to address toxic water pollutants and in 1987 to refine and
strengthen priorities under the Act as well as enhance EPA's enforcement
authority. Since the 1977 amendments, the Federal Water Pollution Act has been
commonly referred to as the Clean Water Act ("CWA").
* OSHA Hazard Communication Standard ("HCS"). The HCS was developed by the
Occupational Safety and Health Administration ("OSHA"). It requires the
identification and dissemination of information about hazardous chemicals to
employees in the workplace. The category of "hazardous chemicals" is extremely
broad. Employers are obligated to make available to their employees Material
Safety Data Sheets for each hazardous chemical used in the workplace. Containers
must also be properly labeled and employees trained in workplace safety.
The Company also provides consulting services with respect to the
remediation and removal of asbestos and lead based paint from buildings. Federal
regulation of asbestos removal consists of the Asbestos Hazard Emergency
Response Act, 15 U.S.C. ss. 2641 et seq. which deals with asbestos in school
buildings, and regulations promulgated by both OSHA and the EPA. OSHA
administers workplace and employee protection rules and EPA administers
demolition and removal rules. In addition, many states have enacted more
stringent rules including contractor certification and accreditation
requirements.
Presently, there exist no mandatory federal requirements affecting removal
of lead based paint although the Department of Housing and Urban Development
("HUD") has issued guidance entitled "Guidelines for Evaluation and Control of
Lead Based Paint Hazards in Housing." Regulations based on these Guidelines are
expected to be promulgated soon jointly by EPA and HUD under the authority of
the Residential Lead Based Paint Hazard Reduction Act, 15 U.S.C. ss. 2681 et
seq. Certain individual states and local governments have also enacted certain
requirements pertaining to the removal of lead based paint.
It is not possible to predict all the effects of government regulation on
the Company and the operations of its subsidiaries. The Company believes that
CERCLA, SARA, RCRA, HSWA, TSCA, CAA, HMTA, CWA and HCS, and the regulations
promulgated under
-12-
<PAGE>
them, will be materially significant in the development of the Company's
hazardous waste management business. The provisions of the environmental
statutes and regulations could expose the Company or one or more of its
subsidiaries to strict joint and severable liability as a party who transports,
treats, or disposes of hazardous substances, wastes and chemicals, including
liability for the costs of governmental removal or remedial actions, the
government's costs in assessing the extent of the damage and appropriate
remedial technologies, and damage for destruction or loss of natural resources
resulting from such release. Liabilities under some of these laws can arise
without reference to traditional notions of "fault" and may continue
indefinitely.
The overall operations of the Company are not specifically subject to any
licensing or permitting procedures of the EPA with the exception of TRI-S, as a
transporter and ENSA-IN, ENSA-MO and NES as operators of TSD facilities. NES is
required to obtain federal, state and local licenses or approvals including a
New York State Department of Environmental Conservation ("NYSDEC") Part 373
(RCRA Part B) Hazardous Waste Management permit, a State Pollution Discharge
Elimination System permit ("SPDES"), certain transporter permits, and an air
permit. NES' draft air permit with NYSDEC which is pending final status as of
the date of this Report. The NYSDEC Part 373 permit and the SPDES permit, which
were both issued in November 1991, have standard fixed terms of five years. A
renewal permit application is in progress.
In connection with the issuance of the Part 373 permit, NYSDEC has required
that NES make certain improvements to its facility. As of the date of this
Report, NES has completed or is in the process of completing all of the required
improvements. Additionally, NYSDEC and the EPA have imposed certain conditions
to the maintenance of the permit, including the remediation of certain
groundwater and soil contamination identified on the site of the NES facility. A
recovery system, designed by ENSA-ENV, was approved by NYSDEC and the EPA and is
currently in operation. ENSA-ENV has investigated, and continues to monitor on a
quarterly basis, the nature and extent of the groundwater contamination and has
concluded that the contamination is contained and has not migrated off-site.
ENSA-ENV has submitted to NYSDEC and the EPA the results of the implementation
of a soil sampling plan which investigated the source of this contamination.
Management estimates that the costs associated with the soil remediation and
ongoing groundwater remediation at NES will be $150,000. Annual operating costs
of the system are estimated at $25,000.
ENSA-MO is required to obtain federal, state and local licenses or
approvals including a RCRA Part B Hazardous Waste Management Permit. The State
of Missouri Department of Natural Resources ("DNR"), in conjunction with the
EPA, granted the facility their Part B permit on January 10, 1994. The permit
has a term of ten years. In connection with the issuance of the Part B permit,
the DNR has required that ENSA-MO make certain improvements to its facility. As
of the date of this Report, ENSA-MO has completed or is in the process of
completing the required improvements. The DNR and EPA have also required, as
part of the permit, that a RCRA facility investigation be performed. Based on
previous analytical data obtained, the Company does not anticipate any
unfavorable findings. The RCRA facility investigation is estimated to cost
$55,000. As part of the permit conditions, ENSA-MO inherited a debt of $173,212
to the DNR which is to be repaid through community services such as household
hazardous waste collections.
-13-
<PAGE>
ENSA-IN is required to obtain federal, state and local licenses or
approvals including a RCRA Part B Hazardous Waste Management Permit. The Indiana
Department of Environmental Management ("IDEM") in conjunction with the EPA
granted the facility their Part B permit on January 22, 1993. The permit has a
term of five years. In connection with the issuance of the Part B permit, IDEM
has required that ENSA-IN make certain improvements to its facility. As of the
date of this Report, ENSA-IN has completed or is in the process of completing
the required improvements. Additionally, IDEM and the EPA have imposed certain
conditions to the maintenance of the permit including closure of the old tank
farm and remediation of certain soil contamination associated with the previous
storage tanks. ENSA-ENV is currently working with IDEM in finalizing the
details of the remediation to be performed, but expects the cost to be
approximately $200,000.
The Company believes that each permit will be renewed at the end of its
term if the facility is in compliance with applicable requirements. However,
there can be no assurance that the regulations governing the maintenance and/or
renewal of such permits will remain unchanged or that ENSA-IN, ENSA-MO, and NES
will be able to comply with all such requirements.
Any entity engaging in the transportation of hazardous wastes is subject to
regulation under various state and federal laws. Duties of hazardous waste
transporters include, but are not necessarily limited to, obtaining hazardous
waste and solid waste transporter licenses and the use and operation of approved
equipment. The Company, through NES and TRI-S, is a permitted transporter of
hazardous waste in forty-five (45) states and two provinces of Canada. All of
the transportation permits held by NES and TRI-S are subject to annual renewal.
Factors considered in evaluating a renewal application vary from state to state,
but include, among other things, the permitted entity's compliance status, its
record of traffic incidents, and the qualifications of the personnel managing
transportation operations. To the knowledge of the Company management, none of
the Company's subsidiaries have ever been denied renewal of any of their
respective transportation permits. However, each such permit is also subject to
revocation in the event of a failure to comply with the state's applicable rules
and regulations. Of the transportation permits held by the Company, those
granted by the states of New York, Connecticut, New Jersey and Pennsylvania are
most critical to operations.
Insurance
ENSI, ENSA-ENV, TRI-S, NES, ENSA-IN, and ENSA-MO are included under one
general liability insurance policy in the amount of $5 million per occurrence/$5
million aggregate liability arising in connection with their activities. Such
insurance is required by the state of New York in order to maintain NES' permit
as a waste transporter. Higher amounts of general liability insurance have been
obtained for specific customers/projects, where necessary. Additionally, these
subsidiaries have obtained pollution impairment liability and professional
liability insurance in the amount of $2 million total/$1 million per occurrence
covering liability resulting from the sudden and non-sudden discharge or release
of hazardous substances related to their contracting and professional service
operations. All of the Company's vehicles are insured under a $5,000,000
commercial automobile policy covering transportation of hazardous waste and
other services performed in Company vehicles. In addition, the Company maintains
workers compensation insurance as required from state to state.
-14-
<PAGE>
In addition to the above, NES, ENSA-IN, and ENSA-MO have obtained pollution
liability insurance for their TSD facilities in the amount of $1 million per
occurrence/$2 million total, covering liability resulting from the sudden and
non-sudden discharge or release of hazardous substances from the facilities'
premises. The facilities maintain all insurance required for the maintenance of
their permits, however, no assurance can be given that difficulty will not be
encountered in maintaining such insurance in the future. Moreover, if the
facilities fail to maintain such insurance, permits could be revoked, which
could result in the closure of a facility and the cessation of substantial
operations.
(c)(1)(xiii) Employees: As of March 31, 1996, the Company and its
subsidiaries had approximately 285 employees.
(d) Financial information about foreign and domestic operations and
export sales:
None applicable.
ITEM 2 - PROPERTIES.
The Company has offices at various owned and leased locations throughout
the United States. Each branch office is generally identified with one of the
Company's subsidiaries; however, most locations perform multiple services. The
table below summarizes the premises from which the company operates.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Building
Square Lease Annual
Location Own/Rent Footage Expires Rental Description and Primary Services
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
937E Hazelwood Rent 10,000 Sep. '97 $ 50,000 Company headquarters consisting of
Rahway, NJ office space for executive and
administrative staff, along with
office, warehouse and parking
space for remediation operations.
826 North Rent 9,000 Oct. '98 60,000 Administrative offices and
Lewis Road warehouse space for remediation,
Royersford, PA drum waste, and lab pack
operations.
6205 Route 611 Rent 10,500 Apr. '97 71,000 Offices and warehouse space for
Plumsteadville, PA consulting operations and air
testing, consulting, and
monitoring.
Continued on following page ...
- ------------------------------------------------------------------------------------------------------------------------------------
-15-
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
Canal Road Own 30,000 -- -- TSD facility located on three acres
Wampsville, NY of land used for the handling and
storage of waste materials; a
small portion of the building is
devoted to offices. The facility
has the capacity and is permitted
to store a maximum of 1,000
drums, and has 22,500 gallons of
tank space.
Marguerite Own 4,000 -- -- Administrative office space on
Drive West approximately three acres near TSD
Canastota, NY facility.
331 Route 9W Rent 12,600 Mar. '98 102,600 Office and warehouse space for
Congers, NY consulting and remediation
operations.
601A County Rent 4,200 Jun. '97 27,500 Vacant offices and warehouse space
Club Drive previously used for air testing and
Bensenville, IL monitoring group. Expenses offset
by sublease of $1,767 per month
through 8/31/96.
311 Dundee Road Rent 3,621 Oct. '96 60,000 Office and warehouse space for
Northbrook, IL consulting and air testing and
monitoring services.
25 and 34 Pinney Rent 8,400 Feb. '02 127,500 Office, garage and warehouse space
Street on two plus acres for environmental
Ellington, CT remediation, transportation and
consulting services and adjunct
office space for administrative
staff.
205 Main Street Rent 3,082 Dec. '98 23,000 Office space used primarily for
Brattleboro, VT consulting services.
410 W. Chestnut Rent 7,000 Aug. '97 48,000 Office and warehouse space for
Street consulting services.
Louisville, KY
2480 Creekway Rent 8,200 Dec. '98 28,000 Office and warehouse space for
Drive consulting services.
Columbus, OH
Madison Ave. & Rent 4,420 Apr. '98 27,200 Office and warehouse space for
Eighth Street W. consulting services.
Huntington, WV
Continued on following page ...
- ------------------------------------------------------------------------------------------------------------------------------------
-16-
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
604 Scott Street Own 40,015 -- -- TSD facility used for the handling
South Bend, IN and storage of waste materials; a
portion of the building is
devoted to offices. The facility
is Part B permitted, and has a
Tank Farm with the capacity to
hold approximately 176,000
gallons.
3100 Industrial Own 21,600 -- -- Equivalent Part B permitted facility
Fuels Drive on approximately five acres of land.
Scott City, MO
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 3 - LEGAL PROCEEDINGS.
5200 Enterprises, Ltd. v. Hasnas, Empire Electric Co., Wastex Industries,
Inc., ENSI, Inc., Environmental Services, Inc. Enviropact, Inc., Enviropact
Northeast, Inc., Professional Engineering Associates, Inc. and Elias -- suit
pending in the Supreme Court of Kings County, New York. This is an action by
owner of building against prior owner and all persons and companies hired by
prior owner to clean-up contaminated spills existing on property prior to sale
and, in connection therewith, to conduct certain tests. The suit contends that
the clean-up and/or the testing, some of which was done by the Company, was
conducted negligently, and that misrepresentations were made by the owner
concerning the true level of remaining contamination, and seeks $3.5 million.
The Company is defending the suit vigorously. The Company is also seeking
indemnity from co-defendants for any liability.
On June 2, 1995, Northeast Environmental Services, Inc. ("NES"), a
subsidiary of the Company, and Robert Miller, its President, were charged with
violation of New York State's Environmental Conservation and Penal Laws in an
indictment filed in the Ontario County Court, Canastota, New York. The charges
stem from NES' transportation, between June and October 1992, of approximately
65 drums of hazardous material from a facility of its customer in Rochester, New
York, to another facility of the customer located in Geneva, New York. The
contents of the drums in question were identified by the customer, an
electroplating job shop, as virgin chemical products and in-process materials
(plating material, acids, etc.), and were handled and documented as such by NES.
The indictment charges that NES' activities constituted possession, removal and
disposal of hazardous waste without preparing and filing a Uniform Hazardous
Waste Manifest, and that NES' records describing the shipments were falsified.
Both NES and Mr. Miller have denied any wrongdoing in connection with these
shipments. The trial is set for summer of 1996.
-17-
<PAGE>
In June 1995, ENSR Corporation, an environmental services company,
commenced an action against the Company in the U.S. District Court for the
District of New Jersey (Newark) alleging that the Company's use of "ENSA" as a
trade name infringed upon ENSR's registered trademark "ENSR", and seeking
injunctive relief and unspecified monetary damages. The Company has denied that
its use of "ENSA" violates the plaintiff's trademark, and, alternatively, is
seeking to cancel the "ENSR" mark on the grounds that, prior to the plaintiff's
use and registration of that mark, the Company was using the trade name "ENSI"
in its business. The case is in the discovery stage. Legal expenses related to
this action are being borne by the Company's insurer. The Company has not made
any provision for potential loss in this litigation since it believes that it
has meritorious defenses, and that its insurance coverage is adequate to cover
any loss which might be incurred.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-18-
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) Market Information:
Since May 24, 1990, the Company's Common Stock has been included in the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") under the symbol "ENSA". On September 3, 1991, the Company's Common
Stock became a part of NASDAQ's National Market System. The following sets forth
certain information with respect to the high and low "bid" prices quoted for the
Common Stock during the periods shown.
HIGH LOW
----------------------------------
1994
----
FIRST QUARTER $2 7/8 $1 7/8
SECOND QUARTER 2 3/4 1 1/2
THIRD QUARTER 2 3/4 1 7/8
FOURTH QUARTER 2 7/16 1 7/16
1995
----
FIRST QUARTER $2 $1 3/16
SECOND QUARTER 1 1/2 1 1/16
THIRD QUARTER 2 1/8 1 1/18
FOURTH QUARTER 1 9/16 1
1996
----
FIRST QUARTER $1 1/2 $1 3/16
As described in response to Item 1(a) above, ERD Waste Corp. and its
wholly-owned subsidiary have made a tender offer to acquire all of the Company's
outstanding Common Stock at a price of $1.66 per share, and have entered into an
agreement to acquire substantially all of the Company's outstanding Preferred
Stock. The Company's Board of Directors has recommended to its stockholders that
the offer be accepted.
(b) Holders:
As of March 29, 1996, there were approximately 306 record holders of the
Company's Common Stock, including brokerage firms and/or clearing houses holding
shares of the Company's Common Stock for their clientele (with each such
brokerage house and/or clearing house being considered as one holder).
(c) Dividends:
The Company has never paid or declared any dividends upon its Common Stock
and does not contemplate or anticipate paying any dividends upon its Common
Stock in the foreseeable future. No dividend may be declared or paid on the
Company's Common Stock
-19-
<PAGE>
unless all accrued and unpaid dividends have been paid on the Company's
outstanding Series B Preferred Stock. It is anticipated that future earnings
will be applied to the payment of the dividends on the Company's outstanding
shares of Series B Preferred Stock and the balance, if any, will be retained for
use in the business of the Company.
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Amounts in thousands except per share data)
Years Ended
-----------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Operating Revenue $36,559 $32,784 $23,766 $22,951 $21,229
Gross Margin 12,987 11,944 9,187 8,944 8,250
Gross Margin
Percentage 35.5% 36.4% 38.7% 38.9% 38.9%
Net Income (Loss) (982) 293 32 390 1,160
Net Income (Loss)
Per Common Share (.22) .07 .01 .10 .29
Weighted Avg No.
of Common Shares
Outstanding 4,447 4,312 3,964 4,048 4,018
December 31,
-----------------------------------------------------------------
1995 1994 1993 1992
---- ---- ---- ----
BALANCE SHEET
DATA
Working Capital $ (687) $ 1,474 $ 2,288 $ 3,278
Total Assets 20,152 22,313 15,050 11,813
Total Liabilities 12,617 13,799 7,779 4,387
Shareholders' Equity 7,535 8,514 7,271 7,426
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Management's discussion and analysis is based upon the audited consolidated
financial statements of the Company and its subsidiaries for the fiscal years
1995 and 1994, and includes the accounts of the Company and its wholly-owned
subsidiaries, after elimination of all
-20-
<PAGE>
significant intercompany balances and transactions. For further information,
see the Company's Financial Statements, including the notes thereto.
Effective April 1, 1994, ENSA-IN and ENSA-MO (newly formed subsidiaries of
the Company) acquired substantially all of the assets of Industrial Fuels and
Resources, Inc. and Industrial Fuels and Resources of Missouri, Inc.,
respectively, ("IFR") which operate two TSD facilities. The purchase price was
$1,336,126 and included forgiveness of loans previously granted to IFR, issuance
of shares of the Company's common stock, and acquisition costs. The transaction
was treated as a purchase for financial statement purposes. Accordingly, the
Company's financial statements include the operations of ENSA-IN and ENSA-MO
beginning April 1, 1994.
On August 12, 1994, ENSA-ENV (a newly formed subsidiary of the Company)
acquired certain assets and assumed certain liabilities of Earth Science
Technologies, Inc. ("EST") which, operated an environmental consulting and
remediation business in the Midwest with offices in four states. The purchase
price was $674,194 which included the forgiveness of loans granted to EST,
issuance of shares of the Company's common stock and acquisition costs. The
transaction was treated as a purchase for financial statement purposes.
Accordingly, the Company's financial statements include the operations of
ENSA-ENV beginning August 12, 1994.
Results of Operations
The following table presents items in the Consolidated Statements of
Operations for the fiscal years ended December 31, 1995, 1994, and 1993. This
table and subsequent discussions should be read in conjunction with the Selected
Financial Data and the Consolidated Financial Statements and notes thereto
contained elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Total Revenue
Fiscal Year Ended December 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 64.5 63.6 61.3
----- ----- -----
Gross profit of sales 35.5 36.4 38.7
Selling, general and admini-
strative expenses 33.6 29.9 34.2
Depreciation and amortization 4.9 4.0 3.9
---- ---- ----
Income (loss) from operations (3.0) 2.5 0.6
Net non-operating income 0.2 0.2 0.5
Interest expense (1.5) (1.1) (0.7)
----- ----- -----
Income (loss) before provision
for income taxes (4.3) 1.6 0.4
Provision (benefit) for
income taxes (1.6) 0.7 0.3
----- --- ---
Net income (loss) (2.7)% 0.9% 0.1%
===== === ===
</TABLE>
-21-
<PAGE>
Fiscal 1995 Versus Fiscal 1994:
Net Sales:
The following table indicates the source of net sales attributable to the
three main service activities of the Company. The Company provides its services
on an integrated basis, and in many instances, services in one area of its
business support or lead to a project undertaken in another area. In the table
below, revenues derived from a particular service as part of a multifaceted
project are attributed to the operating subsidiary which actually performs the
service as the general contractor.
<TABLE>
<CAPTION>
Percent Increase (Decrease)
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
December 31, 1995 December 31, 1994 December 31, 1995
Service Net Sales Net Sales Over 1994
- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Hazardous waste
management $13,341,000 36.5% $12,887,000 39.3% 3.5%
Environmental
remediation 8,108,000 22.2 10,125,000 30.9 (19.9)
Environmental
engineering, air
testing and
consulting 15,110,000 41.3 9,772,000 29.8 54.6
---------- ---- ---------- ----
Total $36,559,000 100.0% $32,784,000 100.0% 11.5%
========== ====== =========== ===== ====
</TABLE>
For the year ended December 31, 1995, net sales were $36,559,170, an 11.5
percent increase over 1994 sales of $32,784,213. The increase occurred primarily
in the consulting group where two new offices were added in January, 1995. The
new consulting offices in Congers, New York and Baltimore, Maryland generated
over $5,000,000 in sales during 1995.
In 1995, remediation sales declined $2,017,000 or 19.9 percent from the
prior year. This decline is due to the continuing soft market for remediation
services throughout the Northeastern United States.
Selling, general, and administrative expenses: For the year ended December
31, 1995, selling, general, and administrative expenses were $12,298,330, a
$2,486,034 or 25.3 percent increase over 1994. The Company's two new consulting
offices had selling, general, and administrative expenses of $1,169,000 in 1995.
In addition, the Company recorded several transactions of a non-recurrent
nature:
-22-
<PAGE>
NES legal costs - In connection with the defense of an indictment against
its wholly owned subsidiary, Northeast Environmental Services, Inc. ("NES") and
NES' President, the Company has incurred expenses, primarily legal costs, of
approximately $200,000.
Write off of receivable - During 1995, the Company was informed that one of
its customers had filed for Chapter 11 bankruptcy protection. Accordingly, the
Company has charged to expense in the third quarter the entire account
receivable from this customer which amounted to $644,126. The Company will use
its best efforts to attempt to recover cash from the receivable; at this time
however, the Company cannot determine how much, if anything, will be recovered.
Interest expense - Interest expense rose $197,659 from $358,084 in 1994 to
$555,743 in 1995. Approximately $65,000 of the increase was due to higher
average interest rates during 1995. The remainder of the increase was due to
higher average levels of borrowing during 1995. The Company invested $1,864,000
in fixed assets over the last two years, of which the largest investment was a
$1,400,000 improvement to its New York TSD facility. Additional debt was assumed
when acquiring these assets.
Depreciation and amortization - During 1995, included in depreciation and
amortization is the write off of approximately $216,000 of leasehold
improvements on premises no longer utilized for operating purposes.
Provision for income taxes - As a result of the Company's net loss for
1995, the Company recorded a benefit from income taxes for the year. The loss
before provision for income taxes of $1,570,240 for the year ended December 31,
1995 can be partially carried back to prior years. The Company expects to
receive a refund of approximately $285,000 when it files its 1995 Federal income
tax return and application for refund in 1996.
Net income (loss) - For the year ended December 31, 1995, the Company
recorded a net loss of $982,240 ($.22 loss per share) compared to net income of
$292,887 ($.07 income per share) for the year ended December 31, 1994. The
Company's loss was partially due to $844,125 of expenses of a nonrecurrent
nature. Secondarily, sales generated during the year were insufficient to offset
increases in selling, general, and administrative expenses and increases in
depreciation and amortization and interest expense.
Fiscal 1994 Versus Fiscal 1993:
Net sales - For the year ended December 31, 1994, net sales were
$32,784,213, a 38 percent increase over net sales of $23,766,311 in fiscal year
1993. Approximately half of the increase was due to the Company's 1994
acquisitions of two TSD facilities and four consulting and remediation offices.
The other half was due to internal growth, driven by a successful integration of
the operations of our multi-disciplined businesses and cross-marketing efforts.
-23-
<PAGE>
Information pertaining to sales growth in 1994 for cash of the Company's
service segments.
Air testing and monitoring - In 1994, revenues from air testing services
increased $942,771, or 25 percent as compared to the prior year. The
primary reason for the increase was orders for continuing emissions
monitoring systems ("CEMS"). CEMS revenues for fiscal year 1994 were
$1,250,896.
Hazardous waste management - The newly acquired ENSA-IN and ENSA-MO TSD
facilities generated $2,999,418 in hazardous waste revenues during the
period April 1, 1994 to December 31, 1994. In addition, NES' sales rose
$2,877,491, a 41 percent increase over fiscal year 1993, primarily because
the facility secured or increased its business to several substantial
customers.
Environmental remediation - The decline in sales in the remediation sector
was due to a soft market for remediation services in the New England region
which was characterized by an environment of intense competition with low
demand for services. In addition, in 1993 one remediation customer
accounted for $1,862,075 of revenues; similar revenues were not experienced
from any other customer in 1994.
Environmental consulting - The midwestern consulting operation acquired in
August, 1994 generated $1,585,531 in sales in the period August 12, 1994,
to December 31, 1994. The remainder of the increase occurred in the
Company's existing locations, and was due to the Company's successful cross
selling efforts primarily in the Mid-Atlantic region.
Cost of sales - As a percentage of sales, cost of sales rose from 61.3% of
sales in fiscal year 1993 to 63.6% of sales in fiscal year 1994. The increase in
the cost of sales was primarily attributable to the competitive marketplace
which existed for environmental services.
Gross profit on sales - The Company's gross profit on sales rose by
$2,757,742 in fiscal year 1994 as compared to fiscal year 1993. As discussed
above, the increase was attributable to higher sales which rose $9,017,902 in
the same period.
Selling, general, and administrative expenses - For the year ended December
31, 1994, selling, general, and administrative expenses were $9,812,296, an
increase of $1,697,668 over fiscal year 1993. The increases were attributable to
(1) $1,569,049 in expenses from the 1994 acquisitions, and (2) additional sales
and administrative staff in the Company.
As a percentage of sales, selling, general and administrative expenses
declined from 34.2 percent for the year ended 1993 to 29.9 percent for the year
ended December 31, 1994.
-24-
<PAGE>
The Company's consolidated management and administrative structure allowed
it to absorb increases in sales without incurring significant correlating
increases in indirect expenses. In addition, the Company benefited from
economies of scale as growth occurred.
The Company was vigilant in its efforts to control indirect costs. During
1994, the Company utilized "pay reductions", temporary layoffs, hiring freezes,
and other measures to control the costs of labor, its largest indirect expense.
Depreciation and amortization expense - Compared to the previous year, in
1994, depreciation and amortization expense rose $390,157 to $1,311,502. Of the
increase, $193,193 was attributable to depreciation and amortization of assets
related to the new acquisitions. The remaining increase resulted from
depreciation of new assets purchased by the Company.
Net non-operating income - Net non-operating income was $67,766 during
1994, as a result of net gains realized on the sale of property, plant and
equipment, including the sale of buildings previously housing the Company's
headquarters and the sale of the Company's California air services operation.
Interest expense- Interest expense rose $190,647 from $167,437 for fiscal
year 1993 to $358,084 for 1994, a 114 percent increase. Interest expense
increased as a result of (1) the acquisition of two TSD facilities in
conjunction with which the Company assumed $1,237,154 in debt; and (2) capital
equipment purchases and improvements by the Company. The most significant outlay
by the Company was the $1,000,000 capital improvement to expand its New York TSD
facility which was substantially completed in 1994.
Net income - For the year ended December 31, 1994, the Company had net
income of $292,887 ($.07 income per share) as compared to net income of $32,084
$.01 income per share) for the year ended December 31, 1993. The increase in net
income was primarily attributable to the significant increase in sales in 1994.
Liquidity and Capital Resources:
At December 31, 1995, the Company's current liabilities were $11,339,694,
which amount exceeded current assets by $687,077. Current liabilities include
$4,045,000 representing the entire balance on the Company's term loan and line
of credit from its commercial bank. At December 31, 1994, $1,575,000 of the term
loan was classified as long-term debt.
The Company has a $5,000,000 credit facility with a commercial bank which
it obtained in June, 1994. The credit, which included a term loan and line of
credit, originally carried a maturity date of April 30, 1996. In consideration
of the pending purchase of the Company by ERD Waste Corp. ("ERD"), the bank has
extended the loan to the earlier of June 15, 1996 or the date that the Company
is acquired by ERD.
-25-
<PAGE>
Accounts receivable at December 31, 1995 was $8,754,953, a decrease of 19.1
percent from December 31, 1994. The decline is due to a decrease in sales for
the fourth quarter of 1995 as compared to 1994. Sales in the fourth quarter of
1995 were $8,637,000 versus sales of $10,176,000 in the fourth quarter of 1994.
This factor along with intensified collection efforts by the Company,
contributed to the decline in accounts receivable outstanding.
To date, the Company has invested approximately $1,707,000 in the
improvement of its NES TSD facility, $478,000 of which was spent in 1996 to
complete the building improvements. Additionally, the Company may be required to
invest approximately $425,000 in improvements at its TSD facilities in Indiana
and Missouri.
Concurrently with the execution of the Original Merger Agreement on January
25, 1996, ERD and the Company executed the Securities Purchase Agreement
providing for a loan by ERD to the Company ("the Bridge Loan") of $500,000 and
the issuance to ERD of 500,000 Shares (the "Escrow Shares") which have been
placed in escrow. The Bridge Loan is due on December 31, 1996, together with
interest at the prime rate, unless (a) the Company terminates the Merger
Agreement for any reason other than a breach of the Merger Agreement by ERD, (b)
there is a Change of Control Event (as defined), or (c) the Company commits an
event of default under the Securities Purchase Agreement, in any of which cases
the Bridge Loan and interest thereon will become immediately due and payable.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial information required in response to this Item of Form 10-K is set
forth at pages F-1 through F-29 of this Report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
-26-
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers and directors of the Company as of the date of this
Report are as follows:
Name Age Position with the Company
---- --- -------------------------
Jon Colin 40 Director, President, Chief
Executive Officer and
Treasurer
Joseph T. Jacobsen 38 Director, Executive Vice
President and Secretary
Kathleen P. LeFevre 41 Chief Financial Officer
Walter H. Barandiaran 43 Director
Schneur Z. Genack 57 Director
All directors hold office until the next annual meeting of stockholders of
the Company and until their successors have been elected and qualified. No
director receives any compensation for his services in such capacity. Officers
serve at the discretion of the Board of Directors. There are no family
relationships among the directors and officers. All directors presently in
office were elected on October 27, 1994.
Jon Colin was named President and Chief Executive Officer of the Company in
June 1990. Mr. Colin joined the Company in September 1987, and served , prior to
June 1990, in various capacities including Executive Vice President, Secretary,
Treasurer and Chief Financial Officer. Mr. Colin has a B.S. degree in Accounting
from the University of Maryland.
Joseph T. Jacobsen became Secretary of the Company in June 1990 and has
been Executive Vice President of the Company since November 1989. In August
1994, Mr. Jacobsen was named President of ENSA Environmental, Inc., a
wholly-owned subsidiary of the Company which owns and operates all consulting
assets and activities of the Company. Mr. Jacobsen holds a Masters of Science
degree from the School of Engineering of the University of Pittsburgh, a B.S.
degree in Business from LaSalle University and a B.A. degree in Geology from
Temple University.
Kathleen P. LeFevre has been employed by the Company since March 1991, and
was named Chief Financial Officer of the Company in July 1991. Prior to her
association with the Company she was, from October 1989, Controller of Scott
Environmental Technology, Inc. ("Scott"), Plumsteadville, Pennsylvania, a
position she continued to hold, following the Company's acquisition of Scott,
until July 1991. Ms. LeFevre is a certified public accountant; she graduated
from LaSalle University in Philadelphia in 1978 and received an M.B.A. from that
institution in 1990.
-27-
<PAGE>
Walter H. Barandiaran is a General Partner of The Argentum Group, a private
merchant banking firm which provides venture capital and corporate financing to
small and mid-sized growth companies, a position held since November 1987.
Through affiliates of The Argentum Group, Mr. Barandiaran is also a general
partner of Argentum Capital Partners, L.P., a licensed Small Business Investment
Company, and of Environmental Private Equity Fund II, L.P. a $73 million venture
capital fund dedicated to investment in environmental companies. Mr. Barandiaran
holds a B.A. from Baruch College, C.U.N.Y., and attended the New York University
Graduate School of Business Administration. He is a director of U.S. Tire
Recycling Corporation, Conner Industries, Inc., and Lanxide Precision, Inc., all
privately held companies.
Schneur Z. Genack has been a General Partner of Felsen & Genack Associates
("F & G Associates"), a partnership engaged in investment banking, since 1984.
Through F & G Associates, Mr. Genack owns general and limited partnership
interests in the Environmental Venture Fund, L.P., a private venture capital
fund which invests in environmental companies, since 1987. Mr. Genack is a
director of two privately held companies, Pyrotite Incorporated, a company
specializing in fire retardant coating and architectural panels, and EnviroGuard
Incorporated, which is engaged in recycling and treatment of industrial wastes
and New Options on Waste, a construction and demolition debris recycling
company. Mr. Genack graduated from Yeshiva University in 1960, and New York
University School of Law in 1963. He has been a member of the New York bar since
1963.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the two fiscal years ended December 31, 1994, all
Section 16(a) filing requirements applicable to its officers, directors and
greater-than-ten-percent beneficial owners were complied with.
ITEM 11 - EXECUTIVE COMPENSATION.
(a) Summary Compensation Table
The following table sets forth the cash compensation paid to the Company's
chief executive officer and to each other executive officer whose aggregate
remuneration exceeded $100,000 for services rendered to the Company for the
fiscal years ended December 31, 1995, 1994, and 1993:
-28-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
- -----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal sation (1) Award(s) Options/ Payout sation (2)
Position Year Salary($) Bonus($) ($) ($) SARs (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jon Colin 1995 $150,500 -- $9,000 $ -- -- -- $ --
President & Chief 1994 $157,910 -- $9,700 -- -- -- $ --
Executive Officer 1993 $139,050 -- $9,700 65,000(3) $ 1,746
Joseph T. Jacobsen 1995 $112,310 -- $7,600 -- -- -- $ --
Executive Vice 1994 $104,400 -- $6,600 -- -- -- $ --
President & 1993 $102,207 -- $6,600 -- 50,000(3) -- $ 1,466
Secretary
</TABLE>
(1) Use of or reimbursement for the costs of automobiles.
(2) Employer matching contribution pursuant to the Company's Salary Savings
Plan.
(3) Options granted to Mssrs. Colin and Jacobsen in June, 1993 at an exercise
price of $2.00 per share; simultaneously an equal number of options with an
exercise price of $3.25 per share, previously held by Mssrs. Colin and
Jacobsen were cancelled.
In addition, in August, 1994, the Company secured whole life policies for
(i) Jon Colin in the amount of $400,000 and (ii) Joseph T. Jacobsen in the
amount of $200,000. Annual premiums for Mr. Colin's policy are $5,483; annual
premiums for Mr. Jacobsen's policy are $2,692.
In January 1996, the Board of Directors agreed that the insurance policies
would be assigned to Mr. Colin and Mr. Jacobsen. In consideration of the
assignment, and the agreement of the Company to pay the premiums on the policies
for one year (which amounts to approximately $10,000), Mr. Colin and Mr.
Jacobsen agreed to forego irrevocably their 1996 salary deferrals.
(b) Options/SAR Grants
There were no options or SAR grants in 1995.
-29-
<PAGE>
(c) Aggregated Option/SAR Exercises and Fiscal Year-End
Option/SAR Value
During 1995, no executive officer of the Company exercised any options. The
following table indicates the options outstanding and unexercised as of December
31, 1995:
AGGREGATED OPTIONS/SAR EXERCISES IN 1995 AND
OPTIONS/SAR VALUES AS OF DECEMBER, 1995
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-END ($)(1)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jon Colin - - - - 65,000 - -
exercisable exercisable
Joseph T. - - - - 50,000 - -
Jacobsen exercisable exercisable
</TABLE>
(1) Based upon market closing price of $1 1/2 per share.
(d) Long-Term Incentive Plan Awards
None.
(e) Defined Benefit or Actual Plan Disclosure
None.
(f) Compensation of Directors
During the fiscal year ended December 31, 1995, no director of the Company
received any compensation for his services in such capacity. Outside directors
are reimbursed for expenses incurred by them in connection with their activities
on behalf of the Company.
(g) Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Mr. Colin is employed as President and Chief Executive Officer of the
Company under a written employment agreement that has a "rolling" three year
term, i.e. a three year employment term is extended automatically for one year
on each anniversary date of the agreement, subject to termination by Mr. Colin
or the Company. Upon termination of his
-30-
<PAGE>
employment, Mr. Colin is entitled to severance compensation from the Company
equal to $400,000 if the termination is made other than for cause by the Company
or by Mr. Colin without cause. Mr. Colin's base salary (presently $160,000) is
subject to annual cost of living adjustments beginning in 1995, and a 10%
increase in base salary (a) if the Company appoints another person as Chief
Executive Officer of the Company, (b) upon completion by the Company of an
acquisition or series of acquisitions which increases the Company's revenues by
30% or more, or (c) upon the acquisition of the company by another entity unless
Mr. Colin becomes President and Chief Executive Officer of the acquiring entity
immediately following the acquisition.
Mr. Jacobsen is employed as Executive Vice President of the Company and as
President and Chief Executive Officer of ENSA-ENV under a written employment
contract expiring on December 31, 1996. Mr. Jacobsen's employment thereunder
shall be extended for one additional year if, no later than ninety days prior to
the expiration of the then current term, Mr. Jacobsen gives the Company written
notice of his election to so extend the term, unless the Company, within 30 days
from Mr. Jacobsen's giving of such notice, notifies Mr. Jacobsen that it elects
not to extend such term. Mr. Jacobsen's base salary (presently $106,000) is
subject to annual cost of living adjustments beginning in 1995.
If the ERD Acquisition is completed, Messrs. Colin and Jacobsen will remain
employed by the Company, Mr. Colin as Executive Vice President and Mr. Jacobsen
as President of the Company's consulting operations.
(h) Compensation Committee Interlocks and Insider Participation
There were no changes to executive compensation in fiscal year 1995.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
As described in response to Item 1(a) above, ERD Waste Corp. and its
wholly-owned subsidiary have made a tender offer to acquire all of the Company's
outstanding Common Stock at a price of $1.66 per share, and have entered into an
Agreement to acquire substantially all of the Company's outstanding Preferred
Stock. The Company's Board of Directors has recommended to its stockholders that
the offer be accepted.
The following table sets forth information as of March 29, 1996 with
respect to the beneficial ownership of the Company's securities by officers and
directors of the Company, individually and as a group, and all holders of more
than 5% of the shares of any class of the Company's Voting Securities.
Calculations are based on 4,306,722 shares of Common Stock outstanding. Unless
otherwise indicated, all shares are beneficially owned and sole investment and
voting power is held by the beneficial owners indicated.
-31-
<PAGE>
<TABLE>
<CAPTION>
Amount Beneficially Owned Percentage of Class
------------------------- -------------------
Name and Address Series Series Common Series Series Common
of Beneficial Owner B Pfd (1) C Pfd (2) Stock (3) B Pfd C Pfd Stock(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ERD Waste Corp. - 0 - - 0 - 500,000 - 0 - - 0 - 11.6%
356 Veterans Memorial Hwy,
Commack, NY
Environmental 5,222.22 1,000 760,112 (4) 50.9% 31.3% 16.5%
Venture Fund, L.P.
c/o First Analysis
Corporation
230 S. Wacker Drive
Chicago, IL 60606
Argentum Capital 2,700 2,200 334,750 (5) 26.3% 68.7% 7.4%
Partners, L.P.
The Chrysler Bldg.
405 Lexington Ave.
New York, NY 10174
Kennedy Capital - 0 - - 0 - 265,600 - 0 - - 0 - 6.2%
Management Inc.
425 N. New Ballas Road
St. Louis, MO 63141
Officers & Directors
Jon Colin - 0 - - 0 - 341,860(6) - 0 - - 0 - 7.8%
937 E. Hazelwood Avenue
Building 2
Rahway, NJ 07065
Joseph T. Jacobsen - 0 - - 0 - 172,064(7) - 0 - - 0 - 3.9%
6205 Rte. 611 North
P.O. Box 369
Plumsteadville, PA 18949
Walter H. 277.78 - 0 - 56,642(8) 2.7% - 0 - 1.3%
Barandiaran
The Chrysler Bldg.
405 Lexington Ave.
New York, NY 10174
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount Beneficially Owned Percentage of Class
------------------------- -------------------
Name and Address Series Series Common Series Series Common
of Beneficial Owner B Pfd (1) C Pfd (2) Stock (3) B Pfd C Pfd Stock(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Schneur Z. Genack -0- -0- 3,750(9) -0- -0- 0.09%
123 Grove Avenue
Cedarhurst, NY 11516
Kathleen P. LeFevre -0- -0- 15,807(10) -0- -0- 0.4%
937 E. Hazelwood Avenue
Building 2
Rahway, NJ 07065
Officers and 277.78 -0- 590,123 2.7% -0- 13.3%
Directors as a
Group (5 Persons)
</TABLE>
- ------------------
(1) Of the 10,257.78 shares of Series B Preferred outstanding, 544.45 shares
are convertible into Common Stock on the basis of 36.67 shares of Common
Stock per share of Series B Preferred, and 9,713.33 shares of Series B
Preferred (94.7% of the total outstanding) are convertible into Common
Stock on the basis of 45.83 shares of Common Stock per share of Series B
Preferred. The differences in conversion ratios of Series B Preferred
result from adjustments made in connection with a solicitation by the
Company in June 1990 of early exercise of outstanding Common Stock Purchase
Warrants.
(2) Holders of outstanding Series C Preferred are entitled to 55 votes per
share on all matters. Shares of Series C Preferred are convertible at any
time into 55 shares of Common Stock.
(3) In computing the number of shares and the percentage of outstanding Common
Stock "beneficially owned" by a person who owns shares of Series B
Preferred, Series C Preferred or currently exercisable options or warrants,
the shares issuable upon exercise of such rights to acquire Common Stock
owned by such person, but no other persons, are deemed to be outstanding.
Does not include 28,600 shares of record by the Environmental Services of
America, Inc. Salary Savings Plan (the "401(K) Plan"), except that
ownership has been allocated to a participant's individual account as
disclosed below.
(4) Includes 239,351 shares issuable upon conversion of Series B Preferred and
55,000 shares issuable upon conversion of Series C Preferred. Environmental
Venture Fund, L.P. ("EVF") is a venture capital partnership whose sole
general partner is a partnership controlled by First Analysis Corporation,
Felsen & Genack Associates, William D. Ruckelshaus Associates and
Robertson, Stephens & Company. Schneur Z. Genack, a director of the
Company, is a principal of Felsen & Genack Associates and also holds a
limited partnership interest in EVF. See footnote (9) below.
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<PAGE>
(5) Includes 123,750 shares issuable upon conversion of Series B Preferred and
121,000 shares issuable upon conversion of Series C Preferred. Argentum
Capital Partners, L.P., is a small business investment company. Its general
partner is BR Associates, Inc., a corporation of which Walter Barandiaran,
a director of the Company, is president and a principal stockholder. In
addition, The Argentum Group ("Argentum Group") is a special limited
partner of Argentum Capital Partners, and Mr. Barandiaran may be deemed to
be an indirect general partner of Argentum Group. Argentum Group and Mr.
Barandiaran disclaim beneficial ownership of shares of the Company owned by
Argentum Capital Partners except to the extent of their proportionate
interest in such partnership.
(6) Includes (i) 115,600 shares of Common Stock, (ii) 1,260 shares of Common
Stock owned by the ENSA 401(K) Plan, of which Mr. Colin is a Trustee, and
allocated to Mr. Colin's account, and (iii) 160,000 shares of common stock
owned by Mr. Colin's four sons (40,000 shares each), and (iv) a
presently-exercisable option issued pursuant to the Company's 1990
Performance Incentive Stock Option Plan (the "1990 Plan") to acquire an
additional 65,000 shares of Common Stock exercisable at a price of $2.00
per share. Does not include shares in the name of the ENSA 401(K) Plan
which Mr. Colin, as a Trustee, may have the right to vote under certain
circumstances, but which are allocated to accounts of other beneficiaries.
(7) Includes (i) 121,000 shares of Common Stock (ii) 1,064 shares of Common
Stock owned by the ENSA 401(K) Plan, of which Mr. Jacobsen is a Trustee,
and allocated to Mr. Jacobsen's account and (iii) a presently-exercisable
option issued pursuant to the Company's 1990 Plan to acquire an additional
50,000 shares of Common Stock exercisable at a price of $2.00 per share.
Does not include shares in the name of the ENSA 401(K) Plan which Mr.
Jacobsen, as a Trustee, may have the right to vote under certain
circumstances, except to the extent of Mr. Jacobsen's allocation indicated
above.
(8) Includes (i) 5,000 shares held in Mr. Barandiaran's individual retirement
account, (ii) 5,000 shares held in the individual retirement account of Mr.
Barandiaran's wife, and (iii) 10,184 shares issuable upon conversion of
Series B Preferred. Does not include (i) 90,000 shares of Common Stock,
(ii) 123,750 shares of Common Stock issuable upon conversion of Series B
Preferred or (iii) 121,000 shares of Common Stock issuable upon conversion
of Series C Preferred owned by Argentum Capital Partners. See footnote (5)
above. Mr. Barandiaran disclaims beneficial ownership of the shares owned
by Argentum Capital Partners or Argentum Group, except to the extent of his
proportionate interest in those entities.
(9) Includes (i) 2,100 shares of Common Stock owned of record by Mr. Genack's
wife. Does not include the following shares owned by the Environmental
Venture Fund, L.P. (see footnote (4) above): (i) 465,761 shares of Common
Stock, (ii) 239,351 shares issuable upon conversion of Series B Preferred
and (iii) 55,000 shares issuable upon conversion of Series C Preferred. Mr.
Genack disclaims beneficial ownership of the shares owned by the
Environmental Venture Fund, L.P. except to the extent of his proportionate
interest therein.
-34-
<PAGE>
(10) Includes (i) 5,200 shares of Common Stock owned jointly by Ms. LeFevre with
her husband, (ii) 607 shares of common stock owned by the ENSA 401(K) Plan
and allocated to Ms. LeFevre's account and (iii) a presently-exercisable
option issued pursuant to the Company's 1990 Plan to acquire an additional
10,000 shares of Common Stock, exercisable at a price of $3.00 per share.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Management and Others:
In January, 1996, the Company agreed to pay The Argentum Group a $100,000
investment banking fee for services rendered in connection with the proposed
acquisition of the Company by ERD Waste Corp., contingent upon completion of
that acquisition. Walter H. Barandiaran, a director of the Company, is a General
Partner of The Argentum Group. The Company believes that the terms of this
transaction are favorable to the Company as would have been obtained by the
Company in arms-length negotiation with non-affiliated entities.
(b) Certain Business Relationships:
None.
(c) Indebtedness of Management:
None.
-35-
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(A) (1) AND (2) Financial Statements and Schedules:
<TABLE>
<S> <C>
Independent Auditors' Report F-3
Consolidated Balance Sheets -
December 31, 1995 and 1994 F-4 to F-5
Consolidated Statements of Operations - for the
years ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Stockholders' Equity -
for the years ended December 31, 1995, 1994 and 1993 F-7 to F-9
Consolidated Statements of Cash Flows - for the
years ended December 31, 1995, 1994 and 1993 F-10 to F-13
Notes to Consolidated Financial Statements F-14 to F-23
Accountants' Reports on Financial Statement Schedules F-24
Schedules for the years ended December 31, 1995, 1994 and 1993:
V - Property, Plant and Equipment F-25
VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment F-26
VIII - Valuation and Qualifying Accounts and Reserves F-27
IX - Short Term Borrowings F-28
X - Supplementary Income Statement Information F-29
</TABLE>
-36-
<PAGE>
(A) (3) Exhibits:
<TABLE>
<CAPTION>
S.E.C. Exhibit
Ref. No. Number Title of Document Location
- -------- ------ ------------------ ---------
<S> <C> <C> <C>
3 3.01 Restated Certificate of Incorporated by reference
Incorporation to Registrant's Current
Report on Form 8-K filed
on June 20, 1988.
3 3.02 Bylaws Incorporated by reference to
Registrant's Current Report
on Form 8-K filed on June 20, 1988.
3 3.03 Amendment to Certificate Incorporated by reference to
of Incorporation Registrant's Annual Report on Form
10-K for the year ended December 31,
1990.
4 4.01 Form of Common Stock Incorporated by reference to
Certificate Registrant's Annual Report on Form
10-K for the year ended December
31, 1990.
4 4.02 Certificate of Designation Incorporated by reference to
of Series B Preferred Stock Registrant's Current Report on
Form 8-K filed on June 28, 1990.
4 4.03 Certificate of Amendment to Incorporated by reference
Certificate of Designation, to Registrant's Current
Preferences and Other Rights Report on Form 8-K filed
and Qualifications of Series B on July 8, 1994 (as Exhibit
Preferred Stock of Environmental No. 3.01).
Services of America, Inc.
4 4.04 Certificate of Designation Incorporated by reference to
of Series C Preferred Stock. Registrant's Current Report
on Form 8-K filed on April
15, 1994 (as Exhibit No. 4.03).
4 4.05 Certificate of Amendment to Incorporated by reference to
Certificate of Designation, Registrant's Current Report
Preferences and Other Rights on Form 8-K filed on July
and Qualifications of Series C 8, 1994 (as Exhibit No. 3.02).
Preferred Stock of Environmental
Services of America, Inc.
4 4.06 Series C Preferred Stock Incorporated by reference to
Subscription Agreement dated Registrant's Current Report
April 4, 1994, by Environmental on Form 8-K filed on April
Venture Fund, L.P. 15, 1994 (as Exhibit No. 4.01).
-37-
<PAGE>
4 4.07 Series C Preferred Stock Incorporated by reference to
Subscription Agreement dated Registrant's Current Report
April 4, 1994, by Argentum on Form 8-K filed on April
Capital Partner, L.P. 15, 1994 (as Exhibit No. 4.02)
10 10.01 1990 Performance Incentive Incorporated by reference to
Stock Option Plan Registrant's Annual Report on
Form 10-K for the year
ended December 31, 1990.
10 10.02 Warrant Agreement dated Incorporated by reference to
December 1, 1989 between Registrant's Current Report on
the Company and the lenders Form 8-K filed on December 15,
1989.
10 10.03 Registration Rights Agreement Incorporated by reference to
dated December 1, 1989 between Registrant's Current Report on
the Company and the lenders Form 8-K filed on December 31,
1989.
10 10.04 Series B Preferred Stock Purchase Incorporated by reference to
Agreement dated June 14, 1990 Registrant's Current Report on
Form 8-K filed on June 28, 1990.
10 10.05 Warrant Agreement dated June 14, Incorporated by reference to
1990 Registrant's Current Report on
Form 8-K filed on June 28, 1990.
10 10.06 Amendment No. 1 to Registration Incorporated by reference to
Rights Agreement dated June 14, Registrant's Current Report on
1990 Form 8-K filed on June 28, 1990.
10 10.07 Employment Agreement between the Incorporated by reference to
Registrant and Jon Colin dated Registrant's Annual Report on
January 1, 1994 Form 10-K for the year ended
December 31, 1994.
10 10.08 Employment Agreement between the Incorporated by reference to
Registrant and Joseph T. Jacobsen Registrant's Annual Report on
dated January 1, 1994 Form 10-K for the year ended
December 31, 1994.
10 10.09 Loan and Security Agreement Incorporated by reference to
dated June 23, 1994, by and Registrant's Current Report
among Registrant and its on Form 8-K filed on July 8,
subsidiaries and United Jersey 1994.
Bank.
-38-
<PAGE>
10 10.10 Indenture of Lease and First Incorporated by reference to
Addendum to Indenture dated Registrant's Annual Report on
July 1, 1994 by and between Form 10-K for the year ended
Rahway Industrial Associates December 31, 1994.
and ENSI, Inc. relating to the
lease of Registrant's Principal
Executive Offices.
10 10.11 Offer to Purchase, dated April 4, Incorporated by reference to
1996. Schedule 14D-1 dated and filed
April 4, 1996, by ERD Waste
Corp. and ENSA Acquisition Corp.
(as Exhibit (a)(1)).
10 10.12 Amended and Restated Agreement Incorporated by reference to
Plan of Merger, dated April 3, 1996, Schedule 14D-1 dated and filed
among ENSA Acquisition Corp., April 4, 1996 by ERD Waste
ERD Waste Corp. and the Corp. and ENSA Acquisition
Registrant. Corp. (as Exhibit (c)(1)).
10 10.13 Stock Purchase Agreement, dated Incorporated by reference to
April 3, 1996, among ERD Waste Schedule 14D-1 dated and filed
Corp., Argentum Capital Partners, April 4, 1996, by ERD Waste
L.P., Environmental Venture Fund Corp and ENSA Acquisition Corp.
Fund, L.P. and those holders of (as Exhibit (c)(3)).
Series B Preferred Stock of the
Registrant listed on Schedule 1
thereto who executed such
schedule.
10 10.14 Form of Colin Employment Incorporated by reference to
Agreement, to be entered into Schedule 14D-1 dated and filed
between ENSA Acquisition Corp. April 4, 1996 by ERD Waste
and Jon Colin. Corp. and ENSA Acquisition Corp.
(as Exhibit (c)(4)).
10 10.15 Form of Jacobsen Employment Incorporated by reference
Agreement to be entered into to Schedule 14D-1 dated filed
between ENSA Acquisition Corp. April 4, 1996, by ERD Waste
and Joseph Jacobsen. Corp. and ENSA Acquisition Corp.
(as Exhibit (c)(5)).
20 21.1 Subsidiaries of the Registrant Exhibit 21.1
27 Financial Data Schedule Exhibit 27
</TABLE>
Reports on Form 8-K.
No reports on Form 8-K were filed by the Company in the last
quarter of fiscal year 1995.
-39-
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
FORM 10-K
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K - ITEM 14
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Index to Financial Statements F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets - December 31, 1995
and 1994 F-4 - F-5
Consolidated Statements of Operations -
for the Years Ended December 31, 1995,
1994, and 1993 F-6
Consolidated Statements of Stockholders'
Equity - for the Years Ended December 31, 1995,
1994 and 1993 F-7 - F-9
Consolidated Statements of Cash Flows - for the
Years Ended December 31, 1995, 1994 and 1993 F-10 - F-13
Notes to Consolidated Financial Statements F-14 - F-23
Accountants' Report on Financial Statement
Schedules F-24
Schedules for the Years Ended December 31, 1995, 1994 and 1993:
V - Property, Plant and Equipment F-25
VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and
Equipment F-26
VIII - Valuation and Qualifying Accounts and
Reserves F-27
IX - Short Term Borrowings F-28
X - Supplementary Income Statement Information F-29
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholders
Environmental Services of America, Inc.
Rahway, New Jersey
We have audited the accompanying consolidated balance sheets of
Environmental Services of America, Inc. and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Environmental Services of America, Inc. and subsidiaries as of December 31, 1995
and 1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
COOPER, SELVIN & STRASSBERG LLP
CERTIFIED PUBLIC ACCOUNTANTS
Great Neck, New York
March 30, 1996, except as to
Note 10(c), the date of
which is April 4, 1996
F-3
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 661,192 $ 600,272
Accounts receivable, net of
allowance for doubtful accounts
of $447,605 and $469,605,
respectively (Notes 4 and 5) 8,754,953 10,821,411
Prepaid expenses and deposits 647,626 771,666
Prepaid and refundable income taxes 370,286 -
Other current assets 218,560 348,024
----------- -----------
Total Current Assets 10,652,617 12,541,373
----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and
amortization (Notes 3 and 5) 6,950,870 7,319,713
----------- -----------
GOODWILL, net of accumulated
amortization of $288,303 and
$232,818, respectively 1,500,234 1,555,719
----------- -----------
OTHER ASSETS:
Deferred permit costs 233,225 290,809
Customer list 111,638 151,838
Deferred income taxes (Note 8) 425,900 90,900
Other 277,987 362,766
----------- -----------
Total Other Assets 1,048,750 896,313
----------- -----------
$ 20,152,471 $ 22,313,118
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term
debt (Note 5) $ 2,089,290 $ 1,148,149
Notes payable - bank (Note 4) 2,470,000 1,650,000
Accounts payable and accrued expenses 6,754,497 8,127,843
Income taxes payable 25,907 140,909
----------- -----------
Total Current Liabilities 11,339,694 11,066,901
----------- -----------
LONG-TERM DEBT, less current
portion (Note 5) 1,004,058 2,459,052
----------- -----------
OTHER LONG-TERM LIABILITIES 273,000 273,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Notes 2, 6, and 7):
Preferred stock, $.01 par value -
authorized 2,000,000 shares:
"Series B" - 10,258 shares
issued and outstanding 103 103
"Series C" - 3,200 shares
issued and outstanding 32 32
Common stock, $.02 par value -
authorized 10,000,000 shares, issued
and outstanding 3,806,722 and
3,801,722 shares, respectively 76,135 76,035
Paid-in capital in excess of par 5,828,079 5,819,579
Retained earnings 1,631,370 2,618,416
----------- -----------
Total Stockholders' Equity 7,535,719 8,514,165
----------- -----------
$ 20,152,471 $ 22,313,118
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 36,559,170 $ 32,784,213 $ 23,766,311
Cost of sales 23,571,670 20,839,810 14,579,650
----------- ----------- -----------
Gross profit on sales 12,987,500 11,944,403 9,186,661
----------- ----------- -----------
Selling, general and admini-
strative expenses 12,298,330 9,812,296 8,114,628
Depreciation and amortization 1,777,443 1,311,502 921,345
----------- ----------- -----------
14,075,773 11,123,798 9,035,973
----------- ----------- -----------
Income (loss) from operations ( 1,088,273) 820,605 150,688
----------- ----------- -----------
Other income (expenses):
Non-operating income 73,776 67,766 103,333
Interest expense ( 555,743) ( 358,084) ( 167,437)
----------- ----------- -----------
( 481,967) ( 290,318) ( 64,104)
----------- ----------- ------------
Income (loss) before
provision for income taxes ( 1,570,240) 530,287 86,584
Provision (benefit) for
income taxes (Note 8) ( 588,000) 237,400 54,500
----------- ----------- -----------
Net income (loss) $( 982,240) $ 292,887 $ 32,084
=========== =========== ===========
Earnings (loss)
per common share: $( .22) $ .07 $ .01
=========== =========== ===========
Weighted average number of
common shares and equiv-
alent shares outstanding 4,446,811 4,312,465 3,963,601
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
------------ --------------- -------------- Paid in
Number Number Number Capital in Retained
of Shares Amount of Shares Amount of Shares Amount Excess of Par Earnings
--------- ------ --------- ------ --------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1993 3,031,411 $ 60,629 14,952 $ 150 (35,000) $ (66,729) $5,121,852 $ 2,309,768
Issuance of common
stock in connection with
acquisitions 15,000 300 - - - - 22,200 -
Cancellation of shares
previously issued in
connection with acquisi-
tion of TRI-S, Inc. (46,425) (929) - - - - (91,921) -
Redemption of preferred
and common stock (8,682) (174) (552) (6) - - (107,013) -
Dividends - preferred stock - - - - - - - (9,194)
Net income - year ended
December 31, 1993 - - - - - - - 32,084
--------- -------- ------ ------ ------- ---------- ---------- -----------
2,991,304 $59,826 14,400 $144 (35,000) $(66,729) $4,945,118 $2,332,658
========= ======== ====== ====== ======= ========== ========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
------------ --------------- -------------- Paid in
Number Number Number Capital in Retained
of Shares Amount of Shares Amount of Shares Amount Excess of Par Earnings
--------- ------ --------- ------ --------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1994 2,991,304 $ 59,826 14,400 $ 144 (35,000) $ (66,729) $4,945,118 $ 2,332,658
Issuance of common stock
in connection
with acquisitions 312,500 6,250 - - - - 574,375 -
Issuance of preferred stock - - 3,200 32 - - 319,968 -
Cancellation of shares
previously issued in
connection with asset
acquisition (15,000) (300) - - - - (22,200) -
Retirement of treasury stock (35,000) (700) - - 35,000 66,729 (66,029) -
Conversion of preferred stock 452,543 9,051 (4,142) (41) - - (9,010) -
Exercise of warrants 91,875 1,838 - - - - 70,037 -
Dividends - preferred stock - - - - - - - (7,129)
Other 3,500 70 - - - - 7,320 -
Net income - year ended
December 31, 1994 - - - - - - - 292,887
--------- -------- ------ ------ ------- ---------- ----------- ----------
3,801,722 $76,035 13,458 $135 - $ - $5,819,579 $2,618,416
========= ======== ====== ====== ======= ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
------------ --------------- -------------- Paid in
Number Number Number Capital in Retained
of Shares Amount of Shares Amount of Shares Amount Excess of Par Earnings
--------- ------ --------- ------ --------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 3,801,722 $ 76,035 13,458 $ 135 - $ - $5,819,579 $ 2,618,416
Issuance of common
stock in connection
with consulting services 5,000 100 - - - - 8,500 -
Dividends - preferred stock - - - - - - - (4,806)
Net (loss) - year ended
December 31, 1995 - - - - - - - ( 982,240)
--------- -------- -------- ------ --------- --------- ---------- ----------
3,806,722 $76,135 13,458 $135 - $ - $5,828,079 $1,631,370
========= ======== ======== ====== ========= ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $( 982,240) $ 292,887 $ 32,084
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,777,443 1,311,502 921,345
Deferred income taxes ( 335,000) ( 90,900) -
Decrease (Increase) in accounts
receivable 2,066,458 (1,555,696) (2,089,934)
Decrease (Increase) in prepaid
expenses and deposits 124,040 (252,404) 38,743
(Increase) in prepaid and refundable
income taxes ( 370,286) - -
Decrease (Increase)in other
current assets 129,464 414,837 ( 770,132)
(Decrease) Increase in accounts
payable and accrued expenses (1,373,346) 856,045 1,944,371
(Decrease) Increase in income
taxes payable ( 115,002) 135,838 ( 22,683)
---------- ---------- ----------
Total Adjustments 1,903,771 819,222 21,710
---------- ---------- ----------
Net Cash Provided by Operating
Activities 921,531 1,112,109 53,794
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (1,027,445) ( 836,670) (1,116,791)
(Increase) in customer list - ( 62,500) ( 105,000)
Decrease (Increase) in other assets 84,779 ( 328,771) ( 33,995)
Acquisition of subsidiaries - (1,063,451) -
---------- ---------- ----------
Net Cash (Used In) Investing
Activities ( 942,666) (2,291,392) (1,255,786)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (1,870,519) (1,319,451) ( 401,537)
Increase in notes payable-bank 820,000 175,000 1,325,000
Redemption of stock - - ( 107,193)
Exercise of warrants and other 8,600 56,766 -
Dividends ( 4,806) ( 7,129) ( 9,194)
Insurance of preferred stock - 320,000 -
Increase in long-term debt 1,128,780 2,040,000 133,962
---------- ---------- ----------
Net Cash Provided by
Financing Activities 82,055 1,265,186 941,038
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 60,920 85,903 (260,954)
CASH AND CASH EQUIVALENTS - Beginning 600,272 514,369 775,323
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - Ending $ 661,192 $ 600,272 $ 514,369
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Income taxes $ 170,371 $ 103,446 $ 39,467
======== ======== ========
Interest $ 552,972 $ 330,302 $ 167,104
======== ======== ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
YEAR ENDED DECEMBER 31, 1995:
The Company purchased property and equipment for $232,870, a portion of which
purchase price was financed. The purchases were accounted for as follows:
Cost of property and equipment $ 232,870
Cash paid at time of acquisition 4,984
----------
Debt incurred $ 227,886
==========
F-11
<PAGE>
YEAR ENDED DECEMBER 31, 1994:
The Company purchased property and equipment for $529,015, a portion of which
purchase price was financed. The purchases were accounted for as follows:
Cost of property and equipment $ 529,015
Cash paid at time of acquisition 15,520
----------
Debt incurred $ 513,495
==========
Preferred shareholders converted 3,376 shares of Series A preferred stock and
766 shares of Series B preferred stock into a total of 452,543 shares of
common stock. The transactions were accounted for as follows:
Common stock $ 9,051
Preferred stock ( 41)
Paid-in capital in excess of par ( 9,010)
----------
$ -
==========
The Company retired 35,000 shares of common stock previously held as treasury
stock. The transaction was accounted for as follows:
Common stock $( 700)
Paid-in capital in excess of par ( 66,029)
Treasury stock 66,729
----------
$ -
==========
During the year, the Company acquired substantially all of the assets, subject
to certain liabilities, of two treatment, storage and disposal facilities and an
environmental consulting and remediation business. The aggregate purchase price
was $2,010,320 consisting of cash and shares of stock. The transactions are
summarized as follows:
Working capital acquired, other than cash $( 549,088)
Property and equipment acquired 3,059,173
Permits acquired 213,291
Goodwill acquired 430,854
Long-term debt acquired (1,237,154)
Other long-term liabilities acquired ( 273,000)
Common stock issued ( 580,625)
----------
Net cash used in acquisition $ 1,063,451
==========
YEAR ENDED DECEMBER 31, 1993:
The Company purchased property and equipment for $400,590, a portion of which
purchase price was financed. The purchases were accounted for as follows:
Cost of property and equipment $ 400,590
Cash paid at time of acquisition 21,055
----------
Debt incurred $ 379,535
==========
F-12
<PAGE>
YEAR ENDED DECEMBER 31, 1993: (Continued)
The Company refinanced existing debt during the year realizing cash proceeds
in excess of previously existing debt. The transaction was accounted for as
follows:
Total new debt$ 251,250
Cash received ( 133,962)
Debt refinanced $ 117,288
==========
During the year, the Company acquired property and equipment and customer
lists in exchange for the issuance of 15,000 shares of common stock, the
assumption of long-term debt and cash. The transaction was accounted for as
follows:
Cost of property and equipment $ 107,550
Cash paid at time of acquisition 9,021
----------
Debt incurred $ 98,529
==========
Cost of customer list $ 127,500
Common stock issued ( 22,500)
----------
Cash paid $ 105,000
In connection with the former owners of TRI-S having guaranteed the
collectibility of certain assets, such individuals agreed to a reduction of
notes payable due them as well as to the cancellation of 46,425 shares of
stock previously issued to them in connection with the acquisition of TRI-S.
The transaction was accounted for as follows:
Cancellation of common stock $ 92,850
Cancellation of debt 65,409
----------
Reduction of other current assets $ 158,259
==========
F-13
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the major accounting policies followed by the
Company in the preparation of the accompanying financial
statements is set forth below:
(a) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the
accounts of Environmental Services of America, Inc. and
its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been
eliminated.
(b) BUSINESS:
The Company is engaged in the business of providing for
the control, cleanup, removal, transportation and
disposal of hazardous waste; related geological testing
and consulting; and air monitoring and testing services
for private and public entities.
(c) REVENUE RECOGNITION:
The Company's policy is to record revenue as earned and
expenses are recognized as incurred.
(d) CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the
Company considers cash and cash equivalents to include
cash on hand, amounts due from banks, and any other
highly liquid debt instruments purchased with a
maturity of three months or less.
(e) PROPERTY AND EQUIPMENT:
Depreciation of property and equipment is computed
using the straight-line and double declining balance
methods over the estimated useful lives of the related
assets. Costs and related accumulated depreciation are
deducted from the accounts on retirement or disposal
and any resulting gain or loss is reflected in income.
Betterments and major renewals or replacements are
capitalized; expenditures for repairs and maintenance
are charged against income.
(f) GOODWILL:
Goodwill represents the excess of cost over the fair
value of net assets of acquired businesses, and is
being amortized on a straight-line basis over periods
ranging from twenty to forty years.
F-14
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) DEFERRED PERMIT COSTS:
Deferred permit costs, representing costs incurred in
connection with obtaining permits required by
regulatory agencies, are amortized over the period for
which the permits are effective.
(h) INCOME TAXES:
The provision for income taxes is based on elements of
income and expense as reported in the statement of
operations. Deferred income taxes are provided for
timing differences between financial statement and
income tax reporting.
The Company has recorded a deferred tax asset of
$425,900 principally reflecting the availability of
alternative minimum tax credits. Realization is
dependent on generating taxable income in amounts
sufficient to utilize such credits. Although
realization is not assured, management believes it is
more likely than not that all of the deferred tax asset
will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the
near term if estimates of future taxable income are
reduced.
(i) EARNINGS PER SHARE:
Earnings per share of common stock is calculated based
on the weighted average number of shares and equivalent
shares outstanding during the period.
(j) ESTIMATES:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
NOTE 2 - ACQUISITIONS
Effective April 1, 1994, ENSA of Indiana, Inc. ("ENSA-IN") and
ENSA of Missouri, Inc. ("ENSA-MO"), newly formed subsidiaries
of the Company, acquired substantially all of the assets of
Industrial Fuels and Resources, Inc. and Industrial Fuels and
Resources of Missouri, Inc., respectively, which operated two
treatment, storage, and disposal facilities. The total cost of
the acquisition was $1,336,126 which approximated the fair
value of the net assets acquired. The transaction was accounted
for as a purchase and, accordingly, the financial statements
include the operations of ENSA-IN and ENSA-MO beginning April
1, 1994.
F-15
<PAGE>
NOTE 2 - ACQUISITIONS (Continued)
On August 12, 1994, ENSA Environmental, Inc., a newly formed
subsidiary of the Company, acquired certain assets and assumed
certain liabilities of Earth Science Technologies, Inc., an
environmental consulting and remediation business. The total
cost of the acquisition was $674,194, which exceeded the fair
value of the net assets acquired by $430,854. The excess is
being amozitized on the straight-line method over twenty years.
The financial statements include the operations of ENSA
Environmental, Inc. beginning August 12, 1994.
The following summarized pro forma information assumes the
acquisitions had occurred at the beginning of the periods
presented and does not purport to be indicative of what would
have occurred had the acquisitions been made as of those dates.
Year ended December 31,
-----------------------
1994 1993
---- ----
Net sales $ 35,747,924 $ 36,164,697
=========== ===========
Net income (loss) $ 142,390 $( 76,449)
=========== ===========
Earnings (loss)
per Common Share $ .03 $( .02)
=========== ===========
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment is reflected at cost, net of accumulated
depreciation and amortization, and is summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------ Depreciable
1995 1994 Lives
---- ---- -----------
<S> <C> <C> <C>
Land $ 199,126 $ 199,126 -
Buildings and improvements 4,026,128 3,548,361 31.5 Years
Equipment and vehicles 6,032,822 5,237,282 3-7 Years
Furniture, fixtures and office
equipment 1,212,458 1,327,859 3-7 Years
Leasehold improvements 7,543 309,257 Lease term
----------- -----------
11,478,077 10,621,885
Accumulated depreciation and
amortization ( 4,527,207) ( 3,302,172)
----------- -----------
$ 6,950,870 $ 7,319,713
=========== ===========
</TABLE>
F-16
<PAGE>
NOTE 4 - NOTES PAYABLE - BANK
Represents borrowings under a revolving credit line, expiring
April 30, 1996 (see Note 10(b)), pursuant to the terms of
which, the Company may borrow up to $3,000,000, including a
maximum of $1,000,000 which may be utilized for standby letters
of credit. Borrowings bear interest at one-half percent above
the bank's base lending rate (9.0 percent at December 31,
1995). The borrowing agreement, among other things, requires
the Company to maintain specified levels of tangible net worth,
a specified minimum current ratio and limits the annual capital
expenditures the Company may make. Borrowings under the
revolving credit line, including outstanding letters of credit,
plus the outstanding balance of the Company's term loan (Note
5(a)) may not exceed seventy percent of eligible accounts
receivable. The revolving credit line and term loan are
collateralized by the Company's accounts receivable.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Term loan-bank (a) $ 1,575,000 $ 1,875,000
Term loan (b) 780,214 -
Term loan-bank (c) 229,167 -
Term loan-bank (d) 57,000 -
Notes payable - equipment (e) 399,784 1,639,870
Notes payable - individual (f) 52,183 92,331
---------- ----------
3,093,348 3,607,201
Less current portion 2,089,290 1,148,149
---------- ----------
$ 1,004,058 $ 2,459,052
========== ==========
</TABLE>
(a) TERM LOAN-BANK:
Represents the balance of a $2,000,000 term loan
repayable in equal monthly principal installments of
$25,000, plus interest at one percent above the bank's
base rate (9.5 percent at December 31, 1995), through
April 30, 1996 (see Note 10(b)) at which date all
remaining unpaid principal is due.
(b) TERM LOAN:
Represents a term loan due in equal monthly installments
of $21,757 through July 1999 including interest at 10.25
percent per annum. The obligation is collateralized by
property and equipment.
(c) TERM LOAN-BANK:
Represents a term loan repayable in equal monthly
principal installments of $5,729, plus interest at 9.25
percent through April 1999. The obligation is
collateralized by property and equipment.
F-17
<PAGE>
NOTE 5 - LONG-TERM DEBT (Continued)
(d) TERM LOAN-BANK:
Represents a term loan repayable in equal monthly
principal installments of $1,583, plus interest at one
percent above the bank's base rate (9.5 percent at
December 31, 1995), through December 1998. The
obligation is collateralized by property and equipment.
(e) NOTES PAYABLE - EQUIPMENT:
Represents various equipment installment notes payable,
with current monthly payments aggregating approximately
$19,800 including interest at rates ranging from 7.25 to
11.75 percent, which are collateralized by the
equipment. The terms of payment of these installment
notes range between 36 and 60 months.
(f) NOTES PAYABLE - INDIVIDUAL: Represents notes payable to
an individual due in equal monthly installments of
$3,965, including interest at 10 percent, through
February 1997. The obligation is collateralized by the
accounts receivable of Northeast Environmental Services,
Inc.
Aggregate annual maturities applicable to long-term debt
are as follows:
1996 $ 2,089,290
1997 421,087
1998 373,963
1999 182,339
2000 13,342
Thereafter 13,327
----------
$ 3,093,348
===========
NOTE 6 - CAPITAL STOCK
(a) PREFERRED STOCK:
In connection with a private placement in December 1989,
the Company issued 4,000 shares of its $.01 par value
preferred stock, as Series A, 5 percent cumulative,
convertible, fully participating preferred stock. Each
Series A preferred share was convertible into 125 common
shares at any time by preferred stockholders.
In connection with a private placement in June 1990, the
Company issued 12,000 shares of its $.01 par value
preferred stock, as Series B, 6 percent cumulative,
convertible, fully participating preferred stock. Each
Series B preferred share was originally convertible into
33 1/3 common shares at any time by preferred
stockholders. In May 1991, a number of Series B
shareholders elected to have each Series B preferred
share they owned become convertible into 41 2/3 common
shares instead of 33 1/3 common shares in exchange for,
among other things, agreeing to give up the right to
receive dividends. During 1994, in consideration of a
one year extension of the due date of the Series B
preferred shares, the conversion rates were increased by
10 percent to 45.83 and 36.67 shares, respectively.
F-18
<PAGE>
NOTE 6 - CAPITAL STOCK (Continued)
In connection with a private placement in April, 1994,
the Company issued 3,200 shares of $.01 par value
convertible preferred stock, Series C, at $100 per
share, realizing proceeds of $320,000. Holders of Series
C preferred stock shall be entitled to dividends as and
when and only in the event that, dividends are declared
and paid on common stock. The amount of the Series C
dividends would be based on the common stock dividend
declared as if such shares of Series C preferred stock
had been converted to common stock. Each Series C
preferred share is convertible into 55 common shares at
any time by preferred shareholders.
During the year ended December 31, 1993, the Company
redeemed 413 shares of Series A preferred stock, 139
shares of Series B preferred stock and 8,682 shares of
common stock for total consideration of $107,193.
During the year ended December 31, 1994, 3,376 shares of
Series A preferred stock and 766 shares of Series B
preferred stock were converted into a total of 452,543
shares of common stock. As of December 31, 1994, no
Series A preferred stock remained outstanding.
As of December 31, 1995, of the 10,258 shares of Series
B Preferred Stock outstanding, 545 shares are
convertible at 36.67 common shares per preferred share
and are entitled to receive dividends and 9,713 shares
are convertible at 45.83 common shares per preferred
share.
Under a mandatory redemption provision, the Company is
required to redeem the Series B and Series C preferred
stocks for $100 per share in June 1996 and April 1999,
respectively.
(b) COMMON STOCK:
During the year ended December 31, 1995, the Company
issued 5,000 shares of common stock in consideration of
consulting services.
(c) TREASURY STOCK:
In August 1992, the Company purchased 35,000 shares of
its common stock on the open market for $66,729. Such
shares were retired in September 1994.
NOTE 7 - WARRANTS AND STOCK OPTIONS
(a) WARRANTS:
Pursuant to its December 1989 and June 1990 private
placements the Company issued 187,500 Series A Warrants
and 419,038 Series B Warrants, respectively. Such
warrants entitled the holders to purchase a like number
of common shares at an exercise price of $1.00 per share
as to the Series A Warrants and $1.70 as to the Series B
Warrants. The warrants expired five years from their
dates of issuance.
F-19
<PAGE>
NOTE 7 - WARRANTS AND STOCK OPTIONS (Continued)
During the year ended December 31, 1994, 71,875 Series A
Warrants were exercised and an additional 37,500 series
A Warrants were cancelled in exchange for 20,000 shares
of common stock.
As of December 31, 1995, all warrants had either been
exercised or had expired.
(b) STOCK OPTIONS:
On October 12, 1987, the Company's Incentive Stock
Option Plan became effective, pursuant to which options
for up to 50,000 shares of common stock may be granted.
In November 1991, options were granted for 50,000 shares
of common stock at an exercise price of $3.3125 per
share. During the year ended December 31, 1992, options
to purchase 19,000 shares were cancelled. On February
16, 1993, the remaining 31,000 options were converted to
options under the 1990 Performance Incentive Stock
Option Plan.
On August 8, 1990, the 1990 Performance Incentive Stock
Option Plan was approved by the Board of Directors,
pursuant to which options for up to 150,000 shares of
common stock could be granted. On February 18, 1992, the
Plan was amended to increase the number of shares for
which options can be granted to 400,000. Generally,
options expire three years from their date of vesting.
Information with respect to options under this plan
follows:
<TABLE>
<CAPTION>
Option Price
------------
Shares Per Share Aggregate
------ --------- ---------
<S> <C> <C> <C>
Outstanding
January 1, 1993 217,500 $3.00 to $3.25 $ 681,250
Issued 150,000 $2.00 to $3.00 335,000
Cancelled (137,000) $3.00 to $3.25 ( 439,750)
Transfer from 1987 Plan 31,000 $3.00 93,000
-------------- ------------- ----------
Outstanding
December 31, 1993 261,500 $2.00 to $3.00 669,500
Cancelled ( 30,500) $3.00 ( 91,500)
-------------- ------------- ----------
Outstanding
December 31, 1994 231,000 $2.00 to $3.00 578,000
Cancelled ( 9,500) $3.00 (28,500)
-------------- ------------- ----------
Outstanding
December 31, 1995 221,500 $2.00 to $3.00 $ 549,500
============== ============= ==========
</TABLE>
At December 31, 1995, options were exercisable for a total of
221,500 shares and options for the purchase of 178,500 shares
were available for future grant.
NOTE 8 - INCOME TAXES
The Company files a consolidated Federal income tax return with
its subsidiaries.
F-20
<PAGE>
NOTE 8 - INCOME TAXES (Continued)
The provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal income taxes:
Current $(292,900) $ 254,300 $ 13,500
Deferred (203,600) ( 90,900) -
State income taxes:
Current 39,900 74,000 41,000
Deferred (131,400) - -
-------- -------- -------
Provision (benefit) for income taxes $(588,000) $ 237,400 $ 54,500
======== ======== =======
</TABLE>
A reconciliation of income tax expense (benefit) at the federal
statutory rate to income tax expense (benefit) at the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed tax at the
federal statutory rate $(533,600) $ 180,300 $ 29,400
State income tax -
net of federal tax
benefits ( 60,100) 48,800 27,100
Amortization of goodwill - not
deductible 11,500 11,500 11,500
Other, net ( 5,800) ( 3,200) ( 13,500)
-------- -------- --------
Income tax expense
(benefit) $(588,000) $237,400 $ 54,500
======== ======= ========
</TABLE>
The components of the net deferred tax asset as of December 31,
1995 are as follows:
Deferred tax asset:
Alternative minimum tax credit $ 294,500
Net operating loss carryforward 131,400
Allowance for doubtful accounts 155,000
--------
580,900
Deferred tax liability:
Depreciation 155,000
Net deferred tax asset $ 425,900
========
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(a) EMPLOYMENT AGREEMENTS:
The Company has employment contracts with two officers,
both of which expire December 31, 1996. Aggregate annual
compensation pursuant to the contracts is $266,000 plus
cost of living increases.
F-21
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
(b) LEASES:
The Company is obligated under the terms of long-term
leases for office space which expire at various dates
through February 2002. The following is a schedule by
year of future minimum rental payments required under
operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of
December 31, 1995:
Year Ending
December 31,
1996 $ 580,000
1997 446,000
1998 199,000
1999 89,000
2000 89,000
Thereafter 104,000
----------
$ 1,507,000
===========
Certain of these leases contain renewal options ranging
from five to ten years. Additionally, two leases provide
the Company with an option to purchase the properties.
Rent expense for the years ended December 31, 1995, 1994
and 1993 approximated $792,000, $463,000 and $347,000,
respectively.
(c) LEGAL MATTERS:
The Company is a defendant, together with numerous other
parties, in an action by the owner of a building against
the prior owner and all persons and companies hired by
the prior owner to clean-up contaminated oil spills
existing on the property prior to the sale and, in
connection therewith, to conduct certain tests. The suit
contends that the cleanup and/or the testing, some of
which was done by the Company, was conducted
negligently, and that misrepresentations were made by
the prior owner concerning the true level of remaining
contamination, and seeks $3.5 million in damages. Based
on facts obtained during discovery, management believes,
based upon the advice of counsel, that its exposure for
damages to the plaintiff is not material.
The Company and its subsidiaries are also involved in
other litigation arising in the normal course of
business. While the results of such litigation cannot be
predicted with certainty, management, based upon the
advice of counsel, believes that the final outcome will
not have a material adverse effect on the Company's
results of operations or financial position.
F-22
<PAGE>
NOTE 10 - SUBSEQUENT EVENTS
(a) On January 25, 1996, the Company entered into an
Agreement and Plan of Merger ("Merger Agreement")
pursuant to which, subject to shareholder
approval, the Company would merge with ENSA
Acquisition Corp. ("EAC"), a wholly-owned
subsidiary of ERD Waste Corp. ("ERD"), thereby
becoming a wholly-owned subsidiary of ERD.
Concurrent with the execution of the Merger Agreement,
the Company and ERD executed a Securities Purchase
Agreement providing for a loan by ERD to the Company
(the "Bridge Loan") of $500,000, and the issuance to
ERD of 500,000 shares (the "Escrow Shares") of common
stock. The Bridge Loan is subordinated in right of
payment to the Company's indebtedness to its principal
bank lender. Repayment of the Bridge Loan is due on
December 31, 1996, together with interest at the prime
rate.
Pursuant to the Securities Purchase Agreement, the
Escrow Shares have been placed in escrow. One half of
such shares will be released to ERD on December 31,
1996 if the Bridge Loan is not repaid on or before
such date, and one half of such shares will be
released to ERD on June 30, 1997 if the Bridge Loan is
not repaid on or before such date.
(b) On March 28, 1996, the Company's principal bank
lender extended the due date of the Company's
notes payable (Note 4) and Term Loan (Note 5(a))
from April 30, 1996 to the earlier of June 15,
1996 or the date that the Company
is acquired by ERD.
(c) On April 4, 1996, EAC offered to purchase all the out-
standing shares of common stock of the Company at $1.66
per share, net to the seller in cash, upon the terms and
conditions set forth in the Offer to Purchase dated
April 4, 1996. The offer is conditional upon, among
other things, there being validly tendered and not
withdrawn prior to the expiration of the Offer, at least
that number of shares which would constitute a majority
of the shares on a fully diluted basis.
F-23
<PAGE>
ACCOUNTANTS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Stockholders
Environmental Services of America, Inc.
Rahway, New Jersey
The audit referred to in our report dated March 30, 1996, relating to the
consolidated financial statements of Environmental Services of America, Inc. and
subsidiaries for the years ended December 31, 1995, 1994 and 1993, included the
audit of the financial statement schedules incorporated by reference in Item 14
of Form 10-K.
In our opinion, such financial statement schedules present fairly the
information set forth therein.
COOPER, SELVIN & STRASSBERG LLP
CERTIFIED PUBLIC ACCOUNTANTS
Great Neck, New York
March 30, 1996
F-24
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
SCHEDULE V -PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at Other Balance
Beginning Additions Changes Add at End
Description of Year At Cost Retirements (Deduct) of Year
- ----------- ------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Land $ 199,126 $ - $ - $ - $ 199,126
Buildings and improve-
ments 3,548,361 477,767 - - 4,026,128
Equipment and 203,067 (3)
vehicles 5,237,282 705,723 (113,250) (2) 6,032,822
Furniture, fixtures (203,067) (3)
and office equipment 1,327,859 88,066 - ( 400) (2) 1,212,458
Leasehold improvements 309,257 - (301,714) - 7,543
---------- ---------- -------- --------- -----------
$10,621,885 $ 1,271,556 $(301,714) $ (113,650) $ 11,478,077
========== ========== ======== ========= ===========
Year ended December 31, 1994:
Land $ 158,335 $ 110,000 (1) $ - $ ( 89,209) (2) $ 199,126
20,000
Buildings and improve-
ments 1,731,402 1,705,000 (1) (437,146) (2) 3,548,361
549,105
Equipment and
vehicles 3,468,719 1,244,173 (1) - (356,090) (2) 5,237,282
880,480
Furniture, fixtures
and office equipment 1,050,369 337,020 - (59,530) (2) 1,327,859
Leasehold improvements 310,567 2,855 (4,165) - 309,257
---------- ---------- -------- --------- -----------
$ 6,719,392 $ 4,848,633 $ (4,165) $ (941,975) $ 10,621,885
========== ========== ========= ========= ===========
Year ended December 31, 1993:
Land $ 139,773 $ 18,562 $ - $ - $ 158,335
Buildings and improve-
ments 970,147 761,255 - - 1,731,402
Equipment and
vehicles 2,942,323 642,316 - (221,128) (2) 3,468,719
105,208 (3)
Furniture, fixtures
and office equipment 946,501 209,076 - (105,208) (3) 1,050,369
Leasehold improvements 353,656 1,362 (44,451) - 310,567
---------- --------- -------- --------- -----------
$ 5,352,400 $ 1,632,571 $ (44,451) $ (221,128) $ 6,719,392
========== ========== ======== ========= ===========
</TABLE>
(1) Subsidiary acquired
(2) Disposal
(3) Reclassification
F-25
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Other Balance
Beginning Charged to Changes Add at End
Description of Year Costs and Expenses Retirements (Deduct) of Year
- ----------- ------- ------------------ ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Buildings and improve-
ments $ 134,932 $ 103,037 $ - $ - $ 237,969
Equipment and 193,945 (2)
vehicles 2,268,145 1,074,513 - ( 97,025) (1) 3,439,578
Furniture, fixtures (193,945) (2)
and office equipment 811,573 228,919 - ( 400) (1) 846,147
Leasehold improvements 87,522 217,705 (301,714) - 3,513
---------- ---------- -------- --------- ----------
$ 3,302,172 $ 1,624,174 $(301,714) $ ( 97,425) $ 4,527,207
========== ========== ======== ========= ==========
Year ended December 31, 1994:
Buildings and improve-
ments $ 209,171 $ 80,899 $ - $ (155,138) (1) $ 134,932
Equipment and
vehicles 1,719,049 847,102 - (298,006) (1) 2,268,145
Furniture, fixtures
and office equipment 639,404 221,705 - (49,536) (1) 811,573
Leasehold improvements 60,383 31,304 (4,165) - 87,522
---------- ---------- ------- --------- ----------
$ 2,628,007 $ 1,181,010 $ (4,165) $ (502,680) $ 3,302,172
========== ========== ======= ========= ==========
Year ended December 31, 1993:
Buildings and improve-
ments $ 170,133 $ 39,038 $ - $ - $ 209,171
Equipment and (183,412) (1)
vehicles 1,249,451 598,338 - 54,672 (2) 1,719,049
Furniture, fixtures
and office equipment 536,004 158,072 - (54,672) (2) 639,404
Leasehold improvements 65,110 39,724 (44,451) - 60,383
---------- ---------- -------- --------- ----------
$ 2,020,698 $ 835,172 $ (44,451) $ (183,412) $ 2,628,007
========== ======== ======== ========= ==========
</TABLE>
(1) Disposal
(2) Reclassification
F-26
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
----------- ------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful
accounts - accounts
receivable $ 469,605 $ 813,637 $ - $ (835,637) $ 447,605
Accumulated amorti-
zation goodwill 232,818 55,485 - - 288,303
Accumulated amorti-
zation deferred
permit costs 147,696 57,583 - - 205,279
--------- -------- -------- --------- --------
$ 850,119 $ 926,705 $ - $ (835,637) $ 941,187
========= ======== ======== ========= ========
Year ended December 31, 1994:
Allowance for doubtful
accounts - accounts
receivable $ 272,605 $ 297,195 $ 100,000 (1) $ (200,195) $ 469,605
Accumulated amorti-
zation goodwill 190,595 42,223 - - 232,818
Accumulated amorti-
zation deferred
permit costs 92,277 55,419 - - 147,696
--------- -------- -------- --------- --------
$ 555,477 $ 394,837 $ 100,000 $ (200,195) $ 850,119
========= ======== ======== ========= ========
Year ended December 31, 1993:
Allowance for doubtful
accounts - accounts
receivable $ 271,722 $ 216,967 $ - $ (216,084) $ 272,605
Accumulated amorti-
zation goodwill 156,653 33,942 - - 190,595
Accumulated amorti-
zation deferred
permit costs 45,358 46,919 - - 92,277
--------- -------- -------- -------- --------
$ 473,733 $ 297,828 $ - $ (216,084) $ 555,477
========= ======== ======== ========= ========
</TABLE>
(1) Subsidiary acquired
All valuation and qualifying accounts and reserves are deducted in the
balance sheet from the assets to which they apply.
F-27
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest
Category of Aggregate End Interest During the During the During the
Short-Term Borrowings of Year Rate Period Period Period
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Banks $ 2,470,000 9.0% $ 2,470,000 $ 1,936,274 9.45%
========== === ========== ========== ====
Year ended December 31, 1994:
Banks $ 1,650,000 9.0% $ 2,075,000 $ 1,471,712 7.67%
========== === ========== ========== ====
Year ended December 31, 1993:
Banks $ 1,475,000 6.5% $ 1,475,000 $ 543,105 6.50%
========== === ========== ========== ====
</TABLE>
Weighted average interest rate during the period was calculated by dividing
the actual short-term expense by the average short-term debt outstanding.
F-28
<PAGE>
ENVIRONMENTAL SERVICES OF AMERICA, INC.
AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
- -------------------------------------------------------------------------------
COLUMN A COLUMN B
CHARGED TO COST AND EXPENSES
YEAR ENDED DECEMBER 31,
1995 1994 1993
---- ---- ----
1. Maintenance and repairs (a) (a) (a)
2. Amortization of intangible
assets:
Goodwill 55,485 42,223 33,942
Deferred financing costs - - -
Deferred permit costs 57,583 55,419 46,919
Customer list 40,200 32,850 5,312
3. Taxes, other than payroll
income taxes (a) (a) (a)
4. Royalties - - -
5. Advertising costs (a) (a) (a)
(a) Does not exceed one percent of sales.
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Environmental Services of America, Inc.
(Registrant)
By: /s/ Jon Colin
-----------------------------------
Jon Colin, President and
Chief Executive Officer
April 12, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- -----
<S> <C> <C>
By: /s/ Jon Colin President and Chief Executive April 12, 1996
----------------------------- Officer
Jon Colin
By: /s/ Kathleen P. LeFevre Chief Financial Officer April 12, 1996
-----------------------------
Kathleen P. LeFevre
By: /s/ Joseph Jacobsen Director April 12, 1996
-----------------------------
Joseph Jacobsen
By: /s/ Walter H. Barandiaran Director April 12, 1996
-----------------------------
Walter H. Barandiaran
By: /s/ Schneur Z. Genack Director April 12, 1996
------------------------------
Schneur Z. Genack
</TABLE>
EXHIBIT 21.1
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ENVIRONMENTAL SERVICES OF AMERICA, INC.
Wholly-Owned Subsidiaries of Environmental Services of America, Inc.:
<TABLE>
<CAPTION>
Additional Names
State of Under Which
Name of Subsidiary Incorporation Subsidiary Does Business
------------------ ------------- ------------------------
<S> <C> <C>
ENSA/Government Services, Inc. DE
ENSI of Pennsylvania, Inc. PA NES-PA
ENSI, Inc. NJ ENSI
Environmental Services of MO ENSA-MO
America-MO, Inc.
Environmental Services of IN ENSA-IN
America-IN, Inc.
Northeast Environmental NY NES
Services, Inc.
Tri-S, Incorporated CT TRI-S
ENSA Environmental, Inc. DE ENSA-ENV
</TABLE>
On January 1, 1995, the subsidiaries of the Company listed below were merged
into and now operate as ENSA Environmental, Inc.:
National Air Network, Inc.
International Exploration, Inc.
ENSI of Delaware, Inc.
The Almega Corporation
The following subsidiary was dissolved in March, 1995:
ENSA of Louisiana, Inc.
<TABLE> <S> <C>
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