<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 8-K/A
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 2, 1996
EASTERN ENVIRONMENTAL SERVICES, INC.
------------------------------------
(Exact name of issuer as specified in charter)
Delaware 0-16102 59-2840783
(State or Other Jurisdiction Commission (I.R.S. Employer
or Incorporation or file number Identification
Organization) Number)
1000 CRAWFORD PLACE, MT. LAUREL, NEW JERSEY 08054
(Address of principal executive offices)
(609) 235-6009
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
- ----------------------------------------------
Allied Waste Services, Inc., a Delaware corporation ("Allied"), is a
wholly-owned subsidiary of Eastern Environmental Services, Inc. (the
"Registrant"). On July 2, 1996, Allied acquired ("the Acquisition")
substantially all of the assets related to the operations of Allied
Environmental Services, Inc., and Allied Environmental Services West, Inc.
(collectively referred to as the "Companies") from Global Spill Management, Inc.
("the Shareholder") and Stuart H. Berry and Alan Hershkowitz ("the
Individuals"). The Shareholder, Companies and the Individuals are collectively
referred to as the "Sellers". The Sellers are not affiliated with the
Registrant nor with any of the Registrant's subsidiaries.
The acquisition was made pursuant to the terms of an Agreement for the Sale
and Purchase of Assets (the "Purchase Agreement") dated June 27, 1996. The
Purchase Agreement is incorporated as Exhibit 10.1. The description of the
acquired assets and the Acquisition transaction set forth herein is qualified in
its entirety by reference to the Purchase Agreement.
Allied paid consideration of $700,000 (the "Purchase Price") to the Sellers
for the acquired assets. The total consideration was paid in 116,667 shares of
restricted common stock of the Registrant. The total number of shares delivered
to the Companies was determined by valuing the Registrants stock at six ($6.00)
dollars per share. Purchaser is obligated to have the stock registered under the
Securities Act of 1933 within ninety (90) days of the date of closing pursuant
to a "shelf registration" of the Registrants stock.
Under the terms of the Purchase Agreement, Allied assumed no obligations or
liabilities of the Sellers except for the responsibility of paying certain
vendor liabilities and performing the unperformed obligations under certain
uncompleted customer contracts. The acquired assets were transferred to Allied
free and clear of all liens, encumbrances, security interests and claims, except
for the liabilities specifically assumed by Allied. The terms of the purchase
are more fully described in the Purchase Agreement.
The acquired assets include all office furniture, equipment, and supplies
used in the operations of the Companies, all rights and interests in the
customer accounts receivable of the Companies whether billed or unbilled as of
the closing date; customer contract rights; all rights, title and interest of
the Companies in leases for real property, trade secrets, property rights,
symbols, trademarks, trade names, logos, telephone directory listings used by
the Companies; all permits, licenses, franchises, consents and other approvals
for governmental agreements used in the operations of the business; and all
goodwill of the business conducted by the Companies. The acquired assets were
used by the Sellers in the business of arranging for the testing, disposal and
transportation of contaminated soil, asbestos, construction and demolition waste
and municipal waste. Allied intends to continue to use the acquired assets for
this purpose.
<PAGE>
ITEM 7. COMBINED FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION, AND EXHIBITS
-----------------------------------
(A) COMBINED FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Independent Auditors' Report
Combined Balance Sheet as of June 30, 1996 and 1995
Combined Statements of Operations for the year ended June 30, 1996
and the periods seven months period ended June 30, 1995 (new company
period) and five month period ended November 30, 1994 (prior company
period).
Combined Statements of Stockholders' Equity (deficit) for the year ended
June 30, 1996 and the seven month period ended June 30, 1995 (new
company period) and five month period ended November 30, 1994 (prior
company period).
Combined Statements of Cash Flows for the year ended
June 30, 1996 and the seven month period ended June 30, 1995 (new
company period) and five month period ended November 30, 1994 (prior
company period).
Notes to combined financial statements.
Independent Auditors' Report.
Combined Balance Sheet as of June 30, 1994.
Combined Statement of Income for the twelve months ended
June 30, 1994.
Combined Statement of Cash Flows for the twelve months ended
June 30, 1994.
Combined Retained Earnings Statement for the twelve months
ended June 30, 1994.
Notes to Combined Financial Statements.
(B) PRO FORMA FINANCIAL INFORMATION.
Eastern Environmental Services, Inc.
Pro Forma Combined Statement of Operations for the twelve months
ended June 30, 1996 (unaudited).
Pro Forma Combined Balance Sheet as of June 30, 1996 (unaudited).
<PAGE>
(C) EXHIBITS.
* 10.1 Agreement for the sale and Purchase of the assets dated June 27, 1996
between Allied Waste Services, Inc. and Global Spill Management, Inc.,
Allied Environmental Services, Inc., Allied Environmental Services West,
Inc., Stuart H. Berry, and Alan Hershkowitz.
23.1 Consent of BDO Seidman, LLP
23.2 Consent of B.J. Klinger & Co., P.C.
__________________
* Incorporated by reference.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EASTERN ENVIRONMENTAL SERVICES, INC.
Date: July 10, 1997 By: /s/ Louis D. Paolino, Jr.
______________________________
Louis D. Paolino, Jr.
President
<PAGE>
ALLIED ENVIRONMENTAL
SERVICES, INC.
AND AFFILIATES
REPORT ON COMBINED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996, SEVEN
MONTHS ENDED JUNE 30, 1995 AND
FIVE MONTHS ENDED NOVEMBER 30, 1994
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
CONTENTS
================================================================================
INDEPENDENT AUDITORS' REPORT 3
COMBINED FINANCIAL STATEMENTS
Balance sheets 4
Statements of operations 5
Statements of stockholders' equity (deficit) 6
Statements of cash flows 7-8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 9-11
NOTES TO COMBINED FINANCIAL STATEMENTS 12-14
2
<PAGE>
Independent Auditors' Report
Allied Environmental Services, Inc. and Affiliates
Merrick, New York
We have audited the accompanying combined balance sheets of Allied Environmental
Services, Inc. and affiliates as of June 30, 1996 and 1995, and the related
combined statements of operations, stockholders' equity (deficit), and cash
flows for the year ended June 30, 1996 and the periods seven month period ended
June 30, 1995 (new company period) and five month period ended November 30, 1994
(prior company period). These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1, on July 2, 1996, the Company sold all of its assets, net
of substantially all of its liabilities. The proceeds from the sale were used to
pay down the line of credit of the Company's parent, Global Spill Management,
Inc.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Allied Environmental
Services, Inc. and affiliates as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for the year ended June 30, 1996 and for
the seven month period ended June 30, 1995 and the five month period ended
November 30, 1994, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
November 12, 1996
3
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
COMBINED BALANCE SHEET
================================================================================
June 30, 1996 1995
================================================================================
ASSETS (Substantially Pledged)
CURRENT
Cash $ 1,685 $ 96,145
Accounts receivable, less allowance for
doubtful accounts of $425,000 and $150,000 1,299,992 2,357,785
Prepaid expenses and other current assets 16,552 30,566
Due from affiliated companies (Note 3) - 115,264
- --------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,318,229 2,599,760
- --------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, less accumulated
depreciation (Note 2) 5,484 8,763
- --------------------------------------------------------------------------------
GOODWILL, net of accumulated amortization of
$211,223 and $87,500 (Note 1) 951,077 2,869,034
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 2,274,790 $ 5,477,557
================================================================================
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
COMBINED BALANCE SHEET
================================================================================
June 30, 1996 1995
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of notes payable,
former stockholders (Note 4) $ - $ 166,568
Accounts payable 1,484,991 2,114,719
Accrued expenses and other current liabilities 89,799 135,965
Due to parent (Note 3) - 623,605
Due to affiliated companies (Note 3) - 5,291
- --------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,574,790 3,046,148
- --------------------------------------------------------------------------------
NOTES PAYABLE, former stockholders (Note 4) 932,727 938,490
COMMITMENTS (Notes 5 and 7)
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, no par value 11,200 11,200
Additional paid-in capital (Notes 3 and 4) 3,077,160 1,982,748
(Deficit) (3,321,087) (501,029)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (232,727) 1,492,919
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES $ 2,274,790 $ 5,477,557
================================================================================
See accompanying summary of accounting policies and notes to combined financial
statements.
4
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
================================================================================
New Company Prior Company
---------------------- -------------
Year Seven months Five months
ended ended ended
June 30, June 30, November 30,
1996 1995 1994
================================================================================
SALES $ 10,549,739 $ 7,886,110 $ 5,833,545
- --------------------------------------------------------------------------------
COST OF SALES 8,211,825 6,275,853 4,774,168
- --------------------------------------------------------------------------------
GROSS PROFIT 2,337,914 1,610,257 1,059,377
- --------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative
expenses 2,345,635 1,218,154 1,092,617
Impairment loss, goodwill (Note 1) 1,817,733 - -
Allocation of overhead from parent
(Note 3) 885,723 782,961 -
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 5,049,091 2,001,115 1,092,917
- --------------------------------------------------------------------------------
(LOSS) FROM OPERATIONS (2,711,177) (390,858) (33,240)
- --------------------------------------------------------------------------------
OTHER (EXPENSE) INCOME
Interest expense (Note 5) (108,881) (110,171) -
Other income - - 30,770
- --------------------------------------------------------------------------------
TOTAL OTHER (EXPENSE) INCOME (108,881) (110,171) 30,770
- --------------------------------------------------------------------------------
NET (LOSS) $ (2,820,058) $ (501,029) $ (2,470)
================================================================================
See accompanying summary of accounting policies and notes to combined financial
statements.
5
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
================================================================================
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit)
================================================================================
BALANCE, June 30, 1994 $ 11,200 $ - $ 149,601
Net (loss) for the five months ended
November 30, 1994 - - (2,470)
- --------------------------------------------------------------------------------
BALANCE, December 1, 1994 11,200 - 147,131
Adjustments to record the acquisition of
Allied Environmental Services, Inc. - 48,924 (147,131)
Payments made by parent of amounts due to
former stockholders (Note 4)
Short term notes - 1,923,752 -
Interest - 10,072 -
Net (loss) for the seven months ended
June 30, 1995 - - (501,029)
- --------------------------------------------------------------------------------
BALANCE, June 30, 1995 11,200 1,982,748 (501,029)
Payments made by parent of amounts
due to former stockholders (Note 4)
Short-term notes - 172,331 -
Interest - 139,726 -
Forgiveness of amounts due to affiliates,
net (Note 3) - 782,355 -
Net (loss) - - (2,820,058)
- --------------------------------------------------------------------------------
BALANCE, June 30, 1996 $ 11,200 $3,077,160 $(3,321,087)
================================================================================
See accompanying summary of accounting policies and notes to combined financial
statements.
6
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
================================================================================
New Company Prior Company
---------------------- -------------
Year Seven months Five months
ended ended ended
June 30, June 30, November 30,
1996 1995 1994
================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(2,820,058) $(501,029) $ (2,470)
Adjustments to reconcile net (loss)
to net cash (used) provided by
operating activities
Impairment loss, goodwill 1,817,733 - -
Interest paid by parent reflected
as a contribution of capital 139,726 10,072 -
Depreciation and amortization 127,554 88,318 318
Provision for (recovery of) losses
on accounts receivable 275,000 (55,076) 205,076
Decrease (increase) in assets
Accounts receivable 782,793 115,958 599,113
Prepaid expenses and other
current assets 14,014 (13,053) 22,388
Due from affiliated companies - 67,882 (96,931)
Increase (decrease) in liabilities
Accounts payable (629,728) (26,611) (824,128)
Accrued expenses and other current
liabilities (46,166) 48,450 21,736
Due to parent - 623,605 -
Due to affiliated companies 268,723 5,291 -
- --------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (70,409) 363,807 (74,898)
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (552) (2,326) (500)
Services rendered reflected as costs
associated with the acquisition of
the Company (23,499) (25,931) -
- --------------------------------------------------------------------------------
NET CASH (USED) IN INVESTING ACTIVITIES (24,051) (28,257) (500)
- --------------------------------------------------------------------------------
7
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
================================================================================
New Company Prior Company
---------------------- -------------
Year Seven months Five months
ended ended ended
June 30, June 30, November 30,
1996 1995 1994
================================================================================
NET (DECREASE) INCREASE IN CASH $ (94,460) $ 35,550 $ (75,398)
CASH, beginning of year/periods 96,145 (239,405) (164,007)
- --------------------------------------------------------------------------------
CASH, end of year/periods $ 1,685 $ 96,145 $ (239,405)
================================================================================
SUPPLEMENTAL DISCLOSURES OF
NON-CASH ACTIVITIES
Acquisition of Allied Environmental
Services, Inc.
Fair value of non-cash assets $ - $ 2,387,177 $ -
================================================================================
Liabilities assumed $ - $ 2,202,915 $ -
================================================================================
Payments made by parent of amounts
due to former stockholders reflected
as contributions of capital $ 172,331 $ 1,923,752 $ -
================================================================================
Forgiveness of amounts due to
affiliates, net $ 782,355 $ - $ -
================================================================================
See accompanying summary of accounting policies and notes to combined financial
statements.
8
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
PRINCIPLES OF The combined financial statements include the accounts of the
COMBINATION following companies, all of which have common ownership and/or
activity as follows. Throughout this report, these companies
will be referred to as the "Company" or "Allied":
Common Stock
Issued and
Authorized Outstanding Amount
===============================================================
Allied Environmental
Services, Inc. 200 100 $ 10,000
Allied Environmental
Services West, Inc. 200 100 1,000
Allied Waste
Management, Inc. 200 100 100
Allied Environmental
Mid-Atlantic, Inc. 200 100 100
---------------------------------------------------------------
800 400 $ 11,200
===============================================================
All significant intercompany transactions and balances have
been eliminated.
BASIS OF From the period July 1, 1994 to November 30, 1994, the Company
PRESENTATION was a closely held private company. On December 1, 1994, all of
the outstanding stock of the Company was acquired by Global
Spill Management, Inc., a publicly owned company. As a result,
the Company adopted a new basis of accounting, for which all of
the combining entries which were made by the parent to record
the acquisition of the Company have been "pushed down" to the
Company, where they were reflected as having occurred on the
date of the acquisition. Also, the Company is presenting
statements of operations, stockholders' equity (deficit) and
cash flows to reflect the change in ownership.
9
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
BUSINESS The Company was, from December 1, 1994 to July 2, 1996 (see
OPERATIONS Note 1), a wholly-owned operating subsidiary of Global Spill
Management, Inc. The primary business of the Com pany is the
arranging for the transportation and disposal of contaminated
soil and other contaminated waste products. The Company's
customer base is primarily comprised of companies located in
the States of New York, New Jersey, Pennsylvania and
California.
PROPERTY AND Property and equipment are stated at cost. Depreciation is
EQUIPMENT AND provided using accelerated methods over the estimated useful
DEPRECIATION lives of the assets which range from five to seven years. Upon
sale or retirement of assets, the cost and accumulated
depreciation are eliminated from the accounts and the related
gain or loss is included in income. Expenditures for repairs
and maintenance are charged to income as incurred.
GOODWILL AND Goodwill, which represents the excess of the purchase price
AMORTIZATION paid by the parent over the fair value of the net assets of the
Company as of the date of the acquisition is being amortized
using the straight line method over the estimated useful life
which is twenty years. The Company evaluates the recoverability
of the goodwill regularly and considers whether the goodwill
should be completely or partially written off or the
amortization period accelerated.
IMPAIRMENT OF In accordance with the provisions of Statement of Financial
LONG LIVED Accounting Standards No. 121 ("SFAS 121"), writedowns for
ASSETS AND impairment are recorded as the facts and circumstances warrant.
FOR LONG-LIVED Because of the sale of the net assets of the Company on
ASSETS TO BE July 2, 1996 (see Note 1 for the details), it has been
DISPOSED OF determined that the previously recorded goodwill was impaired.
REVENUE Revenues are recognized as services are performed.
RECOGNITION
10
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
CONCENTRATIONS Trade receivables are financial instruments which potentially
OF CREDIT RISK subject the Company to credit risk. The Company reviews a
customer's credit history before extending credit. The Company
establishes an allowance for doubtful accounts based upon the
credit risk of specific customers, historical trends and other
information. The Company generally does not require collateral
or other security from its customers. No single customer
accounted for a significant amount of the Company's sales for
the year ended June 30, 1996, the seven months ended June 30,
1995 or the five months ended November 30, 1994. There were no
significant accounts receivable from a single customer at
June 30, 1996 and 1995.
USE OF The preparation of financial statements in conformity with
ESTIMATES 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.
FAIR VALUE The carrying amounts reported in the combined balance sheet for
OF FINANCIAL accounts receivable, accounts payable, and accrued expenses and
INSTRUMENTS other current liabilities approximate fair value because of the
immediate or short-term maturity of these financial
instruments.
INCOME TAXES Income taxes are calculated using the liability method
specified by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
11
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
1. SALE OF On June 28, 1996, the Company's parent, Global Spill
ASSETS Management, Inc. ("GSMI") signed an agreement to sell all of
the assets, net of substantially all of the liabilities, of the
Company to Eastern Environmental Services, Inc. ("EESI") for
common stock of EESI valued at $700,000. The agreement was
contingent upon the proceeds from the sale of the EESI stock
being deposited with GSMI's lender and applied against the line
of credit of GSMI, which occurred on July 2, 1996.
As a result of the proposed sale, the Company has reflected its
net assets at the lower of cost or market. Market value is
based on the estimated value of the stock received as a result
of the sale. At June 30, 1996, a charge to operations amounting
to $1,817,733 has been reflected as an impairment loss on the
goodwill previously recorded.
2. PROPERTY Major classes of property and equipment consist of the
AND following:
EQUIPMENT
June 30, 1996 1995
---------------------------------------------------------------
Building improvements $ 2,784 $ 2,784
Office equipment and furniture 12,279 11,727
---------------------------------------------------------------
15,063 14,511
Less accumulated depreciation (9,579) (5,748)
---------------------------------------------------------------
Net property and equipment $ 5,484 $ 8,763
===============================================================
Depreciation expense amounted to $3,831, $818 and $318 for the
year ended June 30, 1996, the seven months ended June 30, 1995
and the five months ended November 30, 1994, respectively.
12
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
3. TRANSACTIONS The Company used various services provided by its then
WITH parent, Global Spill Management, Inc. For the year ended June
AFFILIATED 30, 1996 and for the seven months ended June 30, 1995, the
COMPANIES cost for those services amounted to $885,723 and $782,961,
respectively. The parent allocated the Company's portion of
these costs on a basis consistent with the method of
allocation to all other subsidiaries. In the opinion of
Company management, the costs so allocated represent a fair
measure of the services provided, similar to that which would
have been incurred otherwise.
Concurrent with the agreement to sell the Company, the board
of directors of GSMI and all of its subsidiaries agreed to
treat all intercompany accounts receivable from and accounts
payable to each member of the consolidated group as if they
were due from or to the parent, GSMI. GSMI agreed to forgive
all such net indebtedness. As a result, the Company treated
the net amounts due to GSMI, in the amount of $782,355, as a
contribution of capital.
4. NOTES PAYABLE, On December 1, 1994, the parent acquired all of the issued
FORMER and outstanding stock of the Company for $3,072,560, payable
STOCKHOLDERS in cash in the amount of $43,750, short term notes in the
amount of $1,956,250, bearing interest at 8.5%, and an eight
year note in the amount of $1,072,560, bearing interest at 2%
above the Wall Street Journal published prime rate. The notes
were collateralized by the common stock of Allied and its
affiliates purchased by the parent.
During the year ended June 30, 1996 and the seven months
ended June 30, 1995, the parent made payments on the notes
totaling $172,331 and $1,923,752, respectively, which have
been reflected by the Company as a contribution to capital.
Interest expense for the year ended June 30, 1996 and the
seven months ended June 30, 1995 amounted to $108,881 and
$110,171, respectively, of which $139,726 and $10,072 was
paid by the parent and has also been reflected as a
contribution of capital for the respective periods.
As disclosed in Note 1, the Company sold its assets to
Eastern Environmental Services, Inc. Concurrent with the
closing, the Company and the former stockholders released
each other from any and all obligations to or from each
other. As a result, the principal and interest due to the
former stockholders,
13
<PAGE>
ALLIED ENVIRONMENTAL SERVICES, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
================================================================================
in the amount of $932,727, was forgiv en as of the date of
sale, July 2, 1996. This forgiveness will be recorded in
fiscal 1997.
5. COMMITMENTS The Company has an operating lease agreement for the rental
of office space, which expires in February 1997 and provides
for a future minimum lease commitment of $22,600.
Rent expense for the year ended June 30, 1996, the seven
months ended June 30, 1995 and the five months ended November
30, 1994 was $36,318, $20,835 and $15,100, respectively.
6. INCOME TAXES Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
At June 30, 1996, the components of the deferred tax assets
were as follows:
June 30, 1996 1995
=============================================================
Reserves, allowances and adjustments $ 144,000 $ 51,000
Net operating loss carryforwards 354,000 140,600
Valuation allowances (498,000) (191,600)
-------------------------------------------------------------
DEFERRED INCOME TAX ASSET $ - $ -
=============================================================
The Company's net operating losses, which amount to
$1,041,000 at June 30, 1996, expire in 2010 and 2011.
7. BORROWINGS The Company's parent, Global Spill Management, Inc., had a
revolving line of credit with a bank. The line of credit was
collateralized by a secured interest in substantially all of
the Company's assets. As stated in Note 1, the proceeds from
the sale of the Company's net assets was used to pay down
this line of credit, and as a result, the Company has been
released from any obligations under the collateral agreement.
14
<PAGE>
[LETTERHEAD OF B.J. KLINGER & CO., P.C. APPEARS HERE]
Independent Auditor's Report
To the Shareholders and Board of Directors of Allied Environmental Services,
Inc., Allied Environmental Services West, Inc., Allied Mid - Atlantic, Inc., and
Allied Waste Management, Inc.
We have audited the accompanying combined balance sheet of Allied Environmental
Services, Inc., Allied Environmental Services West, Inc., Allied Mid - Atlantic,
Inc., and Allied Waste Management, Inc. as of June 30, 1994, and the related
combined statements of income, cash flows, and retained earnings for the twelve
months beginning July 1, 1993 and ended June 30, 1994. 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 audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Allied Environmental
Services, Inc., Allied Environmental Services West, Inc., Allied Mid - Atlantic,
Inc., and Allied Waste Management, Inc, and the results of their operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ B.J. Klinger & Co., P.C.
B.J. Klinger & Co., P.C.
August 19, 1996
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid-Atlantic, Inc.
Combined Balance Sheet
June 30, 1994
Assets
Current Assets
Accounts Receivable $3,381,166
Allowance For Doubtful Accounts (40,000)
Prepaid Expenses 12,451
Employee Advances 3,250
Payroll Exchange 2,224
Due from Affiliate 86,215
Total Current Assets 3,445,307
Fixed Assets - Net of Depreciation & Amortization 7,073
-----
Total Fixed Assets 7,073
Other Assets
Security Deposits 3,900
-----
Total Other Assets 3,900
-----
Total Assets $3,456,280
----------
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid- Atlantic, Inc.
Combined Balance Sheet
June 30, 1994
Liabilities & Stockholders Equity
Current Liabilities
Overdraft In Bank $144,007
Accounts Payable 3,019,327
Accrued Expenses Payable 52,496
Accrued Payroll Taxes 4,036
N.Y.S. Sales Taxes Payable 2,772
-----
Total Current Liabilities 3,222,639
Non Current Liabilities
Total Non Current Liabilities 0
Stockholders Equity
Common Stock 11,200
Subscriptions Receivable (10,200)
Retained Earnings 232,641
-------
Total Stockholders Equity 233,641
Total Liabilities & Stockholders Equity $3,456,280
----------
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid-Atlantic, Inc.
Combined Statement of Income
For The Twelve Months Ended June 30, 1994
12 Months Ended
---------------
June 30, 1994 Pct.
------------- ----
Revenue
Sales $13,252,892 100.78
Sales Allowances (101,956) -0.78
---------
Total Revenue 13,150,936 100.00
Cost of Goods Sold (See Schedule) 11,142,750 84.73
---------- -----
Gross Profit 2,008,186 15.27
General, & Administrative Expenses - (See 1,897,003 14.42
Schedule) --------- -----
Operating Income 111,183 0.85
Other Income 330 0.00
Total Other Income 330 0.00
Net Income Before Taxes 111,513 0.85
------- ----
Provision for Income Taxes
Income Tax Expense 1,793 0.01
----- ----
Net Income $109,720 0.83
-------- ----
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid Atlantic, Inc.
Combined Schedule of Cost of Sales
For The Twelve Months Ended June 30, 1994
12 Months Ended
---------------
June 30, 1994 Pct.
------------- ---
Cost of Sales
Trucking & Disposal Costs $11,142,750 84.73
----------- -----
Total Cost of Sales $11,142,750 84.73
----------- -----
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid-Atlantic, Inc.
Combined Schedule of General & Administrative Expenses
For The Twelve Months Ended June 30, 1994
12 Months Ended
---------------
June 30, 1994 Pct.
------------- ---
General & Administrative Expenses
Salaries Officers $463,385 3.52
Salaries Other 562,100 4.27
F.I.C.A. Expense 48,336 0.37
Freight Out 2,720 0.02
Automobile Expenses 34,621 0.26
Rent 37,356 0.28
Insurance Expense 86,604 0.66
Professional Fees 49,004 0.37
Maintenance & Repairs 337 0.00
Office Expense 28,113 0.21
Advertising 10,967 0.08
License & Permits 5,042 0.04
Bid & Bonding Expense 91,531 0.70
Commission Expense 199,597 1.52
Telephone Expense 66,702 0.51
Selling Expenses 11,801 0.09
Gifts 3,773 0.03
Travel Expense 16,217 0.12
Meals & Entertainment 15,116 0.11
Utilities 577 0.00
Dues & Subscriptions 12,169 0.09
Stationary & Postage 14,561 0.11
Bank Charges 4,132 0.03
Miscellaneous Expenses 671 0.01
Security 253 0.00
Depreciation 1,043 0.01
Amortization 72 0.00
State Unemployment Insurance 7,007 0.05
Federal Unemployment Insurance 1,822 0.01
Reimbursed Employee Expenses 66,970 0.51
Outside Labor 4,985 0.04
Contributions 240 0.00
Payroll Services 2,517 0.02
Penalties & Fines 641 0.00
Computer Expense 3,634 0.03
Printing Expenses 2,343 0.02
Bad Debt Expense 40,047 0.30
------ ----
Total General & Administrative Expenses $1,897,003 14.42
---------- -----
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid - Atlantic, Inc.
Combined Statement of Cash Flows
For The Twelve Months Ended June 30, 1994
<TABLE>
<S> <C> <C>
Net Income $109,720
Adjustments to reconcile Net Income to Net -
Cash provided by Operating Activities:
Depreciation & Amortization 1,115
Increase in Payroll Exchange (151)
Increase in Accounts Receivable (1,489,015)
Increase in Allowance for Bad Debts 40,000
Increase in Prepaid Expenses (3,103)
Increase in Due From Officer (2,100)
Decrease in Due From Employee's 1,350
Increase in Due From Affiliate (28,785)
Increase in Security Deposits (1,500)
Increase in Accounts Payable 1,304,420
Increase in Payroll Taxes Payable 1,867
Increase in State Sales Tax Payable 953
Increase in Garnishee Payable 45
Decrease in Salaries Payable (942)
Decrease in Accrued Expenses Payable (1,500)
Decrease in Accrued Payroll Payable (8,891)
Increase in Accrued Commissions 45,020
------
Total Cash Used in Operating Activities (31,498)
------
Net Cash Used By Investing Activities
Purchases of Office Equipment (1,022)
------
Total Cash Used in Investing Activities (1,022)
------
Net Cash Used or Provided by Financing -
Activities:
Capital Stock 100
---
Total Cash Provided by Financing Activities 100
---
Net Decrease in Cash (32,420)
------
Cash Balance at Beginning of Period (111,587)
-------
Cash Balance at End of Period ($144,007)
--------
</TABLE>
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Waste Management, Inc.
Allied Mid-Atlantic, Inc.
Combined Retained Earnings Statement
For the Twelve Month Period Ended June 30, 1994
Retained Earnings
December 31, 1993 $143,020
Less: Net Profit Six Months Beginning July 1, -
1993 to December 31, 1993 (20,099)
------
Beginning Retained Earnings June 30, 1993 122,921
Add: Net Profit Twelve Months Beginning -
July 1, 1993 to June 30, 1994 109,720
Ending Retained Earnings June 30, 1994 $232,641
--------
See accompanying summary of accounting policies & notes to financial statements
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Mid - Atlantic, Inc.
Allied Waste Management, Inc.
Summary of Significant Accounting Policies
------------------------------------------
Principals of Combination
- -------------------------
The combined financial statements include the accounts of the following
companies, all of which have common ownership and or activity as follows.
Throughout this report, these companies will be referred to as the "Company" or
"Allied". The combined financial statements being reported on represent a twelve
month period other than the Company's year end, which is December.
Allied Environmental Services, Inc., 200 Authorized, 100 Issued and Outstanding,
$10,000.00
Allied Environmental Services West, Inc., 200 Authorized, 100 Issued and
Outstanding, $1,000.00.
Allied Waste Management, Inc., 200 Authorized, 100 Issued and Outstanding,
$100.00.
Allied Mid - Atlantic, Inc., 200 Authorized, 100 Issued and Outstanding,
$100.00.
Combined, 800 Authorized, 400 Issued and Outstanding, $11,200.00.
Business Operations
- -------------------
The Company is engaged in arranging for the transportation and disposal of
contaminated soil to various waste disposal facilities throughout the United
States. The Company's customer base is comprised of companies primarily located
in the States of New York, New Jersey, Pennsylvania, and California.
Property Equipment and Depreciation
- -----------------------------------
Property and equipment are stated at their historical cost. Depreciation is
provided using the straight line method of depreciation over the estimated
useful lives of the assets, which range from five to seven years. Upon sale or
retirement of the assets, the cost and accumulated depreciation are eliminated
from the accounts and the related gain or loss is included as income.
Expenditures for repairs and maintenance are charged to income as incurred.
<PAGE>
Revenue Recognition
- -------------------
Revenues are recognized as services are performed.
Concentrations of Credit Risk
- -----------------------------
Trade receivables are financial instruments which potentially subject the
Company to credit risk. The Company reviews a customers credit history before
extending credit. The Company establishes an allowance for doubtful accounts
based upon the credit risk of specific customers, historical trends, and other
information. The Company does not require collateral or other security from its
customers.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts reported in the combined balance sheet for accounts
receivable, accounts payable, and accrued expenses and other current liabilities
approximate fair value because of the immediate or short term maturity of these
financial instruments.
Income Taxes
- ------------
The Company filed its income taxes on a cash basis for the calendar year ended
December 31, 1994, and the eleven month period ended November 30, 1995. The
resulting tax liability for the period reported on was immaterial.
<PAGE>
Allied Environmental Services, Inc.
Allied Environmental Services West, Inc.
Allied Mid - Atlantic, Inc.
Allied Waste Management, Inc.
Notes to Combined Financial Statements
--------------------------------------
Property and Equipment
Major classes of property and equipment consist of the following:
Furniture & Fixtures 6,756.00
Accumulated Amortization Furniture & Fixtures (1,920.00)
Office Equipment 2,139.00
Accumulated Depreciation Office Equipment (324.00)
Leasehold Improvements 2,790.00
Accumulated Amortization Leasehold Improvements (2,368.00)
-----------
Net Property & Equipment 7,073.00
Transactions with Affiliated Companies
- --------------------------------------
Balances with affiliated companies, which are non- interest bearing and provide
for no specific repayment terms, consist of:
June 30, 1994
Due from Allied Lead Services, Inc. $86,215.00
The amounts presented above have been reflected in the financial statements as
current.
Lease Obligations
- -----------------
The Company leases its premises in Merrick, N.Y. from Drayman Family
Partnership. The lease term is five years beginning in 1991. The lease calls for
annualized rent of $24600.00, to be paid in 1994, and $25,830.00 to be paid in
1995. The Company leases additional office space in San Rafael California. This
lease agreement is with Garco Investments, Inc.. The lease term is three years
beginning in June of 1992. The lease calls for annual rent totaling $4,208.76 to
be paid through June of 1995.
<PAGE>
Subsequent Events
- -----------------
On December 1, 1994, the Company agreed to sell to Global Spill Management,
Inc., a public company, all of the issued and outstanding stock of the Company
for $3,072,560.00 payable in cash in the amount of $43,750.00, short term notes
in the amount of $1,956,250.00, bearing interest at 8.5% and an eight year note
in the amount of $1,072,560.00, bearing interest at 2% above the Wall Street
Journal published prime rate. The notes are collateralized by the common stock
of Allied and its affiliates purchased by Global Spill Management, Inc. The
eight year note is due in annual installments of $134,070.00 on December 1 of
each year starting in 1996.
In May of 1996, the Company entered into an agreement under the terms of which
its parent, (Global Spill Management, Inc.) has agreed to sell all of the assets
of the Company to Eastern Environmental Services, Inc. for stock estimated to be
worth $700,000.00.
<PAGE>
UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
YEAR ENDED JUNE 30, 1996
The following unaudited pro forma combined summary of operations for the
year ended June 30, 1996 gives effect to the acquisition of Allied Environmental
Services, Inc. and Affiliates ("Allied") for consideration of $700,000 in
Eastern Environmental Services, Inc. common stock at an assumed fair market
value of $6.00 per share. The above transaction is presented as if it occured
on July 1, 1995.
The following unaudited pro forma financial data may not be indicative of
what the results of operations of Eastern Environmental Services, Inc. would
have been, had the transaction to which such data gives effect been completed on
the date assumed, nor are such data necessarily indicative of the results of
operations of Eastern Environmental Services, Inc. that may exist in the future.
The following unaudited pro forma information should be read in conjunction with
the notes thereto, the other pro forma financial statements and notes thereto,
and the historical financial statements and notes thereto appearing elsewhere in
this filing.
<TABLE>
<CAPTION>
Allied
Eastern Environmental
Environmental Services, Inc. Pro Forma Pro Forma
Services, Inc. and affiliates Adjustments Combined
-------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 7,632,503 $10,549,739 $ - $18,182,242
Cost of revenues 6,857,418 8,211,825 - 15,069,243
----------- ----------- ----------- -----------
Gross Profit 775,085 2,337,914 - 3,112,999
Selling, general and (137,032) (1)
administrative expenses 3,853,145 3,231,358 (885,723) (2) 6,061,748
----------- ----------- ----------- -----------
Operating loss (3,078,060) (893,444) 1,022,755 (2,948,749)
Interest expense (153,428) (108,881) (262,309)
Other expense (268,555) (1,817,733) 1,817,733 (3) (268,555)
----------- ----------- ----------- -----------
Loss before income taxes
(benefit) (3,500,043) (2,820,058) 2,840,488 (3,479,613)
Income taxes (benefit) - - - -
----------- ----------- ----------- -----------
Net Loss $(3,500,043) $(2,820,058) $ 2,840,488 $(3,479,613)
=========== =========== =========== ===========
Loss per share $(.61)
=====
Weighted average number of shares
outstanding (4) 5,688,620
===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED SUMMARY OF OPERATIONS
YEAR ENDED JUNE 30, 1996
1.) To adjust depreciation and amortization expenses for the change in the
basis of property and equipment, net of historical depreciation and
amortization of Allied Environmental Services, Inc. and Affiliates
("Allied") which would have occurred had the purchase of the assets of
Allied been completed July 1, 1995.
2.) To eliminate intercompany administrative charges related directly to cost
sharing arrangements provided by Allied's prior parent which were
terminated as a result of the purchase transaction. Such administrative
services were absorbed by excess capacity of the Company and the Company
has not hired additional employees to perform these administrative
services.
3.) To adjust for the write-off of certain intangible assets of Allied to
reflect the recording of purchase accounting as if the acquisition was
consummated at the beginning of the year whereby the Company would have
assigned a value of zero to this intangible asset.
4.) For purposes of determining pro forma loss per share, the issuance of
116,667 shares of common stock as consideration for the purchase of the
assets of Allied were considered to have been outstanding from July 1,
1995.
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
The following unaudited pro forma combined balance sheet as of June 30,
1996 gives effect to the acquisition of Allied Environmental Services, Inc. and
Affiliates ("Allied") for consideration of approximately $700,000 in Eastern
Environmental Services, Inc. common stock at an assumed fair market value of
$6.00 per share. The above transaction is presented as if it had occurred on
June 30, 1996.
The following unaudited pro forma financial data may not be indicative of
what the financial condition of EESI would have been, had the transaction to
which such data gives effect been completed on the date assumed, nor are such
data necessarily indicative of the financial condition of EESI that may exist in
the future The following unaudited pro forma information should be read in
conjunction with the notes thereto, the other pro forma financial statements and
notes thereto, and the historical financial statements and notes thereto
appearing elsewhere in this filing.
<TABLE>
<CAPTION>
Allied
Eastern Environmental
Environmental Services, Inc. Pro Forma Pro Forma
Services, Inc. and affiliates Adjustments Combined
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 617,398 $ (2,663) $ 2,663 (1) $ 617,398
Accounts receivable, net of allowance 1,272,138 2,058,642 (783,610) (1) 2,547,170
Deferred income taxes 84,418 0 0 84,418
Tax refund receivable 74,467 0 0 74,467
Prepaid expenses and other
current assets 634,548 16,552 (16,552) (1) 634,548
----------- ----------- ----------- ----------
Total current assets 2,682,969 2,072,531 (797,499) 3,958,001
Net property and equipment 10,918,566 5,484 (484) (1) 10,923,566
Assets held for resale 859,262 0 0 859,262
Intangible assets 311,014 0 417,884 (1) 728,898
Other assets 505,173 127,116 0 632,289
----------- ----------- ---------- ----------
Total assets $ 15,276,984 $ 2,205,131 $ (380,099) $17,102,016
=========== =========== ========== ==========
Liabilities and stockholders' equity
Current liabilities:
Short-term borrowings $237,500 $0 $0 $ 237,500
Accounts payable 1,945,343 1,524,541 (399,509) (1) 3,070,375
Accrued expenses 1,329,579 20,546 (20,546) (1) 1,329,579
Income taxes payable 57,739 0 0 57,739
Current portion of accrued
environmental costs 870,000 0 0 870,000
Current position of long-term debt 663,352 0 0 663,352
----------- ----------- ----------- -----------
Total current liabilities 5,103,513 1,545,087 (420,055) 6,228,545
Deferred income taxes 156,770 0 0 156,770
Long-term debt 1,681,816 0 0 1,681,816
Other Liabilities 0 0 0
Accrued environmental costs 2,088,457 0 0 2,088,457
Stockholders' equity:
Common stock 60,777 11,200 (10,033) (1) 61,944
Additional paid-in capital 9,020,714 3,071,396 (2,372,563) (1) 9,719,547
Retained earnings (2,758,804) (2,422,552) 2,422,552 (1) (2,758,804)
----------- ----------- ----------- --- -----------
6,322,687 660,044 39,956 7,022,687
Less treasury stock at cost - 39,100
common shares 76,259 0 0 76,259
----------- ----------- ----------- -----------
Total stockholders' equity 6,246,428 660,044 39,956 6,946,428
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $15,276,984 $ 2,205,131 $ (380,099) $17,102,016
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
(1) To record the purchase of Allied Environmental Services, Inc. and
affiliates for consideration of $700,000 in EESI stock at an assumed fair
market value of $6.00 per share. The excess of the cumulative purchase
price over the cumulative net book value of the assets acquired has been
assigned to goodwill. The assets not acquired and the liabilities not
assumed have been eliminated.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We hereby consent to the use of our reports relating to the combined financial
statements of Allied Environmental Services, Inc. and affiliates dated October
12, 1995 (except Notes 1 and 7 which are June 25, 1996) for the five month
period ended November 30, 1994 and seven month period ended June 30, 1995 and
November 12, 1996 for the year ended June 30, 1996, included in Eastern
Environmental Services, Inc.'s Form 8-K dated July 2, 1996 (as amended on Forms
8-K/A dated September 16, 1996, May 13, 1997, June 6, 1997 and July 10, 1997).
/s/ BDO Seidman, LLP
Philadelphia, Pennsylvania
July 10, 1997
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We hereby consent to the use of our audit report dated August 19, 1996, with
respect to the combined financial statements of Allied Environmental Services,
Inc., Allied Environmental Services West, Inc., Allied Mid-Atlantic Inc., and
Allied Waste Management, Inc. included in Eastern Environmental Services, Inc.'s
Current Report on Form 8-K dated July 2, 1996 (as amended on Forms 8-K/A dated
September 16, 1996, May 13, 1997, June 6, 1997, and July 10, 1997), filed with
the Securities and Exchange Commission.
/s/ B.J. Klinger & Co., P.C.
Great Neck, New York
July 10, 1997
