<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) August 20, 1997
EASTERN ENVIRONMENTAL SERVICES, INC.
------------------------------------
(Exact name of issuer as specified in charter)
Delaware 0-16102 59-2840783
(State or Other Commission (I.R.S. Employer
Jurisdiction of File Number Identification
Incorporation) 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.
-------------------------------------
On August 20, 1997, Eastern Environmental Services, Inc. (the
"Registrant" or "Eastern") acquired all of the outstanding shares of stock of
Soil Remediation of Philadelphia, Inc. ("SRP") pursuant to the terms of an
Agreement for the Sale and Purchase of Stock (the "SRP Stock Agreement") dated
August 20, 1997 between the Registrant and USA Waste Services, Inc. (the
"Seller"). The Seller is not affiliated with the Registrant nor with any of the
Registrant's subsidiaries. The description of the acquisition transaction set
forth herein is qualified in its entirety by reference to the SRP Stock
Agreement, which is incorporated as Exhibit 10.1.
Additionally, the Registrant and its wholly owned subsidiary, Eastern
Environmental Services, Inc. of Fairless Hills, Inc. ("EESI of Fairless")
entered into an Agreement (the "Fairless Hills Agreement") dated August 20, 1997
with USA Waste Services, Inc. ("USA Waste"), USA Waste of Fairless Hills, Inc.
("USA Fairless"), Clean Soils of Fairless Hills, Inc. ("Clean Soils Fairless")
to evidence a transaction under which EESI of Fairless will acquire all of the
stock of Clean Soils Fairless and USA Fairless, two companies under common
ownership with SRP by USA Waste. The closing of the acquisition of the stock of
Clean Soils Fairless and USA Fairless are pending upon satisfaction of certain
normal conditions which the Registrant believes will be resolved. The
description of the acquired assets and the proposed acquisition transaction set
forth herein is qualified in its entirety by reference to the Fairless Hills
Agreement, which is incorporated as Exhibit 10.2.
In connection with the acquisition of SRP and the Agreement to acquire
Clean Soils Fairless, Eastern entered into a Management Agreement dated July 14,
1997 between SRP, Clean Soils Fairless and Eastern Waste of Delaware Valley,
Inc., a wholly owned subsidiary of Eastern designated as the Manager. The
Management Agreement provided that Eastern Waste of Delaware Valley, Inc. would
manage the businesses of SRP and Clean Soils Fairless, retain the revenue of the
businesses and pay all associated expenses, until final closings of the
acquisitions. The Management Agreement can be terminated by either the Manager,
SRP or Clean Soils Fairless upon ten (10) days written notice if any material
provision of the Management Agreement is violated. The description of the
Management Agreement is qualified in its entirety by reference to Exhibit 10.3,
which is incorporated by reference.
Pursuant to the SRP Stock Agreement, the stock of SRP was acquired for
consideration of 270,000 unregistered shares of the Registrant's common stock
valued at $12.375 per share. Estimated consideration for the pending
acquisitions of Clean Soils Fairless and USA Fairless consists of 35,000
unregistered shares of the Registrant's stock valued at $12.375 per share.
Assets acquired within the SRP Stock Agreement include property, equipment,
vehicles, leases for real estate and personal property, accounts receivable from
customers, certain permits, licenses, consents and other governmental approvals
used in the operation of the business conducted by SRP. The acquired assets were
used by the Seller in the soil remediation business. The Registrant intends to
continue to use the acquired assets for this purpose. Assumed liabilities
include certain amounts due to vendors.
<PAGE>
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
-----------------------------------
(a) Financial statements of business acquired
Soil Remediation of Philadelphia, Inc.
--------------------------------------
Independent Auditors' Report.
Balance Sheets as of December 31, 1996 and 1995.
Statements of Operations and Retained Earnings for the Years Ended
December 31, 1996 and 1995.
Statements of Cash Flows for the Years Ended December 31, 1996 and
1995.
Notes to Financial Statements.
Balance Sheet as of June 30, 1997. (Unaudited)
Statement of Operations and Retained Earnings for the Six Months Ended
June 30, 1997. (Unaudited)
Statement of Cash Flows for the Six Months Ended June 30, 1997.
(Unaudited)
Selected Notes to Financial Statements. (Unaudited)
USA Waste of Fairless Hills, Inc. D/B/A Clean Soils
---------------------------------------------------
Independent Auditors' Report.
Balance Sheets as of December 31, 1996 and 1995.
Statements of Operations and Retained Earnings for the Years Ended
December 31, 1996 and 1995.
Statements of Cash Flows for the Years Ended December 31, 1996 and
1995.
Notes to Financial Statements.
Balance Sheet as of June 30, 1997. (Unaudited)
Statement of Operations and Retained Earnings for the Six Months Ended
June 30, 1997. (Unaudited)
Statement of Cash Flows for the Six Months Ended June 30, 1997.
(Unaudited)
Selected Notes to Financial Statements. (Unaudited)
(b) Pro forma financial information
Pro Forma Consolidated Statement of Income for the Year Ended
June 30, 1997. (Unaudited)
Pro Forma Balance Sheet as of June 30, 1997. (Unaudited)
<PAGE>
(c) Exhibits
*10.1 Agreement for the Sale and Purchase of the Stock of Soil Remediation
of Philadelphia, Inc. dated as of August 20, 1997, by and between USA
Waste Services, Inc. and Eastern Environmental Services, Inc.
*10.2 Agreement dated as of August 20, 1997 by and among USA Waste
Services, Inc., USA Waste of Fairless Hills, Inc. ("USA Fairless"),
Clean Soils of Fairless Hills, Inc. ("Clean Soils Fairless"), EESI of
Fairless Hills, Inc. and Eastern Environmental Services, Inc. for the
acquisition of the stock of Clean Soils Fairless and USA Fairless.
*10.3 Management Agreement dated July 14, 1997 by and between Soil
Remediation of Philadelphia, Inc., Clean Soils of Fairless Hills, Inc.
and Eastern Waste of Delaware Valley, Inc.
23.1 Consent of Daniel P. Irwin and Associates, P.C.
- --------------------------------------------------------------------------------
* Incorporated by reference.
Signature
---------
Pursuant to the requirements of the Securities and 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: November 3, 1997 By: /s/ Louis D. Paolino, Jr.
-----------------------------------
Louis D. Paolino, Jr., President
<PAGE>
[LETTERHEAD OF DANIEL P. IRWIN AND ASSOCIATES P.C. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Soil Remediation of Philadelphia, Inc.
We have audited the accompanying Balance Sheets of Soil Remediation of
Philadelphia, Inc., as of December 31, 1996 and 1995 and the Related Statements
of Operations, Retained Earnings and Cash Flows for the years then ended. These
Financial Statements are the responsibility of the Company's Management. Our
responsibility is to express an opinion on these Financial Statements based on
our 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 financial position of Soil Remediation of
Philadelphia, Inc. as of December 31, 1996 and 1995, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/DANIEL P. IRWIN AND ASSOCIATES P.C.
August 29, 1997
-1-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
BALANCE SHEETS
--------------
DECEMBER 31, 1996 AND 1995
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
CURRENT ASSETS:
- --------------
<S> <C> <C>
Cash 1,591 1,000
Accounts Receivable - Trade LESS
Allowance of $310,000 and $250,000 2,401,346 1,157,647
Refundable Income Taxes 330,749 0
---------- ----------
TOTAL CURRENT ASSETS 2,733,686 1,158,647
PROPERTY AND EQUIPMENT:
- ----------------------
Property and Equipment 12,019,324 12,079,324
LESS: Accumulated Depreciation ( 3,171,129) ( 2,263,294)
---- ---------- ----------
NET PROPERTY AND EQUIPMENT 8,848,195 9,816,030
INTANGIBLE ASSETS:
- -----------------
Permit Cost - Net 369,027 430,029
OTHER ASSETS:
- ------------
Pennsylvania Bond 245,220 245,220
---------- ----------
TOTAL ASSETS 12,196,128 11,649,926
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
- -------------------
<S> <C> <C>
Accounts Payable - Trade 14,844 119,484
Accrued Corporate Taxes 0 217,704
Due to Related Companies 8,224,258 6,859,587
---------- ----------
TOTAL LIABILITIES 8,239,102 7,196,775
STOCKHOLDERS' EQUITY:
- --------------------
Common Stock - $1.00 Par Value; 1,000 Shares
Authorized, Issued and Outstanding 1,000 1,000
Additional Paid in Capital 9,000 9,000
Retained Earnings 3,947,026 4,443,151
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,957,026 4,453,151
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 12,196,128 11,649,926
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-2-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
----------------------------------------------
FOR THE CALENDAR YEARS ENDED DECEMBER 31, 1996 AND 1995
-------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
SALES 5,211,052 5,557,481
COST OF SALES 4,524,790 3,398,819
GENERAL AND ADMINISTRATIVE EXPENSES 1,513,136 1,621,731
--------- ---------
(LOSS) INCOME FROM OPERATIONS ( 826,874) 536,931
Other Income (Expenses):
- ------------------------
Gain on Sale of Assets 0 7,328
--------- ---------
(LOSS) INCOME BEFORE TAXES ( 826,874) 544,259
Income Taxes 0 217,704
Tax Effect of Operating Loss Carryback 330,749 0
--------- ---------
NET (LOSS) INCOME ( 496,155) 326,555
Retained Earnings - Beginning of Year 4,443,151 4,116,596
--------- ---------
Retained Earnings - End of Period 3,947,026 4,443,151
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-3-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE CALENDAR YEARS ENDED DECEMBER 31, 1996 AND 1995
-------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net (LOSS) Income ( 496,125) 326,555
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 915,835 861,572
Amortization 65,389 65,389
(Increase) Decrease in:
Receivables (1,243,699) 267,189
Refundable Income Taxes ( 330,749) 0
Increase (Decrease) in:
Accounts Payable ( 104,640) ( 4,701)
Provision for Corporate Taxes ( 217,704) 217,704
--------- ---------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (1,411,693) 1,733,708
- - - - - - - - - -
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase of Property and Equipment 0 ( 561,139)
Sale of Equipment 52,000 0
Purchase of Other Intangible Assets ( 4,387) 0
--------- ---------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES 47,613 ( 561,139)
- - - - - - - - - -
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Due to Related Companies 1,364,671 (1,263,416)
--------- ---------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 1,364,671 (1,263,416)
- - - - - - - - - -
INCREASE (DECREASE) IN CASH 591 ( 90,847)
Beginning Cash Balance 1,000 91,847
--------- ---------
Ending Cash Balance 1,591 1,000
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-4-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 1 NATURE OF BUSINESS:
------------------
Soil Remediation of Philadelphia, Inc., (The Company) is engaged in
business of remediation services for Petroleum Contaminated Soil through
a carefully controlled process in which soil is heated to temperatures
whereby the Hydrocarbon Contaminates are volatized and released from the
soil. These vapors are then collected and cleaned through air pollution
control systems. The resulting clean soil is collected and stored to be
used for a variety of purposes, such as backfill, road building,
construction, etc.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Cash and Cash Equivalents:
-------------------------
For the purposes of the Statement of Cash Flows, the Company considers
all highly liquid debt instruments purchased with maturities of less
then three months to be cash equivalents.
Allowance for Uncollectible Accounts:
------------------------------------
The Company uses the Allowance Method to account for uncollectible
accounts receivable. The Allowance is based on management's analysis of
possible bad debts. Bad debt recoveries are charged against the
allowance account as realized.
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 the assets and
liabilities, income and expenses and disclosure of contingencies. Actual
results could differ from those results.
Property and Plant Depreciation:
--------------------------------
Property and Equipment are capitalized and stated at cost. Depreciation
is computed using the straight-line basis over the estimated service
lives of the respective property.
Intangible Assets
-----------------
Intangible Assets consist of the costs incurred in acquiring the
Federal, State and Local permits necessary in order to operate a soil
remediation facility within the City of Philadelphia and Commonwealth of
Pennsylvania. The permit costs are being amortized on a straight line
basis over a period of ten years.
-5-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES: (Continued)
-------------------------------
Revenue Recognition:
-------------------
The Company primarily derives its Revenues from construction contractors
specializing in environmental clean up of petroleum contaminated soil.
Revenue is recognized when the performance of the remediation process is
completed.
NOTE 3 PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment at December 31, 1996 and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Machinery and Equipment 8,334,229 8,394,229
Vehicles 390,653 390,653
Buildings and Site Improvements 1,283,068 1,283,068
Land 2,000,000 2,000,000
Office Equipment 11,374 11,374
---------- ----------
12,019,324 12,079,324
LESS: Accumulated Depreciation ( 3,171,129) ( 2,263,294)
---- ---------- ----------
NET PROPERTY AND EQUIPMENT 8,848,195 9,816,030
========== ==========
</TABLE>
NOTE 4 INTANGIBLE ASSETS:
-----------------
A summary of Intangible Assets and Accumulated Amortization at December
31, 1996 and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
Permits 658,277 653,890
LESS: Accumulated Amortization (289,250) (223,861)
---- -------- --------
NET INTANGIBLE ASSETS 369,027 430,029
======= =======
</TABLE>
NOTE 5 OTHER ASSETS:
------------
The Pennsylvania Department of Environmental Resources requires the
posting of a bond before issuing the necessary permit to operate a soil
remediation facility within the Commonwealth of Pennsylvania. The bond
is to insure that any environmental contamination is cleaned up when the
Company ceases operation of the soil remediation facility. In August
1992, the Company posted a $245,220.00 bond. The Bond is refundable when
the soil remediation plant ceases operation and the site has been
cleaned up to the satisfaction of the Pennsylvania Department of
Environmental Resources.
-6-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 6 DUE TO RELATED PARTIES:
----------------------
Soil Remediation of Philadelphia, Inc. is a wholly owned subsidiary of
USA Waste Services, Inc. The Company transferred funds to certain other
wholly owned subsidiaries and received funds transferred from other
wholly owned subsidiaries of its parent company, USA Waste Services,
Inc. The year end balances resulting from the transfers of funds between
related companies at December 31, 1996 and December 31, 1995 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------
<S> <C> <C>
USA Waste Services, Inc. 5,912,146 6,229,094
Meadowbrook Co., Inc. - USA
Waste Services, Inc. 983,871 635,339
USA Hauling, Inc. D/B/A Quickway ( 3,974) ( 3,974)
USA Waste Transfer, Inc. D/B/A Girardpointe ( 164,446) 0
USA Waste of Fairless Hills, Inc.
D/B/A Clean Soils 1,496,661 ( 872)
--------- ---------
8,224,258 6,859,587
========= =========
</TABLE>
NOTE 7 FEDERAL AND STATE TAXES:
-----------------------
At December 31, 1996, the Company had a net operating loss for Federal
Income tax purposes of $826,874.00. The net operating loss carryback and
or forward results in a tax benefit of $330,749.00. At December 31,
1995, the Company had a net operating income for Federal Income tax
purposes of $544,259,00. The resulting tax liability was $217,704.00.
NOTE 8 COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company is subject to extensive and changing Federal, State and
Local Environmental Laws and Regulations in the Commonwealth of
Pennsylvania that have been enacted in response to technological
advances and the public concern over environmental issues. The
expenditures necessary to comply with environmental laws and regulations
are made in the normal course of business. Although the company, to the
best of its knowledge, is in compliance in all material respects with
the laws and regulations affecting its operations. There is no assurance
that the Company will not have to expend substantial amounts for
compliance in the future.
NOTE 9 SUBSEQUENT EVENT:
----------------
On August 20, 1997, Eastern Environmental Services, Inc. a Delaware
Corporation, purchased all of the outstanding Stock of Soil Remediation
of Philadelphia, Inc. in exchange for 270,000 shares of Eastern
Environmental Services, Inc. Common Stock.
-7-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
BALANCE SHEET
-------------
JUNE 30, 1997
-------------
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
CURRENT ASSETS:
- --------------
<S> <C> <C>
Cash 1,250
Accounts Receivable - Trade LESS
Allowance of $340,000 3,203,358
Refundable Income Taxes 1,453,343
-----------
TOTAL CURRENT ASSETS 4,657,951
PROPERTY AND EQUIPMENT:
- ----------------------
Property and Equipment 12,019,324
LESS: Accumulated Depreciation (3,630,336)
---- -----------
NET PROPERTY AND EQUIPMENT 8,388,988
INTANGIBLE ASSETS:
- -----------------
Permit Cost - Net 336,333
OTHER ASSETS:
- ------------
Pennsylvania Bond 245,220
----------
TOTAL ASSETS 13,628,492
==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
- -------------------
<S> <C> <C>
Accounts Payable - Trade 85,992
Due to Related Companies 11,765,490
----------
TOTAL LIABILITIES 11,851,482
STOCKHOLDERS' EQUITY:
- --------------------
Common Stock - $1.00 Par Value;
1,000 Shares Authorized, Issued
and Outstanding 1,000
Additional Paid in Capital 9,000
Retained Earnings 1,767,010
----------
TOTAL STOCKHOLDERS' EQUITY 1,777,010
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 13,628,492
==========
</TABLE>
-2-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
---------------------------------------------
(Unaudited)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
-------------
<S> <C>
SALES 834,947
COST OF SALES 4,057,883
GENERAL AND ADMINISTRATIVE EXPENSES 410,423
----------
LOSS FROM OPERATIONS (3,633,359)
Tax Effect of Operating Loss 1,453,343
----------
NET LOSS (2,180,016)
Retained Earnings - Beginning of Year 3,947,026
----------
Retained Earnings - End of Period 1,767,010
==========
</TABLE>
-3-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
-------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C>
Net LOSS (2,180,016)
Adjustments to Reconcile Net Income (LOSS)
to Net Cash Provided by Operating Activities:
Depreciation 459,207
Amortization 32,694
(Increase) Decrease in:
Receivables (802,012)
Refundable Income Taxes (1,122,594)
Increase (Decrease) in:
Accounts Payable 71,148
----------
NET CASH USED BY
OPERATING ACTIVITIES (3,541,573)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Increase in
Due to Related Companies 3,541,232
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,541,232
----------
DECREASE IN CASH (341)
Beginning Cash Balance 1,591
----------
Ending Cash Balance 1,250
==========
</TABLE>
-4-
<PAGE>
SOIL REMEDIATION OF PHILADELPHIA, INC.
--------------------------------------
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
JUNE 30, 1997
-------------
(Unaudited)
NOTE 1 NATURE OF BUSINESS:
------------------
Soil Remediation of Philadelphia, Inc., (The Company) is engaged in
business of remediation services for Petroleum Contaminated Soil through
a carefully controlled process in which soil is heated to temperatures
whereby the Hydrocarbon Contaminates are volatized and released from the
soil. These vapors are then collected and cleaned through air pollution
control systems. The resulting clean soil is collected and stored to be
used for a variety of purposes, such as backfill, road building,
construction, etc.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Allowance for Uncollectible Accounts:
------------------------------------
The Company uses the Allowance Method to account for uncollectible
accounts receivable. The Allowance is based on management's analysis of
possible bad debts. Bad debt recoveries are charged against the
allowance account as realized.
Property and Plant Depreciation:
--------------------------------
Property and Equipment are capitalized and stated at cost. Depreciation
is computed using the straight-line basis over the estimated service
lives of the respective property.
Intangible Assets
-----------------
Intangible Assets consist of the costs incurred in acquiring the
Federal, State and Local permits necessary in order to operate a soil
remediation facility within the City of Philadelphia and Commonwealth of
Pennsylvania. The permit costs are being amortized on a straight line
basis over a period of ten years.
Revenue Recognition:
-------------------
The Company primarily derives its Revenues from construction contractors
specializing in environmental clean up of petroleum contaminated soil.
Revenue is recognized when the performance of the remediation process is
completed.
NOTE 3 SUBSEQUENT EVENT:
----------------
On August 20, 1997, Eastern Environmental Services, Inc. a Delaware
Corporation, purchased all of the outstanding stock of Soil Remediation
of Philadelphia, Inc. in exchange for 270,000 shares of Eastern
Environmental Services, Inc. Common Stock.
-5-
<PAGE>
[LETTERHEAD OF DANIEL P. IRWIN AND ASSOCIATES P.C. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
USA Waste of Fairless Hills, Inc.
D/B/A Clean Soils
We have audited the accompanying Balance Sheets of USA Waste of Fairless Hills,
Inc., D/B/A Clean Soils, as of December 31, 1996 and 1995 and the Related
Statements of Operations, Retained Earnings and Cash Flows for the years then
ended. These Financial Statements are the responsibility of the Company's
Management. Our responsibility is to express an opinion on these Financial
Statements based on our 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 financial position of USA Waste of Fairless Hills,
Inc. D/B/A Clean Soils as of December 31, 1996 and 1995, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ DANIEL P. IRWIN AND ASSOCIATES P.C.
August 29, 1997
-1-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
BALANCE SHEETS
--------------
DECEMBER 31, 1996 AND 1995
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
- --------------
Cash 1,000 980
Accounts Receivable - Trade LESS
Allowance of $155,000 and $50,000 527,893 619,699
Prepaid Expenses 808,758 15,000
Refundable Income Taxes 196,558 0
--------- ---------
TOTAL CURRENT ASSETS 1,534,209 635,679
- - - - - - - - - -
PROPERTY AND EQUIPMENT:
- ----------------------
Property and Equipment 1,970,973 1,970,973
LESS: Accumulated Depreciation 581,160 328,944
---- --------- ---------
NET PROPERTY AND EQUIPMENT 1,389,813 1,642,029
- - - - - - - - - -
INTANGIBLE ASSETS:
- -----------------
Permit Costs - Net 387,170 438,043
--------- ---------
Other Assets:
- ------------
Pennsylvania Bond 250,000 250,000
--------- ---------
TOTAL ASSETS 3,561,192 2,965,751
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
- -------------------
<S> <C> <C>
Accounts Payable - Trade 106,030 73,606
Accrued Corporate Taxes 0 158,698
Due to Related Companies 3,139,799 2,123,246
--------- ---------
TOTAL LIABILITIES 3,245,829 2,355,550
- - - - - - - - - -
STOCKHOLDERS' EQUITY:
- --------------------
Common Stock - $.01 Par Value;
Authorized 1,000,000
Shares; Issued and Outstanding
Shares 500 Shares 5 5
Retained Earnings 315,358 610,196
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 315,363 610,201
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 3,561,192 2,965,751
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-2-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
SALES 1,706,439 2,273,238
COST OF SALES 1,771,235 1,480,916
GENERAL AND ADMINISTRATIVE EXPENSES 426,600 395,577
--------- ---------
(LOSS) INCOME BEFORE INCOME TAXES (491,396) 396,745
Income Taxes 0 158,698
Tax Effect of Operating Loss Carry-Back 196,558 0
--------- ---------
NET (LOSS) INCOME (294,838) 238,047
Retained Earnings - Beginning of Year 610,196 372,149
--------- ---------
Retained Earnings - End of Year 315,358 610,196
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-3-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE CALENDAR YEARS ENDED DECEMBER 31, 1996 AND 1995
-------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net (LOSS) Income (294,838) 238,047
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 252,216 251,294
Amortization 51,374 50,686
(Increase) Decrease in:
Receivables 91,806 (246,276)
Prepaid Expenses (793,758) (7,500)
Refundable Income Taxes (196,558) 0
Increase (Decrease) in:
Accounts Payable 32,423 (14,775)
Provision for Income Taxes (158,698) 158,698
---------- ----------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (1,016,033) 430,174
- - - - - - - - - - - -
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Purchase and Equipment 0 (37,854)
Cost of Permit (500) (13,729)
---------- ----------
NET CASH (USED) PROVIDED IN
INVESTING ACTIVITIES (500) (51,583)
- - - - - - - - - - - -
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Due to Related Companies 1,016,553 (436,774)
---------- ----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 1,016,553 (436,774)
- - - - - - - - - - - -
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 20 (58,183)
Cash and Cash Equivalents:
-------------------------
Beginning 980 59,163
---------- ----------
Ending 1,000 980
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-4-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 1 NATURE OF BUSINESS:
------------------
USA Waste of Fairless Hills, Inc. D/B/A Clean Soils, (The Company) is
engaged in the business of remediation services for petroleum
contaminated soil, through a carefully controlled process in which the
soil is heated to temperatures whereby the Hydro-carbon Contaminates are
volatized and released from the soil. These vapors are then collected
and cleaned through air pollution control systems. The resulting clean
soil is collected and stored, to be used for a variety of purposes, such
as backfill, road building, construction, etc.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Cash and Cash Equivalents:
-------------------------
For the purposes of the Statement of Cash Flows, the Company considers
all highly liquid debt instruments purchased with maturities of three
months or less to be cash equivalents.
Allowance for Uncollectible Accounts:
------------------------------------
The Company uses the Allowance Method to account for uncollectible
accounts receivable. The Allowance is based on management's analysis of
possible bad debts. Bad debt recoveries are charged against the
allowance account as realized.
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,
income and expenses and disclosure of contingencies. Actual results
could differ from those estimates.
Property and Plant Depreciation:
--------------------------------
Property and Equipment are capitalized and stated at cost. Depreciation
is computed on the straight-line basis over the estimated service lives
of the respective classes of property.
Intangible Assets
-----------------
Intangible Assets consist of the costs incurred in acquiring the
Federal, State and Local permits necessary in order to operate a soil
remediation facility within the City of Philadelphia and Commonwealth of
Pennsylvania. The permit costs are being amortized on a straight line
basis over a period of ten years.
-5-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
-------------------------------
Revenue Recognition:
-------------------
The Company primarily derives its Revenues from construction contractors
specializing in environmental clean up of petroleum contaminated soil.
Revenue is recognized when the performance of the remediation process is
completed.
NOTE 3 Prepaid Expenses:
----------------
Prepaid expenses consist of the following at December 31, 1996 and
December 31, 1995 and are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Prepaid Rent 7,500 7,500
Security Deposit 7,500 7,500
Prepaid Landfill Fees 793,758 0
--------- ---------
808,758 15,000
========= =========
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT:
----------------------
Property and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Machinery and Equipment 1,960,130 1,960,130
Office Equipment 10,843 10,843
--------- ---------
1,970,973 1,970,973
LESS: Accumulated Depreciation (581,160) (328,944)
---- --------- ---------
NET PROPERTY AND EQUIPMENT 1,389,813 1,642,029
========= =========
</TABLE>
NOTE 5 INTANGIBLE ASSETS:
-----------------
A summary of intangible assets and accumulated amortization at December
31, 1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Permits Costs 514,229 513,729
LESS: Accumulated Amortization (127,059) (75,686)
---- --------- ---------
NET INTANGIBLE ASSETS 387,170 438,043
========= =========
</TABLE>
-6-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 6 OTHER ASSETS:
------------
The Pennsylvania Department of Environmental Resources requires the
posting of a bond before issuing the necessary permit to operate a soil
remediation facility within the Commonwealth of Pennsylvania. The bond
is to insure that any environmental contamination is cleaned up when the
Company ceases operation of the soil remediation facility. In June 1994,
the Company posted a $250,000.00 bond. The Bond is refundable when the
soil remediation plant ceases operation and the site has been cleaned up
to the satisfaction of the Pennsylvania Department of environmental
resources.
NOTE 7 DUE TO RELATED COMPANIES:
------------------------
USA Waste of Fairless Hills, Inc. D/B/A Clean Soils is a wholly owned
subsidiary of USA Waste Services, Inc. The Company transferred funds to
certain other wholly owned subsidiaries and received funds transferred
from other wholly owned subsidiaries of its parent company, USA Waste
Services, Inc. The year end balances resulting from the transfers of
funds between related companies at December 31, 1996 and December 31,
1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
USA Waste Services, Inc. 4,140,826 2,123,246
Soil Remediation of Philadelphia, Inc. (1,496,661) 0
Mid Jersey Disposal, Inc. 495,634 0
---------- ---------
3,139,799 2,123,246
========== =========
</TABLE>
NOTE 8 FEDERAL AND STATE TAXES:
-----------------------
At December 31, 1996, the Company had a net operating loss for Federal
income tax purposes of $491,396.00. The net operating loss carryback and
or forward results in a tax benefit of $196,558.00. At December 31,
1995, the Company had net operating income for Federal income tax
purposes of $396,745.00. The resulting tax liability was $158,698.00.
NOTE 9 COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company is obligated under an operating lease, primarily for its
operating facilities including land and office space. The Lease
commenced on January 1, 1994, and shall expire on December 31, 1998 with
a five year renewal option starting on January 1, 1999 and expiring on
December 31, 2003. Future minimum lease payments are as follows: 1997 -
$98,100.00, 1998 - $100,800.00, 1999 -$103,500.00, 2000 - $106,200.00,
2001 - $108,900.00, 2002 - $111,600.00, and 2003 - $114,300.00,
respectively. The rental expense under the lease was approximately
$90,000.00 for 1996 and $90,000.00 for 1995.
-7-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 9 COMMITMENTS AND CONTINGENCIES: (continued)
-----------------------------
The Company is subject to extensive and changing Federal, State and
Local environmental laws and regulations in the Commonwealth of
Pennsylvania that have been enacted in response to technological
advances and the public concern over environmental issues. The
expenditures necessary to comply with environmental laws and regulations
are made in the normal course of business. Although the company to the
best of its knowledge, is in compliance in all material respects with
the laws and regulations affecting its operations. There is no assurance
that the Company will not have to expend substantial amounts for
compliance in the future.
-8-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
BALANCE SHEET
-------------
JUNE 30, 1997
-------------
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
CURRENT ASSETS:
- --------------
<S> <C> <C>
Cash 910
Accounts Receivable - Trade LESS
Allowance of $175,000 1,146,275
Prepaid Expenses 767,310
Refundable Income Taxes 155,692
---------
TOTAL CURRENT ASSETS 2,070,187
PROPERTY AND EQUIPMENT:
- ----------------------
Property and Equipment 1,970,973
LESS: Accumulated Depreciation ( 707,193)
---- ---------
NET PROPERTY AND EQUIPMENT 1,263,780
INTANGIBLE ASSETS:
- -----------------
Permit Costs - Net 365,914
Other Assets:
- ------------
Pennsylvania Bond 250,000
---------
TOTAL ASSETS 3,949,881
=========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
- -------------------
<S> <C> <C>
Accounts Payable - Trade 232,357
Due to Related Companies 3,635,698
---------
TOTAL LIABILITIES 3,868,055
STOCKHOLDERS' EQUITY:
- ---------------------
Common Stock - No Par Value;
Authorized 1,000
Shares; Issued and Outstanding 5
Retained Earnings 81,821
---------
TOTAL STOCKHOLDERS' EQUITY 81,826
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 3,949,881
=========
</TABLE>
-2-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
---------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997
-------------
<S> <C>
SALES 731,786
COST OF SALES 977,430
GENERAL AND ADMINISTRATIVE EXPENSES 143,585
---------
LOSS BEFORE INCOME TAXES ( 389,229)
Tax Effect of Operating Loss 155,692
--------
NET LOSS ( 233,537)
Retained Earnings - Beginning of Period 315,358
--------
Retained Earnings - End of Period 81,821
========
</TABLE>
-3-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
6-30-97
----------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
<S> <C>
Net LOSS ( 233,537)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 126,034
Amortization 21,255
(Increase) Decrease in:
Receivables ( 618,382)
Prepaid Expenses 41,448
Refundable Income Taxes 40,866
Increase (Decrease) in:
Accounts Payable 126,327
---------
NET CASH USED IN
OPERATING ACTIVITIES ( 495,989)
_ _ _ _ _
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Due to Related Companies 495,899
---------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 495,899
_ _ _ _ _
DECREASE IN CASH & CASH EQUIVALENTS ( 90)
Cash and Cash Equivalents:
-------------------------
Beginning 1,000
---------
Ending 910
=========
</TABLE>
-4-
<PAGE>
USA WASTE OF FAIRLESS HILLS, INC.
---------------------------------
D/B/A CLEAN SOILS
-----------------
SELECTED NOTES TO FINANCIAL STATEMENTS
(Unaudited)
--------------------------------------
JUNE 30, 1997
-------------
NOTE 1 NATURE OF BUSINESS:
------------------
USA Waste of Fairless Hills, Inc. D/B/A Clean Soils, (The Company) is
engaged in the business of remediation services for petroleum
contaminated soil, through a carefully controlled process in which the
soil is heated to temperatures whereby the Hydro-carbon Contaminates are
volatized and released from the soil. These vapors are then collected
and cleaned through air pollution control systems. The resulting clean
soil is collected and stored, to be used for a variety of purposes, such
as backfill, road building, construction, etc.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Allowance for Uncollectible Accounts:
------------------------------------
The Company uses the Allowance Method to account for uncollectible
accounts receivable. The Allowance is based on management's analysis of
possible bad debts. Bad debt recoveries are charged against the
allowance account as realized.
Property and Plant Depreciation:
--------------------------------
Property and Equipment are capitalized and stated at cost. Depreciation
is computed on the straight-line basis over the estimated service lives
of the respective classes of property.
Intangible Assets
-----------------
Intangible Assets consist of the costs incurred in acquiring the
Federal, State and Local permits necessary in order to operate a soil
remediation facility within the City of Philadelphia and Commonwealth of
Pennsylvania. The permit costs are being amortized on a straight line
basis over a period of ten years.
Revenue Recognition:
-------------------
The Company primarily derives its Revenues from construction contractors
specializing in environmental clean up of petroleum contaminated soil.
Revenue is recognized when the performance of the remediation process is
completed.
-5-
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED JUNE 30, 1997
On August 15, 1997, all of the outstanding stock of Harford Disposal, Inc.
("Hardford") was acquired by Eastern Environmental Services, Inc. (the
"Registrant") and immediately thereafter, all of the outstanding stock of Pappy,
Inc. was purchased by Harford for total consideration paid by Eastern
Environmental Services, Inc. of approximately $12,000,000. Harford's only
activity was the acquisition of Pappy, Inc. and therefore Pappy, as the
predecessor company, constitutes the business acquired by the Registrant.
Additionally, on August 20, 1997, all of the outstanding stock of Soil
Remediation of Philadelphia, Inc. ("SRP") was acquired by the Registrant for
consideration consisting of 270,000 unregistered shares of the Registrant's
common stock valued at $12.375 per share. Simultaneously, with the closing of
the SRP transaction, the Registrant and its wholly owned subsidiary, Eastern
Environmental Services, Inc. of Fairless Hill, Inc. ("EESI of Fairless"),
entered into an Agreement (the "Fairless Hills Agreement") dated August 20, 1997
with USA Waste Services, Inc. ("USA Waste"), USA Waste of Fairless Hills, Inc.
("USA Fairless"), and Clean Soils of Fairless Hills, Inc. ("Clean Soils") to
evidence a transaction under which EESI of Fairless will acquire all stock of
Clean Soils and USA Fairless, two companies under common ownership with SRP by
USA Waste. The closing of the acquisition of the stock of Clean Soils and USA
Fairless are pending upon satisfaction of certain normal conditions which the
Registrant believes will be resolved. The following unaudited pro forma
consolidated Statement of Operations for the year ended June 30, 1997 gives
effect to the aforementioned transactions as if the transactions had occurred on
July 1, 1996.
The following unaudited pro forma financial data may not be indicative of
what the results of operations or financial position of Eastern Environmental
Services, Inc. would have been, had the transactions to which such data gives
effect had been completed on the date assumed, nor are such data necessarily
indicative of the results of operations or financial position 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
consolidated financial statements and notes of Eastern Environmental Services,
Inc. as of June 30, 1997 and for each of the three years in the period then
ended and the historical financial statements of SRP and Clean Soils appearing
elsewhere in this filing.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Eastern Pro
Environmental Pro Forma Forma
Services, Inc. Pappy, Inc. SRP Clean Soils Adjustments Consolidated
--------------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $79,625,420 $2,803,860 $ 3,649,026 $1,513,224 $ -- $87,591,530
Cost of revenues 53,130,199 910,970 6,944,870 1,755,047 411 (1) 62,741,497
Selling, general and
administrative expenses 12,778,548 430,787 704,137 165,768 (86,918) (2) 13,992,322
Depreciation and
amortization 4,742,370 107,914 975,224 299,068 745,434 (1) 5,613,730
(1,256,280) (4)
Merger costs 3,336,792 -- -- -- 3,336,792
----------- ---------- ----------- ---------- ----------- -----------
Operating income (loss) 5,637,511 1,354,189 (4,975,205) (706,659) 597,353 1,907,189
Interest (expense) income, net (2,662,729) 13,717 -- -- 9,750 (3) (2,639,262)
Other income, net 508,778 552 -- -- -- 509,330
----------- ---------- ----------- ---------- ----------- -----------
Income before (loss) income taxes 3,483,560 1,368,458 (4,975,205) (706,659) 607,103 (222,743)
Income tax (expense) benefit (1,341,205) -- 1,990,082 282,664 (242,800) (6) 688,741
----------- ---------- ----------- ---------- ----------- -----------
Net income (loss) $ 2,142,355 $1,368,458 $(2,985,123) $ (423,995) $ 364,303 $ 465,998
=========== ========== =========== ========== =========== ===========
Net income per share $ .03
===========
Weighted average number of
shares outstanding (5) 15,281,802
===========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997
(1) To adjust depreciation and amortization expense for the change in the basis
of property, equipment, landfill site costs and intangible assets as if the
purchase of Pappy had been completed on July 1, 1996 net of historical
depreciation and amortization expense of Pappy and to reflect the Company's
methodology of amortizing landfill site costs and closure and post-closure
costs. Landfill site costs and closure and post-closure costs are amortized
based upon consumed airspace using the unit-of-production method of
airspace filled during the period in relation to estimates of total
available airspace.
(2) To eliminate intercompany administrative charges related directly to cost
sharing arrangements provided by Pappy's prior parent, which were
terminated as a result of the purchase transaction.
(3) To eliminate interest expense of $9,750 related to debt of Pappy, Inc. not
acquired by the Registrant.
(4) To adjust depreciation and amortization expense for the change in the basis
of property, equipment and intangible assets as if the purchase of SRP and
Clean Soils had been completed on July 1, 1996 net of historical
depreciation and amortization expense of SRP and Clean Soils.
(5) For the purpose of determining pro forma earnings per share, the issuance
of 270,000 and 35,000 shares of Common Stock as consideration for the
purchase of the stock of SRP and Clean Soils, repectively, were considered
to have been outstanding from July 1, 1996.
(6) The Company's pro forma effective tax provision is due to the realization
of federal net operating loss carry-forwards and the reversal of certain
related valuation allowances.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
Eastern
Environmental Pro Forma Pro Forma
Services, Inc. Pappy, Inc. SRP Clean Soils Adjustments As Adjusted
--------------- ----------- ----------- ----------- ------------- ----------
Assets
Current Assets
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents............. $ 4,292,278 $ 225,084 $ 1,250 $ 910 $ 1,470,448 (1)(2) $ 5,989,970
Accounts receivable, net of
allowance 13,508,730 58,728 3,203,358 1,146,275 (3,030,331)(2) 14,886,760
Deferred income taxes................. 3,369,014 -- -- -- -- 3,369,014
Refundable income taxes............... -- -- 1,453,343 155,692 (1,609,035)(2) 0
Prepaid expenses and other current
assets............................... 4,538,198 21,931 -- 767,310 (789,241)(1)(2) 4,538,198
------------ ---------- ----------- ---------- ------------ ------------
Total current assets................. 25,708,220 305,743 4,657,951 2,070,187 (3,958,159) 28,783,942
Net property, plant & equipment........ 66,143,633 590,364 8,388,988 1,263,780 4,272,659 (1)(2) 80,659,424
Assets held for resale................. 358,758 -- -- -- -- 358,758
Excess cost over fair market value of
net assets acquired................... 60,302,159 -- -- -- 237,161 (2) 60,539,320
Intangible assets, net................. 6,079,686 -- 336,333 365,914 (702,247)(2) 6,079,686
Notes receivable from stockholders /
officers.............................. 432,902 -- -- -- -- 432,902
Other assets........................... 2,060,054 362,005 245,220 250,000 (362,005)(1) 2,555,274
------------ ---------- ----------- ---------- ------------ ------------
Total assets......................... $161,085,412 $1,258,112 $13,628,492 3,949,881 $ (512,591) 179,409,306
============ ========== =========== ========== ============ ============
Liabilities and stockholders' equity
Current liabilities
Current maturities on long-term
debt................................. $ 1,803,269 $ 0 $ 0 $ 0 $ 0 1,803,269
Current maturities of obligations
under capital leases................. 1,249,769 -- -- -- -- 1,249,769
Accounts payable....................... 8,036,964 29,091 85,992 232,357 (318,349)(2) 8,066,055
Accrued expenses and other current
liabilities........................... 12,854,591 -- 11,765,490 3,635,698 (13,627,188)(2) 14,628,591
Income taxes payable................... 387,342 -- -- -- -- 387,342
Current portion of accrued landfill
closure and other environmental
costs................................. 2,228,000 -- -- -- -- 2,228,000
------------ ---------- ----------- ---------- ------------ ------------
Total current liabilities............ 26,559,935 29,091 11,851,482 3,868,055 (13,945,537) 28,363,026
Deferred income taxes.................. 5,716,590 -- -- -- -- 5,716,590
Long-term debt......................... 59,303,672 250,000 -- -- 11,750,000 (1) 71,303,672
Capital lease obligations--
long-term............................. 1,625,741 -- -- -- -- 1,625,741
Accrued landfill closure and other --
environmental costs................... 6,891,219 746,428 -- -- 7,637,647
Other long-term liabilities............ 9,151,246 -- -- -- -- 9,151,246
Stockholders' equity
Common stock.......................... 161,530 100 1,000 5 1,945 (1)(2) 164,580
Additional paid-in capital............ 50,072,591 -- 9,000 -- 3,762,325 (2) 53,843,916
Retained earnings (deficit)........... 1,679,147 232,493 1,767,010 81,821 (2,081,324)(1)(2) 1,679,147
Less treasury stock at cost--
(76,259) -- -- -- -- (76,259)
39,100 common shares................. ------------ ---------- ----------- ---------- ------------ ------------
Total stockholders' equity........... 51,837,009 232,593 1,777,010 81,826 1,682,946 55,611,389
------------ ---------- ----------- ---------- ------------ ------------
Total liabilities and stockholders'
$161,085,412 $1,258,112 $13,628,492 $3,949,881 $ (512,591) $179,409,306
equity.............................. ============ ========== =========== ========== ============ ============
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(1) On August 15, 1997, all of the outstanding stock of Harford Disposal, Inc.
("Harford") was acquired by Eastern Environmental Services, Inc. and
immediately thereafter, all of the outstanding stock of Pappy, Inc. was
purchased by Harford for total consideration paid by Eastern Environmental
Services, Inc. of approximately $12,000,000. Harford's only activity was
the acquisition of Pappy, Inc. and therefore Pappy, as the predecessor
company, constitutes the business acquired by the Registrant. The
acquisition has been accounted for under the purchase method. Pursuant to
the terms of the Purchase Contract, certain property, equipment,
intangible assets, other assets and working capital were acquired for
consideration of $12,000,000 in cash. With respect to the closure and
post-closure liabilities, the Company recorded a $750,000 liability at the
date of the acquisition representing the Company's estimate of closure and
post-closure liability for the entire site utilizing engineering studies
and state requirements as compared to the percentage of airspace utilized
at the date of the acquisition. The preliminary allocation of the purchase
price is as follows:
<TABLE>
<S> <C>
Property, equipment and landfill
site............................... $12,724,000
Current assets acquired.............. 55,000
Other liabilities.................... (29,000)
-----------
Landfill closure and post-closure... (750,000)
-----------
$12,000,000
===========
</TABLE>
The pro forma adjustment to record the purchase price is net of the following
assets and liabilities not assumed based on the unaudited June 30, 1997
balance sheet:
<TABLE>
<S> <C>
Property and equipment, net.. $ 219,080
Current assets............... 247,015
Other assets................. 362,005
Other liabilities............ (250,000)
---------
Net Assets not assumed....... $ 578,100
=========
</TABLE>
In August 1997, the Company completed the sale and registration of 5,175,000
shares of its common stock which generated net proceeds of approximately $85.5
million. The acquisition was funded with a portion of these proceeds. In the
June 30, 1997 pro forma balance sheet, the funding of the acquisition has been
shown as borrowings under the Company's credit facility.
(2) On August 20, 1997, all of the outstanding stock of Soil Remediation of
Philadelphia, Inc. ("SRP") was acquired by the Registrant for consideration
consisting of 270,000 unregistered shares of the Registrant's common stock
valued at $12.375 per share. Simultaneously, with the closing of the SRP
transaction, the Registrant and its wholly owned subsidiary, Eastern
Environmental Services, Inc. of Fairless Hill, Inc. ("EESI of Fairless"),
entered into an Agreement (the "Fairless Hills Agreement") dated August 20,
1997 with USA Waste Services, Inc. ("USA Waste"), USA Waste of Fairless
Hills, Inc. ("USA Fairless"), Clean Soils of Fairless Hills, Inc. ("Clean
Soils") to evidence a transaction under which EESI of Fairless will acquire
all stock of Clean Soils and USA Fairless, two companies under common
ownership with SRP by USA Waste. The closing of the acquisition of the
stock of Clean Soils and USA Fairless are pending upon satisfaction of
certain normal conditions which the Registrant believes will be resolved.
The acquisition of SRP has been accounted for under the purchase method.
The Preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Cash.............................. $1,697,692
Accounts receivable, net.......... 1,319,302
Property, plant and equipment..... 1,799,000
Goodwill.......................... 237,161
Other assets...................... 495,220
Other liabilities................. (1,774,000)
-----------
$3,774,375
===========
</TABLE>
The Pro forma adjustment to record the purchase price is net of the following
assets and liabilities not assumed based on the unaudited June 30, 1997
balance sheet:
<TABLE>
<S> <C>
Current assets.................... $2,376,345
Intangible assets................. 702,247
Other liabilities................. (3,895,537)
-----------
Net liabilities not assumed....... $ (816,945)
===========
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
23.1 Consent of Daniel P. Irwin and Associates, P.C.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 33-25155, filed on October 24, 1988), the
Registration Statement on Form S-8 (Post-Effective Amendment No. 2 to
Registration No. 33-21251, filed on May 4, 1990), the Registration Statement on
Form S-8 (Registration No. 33-37374, filed on October 18, 1990), the
Registration Statement on Form S-8 (Registration No. 33-45250, filed on January
27, 1992), the Registration Statement on Form S-3 (Registration No. 333-00283,
filed on February 14, 1996), the Registration Statement on Form S-8 (Post-
Effective Amendment No. 1 to Registration Statement No. 333-28627, filed on June
20, 1997) and the Registration Statement on Form S-3 (Post-Effective Amendment
No. 2 to Registration Statement No. 333-32361, filed on October 10, 1997). of
our reports dated August 29, 1997, with respect to the financial statements of
Soil Remediation of Philadlephia, Inc. and USA Waste of Fairless Hills, Inc.
included in Eastern Environmental Services, Inc.'s Current Report on Form 8-K
dated August 20, 1997 (as amended November 3, 1997 on Form 8-K/A), filed with
the Securities and Exchange Commission.
Strafford-Wayne, Pennsylvania
November 3, 1997
/s/ Daniel P. Irwin and Associates P.C.
