TRANSAMERICAN WASTE INDUSTRIES INC, 10-Q, 1996-08-14

TRANSAMERICAN WASTE INDUSTRIES INC
10-Q, 1996-08-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 0-19615

TRANSAMERICAN WASTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 13-3487422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

314 NORTH POST OAK LANE
HOUSTON, TEXAS
(Address of principal executive offices)

77024
(Zip Code)

Registrant's telephone number, including area code: (713) 956-1212

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.

OUTSTANDING AT
CLASS OF COMMON STOCK AUGUST 14, 1996
$.001 par value 30,472,041
<PAGE>
TRANSAMERICAN WASTE INDUSTRIES, INC.

INDEX

PAGE NO.
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets -
December 31, 1995 and June 30, 1996............................. 3
Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1995 and 1996............... 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1996......................... 5
Notes to Unaudited Consolidated Financial Statements................ 6

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................... 16

Item 4. Submission of Matters to a Vote of Security Holders.......... 16

Item 6. Exhibits and Reports on Form 8-K................................ 16

Signatures ............................................................ 17

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
-------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS

Cash and cash equivalents ................................................................. $ 1,637 $ 1,009
Restricted cash ........................................................................... 783 1,527
Accounts receivable, less allowance for doubtful accounts of $186
and $156, respectively ............................................................... 2,526 2,621
Other current assets ...................................................................... 1,102 1,716
-------- --------
TOTAL CURRENT ASSETS ................................................................ 6,048 6,873
Restricted cash .............................................................................. 8,931 14,137
Property and equipment, net of accumulated depreciation ...................................... 27,100 31,758
COST IN EXCESS OF FAIR VALUE OF ASSETS ACQUIRED, NET OF ACCUMULATED
AMORTIZATION OF $390 AND $452, RESPECTIVELY .............................................. 2,070 2,009
DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $403 AND
$501, RESPECTIVELY .......................................................................... 2,137 2,618
Long-term contracts in progress, net of allowance for doubtful accounts of
$149 ....................................................................................... 826 826
Other assets, net ............................................................................ 314 2,069
-------- --------
TOTAL ASSETS ........................................................................ $ 47,426 $ 60,290
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................................................................ $ 1,694 $ 1,820
Accrued liabilities and other ............................................................... 1,850 2,227
Current portion of long-term debt ........................................................... 1,726 2,493
Reserve for closure and post-closure costs .................................................. 307 273
-------- --------
TOTAL CURRENT LIABILITIES ................................................................... 5,577 6,813
Long-term debt, less current portion and unamortized discount ................................ 30,210 38,994
Reserve for closure and post-closure costs, less current portion ............................. 3,569 3,923
Other noncurrent liabilities ................................................................. 637 2,083
-------- --------
TOTAL LIABILITIES ........................................................................... 39,993 51,813
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 100,000,000 shares authorized; 29,649,124
and 30,471,291, shares issued and outstanding, respectively ................................. 30 30
Additional paid-in capital ................................................................... 25,074 25,648
Retained earnings (deficit) .................................................................. (17,671) (17,201)
-------- --------
TOTAL STOCKHOLDERS' EQUITY .................................................................. 7,433 8,477
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................................. $ 47,426 $ 60,290
======== ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1995 1996 1995 1996
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue ........................................................ $ 2,781 $ 4,769 $ 5,044 $ 9,351
Expenses:
Cost of services ............................................. 1,883 2,879 3,785 5,532
Depreciation and amortization ................................ 426 562 776 1,116
General and administrative ................................... 878 946 1,694 1,713
Cost of completed acquisition ................................ -- -- 150 --
Cost of terminated acquisitions and contracts ................ 11 -- 226 --
-------- -------- -------- --------
Operating income (loss) .................................... (417) 382 (1,587) 990
Other income (expense):
Interest expense ............................................. (473) (744) (1,146) (1,392)
Exchange offer charge ........................................ -- -- (1,644) --
Loss on investment ............................................ (923) -- (923) --
Gain on sale of assets ........................................ -- 437 -- 437
Other income, net ............................................ 80 187 14 460
-------- -------- -------- --------
Total other expense ........................................ (1,316) (120) (3,699) (495)
-------- -------- -------- --------
Income (loss) before income taxes .............................. (1,733) 262 (5,286) 495
Provision for income taxes ..................................... (5) (25) (40) (25)
-------- -------- -------- --------
Net income (loss) .......................................... $ (1,738) $ 237 $ (5,326) $ 470
======== ======== ======== ========

Income (loss) per common share ................................. $ (0.07) $ 0.01 $ (0.25) $ 0.02
======== ======== ======== ========

Weighted average common equivalent shares
outstanding .................................................. 25,833 31,587 21,422 31,118
======== ======== ======== ========
</TABLE>

See Notes to Unaudited Consolidated Financial Statements

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1995 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED)
<S> <C> <C>
Net income (loss) .......................................................................... $(5,326) $ 470
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization .......................................................... 776 1,116
Amortization of debt discount and deferred financing costs ............................. 195 180
Closure and post-closure costs ......................................................... 226 (113)
Cost of completed acquisition .......................................................... 150 --
Gain on sale of assets ................................................................. -- (437)
Loss on investment ..................................................................... 923 --
Cost of terminated acquisitions and contracts ......................................... 226 --
Exchange offer charge ................................................................. 1,644 --
Changes in assets and liabilities:
Accounts receivable .................................................................. (553) (95)
Other current assets ................................................................. 203 369
Accounts payable and accrued liabilities ............................................. 509 122
Change in long-term contracts in progress ............................................ 258 --
Other, net ........................................................................... 231 (99)
------- -------
648 297
------- --------
Net cash provided (used) by operating activities .......................... (538) 1,513
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of completed management contracts and acquisition ..................................... (1,431) (1,603)
Costs incurred on possible acquisitions .................................................... (248) (89)
Purchases of property and equipment ........................................................ (3,193) (2,168)
Proceeds from sale of assets ............................................................... 278 236
Other ...................................................................................... 40 30
------- -------
Net cash used by investing activities ............................................. (4,554) (3,594)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt ......................................................................... 1,550 8,527
Payments of debt ........................................................................... (608) (820)
Proceeds from issuance of stock ............................................................ 2,500 74
Stock issuance costs ....................................................................... (280) --
Deferred financing costs and other ......................................................... (125) (378)
Increase in restricted cash ............................................................... (200) (8,781)
Use of restricted cash ..................................................................... 2,425 2,831
------- -------
Net cash provided by financing activities ......................................... 5,262 1,453
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................................... 170 (628)
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................................ 1,499 1,637
------- -------
End of period .............................................................................. $ 1,669 $ 1,009
======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The accompanying unaudited consolidated financial statements include
the accounts of TransAmerican Waste Industries, Inc. and its wholly-owned
subsidiaries (the "Company") and have been prepared by the Company without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
All significant intercompany accounts and transactions have been eliminated.
These unaudited consolidated financial statements reflect, in the opinion of
management, all adjustments (all of which are normal and recurring in nature,
except as disclosed herein) necessary to fairly state the financial position and
the results of operations for the interim periods presented, and the disclosures
herein are adequate to make the information presented not misleading. Operating
results for interim periods are not necessarily indicative of the results that
can be expected for a full year. Certain information related to the Company's
organization, significant accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted in this Form 10-Q.

In February 1996, the Company changed its fiscal year end from August
31 to December 31 and accordingly filed a Transition Report on Form 10-K for the
four month period ended December 31, 1995. The comparative unaudited interim
financial statements for the prior year included in this Form 10-Q have been
recast to conform to the change in fiscal year, and therefore represent a
quarterly period that has not been previously presented. These interim financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained in the Company's Transition Report on
Form 10-K for the four month period ended December 31, 1995.

2. PROPOSED MERGER WITH WASTE INDUSTRIES, INC.

On July 18, 1996, the Company signed a letter of intent to merge with
Waste Industries, Inc. ("Waste Industries"). Waste Industries, headquartered in
Raleigh, North Carolina, specializes in the collection, recycling and
transportation of commercial, residential, and industrial solid waste. Waste
Industries operates 20 locations and 12 transfer stations, serving North
Carolina, South Carolina, Virginia and Tennessee.

Pursuant to the letter of intent, Waste Industries and the Company will
combine in a transaction that will result in the shareholders of Waste
Industries controlling approximately 75% of the common stock of the resulting
entity. The structure of the proposed combination is still subject to
negotiation by the parties. The chairman and chief executive officer of the
combined entity will be Lonnie C. Poole, Jr., who currently holds those
positions with Waste Industries. Tom J. Fatjo, Jr., currently chairman and chief
executive officer of the Company, will be vice chairman. For accounting
purposes, the transaction will be treated as a reverse acquisition.

The Board of Directors of TransAmerican may respond to and accept
unsolicited offers to the extent required to discharge their fiduciary
obligations, however, the Company has agreed to pay Waste Industries a $2
million termination fee in the event another transaction is consummated. The
transaction is subject to satisfactory due diligence, the negotiation of a
definitive agreement, and board of directors, regulatory and shareholder
approval, among other customary conditions.

According to financial information provided by Waste Industries, its
revenues were approximately $90 million for the year ended December 31, 1995 and
$45 million for the six months ended June 30, 1996. Pro forma financial
information has not yet been completed, but will be released in connection with
the circulation of the proxy statement to the Company's shareholders relating to
the proposed combination.

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3. ADOPTION OF NEW ACCOUNTING PRINCIPLE

4. ACQUISITIONS

HALEYVILLE LANDFILL. On April 10, 1996, the Company completed the
acquisition of the assets of Haleyville Sanitary Landfill, Ltd. ("HSLL") and the
common stock of Peerless Landfill Company ("Peerless"). HSLL and Peerless
managed and held the permits for the Haleyville Landfill (the "Landfill") which
consists of approximately 114 acres located approximately 80 miles northwest of
Birmingham, Alabama. The Company will manage the Landfill, which is owned by the
Solid Waste Disposal Authority for the City of Haleyville (the "Authority")
under a 20-year management agreement. The Landfill is permitted to accept 1,500
tons per day of municipal solid waste in addition to certain types of
non-hazardous industrial waste. The landfill site includes an active 11 acre
construction and demolition landfill which currently accepts approximately 150
tons per day of inert material. Before municipal solid waste can be accepted at
the site, the Company will be required to construct a new cell complying with
Subtitle D of the Resource Conservation and Recovery Act of 1976. During the
next several months the Company will seek to arrange for waste disposal
contracts to provide the volume of waste required to support its anticipated
level of operations at this facility. There can be no assurances that such
contracts will be obtained.

The purchase price for the acquisition included (i) $1,500,000 cash at
closing, (ii) a royalty of 2.5% of the site's revenue during 1999 and 2000
increasing to 5% of revenue thereafter, and (iii) an earnout of up to 1,166,667
shares of common stock of the Company issuable once the Landfill reaches certain
volumes of waste per day, subject to adjustment in cash or stock in 1999 if the
value of the shares of common stock issued by the Company does not achieve a
certain minimum value target. The Company has financed the acquisition and
development of this project with Solid Waste Revenue Bonds ("Bonds") consisting
of $7,945,000, 20-year, 8.5% tax-exempt bonds, and $1,000,000, 5-year, 11.5%
taxable bonds. Proceeds from the financing have been used for the initial
purchase price, the establishment of debt service and capitalized interest
funds, and debt issuance and other costs for the Haleyville Landfill. Depending
upon entering into waste disposal contracts, the proceeds will also be used for
construction of the new cells, purchase of equipment, purchases of the adjoining
properties for which the Company has an option, and bonding for closure and
post-closure obligations. The Bonds are secured by a pledge of revenue derived
from the Landfill and, until certain criteria are met by the Landfill, by the
management fee income from the Company-managed Chastang landfill.

CENTRAL LANDFILL. The Company completed the acquisition of the Central
Landfill in May 1996. Pursuant to an interim agreement, the Company operated the
facility and provided construction and improvement capital as well as landfill
development expertise since March 1995. Operations under the interim agreement
were included in the Consolidated Statements of Operations beginning March 31,
1995. Consideration for the landfill included $50,000 cash and 333,000 shares of
restricted common stock of the Company (valued at $325,000). If certain revenue
targets are obtained and an expansion permit is received, the Company will pay
additional consideration over the next two years valued at $1.7 million, payable
in cash and restricted common stock of the Company.

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. SALE OF SABINE COMMERCIAL COLLECTION OPERATIONS

In April 1996, the Company sold its commercial collection operations in
Sabine Parish for $909,000, consisting of cash, the retirement of certain
liabilities and a promissory note for $437,000. The promissory note bears
interest at 8% per annum and is payable in monthly installments beginning in May
1996 and continuing through April 1, 2004. The Company recognized a gain on sale
of assets of $437,000.

The Company and the purchaser of the commercial collection operations
(the "Purchaser") entered into a subcontract ("Subcontract") for the residential
collection contract with the Sabine Parish Police Jury. Under the terms of the
Subcontract, the Company will retain all requirements specified in its contract
with the Sabine Parish Police Jury with regard to performance bonds and
insurance.

The Company has also entered into agreements with the Purchaser to sell
a portion of the airspace at the Sabine Parish Landfill and to sell a portion of
the airspace at the LaSalle-Grant Landfill, including transfer service from the
Company's transfer station in Alexandria, Louisiana. Revenue has been deferred
and will be recognized as the airspace is utilized. As consideration for these
agreements, the Company received a promissory note for $240,000 bearing interest
at 8% per annum payable in monthly installments through April 2004, and a
promissory note for $1,595,000 bearing interest at 8% per annum payable in
monthly installments through April 2001, respectively. The notes, including the
note received from the sale of the commercial collection operations discussed
above, are partially secured by certain assets of the Purchaser.

At the option of the Purchaser, the Company may be required to purchase
the assets of the Purchaser used in its Louisiana operations, excluding the
commercial collection operations in Sabine Parish recently sold as noted above,
for $2,600,000, provided that a certain minimum level of revenue is generated by
such operations for the year ended January 31, 1999.

6. EARNINGS PER COMMON SHARE

Earnings per common share ("EPS") have been computed based on the
weighted average number of common equivalent shares outstanding during the
applicable periods. For the three and six months ended June 30, 1995 common
equivalent shares ("Shares"), including stock options and warrants, did not
impact net loss per share as they were anti-dilutive.

The convertible subordinated debentures ("Debentures") are not
considered common equivalent shares and, therefore, are excluded from the
primary presentation of EPS. Assumed conversion is considered for the
calculation of fully diluted EPS. For the three and six months ended June 30,
1995 and 1996, the assumed conversion of the Debentures has an anti-dilutive
effect on the fully diluted EPS computation and is excluded from the
presentation herein.

The following table reconciles the number of common shares outstanding
with the number of shares used in computing EPS (in thousands):

Three months Six months
ENDED JUNE 30, ENDED JUNE 30,
1995 1996 1995 1996
Common shares outstanding,
end of period............... 26,706 30,471 26,706 30,471
Effect of shares
issued during the period using
weighted average common shares. (873) (147) (5,284) (398)
Effect of shares issuable for
stock options and warrants
based on the treasury stock
method........................ --- 1,263 --- 1,045
------- ------- ------- -------
Common shares used in computing
earnings per share........ 25,833 31,587 21,422 31,118
======= ======= ======= =======
8

7. COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS AND REGULATION. The Company is subject to numerous
rules and regulations at the federal, state and local levels. The Company has
not experienced any significant regulatory problems in the past and believes
that it is in substantial compliance with all applicable rules and regulations.
The Company cannot predict what laws or regulations might exist in the future,
and no assurance can be given that future changes in the law will not have an
adverse impact on the Company's operations. The Company's business generally
requires certain operating permits in order to conduct its operations. The
Company believes it is in material compliance with all of its operating permits.
In recent years, environmental groups and others have pressured applicable
regulatory authorities and have instituted judicial proceedings, to overturn or
block the grant of certain operating permits, or to impose restrictions on
disposal practices. For a description of litigation involving permits relating
to the Chilton County landfill see "Litigation" below. The Company does not
carry insurance coverage for environmental liability related to its waste
disposal operations. In the event uninsured losses occur, the Company's
financial condition and results of operations could be adversely affected.

CLOSURE AND POST-CLOSURE COSTS. The Company has material financial
obligations relating to closure and post-closure costs for the disposal
facilities it owns or operates. While the precise amount of these future
obligations cannot be determined, the Company has estimated for all its existing
facilities that the total costs for final closure and post-closure monitoring
for an estimated period of up to 30 years after closure for cells currently
being utilized will approximate $6.0 million. At June 30, 1996, the Company had
accrued approximately $4.2 million for such estimated costs based on airspace
utilized to date. The Company will continue to provide accruals based on
engineering estimates, as the available airspace is utilized. The estimate of
the total future liability is subject to change as it is based on current
economic conditions, operational results, existing regulations and a combination
of internal and external engineering specifications which may not yet have been
approved by the appropriate regulatory authorities.

FINANCIAL ASSURANCE OBLIGATIONS. From time to time, the Company may be
required to provide performance bonds or bank letters-of-credit to secure
performance of landfill management and hauling contracts or to secure its
closure and post-closure obligations with respect to its landfills. At June 30,
1996, the Company has provided performance bonds totaling $9.0 million and
letters-of-credit totaling approximately $200,000 to secure its obligations. The
Company has arranged a $20 million performance bond line of credit, subject to
review of each contract bonded and certain other conditions. In certain cases,
the Company may be required to provide cash deposits.

SETTLEMENT WITH LOWELL HARRELSON. In August 1995, Lowell L. Harrelson
entered into a consulting agreement with the Company to provide solid waste
acquisition and development opportunities to the Company, and contemporaneously
resigned as an officer and director of the Company. In December 1995, the
Company filed a lawsuit against Mr. Harrelson for, among other things, failing
to fully and faithfully execute his duties as an officer and director of the
Company and discontinued making the consulting payments. Mr. Harrelson filed
counterclaims against the Company for breach of contract and fraud claiming
unspecified damages. In February 1996, a settlement was reached between the
Company and Mr. Harrelson whereby both parties released all claims and the
consulting agreement was deemed terminated effective November 30, 1995. Under
the terms of the agreement, the Company received $275,000. Additionally, all of
Mr. Harrelson's vested options were exercised and all outstanding warrants and
unvested stock options were canceled.

LITIGATION. McGinnes Industrial Maintenance Corporation ("MIMC"), a
wholly owned subsidiary of the Company, has been named as one of approximately
40 co-defendants in a lawsuit styled TAMMY FISHER WHALEN, ET AL. V. AES, INC.,
ET AL., Cause No. 93-CV0211, filed in the District Court of Galveston County,
Texas, 10th Judicial District. The suit consolidated four separate proceedings
filed by seventy-four persons currently or formerly residing on real property
situated approximately five miles or more from the Company's former wastewater
sludge treatment

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

facility located in Galveston County, Texas, and names as defendants, in
addition to MIMC, a former director and principal stockholder of the Company
(now deceased), and approximately 40 industrial companies and cities located
along or near the Houston Ship Channel. The suit alleges personal injury and
property damages resulting from alleged releases of hazardous and toxic
substances from the Company's former wastewater sludge treatment facility. In
September 1994, seventeen of the original plaintiffs were dismissed with
prejudice from the litigation. The Company, as well as the other defendants,
reached an out-of-court settlement with the majority of the remaining
plaintiffs. The Company's contribution toward settlement of the consolidated
lawsuit was approximately $30,000. In March 1994, nine additional plaintiffs
filed a petition in intervention in Cause No. 93-CV0211. In October 1995, the
plaintiffintervenors amended their petition to delete a number of allegations
and causes of actions against defendants. Although there can be no assurance as
to the outcome of any lawsuit, the Company believes that the claims made by
plaintiff-intervenors in this suit are without merit and that the exposure of
the Company in such litigation is minimal. The Company has been advised by its
outside counsel, Ford & Ferraro, L.L.P., to such effect. The Company is
vigorously defending these actions.

In June 1995, certain citizens of Chilton County, Alabama filed a
complaint against the Chilton County Commission ("Commission") and the Company,
which claimed that the Commission failed to comply with certain statutorily
mandated procedures pertaining to 1) the transfer of the Chilton County Landfill
from the County to the Company and 2) the approval of certain subsequent permit
modifications. Each of the parties filed a motion for summary judgment. On
January 11, 1996, the Circuit Court of Chilton County, Alabama entered a final
order granting in part and denying in part each parties' motion for summary
judgment. The transfer of the landfill to the Company was upheld. However, the
claims for which plaintiffs were granted summary judgment relate to certain
permit modifications that increased the allowable daily volume and expanded the
permissible service area of the facility. The Company has appealed that portion
of the order granting partial summary judgment to the plaintiffs. The appeal has
been fully briefed and is pending before the Alabama Supreme Court. On January
12, 1996, the Circuit Court of Chilton County, Alabama granted a stay of its
order pending appeal, but as a condition of granting the stay imposed a daily
volume limit which is less than the amount reflected on the Company's permit, as
modified. Although there can be no assurance as to the outcome of any
litigation, the Company believes the claims brought by the citizens are without
merit and will vigorously pursue its appeal. The Commission has also recently
initiated another approval process for the modifications to the permits
following the statutorily mandated procedures. If the Company is unsuccessful in
its appeal, or the Company is unable to obtain the recently initiated permit
modification reflecting a higher allowable daily volume, it would limit the
landfill's volume to the original permitted amount, thereby reducing volume and
revenue below the current level generated under the court's stay.

In addition to the foregoing, the Company is involved in other
litigation incidental to the conduct of its business, none of which management
believes is, individually or in the aggregate, material to the Company's
financial condition or results of operations.

CRUDE OIL PROCESSING AND DISPOSAL OPERATIONS. Management has been
closely monitoring the results of its crude oil processing and disposal
operations which have been unprofitable for the past two years. Based upon
management's estimate of undiscounted cash flows, which incorporates certain
operational enhancements recently implemented by the Company, management has
concluded that no impairment is presently indicated. However, it is reasonably
possible that management's estimate of undiscounted cash flows could change in
the near term if the result of the recent operational enhancements do not meet
current expectations, which would result in the need to write-down the assets of
the crude oil processing and disposal operations to fair value.

TRANSAMERICAN WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. DEVELOPMENT SERVICES AGREEMENT

In March 1996, the Company entered into a Development Services Agreement
with E.C. Development, L.P. ("ECD"), a company controlled by a director of the
Company, whereby ECD will provide the Company with certain development services
related to locating landfill facilities. The agreement has a five-year term and
may be terminated by either party upon 90 days prior notice. In consideration
for these services, ECD received warrants to purchase two million shares of
common stock at $1.50 per share. The warrants vest fully on March 1, 2001 as
long as ECD is providing services to the Company on that date, however, the
vesting accelerates one warrant for every one dollar of direct costs incurred by
ECD in performing services under the agreement. The fair value of the warrants
is being amortized over the term of the agreement. ECD is also entitled to
additional compensation upon the closing of each transaction related to landfill
facilities identified for the Company by ECD. This additional compensation
consists of (i) 50,000 shares of common stock of the Company, subject to
adjustment under certain conditions, (ii) a warrant to purchase 100,000 shares
of common stock of the Company at the market price on the trading day
immediately preceding the transaction date, and (iii) $250,000 cash upon the
closing of the financing for the facility or twelve months following the
closing, whichever is sooner.

9. SUBSEQUENT EVENT

In August 1996, the Company issued a promissory note, bearing interest
at 12% per annum, to an investment limited partnership in exchange for
$1,500,000. The promissory note matures on February 8, 1997 and is payable in
twelve equal monthly installments beginning thirty days following the maturity
date, unless the Company completes certain other debt or equity financing at
which time the outstanding balance becomes due. The Company also issued warrants
entitling the holder to purchase an aggregate of 275,000 shares of the Company's
common stock for $2.16 per share. The warrents expire on August 9, 1999.
Proceeds from the financing, which is secured by certain receivables, will be
used for general corporate purposes.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

TransAmerican Waste Industries, Inc. (the "Company") is engaged in the
processing and disposal of nonhazardous industrial and municipal solid waste.
The Company has expanded its operations primarily by obtaining long-term
contracts to manage existing municipal landfills and through the acquisition of
existing businesses. The Company believes that recent trends in the regulation
of waste management have created significant opportunities for growth through
acquisition of facilities and operations currently owned by public and private
entities that lack the funding or the expertise to comply with the increasingly
stringent regulation of waste management services.

The following table summarizes the Company's management contracts and
acquisitions completed during the years ended August 31, 1994 and 1995 and
through August 14, 1996:
<TABLE>
<CAPTION>
Type of Total Permitted
DATE Name of Business Type of Business Location TRANSACTION ACRES ACREAGE
- - - ------- ----------------- --------------------- --------- ------------------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
October Chastang Landfill Municipal solid waste Mobile, 20-year management 467 80
1993 ("MSW") and industrial Alabama contract
waste landfill

April 1994 Sabine Parish MSW landfill Many, 25-year management 107 71
Landfill Louisiana contract

April 1994 Sabine Parish MSW collection Many, 10-year hauling --- ---
Hauling (a) Louisiana contract

May Chilton County MSW landfill Thorsby, Purchase 97 97
1994 Landfill Alabama

September LaSalle-Grant MSW landfill Jena, 25-year management 39 39
1994 Parish Landfill Louisiana contract

February Central Landfill MSW landfill Carriere, Purchase 20 20
1995 Mississippi

April 1995 Mobile C&D Construction and Mobile, 2-year management 142 25
Landfill demolition ("C&D") Alabama contract with
landfill purchase option

June TransWaste, Inc. Transfer station, Alexandria, Purchase 20 20
1995 materials recovery Louisiana
facility and hauling
operation

June Hancock County MSW landfill Hancock 20-year management 96 96
1995 Landfill County, contract
Mississippi

July Union County MSW landfill Knoxville, 20-year management 90 55
1995 Landfill Tennessee contract

April Haleyville MSW and Haleyville, 20-year management
1996 Landfill C&D landfill Alabama contract 265 192
</TABLE>

(a) This operation was subsequently subcontracted to another party in April
1996, as further discussed in Note 5 of Notes to Unaudited Consolidated
Financial Statements.

As discussed in Note 2 of the Notes to Unaudited Consolidated Financial
Statements, on July 18, 1996, the Company signed a letter of intent to merge
with Waste Industries, Inc. ("Waste Industries"), pursuant to which the
shareholders of Waste Industries would control approximately 75% of the common
stock of the resulting entity. The structure of the proposed combination is
still subject to negotiation by the parties. Waste Industries, headquartered in
Raleigh, North Carolina, specializes in the collection, recycling and
transportation of commercial, residential, and industrial solid waste. Waste
Industries operates 20 locations and 12 transfer stations, serving North
Carolina, South Carolina, Virginia and Tennessee. Upon consummation of the
proposed transaction, the operations and liquidity of the Company will be
materially impacted.

RESULTS OF OPERATIONS

Revenue for the three months ended June 30, 1996 was $4,769,000 compared
to $2,781,000 for the three months ended June 30, 1995, representing an
increase of 71%. Revenue for the six months ended June 30, 1996
was $9,351,000, representing an increase of 85% compared to revenue of
$5,044,000 for the six months ended June 30, 1995. The increase in revenue is
primarily due to the acquisition of additional management contracts and
businesses since the beginning of 1995 in addition to increased waste volumes at
existing landfills. Although there can be no assurance, the Company anticipates
that landfill revenue will continue to increase as the Company continues to
implement its strategy of obtaining additional volume at existing sites and
obtaining additional facilities.

Cost of services increased from $1,883,000 for the second quarter of
1995 to $2,879,000 for the second quarter of 1996. The increase is primarily due
to the recently acquired management contracts and businesses. As a percentage of
revenue, cost of services for the second quarter decreased from 68% in 1995 to
60% in 1996 as operating costs are primarily fixed in nature and do not increase
proportionately with an increase in revenue. Yearto-date cost of services
increased from $3,785,000 for 1995 to $5,532,000 for 1996. As a percentage of
revenue, year-to-date cost of services decreased from 75% to 59%. The increase
in year-to-date cost of services attributable to the additional management
contracts and businesses was partially offset by a decrease in certain post
closure cost estimates.

For the three months ended June 30, 1996, general and administrative
costs were $946,000 compared to $878,000 for the corresponding period of the
prior year. General and administrative costs for the six months ended June 30,
1996 were $1,713,000 compared to $1,694,000 for the six months ended June 30,
1995. The increase in general and administrative costs is primarily due to
increased corporate personnel and administrative expense necessary to expand and
manage the Company. The increase in general and administrative costs for the six
months ended June 30, 1996 was partially offset by a portion of the settlement
of the lawsuit with a former director/officer of the Company as discussed in
Note 7 of Notes to Unaudited Consolidated Financial Statements. The portion of
the settlement which has not been attributable to a reimbursement of expenses
has been reflected in other income.

Interest expense for the second quarter of 1996 was $744,000 compared to
the prior year amount of $473,000. The increase in interest expense is primarily
due to additional debt incurred by the Company in connection with the
acquisition of additional landfills and management contracts. Year-to-date
interest expense for 1996 was $1,392,000 compared to the prior year amount of
$1,146,000. The increase in year-to-date interest expense attributable to
additional debt was partially offset by a reduction resulting from the exchange
of Debentures for equity in March 1995.

As discussed in Note 5, the Company sold its commercial collection
operations in Sabine Parish resulting in a gain on sale of assets of $437,000
during the second quarter of 1996.

Other income increased for the second quarter from $80,000 for 1995 to
$187,000 for 1996. For the six months ended June 30, 1996 compared to 1995,
other income increased from $14,000 to $460,000. The increase is primarily due
to interest income on additional restricted cash balances. The six months ended
June 30, 1996 also

includes a portion of the settlement of the lawsuit with the former
director/officer of the Company discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company's strategy for growth has been the privatization or
acquisition of municipal solid waste landfills. This privatization has required,
and will require, a significant investment of cash for the initial acquisition
of management contracts and businesses, the subsequent upgrade and expansion of
the sites and the start-up of operations under the Company's management.
Completion of the Company's various debt and equity financings over the past two
years has enabled the Company to fund this corporate development and to
favorably position the Company's future operations.

The Company intends to fund its existing cash requirements, including
capital projects, for the foreseeable future through cash on hand, cash
generated from its existing operations and the completion of additional debt or
equity financings. If additional debt or equity were not available in the
future, it could have an adverse effect on the Company's liquidity.

In April 1996, an offering was completed of $7,945,000 principal amount
Tax-Exempt Solid Waste Revenue Bonds and $1,000,000 principal amount Taxable
Solid Waste Revenue Bond in conjunction with the Haleyville Landfill
acquisition. In addition to the initial purchase price, proceeds from the
financing will be used for (i) construction of new cells, (ii) purchase of
equipment and the purchase of the adjoining properties for which the Company has
an option, (iii) bonding for closure and post-closure obligations, (iv) debt
service and capitalized interest funds, and (v) debt issuance and certain other
costs for the Haleyville Landfill, depending upon the entry into waste disposal
contracts.

Although the Company will continue to seek additional facilities, the
Company is aggressively pursuing additional waste streams for its existing
facilities. Additional volumes at competitive market prices will enhance the
Company's results of operations as a substantial amount of the landfill
operating costs are fixed in nature and will, therefore, not increase
proportionately as volumes and revenue increase. During the latter part of 1995,
the Company entered into contracts at several of its sites with large national
providers of hauling services which has had a favorable impact on revenue and
results of operations since that time. As is customary in the industry, these
contracts generally do not guarantee a minimum volume.

The Company plans to obtain additional landfill management contracts and
to acquire additional businesses in the future. As in the past, the Company
intends to fund this growth through a combination of its cash on hand,
short-term bridge financing, long-term tax-exempt or other debt financing, or by
issuing its Common Stock. The Company's recent financing strategy has included
the use of short-term financing until long-term, low-interest financing could be
arranged. As the Company continues its growth, it will consider all financing
alternatives that may become available.

In August 1996, the Company issued a promissory note, bearing interest
at 12% per annum, to an investment limited partnership in exchange for
$1,500,000. The promissory note matures on February 8, 1997 and is payable in
twelve equal monthly installments beginning thirty days following the maturity
date, unless the Company completes certain other debt or equity financing at
which time the outstanding balance becomes due. Proceeds from the financing,
which is secured by certain receivables, will be used for general corporate
purposes.

The Company expects that the operating results of certain of the
Company's landfills will be positively impacted for the balance of fiscal 1996
and 1997 by recent regulatory approval of the Company's application for vertical
expansion, which allows these sites to continue to dispose of waste in existing
available areas of the landfill rather than move to fully-lined areas. This will
result in the deferral of certain capital expenditures while allowing the
Company to utilize existing space which otherwise would be lost.

The Company made $2.2 million in capital expenditures for the six months
ended June 30, 1996 and estimates that it may make up to an additional $4.0
million in capital expenditures through the balance of the year, primarily for
landfill expansion and improvements and equipment purchases, depending upon the
level of new business obtained by the Company. The Company intends to seek
long-term financing for a majority of its capital expenditure requirements. If
additional financing should not be available, the Company would restrict its
capital expenditures to an amount available for such purposes.

In the future, the Company will also have material financial obligations
relating to closure and post-closure costs for disposal facilities it owns or
operates. While the precise amount of these future obligations cannot be
determined, the Company has estimated that total costs for final closure of its
existing facilities and post-closure monitoring for an estimated period of up to
30 years after closure will approximate $6.0 million. See Note 7 of the Notes to
Unaudited Consolidated Financial Statements included herein for information
regarding these obligations.

The Company has and will be required from time-to-time to obtain
financial assurance security for performance, closure and post-closure
obligations, a portion of which may be funded with cash deposits or other
collateral. The Company has arranged a $20 million performance bond line of
credit subject to review of each contract bonded and certain other conditions.
In certain cases, the Company may be required to provide cash deposits. The
Company has also entered into various compensation and consulting commitments
which require significant cash payments for 1996.

FINANCIAL CONDITION AT JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995

Cash and cash equivalents were $1,637,000 at December 31, 1995 and
$1,009,000 at June 30, 1996, representing a decrease for the six months ended
June 30, 1996 of $628,000. The decrease was primarily due to capital
expenditures during the period for cell development.

Current and non-current restricted cash in the aggregate increased from
$9,714,000 at December 31, 1995 to $15,664,000 at June 30, 1996, primarily due
to the proceeds from the issuance of Solid Waste Revenue Bonds in conjunction
with the Haleyville Landfill acquisition.

Property and equipment, net, increased $4.7 million from December 31,
1995 to June 30, 1996 primarily due to the completion of the acquisition of the
Central and Haleyville landfills in addition to capital expenditures during the
period for cell development and equipment purchases.

Other noncurrent assets, net at June 30, 1996 were $2,069,000 compared
to $314,000 at December 31, 1995. The increase is primarily attributable to the
promissory notes received in conjunction with the sale of the commercial
collection operations in Sabine Parish and the sale of a portion of the airspace
at the Sabine Parish and LaSalle-Grant landfills, as further discussed in Note
5.

Accrued liabilities and other increased from $1,850,000 to $2,227,000,
and other noncurrent liabilities increased from $637,000 to $2,083,000, from
December 31, 1995 to June 30, 1996, respectively. The increases are primarily
attributable to the deferred revenue related to the sale of the portion of the
airspace at the Sabine Parish and LaSalle-Grant landfills, as further discussed
in Note 5.

The increase in aggregate current and long-term debt from $31,936,000 at
December 31, 1996 to $41,487,000 at June 30, 1996, is primarily due to the
offering of $8,945,000 Solid Waste Revenue Bonds completed in conjunction with
the Haleyville Landfill acquisition.

ADOPTION OF NEW ACCOUNTING PRINCIPLE

The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" as of January 1, 1996. SFAS No. 121
requires that if a long-lived asset is not expected to generate sufficient cash
flow (undiscounted) to recoup its invested cost, then the asset value should be
written down to fair value. Fair value is typically defined as the discounted
value of the assets expected cash flow. Management has been closely monitoring
the results of its crude oil processing and disposal operations which have been
unprofitable for the past two years. Based upon management's estimate of
undiscounted cash flows, which incorporates certain operational enhancements
recently implemented by the Company, management has concluded that no impairment
is presently indicated. However, it is reasonably possible that management's
estimate of undiscounted cash flows could change in the near term if the result
of the recent operational enhancements do not meet current expectations, which
would result in the need to write-down the assets of the crude oil processing
and disposal operations to fair value.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to Note 7 of Notes to Unaudited Consolidated Financial
Statements for a discussion of certain legal proceedings involving the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The annual meeting of the shareholders was held on June 25, 1996. Directors
of the Company elected to serve for the ensuing year were Tom J. Fatjo, Jr.,
Lance C. Ruud, Thomas E. Noel, R. Brian Fifer, John V. Singleton, Jr., Ed L.
Romero, Preston Moore, Jr., Ben F. Barnes, and William B. Blount.

The proposal to increase the aggregate number of authorized shares of
common shares of the Company from 50,000,000 shares to 100,000,000 shares was
approved with 25,035,310 votes cast for, 284,441 votes against, and 129,057
votes abstained.

The proposal to amend the 1990 Stock Incentive Plan was approved with
23,543,034 votes cast for, 1,740,542 votes against or withheld, and 165,232
votes abstained.

The proposal to approve the appointment of Arthur Andersen LLP as the
Company's independent auditors for the 1996 fiscal year was approved with
25,345,841 votes cast for, 14,310 votes against or withheld, and 88,657 votes
abstained.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are included herein:

27.1 Financial Data Schedule

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

TRANSAMERICAN WASTE INDUSTRIES, INC.

By: /S/LANCE C. RUUD
Lance C. Ruud, Senior Vice President and
Chief Financial Officer

August 14, 1996

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM TRANSAMERICAN WASTE INDUSTRIES, INC. UNAUDITED CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1996 AND UNAUDITED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,009
<SECURITIES> 0
<RECEIVABLES> 2,777
<ALLOWANCES> (156)
<INVENTORY> 0
<CURRENT-ASSETS> 6,873
<PP&E> 38,520
<DEPRECIATION> (6,762)
<TOTAL-ASSETS> 60,290
<CURRENT-LIABILITIES> 6,813
<BONDS> 38,994
30
0
<COMMON> 0
<OTHER-SE> 8,447
<TOTAL-LIABILITY-AND-EQUITY> 60,290
<SALES> 9,351
<TOTAL-REVENUES> 9,351
<CGS> 5,532
<TOTAL-COSTS> 8,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,392
<INCOME-PRETAX> 495
<INCOME-TAX> 0
<INCOME-CONTINUING> 495
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470
<EPS-PRIMARY> .02
<EPS-DILUTED> .02

</TABLE>