SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
AMENDMENT NO. 1
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
June 27, 1996
Date of Report
(Date of Earliest Event Reported)
CONTINENTAL WASTE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-22602 11-2909512
(State of Incorporation) (Commission File No.) (IRS Employer
Identification Number)
67 Walnut Avenue, Suite 103
Clark, New Jersey 07066
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (908) 396-0018
<PAGE>
Item 7. Financial Statements and Exhibits. Amended by filing the following
financial statements and pro forma financial information.
Acquired Businesses:
Statewide Environmental Contractors, Inc.
Financial Statements
Independent Auditors' Report.............................................. F-1
Balance Sheet as of December 31, 1995..................................... F-4
Statement of Income for the year ended December 31, 1995.................. F-6
Statement of Stockholders' Impairment for the year ended December 31, 1995 F-7
Statement of Cash Flows for the year ended December 31, 1995.............. F-8
Notes to Financial Statements............................................. F-9
Recycling Industries, Inc.
Independent Auditors' Report............................................. F-17
Balance Sheet as of March 31, 1996....................................... F-20
Statement of Operations for the year ended March 31, 1996................ F-21
Statement of Stockholders' Equity for the year ended March 31, 1996...... F-22
Statement of Cash Flows for the year ended March 31, 1996................ F-23
Notes to Financial Statements............................................ F-24
Statewide Environmental Contractors, Inc.
Unaudited Interim Financial Statements
Independent Auditors Report.............................................. F-28
Statewide Environmental Contractors, Inc. Balance Sheet as of
March 31, 1996..................................................... F-31
Statement of Operations for the three months ended March 31, 1996........ F-33
Statement of Stockholders' Impairment for the three months ended
March 31, 1996..................................................... F-34
Consolidated Statement of Cash Flows for the three months ended
March 31, 1996..................................................... F-35
<PAGE>
Recycling Industries, Inc.
Independent Auditors' Report............................................. F-44
Balance Sheet as of March 31, 1996....................................... F-47
Statement of Income and Retained Earnings for the three months
ended March 31, 1996............................................... F-48
Statement of Cash Flows for the three months ended March 31, 1996........ F-49
Notes to Financial Statements............................................ F-50
Unaudited Pro Forma Combining Financial Statements:
Continental Waste Industries, Inc. and Subsidiaries
Adjusted Combining Balance Sheet as of March 31, 1996.................... F-54
Pro Forma Combining Statement of Income for the year ended
December 31, 1995.................................................. F-55
Pro Forma Combining Statement of Income for the three months
ended March 31, 1996............................................... F-56
Notes to Unaudited Pro Forma Combining Financial Statements.............. F-57
Exhibits: No.
Consent of Independent Auditor........................................... 23-1
<PAGE>
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & CO.]
Independent Auditors' Report
To the Board of Directors and Stockholders of
Statewide Environmental Contractors, Inc.
We have audited the accompanying balance sheet of Statewide Environmental
Contractors, Inc. as of December 31, 1995 and the related statement of income,
and stockholders' impairment and cash flows for the year 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.
These 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 Statewide Environmental
Contractors, Inc. as of December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
ROSENBERG RICH BAKER BERMAN & CO.
Bridgewater, New Jersey
July 30, 1996
F-1
<PAGE>
Statewide Environmental Contractors, Inc.
Financial Statements
Year Ended December 31, 1995
F-2
<PAGE>
Statewide Environmental Contractors, Inc.
Index to the Financial Statements
December 31, 1995
Page
Independent Auditors' Report.......................................... F-1
Financial Statements
Balance Sheet.................................................... F-4
Statement of Income.............................................. F-6
Statement of Stockholders' Impairment............................ F-7
Statement of Cash Flows.......................................... F-8
Notes to the Financial Statements................................F-9 - F-16
F-3
<PAGE>
Statewide Environmental Contractors, Inc.
Balance Sheet
December 31, 1995
Assets
Current Assets
Cash $ 209,561
Accounts receivable, net of allowance for doubtful
accounts of $118,832 1,050,124
Note receivable - related company 100,743
Prepaid expenses 45,129
Mortgage receivable, current portion 4,081
Deferred tax asset 40,000
Bid deposit 3,012
--------------
Total Current Assets 1,452,650
--------------
Fixed Assets
Vehicles 2,526,959
Containers 1,421,984
Machinery and equipment 153,569
Leasehold improvements 274,936
Furniture and fixtures 257,506
--------------
Subtotal 4,634,954
Less: accumulated depreciation and amortization 3,642,247
--------------
Total 992,707
--------------
Other Assets
Mortgage receivable - non-current portion 161,302
Customer accounts (net of amortization of $608,273) 133,979
Security deposits 3,215
--------------
Total Other Assets 298,496
--------------
$ 2,743,853
Total Assets
==============
See notes to the financial statements.
F-4
<PAGE>
Liabilities and Stockholders' Impairment
Current Liabilities
Current maturities of long-term debt 287,668
Current maturities of capital lease obligations 74,526
Accounts payable 97,284
Accrued expenses 178,674
Payroll taxes payable 17,260
Due to related companies 334,476
Income taxes payable 17,000
--------------
Total Current Liabilities 1,006,888
--------------
Long-Term Liabilities
Notes payable, less current maturities 3,239,298
Capital lease obligations, less current maturities 187,312
Deferred income taxes 182,000
--------------
Total Long-Term Liabilities 3,608,610
--------------
Total Liabilities 4,615,498
--------------
Stockholders' Impairment
8% noncumulative convertible preferred stock,
$1,000 par value, 7,050 shares authorized
and issued; 5,875 outstanding 5,875,000
Class A common stock, $1.00 par value; 3,000
shares authorized and issued;
2,500 outstanding 2,500
Class B nonvoting common stock, no par value,
3,000 shares authorized and issued;
2,500 outstanding 2,500
Accumulated deficit (6,927,645)
--------------
(1,047,645)
Less: treasury stock 824,000
--------------
Total Stockholders' Impairment (1,871,645)
--------------
Total Liabilities and Stockholders' Impairment $ 2,743,853
==============
F-5
<PAGE>
Statewide Environmental Contractors, Inc.
Statement of Income
Year Ended December 31, 1995
Sales $ 9,416,042
---------------
Operating expenses 6,706,466
Depreciation 255,425
---------------
Total Operating Expenses 6,961,891
---------------
Gross Profit 2,454,151
---------------
General and administrative expenses 1,933,486
Depreciation and amortization 195,795
---------------
Total General and Administrative Expenses 2,129,281
---------------
Income From Operations 324,870
---------------
Other Income (Expenses)
Interest expense, net of interest income of $22,806 (281,265)
Gain on sale of fixed assets 17,191
Miscellaneous income 3,866
---------------
Total Other Income (Expense) (260,208)
---------------
Income Before Income Taxes 64,662
Income Taxes 16,701
---------------
$ 47,961
Net Income
===============
See notes to the financial statements.
F-6
<PAGE>
Statewide Environmental Contractors, Inc.
Statement of Stockholders' Impairment
Year Ended December 31, 1995
<TABLE>
<CAPTION>
8% Noncumulative Class A Class B
Preferred Stock Common Stock Common Stock
--------------------- ------------- ----------------
Convertible $1,000 $1.00 No Treasury Accumulated
Shares Par Shares Par Shares Par Stock Deficit Total
---------- ---------- ------ ------ ------ ------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995,
as previously reported 7,050 $ 616,770 3,000 $1,000 3,000 $1,000 $ - $ (215,289) $ 403,481
Capital stock conversions
prior period adjustment - 6,433,230 - 2,000 - 2,000 - (6,437,230) -
------- --------- ------ ------ ------ ------ -------- ----------- ----------
Other prior period
adjustments - - - - - - - (323,087) (323,087)
------- --------- ------ ------ ------ ------ -------- ----------- ----------
Balance at January 1, 1995,
as restated 7,050 7,050,000 3,000 3,000 3,000 3,000 - (6,975,606) 80,394
Purchase of 1,000 shares of
its common and 1,175
shares of its preferred
stock from deceased
shareholder (1,175) (1,175,000) (500) (500) (500) (500) (824,000) - (2,000,000)
Net income year ended
December 31, 1995 - - - - - - - 47,961 47,961
------- ---------- ------ ------ ------ ------ --------- ----------- ----------
5,875 $5,875,000 2,500 $2,500 2,500 $2,500 $(824,000) $(6,927,645) $(1,871,645)
Balance - December 31, 1995
======= ========== ====== ====== ====== ====== ========== ============ ============
</TABLE>
See notes to the financial statements.
F-7
<PAGE>
Statewide Environmental Contractors, Inc.
Statement of Cash Flows
Year Ended December 31, 1995
Cash Flows From Operating Activities
Net Income $ 47,961
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Depreciation and amortization 451,220
Gain on sale of fixed assets (17,191)
Deferred income taxes (77,000)
Provision for losses on accounts receivable 33,339
Changes in Assets and Liabilities
Accounts receivable (95,731)
Prepaid expenses 122,131
Employee loan 1,200
Bid deposit (3,013)
Accounts payable (235,887)
Accrued expenses (2,753)
Payroll taxes payable 10,380
Due to related companies (57,657)
Income taxes payable 12,828
---------------
Net Cash Provided by Operating Activities 189,827
---------------
Cash Flows From Investing Activities
Purchase of containers (46,399)
Proceeds from sale of fixed assets 31,656
Purchase of equipment (16,407)
Principal payments on mortgage receivable 3,730
Loan to related company (100,743)
---------------
Net Cash Used in Investing Activities (128,163)
---------------
Cash Flows From Financing Activities
Principal payments, capitalized lease obligations (101,858)
Principal payments on notes payable (498,457)
Officer loan repayments (45,070)
Proceeds from notes payable 239,000
---------------
Net Cash Used in Financing Activities (406,385)
---------------
Net (Decrease) in Cash (344,721)
Cash, January 1, 1995 554,282
---------------
Cash, December 31, 1995 $ 209,561
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest $ 304,071
Income taxes 82,172
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
The Company purchased 1,000 and 1,175 shares of its common and preferred
stock in January 1995 which was financed with a $2,000,000 note.
See notes to the financial statements.
F-8
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Statewide Environmental Contractors, Inc. (the "Company") was
incorporated in the state of New Jersey in February, 1963. The company
is licensed by the State of New Jersey Board of Public Utilities to
engage in the business of solid waste collection and disposal. The
Company services commercial businesses throughout central New Jersey.
Depreciation and Amortization
The cost of property, plant and equipment is depreciated for financial
reporting purposes on a straight-line basis over the estimated useful
lives of the assets: 7 years for vehicles, 10 years for containers and
5-10 years for furniture and equipment. Leasehold improvements are
amortized over the shorter of the estimated useful lives or the
underlying lease term. Repairs and maintenance expenditures which do
not extend the useful lives of the related assets are expensed as
incurred.
For Federal income tax purposes, depreciation is computed under
accelerated methods over the asset's class life.
Amortization
Customer accounts are being amortized over 10 years on a straight-line
basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CONCENTRATION OF BUSINESS AND CREDIT RISK
The Company provides credit in the normal course of business to customers
located in New Jersey. The Company performs ongoing credit evaluations of
its customers and maintains allowances for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical
trends, and other information.
As of the balance sheet date, cash at the Company's financial banking
institution exceeded the federally insured limit of $100,000 by $237,000.
F-9
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
LONG-TERM DEBT
Long-term debt consists of the following installment notes.
Charles Macaluso
Under an agreement dated August 10, 1992, Statewide Environmental
Contractors, Inc. will pay $586,941 to Charles Macaluso in 144 equal
monthly installments (beginning August 15, 1992 at $6,515) with
interest at 8.5% for the first 60 payments and prime plus 1% for the
next 84 payments subject to a minimum rate of 8.5% and a maximum rate
of 10%. Real estate, owned by Lomac Realty shall act as collateral,
under a fourth mortgage. Certain officers of Statewide Environmental
Contractors, Inc. have guaranteed payment of this obligation. This loan
was paid off in July 1996 by the officers.
$ 475,221
Joseph Macaluso
Under an agreement dated October 23, 1992, Statewide Environmental
Contractors, Inc. will pay $112,838 to Joseph Macaluso in 99 equal
monthly installments of $1,561 which will include interest at 8%
beginning November 25, 1992. Macaluso accepted this note as full and
complete settlement of all deferred obligations due to Macaluso under a
January 2, 1984 stock transfer and sale of partnership interest. This
note is secured with a second mortgage in real property owned by Lomac
Realty. This loan was paid off in July, 1996 by the officers.
78,009
Joseph Macaluso
Under a January 1984 agreement for stock transfer and sale of
partnership interest, Statewide Environmental Contractors, Inc. agreed
to pay $445,384 to Macaluso in 120 equal monthly installments of $5,642
with interest at 9%, beginning February 1, 1991 until January 1, 2001.
This note is secured with a second mortgage in real property owned by
Lomac Realty. This loan was paid off in July 1996 by the officers.
275,368
Margaret Macaluso
Under a January 1984 agreement for stock transfer and sale of
partnership interest, Statewide Environmental Contractors, Inc. agreed
to pay Robert Macaluso (which was subsequently assigned to Margaret
Macaluso) $445,480 beginning February 1, 1991 in 120 equal monthly
installments of $5,642 including interest at 9% per annum. This note is
secured with a third mortgage interest in real property owned by Lomac
Realty. This loan was paid off in July, 1996 by the officers.
275,388
Margaret Macaluso
Under an agreement dated November 1, 1993 Statewide Environmental
Contractors, Inc. agreed to pay Margaret Macaluso $107,197 in
settlement of all unpaid obligations under the original January 1984
stock transfer and sale of partnership interest agreement. The $107,197
is payable in 88 equal monthly installments of $1,358, including
interest at 3%, beginning November 5, 1993 until February 5, 2001. This
note is secured with a third mortgage interest in real property owned
by Lomac Realty. The loan was paid off in July, 1996 by the officers.
77,930
F-10
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
LONG-TERM DEBT, Continued
State of New Jersey
$400,000 damage claim settlement payable in 60 monthly installments
beginning January 1992 with a $25,000 down payment. The initial 12
monthly installments were $4,583 principal only with no interest. The
remaining 48 monthly installments are $8,051 (principal of $6,667 and
interest of $1,385) with the final payment in February, 1997. The loan
was paid off in July, 1996 by the officers.
93,334
Valley National Bank
$239,000 vehicle note payable in 60 monthly installments of $3,983
plus interest at the bank's prime lending rate, plus 1%. This loan is
secured by Valley National's lien and right of set-off on twelve (12)
trucks listed in the loan agreement. This loan was paid off in July
1996 by the officers.
239,000
Estate of Former Shareholder
Under the Company's shareholders' agreement the Company was obligated
to purchase all shares (common and preferred) of a deceased
shareholder (December 1994). The sale and loan agreement was executed
in 1996, with an effective date of January 11, 1995 at an agreed price
of $2,000,000. The note requires payments of interest only at 6% from
January 1995 to March 1996 and 2% above the one year treasury bill
rate thereafter until January 1, 2000 at which time the principal will
be paid in 120 equal monthly installments including interest at 2%
above the one year treasury bill rate. The loan is secured by a
mortgage and collateral assignment of leases on real property located
in South Plainfield (owned by Lomac Realty, a related company). Lomac
Realty and Recycling Industries, Inc. also guaranteed payment on the
loan. The loan was paid off in July, 1996 by Continental Waste
Industries in closing of the acquisition (see subsequent event note).
2,000,000
Ford Motor Credit
Vehicle note payable in 48 monthly installments including interest at
9.9%, of $422. Final payment is due November 1, 1988. The note was
paid off in July 1996 by the officers of the Company.
$ 12,716
---------------
Total 3,526,966
Less: current portion 287,668
---------------
Long-Term Portion $ 3,239,298
===============
Following are maturities of long-term debt as of December 31, 1995 for each of
the next five years:
1996 $ 287,668
1997 234,789
1998 235,962
1999 247,502
2000 477,547
Thereafter 2,043,498
---------------
$ 3,526,966
===============
F-11
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
CAPITAL LEASE OBLIGATIONS
The Company leases certain vehicles under capital leases expiring in
various years through 1999. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset at the inception of the lease. The
assets are amortized over their estimated productive lives. Amortization of
assets under capital leases is included in depreciation expense.
Properties under capital leases are as follows:
Vehicles $ 227,932
Office equipment 36,997
Machinery and equipment 139,101
---------------
404,030
Less: accumulated depreciation 94,923
---------------
$ 309,107
===============
The Company is the lessee of vehicles, communication equipment and computer
equipment under capital leases expiring in various years through December
1999. The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value
of the asset. The assets are depreciated over the lower of their related
lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense.
The Company is obligated under the following capital leases:
<TABLE>
<CAPTION>
Net
Present
Value of Capital-
Original Minimum Final Monthly Capital- ized
Lease Lease Payment Lease ized Interest
Lessor Date Payments Date Obligation Cost Rate
- -------------------- -------- --------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
RDL Leasing 7-93 $ 7,179 7-01-97 $ 437.84 $ 14,842 19 %
Bell Atlantic Tricon 8-91 2,519 5-01-96 308.19 11,355 24
Bell Atlantic Tricon 8-93 5,349 7-01-97 306.80 10,800 17
Texton Financial 6-94 56,261 3-15-98 2,417.00 91,832 13
Texton Financial 7-94 84,505 7-01-99 2,444.00 136,100 13
Texton Financial 12-94 106,025 12-15-99 2,825.60 139,101 13
--------- -------- --------- --------
$ 261,838 $ 8,739.43 $404,030
========= ========== ========
</TABLE>
F-12
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
CAPITAL LEASE OBLIGATIONS, Continued
Minimum future lease payments under capital leases as of December 31, 1995
for the next five years are:
1996 $ 102,716
1997 97,452
1998 70,486
1999 51,015
2000 -
--------------
Total Minimum Lease Payments 321,669
Less: Amount representing interest 59,831
--------------
Present Value of Net Minimum Lease Payments 261,838
Less: current maturities of capital lease obligations 74,526
--------------
Obligations under capital leases, excluding current $ 187,312
maturities
==============
RELATED PARTY TRANSACTIONS
Statewide Environmental Contractors, Inc. rents office, yard and garage
space from the entities listed below whose owners are officers and
shareholders of Statewide Environmental Contractors, Inc. For the years
ended December 31, 1995 rent expense was paid to the following related
entities under operating leases:
Lomac Realty $ 25,308
Lincoln Blvd. Associates 34,308
Nick Lemmo 19,200
Dilex Realty 128,868
---------------
Total $ 207,684
===============
Disposal Costs
For the year ended December 31, 1995, Statewide Environmental Contractors,
Inc. was charged $3,029,203 by Recycling Industries, a company controlled
by officers/shareholders of Statewide Environmental Contractors, Inc. for
disposal at Recycling Industries' material recovery facility.
Revenue
For the year ended December 31, 1995, Statewide Environmental Contractors,
Inc. was charged $82,500 by Recycling Industries, Inc. for outbound hauling
from Recycling Industries material recovery facility.
Equipment Repairs
For the year ended December 31, 1995, Statewide Environmental Contractors,
Inc. was charged $237,798 by Recycling Industries, Inc. for its vehicle and
equipment repairs.
F-13
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
RELATED PARTY TRANSACTIONS, Continued
Insurance
Statewide Environmental Contractors, Inc.'s insurance policies included
Recycling Industries, Inc. operations. For the year ended December 31,
1995, Statewide charged Recycling Industries, Inc. $96,696 for workers'
compensation coverage.
The liability due to related companies of $334,476 is to Recycling
Industries, Inc.
Mortgage Receivable
Statewide Environmental Contractors, Inc. assumed a mortgage receivable
from Edison Disposal, Inc. under the plan of merger adopted July 20, 1993.
The original note, dated July 1983, of $194,700 calls for 360 monthly
payments of $1,566 including interest at 9% per annum. The balance as of
December 31, 1995 was $165,383. The note is due from a shareholder and is
secured by real estate located in South Plainfield, NJ.
NOTE RECEIVABLE, RELATED COMPANY
In August 1995, Statewide advanced $100,743 to Lomac Realty which includes
interest at 8% calculated through December 31, 1995.
OPERATING LEASE COMMITMENTS
The Company leases certain space and equipment under operating leases.
The following is a schedule of future minimum rental payments (exclusive of
common area charges) required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of December
31, 1995.
Year Ending December 31,
1996 $ 201,624
1997 201,624
1998 201,624
1999 84,010
---------------
Total Minimum Lease Payments $ 688,882
===============
The leases also contain provisions for the Company to pay a proportionate
share of real estate taxes and utilities.
F-14
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
INCOME TAXES
The income tax provision consists of the following:
Federal State Total
--------------- --------------- --------------
Current $ 77,000 $ 16,701 $ 93,701
Deferred (77,000) - (77,000)
--------------- --------------- --------------
$ - $ 16,701 $ 16,701
=============== =============== ==============
A reconciliation of the provision for income taxes at the federal statutory
rates, with the provision reflected in the financial statement follows.
Provision of federal statutory income tax rates, with the provision
reflected as follows:
Provision of federal statutory income tax rate $ 21,985
State taxes, net of federal provision 16,701
Conversion from cash basis to accrual basis resulting from a
merger of the Company in 1993 31,630
Provision for accounts receivable 11,300
Other, net 12,085
Deferred income provision at federal statutory income tax rate (77,000)
---------------
$ 16,701
===============
The tax effect of the primary temporary differences giving rise to the
Company's deferred tax liability are as follows:
Provision for accounts receivable reserves $ (40,000)
===============
Depreciation 182,000
===============
Deferred taxes are recognized for temporary differences between the basis
of assets and liabilities for financial statement and income tax purposes.
The differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes) and to the allowance for
doubtful accounts (deductible for financial statement purposes but not for
income tax purposes).
PENSION
The Company has adopted a pension plan under IRC Section 401(k).
Contributions are discretionary and determined annually by management up to
a maximum of 6%. This plan covers all non-union employees. Company
contributions totaled $47,390 for the year ended December 31, 1995.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, notes receivable, mortgages receivable, accounts
payable, accrued expenses and notes payable. The carrying value amount
approximates fair value because of the short maturity of these instruments.
F-15
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for claims made for union health
benefits. A hearing assessing these benefits was subsequently overturned by
an arbitrator and two subsequent hearings have been cancelled by the
Union's counsel. The range of potential liability is from $0 to $75,000.
Management believes that the outcome of this action will not have a
material adverse effect on the Company's financial position or results of
operations.
PRIOR PERIOD ADJUSTMENT
Accumulated deficit at the beginning of 1995 has been adjusted to correct
errors made in 1994 and prior. The errors made were as follows:
Per a July 20, 1993 agreement, the Company converted shares of its
preferred stock from a stated value to stock with a par value of $1,000 per
share. The prior period adjustment increases the value of the preferred
stock to a par value with a corresponding offset to retained earnings.
Conversion of preferred and common stock $ 6,437,230
---------------
Overstatement of assets 527,139
Understatement of accounts receivable provision 127,078
Understatement of deferred tax liability 219,000
Under accrual of accrued expenses 84,933
Adjustment of depreciation from accelerated
methods to the straight-line method (635,063)
---------------
Other prior period adjustments 323,087
---------------
Total prior period adjustments $ 6,760,317
===============
SUBSEQUENT EVENT
On April 11, 1996 Statewide executed an agreement of sale for all the
issued and outstanding shares of its capital stock of the Company for an
amount not to be less than $5,500,000. The purchaser, Continental Waste
Industries, Inc. (CWI) shall issue to stockholders of Statewide shares of
CWI common stock with a value of $3,500,000 and $2,000,000 of debt of
Statewide.
The transaction closed and shares of common and preferred stock were
exchanged on July 1, 1996. Proceeds of $2,000,000 were used to pay off the
treasury stock note. The original shareholders of Statewide paid off all
remaining note and capital lease obligations with proceeds from sale of the
common stock of Recycling Industries and real estate held by Lomac Realty
(related parties), which was also purchased by CWI on July 1, 1996.
F-16
<PAGE>
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & CO.]
Independent Auditors' Report
To the Board of Directors and Stockholders of
Recycling Industries, Inc.
We have audited the accompanying balance sheet of Recycling Industries, Inc. as
of March 31, 1996 and the related statements of operations, stockholder's equity
and cash flows for the year 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.
These 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 Recycling Industries, Inc. as
of March 31, 1996, and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
ROSENBERG RICH BAKER BERMAN & CO.
Bridgewater, New Jersey
July 30, 1996
F-17
<PAGE>
Recycling Industries, Inc.
Financial Statements
Year Ended March 31, 1996
F-18
<PAGE>
Recycling Industries, Inc.
Index to the Financial Statements
March 31, 1996
Page
Independent Auditor's Report.................................. F-17
Financial Statements
Balance Sheet............................................ F-20
Statement of Operations and Retained Earnings............ F-21
Statement of Stockholders' Equity........................ F-22
Statement of Cash Flows.................................. F-23
Notes to the Financial Statements........................ F-24 - F-27
F-19
<PAGE>
Recycling Industries, Inc.
Balance Sheet
March 31, 1996
Assets
Current Assets
Cash $ 26,201
Accounts receivable trade, net of allowance
for doubtful accounts of $35,965 237,688
Accounts receivable, related party 439,580
Prepaid expenses 1,500
---------------
Total Current Assets 704,969
---------------
Fixed Assets
Containers 727,021
Vehicles 134,462
Computers 13,189
Leasehold improvements 810
---------------
Total 875,482
Less: accumulated depreciation 427,687
---------------
Net Fixed Assets 447,795
---------------
Total Assets 1,152,764
===============
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of capital lease obligations 13,928
Accounts payable 57,743
Accrued expenses 125,005
Payroll taxes payable 24,074
Deferred income taxes 198,000
---------------
Total Current Liabilities 418,750
---------------
Long-Term Liabilities
Obligations under capital lease 37,301
Deferred income taxes 103,000
---------------
Total Long -Term Liabilities 140,301
---------------
Stockholders' Equity
Common stock - no par value 100 shares authorized;
100 shares issued and outstanding 3,000
Retained earnings 590,713
---------------
Total Stockholders' Equity 593,713
---------------
Total Liabilities and Stockholders' Equity $ 1,152,764
===============
See notes to the financial statements.
F-20
<PAGE>
Recycling Industries, Inc.
Statement of Operations
Year Ended March 31, 1996
Revenue $ 5,600,611
---------------
Operating expenses 5,359,692
Depreciation 85,500
---------------
Total Operating Expenses 5,445,192
---------------
Gross Profit 155,419
General and Administrative Expenses 471,687
---------------
Loss From Operations (316,268)
---------------
Other Income (Expense)
Interest income 871
Interest expense (5,137)
---------------
Total (4,266)
---------------
Loss Before Income Taxes (320,534)
Benefit From Income Taxes 123,000
---------------
$ (197,534)
Net Loss
===============
See notes to the financial statements.
F-21
<PAGE>
Recycling Industries, Inc.
Statement of Stockholders' Equity
Year Ended March 31, 1996
Retained
Shares No Par Earnings Total
------- ------- --------- ---------
Balance - April 1, 1995 as originally
reported 100 $3,000 $ 699,751 $ 702,751
Prior period adjustments - - 88,496 88,496
------- ------ --------- ---------
Balance - April 1, 1995 as restated 100 3,000 788,247 791,247
Net Loss - Year Ended March 31, 1996 - - (197,534) (197,534)
------- ------ --------- ---------
100 $3,000 $ 590,713 $ 593,713
Balance - March 31, 1996
======= ====== ========= =========
See notes to the financial statements.
F-22
<PAGE>
Recycling Industries, Inc.
Statement of Cash Flows
Year Ended March 31, 1996
Cash Flows From Operating Activities
Net Loss $ (197,534)
Adjustments to Reconcile Net Loss to Net Cash Provided
by Operating Activities
Depreciation 85,500
Deferred income taxes (182,000)
Changes in Assets and Liabilities
Decrease in accounts receivable - trade 389,120
Increase in accounts receivable - related party (102,472)
Decrease in prepaid expenses 1,500
Decrease in security deposits 3,664
Increase in accounts payable 27,449
Increase in accrued expenses 31,992
(Decrease) in payroll taxes payable (21,030)
(Decrease) in income taxes payable (9,479)
---------------
Net Cash Provided by Operating Activities 26,710
---------------
Cash Flows From Investing Activities
Purchase of vehicles (43,036)
---------------
Net Cash (Used) in Investing Activities (43,036)
---------------
Cash Flows From Financing Activities
Principal payments on vehicle equipment notes (17,785)
---------------
Net Cash (Used) in Financing Activities (17,785)
---------------
Net Decrease in Cash (34,111)
Cash at Beginning of Year 60,312
---------------
Cash at End of Year $ 26,201
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,137
Income taxes 100
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
$ 29,125
Purchase of vehicle through issuance of capital lease
See notes to the financial statements.
F-23
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Recycling Industries, Inc. operates a material recovery facility to process
recyclable material under licensing granted by the State of New Jersey.
Depreciation
The cost of property and equipment is depreciated for financial reporting
purposes on a straight-line basis over the estimated useful lives of the
assets: 5 years for containers, vehicles, and computers and 10 years for
leasehold improvements. Repairs and maintenance expenditures which do not
extend the useful lives of the related assets are expensed as incurred.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
financial statements and consist of deferred taxes related to differences
of reporting depreciation differently for financial and income tax
reporting. In addition, the Company reports its income tax returns on a
cash basis accounting method. The deferred tax liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the liabilities are recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CONCENTRATION OF BUSINESS AND CREDIT RISK / ECONOMIC DEPENDENCY
The Company provides credit in the normal course of business to customers
located in New Jersey. The Company performs ongoing credit evaluations of
its customers and maintains allowances for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical
trends, and other information.
The Company's primary customer is Statewide Environmental Contractors, Inc.
a related party.
CAPITAL LEASES
The Company leases certain vehicles under capital leases expiring in
various years through 1999. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset at the inception of the lease. The
assets are amortized over their estimated productive lives. Amortization of
assets under capital leases is included in depreciation expense.
Properties under capital leases are as follows:
Vehicles $ 66,355
Less: accumulated depreciation 23,585
---------------
$ 42,770
===============
F-24
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
CAPITAL LEASES, Continued
The following is a schedule of minimum lease payments due under capital
leases as of March 31, 1996.
Year Ending March 31,
1997 $ 19,130
1998 19,130
1999 17,456
2000 6,058
---------------
Total Net Minimum Capital Lease Payments 61,774
Less: amounts representing interest 10,545
---------------
Present value of net minimum capital lease obligations 51,229
Less: current maturities of capital leases 13,928
---------------
Obligations under capital leases, excluding current $ 37,301
maturities
===============
OPERATING LEASE COMMITMENTS
The Company leases certain office and warehouse space and vehicles under
operating leases.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of March 31, 1996.
Year Ending March 31, Office Space Equipment
--------------- ---------------
1997 $ 64,176 $ 72,000
1998 64,176 32,000
1999 26,740 -
--------------- ---------------
$ 155,092 $ 104,000
=============== ===============
INCOME TAXES
The income tax benefit is comprised of the following:
Federal State Total
--------------- --------------- --------------
Current $ 40,000 $ 19,000 $ 59,000
Deferred (134,000) (48,000) (182,000)
--------------- --------------- --------------
$ (94,000) $ (29,000) $ (123,000)
=============== =============== ==============
F-25
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
INCOME TAXES, Continued
The components of the deferred tax liability consists of the following:
Cash basis for tax reporting $ 198,000
Depreciation 103,000
---------------
$ 301,000
===============
RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and Statewide
Environmental Contractors, Inc. and Lomac Realty, related parties.
Equipment Repairs and Maintenance
Amounts incurred for equipment maintenance to Statewide Environmental
Contractors, Inc. for the year ended March 31, 1996 totaled $227,729.
Disposal Income
The Company bills Statewide Environmental Contractors, Inc. monthly for
disposal of refuse and recyclable materials collected at the recycling
facility operated by Recycling Industries, Inc., in South Plainfield, New
Jersey. For the year ended March 31, 1996, the Company billed $3,188,370 to
Statewide Environmental Contractors, Inc. for disposal of waste and
recyclable materials.
Hauling Expense
The Company subcontracts hauling of processed materials to Statewide
Environmental Contractors, Inc. During the year ended March 31, 1996, these
costs incurred amounted to $66,900.
Facility Rental
The Company leases office and warehouse space in South Plainfield, New
Jersey from Lomac Realty and Maurice Kirchoffer. During the year ended
March 31, 1996, these costs incurred amounted to $43,560.
Insurance Expense
Statewide Environmental Contractors, Inc. pays insurance premiums on behalf
of Recycling Industries, Inc. The Company is charged its pro rata share of
premiums based upon the coverages allocable. For the year ended March 31,
1996 these premiums totaled $104,181.
Amounts due from related companies at March 31, 1996 are $439,580.
F-26
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable, accrued expenses and notes
payable:
The carrying value amount approximates fair value because of the short
maturity of these instruments.
PRIOR PERIOD ADJUSTMENT
Retained earnings at the beginning of the audit period has been adjusted to
correct errors made in prior periods.
These errors are comprised of the following:
Adjustment of depreciation from accelerated methods
to the straight-line $ 289,278
Understatement of allowance for doubtful accounts (33,563)
Understatement of accrued expenses (75,067)
Understatement of deferred tax liability (92,152)
---------------
$ 88,496
===============
COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for claims made for union health
benefits. A hearing assessing these benefits was subsequently overturned by
an arbitrator and two subsequent hearings have been cancelled by the
Union's counsel. The range of potential liability is from $0 to $42,000.
Management believes that the outcome of this action will not have a
material adverse effect on the Company's financial position or results of
operations.
SUBSEQUENT EVENTS
On April 11, 1996, Recycling Industries, Inc. executed an agreement of sale
for all the issued and outstanding shares of its capital stock of the
Company for $6,400,000. The transaction closed on July 1, 1996. The
purchaser, Continental Waste Industries, Inc. (CWI) paid $4,900,000 and
issued a note of $1,500,000 for one year with an option to renew the note
for an additional year. The shareholders were to retain current assets to
pay off any remaining current liabilities.
F-27
<PAGE>
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & CO.]
To the Board of Directors and Stockholders of
Statewide Environmental Contractors, Inc.
We have reviewed the accompanying balance sheet of Statewide Environmental
Contractors, Inc. as of March 31, 1996 and the related statements of income and
retained earnings, and cash flows for the three months then ended in accordance
with Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of Statewide
Environmental Contractors, Inc..
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
ROSENBERG RICH BAKER BERMAN & CO.
Bridgewater, New Jersey
July 30, 1996
F-28
<PAGE>
Statewide Environmental Contractors, Inc.
Financial Statements
Three Months Ended March 31, 1996
F-29
<PAGE>
Statewide Environmental Contractors, Inc.
Index to the Financial Statements
March 31, 1996
Page
Accountants' Report on the Financial Statements...... F-28
Financial Statements
Balance Sheet................................... F-31
Statement of Operations......................... F-33
Statement of Stockholders' Impairment........... F-34
Statement of Cash Flows......................... F-35
Notes to the Financial Statements............... F-36-F-43
F-30
<PAGE>
Statewide Environmental Contractors, Inc.
Balance Sheet
March 31, 1996
Assets
Current Assets
Cash $ 154,625
Accounts receivable, net of allowance for doubtful
accounts of $118,832 1,077,234
Note receivable - related company 100,743
Prepaid expenses 68,021
Mortgage receivable, current portion 4,173
Deferred tax asset 80,000
Bid deposit 3,012
--------------
Total Current Assets 1,487,808
--------------
Fixed Assets
Vehicles 2,677,070
Containers 1,424,452
Machinery and equipment 153,569
Leasehold improvements 274,936
Furniture and fixtures 257,506
--------------
Subtotal 4,787,533
Less: accumulated depreciation and amortization 3,708,529
--------------
Total 1,079,004
--------------
Other Assets
Mortgage receivable - non-current portion 160,224
Customer accounts (net of amortization of $627,279) 115,423
Security deposits 3,215
--------------
Total Other Assets 278,862
--------------
$ 2,845,674
Total Assets
==============
See notes to the financial statements and accountants' report.
F-31
<PAGE>
Liabilities and Stockholders' Impairment
Current Liabilities
Current maturities of long-term debt 310,396
Current maturities of capital lease obligations 76,137
Accounts payable 96,689
Accrued expenses 172,664
Payroll taxes payable 39,205
Due to related company 463,274
Income taxes payable 17,000
--------------
Total Current Liabilities 1,175,365
--------------
Long-Term Liabilities
Notes payable, less current maturities 3,283,551
Capital lease obligations, less current maturities 167,784
Deferred income taxes 182,000
--------------
Total Long-Term Liabilities 3,633,335
--------------
Total Liabilities 4,808,700
--------------
Stockholders' Impairment
8% noncumulative convertible preferred stock,
$1,000 par, 7,050 shares authorized and
issued; 5,875 outstanding 5,875,000
Class A common stock, $1.00 par value; 3,000
shares authorized and issued;
2,500 outstanding 2,500
Class B nonvoting common stock, no par value,
3,000 shares authorized and issued;
2,500 outstanding 2,500
Accumulated deficit (7,019,026)
--------------
(1,139,026)
Less: treasury stock 824,000
--------------
Total Stockholders' Impairment (1,963,026)
--------------
Total Liabilities and Stockholders' Impairment $ 2,845,674
==============
F-32
<PAGE>
Statewide Environmental Contractors, Inc.
Statement of Operations
Three Months Ended March 31, 1996
Revenue $ 2,251,978
---------------
Operating expenses 1,778,686
Depreciation 57,714
---------------
Total Operating Expenses 1,836,400
---------------
Gross Profit 415,578
---------------
General and administrative expenses 449,152
Depreciation and amortization 27,124
---------------
Total General and Administrative Expenses 476,276
---------------
Loss From Operations (60,698)
---------------
Other Income (Expense)
Interest expense, net of interest income of $4,438 (71,899)
Miscellaneous income 1,216
---------------
Total Other Income (Expense) (70,683)
---------------
Loss Before Income Tax Benefit (131,381)
Benefit From Income Taxes 40,000
---------------
$ (91,381)
Net Loss
===============
See notes to the financial statements and accountants' report.
F-33
<PAGE>
Statewide Environmental Contractors, Inc.
Statement of Stockholders' Impairment
Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
8% Noncumulative Class A Class B
Preferred Stock Common Stock Common Stock
----------------------- --------------- --------------
Convertible $1,000 $1.00 No Treasury Accumulated
Shares Par Shares Par Shares Par Stock Deficit Total
----------- ---------- ------ ------ ------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 5,875 $5,875,000 2,500 $2,500 2,500 $2,500 $(824,000) $(6,927,645) $(1,871,645)
Three Months Ended March
31, 1996 - - - - - - - (91,381) (91,381)
------- ---------- ------ ------- ------ ------ ----------- ------------ ------------
5,875 $5,875,000 2,500 $2,500 2,500 $2,500 $(824,000) (7,019,026) $(1,963,026)
Balance - March 31, 1996
======= ========== ======= ======= ====== ====== =========== ============ ============
</TABLE>
See notes to the financial statements and accountants' report.
F-34
<PAGE>
Statewide Environmental Contractors, Inc.
Statement of Cash Flows
Three Months Ended March 31, 1996
Cash Flows From Operating Activities
Net Loss $ (91,381)
Adjustments to Reconcile Net Loss to Net Cash Provided
by Operating Activities
Depreciation and amortization 84,838
Deferred income taxes (40,000)
Changes in Assets and Liabilities
Accounts receivable (27,110)
Prepaid expenses (22,892)
Accounts payable (595)
Accrued expenses (6,010)
Payroll taxes payable 21,945
Due to related company 128,798
---------------
Net Cash Provided by Operating Activities 47,593
---------------
Cash Flows From Investing Activities
Purchase of containers (2,468)
Principal payments on mortgage receivable 986
---------------
Net Cash Used in Investing Activities (1,482)
---------------
Cash Flows From Financing Activities
Principal payments, capitalized lease obligations (17,917)
Principal payments on notes payable (83,130)
---------------
Net Cash Used in Financing Activities (101,047)
---------------
Net (Decrease) in Cash (54,936)
Cash, January 1, 1996 209,561
---------------
Cash, March 31, 1996 $ 154,625
===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 72,619
Income taxes -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased equipment in January 1996 which was financed with a
$150,111 note.
See notes to the financial statements and accountants' report.
F-35
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Statewide Environmental Contractors, Inc. (the "Company") was
incorporated in the state of New Jersey in February, 1963. The company
is licensed by the State of New Jersey Board of Public Utilities to
engage in the business of solid waste collection and disposal. The
Company services commercial businesses throughout central New Jersey.
Depreciation and Amortization
The cost of property, plant and equipment is depreciated for financial
reporting purposes on a straight-line basis over the estimated useful
lives of the assets: 7 years for vehicles, 10 years for containers and
5-10 years for furniture and equipment. Leasehold improvements are
amortized over the shorter of the estimated useful lives or the
underlying lease term. Repairs and maintenance expenditures which do
not extend the useful lives of the related assets are expensed as
incurred.
For Federal income tax purposes, depreciation is computed under
accelerated methods over the asset's class life.
Amortization
Customer accounts are being amortized over 10 years on a straight-line
basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CONCENTRATION OF BUSINESS AND CREDIT RISK
The Company provides credit in the normal course of business to customers
located in New Jersey. The Company performs ongoing credit evaluations of
its customers and maintains allowances for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical
trends, and other information.
As of the balance sheet date, cash at the Company's financial banking
institution exceeded the federally insured limit of $100,000 by $136,119.
See accountants' report on the financial statements.
F-36
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
LONG-TERM DEBT
Long-term debt consists of the following installment notes.
Charles Macaluso
Under an agreement dated August 10, 1992, Statewide Environmental
Contractors, Inc. will pay $586,941 to Charles Macaluso in 144 equal
monthly installments (beginning August 15, 1992 at $6,515) with
interest at 8.5% for the first 60 payments and prime plus 1% for the
next 84 payments subject to a minimum rate of 8.5% and a maximum rate
of 10%. Real estate, owned by Lomac Realty shall act as collateral,
under a fourth mortgage. Certain officers of Statewide Environmental
Contractors, Inc. have guaranteed payment of this obligation. This loan
was paid off in July 1996 by the officers.
$ 458,768
Joseph Macaluso
Under an agreement dated October 23, 1992, Statewide Environmental
Contractors, Inc. will pay $112,838 to Joseph Macaluso in 99 equal
monthly installments of $1,561 which will include interest at 8%
beginning November 25, 1992. Macaluso accepted this note as full and
complete settlement of all deferred obligations due to Macaluso under a
January 2, 1984 stock transfer and sale of partnership interest. This
note is secured with a second mortgage in real property owned by Lomac
Realty. This loan was paid off in July, 1996 by the officers.
74,867
Joseph Macaluso
Under a January 1984 agreement for stock transfer and sale of
partnership interest, Statewide Environmental Contractors, Inc. agreed
to pay $445,384 to Macaluso in 120 equal monthly installments of $5,642
with interest at 9%, beginning February 1, 1991 until January 1, 2001.
This note is secured with a second mortgage in real property owned by
Lomac Realty. This loan was paid off in July 1996 by the officers.
264,557
Margaret Macaluso
Under a January 1984 agreement for stock transfer and sale of
partnership interest, Statewide Environmental Contractors, Inc. agreed
to pay Robert Macaluso (which was subsequently assigned to Margaret
Macaluso) $445,480 beginning February 1, 1991 in 120 equal monthly
installments of $5,642 including interest at 9% per annum. This note is
secured with a third mortgage interest in property owned by Lomac
Realty. This loan was paid off in July, 1996 by the officers.
$ 264,494
Margaret Macaluso
Under an agreement dated November 1, 1993 Statewide Environmental
Contractors, Inc. agreed to pay Margaret Macaluso $107,197 in
settlement of all unpaid obligations under the original January 1984
stock transfer and sale of partnership interest agreement. The $107,197
is payable in 88 equal monthly installments of $1,358, including
interest at 3%, beginning November 5, 1993 until February 5, 2001. This
note is secured with a third mortgage interest in real property owned
by Lomac Realty. The loan was paid off in July, 1996 by the officers.
74,429
See accountants' report on the financial statements.
F-37
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
LONG-TERM DEBT, Continued
State of New Jersey
$400,000 damage claim settlement payable in 60 monthly installments
beginning January 1992 with a $25,000 down payment. The initial 12 monthly
installments were $4,583 principal only with no interest. The remaining 48
monthly installments are $8,051 (principal of $6,667 and interest of
$1,385) with the final payment in February, 1997. The loan was paid off in
July, 1996 by the officers.
$ 73,334
Valley National Bank
$239,000 vehicle note payable in 60 monthly installments of $3,983 plus
interest at the bank's prime lending rate plus 1%. This loan is secured by
Valley National's lien and right of set-off on twelve (12) trucks listed in
the loan agreement. This loan was paid off in July 1996 by the officers.
227,050
Estate of Former Shareholder
Under the Company's shareholders' agreement the Company was obligated to
purchase all shares (common and preferred) of a deceased shareholder
(December 1994). The sale and loan agreement executed in 1996, with an
effective date of January 11, 1995 at an agreed price of $2,000,000. The
note requires payments of interest only at 6% from January 1995 to March
1996 and 2% above the one year treasury bill rate thereafter until January
1, 2000 at which time the principal will be paid in 120 equal monthly
installments including interest at 2% above the one year treasury bill
rate. The loan is secured by a mortgage and collateral assignment of leases
on real property located in South Plainfield (owned by Lomac Realty, a
related company). Lomac Realty and Recycling Industries, Inc. also
guaranteed payment on the loan. The loan was paid off in July, 1996 by
Continental Waste Industries in closing of the acquisition (See Subsequent
Event note). 2,000,000
Ford Motor Credit
Vehicle note payable in 48 monthly installments including interest at 9.9%,
of $422. Final payment is due November 1, 1988. The note was paid off by
the officers of the Company. 11,756
Associates Commercial
$150,931 vehicle note payable in 60 monthly installments of $3,064
including interest at 8.06% beginning 1996. The note is secured by a
vehicle.
144,692
---------------
Total 3,593,947
Less: current portion 310,396
---------------
Long-Term Portion $ 3,283,551
===============
Following are maturities of long-term debt as of March 31, 1996 for each of the
next five years:
1997 $ 310,396
1998 253,768
1999 269,901
2000 335,574
2001 457,738
Thereafter 1,966,570
---------------
$ 3,593,947
===============
See accountants' report on the financial statements.
F-38
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
CAPITAL LEASE OBLIGATIONS
The Company leases certain vehicles under capital leases expiring in
various years through 1999. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset at the inception of the lease. The
assets are amortized over their estimated productive lives. Amortization of
assets under capital leases is included in depreciation expense.
Properties under capital leases are as follows:
Vehicles $ 227,932
Office equipment 36,997
Machinery and equipment 139,101
---------------
404,030
Less: accumulated depreciation 114,923
---------------
$ 289,107
===============
The Company is the lessee of vehicles, communication equipment and computer
equipment under capital leases expiring in various years through March
1999. The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value
of the asset. The assets are depreciated over the lower of their related
lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense.
The Company is obligated under the following capital leases:
Net
Present
Value of Capital-
Original Minimum Final Monthly Capital- ized
Lease Lease Payment Lease ized Interest
Lessor Date Payments Date Obligation Cost Rates
- -------------------- ------- -------- -------- ----------- --------- -------
RDL Leasing 7-93 $ 6,178 7-01-97 $ 437.84 $ 14,842 19%
Bell Atlantic Tricon 8-91 1,728 5-01-96 308.19 11,355 24
Bell Atlantic Tricon 8-93 4,635 7-01-97 306.80 10,800 17
Texton Financial 6-94 50,792 3-15-98 2,417.00 91,832 13
Texton Financial 7-94 79,743 7-01-99 2,444.00 136,100 13
Texton Financial 12-94 100,845 12-15-99 2,825.60 139,101 13
-------- ---------- ---------
243,921 $8,739.43 $404,030
======== ========== =========
See accountants' report on the financial statements.
F-39
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
CAPITAL LEASE OBLIGATIONS, Continued
Minimum future lease payments under capital leases as of March 31, 1996 for
the next five years are:
1997 $ 103,332
1998 95,524
1999 63,235
2000 35,206
2001 -
--------------
Total Minimum Lease Payments 297,297
Less: Amount representing interest 53,376
--------------
Present Value of Net Minimum Lease Payments 243,921
Less: current maturities of capital lease obligations 76,137
--------------
Obligations under capital leases, excluding current $ 167,784
maturities
==============
RELATED PARTY TRANSACTIONS
Statewide Environmental Contractors, Inc. rents office, yard and garage
space from the entities and individuals listed below whose owners are
officers and shareholders of Statewide Environmental Contractors, Inc. For
the three months ended March 31, 1996 rent expense was paid to the
following related entities under operating leases:
Lomac Realty $ 6,327
Lincoln Blvd. Associates 8,577
Nick Lemmo 4,800
Dilex Realty 32,217
---------------
Total $ 51,921
===============
Disposal Costs
For the three months ended March 31, 1996, Statewide Environmental
Contractors, Inc. was charged $928,912 by Recycling Industries, a company
controlled by officers/shareholders of Statewide Environmental Contractors,
Inc. for disposal at Recycling Industries' material recovery facility.
Revenue
For the three months ended March 31, 1996, Statewide Environmental
Contractors, Inc. was charged $9,000 by Recycling Industries, Inc. for
outbound hauling from Recycling Industries material recovery facility.
Equipment Repairs
For the three months ended March 31, 1996, Statewide Environmental
Contractors, Inc. was charged $46,464 by Recycling Industries, Inc. for its
vehicle and equipment repairs.
See accountants' report on the financial statements.
F-40
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
RELATED PARTY TRANSACTIONS, Continued
Insurance
Statewide Environmental Contractors, Inc.'s insurance policies included
Recycling Industries, Inc. operations. For the three months ended March 31,
1996, Statewide charged $20,333 for workers' compensation coverage.
The liability due to related companies of $463,274 is to Recycling
Industries, Inc.
Mortgage Receivable
Statewide Environmental Contractors, Inc. assumed a mortgage receivable
from Edison Disposal, Inc. under the plan of merger adopted July 20, 1993.
The original note, dated July 1983, of $194,700 calls for 360 monthly
payments of $1,566 including interest at 9% per annum. The balance as of
March 31, 1996 was $164,397. The note is due from a shareholder and is
secured by real estate located in South Plainfield, NJ.
NOTE RECEIVABLE, RELATED COMPANY
In August 1995, Statewide advanced $100,743 to Lomac Realty which included
interest at 8% calculated through December 31, 1995.
OPERATING LEASE COMMITMENTS
The Company leases certain space and equipment under operating leases.
The following is a schedule of future minimum rental payments (exclusive of
common area charges) required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year as of March 31,
1996.
Year Ending March 31,
1997 $ 201,624
1998 201,624
1999 201,624
2000 33,604
---------------
Total Minimum Lease Payments $ 638,476
===============
The leases also contain provisions for Statewide to pay a proportionate
share of real estate taxes and utilities.
See accountants' report on the financial statements.
F-41
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
INCOME TAXES
The income tax provision consists of the following:
Federal State Total
--------------- --------------- --------------
Current $ - $ - $ -
Deferred (33,000) (7,000) (40,000)
--------------- --------------- --------------
$ (33,000) $ (7,000) $ (40,000)
=============== =============== ==============
A reconciliation of the provision for income taxes at the federal statutory
rates, with the provision reflected in the financial statement follows.
Provision of federal statutory income tax rates, with the provision
reflected as follows:
Provision of federal statutory income tax rate $ (35,000)
State taxes, net of federal provision (5,000)
---------------
$ (40,000)
===============
The tax effect of the primary temporary differences giving rise to the
Company's deferred taxes are as follows:
Tax effect on net operating loss $ 40,000
Provision for accounts receivable reserves 40,000
---------------
Deferred tax asset $ 80,000
===============
$ 182,000
Deferred Tax Liability - Depreciation
===============
Deferred taxes are recognized for temporary differences between the basis
of assets and liabilities for financial statement and income tax purposes.
The differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes) and to the allowance for
doubtful accounts (deductible for financial statement purposes but not for
income tax purposes) and to the net operating loss.
PENSION
The Company has adopted a pension plan under IRC Section 401(k).
Contributions are discretionary and are determined annually by management
up to a maximum of 6%. This plan covers all non-union employees. Company
contributions totaled $13,190 for the three months ended March 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, notes receivable, mortgages receivable, accounts
payable, accrued expenses and notes payable. The carrying value amount
approximates fair value because of the short maturity of these instruments.
See accountants' report on the financial statements.
F-42
<PAGE>
Statewide Environmental Contractors, Inc.
Notes to the Financial Statements
COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for claims made for union health
benefits. A hearing assessing these benefits was subsequently overturned by
an arbitrator and two subsequent hearings have been canceled by the Union's
counsel. The range of potential liability is from $0 to $75,000. Management
believes that the outcome of this action will not have a material adverse
effect on the Company's financial position or results of operations.
SUBSEQUENT EVENT
On April 11, 1996 Statewide executed an agreement of sale for all the
issued and outstanding shares of its capital stock of the Company for an
amount not to be less than $5,500,000. The purchaser, Continental Waste
Industries, Inc. (CWI) shall issue to stockholders of Statewide shares of
CWI common stock with a value of $3,500,000 and $2,000,000 of debt of
Statewide.
The transaction closed and shares of its common and preferred stock were
exchanged on July 1, 1996. Proceeds of $2,000,000 were used to pay off the
treasury stock note. The original shareholders of Statewide paid off all
remaining note and capital lease obligations with proceeds from sale of the
common stock of Recycling Industries and real estate held by Lomac Realty
(related parties), which was also purchased by CWI on July 1, 1996.
See accountants' report on the financial statements.
F-43
<PAGE>
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & CO.]
To the Board of Directors and Stockholders of
Recycling Industries, Inc.
We have reviewed the accompanying balance sheet of Recycling Industries, Inc. as
of March 31, 1996 and the related statements of income and retained earnings,
and cash flows for the three months then ended in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management of Recycling Industries,
Inc..
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
ROSENBERG RICH BAKER BERMAN & CO.
Bridgewater, New Jersey
July 30, 1996
F-44
<PAGE>
Recycling Industries, Inc.
Financial Statements
Three Months Ended March 31, 1996
F-45
<PAGE>
Recycling Industries, Inc.
Index to the Financial Statements
March 31, 1996
Page
Accountants' Report on the Financial Statements...... F-44
Financial Statements
Balance Sheet................................... F-47
Statement of Income and Retained Earnings....... F-48
Statement of Cash Flows......................... F-49
Notes to the Financial Statements............... F-50 - F-53
F-46
<PAGE>
Recycling Industries, Inc.
Balance Sheet
March 31, 1996
Assets
Current Assets
Cash $ 26,201
Accounts receivable trade, net of allowance for
doubtful accounts of $35,965 237,688
Accounts receivable, related party 439,580
Prepaid expenses 1,500
---------------
Total Current Assets 704,969
---------------
Fixed Assets
Containers 727,021
Vehicles 134,462
Computers 13,189
Leasehold improvements 810
---------------
Total 875,482
Less: accumulated depreciation 427,687
---------------
Net Fixed Assets 447,795
---------------
Total Assets 1,152,764
===============
Liabilities and Stockholders' Equity
Current Liabilities
Current maturities of capital lease obligations 13,928
Accounts payable 57,743
Accrued expenses 125,005
Payroll taxes payable 24,074
Deferred income taxes 198,000
---------------
Total Current Liabilities 418,750
---------------
Long-Term Liabilities
Obligations under capital lease 37,301
Deferred income taxes 103,000
---------------
Total Long-Term Liabilities 140,301
---------------
Stockholders' Equity
Capital stock - no par value 100 shares authorized; 100
issued and outstanding 3,000
Retained earnings 590,713
---------------
Total Stockholders' Equity 593,713
---------------
Total Liabilities and Stockholders' Equity $ 1,152,764
===============
See notes to the financial statements and accountants' report.
F-47
<PAGE>
Recycling Industries, Inc.
Statement of Income and Retained Earnings
Three Months Ended March 31, 1996
Revenue $ 1,485,292
---------------
Operating expenses 1,234,346
Depreciation 42,631
---------------
Total Operating Expenses 1,276,977
---------------
Gross Profit 208,315
General and Administrative Expenses 159,654
---------------
Income From Operations 48,661
---------------
Other Income (Expense)
Miscellaneous 2,312
Interest expense, net of interest income of $182 (1,593)
---------------
Total Other Income (Expense) 719
---------------
Income Before Income Taxes 49,380
Income Taxes 18,764
---------------
Net Income 30,616
Retained Earnings - Beginning 560,097
---------------
$ 590,713
Retained Earnings - Ending
===============
See notes to the financial statements and accountants' report.
F-48
<PAGE>
Recycling Industries, Inc.
Statement of Cash Flows
Three Months Ended March 31, 1996
Cash Flows From Operating Activities
Net Income $ 30,616
Adjustments to Reconcile Net Income to Net Cash (used) in
Operating Activities
Depreciation 42,631
Deferred income taxes 1,360
Changes in Assets and Liabilities
Increase in accounts receivable-trade (27,016)
Increase in accounts receivable-related party (105,104)
Decrease in prepaid expenses 16,631
Decrease in accounts payable (19,301)
Increase in accrued expenses 45,389
Increase in payroll taxes payable 9,749
---------------
Net Cash (Used) in Operating Activities (5,045)
---------------
Cash Flows From Financing Activities
Principal payments on capital lease obligations (3,238)
---------------
Net Cash (Used) in Financing Activities (3,238)
---------------
Net (Decrease) in Cash (8,283)
Cash - Beginning of Period 34,484
---------------
Cash - End of Period $ 26,201
===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,775
Income taxes -
See notes to the financial statements and accountants' report.
F-49
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Recycling Industries, Inc. operates a material recovery facility to
process recyclable material under licensing granted by the State of New
Jersey.
Depreciation
The cost of property and equipment is depreciated for financial
reporting purposes on a straight-line basis over the estimated useful
lives of the assets: 5 years for containers, vehicle, and computers and
10 years for leasehold improvements. Repairs and maintenance
expenditures which do not extend the useful lives of the related assets
are expensed as incurred.
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in financial statements and consist of deferred taxes related to
differences of reporting depreciation differently for financial and
income tax reporting. In addition, the Company reports its income tax
returns on a cash basis accounting method. The deferred tax liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when the liabilities are
recovered or settled.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
CONCENTRATION OF BUSINESS AND CREDIT RISK / ECONOMIC DEPENDENCY
The Company provides credit in the normal course of business to customers
located in New Jersey. The Company performs ongoing credit evaluations of
its customers and maintains allowances for doubtful accounts based on
factors surrounding the credit risk of specific customers, historical
trends, and other information.
The Company's primary customer is Statewide Environmental Contractors, Inc.
a related party.
CAPITAL LEASES
The Company leases certain vehicles under capital leases expiring in
various years through 1999. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset at the inception of the lease. The
assets are amortized over their estimated productive lives. Amortization of
assets under capital leases is included in depreciation expense.
Properties under capital leases are as follows:
Vehicles $ 66,355
Less: accumulated depreciation 23,585
---------------
$ 42,770
===============
See accountants' report on the financial statements.
F-50
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
CAPITAL LEASES, Continued
The following is a schedule of minimum lease payments due under capital
leases as of March 31, 1996.
Year Ending March 31,
1997 $ 19,130
1998 19,130
1999 17,456
2000 6,058
---------------
Total Net Minimum Capital Lease Payments 61,774
Less: amounts representing interest 10,545
---------------
Present value of net minimum capital lease obligations 51,229
Less: current maturities of capital leases 13,928
---------------
Obligations under capital leases, excluding current $ 37,301
maturities
===============
OPERATING LEASE COMMITMENTS
The Company leases certain office and warehouse space and vehicles under
operating leases.
The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease
terms in excess of one year as of March 31, 1996.
Year Ending March 31, Office Space Equipment
--------------- ---------------
1997 $ 64,176 $ 72,000
1998 64,176 32,000
1999 26,740 -
--------------- ---------------
$ 155,092 $ 104,000
=============== ===============
INCOME TAXES
The income tax expense is comprised of the following:
Federal State Total
--------------- --------------- --------------
Current $ 12,404 $ 5,000 $ 17,404
Deferred 1,000 360 1,360
--------------- --------------- --------------
$ 13,404 $ 5,360 $ 18,764
=============== =============== ==============
See accountants' report on the financial statements.
F-51
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
INCOME TAXES, Continued
The components of the deferred taxes liability consists of the following:
Cash basis for tax reporting $ 198,000
Depreciation 103,000
---------------
$ 301,000
===============
RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and Statewide
Environmental Contractors, Inc. and Lomac Realty, related parties.
Equipment Repairs and Maintenance
Amounts incurred for equipment maintenance to Statewide Environmental
Contractors, Inc. for the three months ended March 31, 1996 totaled
$46,464.
Disposal Income
The Company bills Statewide Environmental Contractors, Inc. monthly for
disposal of refuse and recyclable materials collected at the recycling
facility operated by Recycling Industries, Inc., in South Plainfield, New
Jersey. For the three months ended March 31, 1996, the Company billed
$928,912 to Statewide Environmental Contractors, Inc. for disposal of waste
and recyclable materials.
Hauling Expense
The Company subcontracts hauling of processed materials to Statewide
Environmental Contractors, Inc. For the three months ended March 31, 1996,
the Company incurred costs of $9,000, to Statewide Environmental
Contractors, Inc.
Facility Rental
The Company leases office and warehouse space in South Plainfield, New
Jersey from Lomac Realty and Maurice Kirchoffer. For the three months ended
March 31, 1996, these costs incurred amounted to $13,840.
Insurance Expense
Statewide Environmental Contractors, Inc. pays insurance premiums on behalf
of the Recycling Industries, Inc. Recycling Industries, Inc. is charged its
pro rata share of premiums based upon the coverages allocable to that
company. For the three months ended March 31, 1996 these premiums totaled
$20,233.
Amounts due from related companies at March 31, 1996 are $439,580.
See accountants' report on the financial statements.
F-52
<PAGE>
Recycling Industries, Inc.
Notes to the Financial Statements
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable, accrued expenses and notes
payable:
The carrying value amount approximates fair value because of the short
maturity of these instruments.
COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for claims made for union health
benefits. A hearing assessing these benefits was subsequently overturned by
an arbitrator and two subsequent hearings have been cancelled by the
Union's counsel. The range of potential liability is from $0 to $42,000.
Management believes that the outcome of this action will not have a
material adverse effect on the Company's financial position or results of
operations.
SUBSEQUENT EVENTS
On April 11, 1996 Recycling Industries, Inc. executed an agreement of sale
for all the issued and outstanding capital stock of the Company for
$6,400,000. The transaction closed on July 1, 1996. The purchaser,
Continental Waste Industries, Inc. (CWI) paid $4,900,000 and issued a note
of $1,500,000 for one year with an option to renew the note for an
additional one year. Shareholders' were to retain current assets to pay off
any remaining current liabilities.
See accountants' report on the financial statements.
F-53
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED COMBINING BALANCE SHEET
AS OF MARCH 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Continental
Waste Pro Forma
Industries, Inc. Statewide Adjustments Combined
--------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $ 1,924 $ 181 $(2,000) $ 105
Accounts and note receivable......... 8,861 1,315 - 10,176
Other current assets................. 7,581 697 (440) 7,838
-------- ------ -------- -------
Total current assets...............
18,366 2,193 (2,440) 18,119
LANDFILLS, PROPERTY AND EQUIPMENT,
net..................................
EXCESS COST OVER FAIR VALUE............ 85,292 1,527 4,296 91,115
OTHER ASSETS........................... 15,432 - 7,712 23,144
14,842 279 6,700 21,221
-------- ------ -------- -------
$133,932 $3,999 $16,268 $154,199
-------- ------ -------- --------
-------- ------ -------- --------
CURRENT LIABILITIES:
Notes Payable and current maturities
of long-term debt.................. $ 2,581 $ 400 $(400) $ 2,581
Accounts Payable..................... 2,933 155 - 3,088
Other accrued liabilities............ 7,924 1,040 (440) 8,524
-------- ------ -------- --------
Total current liabilities..........
13,438 1,595 (840) 14,193
LONG-TERM DEBT......................... 27,488 3,489 4,211 35,188
ACCRUED LANDFILL CLOSURE COSTS......... 6,970 - - 6,970
OTHER LONG-TERM LIABILITIES............ 10,624 284 - 13,536
STOCKHOLDERS' EQUITY:
Equity of acquired companies......... - (1,369) 2,628 -
Common Stock......................... 8 - - 8
Additional paid-in capital........... 65,113 - 8,900 74,013
Retained earnings.................... 10,763 - - 10,763
Treasury stock....................... (472) - - (472)
-------- ------- -------- --------
Total Stockholders' equity.........
75,412 (1,369) 10,269 84,312
-------- ------- -------- --------
$133,932 $3,999 $16,268 $154,199
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
The accompanying Notes to Unaudited Pro Forma
Combining Financial Statements are an
integral part of this balance sheet.
F-54
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
Continental Businesses
Waste Acquired Pro Forma Pro Forma Pro Forma Pro Forma
Industries, Inc. in 1995 Adjustments Subtotal Statewide Adjustments Combined
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $47,815 $6,353 - $54,168 $15,017 ($3,029) $66,156
Costs and expenses:
Operating expenses 22,182 5,210 176 27,568 12,321 (3,029) 36,860
General and administrative
expenses 6,882 840 - 7,722 2,150 (1,040) 8,832
Depreciation and amortization 6,863 - - 6,863 537 434 7,834
Office closing charge 1,500 - - 1,500 - - 1,500
Income from operations 10,388 303 (176) 10,515 9 606 11,130
Other income (expenses):
Interest expense (2,659) (97) (137) (2,893) (309) (386) (3,588)
Other income (expenses), net 205 1 (10) 196 45 - 241
Other income (expenses), net (2,454) (96) (147) (2,697) (264) (386) (3,347)
Income before income taxes 7,934 207 (323) 7,818 (255) 220 7,783
Provision (benefit) for income taxes 3,297 104 (96) 3,305 (106) 123 3,322
Net income $4,637 $103 ($227) $4,513 ($149) $97 $4,461
EARNINGS PER SHARE $0.38 $0.37 $0.35
Weighted average common and
common equivalent Shares 12,025 31 12,056 556 12,612
</TABLE>
The accompanying Notes to Unaudited Pro Forma Combining
Financial Statements are an integral part of this statement.
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(In thousands except per share data)
<TABLE>
<CAPTION>
Continental
Waste Pro Forma Pro Forma
Industries, Inc. Statewide Adjustments Combined
---------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE.................................. $13,934 $3,737 $(929) $16,742
COSTS AND EXPENSES:
Operating expenses..................... 7,439 3,113 (929) 9,623
General and administrative expenses.... 1,497 508 (185) 1,820
Depreciation and amortization.......... 2,288 128 108 2,524
------- ------- -------- -------
Income from operations................. 2,710 (12) 77 2,775
OTHER INCOME (EXPENSES):
Interest expense....................... (456) (78) (72) (606)
Other income (expense), net............ (8) 8 - -
------- ------- -------- -------
Income before income taxes............. 2,246 (82) 5 2,169
PROVISION (BENEFIT) FOR INCOME TAXES.....
929 (21) 10 918
------- ------- -------- -------
Net income............................. $ 1,317 $ (61) $(5) $ 1,251
------- ------- -------- --------
------- ------- -------- --------
EARNINGS PER SHARE....................... $ 0.09 $ 0.08
Weighted average common and common
equivalent shares.................... 14,577 556 15,133
</TABLE>
The accompanying Notes to Unaudited Pro Forma
Combining Financial Statements are an integral part of this statement.
F-56
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
Note 1. -- Description of Pro Forma Combining Financial Statements
The unaudited pro forma combining financial statements of the Company reflect
certain business acquisitions as if such acquisitions had occurred as of March
31, 1996 or as of the beginning of the period presented. The acquisitions
included in the pro forma statements are described below:
1995 Acquisitions:
From January 1 to August 15, the Company expanded its operations through the
acquisition of six businesses engaged in waste management businesses. Each of
these transactions have been accounted for using the purchase method of
accounting. The aggregate of these business acquisitions was significant to the
Company. These entities included ASCO Sanitation, Inc., Larry's Disposal, Inc.,
Terre Haute Recycling, Inc., Gilliam Sanitation, Inc., Gilliam Transfer, Inc.,
Anderson Refuse Company, Inc./M.V. Dulworth, and a 72% interest in Procesa
Continental S.A., de C.V.
The aggregate purchase price of these businesses was $8.9 million, plus the
assumption or refinancing of $2.1 million of debt and $0.6 million of future
contingent payments. The purchase prices were paid by issuing 164,846 Shares of
the Company's Common Stock with a market value of $1.1 million at the time of
issuance, paying $5.8 million of cash obtained from the Company's credit
facility and issuing $2.0 million of notes payable to the Sellers.
None of these acquisitions individually are significant, each with a purchase
price and assets less than 10% of the Company's December 31, 1994 assets and
each with historical income or loss before income taxes of less than 10% of the
Company's income before income taxes and extraordinary gain for the year ended
December 31, 1994. In addition, the aggregate of these transactions is less than
10% of the measures described above except for the aggregate of the absolute
values of the incomes and losses before income taxes of these entities which
total more than 10% but less than 20% of the Company's 1994 income before income
taxes and extraordinary gain.
Accordingly, although the acquired businesses are not integral to each other,
their financial position and operating results were combined for purposes of the
pro forma presentation.
1996 Acquisitions:
On July 1, 1996, the Company purchased Recycling Industries, Inc. and Statewide
Environmental Contractors, Inc. and all of the assets of Lomac Realty. These
three companies ("Statewide") are all affiliated with each other, and all are
engaged in the waste management business.
The Company paid $6.7 million in cash, issued 555,512 Shares of the Company's
Common Stock and issued $3.0 million in notes payable to the Sellers for the
acquisition. The Company recorded this transaction as a purchase.
For purposes of the accompanying pro forma financial statements, adjustments
have been reflected on an estimated basis using the most recent information
available. No assurances can be given that the final determination of the fair
value of assets acquired and liabilities assumed in the various acquisitions
will not differ from the adjustments presented herein. Such determination will
be made within one year of the related acquisition and are not expected to be
materially different from the estimates used herein.
F-57
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (Continued)
The pro forma financial statements should be read in conjunction with the
respective audited and interim financial statements of the Company and the
related notes thereto. The pro forma statements are not necessarily indicative
of the results that would have been obtained if the acquisitions had been
consummated at an earlier date and is not intended to be a projection of future
results or trends.
F-58
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS
(Continued)
Note 2.--Adjustments to the March 31, 1996 Combining Balance Sheet(in thousands)
Cash
Use of cash for acquisitions............... $(2,000)
--------
--------
Other current assets--
Elimination of intercompany receivables.... $ 440
--------
Landfills, property and equipment, net
Revaluation of assets...................... $ 4,296
--------
--------
Excess cost over fair value, net............. $ 7,712
--------
--------
Other Assets
Revaluation of permit...................... $ 6,700
-------
-------
Current maturities of long-term debt
Elimination of debt retained by Sellers.... $ 400
-------
-------
Other accrued liabilities
Elimination of intercompany payables....... $ 440
-------
-------
Long-term debt
Borrowing under the Credit Facility to
finance the acquisition..................... $ 4,700
Notes payable to Sellers of Statewide
at an imputed interest of 9.0%.............. 3,000
Elimination of debt retained by Sellers...... (3,489)
--------
$ 4,211
--------
--------
Other Long-Term Liabilities
Deferred tax liability related to
revaluation of assets.................. $ 2,628
-------
-------
Equity in acquired companies
Elimination of equity of acquired companies.. $ 1,369
-------
-------
Common Stock
Issuance of Shares to acquire companies.. $ -
-------
-------
Additional paid in capital
Issuance of Shares to acquire companies... $ 8,900
-------
-------
F-59
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (Continued)
Note 3. -- Adjustments to Combining Statements of Income
Operating results of acquired businesses for periods prior to their acquisition
by the Company are included in the "Statewide" and "Businesses Acquired in 1995"
columns, as appropriate. Pre-acquisition periods for each acquired business
extend to their respective acquisition dates which are as follows:
ASCO Sanitation, Inc. April 1, 1995
Larry's Disposal, Inc. April 28, 1995
Terre Haute Recycling, Inc. July 17, 1995
Gilliam Sanitation, Inc. July 18, 1995
Gilliam Transfer, Inc. July 18, 1995
Anderson Refuse Company, Inc. August 1, 1995
M.V. Dulworth August 1, 1995
Procesa Continental S.A., de C.V. August 15, 1995
Statewide July 1, 1996
Pro forma adjustments for "Business Acquired in 1995"
(in thousands) -- For the Year
ended
December 31, 1995
-----------------
Operating expenses --
Record depreciation of other property
revaluation adjustments........................... $ 32
Record amortization of goodwill from
all acquisitions over 25 years.................... 144
--------
$ 176
--------
--------
Interest expense --
Record interest expense on additional borrowings
under the Credit Facility to finance the acquisitions. $(110)
Record interest expense on notes due to sellers......... (27)
--------
$(137)
--------
--------
Other income (expense), net --
Eliminate the Company's minority interest related
to Victory and GEM..................... $(68)
Record the Company's minority interest related to Procesa.... 58
-------
$(10)
-------
-------
Benefit for income taxes --
Record income tax effect of above adjustments.............. $(96)
-------
-------
Primary and fully dilutive weighted average shares --
Issuance of Shares to acquire companies.................... 31
-------
-------
F-60
<PAGE>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS (Continued)
Note 3. -- Adjustments to Combining Statements of Income (Continued)
Pro forma adjustments for "Statewide" For the Year For the Three
(in thousands) -- ended Months ended
Dec. 31, 1995 March 31, 1996
------------- --------------
Revenue
Elimination of intercompany revenue......... $(3,029) $(929)
-------- ------
-------- ------
Operating expenses
Elimination of intercompany disposal costs..... $(3,029) $(929)
-------- ------
-------- ------
General and administrative expenses
Elimination of former owners' salaries......... $(1,015) $(179)
Elimination of intercompany rent............... (25) (6)
-------- ------
$(1,040) $(185)
-------- ------
-------- ------
Depreciation and amortization
Record depreciation of other property
revaluation adjustments............. $ 242 $ 60
Record amortization of goodwill from all
acquisitions over 40 years....... 192 48
------- ------
$ 434 $ 108
------- ------
------- ------
Interest expense --
Record interest expense on additional
borrowings under the Credit
Facility to finance the acquisitions...... $ (425) $ (83)
Record interest expense on notes due
to Sellers...... (270) (67)
Eliminate non-recurring interest expense.... 309 78
------- ------
$ (386) $ 72
------- ------
------- ------
Provision (Benefit) for income taxes --
Record income tax effect of above adjustments
at the Company's statutory income tax
rate (40%).. $ 123 $ 110
------ -----
------ -----
Primary and fully dilutive weighted average
shares --
Issuance of Shares to acquire companies..... 555 555
------ -----
------ -----
F-61
<PAGE>
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.
Continental Waste Industries, Inc.
By: /s/ Carlos E. Aguero
Carlos E. Aguero
President and Chief Executive Officer
Dated: August 9, 1996
[LETTERHEAD OF ROSENBERG RICH BAKER BERMAN & CO.]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in the registration statement on Form S-3, registration numbers
33-86042, 33-65047 and 333-07781 of our report dated July 30, 1996 included in
Continental Waste Industries, Inc.'s Form 8-KA for the years ended December 31,
1995 and March 31, 1996 and to all references to our firm included in or made a
part of this registration statement.
ROSENBERG RICH BAKER BERMAN & CO.
Bridgewater, New Jersey
August 9, 1996
