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CERES ENVIRONMENTAL SERVICES, INC.
<br /> NOTES TO FINANCIAL STATEMENTS
<br /> As of and for the Year Ended December 31, 2016
<br /> NOTE 3 -Related Party Transactions
<br /> The Company has annual management fee agreements with various related entities owned 100% by the sole
<br /> stockholder of the Company. Under these agreements, the Company provides the following services:
<br /> accounting, finance, information technology, operational, human resources, and risk management services.
<br /> Revenues from these management fee agreements totaling $384,000 for the year ended December 31, 2016
<br /> are included in other income in the statement of operations.
<br /> During the year ended December 31, 2016, the Company rented construction equipment to, and made
<br /> equipment repairs for, a related entity wholly-owned by the sole stockholder of the Company. Equipment rental
<br /> and repair income from this related entity totaled $1,743,142 for the year ended December 31, 2016.
<br /> During the year ended December 31, 2016, the Companymade advances, provided management services and
<br /> project labor, rented construction equipment, and paid for various expenses on behalf of certain entities that are
<br /> wholly-owned by the sole stockholder of the Company. Amounts due from these entities as of December 31,
<br /> 2016 totaled$2,481,403 and are included in due from related parties in the accompanying balance sheet. These
<br /> balances are unsecured, non-interest bearing, and due on demand.
<br /> Included in the amounts due from related parties as of December 31, 2016 discussed above, is an amount due
<br /> from a certain wholly-owned entity of the sole stockholder of the Company totaling $632,367. This related entity
<br /> is primarily involved in contracting operations in New Zealand, and was previously financed through capital
<br /> contributions from the Company's sole stockholder. The Company has determined that this related entity or other
<br /> entities wholly-owned by the Company's sole stockholder, have the power to direct the activities that most
<br /> significantly impact this related entity's economic performance. As such, the Company is not considered to be
<br /> the primary beneficiary of this related entity, and therefore is not required to consolidate this related entity. The
<br /> Company's maximum exposure to loss is limited to the outstanding balance due from this related entity.
<br /> The Company leases office and yard facilities in Minnesota from a related entity wholly-owned by the sole
<br /> stockholder of the Company under a long-term operating lease agreement which require aggregate monthly
<br /> payments of$8,222 (increasing 2% per year)through December 2017. The Company is also responsible for all
<br /> insurance, tax, and operating costs of the properties. Total rent expense was$98,669 for the year ended
<br /> December 31, 2016 under the related party lease agreement. Included in accounts payable as of December 31,
<br /> 2016 was$49,335 due to the related party. Future annual minimum lease payments due under the long-term
<br /> operating lease agreement for the year ending December 31, 2017 totals$100,637.
<br /> The Company had 19 note payable agreements(original balance of$18,220,000) due to a related entity wholly-
<br /> owned by the sole stockholder of the Company,with a remaining outstanding balance of$18,020,000 as of
<br /> December 31, 2016. Interest on the notes accrues at the greater of 5.25% or the Prime Rate plus 2.50%
<br /> (effective rate of 6.25% as of December 31, 2016). The notes payable are due June 1, 2050. Interest expense
<br /> recognized on the notes payable during the year ended December 31, 2016 totaled $508,766. Accrued interest
<br /> due on the notes payable as of December 31, 2016 totaled $834,597.
<br /> The Company had advances due to the sole stockholder of the Company, totaling $3,100,000 as of December
<br /> 31, 2016. Interest on the advances accrues at the greater of 5.25%or the Prime Rate plus 2.50% (effective rate
<br /> of 6.25%as of December 31, 2016), and are due on demand. Interest expense recognized on the advances
<br /> during the year ended December 31, 2016 totaled $61,873. Accrued interest due on the advances as of
<br /> December 31, 2016 totaled$61,873. Subsequent to December 31, 2016, the advances were repaid in full.
<br /> As of December 31, 2016, the Company has an advance due from the sole stockholder of the Company totaling
<br /> $149,708,which is included in due from related parties. The amount is unsecured, non-interest bearing, and due
<br /> on demand.
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<br /> CONFIDENTIAL& PROPRIETARY
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