SAFETY & ECOLOGY HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The accompanying unaudited condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or the financial position that would have been achieved had the Agreement and Plan of Merger and Stock Purchase Agreement been consummated as of the dates indicated or the results that may be obtained in the future. Included in the unaudited condensed financial statements are Safety & Ecology Holdings Corporation’s balance sheet as of March 31, 2008, the statement of operations and statement of cash flows for the nine month period ended March 31, 2008 each reflecting the completion of the Plan of Merger and Stock Purchase Agreement on March 1, 2008.
SAFETY & ECOLOGY HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2008
ASSETS | | | | |
| | | | | |
| Current Assets | | | | |
| Cash and cash equivalents | | $ | 1,851,289 | |
| | | | | |
| Accounts receivable, net | | | 12,310,512 | |
| Costs in excess of billings on uncompleted contracts | | | 3,930,641 | |
| Prepaid expenses and other current assets | | | 156,674 | |
| Total Current Assets | | $ | 18,249,116 | |
| | | | | |
| Property and equipment, net | | | 3,904,692 | |
| Other non current assets | | | 570,650 | |
| Goodwill and other intangible assets | | | 5,951,375 | |
| Total Assets | | $ | 28,675,833 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS EQUITY | | | | |
| Current liabilities | | | | |
| Accounts payable and accrued expenses | | $ | 4,590,259 | |
| Current portion of long term debt | | | 3,802,802 | |
| Notes payable - related party | | | 1,500,000 | |
| Accrued interest and other liabilities | | | 2,661,829 | |
| Billings in excess of costs on uncompleted contracts | | | 1,052,656 | |
| Total Current Liabilities | | $ | 13,607,546 | |
| | | | | |
| Long Term Liabilities | | | | |
| Note payable | | | 1,515,492 | |
| Total Long Term Debt | | $ | 1,515,492 | |
| Total Liabilities | | $ | 15,123,038 | |
| | | | | |
| Stockholders' Equity | | | | |
| Preferred Stock | | $ | 10,550,000 | |
| Common Stock | | | 20 | |
| Additional paid-in capital | | | 3,048,050 | |
| Accumulated Earnings (DEFICIT) | | | (45,275 | ) |
| Total Stockholders' Equity | | $ | 13,552,795 | |
| | | | | |
| Total Liabilities and Stockholders' Equity | | $ | 28,675,833 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
SAFETY & ECOLOGY HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 2008
| NET SALES | | $ | 39,197,161 | |
| COST OF GOODS SOLD | | | 30,013,288 | |
| GROSS PROFIT | | $ | 9,183,873 | |
| | | | | |
| OPERATING EXPENSES | | | | |
| | | | | |
| Selling, general and administrative expenses | | | 8,544,416 | |
| | | | | |
| Operating income | | $ | 639,457 | |
| | | | | |
| OTHER INCOME (EXPENSE) | | | | |
| | | | | |
| Interest expense | | $ | (705,748 | ) |
| Amortization of debt offering costs | | | - | |
| Other income | | | 21,016 | |
| | | | | |
| Total other income (expense) | | $ | (684,732 | ) |
| | | | | |
| LOSS BEFORE INCOME TAXES (BENEFIT) | | $ | (45,275 | ) |
| | | | | |
| PROVISION (BENEFIT) FOR INCOME TAXES | | | - | |
| | | | | |
| NET LOSS | | $ | (45,275 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements
SAFETY & ECOLOGY HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 2008
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| | | | | |
| Net loss | | $ | (45,275 | ) |
| Adjustments to reconcile net loss to net cash used by operating activities | | | 151,857 | |
| | | | | |
| Net Cash Used by Operating Activities | | $ | 106,582 | |
| | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| | | | | |
| Net purchases of fixed assets | | $ | (2,087,210 | ) |
| | | | | |
| Net cash used by investing activities | | $ | (2,087,210 | ) |
| | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| | | | | |
| Proceeds from issuance of preferred stock | | $ | 10,550,000 | |
| Proceeds from issuance of notes payable | | | 5,696,394 | |
| Payment for retirement of preferred stock and warrants | | | (2,446,334 | ) |
| Purchase of common stock from majority stockholder | | | (3,900,000 | ) |
| Payments on short and long term debt | | | (7,048,499 | ) |
| Debt offering costs | | | (76,628 | ) |
| | | | | |
| Net Cash Provided by Financing Activities | | $ | 2,774,933 | |
| | | | | |
| NET INCREASE IN CASH | | $ | 794,305 | |
| | | | | |
| CASH AT BEGINNING OF YEAR | | | 1,056,984 | |
| | | | | |
| CASH AT END OF YEAR | | $ | 1,851,289 | |
The accompanying notes are an integral part of these condensed consolidated financial statements
SAFETY & ECOLOGY HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated pro forma financial statements of Safety & Ecology Holdings Corporation (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended March 31, 2008 are not necessarily indicative of the results that may be expected.
The condensed consolidated pro forma financial statements include the accounts of Safety & Ecology Holdings Corporation and its wholly-owned subsidiary, Safety and Ecology Corporation Limited. All inter-company balances and transactions have been eliminated.
The condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the audited financial statements of the Company as of and for the year ended June 30, 2007.
PLAN OF MERGER AND STOCK PURCHASE AGREEMENT
On March 13, 2008, the Company entered into an Agreement and Plan of Merger and Stock Purchase Agreement (the “Merger and Stock Purchase Agreement”) with Homeland Security Capital Corporation (“HSCC”) and HSCC Acquisition Corp. which provided for HSCC Acquisition Corp. to be merged with and into the Company. In exchange for all of the issued and outstanding Company common stock, the shareholders of the Company received (1) 550,000 shares of HSCC Series I Convertible Preferred Stock with a stated value of $3,300,000; (2) warrants to purchase up to 22,000,000 shares of HSCC common stock; (3) unsecured promissory notes of the Company of $2,000,000; and (4) $3,900,000 in cash. The Company shareholders may receive an additional $6,000,000 in HSCC common stock if certain performance criteria are met. Immediately following this transaction, HSCC controlled 100% of the voting power of the Company.
Pursuant to the Merger and Stock Purchase Agreement, the Company authorized and issued 10,550,000 shares of Series A Convertible Preferred Stock to HSCC for $10,550,000. The holders of the Series A Convertible Preferred Stock, subject to certain conditions, have the right to designate a majority of the Company’s Board of Directors.
Concurrent with the Merger and Stock Purchase Agreement, the Company redeemed all of its previously issued and outstanding preferred stock for $2,000,000 and settled the related stock purchase warrant for $446,334. Additionally, the Company repaid its Operating Line of Credit and Equipment Line of Credit.
On March 17, 2008, the Company obtained an $8,000,000 revolving line of credit available for working capital needs. The line of credit bears interest at LIBOR plus a margin (ranging between 1.2% and 1.9% determined quarterly) and matures March 17, 2010.
