SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
**************************************************************
FORM 8-K/A
AMENDMENT TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 27, 1995
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(Formerly Canonie Environmental Services Corp.)
(exact name of registrar as specified in its charter)
DELAWARE NUMBER 0-14992 38-2294876
(State or other Commission File (IRS Employer
jurisdiction incorporation identification No.)
or organization)
13455 NOEL ROAD, SUITE 1500, DALLAS, TEXAS 75240
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 770-1800
The undersigned hereby amends Item 7, of its Report on Form 8-K, filed
January 27, 1995, for the purpose of filing certain exhibits required by
such report in which registrant reported the purchase of certain assets and
contracts of Resna Industries, Inc.
Item 7(a). Amendment to include audited consolidated financial
statements of Resna Industries, Inc. as follows:
Consolidated Balance sheets at December 31,1993 and
1992
Consolidated Statements of Operations for the years
ended December 31, 1993 and 1992
Consolidated Statement of Shareholders Equity for the
years ended December 31, 1993 and 1992
Consolidated Statements of Cash Flows for the years
ended December 31, 1993 and 1992
Notes to the Consolidated Financial Statements
Unaudited Consolidated Financial Statements for the
nine months ended September 30, 1994
Item 7 (b). Amendment to include pro forma financial information.
Item 7 (c). Exhibit 23 Consent of Arthur Andersen LLP
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(Registrant)
By: /S/ William T. Campbell
--------------------------------------------------
William T. Campbell, Vice-President - Finance
DATE: MARCH 28, 1995
ITEM 7(a)
ARTHUR ANDERSEN [LOGO]
RESNA INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1992
TOGETHER WITH AUDITORS' REPORT
ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
the Board of Directors of
Resna Industries Inc.:
We have audited the accompanying consolidated balance sheets of Resna Industries
Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 Resna Industries Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen & Co.
Oakland, California,
May 5, 1994
RESNA INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
----------- -----------
CURRENT ASSETS:
Cash $ 1,252,807 $ 1,767,423
Trade accounts receivable, less allowance
for doubtful accounts of $453,055 and
$526,115 in 1993 and 1992, respectively
(Note 2) 4,896,348 5,294,050
Unbilled revenue, less allowance for doubtful
accounts of $169,272 and $497,544 in 1993
and 1992, respectively (Note 2) 2,583,550 3,393,335
Prepaid insurance, deposits and other current
assets 914,173 832,961
Assets held for sale (Note 2) - 628,595
----------- -----------
Total current assets 9,646,878 11,916,364
PROPERTY AND EQUIPMENT, net (Note 2) 1,383,095 2,391,949
INTANGIBLE ASSETS, net (Note 2) 449,331 791,713
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED
BUSINESSES, net (Note 2) 5,686,410 5,827,155
OTHER LONG-TERM ASSETS 86,986 192,805
----------- -----------
Total assets $17,252,700 $21,119,986
=========== ===========
The accompanying notes are an integral part of these statements.
RESNA INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1993 AND 1992
LIABILITIES AND SHAREHOLDERS' EQUITY
1993 1992
------------ ------------
CURRENT LIABILITIES:
Line of credit (Note 6) $ 2,000,000 $ 2,500,000
Notes payable 42,008 58,813
Current portion of long-term capital lease
obligations (Note 5) 121,476 322,439
Accounts payable 2,464,007 2,914,888
Accrued liabilities 1,894,569 2,051,610
Deferred revenue (Note 2) 238,392 335,469
------------ ------------
Total current liabilities 6,760,452 8,183,219
------------ ------------
LONG-TERM CAPITAL LEASE OBLIGATIONS, net of
current portion (Note 5) 118,919 479,180
------------ ------------
SUBORDINATED NOTES AND DEBENTURES (Note 5) 5,094,761 4,525,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6 and 8)
SHAREHOLDERS' EQUITY (Note 3):
Common stock, $.01 par value; 16,000,000 shares
authorized; 2,535,239 and 2,570,630 shares
issued and outstanding in 1993 and 1992,
respectively 25,352 25,706
Convertible Preferred Stock-
Series A, $.01 par value; 840,000 shares
authorized,issued and outstanding;
liquidation preference $840,000 8,400 8,400
Series B, $.01 par value; 3,600,000 shares
authorized; 3,488,000 shares issued and
outstanding; liquidation preference 34,880 34,880
$4,360,000
Series C, $.01 par value; 4,920,000 shares
authorized; 4,723,833 shares issued and
outstanding; liquidation preference $7,085,750 47,238 47,238
Series D, $.01 par value; 3,200,000 shares
authorized; 2,556,800 shares issued and
outstanding; liquidation preference $6,392,000 25,568 25,568
Series E, $.01 par value; 2,000,000 shares
authorized, issued and outstanding; liquidation
preference $3,000,000 20,000 20,000
Series F, $.01 par value; 2,100,000 shares
authorized; 0 issued and outstanding - -
Additional paid-in capital 21,399,926 21,431,010
Notes receivable on sales of common stock (33,315) (87,473)
Accumulated deficit (16,249,481) (13,572,742)
------------ ------------
Total shareholders' equity 5,278,568 7,932,587
------------ ------------
Total liabilities and shareholders' equity $ 17,252,700 $ 21,119,986
============ ============
The accompanying notes are an integral part of these statements.
RESNA INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
1993 1992
----------- -----------
GROSS REVENUES (Note 2) $26,729,596 $30,772,808
SUBCONTRACTOR AND OTHER OUTSIDE DIRECT COSTS
(Note 2) 7,041,120 6,726,638
----------- -----------
Net revenues 19,688,476 24,046,170
DIRECT LABOR AND OTHER DIRECT COSTS 9,647,167 10,207,713
----------- -----------
Gross profit 10,041,309 13,838,457
OPERATING EXPENSES:
General and administrative 10,643,211 16,978,325
Depreciation 1,120,771 1,557,630
----------- -----------
Operating loss before amortization of
intangible assets (1,722,673) (4,697,498)
AMORTIZATION OF INTANGIBLE ASSETS 342,382 851,621
AMORTIZATION OF COSTS IN EXCESS OF NET ASSETS OF
ACQUIRED BUSINESSES 140,745 243,623
----------- -----------
Operating loss (2,205,800) (5,792,742)
OTHER INCOME (EXPENSE):
Interest income 37,583 94,952
Interest expense (643,873) (511,737)
Restructuring costs (Note 2) - (1,046,824)
Write-off of costs in excess of net assets of
acquired businesses (Note 2) - (1,445,269)
Other income 144,351 37,597
----------- -----------
Loss before provision for income taxes (2,667,739) (8,664,023)
PROVISION FOR INCOME TAXES (Note 7) 9,000 8,500
----------- -----------
Net loss $(2,676,739) $(8,672,523)
=========== ===========
The accompanying notes are an integral part of these statements.
RESNA INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Note 3)
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
Series A Series B Series C
Common Stock Preferred Stock Preferred Stock Preferred Stock
------------------ ---------------- ------------------ ------------------
Par Par Par Par
Shares Value Shares Value Shares Value Shares Value
--------- ------- ------- ------ --------- ------- --------- -------
BALANCE AT DECEMBER 29, 1991 2,695,375 $26,954 840,000 $8,400 3,488,000 $34,880 4,723,833 $47,238
Common stock issued as bonus 217,188 2,171 - - - - - -
Payment on notes receivable - - - - - - - -
Common stock issued for services 100,000 1,000 - - - - - -
Common stock repurchased (441,933) (4,419) - - - - - -
Net loss for period - - - - - - - -
--------- ------- ------- ------ --------- ------ --------- ------
BALANCE AT DECEMBER 31, 1992 2,570,630 25,706 840,000 8,400 3,488,000 34,880 4,723,833 47,238
Common stock issued as bonus 17,000 170 - - - - - -
Common stock issued for notes
receivable 80,000 800 - - - - - -
Stock options exercised 2,750 27 - - - - - -
Common stock repurchased (135,141) (1,351) - - - - - -
Reduction of notes receivable as
bonus - - - - - - - -
Interest on notes receivable - - - - - - - -
Warrants canceled - - - - - - - -
Net loss for period - - - - - - - -
--------- ------- ------- ------ --------- ------- --------- -------
BALANCE AT DECEMBER 31, 1993 2,535,239 $25,352 840,000 $8,400 3,488,000 $34,880 4,723,833 $47,238
========= ======= ======= ====== ========= ======= ========= =======
Series D Series E
Preferred Stock Preferred Stock
------------------ ---------------- Notes
Additional Receivable
Par Par Paid-in on Sales Accumulated
Shares Value Shares Value Capital of Stock Deficit Total
--------- ------- -------- ------- ----------- ---------- ------------ -----------
BALANCE AT DECEMBER 29, 1991 2,556,800 $25,568 2,000,000 $20,000 $21,419,844 $(149,444) $ (4,900,219) $16,533,221
Common stock issued as bonus - - - - 58,800 - - 60,971
Payment on notes receivable - - - - - 61,971 - 61,971
Common stock issued for services - - - - 29,000 - - 30,000
Common stock repurchased - - - - (76,634) - - (81,053)
Net loss for period - - - - - - (8,672,523) (8,672,523)
--------- ------ --------- ------ ---------- ------- ------------ -----------
BALANCE AT DECEMBER 31, 1992 2,556,800 25,568 2,000,000 20,000 21,431,010 (87,473) (13,572,742) 7,932,587
Common stock issued as bonus - - - - 4,930 - - 5,100
Common stock issued for notes
receivable - - - - 23,200 (24,000) - -
Stock options exercised - - - - 898 - - 925
Common stock repurchased - - - - (42,503) 53,197 - 9,343
Reduction of notes receivable as
bonus - - - - - 28,147 - 28,147
Interest on notes receivable - - - - - (3,186) - (3,186)
Warrants canceled - - - - (17,609) - - (17,609)
Net loss for period - - - - - - (2,676,739) (2,676,739)
--------- ------- --------- ------- ----------- --------- ------------ -----------
BALANCE AT DECEMBER 31, 1993 2,556,800 $25,568 2,000,000 $20,000 $21,399,926 $ (33,315) $(16,249,481) $ 5,278,568
========= ======= ========= ======= =========== ========= ============ ===========
The accompanying notes are an integral part of these statements.
RESNA INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
1993 1992
----------- -----------
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(2,676,739) $(8,672,523)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 1,603,898 2,652,874
Loss (gain) on disposition of property
and equipment (86,403) 465,147
Write-off of costs in excess of net assets
of acquired businesses - 1,445,269
Reduction of notes receivable as bonus 28,147 -
Warrants canceled (17,609) -
Services paid in stock - 30,000
Change in assets and liabilities-
Decrease in trade accounts receivable 397,702 592,546
Decrease in unbilled revenue 809,785 1,257,912
Decrease (increase) in prepaid insurance,
deposits and other current assets (81,212) 285,059
Decrease (increase) in other long-term assets 83,373 (153,835)
Increase (decrease) in accounts payable (450,882) 194,080
Decrease in accrued liabilities (157,041) (941,273)
Decrease in deferred revenue (97,075) (439,252)
----------- -----------
Total adjustments 2,032,683 5,388,527
----------- -----------
Net cash used in operating activities (644,056) (3,283,996)
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING
ACTIVITIES:
Purchases of property and equipment (124,387) (1,212,745)
Proceeds from sale of property and equipment 749,914 -
----------- -----------
Net cash provided by (used in) investing
activities 625,527 (1,212,745)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit (500,000) 2,500,000
Proceeds from (payments on) notes payable (16,805) 42,992
Payment of long-term capital lease obligations (561,224) (308,930)
Proceeds from subordinated notes and debentures 569,761 -
Proceeds from issuance of common stock 12,181 60,971
Common stock repurchased - (81,053)
Proceeds from repayment of note receivable on
sale of common stock - 61,971
----------- -----------
Net cash provided by (used in) financing
activities (496,087) 2,275,951
----------- -----------
Net decrease in cash (514,616) (2,220,790)
CASH, beginning of year 1,767,423 3,988,213
----------- -----------
CASH, end of year $ 1,252,807 $ 1,767,423
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for income taxes $ 9,000 $ 8,500
Cash paid during the year for interest 649,056 757,762
The accompanying notes are an integral part of these statements.
RESNA INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. DESCRIPTION OF COMPANY:
Resna Industries Inc. and Subsidiaries (the Company) was founded in 1989 to
serve the soil and ground water remediation segment of the environmental
services market. Resna is engaged in the cleanup of sites where leaks and
spills from underground storage tanks, pipelines, terminals, refineries and
other sources have contaminated soil and water, threatening the safety of
drinking water supplies. In 1990, the Company acquired Ground Water Resources
Inc. (GRI), WaterWork Corporation (WaterWork) and Applied GeoSystems (AGS). In
1991, the Company acquired Exceltech, Inc. (Exceltech) and Western Geological
Resources (WGR). During 1992, WaterWork, Exceltech and WGR were merged with and
into the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated upon consolidation.
REVENUE RECOGNITION
The principal business of the Company is that of providing professional
environmental, geological, engineering, construction and laboratory analysis
services under contracts at time-and-materials or fixed-fee arrangements. The
Company bills or accrues all time, direct project costs and expenses as
incurred, and the resulting revenues are recognized as contract costs as
incurred. For fixed-fee arrangements, revenue is recognized on a
percentage-of-completion basis using costs incurred to date in relation to
estimated total costs of the contracts to measure the stage of completion. The
cumulative effects of revisions of estimated total contract costs and revenues
are recorded in the period in which the facts requiring the revision become
known. When a loss is anticipated on a contract, the full amount thereof is
provided currently. To the extent that revenue billed under a fixed-fee
arrangement exceeds the amount recognized, revenue is deferred. Deferred
revenue was $238,393 and $335,469 as of December 31, 1993 and 1992,
respectively. Trade accounts receivable consist of all amounts billed on or
before year-end. Unbilled revenue includes amounts to be billed at a later time.
The Company incurs subcontractor and other outside direct costs, which are
passed through to its clients.
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PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives. Property and equipment and
estimated useful lives are as follows:
1993 1992 Life
---------- ---------- -----------
Machinery and equipment $1,731,791 $1,592,109 5 years
Computer hardware and software 1,430,749 1,387,198 3 years
Vehicles 548,419 746,506 3 years
Furniture and fixtures 246,625 258,433 5 years
Leasehold improvements 127,267 99,791 Lease term
---------- ----------
4,084,851 4,084,037
Less- Accumulated depreciation 2,701,756 1,692,088
---------- ----------
Property and equipment,
net $1,383,095 $2,391,949
========== ==========
The net book value of assets held under capital lease is as follows:
1993 1992
------- --------
Assets held under capital lease $80,849 $162,097
Less- Accumulated depreciation 53,472 37,921
------- --------
$27,377 $124,176
======= ========
INTANGIBLE ASSETS
Intangible assets of acquired businesses are amortized on the straight-line
method over their estimated useful lives. Net intangible assets and their
estimated useful lives are as follows:
1993 1992 Life
---------- ---------- ------------
Noncompete agreements $1,250,000 $1,250,000 5 years
In-place workforce 1,233,171 1,233,171 2 - 2.5 years
Employment contracts 50,000 50,000 4 - 5 years
---------- ----------
2,533,171 2,533,171
Less- Accumulated amortization 2,083,840 1,741,458
---------- ----------
Intangible assets, net $ 449,331 $ 791,713
========== ==========
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES
Costs in excess of net assets of acquired businesses are net of accumulated
amortization of $686,222 and $540,477 at December 31, 1993 and 1992,
respectively. These costs are amortized on the straight-line method over
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40 years. During 1992, management reevaluated its business acquisitions and
determined that there had been a permanent diminution in value of the remaining
unamortized costs in excess of net assets of Exceltech, Inc. ($1,445,269 as of
December 31, 1992). Management reached this conclusion based upon the operating
losses of the former Exceltech business, as well as the fact that the name
Exceltech is no longer used, key employees have not remained, and the focus of
this business has changed since the acquisition date. Accordingly, during 1992
the Company wrote off these remaining unamortized costs.
ASSETS HELD FOR SALE
During 1993, the Company entered into an agreement to sell certain lab assets.
The assets are included in current assets in the accompanying 1992 balance
sheet. The assets were sold in 1993, and the gain is reflected in other income
in the accompanying 1993 consolidated statement of operations.
RESTRUCTURING
During 1992, the Company adopted a restructuring plan that included the closure,
consolidation and relocation of certain field offices. The 1992 restructuring
charge includes $461,824 for severance payments and $585,000 for losses related
to unutilized lease space, net of anticipated sublease revenues.
INCOME TAXES
In January 1993, the Company adopted the liability method of accounting pursuant
to Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." The adoption of SFAS No. 109 did not have a material impact.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. Income tax benefits have not been
recorded for operating losses, tax loss carryforwards and net deferred tax
assets.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.
3. SHAREHOLDERS' EQUITY:
COMMON STOCK
The Company's common stock issued to employees is subject to repurchase over a
four-year vesting period at its initial purchase price. As of December 31, 1993
and 1992, a total of 135,141 and 559,558 shares, respectively, were repurchased
by the Company upon employee terminations.
The purchase price of all of the Company's common stock issued and warrants
granted was the fair market value at the date of issuance as determined by the
Company's Board of Directors.
In 1991, the shareholders approved a stock option plan that authorizes the
issuance of up to 600,000 shares of common stock. The exercise price may not be
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less than 85 percent of the fair market value of the stock at the date of the
grant. Options vest over four years, with 25 percent vesting after one year and
approximately 2 percent vesting monthly thereafter. Options outstanding under
this plan are as follows:
NUMBER OF EXERCISE
SHARES PRICE
--------- ----------
Outstanding December 31, 1991 221,750 $ .50
Granted 162,000 .30 - .50
Exercised - -
Canceled 133,229 -
-------- ----------
Outstanding December 31, 1992 250,521 .30 - .50
Granted 161,700 .30 - .50
Exercised (2,750) .30 - .50
Canceled (184,721) -
-------- ----------
Outstanding December 31, 1993 224,750 $.30 - .50
======== ==========
Exercisable December 31, 1993 91,146 $.30 - .50
======== ==========
PREFERRED STOCK
The Company has several series of preferred stock: A, B, C, D, E and F. The
purchase price of all of the Company's preferred stock issued and warrants
granted was the fair market value at the date of the issuance as determined by
the Company's Board of Directors. The various rights of these series are as
follows:
DIVIDENDS PREFERENCE AND RESTRICTIONS
The holders of the Series C, D, E and F preferred stock are entitled to receive
dividends in preference to any dividends on the Series A and B preferred stock
or the common stock. The holders of the Series B preferred stock are entitled
to receive dividends in preference to any dividend on the Series A preferred
stock or the common stock. The holders of the Series A preferred stock are
entitled to receive dividends in preference to any dividend on the common stock.
The right to dividends on the preferred stock is not cumulative.
No dividends may be paid on common stock in excess of dividends paid on the
preferred stock, and no dividends may be paid on any share of common stock
unless a dividend is paid with respect to all outstanding shares of preferred
stock equal to or greater than the aggregate amount of such dividends for all
shares of common stock into which each such share of preferred stock could be
converted at the time such dividend is paid.
The Company may not declare or pay any dividends if such action would impair the
ability of the Company to repay the principal and interest on the subordinated
debentures issued in conjunction with acquisitions.
-5-
Upon liquidation, provided that sufficient assets are available, distributions
would be made as follows:
- First, Series C, E and F preferred stockholders would receive $1.50,
$1.50 and $3.00 per share, respectively, plus declared but unpaid
dividends.
- Second, Series B preferred stock would receive $1.25 per share plus
declared but unpaid dividends.
- Third, Series A preferred stockholders would receive $1.00 per share
plus declared but unpaid dividends.
- Fourth, Series D preferred stockholders would receive $2.50 per share
plus declared but unpaid dividends.
- Lastly, preferred and common stockholders would share ratably in the
remaining assets of the Company.
REDEMPTION
At any time after October 15, 1994, the Company may, at the option of the Board
of Directors, redeem for cash in whole or in part the Series A, B, C and F
preferred stock at the price per share of $5.00, $6.25, $7.50 and $7.50,
respectively, plus all declared but unpaid dividends.
At any time after June 15, 1995, the Company may, at the Option of the Board of
Directors, redeem for cash in whole or in part the Series D preferred stock at
the price per share of $10.00, plus all declared but unpaid dividends.
At any time before February 26, 1996, the Company may, at the Option of the
Board of Directors, redeem for cash in whole or in part the Series E preferred
stock for $5.00 per share, plus all declared but unpaid dividends.
In the event of any redemption of only a part of the outstanding Series A, B, C
and F preferred stock, the Company must redeem on a pro rata basis according to
the number of shares held by each holder thereof (assuming conversion of all
preferred stock). The Company may redeem all or a part of Series E preferred
stock prior to the redemption of any of the Series A, B, C or F preferred stock.
VOTING Rights
The holder of each share of the Series A, B, C, D and F preferred stock is
entitled to the number of votes equal to the number of shares of common stock
into which such share of preferred stock could be converted on the record date
for the vote or consent of shareholders and has voting rights and powers equal
to the voting rights and powers of the common stock.
The holders of Series E preferred stock are not entitled to vote.
CONVERSION
Each preferred share may be converted into common stock (subject to adjustment
for stock splits, stock dividends or recapitalization) at the option of the
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preferred shareholder. The number of shares of common stock into which each
share of preferred stock may be converted is equal to the initial purchase price
of the shares divided by a conversion price (equal to the initial purchase price
at the date of original issuance) in effect at the time of conversion.
Each preferred share shall automatically be converted into shares of common
stock utilizing the then-effective conversion price upon the earliest of (i) the
date on which at least 66-2/3 percent of the total number of shares of preferred
stock outstanding immediately following June 21, 1991, shall have been converted
into common stock; (ii) the date specified by vote or written consent or
agreement of holders of at least 66-2/3 percent of the outstanding shares of
preferred stoCk; or (iii) immediately upon the consummation of a public sale of
common stock with aggregate cash proceeds in excess of $7,500,000, at no less
than $5.00 per share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization).
REGISTRATION RIGHTS
Subject to certain limitations, holders of the Series A, B, C, D, E and F
preferred stock are entitled to piggyback registration rights if the Company
registers any of its securities under the Securities Act of 1933. Upon the
first to occur of (i) October 15, 1994, (ii) 135 days after the Company's first
registered public offering of its securities with aggregate cash proceeds of at
least $7,500,000 and a per share price of at least $5.00, or (iii) 90 days after
the Company becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, holders of the Series A, B, C, D, E and F preferred stock
may, upon the request of holders of at least 40 percent of such shares and
subject to certain other limitations, require the Company to register their
securities under the Securities Act of 1933. In addition, subject to the same
conditions mentioned above, certain initial holders of the Company's common
stock, if still employed by the Company at such time, are entitled to include
with any registration proposed by the Company (either for its own account or for
the account of other security holders) shares of the common stock held by such
holders.
WARRANTS
The Company issued warrants to purchase 26,667 shares of Series C preferred
stock and 606,667 shares of Series F preferred stock in 1990 and 1991 at an
exercise price of $1.50 per share and $3.00 per share, respectively.
Additionally, the Company issued warrants to purchase 100,000 shares of the
Company's common stock in 1991 at an exercise price of $3.00 per share. In
1993, the Company issued warrants to purchase 300,000 shares of Series G
preferred stock at $2.00 per share. No warrants were issued in 1992.
-7-
4. OPERATING LEASES:
The Company leases certain office space, furniture and laboratory equipment and
transportation vehicles under various noncancelable operating leases expiring in
various years through 1999. Several of the leases are subject to renewal
options under various terms, and certain agreements contain provisions for
periodic rate adjustments to reflect increases in normal ownership costs. Rent
expense for the years ended December 31, 1993 and 1992, totaled approximately
$1,100,000 and $1,600,000, respectively. Future minimum payments under
noncancelable operating leases with initial or remaining terms of one year or
more are as follows at December 31, 1992:
Leases
----------
1994 $1,246,000
1995 661,000
1996 525,000
1997 331,000
1998 15,000
5. LONG-TERM CAPITAL LEASE OBLIGATIONS
AND SUBORDINATED NOTES AND DEBENTURES:
Long-term capital lease obligations at December 31, 1993 and 1992, consist of
the following:
1993 1992
-------- ---------
Capitalized lease obligations and notes
payable for machinery, autos and equipment,
due through December 1996 in various
monthly installments, with interest ranging
from 5.0 percent to 21.7 percent $240,395 $801,619
Less- Current maturities 121,476 322,439
-------- --------
$118,919 $479,180
======== ========
Future payments (including interest) of long-term obligations at December 31,
1993, are as follows:
1994 $145,529
1995 98,332
1996 22,565
1997 5,910
--------
272,336
Less- Amount representing
interest 31,941
--------
240,395
Less- Current maturities 121,476
--------
Long-term portion $118,919
========
-8-
Subordinated notes and debentures at December 31, 1993 and 1992, consist of the
following (see Note 3):
1993 1992
---------- ----------
8 percent subordinated notes, due April 1, 1995,
interest due quarterly, collateralized by the
stock of the Company, guaranteed by the Company,
subordinate to any senior debt of the Company $ 600,000 $ 600,000
8 percent convertible subordinated debentures,
due June 28, 1997, interest due quarterly,
convertible to common stock at holder's option
at $4.00 per share, subordinate to any senior
debt of the Company 1,875,000 1,875,000
8 percent subordinated redeemable convertible
debentures, due October l, 1997, interest due
quarterly, redeemable at the Company's Option
for face value plus interest, convertible at the
holder's option into common stock at $4.00 per
share, collateralized by the common stock of the
Company, subordinate to any senior debt of the
Company 2,050,000 2,050,000
6 percent convertible subordinated notes, due
February 19, 1996, automatically convertible into
newly issued shares of preferred stock upon
closing of the first issuance by the Company of
preferred stock in a capital raising transaction,
subordinate to any senior debt of the Company 569,761 -
--------- ---------
$5,094,761 $4,525,000
========== ==========
6. CREDIT FACILITIES, LIQUIDITY AND FUNDING REQUIREMENTS:
LINE OF CREDIT
The Company has a credit facility with a bank under which it may borrow up to
$4,000,000 under certain conditions. Advances bear interest at a rate of prime
plus 3 percent (9 percent at December 31, 1993). The amounts outstanding at
December 31, 1993 and 1992, were $2,000,000 and $2,500,000, respectively. At
December 31, 1993, the Company was not in compliance with certain covenants of
this credit facility.
Subsequent to December 31, 1993, the Company renegotiated this agreement. This
agreement, which was finalized on May 5, 1994, retroactively sets new financial
covenants, including quick ratio, tangible net worth, cash income and debt to
tangible net worth ratio requirements. The Company was in compliance with the
reset covenants at December 31, 1993. This amended credit facility is secured
by substantially all of the Company's assets. This agreement allows for a
credit facility of $2,500,000 until August 20, 1994 (limited to 65 percent of
eligible receivables), at an interest rate of prime plus 3.5 percent.
-9-
LIQUIDITY AND FUNDING REQUIREMENTS
As reflected in the accompanying financial statements, the Company has had
recurring losses that have resulted in an accumulated deficit of approximately
$16,300,000 and $13,600,000 as of December 31, 1993 and 1992, respectively. As
noted above, the Company has renegotiated its new bank agreement, which contains
restrictive provisions that require improvements in the Company's operations. To
the extent that the Company is unable to meet these restrictive provisions,
additional capital may be required in order to meet its current operations.
BANK LINES FOR STANDBY LETTERS OF CREDIT
The Company entered into a business loan agreement with a bank in 1991 for up to
$2,000,000 in letters of credit at a rate of prime plus 2.25 percent. At
December 31, 1993, the amount unused under this agreement was $1,525,400. The
agreement expires on November 30, 1996. Commitment fees are $15,000 per annum.
In conjunction with this credit facility, the Company issued warrants to the
bank to purchase 6,667 shares of Series F preferred stock at an exercise price
of $3.00 per share. Financial covenants relating to this bank line are the same
as those applicable to the Company's line of credit.
The letters of credit are guaranteed by certain shareholders, including two
officers. As part of the guaranty, the shareholders agreed to execute a
$2,000,000 guaranty, based on their pro rata share of equity in the Company,
securing a $2,000,000 bank line for the issuance of standby letters of credit.
In consideration of the agreement, the Company issued warrants to purchase
600,000 shares of Series F preferred stock at an exercise price of $3.00 per
share. To the extent that the Company draws down on the credit provided for in
the agreement, additional warrants to purchase 700,000 shares of Series F
preferred stock (and warrants to purchase additional shares of Series F
preferred stock issuable in lieu of interest) are issuable pro rata to the
participants providing credit proportional to the drawdown. The Company must
pay interest at the rate of 8 percent per annum, quarterly in arrears, on
outstanding advances. The obligations of the participants under this guarantee
terminate from December 31, 1994, to July 14, 1998.
7. TAXES:
Effective January 1, 1993, the Company changed its method of accounting for
income taxes on a prospective basis from the deferred method to the liability
method, as required by Statement of Financial Accounting Standards No. 109.
Adoption of the statement did not materially affect the Company's financial
position or results of operations because a valuation allowance has been
established against the full amount of the deferred tax assets.
-10-
Deferred income taxes result from differences in the recognition of revenue and
expense for tax and financial statement purposes. Deferred tax assets
(liabilities) comprise the following at December 31, 1993:
Gross deferred tax assets
(resulting primarily from net
operating loss carryforwards) $ 4,478,000
Gross deferred tax liabilities (81,000)
Deferred tax asset valuation
allowance (4,397,000)
-----------
Net deferred tax asset $ -
===========
For federal and state income tax reporting purposes, net operating loss
carryforwards of $10,088,000 and $4,148,000 are available to reduce future
taxable income, if any, through 2008 and 1998, respectively.
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to income
before income taxes, as a result of depreciation and amortization, various
accruals and deferred income.
The Tax Reform Act of 1986 contains provisions that limit the net operating loss
carryforwards available to be used in any given year under certain
circumstances, including significant changes in ownership interests. Management
believes that the ownership changes in 1993 and 1992 will not significantly
reduce the utilization of the above net operating loss carryforwards for tax
purposes. However, future ownership changes could reduce their utilization.
8. LIMITED INSURANCE COVERAGE, ENVIRONMENTAL RISKS AND LITIGATION:
INSURANCE COVERAGE
Similar to other companies in its industry, the Company has found it difficult
to obtain insurance coverage against all possible liabilities that may be
incurred in connection with the conduct of its business.
The Company currently carries pollution and errors and omissions insurance
coverage of $5,000,000 per occurrence and $5,000,000 in aggregate; general
liability insurance coverage of $5,000,000 per occurrence and in aggregate; and
automobile insurance coverage of $5,000,000 per occurrence.
There can be no assurance that liabilities that may be incurred by the Company
will be covered by insurance or, if covered, that the dollar amount of such
liabilities will not exceed the Company's insurance coverage. Consequently, a
partially or completely uninsured claim, if successful and of significant
magnitude, could have a material adverse effect on the Company.
ENVIRONMENTAL RISKS
Many federal, state and local laws have been enacted to regulate the use of
petroleum products and to create liability for environmental contamination
caused by them. While regulation and litigation create a growing market for the
-11-
Company's services, they also present a risk of liability should the Company be
deemed responsible for contamination caused by a cleanup effort. While the
Company has instituted safety procedures and annual mandatory training programs,
there can be no assurances that unforeseen liabilities will not occur.
LITIGATION
The Company is subject to legal proceedings and claims that have not been
finally adjudicated. These actions, when ultimately concluded and determined,
will not, in the opinion of management, have a material adverse effect upon the
financial position of the Company or the results of its operations.
(9) EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT
On January 13, 1995, substantially all of the Company's assets and contracts
were sold to Smith Environmental Technologies Corporation. The purchase price
consisted of a cash payment of $1,141,000 issuance of a promissory note to the
Company's prime lender in the amount of $359,000 and the assumption of certain
liabilities of the Company in the amount of $3,245,000. The Company ceased its
operations as of the date of the sale and changed its name to Abbott Group,
Inc. The Company is no longer a going concern.
RESNA INDUSTRIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
(UNAUDITED)
RESNA INDUSTRIES INC.
Consolidated Balance Sheet
As of 9/30/94
ASSETS
CURRENT ASSETS
Cash 798,514
Trade accounts receivable, net 2,971,913
Unbilled revenue 1,724,264
Prepaid insurance, deposits and other current assets 817,304
---------
TOTAL CURRENT ASSETS $ 6,311,996
FURNITURE, EQUIPMENT &
LEASEHOLD IMPROVEMENTS
Machinery and equipment 1,657,943
Computer hardware and software 1,461,803
Vehicles 465,432
Furniture and fixtures 243,570
Leasehold improvements 107,622
Assets under capital lease 67,542
Less - Accumulated depreciation (3,081,589)
-----------
TOTAL FURNITURE, EQUIPMENT AND
LEASEHOLD IMPROVEMENTS, NET $ 922,324
OTHER ASSETS
Intangible assets, net 248,389
Costs in excess of net assets of acquired businesses, net 5,569,834
Other long term assets, net 65,056
TOTAL OTHER ASSETS $ 5,883,279
-----------
TOTAL ASSETS $13,117,598
-----------
Page 1
RESNA INDUSTRIES INC.
Consolidated Balance Sheet
As of 9/30/94
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Line of credit 1,500,000
Current portion of long term debt 698,739
Accounts payable 1,236,513
Accrued liabilities 1,730,865
Deferred revenues 171,433
-----------
TOTAL CURRENT LIABILITIES $ 5,337,549
LONG TERM OBLIGATIONS, net of current
portion $ 88,301
SUBORDINATED DEBENTURES & NOTES $ 4,494,761
SHAREHOLDERS' EQUITY
Common stock 24,422
Preferred stock 116,086
Note receivable on sale of stock (6,452)
Additional paid-in capital 21,395,289
Accumulated deficit (18,332,357)
------------
TOTAL SHAREHOLDERS' EQUITY $ 3,196,988
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,117,598
-----------
Page 2
RESNA INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1994
GROSS REVENUES $14,484,812
Subcontractor and Other
Outside Direct Costs 6,138,747
-----------
NET REVENUES $ 8,346,065
OPERATING EXPENSES
Direct labor and other direct costs 2,909,363
General and administrative 6,114,587
Depreciation and amortization 580,407
Termination Payments 69,923
Amortization of costs in excess of 200,942
net assets of acquired business
Amortization of Other Intangibles 116,576
-----------
OPERATING INCOME (LOSS) $(1,645,733)
OTHER (INCOME) EXPENSE
Interest income 260
Interest expense 457,490
Other income (27,607)
-----------
Total Other (Income) Expense $ 430,143
-----------
Net profit (loss) before provision for
income tax $(2,075,876)
Provision for Income Tax 7,000
-----------
NET PROFIT (LOSS) $(2,082,876)
-----------
Page 3
RESNA INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
YTD
----------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income/(Loss): (2,082,876)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and Amortization 897,925
(Gain) on Disposition of Property & Equipment (107,342)
Decrease (increase) in trade accounts receivable 1,924,435
Decrease (increase) in unbilled revenue 859,286
Decrease (increase) in prepaid insurance, deposits
and other current assets 96,869
Decrease (increase) in other long-term assets 21,930
Increase (decrease) in accounts payable (1,227,494)
Increase (decrease) in accrued liabilities (163,704)
Increase (decrease) in deferred revenue (66,959)
----------
Total Adjustments 2,234,946
----------
Net cash provided by (used in) operating activities 152,070
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Reduction (increase) in property and equipment, net (12,296)
----------
Net cash provided by investing activities (12,296)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Pay down of line of credit (500,000)
Proceeds from long-term obligations 504,637
Payment of subordinated notes and debentures (600,000)
Common stock issued (repurchased) (25,567)
Proceeds from repayment of note receivable on sale
of stock 26,863
----------
Net cash provided by (used in) financing activities: (594,067)
----------
NET DECREASE IN CASH (454,293)
CASH AT DECEMBER 31, 1993 1,252,807
----------
CASH AT SEPTEMBER 30, 1994 798,514
----------
----------
Page 4
RESNA INDUSTRIES, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared by Resna Industries, Inc. (RESNA). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The Company
believes the disclosures made herein are adequate to make the information
presented not misleading. The financial statements reflect all material
adjustments which are all of a normal, recurring nature and in the opinion
of management, necessary for a fair presentation. These financial
statements should be read in conjunction with RESNA's consolidated
financial statements for the years ended December 31, 1993 and 1992, and
the Notes to the consolidated financial statements included therein. The
results of operations for the nine-month period ended September 30, 1994,
are not necessarily indicative of the results for the full fiscal year. For
further information concerning commitments and contingencies and subsequent
events, refer to footnotes nos. 4,5,6,8 and 9 in the audited consolidated
financial statements for the years ended December 31, 1993 and 1992.
Page 5
Item 7(b). Pro forma financial information
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY CANONIE ENVIRONMENTAL SERVICES CORP.)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
NOVEMBER 30, 1994
(IN THOUSANDS)
PRO FORMA
CANONIE RESNA ADJUSTMENTS
11/30/94 9/30/94 (NOTE 2) PRO FORMA
-------- ------- ------------ ---------
ASSETS
Current assets:
Cash $ 1,884 $ 799 $(1,141)(a) $ 1,542
Accounts receivable, net 32,763 2,972 35,735
Unbilled revenues 11,813 1,724 13,537
Other current assets 4,667 817 5,484
------- ------- ------- --------
TOTAL CURRENT ASSETS 51,127 6,312 (1,141) 56,298
Property and equipment, net 16,970 922 (922)(a) 16,970
OTHER ASSETS
Investments and advances to affiliates 2,453 0 2,453
Other assets 5,446 65 (65)(a) 5,446
Cost in excess of assets acquired 23,180 5,818 (5,818)(a) 23,180
------- ------- ------- --------
TOTAL ASSETS $99,176 $13,117 $(7,946) $104,347
======= ======= ======= ========
Page 6
Item 7(b). Pro forma financial information
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY CANONIE ENVIRONMENTAL SERVICES CORP.)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (CONTINUED)
NOVEMBER 30, 1994
(IN THOUSANDS)
PRO FORMA PRO
CANONIE RESNA ADJUSTMENTS FORMA
11/30/94 9/30/94 (NOTE 2) NOV. 30
-------- ------- ----------- -------
LIABILITIES, REDEEMABLE SECURITIES
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts & subcontractors payable $13,312 $ 1,237 $ 14,549
Payable to affiliates 2,078 2,078
Accrued liabilities 19,381 1,730 $ 1,634 (a) 22,745
Billings in excess 1,822 171 1,993
Current portion long-term debt 4,315 2,199 (1,840)(a) 4,674
------- ------- ------- --------
Total current liabilities 40,908 5,337 (206) 46,039
Long-term debt & capital lease
obligations 17,101 40 17,141
Non-current liabilities 4,683 48 (48)(a) 4,683
Convertible subordinated debt 10,000 4,495 (4,495)(a) 10,000
Redeemable preferred stock 6,890 6,890
Common stock equity 19,594 3,197 (3,197)(a) 19,594
------- ------- ------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED
STOCK AND COMMON STOCK EQUITY $99,176 $13,117 $(7,946) $104,347
======= ======= ======= ========
See accompanying notes
Page 7
Item 7(b). Pro forma financial information
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY CANONIE ENVIRONMENTAL SERVICES CORP.)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED NOVEMBER 30, 1994
(IN THOUSANDS)
PRO FORMA
CANONIE BCM RES RESNA ADJUSTMENTS PRO FORMA
11/30/94 11/30/94 9/30/94 9/30/94 (NOTE 3) RESULTS
-------- -------- ------- ------- ----------- ---------
Revenues $55,071 $39,543 $49,126 $14,485 ($2,693)(a)(b) $155,532
Cost of revenue 47,914 32,488 36,352 9,628 (2,610)(a)(b) $123,772
------- ------- ------- ------- ------- --------
Gross profit 7,157 7,055 12,774 4,857 (83)(a) $31,760
Selling and administrative 5,239 8,532 10,985 6,185 (2,661)(c)(d)(e) $28,280
Interest Expense 147 614 633 458 977 (f)(g)(h)(i) $2,829
Other Income (28) (28)
Goodwill amortization 318 263 (j)(k) $581
------- ------- ------- ------- ------- --------
Income (loss) before income taxes and
share in unconsolidated affiliate 1,771 (2,091) 1,156 (2,076) 1,338 $98
Income tax expense (benefit) 354 7 585 (l) $946
------- ------- ------- ------- ------- --------
Income (loss) before share in unconsol.
affiliate 1,417 (2,091) 1,156 (2,083) 754 ($848)
Share in unconsolidated affiliate 489 $489
------- ------- ------- ------- ------- --------
Net income (loss) 1,906 (2,091) 1,156 (2,083) 754 ($359)
Less: Preferred stock dividend (5%)
and accretion of preferred stock to
redemption value 87 306 (m) $393
------- ------- ------- ------- ------- --------
Income (loss) to common shares $1,819 ($2,091) $1,156 ($2,083) $ 448 ($752)
======= ======= ======= ======= ======= ========
Weighted average number of common
and common equivalent shares
outstanding 5,832 5,716
Earnings (loss) per share $0.31 ($0.13)
See accompanying notes
Page 8
Item 7(b). Pro forma financial information
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY CANONIE ENVIRONMENTAL SERVICES CORP.)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
TWELVE MONTHS ENDED FEBRUARY 28, 1994
(IN THOUSANDS)
PRO FORMA
CANONIE BCM RES RESNA ADJUSTMENT PRO FORMA
2/28/94 12/31/93 12/31/93 12/31/93 (NOTE 3) RESULTS
------- -------- -------- -------- ---------- ---------
Revenues $59,461 $62,117 $76,683 $26,730 ($3,780)(a) $221,211
Cost of revenue 49,492 55,691 58,438 17,809 (4,133)(a) $177,297
------- ------- ------- ------- ------- --------
Gross profit 9,969 6,426 18,245 8,921 353 (a) $43,914
Selling and administrative 12,282 12,629 19,972 10,643 (2,535)(c)(d)(e) $52,991
Special charges 4,263 508 $4,771
Interest 412 928 770 606 1,461 (f)(g)(h)(i) $4,177
Other expenses 868 $868
Other Income (144) (144)
Goodwill amortization 484 289 (j)(k) $773
------- ------- ------- ------- ------- --------
Loss before income taxes
& share in unconsolidated affiliate (6,988) (7,131) (3,873) (2,668) 1,138 ($19,522)
Income tax expense (benefit) 135 (2,645) 553 (l) ($1,957)
------- ------- ------- ------- ------- --------
Loss before share in
unconsolidated affiliate (7,123) (4,486) (3,873) (2,668) 585 ($17,565)
Share in unconsolidated affiliate (2,876) ($2,876)
------- ------- ------- ------- ------- --------
Net loss (9,999) (4,486) (3,873) (2,668) 585 ($20,441)
Less: Preferred stock dividend (5%)
and accretion of preferred stock to
redemption value 523 (m) $523
------- ------- ------- ------- ------- --------
Loss applicable to
common stock ($9,999) ($4,486) ($3,873) ($2,668) $62 ($20,964)
======= ======= ======= ======= ======= ========
Weighted average number of
common shares outstanding 5,701 5,701
Loss per share ($1.75) ($3.69)
See accompanying notes
Page 9
Item 7 (b) Pro Forma Financial Information (Cont.)
SMITH ENVIRONMENTAL TECHNOLOGIES CORPORATION
(FORMERLY CANONIE ENVIRONMENTAL SERVICES CORP.)
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1. GENERAL
Smith Environmental Technologies Corporation (The "Company") completed the
purchase, from RESNA Industries, Inc., a Delaware corporation ("RESNA"), of
substantially all of the tangible assets and contracts and certain
intangibles of RESNA'S environmental assessment and remediation business.
RESNA operated a full service environmental remediation business related
primarily to underground storage tanks. The purchase price consisted of
(i) a cash payment of $1,141 to RESNA's principal bank lender, (ii) the
issuance of a promissory note to RESNA's principal bank lender in the
amount of $359 without recourse except to certain accounts receivable of
RESNA purchased by the Company, and (iii) the assumption of certain balance
sheet liabilities, aggregating approximately $3,245 of RESNA subject to
final verification.
The unaudited pro forma condensed consolidated balance sheets combines the
balance sheets of the Company as of November 30, 1994 and the balance
sheets of RESNA as of September 30, 1994 as if the purchase of assets had
taken place on November 30, 1994. The unaudited pro forma condensed
consolidated statement of operations for the nine months ended November 30,
1994 combines the results of operations of the Company and BCM Engineers,
Inc., (BCM) for the nine months ended November 30, 1994, and the results of
operations of Riedel Environmental Services, Inc. (RES) for the nine months
ended September 30, 1994, and the results of operations of RESNA for the
nine months ended September 30, 1994. BCM was acquired by the Company on
September 28, 1994 for a total purchase price of approximately $13.0
million. RES was acquired on November 21, 1994 for a cash purchase price
of approximately $19.1 million subject to verification of balance sheet
items to reflect a final purchase price. The unaudited pro forma condensed
consolidated statement of operations for the twelve months ended February
28, 1994 combines the results of the Company for the twelve months ended
February 28, 1994, and the results of operations of BCM and RES for the
twelve months ended December 31, 1993 and the results of operations of
RESNA for the twelve months ended December 31, 1993. Both pro forma
statements of operations have been prepared as if the acquisition had taken
place on March 1, 1993.
The pro forma adjustments are based upon available information and upon
certain assumptions that management believes are reasonable in the
circumstances. The unaudited pro forma information does not purport to be
indicative of the results that actually would have occurred if the
acquisitions had been made on the date indicated, or which may be expected
to occur in the future by reason of such acquisition. Further, no effect
has been given in the pro forma information for consolidation cost savings
and other synergistic benefits expected to be realized subsequent to the
consummation of the acquisitions and the combining of the businesses.
The unaudited pro forma information should be read in conjunction with the
notes thereto and the audited condensed consolidated financial statements
of the Company as set forth in its annual report on Form 10-K for the year
ended February 28, 1994, as well as the Form 10-Q of the Company for the
nine months ended November 30, 1994 and the consolidated financial
statements of RESNA included herein.
Page 10
Item 7 (b) Pro Forma Financial Information (Cont.)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The pro forma adjustments to the historical balance sheet are as follows:
(a) To record the RESNA purchase price allocation reflecting the assets
acquired and liabilities assumed including a cash payment of $1,141 to
RESNA's principal bank lender, issuance of a promissory note in the
amount of $359 and a decrease in asset values from September 30, 1994
through the purchase date of January 1, 1995 in the amount of $1,634.
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
The pro forma adjustments to the historical statements of operations are as
follows:
(a) To eliminate BCM laboratory revenues and operating results.
1993 1994
(12 Mos.) (9 Mos.)
-------- --------
Revenues $3,780 $2,125
Operating Costs 4,133 2,042
------- ------
Operating Income (Loss) ($ 353) $ 83
------- ------
(b) To eliminate inter-company revenues of $568 in 1994 resulting from a
contract between BCM and RES.
(c) To reverse expenses of $1089 in 1993 and $471 in 1994 incurred in
connection with BCM's ESOP which was terminated as of the date of
acquisition.
(d) To reverse $1806 in 1993 and $2435 in 1994 of settlement costs in
connection with a pre-acquisition claim and allocated SG&A from RES's
parent.
(e) To record depreciation expense of $360 in 1993 and $245 in 1994
related to adjustments to state fixed assets at estimated fair market
value on the acquisition dates of BCM and Riedel.
(f) To record over the three year term of the loan agreement, amortization
of $481 in 1993 and $361 in 1994, of approximately $400 and $1200 of
loan origination costs incurred in connection with the acquisition of
RES and BCM respectfully.
(g) To record $375 of interest expense in 1993 at approximately 7 1/2% and
$319 of expense in 1994 at approximately 8 1/2% on average long-term
borrowings of approximately $5,000 incurred in connection with the
acquisition of BCM.
Page 11
Item 7 (b) Pro Forma Financial Information (Cont.)
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (cont.)
(h) To record RES interest expense of $963 in 1993 and $575 in 1994 on
various borrowings aggregating $19.1 million incurred in connection
with the acquisition of RES.
(i) To reverse RESNA interest expense of $358 in 1994 and $278 in 1993
related to RESNA's convertible subordinated debt not assumed within
the Asset Purchase Agreement.
(j) To record $773 in 1993 and $581 in 1994 of amortization of cost in
excess of net assets of business acquired of $23,180 over 30 years in
connection with the acquisition of BCM and RES.
(k) To reverse RESNA's amortization of goodwill of $318 in 1994 and $484
in 1993.
(l) To reflect the tax effect of the above entries, at a 35% effective tax
rate, after giving affect to the amortization of goodwill.
(m) To record $523 in 1993 and $306 in 1994 of preferred stock dividend
(5%) and accretion of preferred stock to redemption value in
connection with the acquisition of BCM.