<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 12, 1998
U.S. PLASTIC LUMBER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
--------------------
<TABLE>
<S> <C> <C>
Nevada 3080 87-0404343
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer/organization
Classification Code Number) Identification No.)
</TABLE>
---------------------
2300 W. Glades Road, Suite 440 W, Boca Raton, Florida 33431
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 561-394-3511
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On May 12, 1998, the Registrant entered into a Plan of Merger
Agreement with Cycle Masters, Inc. ("CMI"). The consideration under the
Plan of Merger was $1,600,000 in cash, 200,000 shares of non-registered
common stock, par value $.0001, of U.S. Plastic Lumber Corporation, and a
Promissory Note in the amount of $250,000 at an interest rate of 8.5%,
interest only payments for one year with the principal being due one year
from date of Closing. The Registrant also executed a Lease to use the
building and property upon which the business operates from the principal
shareholder of CMI, James P. Cole, for a term of five years at an initial
monthly rental of $2,000 per month. The building consists of approximately
15,600 sq. ft. and is located on 7.5 acres.
The amount of consideration was determined by a number of factors,
including but not limited to, an independent appraisal of the business
value of CMI utilizing traditional business valuation formulas, the
vertical integration aspects the Registrant believes will be derived from
this merger, the skill and expertise of the management team being
acquired, and the goodwill of the customer base being acquired. All
negotiations relative to all transactions hereunder were accomplished in
an arms length manner.
The shareholders of CMI were James P. Cole and Scott House. Neither
individual had any relationship with the Registrant prior to this merger,
other than as a competitor of the Registrant.
The funding used by the Registrant was derived from cash on hand of the
Registrant plus cash available from the Registrant's credit line facility
with its Bank, PNC Bank of Delaware.
(b) The business of CMI is the manufacture and sale of plastic lumber made
from 100% recycled materials. The business is operated in a facility in
Sweetser, Indiana consisting of approximately 15,600 sq. ft. located on
approximately 7.5 acres. The business operates with three plastic
extrusion lines. The Registrant intends to continue to devote the assets
for the purposes currently used by CMI.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
<S> <C>
U.S. Plastic Lumber Corporation and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998 and
unaudited Pro Forma Consolidated Statements of Operations for the three
months ended March 31, 1998 and the twelve months ended
December 31, 1997 F-1 to F-7
Cycle-Masters, Inc.
Audited Balance Sheet as of September 30, 1997 and Statements of Income
and Retained Earnings and Cash Flows for each of the years in the two
years ended September 30, 1997. Unaudited Balance Sheet as of March 31,
1998 and unaudited Statements of Income and Retained Earnings and Cash
Flows for the six months ended March 31, 1998 and 1997 F-8 to F-17
Exhibits. None
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned hereunto duly authorized.
U.S. Plastic Lumber Corporation
(Registrant)
Date: JULY 14, 1998 By: /s/ BRUCE C. ROSETTO
----------------- -------------------------------
Bruce C. Rosetto, Vice President and
General Counsel/Secretary
3
<PAGE> 4
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma consolidated financial information gives
effect to the combination for financial reporting purposes of U.S. Plastic
Lumber Corp. and the subsidiary companies owned as of December 31, 1996 (USPLC)
with the following companies acquired since December 31, 1996:
Recycled Plastics Industries, Inc. (RPI), acquired January 27, 1997
Advanced Remediation and Disposal Technologies, Inc. (ARDT), acquired
February 24, 1997
Environmental Speciality Products, Inc. (ESP), acquired March 28, 1997
Integrated Technical Services, Inc. (ITS), acquired March 31, 1997
EnviroPlastics Corporation (EPC), acquired June 30, 1997
Waste Concepts, Inc. (WCI), acquired November 18, 1997
Green Horizon Environmental, Inc. (GHE), acquired January 2, 1998
Chesapeake Plastic Lumber, Inc. (CPL), acquired March 1, 1998
Cycle-Masters, Inc. (CMI), acquired May 13, 1998
The pro forma consolidated financial information is based on the historical
financial statements of USPLC, RPI, ARDT, ESP, ITS, EPC, WCI, GHE, CPL, and CMI,
and on estimates and assumptions set forth below and in the notes to the pro
forma consolidated financial information. Insignificant acquisitions and
companies with insignificant or no operations (e.g. CTI) are not included in the
pro forma information.
The pro forma consolidated balance sheet as of March 31, 1998 gives effect
to the combination of USPLC and CMI as if the acquisition had occurred on the
latest balance sheet date, March 31, 1998. As of March 31, 1998 the balance
sheets of USPLC, RPI, ARDT, ESP, ITS, EPC, WCI, GHE and CPL are included in the
USPLC consolidated balance sheet.
The pro forma consolidated statements of operations present pro forma
results from operations for the year ended December 31, 1997 and the three
months ended March 31, 1998. For purposes of the pro forma consolidated
statements of operations, the acquisitions of RPI, ARDT, ESP, ITS, EPC, WCI, GHE
CPL and CMI are included as if the acquisitions had occurred on January 1, 1997.
The pro forma consolidated statements of operations for the three months
ended March 31, 1998 includes: (i) the unaudited financial information of USPLC
for the three months ended March 31, 1998 (which includes USPLC and GHE for the
three months ended March 31, 1998, and CPL for the one month ended March 31,
1998; (ii) the unaudited financial information of CPL for the two month period
ended February 28, 1998; and (iii) the unaudited financial information of CMI
for the three months ended March 31, 1998.
The pro forma consolidated statements of operations for the year ended
December 31, 1997 (which includes the audited financial information of USPLC for
the year ended December 31, 1997, RPI for the eleven months ended December 31,
1997, ARDT for the ten months ended December 31, 1997, ESP and ITS for the nine
months ended December 31, 1997, EPC for the six months ended December 31, 1997
and WCI for the one month ended December 31, 1997; (ii) the unaudited financial
information of GHE for the year ended December 31, 1997; (iii) the unaudited
financial information of CPL for the year ended December 31, 1997; and (iv) the
audited financial information of CMI for the year ended September 30, 1997.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma consolidated financial information presented herein is not
necessarily indicative of the results the companies would have obtained had the
acquisitions occurred on January 1, 1997, as assumed, or of the future results
of the companies. The pro forma consolidated financial information should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in the Prospectus.
F-1
<PAGE> 5
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
------------------------------------------
PROFORMA CONSOLIDATED BALANCE SHEET
-----------------------------------
MARCH 31, 1998
--------------
(unaudited)
<TABLE>
<CAPTION>
Pro Forma
USPLC CMI Adjustments Pro Forma
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,096,911 $ 621 (1,600,000)a $ (502,468)
Accounts receivable, net 6,452,550 545,582 6,998,132
Inventories 1,768,790 398,108 2,166,898
Prepaid expenses and other 401,638 -- 401,638
------------ ------------ ----------- ------------
Total current assets 9,719,889 944,311 (1,600,000) 9,064,200
PROPERTY, PLANT AND EQUIPMENT (net) 7,649,571 806,361 86,418 c 8,542,350
OTHER ASSETS:
Acquired intangibles, net 7,556,753 24,696 1,891,218 c 9,472,667
Other assets 2,014,760 -- -- 2,014,760
Investment in joint venture 575,915 -- -- 575,915
------------ ------------ ------------ ------------
Total assets $ 27,516,888 $ 1,775,368 $ 377,636 $ 29,669,892
============ ============ ============ ============
</TABLE>
(Continued)
F-2
<PAGE> 6
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
------------------------------------------
PROFORMA CONSOLIDATED BALANCE SHEET
-----------------------------------
MARCH 31, 1998
--------------
(unaudited)
(Continued)
<TABLE>
<CAPTION>
Pro Forma
USPLC CMI Adjustments Pro Forma
----- --- ----------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable, current portion $ 2,484,458 $ 370,309 $ -- $ 2,854,767
Notes payable, affiliates 1,006,810 -- -- 1,006,810
Accounts payable 3,745,951 214,464 -- 3,960,415
Accrued expenses 1,220,937 264,754 -- 1,485,691
Other liabilities 357,071 -- -- 357,071
------------ ------------ ------------ ------------
Total current liabilities 8,815,227 849,527 -- 9,664,754
NOTES PAYABLE, net of current portion 5,364,453 453,477 250,000 a 6,067,930
DEFERRED INCOME TAXES 633,656 -- -- 633,656
MINORITY INTEREST 225,000 -- -- 225,000
------------ ------------ ------------ ------------
Total liabilities 15,038,336 1,303,004 250,000 16,591,340
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY:
10% Convertible preferred stock 221 -- 221
Common stock 1,590 -- 20 a 1,610
599,980 a
Additional paid-in capital 13,812,918 107,995 (107,995) b 14,412,898
Accumulated deficit (1,336,177) 364,369 (364,369) b (1,336,177)
------------ ------------ ------------ ------------
Total stockholders' equity 12,478,552 472,364 127,636 13,078,552
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 27,516,888 $ 1,775,368 $ 377,636 $ 29,669,892
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
F-3
<PAGE> 7
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
------------------------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
USPLC CPL CMI Adjustments Pro Forma
------------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 7,659,261 $ 46,686 $ 905,819 $ -- $ 8,611,766
Cost of sales 6,058,821 60,371 497,723 -- 6,616,915
------------ ----------- ------------ ------------ ------------
Gross profit 1,600,440 (13,685) 408,096 -- 1,994,851
General, administrative and selling 1,584,796 40,925 247,448 32,980 b,c 1,906,149
------------ ----------- ------------ ----------- ------------
Operating income (loss) 15,644 (54,610) 160,648 (32,980) 88,702
Other income 105,588 -- 612 106,200
Interest expense (145,332) (2,748) -- (45,313) d (193,393)
Equity in loss of JV -- -- -- --
Provision for income (taxes) credits 9,640 -- (54,720) 45,080 e --
------------ ----------- ------------ ----------- ------------
Net income (loss) (14,460) (57,358) 106,540 (33,213) 1,509
Preferred stock dividends (108,155) -- -- -- (108,155)
------------ ----------- ------------ ----------- ------------
Net income (loss) attributable
to common stockholders $ (122,615) $ (57,358) $ 106,540 $ (33,213) $ (106,646)
============ =========== ============ =========== ============
Basic and diluted loss per share $ (0.01) $ (0.01)
============ ============
Weighted average shares outstanding 15,737,443 16,017,654
============ ============
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
F-4
<PAGE> 8
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
------------------------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
USPL RPI ARDT ESP ITS EPC
-------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 24,739,381 $ 82,868 $ 38,276 $ 147,145 $ 1,785,026 $ 2,891,508
Cost of sales 19,779,873 62,604 59,984 137,434 1,483,824 3,125,953
-------------- ------------- ------------- ------------- ------------- -------------
Gross profit 4,959,508 20,264 (21,708) 9,711 301,202 (234,445)
General, administrative and selling 5,280,813 13,032 38,432 131,545 188,586 285,019
-------------- ------------- ------------- ------------- ------------- -------------
Operating income (loss) (321,305) 7,232 (60,140) (121,834) 112,616 (519,464)
Other income 50,879 189 -- -- -- -
Interest expense (307,635) (2,055) (1,911) (1,693) (4,638) (51,639)
Equity in loss of JV (131,897) -- -- -- -- -
Provision for income (taxes) credits 4,329 -- -- 29,918 (18,738) 97,822
-------------- ------------- ------------- ------------- ------------- -------------
Net income (loss) (705,629) 5,366 (62,051) (93,609) 89,240 (473,281)
Preferred stock dividends (409,705) -- -- -- -- --
-------------- ------------- ------------- ------------- ------------- -------------
Net income (loss) attributable
to common stockholders $ (1,115,334) $ 5,366 $ (62,051) $ (93,609) $ 89,240 $ (473,281)
============== ============= ============= ============= ============= =============
Basic and diluted loss per share $ (0.08)
=============
Weighted average shares outstanding 14,053,862
=============
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
(continued)
F-5
<PAGE> 9
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
------------------------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Pro Forma
WCI GHE CPL CMI Adjustments Pro Forma
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 4,791,242 $ 911,304 $ 704,560 $ 2,614,861 $ (1,041,433)a $ 37,664,738
Cost of sales 3,903,960 762,615 848,240 1,570,240 (1,041,433)a 30,693,294
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 887,282 148,689 (143,680) 1,044,621 -- 6,971,444
General, administrative and selling 953,229 52,391 167,066 667,128 147,047 b,c 7,924,288
------------ ------------ ------------ ------------ ------------ ------------
Operating income (loss) (65,947) 96,298 (310,746) 377,493 (147,047) (952,844)
Other income (16,665) -- 9,473 -- 43,876
Interest expense (24,823) (4,182) (23,250) (61,007) (181,250)d (664,083)
Equity in loss of JV -- -- -- -- (131,897)
Provision for income (taxes) credits -- -- -- (122,000) 8,669 e --
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) (107,435) 92,116 (324,523) 194,486 (319,628) (1,704,948)
Preferred stock dividends -- -- -- -- -- (409,705)
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) attributable
to common stockholders $ (107,435) $ 92,116 $ (324,523) $ 194,486 $ (319,628) $ (2,114,653)
============ ============ ============ ============ ============ ============
Basic and diluted loss per share $ (0.14)
============
Weighted average shares outstanding 15,144,629
============
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
F-6
<PAGE> 10
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
------------------------------------------
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
-----------------------------------------------------
1. Unaudited Pro Forma Consolidated Balance Sheet Adjustments
a. Adjustments to reflect the payment of cash and issuance of 200,000
shares of common stock and notes payable to effect the acquisition of
Cycle-Masters, Inc. ("CMI") on May 13, 1998.
b. Adjustment to eliminate the capital stock, additional paid-in-capital
and retained earnings of CMI.
c. Adjustment to reflect the purchase price allocation of CMI acquired
assets and liabilities to estimated fair value.
2. Unaudited Pro Forma consolidated Statements of Operations Adjustments
a. Adjustment to eliminate intercompany sales.
b. Adjustment to reflect increase in amortization expense of the
goodwill recorded on the acquisitions accounted for as purchases.
c. Adjustment to reflect depreciation expense on equipment recorded at
the fair value for acquisitions accounted for as purchases.
d. Adjustment to reflect interest expense for cash paid and or notes
payable issued for acquisitions, net of debt not assumed or replaced.
e. Adjustment to eliminate all income taxes provided by acquired
companies prior to the acquisition. No income tax credits are
recorded on the pro forma loss for the year ended December 31, 1997.
f. The weighted average shares outstanding used to calculate pro forma
income per share is based on the historical average number of shares
of common stock outstanding during the period adjusted for the
acquisitions as if they had occurred on January 1, 1997. For both the
year ended December 31, 1997 and the six months ended March 31, 1998,
common stock equivalents have been excluded because they are
antidilutive.
F-7
<PAGE> 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Shareholders of
Cycle-Masters, Inc.:
We have audited the accompanying balance sheet of Cycle-Masters, Inc. (an
Indiana corporation) as of September 30, 1997, and the related statements of
income and retained earnings and cash flows for each of the two years in the
period ended September 30, 1997. 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 audits 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 Cycle-Masters, Inc. as of
September 30, 1997, and the results of its operations and cash flows for each of
the two years in the period ended September 30, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
April 30, 1998 (except with respect to
the matter discussed in Note 7, as to
which the date is May 13, 1998).
F-8
<PAGE> 12
CYCLE-MASTERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,990 $ 621
Trade receivables, less allowance for doubtful
accounts of $11,300 at September 30, 1997 and
$20,000 (unaudited) at March 31, 1998 323,103 545,582
Inventories 297,268 398,108
---------- ----------
Total current assets 638,361 944,311
PROPERTY AND EQUIPMENT, net 679,937 806,361
OTHER ASSETS 30,972 24,696
---------- ----------
Total assets $1,349,270 $1,775,368
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 219,077 $ 214,464
Accrued expenses 152,857 264,754
Line of credit -- 259,500
Current portion of notes payable 110,809 110,809
---------- ----------
Total current liabilities 482,743 849,527
NOTES PAYABLE, net of current portion 309,728 253,477
NOTE PAYABLE TO STOCKHOLDER 200,000 200,000
---------- ----------
Total liabilities 992,471 1,303,004
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 1,000 shares;
issued and outstanding 500 shares 107,995 107,995
Retained earnings 248,804 364,369
---------- ----------
Total stockholders' equity 356,799 472,364
---------- ----------
Total liabilities and stockholders' equity $1,349,270 $1,775,368
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part
of these balance sheets.
F-9
<PAGE> 13
CYCLE-MASTERS, INC.
-------------------
STATEMENTS OF INCOME AND RETAINED EARNINGS
------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30, Six Months Ended March 31,
-------------------------------- ---------------------------------
1996 1997 1997 1998
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 1,836,223 $ 2,614,861 $ 1,242,430 $ 1,513,850
COST OF GOODS SOLD 1,058,146 1,570,240 759,808 889,264
------------- ------------- ------------- -------------
Gross profit 778,077 1,044,621 482,622 624,586
OPERATING EXPENSES 520,411 667,128 323,390 409,149
------------- ------------- ------------- -------------
Operating income 257,666 377,493 159,232 215,437
INTEREST EXPENSE 60,941 61,007 31,099 31,172
------------- ------------- ------------- -------------
Income before income
taxes 196,725 316,486 128,133 184,265
PROVISION FOR INCOME
TAXES 48,568 122,000 49,400 68,700
------------- ------------- ------------- -------------
Net income 148,157 194,486 78,733 115,565
RETAINED EARNINGS
(ACCUMULATED DEFICIT),
beginning of period (93,839) 54,318 54,318 248,804
------------- ------------- ------------- -------------
RETAINED EARNINGS,
end of period $ 54,318 $ 248,804 $ 133,051 $ 364,369
============= ============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-10
<PAGE> 14
CYCLE-MASTERS, INC.
-------------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended September 30, Six Months Ended March 31,
------------------------ --------------------------
1996 1997 1997 1998
---------- --------- --------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,157 $ 194,486 $ 78,733 $ 115,565
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 39,508 59,379 14,547 33,000
Provision for uncollectible accounts 33,844 649 -- 31,300
Changes in operating assets and liabilities:
Accounts receivable (167,319) 44,900 (132,384) (253,779)
Inventories (59,382) (98,672) 20,881 (100,840)
Prepaid expenses 7,835 --
Other assets (11,931) 8,847 14,335 6,276
Accounts payable 101,652 8,193 (49,015) (4,613)
Accrued expenses 16,122 101,658 66,726 111,897
--------- --------- --------- ---------
Total adjustments (39,671) 124,954 (64,910) (176,759)
--------- --------- --------- ---------
Net cash provided by operating activities 108,486 319,440 13,823 (61,194)
--------- --------- --------- ---------
</TABLE>
(Continued)
F-11
<PAGE> 15
CYCLE-MASTERS, INC.
-------------------
STATEMENTS OF CASH FLOWS
------------------------
(continued)
<TABLE>
<CAPTION>
Year Ended September 30, Six Months Ended March 31,
------------------------ --------------------------
1996 1997 1997 1998
---------- --------- --------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $(118,426) $(270,433) $ (47,429) $(159,424)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and line of credit 142,636 226,397 134,000 259,500
Repayment of notes payable (122,587) (262,850) (105,162) (56,251)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 20,049 (36,453) 28,838 203,249
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 10,109 12,554 (4,768) (17,369)
CASH AND CASH EQUIVALENTS, beginning of period (4,673) 5,436 5,436 17,990
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 5,436 $ 17,990 $ 668 $ 621
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 61,342 $ 62,264 $ 31,099 $ 31,172
========= ========= ========= =========
Income taxes $ 20,568 $ 47,516 $ 18,918 $ 92,629
========= ========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-12
<PAGE> 16
CYCLE-MASTERS, INC.
-------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Cycle-Masters, Inc. (the "Company") is engaged in the manufacturing of recycled
plastic lumber from post-consumer plastic waste. The Company's plastic lumber
customers are located throughout the United States.
UNAUDITED INTERIM FINANCIAL DATA
In the opinion of the Company's management, the balance sheet as of March 31,
1998 and the statements of income and retained earnings and cash flows for the 6
months ended March 31, 1997 and 1998 include all adjustments necessary in order
to make those financial statements not misleading.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less at the date of purchase to be cash equivalents. At
September 30, 1997, the Company had no cash equivalents.
F-13
<PAGE> 17
INVENTORIES
The Company's inventories are valued at the lower of cost (first-in, first-out)
or market. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1997 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Supplies $ 29,470 $ 38,776
Raw materials 62,129 33,532
Finished goods 205,669 325,800
------------- -------------
$ 297,268 $ 398,108
============= =============
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed for
financial statement purposes by the use of the straight-line method over the
estimated useful lives of the assets. Accelerated methods of computing
depreciation are used for tax purposes. Upon sale or retirement, the cost and
related accumulated depreciation of such assets are removed from the accounts
and any resulting gain or loss realized is credited or charged to income during
the period. Expenditures for maintenance and repairs are charged to operations
as incurred. Significant renewals, improvements and betterments are capitalized.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Useful September 30, March 31,
Lives 1997 1998
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Machinery and equipment 10 - 15 years $ 568,805 $ 659,265
Tools and dies 10 years 52,330 62,386
Trucks 5 years 54,948 71,538
Leased property 5 years 20,269 20,269
Office equipment 5 years 15,559 16,453
Leasehold improvements Life of lease 91,528 132,952
------------ ------------
803,439 962,863
Less- Accumulated depreciation and
amortization (123,502) (156,502)
------------ ------------
$ 679,937 $ 806,361
============ ============
</TABLE>
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
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<PAGE> 18
difference between the financial statement basis and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to be settled or realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, trade receivables,
accounts payable and notes payable. The carrying amounts of these financial
instruments approximate their fair value.
2. ACCRUED EXPENSES
Accrued expenses consists of the following:
September 30, March 31,
1997 1998
----------- -----------
(Unaudited)
Accrued payroll $ 16,602 $ 66,018
Accrued taxes 118,984 95,059
Accrued commissions -- 72,992
Other 17,271 30,685
----------- -----------
$ 152,857 $ 264,754
=========== ===========
3. NOTE PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
September 30, March 30,
1997 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Installment notes payable bearing interest at rates
ranging from 7.5% to 8.4%, due in aggregate
installments of $3,461 through March 2002,
secured by vehicles and machinery $ 77,444 $ 59,508
Note payable at $2,357 per month, including
interest at 9.0%, due December 12, 2001, secured
by substantially all assets of the Company 99,567 89,726
</TABLE>
(Continued)
F-15
<PAGE> 19
<TABLE>
<CAPTION>
September 30, March 30,
1997 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Note payable at $1,655 per month, including
interest at 9.0%, due April 30, 2001, secured by
substantially all assets of the Company $ 60,653 $ 53,313
Notes payable bearing interest at rates ranging
from 6.4% to 12.032%, due in aggregate
installments of $4,142 through December 2002,
secured by equipment 182,673 161,739
Other 200 --
------------- ------------
420,537 364,286
Less - Current portion (110,809) (110,809)
------------- ------------
Long-term debt $ 309,728 $ 253,477
============= ============
</TABLE>
The following is a summary of principal maturities of long-term debt:
Year Ended
September 30, Amount
----------------- ------------
1998 $ 110,809
1999 102,366
2000 87,487
2001 86,675
2002 33,200
------------
$ 420,537
============
4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases equipment under operating leases. The following is a schedule
of future minimum lease payments required under the leases at September 30,
1997:
Fiscal Year
Ended Amount
------------- ----------
1998 $ 31,812
1999 31,812
2000 31,812
---------
$ 95,436
=========
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<PAGE> 20
LITIGATION
From time-to-time, the Company may be engaged in routine litigation and disputes
incidental to its business. The Company does not believe that the ultimate
resolution of any of these matters will have a material adverse effect on the
accompanying financial statements.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended September 30, Six Months Ended March 31,
---------------------------- ----------------------------
1996 1997 1997 1998
----------- ---------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Federal $ 40,668 $ 109,300 $ 44,300 $ 61,300
State 7,900 12,700 5,100 7,400
----------- ---------- ---------- ---------
$ 48,568 $ 122,000 $ 49,400 $ 68,700
=========== ========== ========== =========
</TABLE>
The provision for income taxes differs from the expense that would result from
applying federal statutory rates primarily due to the provision for state income
taxes and, in fiscal 1996, due to the utilization of net operating loss
carryforwards.
6. RELATED PARTY TRANSACTIONS
The Company has a note payable to a stockholder in the amount of $200,000. The
note bears interest at 9.5% and is due in January 2000. Related party interest
expense paid on this note amounted to $18,000 in fiscal 1996 and $19,000 in
fiscal 1997.
The Company leases its building from its majority stockholder for $600 per month
on a month to month basis.
The Company paid commissions to a stockholder amounting to $89,606 in fiscal
1996 and $164,162 in fiscal 1997.
7. SUBSEQUENT EVENT
On May 13, 1998, the Company was acquired by U.S. Plastic Lumber Corp., an
unaffiliated company, for approximately $2.45 million in cash, stock and notes.
F-17
