<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) January 28, 1999
U.S. PLASTIC LUMBER CORPORATION
(Exact Name of Registrant as Specified in its Charter)
--------------------
Nevada 3080 87-0404343
(State of incorporation (Primary Standard Industrial (I.R.S. Employer
/organization) Classification Code Number) Identification No.)
---------------------
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 January 28, 1999, the Registrant entered into a Stock Purchase
Agreement with Eaglebrook Plastics, Inc. and Eaglebrook Products,
Inc.("EB"). The consideration under the Stock Purchase Agreements was
$9,000,000 in cash, 1,668,025 shares of non-registered common stock, par
value $.0001, of U.S. Plastic Lumber Corporation, and a Convertible
Debenture in the amount of $4,000,000 at an interest rate of 10% per
annum amortized over a five year period from date of Closing. The
Registrant also executed Leases to use the buildings and property upon
which the business operates from the principal shareholders of EB for a
term of ten years at an initial monthly rental of $39,181 per month. The
building consists of approximately 260,000 sq. ft. and is located on
several acres within the City of Chicago.
The amount of consideration was determined by a number of factors,
including but not limited to, an appraisal of the business value of EB
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 EB were Andrew Stephens, Robert Thompson and Michael
Dahl. None of the individuals 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, cash available from the Registrant's credit line facility
with its Bank, Coast Business Credit, and cash from a credit line the
Registrant has with one of its shareholders, Stout Partnership.
(b) The business of EB is the manufacture and sale of plastic lumber
made from 100% recycled materials. The business is operated in a facility
in Chicago, Illinois consisting of approximately 260,000 sq. ft. located
on several acres. The Registrant intends to continue to devote the assets
for the purposes currently used by EPI.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
U.S Plastic Lumber Corporation and Subsidiaries
Description of Pro Forma Financial Information and companies included 4
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1998 6
Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1998 8
Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997 9
Notes to Pro Forma Consolidated Statements of Operations 11
The Eaglebrook Companies
Report of Independent Public Accountants 12
Audited Consolidated Balance Sheets as of December 31, 1998 and 1987 13
Audited Consolidated Statements of Income for the years ended
December 31, 1998 and 1997 14
Audited Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998 and 1997 15
Audited Consolidated Statements of Cash Flows for the years ended
December 31, 1998 and 1997 16
Notes to Consolidated Financial Statements 17
Exhibits. The consolidated financial statements of U.S. Plastic Lumber
Corporation and subsidiaries included in Form 10-KSB for the
year ended December 31, 1998 are incorporated herein by
reference.
</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: APRIL 12, 1999 By: /s/ BRUCE C.ROSETTO
----------------- ------------------------------------
Bruce C. Rosetto, Vice President and
General Counsel/Secretary
3
<PAGE> 4
U.S. PLASTIC LUMBER CORP. AND SUBSIDIARIES
DESCRIPTION OF PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
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
Consolidated Technologies, Inc. (CTI), acquired over first six months
of 1998
Trimax of Long Island, Inc. and Polymerix, Inc. ("Trimax"), acquired
June 30, 1998
Geocore, Inc. ("GCI"), acquired June 30, 1998
S&W Waste, Inc. ("S&W"), acquired December 30, 1998
Eaglebrook Plastics, Inc. and Eaglebrook Products, Inc.
("EB"), acquired January 28, 1999
The unaudited pro forma consolidated financial information is based on the
historical financial statements of USPLC, RPI, ARDT, ESP, ITS, EPC, WCI, GHE,
CPL, CMI, GCI, S&W and EB and on estimates and assumptions set forth below and
in the notes to the unaudited 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. Trimax is not included
because no information was available to USPL on Trimax's operations before and
during the period it was under the protection of the Federal bankruptcy court.
The unaudited pro forma consolidated balance sheet as of December 31, 1998 gives
effect to the combination of USPLC and EB as if the acquisition had occurred on
the latest balance sheet date, December 31, 1998. As of December 31, 1998 the
balance sheets of USPLC, RPI, ARDT, ESP, ITS, EPC, WCI, GHE, CPL, CMI, CTI,
Trimax, GCI, and S&W are included in the USPLC consolidated balance sheet.
The unaudited pro forma consolidated statements of operations present pro forma
results from operations for the years ended December 31, 1998 and 1997. For
purposes of the pro forma consolidated statements of operations, the
acquisitions of RPI, ARDT, ESP, ITS, EPC, WCI, GHE CPL, CMI, GCI, S&W and EB are
included as if the acquisitions had occurred on January 1, 1997.
The unaudited pro forma consolidated statement of operations for the year ended
December 31, 1998 includes: (i) the audited financial information of USPLC for
the year ended December 31, 1998 (which includes USPLC and GHE for the full year
and, for the following periods ended December 31, 1998, CPL ten months, CMI
eight months, Trimax six months and GCI six months; (ii) the unaudited financial
information of CPL for the two month period ended February 28,1998; (iii) the
unaudited financial information of CMI for the four months ended April 30, 1998;
(iv) the unaudited financial information of GCI for the six months ended June
30, 1998; (v) the unaudited financial information of S&W for the year ended
December 31, 1998; and (vi) the audited financial information of Eaglebrook for
the year ended December 31, 1998
4
<PAGE> 5
The unaudited pro forma consolidated statements of operations for the year
ended December 31, 1997 includes: (i) the audited financial information of USPLC
for the year ended December 31, 1997 and, for the following periods ended
December 31, 1997, RPI eleven months, ARDT ten months, ESP and ITS nine months,
EPC six months and WCI one month; (ii) the unaudited financial information of
GHE, CPL, GCI and S&W for the year ended December 31, 1997; (iii) the audited
financial information of CMI for the year ended September 30, 1997; and (iv) the
audited financial information of Eaglebrook for the year ended December 31,
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 unaudited pro forma consolidated financial information
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this document or incorporated herein by reference.
5
<PAGE> 6
US PLASTIC LUMBER CORP. AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Proforma
Proforma Consolidated
USPLC EB Adjustments Balance Sheet
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 901,970 $ 705,536 c,r,s $(1,118,046) $ 489,460
Accounts Receivables (Net) 12,334,903 1,680,827 14,015,730
Inventories 4,869,006 970,881 5,839,887
Prepaid expenses and other
assets 1,278,402 392,628 1,671,030
----------- ---------- ----------- -----------
TOTAL CURRENT ASSETS 19,384,281 3,749,872 (1,118,046) 22,016,107
PROPERTY, PLANT AND EQUIPMENT
(NET) 17,890,636 4,818,175 m,k 18,680,158 41,388,969
OTHER ASSETS
Acquired intangibles, net 9,553,642 -- n 4,189,297 13,742,939
Other assets 5,376,403 -- d (300,000) 5,076,403
----------- ---------- ----------- -----------
TOTAL ASSETS $52,204,962 $8,568,047 $21,481,409 $82,224,418
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and capital
leases, current portion $ 3,635,300 $2,352,520 $ 5,987,820
Accounts payable 4,229,972 1,403,888 5,633,860
Accrued expenses 1,564,944 1,027,616 2,592,560
Other liabilities 1,097,762 -- 1,097,762
----------- ---------- -----------
TOTAL CURRENT LIABILITIES 10,527,978 4,784,024 15,312,002
Notes payable and capital
leases, net of current portion 14,669,104 1,517,357 e,t 3,624,799 19,811,260
Deferred income taxes 130,281 -- 130,281
Minority Interest 250,164 -- 250,614
Loans from related parties -- -- e,g,h 6,500,000 6,500,000
Convertible subordinated
debentures, net of discount 3,555,556 -- f,j 6,500,000 10,055,556
----------- ---------- ----------- -----------
TOTAL LIABILITIES 29,133,083 6,301,381 16,624,799 52,059,263
----------- ---------- ----------- -----------
STOCKHOLDERS' EQUITY
10% Convertible preferred stock,
par value $.001; authorized
5,000,000 shares; issued and
outstanding 382,709 shares
(aggregate liquidation
preference of $7,808,877) 383 383
Common stock par value $.0001,
authorized 50,000,000 shares;
issued and outstanding 18,230,528
shares and pro forma 19,898,553
shares 1,823 10 a,o 157 1,990
Additional paid-in capital 24,669,247 875,857 b,p 6,217,252 31,762,356
Retained earnings
(accumulated deficit) (1,599,574) 1,390,799 q (1,390,799) (1,599,574)
----------- ---------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 23,071,879 2,266,666 4,826,610 30,165,188
----------- ---------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $52,204,962 $8,568,047 $21,451,409 $82,224,418
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial statements
6
<PAGE> 7
US PLASTIC LUMBER CORP. AND SUBSIDIARIES
PROFORMA ADJUSTMENTS TO UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Issuance of 1,668,025 shares of USPL common stock to EB shareholders
Common stock a $ 167
Additional paid-in-capital b 7,093,109
-----------
$ 7,093,276
===========
Cash and debt issued to acquire EB:
Costs of the acquisition c $ 318,500
Downpayment for EB included in other assets at December 31, 1998 d 300,000
Income taxes to be paid with $500,000 related party loan and
revolving credit facility e 963,494
Closing payment for EB financed by:
Issuance of convertible debentures f 2,500,000
Loan from related party-Stout Partners g 5,000,000
Loan from related party h 1,000,000
-----------
Total cash paid $10,081,994
===========
Convertible Secured Debentures issued to EB shareholders j $ 4,000,000
===========
NPV of capital lease to purchase the EB land and building t $ 3,161,305
Estimated fair value of EB land and building k $16,500,000
===========
Estimated fair value of EB equipment above EB net book value at
January 31, 1999 m $ 2,180,158
===========
Adjustment to reflect excess of purchase price over estimated fair value of
assets and liabilities acquired effective January 31, 1999 (includes net
income of EB for January less the dividend paid) n $ 4,027,992
===========
Adjustment to eliminate the stockholders equity of EB at December 31, 1998:
Eiminate the capital stock of EB o $ 10
Eiminate the additional paid-in-capital of EB p 875,857
Eliminate the retained earnings of EB as of December 31, 1999 q 1,390,799
-----------
$ 2,266,656
===========
Dividends issued to EB shareholders after December 31, 1998 r $ (840,000)
===========
Income of EB for month of January 1999 s $ 40,454
===========
</TABLE>
7
<PAGE> 8
US PLASTIC LUMBER CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
USPL CPL CMI GEO S&W EB
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES, NET $45,704,940 $ 46,686 $1,267,459 $352,311 $6,908,998 $20,439,262
COST OF SALES 35,019,270 60,371 713,739 165,004 4,331,516 13,857,991 b
------------------------------------------------------------------------------
GROSS PROFIT 10,685,670 (13,685) 553,720 187,307 2,577,482 6,581,271
GENERAL, ADMINISTRATIVE AND SELLING 9,248,444 40,925 372,354 159,947 2,130,415 5,559,474 c
------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 1,437,226 (54,609) 181,366 27,360 447,067 1,021,797
INTEREST INCOME\OTHER INCOME 146,389 -- 612 23,946 120,659
INTEREST EXPENSE (1,225,158) (2,748) -- (98,497) (333,286) e
MINORITY INTEREST (262,659) -- -- (1,632)
PROVISION FOR INCOME (TAXES) CREDITS -- -- (64,020)
------------------------------------------------------------------------------
NET INCOME (LOSS) $ 95,798 $(57,357) $ 117,958 $ 25,728 $ 372,516 $ 809,170
==============================================================
PREFERRED STOCK DIVIDEND EARNED (677,078)
--------------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS $ (581,280)
==============
BASIC AND DILUTED LOSS PER SHARE $ (0.03)
==============
WEIGHTED AVERAGE SHARES OUTSTANDING 16,876,651
==============
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------- COMBINED
DR CR TOTAL
----------- --------- ------------
<S> <C> <C> <C>
SALES, NET $74,719,656
COST OF SALES a,b $788,085 53,359,806
-----------
GROSS PROFIT 21,359,851
GENERAL, ADMINISTRATIVE AND SELLING 220,826 17,732,395
-----------
OPERATING INCOME (LOSS) 3,627,455
INTEREST INCOME\OTHER INCOME 291,606
INTEREST EXPENSE 1,941,048 (3,602,370)
MINORITY INTEREST (262,659)
PROVISION FOR INCOME (TAXES) CREDITS f 64,020 --
---------- --------- -----------
NET INCOME (LOSS) $2,161,885 $852,105 (54,032)
========== =========
PREFERRED STOCK DIVIDEND EARNED (677,078)
-----------
NET INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCKHOLDERS g $ (623,046)
===========
BASIC AND DILUTED LOSS PER SHARE $ (.03)
===========
WEIGHTED AVERAGE SHARES OUTSTANDING g 19,073,511
===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated
statements of operations.
8
<PAGE> 9
US PLASTIC LUMBER CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CONTINUED
USPL RPI ARDT ESP ITS EPC WCI GHE
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales, net $24,739,381 $82,868 $ 38,276 $ 147,145 $1,785,026 $2,891,508 $4,791,242 $911,304
Cost of Sales 19,779,873 62,604 59,984 137,434 1,483,824 3,125,953 3,903,960 762,615
--------------------------------------------------------------------------------------------------
GROSS PROFIT 4,959,508 20,264 (21,708) 9,711 301,202 (234,445) 887,282 148,689
General, administrative
and selling 5,280,813 13,032 38,432 131,545 188,586 285,019 953,229 52,391
--------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) (321,305) 7,232 (60,140) (121,834) 112,616 (519,464) (65,947) 96,298
Interest income\Other
Income (expense) 50,879 189 -- -- -- -- (16,665) --
Interest expense (307,635) (2,055) (1,911) (1,693) (4,638) (51,639) (24,823) (4,182)
Equity in loss of JV (131,897) -- -- -- -- -- -- --
Provision for (benefit from)
income taxes 4,329 -- -- 29,918 (18,738) 97,822 -- --
--------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (705,629) $ 5,366 $(62,051) $ (93,609) $ 89,240 $ (473,281) $(107,435) $ 92,116
===================================================================================
Preferred stock dividends
earned (409,705)
---------------
NET INCOME (LOSS)
ATTRIBUTABLE
TO COMMON STOCKHOLDERS (1,115,334)
===============
BASIC AND DILUTED LOSS
PER SHARE $ (0.08)
===============
Weighted average shares
outstanding 14,053,862
================
</TABLE>
See accompanying notes to unaudited pro forma consolidated
statements of operations.
9
<PAGE> 10
US PLASTIC LUMBER CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
CONTINUED
PRO FORMA ADJUSTMENTS COMBINED
CPL CMI GEO S&W EB DR CR TOTAL
--------- ---------- -------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales, net $ 704,560 $2,610,958 $499,668 $6,601,207 $20,222,795 a $ 1,041,433 $64,974,505
Cost of Sales 848,240 1,570,240 125,313 3,526,012 15,099,767 a,b,d 1,447,115 48,725,680
--------- ---------- -------- ---------- ----------- -----------
GROSS PROFIT (143,680) 1,040,718 364,355 3,075,195 5,123,028 16,248,825
General, administrative
and selling 167,066 728,135 292,868 3,100,970 6,062,782 c 314,104 16,608,972
--------- ---------- -------- ---------- ----------- -----------
OPERATING INCOME (LOSS) (310,746) 312,583 71,487 (25,775) 60,246 (816,050)
Interest income/Other income
(expense) 9,473 3,903 82,881 290,408 421,068
Interest expense (23,250) (3,920) (41,300) (348,767) e 2,119,443 (2,935,256)
Equity in loss of JV -- -- -- -- -- (131,897)
Provision for (benefit from)
income taxes -- (122,000) -- -- -- f 8,669 --
--------- ---------- -------- ---------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $(324,523) $ 194,486 $ 67,567 $ 16,806 $ 1,887 $ 3,146,545 $ 1,455,784 (3,006,232)
========= ========== ======== ========== =========== =========== ===========
Preferred stock dividends
earned (409,705)
===========
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(3,415,937)
===========
BASIC AND DILUTED LOSS
PER SHARE g $ (.20)
===========
Weighted average shares
outstanding g 17,198,653
===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated
statements of operations.
10
<PAGE> 11
US PLASTIC LUMBER CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTES:
a = Eliminate inter company sales
b = Adjustments to eliminate rent paid to former owner replaced by
imputed interest on loan and property taxes on S&W land purchased
from seller and replace rent charged with depreciation on the EB
building under a capitalized lease with former owners.
c = Adjustment to reflect increase in amortization expense on the
goodwill recorded or to be recorded on the acquisitions of GHE,
CPL CMI, GCI, Trimax, S&W and EB.
d = Adjustment for increased depreciation expense on equipment
recorded at the the higher FMV and decreased depreciation from
using longer lives on the Eaglebrook plant and equipment.
e = Adjustment to reflect increase in interest expense for cash paid
and or notes payable issued to consumate the acquisitions, net of
debt not assumed or replaced.
f = Adjustment to eliminate income taxes provided on the separate
companies' results. No taxes are provided on the consolidated
proforma results due to valuation allowances on NOL
carryforwards.
g = The weighted average shares outstanding used to calculate pro
forma income per share is based on the historical average number
of common shares outstanding during the period adjusted for
the acquisitions as if they had occurred on January 1, 1997.
Common stock equivalents have been excluded because they are
anti dilutive.
11
<PAGE> 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
The Eaglebrook Companies:
We have audited the accompanying consolidated balance sheets of THE EAGLEBROOK
COMPANIES as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' 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 The Eaglebrook Companies as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 9, 1999
12
<PAGE> 13
THE EAGLEBROOK COMPANIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 705,536 $ 187,094
Accounts receivable, less allowance of $189,531 and $64,531 in 1998
and 1997, respectively 1,680,827 2,133,728
Other receivables 212,107 87,327
Inventory 970,881 1,181,948
Prepaid expenses 180,521 71,076
Other - 92,778
----------- -----------
Total current assets 3,749,872 3,753,951
----------- -----------
EQUIPMENT AND IMPROVEMENTS:
Machinery and equipment 8,191,684 7,556,682
Office equipment 431,311 402,028
Furniture and fixtures 62,922 57,045
Leasehold improvements 780,114 738,057
Construction in progress 354,792 99,051
----------- -----------
9,820,823 8,852,863
Less- Accumulated depreciation 5,002,648 3,905,124
----------- -----------
4,818,175 4,947,739
----------- -----------
Total assets $ 8,568,047 $ 8,701,690
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 752,520 $ 648,716
Revolving line of credit 1,600,000 1,813,000
Accounts payable 1,403,888 1,235,566
Accrued liabilities 1,027,616 762,522
----------- -----------
Total current liabilities 4,784,024 4,459,804
----------- -----------
LONG-TERM DEBT 1,517,357 2,012,289
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 1,000 shares authorized, issued and
outstanding 10 10
Additional paid-in capital 875,857 722,386
Retained earnings 1,390,799 1,507,201
----------- -----------
Total stockholders' equity 2,266,666 2,229,597
----------- -----------
Total liabilities and stockholders' equity $ 8,568,047 $ 8,701,690
=========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
13
<PAGE> 14
THE EAGLEBROOK COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $20,439,262 $20,222,795
COST OF SALES 13,857,991 15,099,767
----------- -----------
Gross profit 6,581,271 5,123,028
OPERATING EXPENSES 5,559,474 5,062,782
----------- -----------
Income from operations 1,021,797 60,246
----------- -----------
OTHER INCOME (EXPENSE):
State grant income 25,000 262,500
Interest income 4,227 1,412
Interest expense (333,286) (348,797)
Other, net 91,432 26,496
----------- -----------
(212,627) (58,389)
----------- -----------
NET INCOME $ 809,170 $ 1,857
=========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
14
<PAGE> 15
THE EAGLEBROOK COMPANIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- ----------
<S> <C> <C> <C>
BALANCE, December 31, 1996 $10 $722,386 $1,560,121
Net income -- -- 1,857
Dividends -- -- (54,777)
---- -------- ----------
BALANCE, December 31, 1997 10 722,386 1,507,201
Net income -- -- 809,170
Dividends -- -- (925,572)
Contributed capital -- 153,471 --
---- -------- ----------
BALANCE, December 31, 1998 $10 $875,857 $1,390,799
==== ======== ==========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
15
<PAGE> 16
THE EAGLEBROOK COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 809,170 $ 1,857
Depreciation and amortization 1,097,524 984,991
Changes in operating assets and liabilities-
Accounts receivable 452,901 18,041
Other receivables (124,780) (45,637)
Inventory 211,067 (276,533)
Prepaid expenses (109,445) 24,360
Other assets 92,778 (89,387)
Accounts payable 168,322 (284,169)
Accrued liabilities 265,092 157,541
----------- -----------
Net cash provided by operating activities 2,862,629 491,064
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES--purchases of fixed assets, net (1,167,960) (1,118,709)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net activity on revolving line of credit (213,000) 338,000
Principal payments on notes payable and long-term debt (191,126) 431,903
Additional paid-in capital 153,471 -
Dividends paid (925,572) (54,777)
----------- -----------
Net cash used in financing activities (1,176,227) 715,126
----------- -----------
NET INCREASE IN CASH 518,442 87,481
CASH, beginning of year 187,094 99,613
----------- -----------
CASH, end of year $ 705,536 $ 187,094
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--interest expense $ 333,286 $ 348,797
=========== ===========
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
16
<PAGE> 17
THE EAGLEBROOK COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. NATURE OF BUSINESS
Eaglebrook Plastics, Inc. ("Plastics"), located in Chicago, Illinois, is
principally engaged in the processing and brokering of recycled plastic
materials throughout the United States.
Eaglebrook Products, Inc. ("Products"), located in Chicago, Illinois, is
primarily engaged in the production of recycled plastic industrial
profiles and dimensional lumber, which it sells to the industrial,
equipment and decking contractor markets throughout the United States.
The company also utilizes the dimensional lumber in the production and
marketing of site amenities. In addition, the company provides lumber to
fabricators of lawn, garden and casual furnishing products and assists in
the marketing and distribution of such products.
Plastics and Products are under common ownership and are collectively
referred to as the "Company" or "The Eaglebrook Companies."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Plastics and Products. All
significant intercompany items are eliminated in consolidation.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are carried at cost, which approximates market. The
Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
17
<PAGE> 18
INVENTORIES
Inventories are stated at the lower of first-in, first-out ("FIFO") cost
or market. Inventory costs include material, labor and factory overhead.
Total inventories in 1998 and 1997 included the following
classifications:
1998 1997
-------- ----------
Raw materials $443,189 $ 432,030
Finished goods 527,692 749,918
-------- ----------
$970,881 $1,181,948
======== ==========
EQUIPMENT AND IMPROVEMENTS
Depreciation is provided over the following useful lives:
ASSET DESCRIPTION LIFE
----------------------- -------------
Machinery and equipment 3-8 years
Office equipment 5-7 years
Furniture and fixtures 5-7 years
Leasehold improvements Life of lease
=============
Depreciation on equipment and improvements is provided on the
straight-line method over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to expense when
incurred. Expenditures for renewals and betterments are capitalized and
depreciated over the estimated remaining useful lives of the assets.
The original cost and related accumulated depreciation of assets sold or
retired are removed from the applicable accounts, with any gain or loss
resulting from the transaction included in income.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument held by the Company:
CURRENT ASSETS AND CURRENT LIABILITIES--The carrying value
approximates fair value due to the short maturity of these items.
LONG-TERM DEBT--The fair value of the Company's long-term debt is
based on secondary market indicators. Because the Company's debt is
not quoted, estimates are based on each obligation's
characteristics, including maturities, interest rate, credit
rating, collateral, amortization schedule and liquidity. The
carrying amount approximates fair value.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time the product is
shipped from the Company's plant.
Approximately $1,006,000 and $950,000 of net sales for the years ended
December 31, 1998 and 1997, respectively, relate to tolling services
provided to customers. Tolling services involve removing impurities from
plastic material owned by customers. Revenue is recognized when the
tolling service has been performed and the material shipped back to the
customer.
18
<PAGE> 19
ACCOUNTS RECEIVABLE
Credit evaluations of customers are ongoing, and collateral or other
security is generally not required on trade accounts receivable. An
allowance for doubtful accounts is maintained at a level management
believes is sufficient to cover potential losses.
LONG-LIVED ASSETS
The Company continually evaluates whether circumstances have occurred
that indicate the remaining estimated useful life of its long-lived
assets may warrant revision or that the remaining balance of such assets
may not be recoverable. When factors indicate that such assets should be
evaluated for possible impairment, the Company uses an estimate of the
undiscounted cash flows over the remaining life of the asset in measuring
whether the asset is recoverable.
STATE GRANT INCOME
The Company has received state grants to acquire, install and operate
machinery and equipment in the Company's facility in Chicago, Illinois.
The Company recognizes income when the required Company costs have been
incurred and the other material terms of the grant are fulfilled and it
is probable that the grant will be nonrefundable. The Company recognized
$25,000 and $262,500 of state grant income for the years ended December
31, 1998 and 1997, respectively, in the accompanying consolidated
statements of income.
INCOME TAXES
The Company is not liable for federal income taxes pursuant to its
election of S Corporation status under the Internal Revenue Code whereby
income of the Company is allocated to and included in the individual
returns of the shareholders. Accordingly, no provision for federal income
taxes is reflected in the financial statements. However, the Company is
subject to the Illinois Replacement Tax, which is based on Illinois
taxable income.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," which requires
companies to report all changes in equity during a period, except those
resulting in investment by owners and distributions to owners, in a
financial statement for the period in which they are recognized. The
Company has not had any transactions that would cause any difference in
the amount reported as net income and comprehensive income.
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for
the way public enterprises report information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers.
SFAS No. 131 defines operating segments as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
19
<PAGE> 20
3. DEBT
PLASTICS
Under a revolving line of credit with a bank, Plastics' borrowings are
limited to 80% of eligible accounts receivable (as defined) and 50% of
inventories, limited to $300,000, to a maximum borrowing availability of
$1,500,000. Advances made under this arrangement are due on demand and
bear interest at 0.5% per annum above the bank's prime rate (8.25% at
December 31, 1998).
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Bank loans-
Installment loan due in monthly installments of $12,375, plus
interest at prime plus .75%, to February, 2002 $ 482,600 $ 618,725
Installment loan with monthly payments of $8,065, plus interest at
prime plus .75%, to August, 2000 169,378 258,093
Multilayer note 202,000 --
Term loans-
Equipment loan, 10.84%, with monthly payments of $758, including
interest, to October, 2001 22,118 24,878
Office equipment loan, 9.74%, with monthly payments of $3,133,
including interest, to November, 2001 95,124 122,157
Office equipment loan, 11.14%, with monthly payments of $3,209,
including interest, to June, 2001 83,623 112,943
Capital leases 27,108 76,892
----------- -----------
1,081,951 1,213,688
Less- Current portion (330,480) (307,957)
----------- -----------
$ 751,471 $ 905,731
=========== ===========
</TABLE>
The bank loans and revolving line-of-credit agreement are secured by
substantially all of Plastics' assets. In addition, the revolving
line-of-credit agreement contains covenants related to specified
financial requirements and certain corporate actions.
The above term loans are collateralized by the related equipment with a
carrying value of $259,679 and $308,963 at December 31, 1998 and 1997,
respectively.
PRODUCTS
Under a revolving line of credit with a bank, Products' borrowings are
limited to 80% of eligible accounts receivable (as defined) and 50% of
inventories to a maximum borrowing availability of $1,500,000. Advances
made under this arrangement are due on demand and bear interest at 0.5%
per annum above the bank's prime rate (8.25% at December 31, 1998). The
line of credit is secured by substantially all of Products' assets. In
addition, the revolving line-of-credit agreement contains covenants
related to specified financial requirements and certain corporate action.
20
<PAGE> 21
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Bank loans-
Equipment loan due in monthly installments of $2,518, plus interest
at prime plus .75%, to December, 1999 $ 32,731 $ 60,429
Equipment loan due in monthly installments of $3,549, plus interest
at prime plus .75%, to May, 2000 60,332 99,371
Equipment loan with interest payments at prime plus .75% to
December, 1997, monthly installments of $6,317, plus interest,
January, 1998, to May, 2001 189,518 265,325
Term loans-
Equipment loan, 9.75%, with monthly payments of $11,320, including
interest, to July, 2001 309,097 409,410
Equipment loan, 10.84%, with monthly payments of $325, including
interest, to October, 2001 9,479 14,212
Equipment loan, 9.75%, with monthly payments of $2,723, including
interest, to January, 2002 83,876 105,588
Equipment loan, 9.50%, with monthly payments of $4,963, including
interest, to May, 2002 169,587 189,394
Equipment loan, 9.69%, with monthly payments of $3,455, including
interest, to September, 2000 63,572 97,087
Capital leases 269,734 206,501
---------- ----------
1,187,926 1,447,317
Less- Current portion (422,040) (340,759)
---------- ----------
$ 765,886 $1,106,558
========== ==========
</TABLE>
The equipment loans are collateralized by the related equipment with a
carrying value of $1,384,002 and $1,338,376 at December 31, 1998 and
1997, respectively.
The outstanding balances of Plastics and Products' long-term debt were
repaid subsequent to year-end in connection with the merger (see Note 11
for subsequent event).
4. RELATED-PARTY TRANSACTIONS
The Company conducted certain activities with Eaglebrook Consultants,
Inc. ("Consultants"), which is owned by two of the shareholders of the
Company. For the years ended December 31, 1998 and 1997, services
provided by Consultants amounted to $227,701 and $343,000, respectively.
The Company also charged Consultants $191,256 and $284,000 in 1998 and
1997, respectively, for administrative and operating services performed
by the Company for Consultants.
Management believes that the charges for these services were calculated
based on arms-length costs for such services.
The Company also had net outstanding balances due from Consultants of
$60,046 and $63,740 at December 31, 1998 and 1997, respectively.
21
<PAGE> 22
5. LEASES
At December 31, 1998 and 1997, the Company has recorded machinery and
equipment of $211,563 and accumulated amortization of $115,762 and
$85,539, respectively, related to capital leases. These leases require
monthly lease payments and are collateralized by the related machinery
and equipment.
The Company leases its office and warehouse facilities from a
partnership, the partners of which are also shareholders of the Company.
Under the terms of these agreements, which management believes represent
market terms, the rent expense totaled approximately $444,373 and
$416,320 for the years ended December 31, 1998 and 1997, respectively.
The lease terms are renewed annually. The Company also leases machinery
and equipment under noncancelable operating lease agreements, which
expire at various dates through 2002. Rent expense under these leases was
approximately $241,249 and $220,820 in 1998 and 1997, respectively.
Future minimum payments for operating leases at December 31, 1998, are as
follows:
1999 $558,593
2000 554,377
2001 540,153
2002 530,468
2003 529,183
========
6. LITIGATION
The Company is currently in litigation with a customer related to
previously sold products that the customer claims were defective. The
Company has determined that the products were defective due to a
defective color concentrate supplied by one of its vendors. The Company
has filed a claim against the vendor to recover its losses. The Company
has not paid the vendor for the defective materials, and the vendor has
filed a claim against the Company to recover the costs. It is not yet
possible to predict the most likely outcome of the litigation. The
ultimate impact of this litigation could be material to the Company's
financial position or results of operations in future periods.
The Company is also involved in various pending legal proceedings and
claims arising in the normal course of its business. Although the outcome
of such proceedings and claims cannot be determined with certainty, the
Company believes, after consultation with counsel, that such proceedings
and claims, individually and in the aggregate, are not material to its
financial condition or results of operations.
7. 401(k) RETIREMENT PLAN
The Company has a 401(k) profit-sharing plan which covers all employees
who meet prescribed service requirements. The plan provides for deferred
salary contributions by the plan participants with discretionary matching
Company contributions up to a maximum of 2.5% of participant's
compensation. At the election of the Board of Directors, the Company may
make an additional discretionary contribution to the plan. Total Company
contributions were $52,942 and $50,984 for 1998 and 1997, respectively.
22
<PAGE> 23
8. BUSINESS SEGMENT INFORMATION
The Company operates in two business segments: Plastics and Products. The
segments are managed as strategic business units due to their distinct
manufacturing processes and potential end-user application. Both segments
have facilities in Chicago, Illinois.
Products purchases resin from Plastics at market price.
<TABLE>
<CAPTION>
PLASTICS PRODUCTS ELIMINATIONS TOTAL
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1998-
Net sales $13,366,115 $8,779,124 $(1,706,977) $20,439,262
Income from operations 610,454 430,377 (19,034) 1,021,797
Depreciation and amortization 512,942 584,582 -- 1,097,524
Capital expenditures, net 537,796 630,164 -- 1,167,960
Segment assets 4,620,747 4,207,068 (259,768) 8,568,047
=========== ========== =========== ===========
1997-
Net sales $15,211,198 $6,895,693 $(1,884,096) $20,222,795
Income from operations 133,292 (52,404) (20,642) 60,246
Depreciation and amortization 489,566 495,425 -- 984,991
Capital expenditures, net 477,399 641,310 -- 1,118,709
Segment assets 4,799,329 4,261,440 (359,079) 8,701,690
=========== ========== =========== ===========
</TABLE>
Approximately 50% and 34% of Plastics' sales were made to three customers
in 1998 and 1997, respectively. These customers represented 25% and 28%
of Plastics' trade accounts receivable at December 31, 1998 and 1997,
respectively. Approximately 54% and 39% of Products' sales were made to
two customers in 1998 and 1997, respectively. These customers represented
41% and 47% of Products' trade accounts receivable at December 31, 1998
and 1997, respectively.
The Company had four customers with sales in excess of 10% of
consolidated net sales in 1998. These four customers represented
approximately 48% and 29% of consolidated net sales in 1998 and 1997,
respectively. No individual customer had sales in excess of 10% of
consolidated net sales in 1997.
Plastics net sales include the sale of plastic resins that are shipped
from a vendor to a customer with no processing by the Company. Such sales
represented $1,884,237 and $2,377,035 of net sales for the years ended
December 31, 1998 and 1997, respectively. The Company does not buy and
hold inventory for speculative trading.
9. LICENSE AGREEMENT
In 1996, the Company entered into an agreement for a nonexclusive license
for 15 years to produce and sell products utilizing composite material as
claimed in a U.S. patent application. Due to technical issues, the
Company ceased payment of the royalty in October, 1997. The agreement was
amended in March, 1998, and all commitments previously agreed upon were
removed. The amended agreement, effective July, 1998, requires the
payment of royalties based upon the amount of composite material produced
and the Company received a credit of $180,000 for a refund of prior
year's higher royalty amounts. Royalty expense under the supplemental
royalty agreement was $13,648 and $92,336 for the years ended December
31, 1998 and 1997, respectively.
23
<PAGE> 24
10. SEASONALITY AND EFFECT OF RESIN PRICES
The Company's business does exhibit seasonality with higher sales during
the summer months.
The cost of recycled plastics has been subject to cyclical market
fluctuations over the past several years based on supply and demand.
Therefore, no assurances can be given that raw materials will always be
available at commercially reasonable prices.
11. SUBSEQUENT EVENT
On January 28, 1999, U.S. Plastic Lumber Corporation acquired 100% of the
stock of the Company.
24
