SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 11, 1998
Commission File No. 0-22533
MERCURY WASTE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
0-22533 41-1827776
(Commission File No.) (I.R.S. Employer
Identification No.)
302 North Riverfront Drive, Suite 100A, Mankato, MN 56001
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code: (507) 345-0522
N/A
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to an Asset Purchase Agreement dated March 11, 1998 ("Purchase
Agreement"), by and among MWS New York, Inc., a wholly-owned subsidiary of
Mercury Waste Solutions, Inc. (collectively, the "Company") and Mercury Refining
Company, Inc., 26 Railroad Ave., Inc. and their shareholders (collectively,
"MERECO"), on May 11,1998, the Company completed the purchase of certain assets
relating to the mercury remediation, recycling and refining business of MERECO.
The acquired assets include an 888 drum permitted storage facility, certain
aqueous waste processing technology and equipment, mercury refining capability
and MERECO's existing customer list. The Company did not acquire and will not
operate MERECO's mercury processing facility. Any processing equipment acquired
from MERECO will be utilized at the Company's Union Grove Retorting Facility
located in Union Grove, Wisconsin. The Company will operate the permitted 888
drum storage facility under a lease, with an initial term of three years, with
MERECO.
The purchase price for the acquisition was approximately $1,250,000, exclusive
of the annual rent commitment under the storage facility lease of $75,000 and
acquisition costs. In addition, pursuant to a seven year non compete agreement
with a shareholder of MERECO, the Company will pay $65,000, in total, and grant
a warrant for the purchase of 20,000 shares of common stock at $0.001. The
purchase price was based on the estimated fair market value of the assets and
operations acquired.
The Company financed the purchase price with a loan with Bankers American
Capital Corporation, a corporation wholly owned by Brad J. Buscher, the
Company's Chairman and CEO. The loan consists of a $1,200,000 term loan used to
fund the MERECO acquisition and an $800,000 revolving credit loan to be used for
working capital purposes. The term loan has a two year term requiring quarterly
payments of $60,000 plus interest and the revolving credit loan has a one year
term. Borrowings under the loans bear interest at 6% over the prime rate and are
secured by all of the Company's assets. In addition, BACC was granted a ten year
warrant to purchase 100,000 shares of common stock at $3.75, the market price of
the stock on the date of closing.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a) Index to Financial Statements of Mercury Refining Company, Inc. -- Acquired Division
Report of Independent Public Accountants......................................................... 4
Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited)........................... 5
Statements of Revenue and Direct Expenses for the year ended December 31, 1997 and the three
month periods ended March 31, 1997 and 1998 (unaudited)........................................ 6
Statements of Cash Flows for the year ended December 31, 1997 and the three month periods
ended March 31, 1997 and 1998 (unaudited)...................................................... 7
Notes to Financial Statements.................................................................... 8
(b) Index to Pro Forma Unaudited Financial Statements
Pro Forma Financial Information -- General....................................................... 10
Pro Forma Unaudited Consolidated Balance Sheet as of March 31, 1998.............................. 11
Pro Forma Unaudited Consolidated Statements of Operations for the three months ended March
31, 1998 and the year ended December 31, 1997.................................................. 12
Notes to Pro Forma Unaudited Consolidated Financial Statements................................... 13
(c) Exhibits
</TABLE>
The following exhibits are filed herewith
Exhibit No. Description
- ----------- -----------
23 Consent of Independent Public Accountants
3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To Mercury Refining Company, Inc.--Acquired Division
Albany, New York
We have audited the accompanying balance sheet of Mercury Refining Company,
Inc.--Acquired Division (as defined in Note 1) as of December 31, 1997, and the
related statements of revenue and direct expenses, division equity, and cash
flows for the year ended December 31, 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As described in Note 1, the accompanying financial statements were prepared for
the purpose of complying with Rule 3-10 of Regulation S-B of the Securities and
Exchange Commission and are not intended to be a complete presentation of assets
and liabilities and results of operations on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercury Refining Company,
Inc.--Acquired Division as of December 31, 1997, and the results of its
operations and cash flows for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
Minneapolis, Minnesota
June 12, 1998
4
<PAGE>
MERCURY REFINING COMPANY, INC.--ACQUIRED DIVISION
BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1998
<TABLE>
<CAPTION>
March 31,
December 31, 1998
ASSETS 1997 (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Accounts receivable, less allowance for doubtful accounts of $20,000 $ 327,399 $ 215,526
Inventory 39,152 37,945
Prepaid expenses 37,149 29,746
----------------------------
TOTAL CURRENT ASSETS 403,700 283,217
----------------------------
Property and Equipment, at cost (Notes 2 and 3)
Buildings and improvements 1,493,030 1,493,030
Plant equipment 1,163,158 1,163,158
Office equipment 64,029 64,029
----------------------------
2,720,217 2,720,217
Less accumulated depreciation 933,637 973,150
----------------------------
1,786,580 1,747,067
----------------------------
$ 2,190,280 $ 2,030,284
============================
LIABILITIES AND DIVISION EQUITY
Current Liabilities
Accounts payable $ 271,458 $ 193,492
Accrued expenses 59,296 38,627
Deferred revenue 176,781 176,706
----------------------------
TOTAL CURRENT LIABILITIES 507,535 408,825
Division Equity 1,682,745 1,621,459
----------------------------
$ 2,190,280 $ 2,030,284
============================
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
MERCURY REFINING COMPANY, INC.--ACQUIRED DIVISION
STATEMENTS OF REVENUE AND DIRECT EXPENSES
YEAR ENDED DECEMBER 31, 1997 AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
Three Months Ended March 31
Year Ended -------------------------------
December 31, 1997 1998
1997 (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 1,946,188 $ 455,280 $ 487,123
Cost of revenues 1,314,008 332,243 328,102
-------------------------------------------------
GROSS PROFIT 632,180 123,037 159,021
Operating expenses 685,973 185,408 138,759
-------------------------------------------------
OPERATING LOSS (53,793) (62,371) 20,262
Other income (expense), net (20,733) 1,154 5,728
-------------------------------------------------
REVENUE IN EXCESS OF DIRECT
EXPENSES (DIRECT EXPENSES
IN EXCESS OF REVENUE) $ (74,526) $ (61,217) $ 25,990
=================================================
</TABLE>
STATEMENTS OF DIVISION EQUITY
YEAR ENDED DECEMBER 31, 1997 AND THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Division
Equity
- -----------------------------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1996 $ 1,860,504
Payments to corporate (103,233)
Direct expenses in excess of revenue (74,526)
-------------
Balance, December 31, 1997 1,682,745
Payments to corporate (unaudited) (87,276)
Revenue in excess of direct expenses (unaudited) 25,990
-------------
Balance, March 31, 1998 (unaudited) $ 1,621,459
=============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
MERCURY REFINING COMPANY, INC.--ACQUIRED DIVISION
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
Three Months Ended March 31
Year Ended -----------------------------
December 31, 1997 1998
1997 (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Revenue in excess of direct expenses (direct expenses in excess
of revenue) $ (74,526) $ (61,217) $ 25,990
Adjustments to reconcile revenue in excess of direct expenses
(direct expenses in excess of revenue) to net cash provided by
operating activities:
Depreciation 148,386 23,196 39,513
Loss on disposal of property and equipment 7,614 7,614 --
Changes in assets and liabilities:
Accounts receivable 35,511 43,793 111,873
Other current assets 25,106 (82,216) 8,610
Accounts payable (22,657) 120,125 (77,966)
Other current liabilities (973) 21,175 (20,744)
----------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 118,461 72,470 87,276
Cash Flows From Investing Activities
Purchase of equipment (15,228) -- --
Cash Flows From Financing Activities
Working capital repayments to corporate (103,233) (72,470) (87,276)
----------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- -- --
Cash and Cash Equivalents
Beginning -- -- --
----------------------------------------------
Ending $ -- $ -- $ --
==============================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
MERCURY REFINING COMPANY, INC.--ACQUIRED DIVISION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: On May 11, 1998, Mercury Waste Solutions, Inc. (MWS)
completed the purchase of certain assets relating to the mercury remediation,
recycling, and refining business (the Business) of Mercury Refining Company,
Inc. (MERECO).
The accompanying balance sheets, statements of revenues and direct expenses, and
cash flows represent those assets, liabilities, revenues, and expenses
specifically identifiable to the Business as described in Note 2. As a result,
the accompanying financial statements are not intended to be a complete
presentation of the Business's assets and liabilities and results of operations
as if it had been operated as a stand-alone entity.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
REVENUE RECOGNITION: The Business recognizes revenue upon receipt and processing
of the waste materials at its facilities. Cash receipts from customers received
prior to services being performed are recorded as deferred revenue. For all
periods presented, deferred revenue consists primarily of cash received on one
project for which the related processing had not yet been performed.
DEPRECIATION: Depreciation is provided using the accelerated methods based on
the estimated useful lives of individual assets over the following periods:
Years
- --------------------------------------------------------------------------------
Buildings and improvements 7-40
Plant equipment 5-7
Office equipment 5-7
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, management reviews its long-lived assets periodically to
determine potential impairment by comparing the carrying value of the long-lived
assets with the estimated future net undiscounted cash flows expected to result
from the use of the assets, including cash flows from disposition. Should the
sum of the expected future net cash flows be less than the carrying value, the
Business would recognize an impairment loss at the date. An impairment loss
would be measured by comparing the amount by which the carrying value exceeds
the fair value (estimated discounted future cash flows) of the long-lived
assets.
UNAUDITED INTERIM FINANCIAL INFORMATION: The accompanying financial statements
as of March 31, 1998, and for the three-month periods ended March 31, 1997 and
1998, are unaudited. In the opinion of management, these financial statements
reflect all adjustments, consisting of only of normal recurring adjustments,
necessary for a fair presentation of financial position and results of
operations. The operating results for the interim periods are not necessarily
indicative of the operating results to be expected for the full year.
8
<PAGE>
MERCURY REFINING COMPANY, INC.--ACQUIRED DIVISION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. EXPENSES
Expenses of the Business include costs of revenues, selling, general, and
administrative expenses directly related to the operations of the division.
However, they are not necessarily indicative of the level of expenses which may
have been experienced on a stand-alone basis. The amounts that would have been
incurred on a stand-alone basis could differ significantly from the allocated
amounts due to economies of scale, differences in management and operational
practices, or other factors. Certain other expenses, such as a provision for
income taxes, have not been included in these financial statements since these
costs have historically been included in the statements of operations of Mercury
Refining Company and have not been allocated to the division. Accordingly, as
also indicated in Note 1, the accompanying financial statements are not intended
to be a complete presentation of the Business's assets and liabilities and
results of operations as if it had been operated as a stand-alone entity.
NOTE 3. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: MERECO leases its office space under a noncancelable operating
lease expiring in June 2001 and requiring monthly rent of $1,504. Rent expense
for the year ended December 31, 1997, was $18,048, and $4,512 for each of the
three months ended March 31, 1997 and 1998.
9
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the "Pro
Forma Financial Statements") are based on the financial statements of Mercury
Waste Solutions, Inc. (the "Company") and the mercury recycling division of
Mercury Refining Company, Inc. ("MERECO"), adjusted to give the pro forma effect
of the acquisition of certain assets and operations of MERECO by the Company.
The unaudited Pro Forma Consolidated Statements of Operations for the year ended
December 31, 1997 are derived from the audited financial statements of the
Company and MERECO for the year ended December 31, 1997, and assume the
acquisition was consummated on January 1, 1997. The Unaudited Pro Forma
Statements of Operations for the three months ended March 31, 1998 are derived
from the unaudited financial statements of the Company and MERECO for the three
months ended March 31, 1998, and assume the acquisition was consummated on
January 1, 1997. The Unaudited Pro Forma Consolidated Balance Sheets as of March
31, 1998 are derived from the unaudited balance sheets of the Company and MERECO
as of March 31, 1998, and assume the acquisition was consummated on that date.
The unaudited Pro Forma Financial Statements should be read in conjunction with
the historical financial statements of the Company and MERECO and the notes
thereto.
The unaudited Pro Forma Financial Statements do not purport to represent what
the Company's results of operations or financial condition would actually have
been if the acquisition had occurred on the dates indicated or to project the
Company's results or financial condition for or at any future period or date.
The unaudited Pro Forma Financial Statements are presented for comparative
purposes only. The pro forma adjustments, as described in the accompanying data,
are based on available information and certain assumptions that management
believes are reasonable.
10
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
ASSETS
MERCURY WASTE MERECO PRO FORMA PRO FORMA
SOLUTIONS, INC. ACQUIRED DIVISION ADJUSTMENTS CONSOLIDATED
--------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Current Assets (A)
Cash and cash equivalents $ 269,594 $ 0 $ (50,000) $ 182,471
(37,123)(B)
Accounts receivable, net 1,189,823 215,526 0 1,405,349
Other current assets 277,071 67,691 (109,365)(C) 235,397
------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 1,736,488 283,217 (196,488) 1,823,217
------------ ------------ ------------ ------------
Property and Equipment, at cost
Buildings and improvements 271,528 1,493,030 (1,493,030) 271,528
Furniture, fixtures, and equipment 304,546 64,029 (54,029) 314,546
Plant equipment 1,405,653 1,163,158 (973,158) 1,595,653
------------ ------------ ------------ ------------
TOTAL PROPERTY AND EQUIPMENT 1,981,727 2,720,217 (2,520,217) 2,181,727
Less accumulated depreciation 367,566 973,150 (973,150) 367,566
------------ ------------ ------------ ------------
NET PROPERTY AND EQUIPMENT 1,614,161 1,747,067 (1,547,067) 1,814,161
------------ ------------ ------------ ------------
Other Assets
Cash restricted for closure 159,608 0 0 159,608
Intangible assets, net 1,487,682 0 1,468,250 2,955,932
------------ ------------ ------------ ------------
TOTAL OTHER ASSETS 1,647,290 0 1,468,250 3,115,540
------------ ------------ ------------ ------------
TOTAL ASSETS $ 4,997,939 $ 2,030,284 ($ 275,305) $ 6,752,918
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS'/DIVISIONAL EQUITY
Current Liabilities
Current portion of long-term debt $ 110,365 $ 0 $ 349,000 459,365
Accounts payable 518,030 193,492 40,635 (C) 752,157
Accrued expenses 187,615 38,627 0 226,242
Deferred revenue 92,186 176,706 (162,731)(B) 106,161
------------ ------------ ------------ ------------
TOTAL CURRENT LIABILITIES 908,196 408,825 226,904 1,543,925
------------ ------------ ------------ ------------
Long-Term Liabilities
Long-term debt, net of current portion 221,655 0 1,064,000 1,285,655
Closure fund 10,300 0 0 10,300
------------ ------------ ------------ ------------
TOTAL LONG-TERM LIABILITIES 231,955 0 1,064,000 1,295,955
------------ ------------ ------------ ------------
Shareholders'/Divisional Equity
Common stock 34,801 0 0 34,801
Additional paid-in capital 4,731,894 0 55,250 4,787,144
Accumulated deficit (908,907) 0 0 (908,907)
Divisional equity 0 1,621,459 (1,621,459) 0
------------ ------------ ------------ ------------
3,857,788 1,621,459 (1,566,209) 3,913,038
------------ ------------ ------------ ------------
TOTAL LIAB. & SHAREHOLDER'S/DIVISIONAL EQUITY $ 4,997,939 $ 2,030,284 $ (275,305) $ 6,752,918
============ ============ ============ ============
</TABLE>
See Notes to Pro Forma Unaudited Consolidated Financial Statements
11
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
MERCURY WASTE MERECO PRO FORMA PRO FORMA
SOLUTIONS, INC. ACQUIRED DIVISION ADJUSTMENTS CONSOLIDATED
--------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 1,345,658 $ 487,123 $ 1,832,781
Cost of Revenues 669,895 328,102 $ (49,106)(D) 927,056
(21,835)(E)
------------- ------------- ------------- -------------
Gross Profit 675,763 159,021 70,941 905,725
Operating Expenses 609,272 138,759 (67,236)(D) 743,535
62,740 (E)
------------- ------------- ------------- -------------
Operating Income (Loss) 66,491 20,262 75,437 162,190
Other income (expense), net 120,171 5,728 (37,100)(F) 88,799
------------- ------------- ------------- -------------
Net Income (Loss) before Income Taxes 186,662 25,990 38,337 250,989
Income tax expense (benefit) 0 0 0 (G) $ 0
------------- ------------- ------------- -------------
Net Income (Loss) $ 186,662 $ 25,990 $ 38,337 $ 250,989
============= ============= ============= =============
Basic and diluted income (loss) per share $ 0.05 $ 0.07
Weighted average number of common and
common equivalent shares outstanding 3,627,028 3,647,028
</TABLE>
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MERCURY WASTE MERECO PRO FORMA PRO FORMA
SOLUTIONS, INC. ACQUIRED DIVISION ADJUSTMENTS CONSOLIDATED
--------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 2,862,208 $ 1,946,188 $ 4,808,396
Cost of Revenues 1,582,160 1,314,008 $ (310,748)(D) 2,465,612
(119,808)(E)
------------- ------------- ------------- -------------
Gross Profit 1,280,048 632,180 430,556 2,342,784
Operating Expenses 2,451,035 685,973 (323,345)(D) 3,075,787
262,124 (E)
------------- ------------- ------------- -------------
Operating Income (Loss) (1,170,987) (53,793) 491,777 (733,003)
Other income (expense), net (2,102) (20,733) (166,000)(F) (188,835)
------------- ------------- ------------- -------------
Net Income (Loss) before Income Taxes (1,173,089) (74,526) 325,777 (921,838)
Income tax expense (benefit) 0 0 0 (G) 0
------------- ------------- ------------- -------------
Net Income (Loss) $ (1,173,089) $ (74,526) $ 325,777 $ (921,838)
============= ============= ============= =============
Basic and diluted income (loss) per share $ (0.34) $ (0.26)
Weighted average number of common and
common equivalent shares outstanding 3,498,512 3,498,512
</TABLE>
See Notes to Pro Forma Unaudited Consolidated Financial Statements
12
<PAGE>
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A) The adjustment reflects the acquisition of certain assets and
operations of the mercury recycling division of Mercury Refining
Company, Inc., including the elimination of certain assets not
purchased, consisting primarily of real estate and plant equipment, and
liabilities not assumed. The acquisition will be accounted for as a
purchase. The purchase price and estimated allocation of such cost for
the acquisition is as follows, assuming the acquisition occurred on
March 31, 1998:
Purchase Price components:
Cash purchase price $ 1,250,000(i)
Non-compete payment 65,000(ii)
Warrant issuance 55,250(ii)
Excess rent applied to purchase price 148,000(iii)
Transaction costs 150,000
-----------
$ 1,668,250
===========
Allocated to:(iv)
Plant equipment $ 190,000
Furniture fixtures and equipment 10,000
Intangibles 1,468,250
-----------
$ 1,668,250
===========
(i) The cash purchase price was funded with $50,000 cash and a
$1,200,000 term loan with Bankers American Capital
Corporation, a corporation wholly owned by Brad J. Buscher,
the Company's Chairman and CEO. The term loan has a two year
term requiring quarterly payments of $60,000 plus interest,
bears interest at 6% over the prime rate and is secured by all
of the Company's assets. In addition, BACC was granted a ten
year warrant to purchase 100,000 shares of common stock at
$3.75, the market price of the stock on the date of closing.
(ii) Pursuant to a seven year non compete agreement with a
shareholder of MERECO, the Company will pay $65,000, in total
over one year, and grant a warrant for the purchase of 20,000
shares of common stock at $0.001. The warrant was valued using
the market value of the Company's common stock on the date of
closing discounted 25% for lack of marketability.
(iii) MERECO owned two separate buildings that represented its
processing plant and its permitted storage facility. The
Company did not purchase and will not rent or utilize the
processing plant. The Company also did not purchase the
storage facility. However, the permit to operate the storage
facility was transferred to the Company by the State of New
York. The Company will operate the permitted 888 drum storage
facility under a lease, with an initial term of three years,
requiring annual rent of $75,000. The transaction was
structured to include a part of the purchase price in the rent
payments. The Company has determined that the fair market rent
for this facility to be approximately $15,000 annually.
Accordingly, the excess rental payments for the initial term
of the lease have been capitalized as purchase price and
discounted at 14%, the Company's incremental borrowing rate.
(iv) The Company is in the process of allocating these approximate
amounts between equipment and identified and unidentified
intangible assets. The Company anticipates that the intangible
assets will consist primarily of customer lists, non-compete
agreements and permits. The Company anticipates the equipment
will have a life of seven years and the intangible assets will
have an average life of five years.
(B) In addition to the buildings and equipment not acquired as discussed in
note (A), the Company did not acquire any material current assets nor
assume any current liabilities. However, MERECO's current
13
<PAGE>
assets and liabilities have not been eliminated from the accompanying
pro forma balance sheet to more accurately reflect on an ongoing basis
the working capital requirements of the related acquired operations.
The net effect of leaving MERECO's current assets and liabilities in
the presentation is reflected as an adjustment to cash and cash
equivalents. An exception to this presentation is the elimination of
$162,731 of historical deferred revenue as it is not representative of
the ongoing acquired operations. The amount represents funds received
in a prior year on one project for which the related processing had not
yet been performed by MERECO as of March 31, 1998. The Company did not
assume this processing liability.
(C) To allocate the paid and unpaid transactions costs as of March 31,1998
totaling $150,000 to the assets acquired.
(D) The adjustment reflects the Company's anticipated costs savings
directly attributable to the acquisition consisting primarily of
salary, wage and fringe benefit savings from consolidating all
processing activity at the Company's facility and from elimination of
MERECO's corporate staff. These amounts are approximately $116,000 for
the three months ended March 31, 1998 and $634,000 for the year ended
December 31, 1997.
In addition to the cost savings described above, the Company estimates
it can eliminate approximately $300,000 of annual duplicate costs
through further operating expense reductions and anticipated processing
efficiencies. These additional cost savings are not reflected in the
Pro Forma Consolidated Statements of Operations.
(E) The adjustment reflects the elimination of historical depreciation and
rent expense and reflects the amortization and depreciation from the
allocation of the purchase price and rent expense from leases entered
into. The Company anticipates the equipment will have a life of seven
years and the intangible assets will have an average life of five
years.
(F) The adjustment reflects the interest expense from the BACC term loan
and imputed interest on the liability related to the capitalized excess
rents. The annual effect on income on the interest rate varying by 1/8%
from the amount used in this calculation would be approximately $2,000.
(G) Net income (loss) does not include a pro forma adjustment for income
taxes due to availability of net operating loss carryforwards and a
valuation allowance.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MERCURY WASTE SOLUTIONS, INC.
Dated: July 23, 1998 by: /s/ Brad J. Buscher
----------------------------------
Brad J. Buscher
Chairman of the Board of Directors
and Chief Executive Officer
15
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Commission file Nos. 333-27199 and 333-58847) of our
report dated June 12, 1998, with respect to the financial statements of Mercury
Refining Company, Inc., -- Acquired Division, appearing in this Form 8-K/A.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
July 23,1998
16
